-As filed with the Securities and Exchange Commission on April 12, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2018

OR

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

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-14728

LATAM Airlines Group S.A.

(Exact name of registrant as specified in its charter)

LATAM Airlines Group S.A.	Republic of Chile
(Translation of registrant’s name into English)	(Jurisdiction of incorporation or organization)

Presidente Riesco 5711, 20^th Floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

Andrés del Valle

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

Presidente Riesco 5711, 20^th Floor

Las Condes

Santiago, Chile

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

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

Title of each class:	Name of each exchange on which registered:
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one share of Common Stock, without par value	New York Stock Exchange

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

None

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

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 606,407,693.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer  x                Accelerated filer  ¨                Non-Accelerated filer  ¨

Emerging Growth Company  ¨

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.                        ¨

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board  x Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

TABLE OF CONTENTS

PRESENTATION OF INFORMATION		2
FORWARD-LOOKING STATEMENTS		3
GLOSSARY OF TERMS		3
PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	5
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	5
ITEM 3.	KEY INFORMATION	5
ITEM 4.	INFORMATION ON THE COMPANY	19
ITEM 4A	UNRESOLVED STAFF COMMENTS	49
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	49
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	69
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	76
ITEM 8.	FINANCIAL INFORMATION	82
ITEM 9.	THE OFFER AND LISTING	85
ITEM 10.	ADDITIONAL INFORMATION	86
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	115
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	119
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	120
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	120
ITEM 15.	CONTROLS AND PROCEDURES	120
ITEM 16.	RESERVED	121
ITEM 16 A	AUDIT COMMITTEE FINANCIAL EXPERT	121
ITEM 16 B	CODE OF ETHICS	121
ITEM 16 C	PRINCIPAL ACCOUNTANT FEES AND SERVICE	122
ITEM 16 D	EXEMPTIONS FROM LISTING STANDARD FOR AUDIT COMMITTEE	122
ITEM 16 E	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	122
ITEM 16 F	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	122
ITEM 16 G	CORPORATE GOVERNANCE	122
ITEM 16 H	MINE SAFETY DISCLOSURE	124
PART III
ITEM 17.	FINANCIAL STATEMENTS	124
ITEM 18.	FINANCIAL STATEMENTS	124
ITEM 19.	EXHIBITS	125
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS		F-1

1

PRESENTATION OF INFORMATION

Throughout this annual report on Form 20-F we make numerous references to “LATAM”. Unless the context otherwise requires, references to “LATAM Airlines Group” are to LATAM Airlines Group S.A., the unconsolidated operating entity, and references to “LATAM,” “we,” “us” or the “Company” are to LATAM Airlines Group S.A. and its consolidated affiliates: Transporte Aéreo S.A. (“LATAM Airlines Chile”), LATAM Airlines Peru S.A. (f/k/a LAN Peru S.A, “LATAM Airlines Peru”), Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. (“LATAM Airlines Ecuador”), LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), Aerovías de Integración Regional, Aires S.A. (“LATAM Airlines Colombia”), TAM S.A. (“TAM” or “LATAM Airlines Brazil”), LAN Cargo S.A. (“LATAM Cargo”) and its two regional affiliates: Linea Aerea Carguera de Colombia S.A. (“LANCO”) in Colombia and Aerolinhas Brasileiras S.A. (“ABSA”) in Brazil. On November 30, 2018 LATAM Airlines Group sold its participation in its Mexican affiliate Aero Transportes Mas de Carga S.A. de C.V. (“MasAir”). Other references to “LATAM”, as the context requires, are to the LATAM brand which was launched in 2016 and brings together, under one internationally recognized name, all of the affiliate brands such as LATAM Airlines Chile, LATAM Airlines Peru, LATAM Airlines Argentina, LATAM Airlines Colombia, LATAM Airlines Ecuador and LATAM Airlines Brazil.

References to “LAN” are to LAN Airlines S.A., currently known as LATAM Airlines Group S.A., and its consolidated affiliates, in connection with circumstances and facts occurring prior to the completion date of the combination between LAN Airlines S.A. and TAM S.A. See “Item 4. Information on the Company—A. History and Development of the Company.”

In this annual report on Form 20-F, unless the context otherwise requires, references to “TAM” are to TAM S.A., and its consolidated affiliates, including TAM Linhas Aereas S.A. (“TLA”), which does business under the name “LATAM Airlines Brazil”, Multiplus S.A. (“Multiplus”), Fidelidade Viagens e Turismo Limited (“TAM Viagens”) and Transportes Aéreos Del Mercosur S.A. (“TAM Mercosur”).

LATAM Airlines Group and the majority of our affiliates maintain accounting records and prepare financial statements in U.S. dollars. Some of our affiliates, however, maintain their accounting records and prepare their financial statements in Chilean pesos, Argentinean pesos, Colombian pesos or Brazilian real. In particular, TAM maintains its accounting records and prepares its financial statements in Brazilian real. Our audited consolidated financial statements include the results of these affiliates translated into U.S. dollars. International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), require assets and liabilities to be translated at period-end exchange rates, while revenue and expense accounts are translated at each transaction date, although a monthly rate may also be used if exchange rates do not vary widely.

In this annual report on Form 20-F, all references to “Chile” are references to the Republic of Chile. This annual report contains conversions of certain Chilean peso and Brazilian real amounts into U.S. dollars at specified rates solely for the convenience of the reader. These conversions should not be construed as representations that the Chilean peso and the Brazilian real amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we specify otherwise, all references to “$”, “US$”, “U.S. dollars” or “dollars” are to United States dollars, references to “pesos,” “Chilean pesos” or “Ch$” are to Chilean pesos. References to “real,” “Brazilian real” or “R$” are to Brazilian real, and references to “UF” are to Unidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate. Unless we indicate otherwise, the U.S. dollar equivalent for information in Chilean pesos used in this annual report and in our audited consolidated financial statements is based on the “dólar observado” or “observed” exchange rate published by Banco Central de Chile (which we refer to as the Central Bank of Chile) on December 31, 2018, which was Ch$694.77 = US$1.00. The observed exchange rate on, April 11, 2019, was Ch$662.92 = US$1.00. Unless we indicate otherwise, the U.S. dollar equivalent for information in Brazilian real used in this annual report and in our audited consolidated financial statements is based on the average “bid and offer rate” published by Banco Central do Brasil (which we refer to as the Central Bank of Brazil) on December 31, 2018, which was R$3.87 = US$1.00. The observed exchange rate on April 11, 2019, was R$3.82 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos or Brazilian real.

LATAM has a single series of shares of Common Stock, without par value, listed on Chilean Stock Exchange and American Depositary Shares (evidenced by American Depositary Receipts), each representing one share of Common Stock, that are listed on the New York Stock Exchange.

We have rounded percentages and certain U.S. dollar, Chilean peso and Brazilian real amounts contained in this annual report for ease of presentation. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

LATAM’s audited consolidated financial statements for the periods ended December 31, 2014, 2015, 2016, 2017 and 2018 were prepared in accordance with IFRS.

This annual report contains certain terms that may be unfamiliar to some readers. You can find a glossary of these terms on page 3 of this annual report.  

2

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other similar expressions. Forward-looking statements, including statements about our beliefs and expectations, are not statements of historical facts. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:

• the factors described in “Item 3. Key Information—Risk Factors”;

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

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

• the determination of relationships with customers;

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

• the effects of competition in the airline industry;

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

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

• natural disasters affecting travel behavior and/or exports;

• the relative value of the Chilean peso and other Latin American currencies compared to other world currencies;

• inflation;

• competitive pressures on pricing;

• our capital expenditure plans;

• changes in labor costs, maintenance costs and insurance premiums;

• fluctuation of crude oil prices and its effect on fuel costs;

• cyclical and seasonal fluctuations in our operating results;

• defects or mechanical problems with our aircraft;

• our ability to successfully implement our growth strategy;

• increases in interest rates; and

• changes in regulations, including regulations related to access to routes in which we operate and environmental regulations.  

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of them, whether in light of new information, future events or otherwise. You should also read carefully the risk factors described in “Item 3. Key Information—Risk Factors.”

GLOSSARY OF TERMS

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

Consolidated Affiliates of LATAM:
“ABSA”	Aerolinhas Brasileiras S.A., incorporated in Brazil.
“LANCO”	Línea Aérea Carguera de Colombia S.A., incorporated in Colombia.
“LATAM Airlines Argentina”	LAN Argentina S.A., incorporated in Argentina.
“LATAM Airlines Chile”	Transporte Aéreo S.A., incorporated in Chile.
“LATAM Airlines Colombia”	Aerovías de Integración Regional, Aires S.A., incorporated in Colombia.
“LATAM Airlines Ecuador”	Aerolane, Líneas Aéreas Nacionales del Ecuador S.A., incorporated in Ecuador.
“LATAM Airlines Peru”	LATAM Airlines Peru S.A. (f/ka LAN Peru S.A.), incorporated in Peru.
“LATAM Cargo”	LAN Cargo S.A., incorporated in Chile.

3

“MasAir”	Aero Transportes Mas de Carga S.A. de C.V., incorporated in Mexico (sold on November 30, 2018).
“TAM”	TAM S.A., incorporated in Brazil.

Capacity Measurements:
“available seat kilometers” or “ASKs”	The sum, across our network, of the number of seats made available for sale on each flight multiplied by the kilometers flown by the respective flight.
“available ton kilometers” or “ATKs”	The sum, across our network, of the number of tons available for the transportation of revenue load (cargo) on each flight multiplied by the kilometers flown by the respective flight.
Traffic Measurements:
“revenue passenger kilometers” or “RPKs”	The sum, across our network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight.
“revenue ton kilometers” or “RTKs”	The sum, across our network, of the load (cargo) in tons on each flight multiplied by the kilometers flown by the respective flight.
“traffic revenue”	Revenue from passenger and cargo operations.
Yield Measurements:
“cargo yield”	Revenue from cargo operations divided by RTKs.
“passenger yield”	Revenue from passenger operations divided by RPKs.
Load Factors:
“cargo load factor”	RTKs expressed as a percentage of ATKs.
“passenger load factor”	RPKs expressed as a percentage of ASKs.
Other:
“Airbus A320-Family Aircraft”	The Airbus A319, Airbus A320, and Airbus A321 models of aircraft, including both ceo and neo variants.
“m²”	Square meters.
“ton”	A metric ton, equivalent to 2,204.6 pounds.
“utilization rates”	The actual number of service hours per aircraft per operating day.
“operating expenses”	Operating expenses, which are calculated in accordance with IFRS, comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include: wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses.
“MiSchDynamicDT”	Market Intelligence Schedule Dynamic Table.
“Diio Mi”	Data In Intelligence Out Market Intelligence.
“CO2”	carbon dioxide gas

4

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

LATAM’s Historical Financial Information

The summary consolidated annual financial information of LATAM as of December 31, 2018, 2017, 2016, 2015 and 2014 has been prepared in accordance with IFRS(*).

LATAM’s Annual Financial Information

	Year ended December 31,
	2018			2017			2016			2015			2014
	(in US$ millions, except per share and capital stock data)
The Company Statement of Income Data (1)(2)(3):
Operating revenues
Passenger		8,709.0			8,494.5			7,877.7			8,410.6			10,380.1
Cargo		1,186.5			1,119.4			1,110.6			1,329.4			1,713.4
Total operating revenues		9,895.5			9,613.9			8,988.3			9,740.0			12,093.5
Cost of sales		(7,962.8	)		(7,441.8	)		(6,967.0	)		(7,636.7	)		(9,624.5	)
Gross margin		1,932.6			2,172.1			2,021.3			2,103.3			2,469.0
Other operating income(4)		472.8			549.9			538.7			385.8			377.6
Distribution costs		(619.2	)		(699.6	)		(747.4	)		(783.3	)		(957.1	)
Administrative expenses		(721.3	)		(938.9	)		(873.0	)		(878.0	)		(980.7	)
Other expenses		(359.8	)		(368.9	)		(373.7	)		(324.0	)		(401.0	)
Other gains/(losses)		53.5			(7.8	)		(72.6	)		(55.3	)		33.5
Financial income		53.3			78.7			74.9			75.1			90.5
Financial costs		(356.3	)		(393.3	)		(416.3	)		(413.4	)		(430.0	)
Equity accounted earnings		0.0			0.0			0.0			0.0			(6.5	)
Exchange rate differences		(157.7	)		(18.7	)		121.7			(467.9	)		(130.2	)
Result of indexation units		(0.9	)		0.7			0.3			0.6			0.1
Income (loss) before income taxes		297.0			374.2			273.9			(357.1	)		65.2
Income (loss) tax expense/benefit		(83.8	)		(173.5	)		(163.2	)		178.4			(292.4	)
Net (loss) income for the period		213.2			200.7			110.7			(178.7	)		(227.2	)
Income (loss) attributable to the parent company’s equity holders		181.9			155.3			69.2			(219.3	)		(260.0	)
Income (loss) attributable to non-controlling interests		31.3			45.4			41.5			40.5			32.8
Net income (loss) for the year		213.2			200.7			110.7			(178.7	)		(227.2	)
Earnings per share
Average number of Shares		606,407,693			606,407,693			546,559,599			545,547,819			545,547,819
Basic earnings (loss) per share (US$)		0.30002			0.25610			0.12665			(0.40193	)		(0.47656	)
Diluted earnings (loss) per share (US$)		0.30002			0.25610			0.12665			(0.40193	)		(0.47656	)

5

	Year ended December 31,
	2018		2017		2016		2015		2014
	(in US$ millions, except per share and capital stock data)
Balance Sheet Data:
Cash, and cash equivalents		1,081.6		1,142.0		949.3		753.5		989.4
Other current assets in operation		2,219.0		2,312.4		2,340.3		2,067.4		2,644.1
Non-current assets and disposal groups held for sale		5.8		291.1		337.2		2.0		1.1
Total current assets		3,306.4		3,745.5		3,626.8		2,822.9		3,634.6
Property and equipment		9,953.4		10,065.3		10,498.1		10,938.7		10,773.1
Other non-current assets		4,307.0		4,987.2		5,073.3		4,339.8		6,076.7
Total non-current assets		14,260.4		15,052.5		15,571.4		15,278.5		16,849.8
Total assets		17,566.8		18,798.0		19,198.2		18,101.4		20,484.4
Total current liabilities		5,568.8		5,842.7		6,222.2		5,641.0		5,829.7
Total non-current liabilities		8,251.2		8,688.0		8,790.7		9,522.9		10,151.0
Total liabilities		13,820.0		14,530.7		15,012.9		15,163.9		15,980.7
Issued capital		3,146.3		3,146.3		3,149.6		2,545.7		2,545.7
Net equity attributable to the parent company’s equity holders		3,666.9		4,176.1		4,096.7		2,856.5		4,401.9
Non-controlling interest		79.9		91.1		88.6		81.0		101.8
Total net equity		3,746.8		4,267.2		4,185.3		2,937.5		4,503.7
Shares Outstanding		606,407,693		606,407,693		606,407,693		545,547,819		545,547,819

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

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

(3) For the effects of the adoption of IFRS 15 see “Recently Issued Accounting Pronouncements”.

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

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

The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2014, December 31, 2015, December 31, 2016, December 31, 2017 and December 31, 2018. LATAM believes this operating data is useful in reporting the operating performance of its business and may be used by certain investors in evaluating companies operating in the global air transportation sector. However, these measures may differ from similarly titled measures reported by other companies, and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS. This unaudited operating data is not included in or derived from LATAM’s financial statements.

	For the year ended and as of December 31,
	2018		2017		2016		2015		2014
Operating Data:
ASKs (million)		143,264.9		136,398.4		134,967.7		134,167.1		130,200.9
RPKs (million)		119,077.3		115,692.7		113,626.9		111,509.9		108,534.0
ATKs (million)		6,497.6		6,230.1		6,704.1		7,082.8		7,219.7
RTKs (million)		3,582.5		3,421.2		3,465.9		3,797.0		4,317.2

6

Dividend Policy

In accordance with the Ley sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation Act”) and the Reglamento de Sociedades Anónimas (“Regulation to the Chilean Corporation Act”, and together with the Chilean Corporation Act, the “Chilean Corporation Law”), we must pay annual cash dividends equal to at least 30.0% of our annual consolidated net income for the prior year, subject to limited exceptions. LATAM Airlines Group’s board of directors has the authority to declare interim dividends. Year-end dividends, if any, are declared by our shareholders at our annual meeting. For a description of our dividend policy, see “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Dividend Policy” and “Item 10. Additional Information—Dividend and Liquidation Rights” LATAM did not pay dividends in 2016. On May 18, 2017, LATAM paid US$20,766,119 in dividends in respect of the year ended December 31, 2016. On May 17, 2018, LATAM paid US$46,591,193 in dividends in respect of year ended December 31, 2017. In addition, dividend reserves of US$54,580,443 were set aside for 2018, to be paid in 2019.

We declare cash dividends in U.S. dollars, but make dividend payments in Chilean pesos, converted from U.S. dollars at the observed exchange rate two business days prior to the day we first make payment to shareholders. Payments of cash dividends to holders of ADSs, if any, are made in Chilean pesos to the custodian, who converts those Chilean pesos into U.S. dollars and delivers U.S. dollars to the depositary for distribution to holders of ADS. The amount of U.S. dollars distributed to holders of ADSs may be adversely affected by a devaluation of the Chilean currency that may occur before such dividends are converted and remitted.

LATAM’s Dividend Payments

The table below sets forth the cash dividends per common share and per ADS paid by LATAM, as well as the number of common shares entitled to such dividends, for the years indicated. Dividends per common share amounts reflect common share amounts outstanding immediately prior to the distribution of such dividend.

Dividend for year:	Payment date(s)	Total dividend payment		Number of common shares entitled to dividend		Cash dividend per common share		Cash dividend per ADS
		(U.S. dollars)		(in millions)		(U.S. dollars)		(U.S. dollars)
2016	May 18, 2017	$	20,766,119		606.41	$	0.03424	$	0.03424
2017	May 17, 2018	$	46,591,193		606.41	$	0.07683	$	0.07683

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

The following important factors, and those important factors described in other reports we submit to or file with the Securities and Exchange Commission (“SEC”), could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including the following risk factors.  

7

Risk Factors Relating to our Company

Our assets include a significant amount of goodwill.

Our assets included US$2,294.1 million of goodwill as of December 31, 2018. Under IFRS, goodwill is subject to an annual impairment test and may be required to be tested more frequently if events or circumstances indicate a potential impairment. In 2018, mainly as a result of the depreciation of the Brazilian real against the U.S. dollar during 2018, the value of our goodwill decreased by 14.2% as compared with 2017. Any impairment could result in the recognition of a significant charge to earnings in our statement of income, which could materially and adversely impact our consolidated results for the period in which the impairment occurs.

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

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

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

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

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

We may not be able to successfully integrate the frequent flyer programs of LAN and TAM or the operations of Multiplus S.A., our marketing rewards platform in Brazil.

We have integrated the separate frequent flyer programs of LAN and TAM so that passengers can use frequent flyer miles or points earned with either LAN or TAM interchangeably. During 2016, LAN and TAM announced their revamped frequent flyer programs, which have new names: LATAM Pass and LATAM Fidelidade, respectively. The change is part of the process of consolidating the airline group’s new brand identity (LATAM) and the evolution of the programs, which enhances existing benefits and introduces new benefits for program members.

On April 1, 2019, LATAM Airlines Brazil completed the tender offer process for the common shares of Multiplus S.A. Multiplus is a coalition of loyalty programs for various retail products and services which allows our present flyers to accrue and redeem benefits through retail purchases in addition to flying. Following the tender offer, LATAM Airlines Brazil acquired 24.5% of Multiplus’ common shares, reaching an ownership interest equal to 97.2% of its capital stock, and, as a result, LATAM Airlines Brazil will de-list Multiplus from the B3 Novo Mercado, cancel its registration, and purchase the remaining minority interest to achieve 100% ownership. Accordingly, the Company plans to fully integrate its loyalty program in Brazil and enhance the benefits to all passengers of the LATAM Group. We cannot assure that we will be able to benefit our passengers in the way we expect. However, there is no guarantee that full integration of the two plans will be completed in the near term or at all. Even if the integration occurs, the successful integration of these programs will involve some time and expense. In addition, until we effectively combine these programs, passengers may prefer frequent flyer programs or other reward loyalty programs offered by other airlines, which may adversely affect our business. See “Item 4. Information on the Company – B. Business Overview – Multiplus.”

Our financial results are exposed to foreign currency fluctuations.

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

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

We depend on strategic alliances or commercial relationships in many of the countries in which we operate, and our business may suffer if any of our strategic alliances or commercial relationships terminates.

We maintain a number of alliances and other commercial relationships in many of the jurisdictions in which LATAM and its affiliates operate. These alliances or commercial relationships allow us to enhance our network and, in some cases, to offer our customers services that we could not otherwise offer. If any of our strategic alliances or commercial relationships deteriorates, or any of these agreements are terminated, our business, financial condition and results of operations could be adversely affected.

Our business and results of operations may suffer if we fail to obtain and maintain routes, suitable airport access, slots and other operating permits. Also, technical and operational problems with the airport infrastructure of cities in which we have a focus may have a material adverse effect on us.

Our business depends upon our access to key routes and airports. Bilateral aviation agreements between countries, open skies laws and local aviation approvals frequently involve political and other considerations outside of our control. Our operations could be constrained by any delay or inability to gain access to key routes or airports, including:

• limitations on our ability to process more passengers;  

• the imposition of flight capacity restrictions;

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

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

We operate numerous international routes subject to bilateral agreements, as well as domestic flights within Chile, Peru, Brazil, Argentina, Ecuador and Colombia, subject to local route and airport access approvals. See “Item 4. Information on the Company—B. Business Overview—Regulation.”

There can be no assurance that existing bilateral agreements with the countries in which our companies are based and permits from foreign governments will continue. A modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permission to operate in certain airports, destinations or slots, or the imposition of other sanctions could also have a material adverse effect. A change in the administration of current laws and regulations or the adoption of new laws and regulations in any of the countries in which we operate that restrict our route, airport or other access may have a material adverse effect on our business, financial condition and results of operations.

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

Santiago’s Comodoro Arturo Merino Benítez International Airport is currently facing an important expansion, which is expected to be completed by 2021. If the expansion continues to be delayed, this will likely impact our operations and may affect our ability to remain competitive.

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

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

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A significant portion of our cargo revenue comes from relatively few product types and may be impacted by events affecting their production, trade or demand.

Our cargo demand, especially from Latin American exporters, is concentrated in a small number of product categories, such as exports of fish, sea products and fruits from Chile, asparagus from Peru and fresh flowers from Ecuador and Colombia. Events that adversely affect the production, trade or demand for these goods may adversely affect the volume of goods that we transport and may have a significant impact on our results of operations. Future trade protection measures by or against the countries for which we provide cargo services may have an impact in cargo traffic volumes and adversely affect our financial results. Some of our cargo products are sensitive to foreign exchange rates and, therefore, traffic volumes could be impacted by the appreciation or depreciation of local currencies.

Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.

Higher jet fuel prices could have a materially adverse effect on our business, financial condition and results of operations. Jet fuel costs have historically accounted for a significant amount of our operating expenses, and accounted for 30.9% of our operating expenses in 2018. For additional information, see “Item 4. Information on the Company—B. Business Overview—Fuel Supplies”. Both the cost and availability of fuel are subject to many economic and political factors and events that we can neither control nor predict, including international political and economic circumstances such as the political instability in major oil-exporting countries. Any future fuel supply shortage (for example, as a result of production curtailments by the Organization of the Petroleum Exporting Countries, or “OPEC”), a disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, labor actions such as the 2018 trucking strike in Brazil, the continued unrest in the Middle East or other events could result in higher fuel prices or reductions in scheduled airline services. We cannot ensure that we would be able to offset any increases in the price of fuel by increasing our fares. In addition, lower fuel prices may result in lower fares through the reduction or elimination of fuel surcharges. We have entered into fuel hedging arrangements, but there can be no assurance that such arrangements will be adequate to protect us from an increase in fuel prices in the near future or in the long term. Also, while these hedging arrangements are designed to limit the effect of an increase in fuel prices, our hedging methods may also limit our ability to take advantage of any decrease in fuel prices, as was the case in 2015 and, to a lesser extent, in 2016. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Variation in Fuel Prices.”

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

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

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

As our fleet has grown, our reliance on Airbus and Boeing has also grown. As of December 31, 2018, LATAM Airlines Group has a total fleet of 239 Airbus and 81 Boeing aircraft. Risks relating to Airbus and Boeing include:

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

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

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

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

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

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

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

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

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

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

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

Moreover, external conditions in the financial and credit markets may limit the availability of funding at particular times or increase its costs, which could adversely affect our profitability, our competitive position and result in lower net interest margins, earnings and cash flows, as well as lower returns on shareholders’ equity and invested capital. Factors that may affect the availability of funding or cause an increase in our funding costs include global macro-economic crises, reductions in our credit rating or in that of our issuances, and other potential market disruptions.

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

We are exposed to the risk of interest rate variations, principally in relation to the U.S. dollar London Interbank Offer Rate (“LIBOR”). Many of our financial leases are denominated in U.S. dollars and bear interest at a floating rate. 40.5% of our outstanding consolidated debt as of December 31, 2018 bears interest at a floating rate (after giving effect to interest rate hedging agreements). Volatility in LIBOR or other reference rates could increase our periodic interest and lease payments and have an adverse effect on our total financing costs. We may be unable to adequately adjust our prices to offset any increased financing costs, which would have an adverse effect on our results of operations.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. See also the discussion of interest rate risk in “Item 11. Quantitative and Qualitative Disclosures About Market Risk—“Risk of Fluctuations in Interest Rates.”

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

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

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

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

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

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. As a result, we are vulnerable to problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result unscheduled maintenance requirements, in customer avoidance or in actions by the aviation authorities resulting in an inability to operate our aircraft. During the year 2018, LATAM Airlines’s main suppliers were aircraft manufacturers Airbus and Boeing.

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

During 2018, Airbus experienced delays in the delivery of A320neo aircraft worldwide, which we understand is related to problems with the aircraft’s Pratt & Whitney engines. We are currently expecting delivery of 9 A320neo aircraft during 2019, and any delays in delivery could adversely affect our operations. In addition, we currently have four A320neo aircraft in our fleet, and problems associated with the lack of availability of Pratt & Whitney engines could potentially prevent these aircraft from remaining operational.

Rolls Royce is experiencing problems related to earlier-than-expected maintenance on the Rolls Royce Trent 1000 engines that power the Boeing 787 aircraft. The unexpected additional engine maintenance has reduced the number of Boeing 787 aircraft available in service and may also impact our A350 aircraft. During 2018, LATAM had a lower availability for its Boeing 787 fleet (part of which remains unavailable awaiting engine maintainance by Rolls Royce). This has caused significant operational challenges for the company as LATAM has had to change itineraries, aircraft types for select routes, and wetlease aircraft from third parties to meet aircraft requirements. We cannot assure that we will not continue to have significant operational disruptions that could negatively affect our operations and financial results.

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

We have engaged a significant number of third-party service providers to perform a large number of functions that are integral to our business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of technology infrastructure and services, performance of business processes, including purchasing and cash management, provision of aircraft maintenance and repairs, catering, ground services, and provision of various utilities and performance of aircraft fueling operations, among other vital functions and services. We do not directly control these third-party service providers, although we do enter into agreements with many of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their service performance commitments, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and/or travel agencies via third-party GDSs (Global Distribution Systems) may be adversely affected by disruptions in our business relationships with GDS operators or by issues in the GDS’s operations. Such disruptions, including a failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the carriers’ flight information to be limited or unavailable for display, significantly increase fees for both us and GDS users, and impair our relationships with customers and travel agencies. The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, may reduce our revenues and increase our expenses or prevent us from operating our flights and providing other services to our customers. In addition, our business, financial performance and reputation could be materially harmed if our customers believe that our services are unreliable or unsatisfactory.

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

A serious internal technology error, failure, or cybersecurity incident impacting systems hosted internally at our data centers or externally at third-party locations, or large-scale interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network with potential impact on our operations. Our technology systems and related data may also be vulnerable to a variety of sources of interruption, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyber attacks and other security issues. These systems include our computerized airline reservation system, flight operations system, telecommunications systems, website, custumer, self-service applications (“apps”), maintenance systems, check-in kiosks, in-flight entertainment systems and data centers.

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

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

Labor costs constitute a significant percentage of our total operating expenses (18.8% in 2018) and at times in our operating history we have experienced pressure to increase wages and benefits for our employees. A significant increase in our labor costs could result in a material reduction in our earnings.

Collective action by employees could cause operating disruptions and adversely impact our business.

Certain employee groups such as pilots, flight attendants, mechanics and our airport personnel have highly specialized skills. As a consequence, actions by these groups, such as strikes, walk-outs or stoppages, could severely disrupt our operations and adversely impact our operating and financial performance, as well as our image.

A strike, work interruption or stoppage or any prolonged dispute with our employees who are represented by any of these unions could have an adverse impact on our operations. These risks are typically exacerbated during periods of renegotiation with the unions, which typically occurs every two to four years depending on the jurisdiction and the union. Any renegotiated collective bargaining agreement could feature significant wage increases and a consequent increase in our operating expenses. Any failure to reach an agreement during negotiations with unions may require us to enter into arbitration proceedings, use financial and management resources, and potentially agree to terms that are less favorable to us than our existing agreements. Employees who are not currently members of unions may also form new unions that may seek further wage increases or benefits.

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

As of December 31, 2018, approximately 86% of our employees, including administrative personnel, cabin crew, flight attendants, pilots and maintenance technicians are members of unions and have contracts and collective bargaining agreements which expire on a regular basis. Our business, financial condition and results of operations could be materially adversely affected by a failure to reach agreement with any labor union representing such employees or by an agreement with a labor union that contains terms that are not in line with our expectations or that prevent us from competing effectively with other airlines. For further information regarding the unions representing our employees in each country in which we operate and with which we have established collective bargaining agreements, see “Item 6. Directors, Senior Management and Employees—D. Employees—Labor Relations.” 

We may experience difficulty finding, training and retaining employees.

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

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

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

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

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

· changes in economic or other governmental policies;

· changes in regulatory, legal or administrative practices;

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

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

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

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

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

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

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

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

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

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

• interest rates;

• currency fluctuations;

• monetary policies;

• inflation;

• liquidity of capital and lending markets;

• tax and social security policies;

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• labor regulations;

• energy and water shortages and rationing; and

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

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

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

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

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

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

• we will not need to increase our insurance coverage;

• our insurance premiums will not increase significantly;

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

• we will not be forced to bear substantial losses.

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

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

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

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

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Low-cost carriers have an important impact in the industry’s revenues given their low unit costs. Lower costs allow low-cost carriers to offer inexpensive fares which, in turn, allow price sensitive customers to fly or to shift from large to low cost carriers. In past years we have seen more interest in the development of the low-cost model throughout Latin America. For example, in the Chilean market, Sky Airlines, our main competitor, has been migrating to a low-cost model since 2015, while in July 2017, JetSmart, a new low-cost airline, started operations. In the Peruvian domestic market, VivaAir Peru, a new low-cost airline, started operations in May 2017. In Colombia, low-cost competitor VivaColombia has been operating in the domestic market since May 2012. Low-cost competitors Flybondi and Norwegian began operations in the Argentinian domestic market during 2018. A number of low-cost carriers have announced growth strategies including commitments to acquire significant numbers of aircraft for delivery in the next few years. The entry of the low-cost carriers local into markets in which we compete, including those described above, could have a material adverse effect on our operations and financial performance.

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

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

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

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

Some of the countries where we operate may not comply with international agreements previously established, which could increase the risk perception of doing business in that specific market and as a consequence impact our business and financial results.

Rulings by a bankruptcy court in Brazil and by higher judicial authorities related to the bankruptcy proceedings of Avianca Brazil may appear to be inconsistent with the Cape Town Convention (CTC) treaty that Brazil has signed, thus raising concerns about the rights of creditors in respect of financings secured by aircraft. Accordingly, if creditors perceive that an increase business risk is created by these rulings for leasing or other financing transactions involving aircraft in Brazil, there is a possibility that rating agencies may issue lower credit ratings in respect of financings that are secured by aircraft in Brazil. As a result, our business and financial results may be adversely affected if our financing activities in Brazil are impacted by such events..

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

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

In 2016, the International Civil Aviation Organization (“ICAO”) adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), providing a framework for a global market-based measure to stabilize carbon dioxide (“CO2”) emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). CORSIA will be implemented in phases, starting with the participation of ICAO member states on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027). Currently, CORSIA focuses on defining standards for monitoring, reporting and verification of emissions from air operators, as well as on defining steps to offset CO2 emissions after 2020. To the extent most of the countries in which we operate continue to be ICAO member states, in the future we may be affected by regulations adopted pursuant to the CORSIA framework.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We operate primarily within Latin America and are thus subject to a full range of risks associated with our operations in this region. These risks may include unstable political or economic conditions, lack of well-established or reliable legal systems, exchange controls and other limits on our ability to repatriate earnings and changeable legal and regulatory requirements.

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

Risks Related to our Common Shares and ADSs

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

One of our major shareholder groups, the Cueto Group (the “LATAM Controlling Shareholders”), which as of February 28, 2019, beneficially owned 27.91% of our common shares, is entitled to elect three of the nine members of our board of directors and is in a position to direct our management. In addition, the LATAM Controlling Shareholders have entered into a shareholders’ agreement with the Amaro Group, which as of February 28, 2019, held 2.58% of LATAM shares through TEP Chile, in addition to the indirect stake it has through the 21.88% interest it holds in Costa Verde Aeronáutica S.A., the main legal vehicle through which the Cueto Group holds LATAM shares, pursuant to which these two major shareholder groups have agreed to vote together to elect individuals to our board of directors in accordance with their direct and indirect shareholder interest in LATAM. Pursuant to a shareholders’ agreement, the LATAM Controlling Shareholders and the Amaro Group have also agreed to use their good faith efforts to reach an agreement and act jointly on all actions to be taken by our board of directors or shareholders’ meeting, and if unable to reach to such agreement, to follow the proposals made by our board of directors. Decisions by the Company that require supermajority votes under Chilean law are subject to voting arrangements by the LATAM Controlling Shareholders and the Amaro Group. In addition, another major shareholder, Qatar Airways Investments (UK) Ltd., which as of February 28, 2019, held 10.00% of our common shares, is entitled to appoint one individual to our board of directors. The interests of our major shareholders may differ from those of our other shareholders. See “Item 7. Controlling Shareholders and Related Party Transactions—A. Major Shareholders.”

Under the terms of the deposit agreement governing the ADSs, if holders of ADSs do not provide JP Morgan Chase Bank, N.A., in its capacity as depositary for the ADSs, with timely instructions on the voting of the common shares underlying their ADRs, the depositary will be deemed to have been instructed to give a person designated by the board of directors the discretionary right to vote those common shares. The person designated by the board of directors to exercise this discretionary voting right may have interests that are aligned with our controlling shareholders, which may differ from those of our other shareholders. Historically, our board of directors has designated its chairman to exercise this right; for example, the members of the board of directors elected by the shareholders in 2017 designated Ignacio Cueto, to serve in this role.

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

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

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

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

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

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

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

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

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

We are not required to disclose as much information to investors as a U.S. issuer is required to disclose and, as a result, you may receive less information about us than you would receive from a comparable U.S. company.

The corporate disclosure requirements that apply to us may not be equivalent to the disclosure requirements that apply to a U.S. company and, as a result, you may receive less information about us than you would receive from a comparable U.S. company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The disclosure requirements applicable to foreign issuers under the Exchange Act are more limited than the disclosure requirements applicable to U.S. issuers. Publicly available information about issuers of securities listed on Chilean stock exchanges also provides less detail in certain respects than the information regularly published by listed companies in the United States or in certain other countries. Furthermore, there is a lower level of regulation of the Chilean securities market and of the activities of investors in such markets as compared with the level of regulation of the securities markets in the United States and in certain other developed countries. For further information, see “Item 16. Reserved—G. Corporate Governance.”

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

General

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

LATAM’s airline holdings include LATAM and its affiliates in Chile, Peru, Argentina, Colombia and Ecuador, and LATAM Cargo and its affiliate LANCO (in Colombia), as well as TAM S.A. and its affiliates TAM Linhas Aereas S.A (LATAM Airlines Brazil), TAM Transportes Aereos del Mercosur S.A., (LATAM Airlines Paraguay), LATAM Cargo and Multiplus. LATAM is a publicly traded corporation listed on the Santiago Stock Exchange (“SSE”), the Chilean Electronic Exchange and the New York Stock Exchange (“NYSE”) with a market capitalization of US$7.02 billion as of February 28, 2019.

LATAM’s history goes back to 1929, when the Chilean government founded LAN. In 1989, the Chilean government sold 51.0% of LAN’s capital stock to Chilean investors and to the Scandinavian Airlines System. In 1994, LATAM’s current controlling shareholders, together with other major shareholders, acquired 98.7% of LAN’s stock, including the remaining shares then held by the Chilean government. In 1997, LAN became the first Latin American airline to list its shares (which trade in the form of ADSs) on the New York Stock Exchange.

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Over the past decade, LATAM has significantly expanded its operations in Latin America, initiating services in Peru in 1999, Argentina in 2005, Ecuador in 2009, and Colombia in 2010. The business combination of LAN and TAM in June 2012 further expanded the Company’s operations in Brazil, where TAM Linhas Aéreas S.A. (“TLA” or “LATAM Airlines Brazil”), the TAM operating entity, is a leading domestic and international airline offering flights throughout Brazil with a strong domestic market share, international passenger services and significant cargo operations. TAM was founded in May 1997 (under the name Companhia de Investimentos em Transportes), for the purpose of participating in, managing and consolidating shareholdings in airlines. In September 2002, TAM’s name was changed to TAM S.A. and its shares were listed on the Brazilian Stock Exchange (“Bovespa”) in June 2005. From 2006 until the combination with LAN in 2012, TAM ADSs were also listed on the NYSE.

Our principal executive offices are located at Presidente Riesco 5711, 20th floor, Las Condes, Santiago, Chile and our general telephone number at this location is (56-2) 2565-8765. We have designated LATAM Airlines Group as our agent in the United States, located at 970 South Dixie Highway, Miami, Florida 33156. Our website address is www.latamairlinesgroup.net. Information obtained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of this annual report. For more information contact Andrés del Valle, Senior Vice President of Corporate Finance and Investor Relations, at InvestorRelations@latam.com.

The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC. 

Capital Expenditures

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

B. BUSINESS OVERVIEW

General

LATAM Airlines Group is the largest passenger airline in South America. We are also one of the largest airline groups in the world in terms of network connections, providing passenger transport services to approximately 143 destinations in 26 countries and cargo services to approximately 150 destinations in 29 countries, with an operating fleet of 312 aircraft and a set of bilateral alliances. In total, LATAM Airlines Group has approximately 41,000 employees. For the year 2018, LATAM transported approximately 69 million passengers. LATAM Airlines Group and its affiliates currently provide domestic services in Brazil, Chile, Peru, Argentina, Colombia and Ecuador; we also provide intra-regional and long-haul operations. The cargo affiliate carriers of LATAM in Chile, Brazil, and Colombia carry out cargo operations through the use of belly spaces on the passenger flights and dedicated cargo operations using freight aircraft. We also offer other services, such as ground handling, courier, logistics and maintenance.

As of December 31, 2018, we provided scheduled passenger service to 17 destinations in Chile, 19 destinations in Peru, five destinations in Ecuador, 14 destinations in Argentina, 14 destinations in Colombia, 42 destinations in Brazil, 10 destinations in other Latin American countries and the Caribbean, eight destinations in North America, eight destinations in Europe, four destinations in the South Pacific, one destination in Asia and one destination in Africa. In addition, as of December 31, 2018, through our various code-sharing and interline agreements, we offer service to 70 destinations in North America, 44 destinations in Europe, 17 destinations in Australasia, 13 destinations in Asia and four destinations in Africa.

Competitive Strengths

Our strategy is to maintain LATAM Airlines Group’s position as the leading airline in South America by leveraging our unique position in the airline industry. LATAM Airlines Group is the only airline group in the region with a domestic presence in six markets, as well as intra-regional and long-haul operations. As a result, the Company has geographical diversity and operational flexibility, as well as a proven track record of acting quickly to adapt its business to economic challenges. Moreover, LATAM’s unique leadership position in a region with growth potential and the focus on our existing competitive strengths, will allow us to continue building our business model and fuel our future growth, ensuring LATAM’s long term sustainability. We believe our most important competitive strengths are:

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

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

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Geographically Diversified Revenue Base, including both Passenger and Cargo Operations

Our operations are highly geographically diversified, including domestic operations in six different countries, as well as operations within South America and connecting South America with various international destinations. We believe this provides resilience to external shocks that may occur in any particular market. Furthermore, we believe that one of our distinct competitive advantages is our ability to profitably integrate our scheduled passenger and cargo operations. We take into account potential cargo services when planning passenger routes, and also serve certain dedicated cargo routes using our freighter aircraft when needed. By adding cargo revenues to our existing passenger service, we are able to increase the productivity of our assets and maximize revenue, reducing our break-even load factors and enhancing our per flight profitability. Additionally, this revenue diversification helps offset seasonal revenue fluctuations and reduces the volatility of our business over time. For the year ended December 31, 2018, passenger, cargo and other revenues accounted for 84.0%, 11.4% and 4.6% of total revenues respectively.

Modern Fleet and Optimized Fleet Strategy

The average age of our fleet is under nine years, making it one of the most modern in Latin America and in the world. A younger fleet makes us more cost competitive because it reduces fuel consumption and maintenance costs, and enables us to enjoy a high degree of performance reliability. In addition, a modern and fuel-efficient fleet reflects our strong commitment to the environment as new aircraft incorporate the industry’s latest technology, allowing for a substantial reduction in emissions, and also in noise levels.

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

The Company’s current fleet plan includes a short-haul fleet formed exclusively by aircraft from the A320 family, with a focus on the A321 and A320neo, a re-engined A320 that the Company received for the first time in 2016, becoming the first airline in Latin America to fly this model. During 2018, LATAM incorporated two additional A321-200 into its fleet.

For long-haul passenger flights, we operate the Boeing 767-300ER, the Boeing 787-8, the Boeing 787-9, the Boeing 777-300ER and the Airbus A350-900 which started operations in 2016. The Boeing 787 and Airbus A350 models allow us to achieve important savings in fuel consumption, while incorporating modern technology to deliver the best travel experience for our passengers. In 2018, we incorporated two Airbus 350-900 into our fleet.

LATAM continues to take a flexible approach to its fleet plan in order to better align it to market conditions. During 2018, the Company received four aircraft and subleased eight aircraft to third parties to adjust to demand during the year. In addition, LATAM further restructured its fleet delivery schedule, achieving a reduction of US$2.2 billion in fleet commitments for the period 2018-2021, equivalent to a reduction of approximately 40% of total fleet commitments for this period.

Strong Brand Teamed with Key Global Strategic Alliances

In May 2016 our new brand, LATAM, was officially launched. We believe that our new brand is associated with superior service and technologically advanced operations, and is well recognized and respected in the markets in which we operate. In 2018, LATAM Airlines was the only South American airline group to be named as a ‘Five Star Global Airline’ for its in-flight experience in the APEX 2019 Airlines Official Ratings, and was named in Official Airline Guide (OAG) as the most punctual ‘Mega Airline’, which compares the largest 20 operators in terms of scheduled flights.

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

In 2016 LATAM entered into two joint business agreements: an agreement with American Airlines, and a separate agreement with British Airways and Iberia. These agreements further strengthen our relationship with other oneworld® partners. Both agreements will allow LATAM to expand its network to more than 420 destinations worldwide, operating routes from South America to the United States and Canada with American Airlines and routes from South America to Europe with British Airways and Iberia. These agreements are subject to regulatory approvals, some of which were granted between 2016 and 2018. In 2017, the administrative court of economic defense of the CADE (Administrative Council for Economic Defense) in Brazil and the Civil Aviation Authority in Colombia approved the agreements with American Airlines and British Airways and Iberia. During the review, the authorities evaluated the scope of the agreement in terms of free competition and the benefits that it will bring to passengers, including improved connectivity, expansion of the destination network and reduced prices. Both agreements were approved in Uruguay in 2016. In 2018, Chile’s Free Competition Defence Court (TDLC) approved the joint business agreements with American Airlines and British Airways and Iberia, for both passenger and cargo businesses, subject to nine mitigation remedies. The TDLC’s decision has been appealed by certain third parties to the Supreme Court of Chile. In the meantime, LATAM Airlines Group is evaluating the implementation of the joint business agreement with British Airways and Iberia, while the joint business agreement with American Airlines is subject to the approval of the Department of Transportation in the United States.

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Financial Flexibility

We have historically managed our business to maintain financial flexibility and a strong balance sheet, seeking to accommodate our growth objectives while having the ability to respond to changing market conditions. Our financial flexibility has allowed us to secure large aircraft deliveries, including an important part of our current re-fleeting program, at attractive financing rates.

Recognized Loyalty Programs

Our frequent flyer programs, LATAM Fidelidade and LATAM Pass together represent the leading frequent flyer programs in South America, with strong participation rates and brand recognition by our customers. Customers in each program earn points or miles based on the price paid for the ticket, class of ticket purchased, and elite level, as well as by using the services of outside partners in the program. In addition, Multiplus, a coalition of loyalty programs in Brazil and an affiliate of TAM, which allows members to accumulate points not just by flying with LATAM, but also by making purchases through credit cards or using services and products at partner establishments, and allows members to redeem points for LATAM Airlines flights and other products at partner establishments.

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

Business Strategy

Our mission is to connect people safely, with operational excellence and a personal touch, seeking to become one of the most admired airline groups in the world. In order to achieve our mission, the principal areas on which we plan to focus our efforts going forward are as follows:

Continually Strengthen Our Network

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

Enhance Brand Leadership and Customer Experience

We will always seek to be the preferred choice of passengers in South America. Our efforts are supported by a differentiated passenger experience and our leveraging of mobile digital technologies. We continue working on the implementation of our single, unified brand, culture, product and value proposition for our passengers. Additionally, we are focused on defining LATAM’s digital strategy, including applications to achieve ancillary revenues and improving the management of contingencies, so that we are able to provide information and solutions to our customers in a timely and transparent manner. We continually assess opportunities to incorporate service improvements in order to respond effectively to our customers’ needs.

Improving Efficiency and Cost Competitiveness

We are continually working to maintain a competitive cost structure and further improve our efficiency, simplify our organization and increase flexibility and speed in decision-making. Cost savings include reductions in fuel and fees, procurement, operations, overhead and distribution costs, among others, as well as the implementation of a customized service offering in domestic and international markets. We are currently working at an accelerated pace on cost initiatives in all these areas.

Organizational Strength

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

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Proactive Risk Management

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

Airline Operations and Route Network

The following tables set forth our operating revenues by activity and point of sale for the periods indicated:

	Year ended December 31,
	2018		2017		2016
	(in US$ millions)
Total passenger revenues		8,709.0		8,494.5		7,877.7
Total cargo revenues		1,186.5		1,119.4		1,110.6
Total traffic revenues		9,895.5		9,613.9		8,988.3

	Year ended December 31,
	2018		2017		2016
	(in US$ millions)
Peru		705.1		626.3		627.2
Argentina		989.9		1,113.5		1,031.0
United States		985.9		900.4		933.1
Europe		782.2		676.3		714.4
Colombia		372.8		359.3		343.0
Brazil		3,433.9		3,436.4		2,974.2
Ecuador		203.8		190.3		198.2
Chile		1,591.3		1,527.2		1,512.6
Asia Pacific and rest of Latin America		830.6		784.2		654.6
Total Operating Revenues		9,895.5		9,613.9		8,988.3

Passenger Operations

General

As of December 31, 2018, our passenger operations were performed through airlines in Chile, Brazil, Peru, Argentina, Colombia and Ecuador, where we operate both domestic and international services. We collect and report operating data for our passenger operations in three categories: international (connecting more than one country), Domestic operations in Spanish speaking countries or “SSC” (including Chile, Peru, Argentina, Colombia, and Ecuador), and Domestic Brazil (wholly within Brazil).

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

	Year ended and as at December 31
	2018		2017		2016
ASKs (million) (at period end)
International		81,059.7		76,366.1		73,541.9
SSC		24,664.0		23,821.0		23,847.1
Domestic Brazil		37,541.2		36,211.3		37,578.7
Total		143,264.9		136,398.4		134,967.7

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	Year ended and as at December 31
	2018			2017			2016
RPKs (million)
International		68,365.2			66,344.2			63,392.6
SSC		20,220.6			19,407.9			19,293.7
Domestic Brazil		30,491.5			29,940.6			30,940.5
Total		119,077.3			115,692.7			113,626.9
Passengers (thousands)
International		16,456			16,057			15,107
SSC		23,928			22,775			22,829
Domestic Brazil		28,422			28,314			29,024
Total		68,806			67,146			66,960
Passenger RASK (passenger revenues/ASK, in US cents)
International(1)		US¢6.1			US¢6.2			US¢5.8
SSC(1)		US¢6.8			US¢7.3			US¢6.9
Domestic Brazil(1)		US¢6.0			US¢6.6			US¢5.8
Combined Passenger RASK(2)		US¢6.1			US¢6.2			US¢5.8
Passenger load factor (%)
International		84.3	%		86.9	%		86.2	%
SSC		82.0	%		81.5	%		80.9	%
Domestic Brazil		81.2	%		82.7	%		82.3	%
Combined load factor		83.1	%		84.8	%		84.2	%

(1) RASK information for each of our business units is provided because LATAM believes that it is useful information to understand trends in each of our operations. We use our revenues as defined under IFRS to calculate this metric. The revenues per business unit include ticket revenue, breakage, excess baggage fee, frequent flyer program revenues and other revenues. These operating measures may differ from similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS. This unaudited operating data is not included in or derived from LATAM’s financial statements.

(2) The combined Passenger RASK for LATAM is calculated by dividing passenger revenues by total passenger ASKs.

International Passenger Operations

Our international network combines the international operations of our Chilean, Peruvian, Ecuadorian, Argentinean, Colombian and Brazilian affiliates. We have operated international services out of Chile since 1946 and have since greatly expanded our international services, offering flights out of Peru, Ecuador, Argentina, Colombia and Brazil. As of December 31, 2018, we offer 32 international destinations in 20 countries, in addition to our domestic destinations and international flights and connections between our domestic destinations.

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

During 2018, the group has continued to grow at Guarulhos Airport in Sao Paulo, Jorge Chavez Airport in Lima and Comodoro Arturo Merino Benítez Airport in Santiago, launching 6 new international destinations during the year: Costa Rica, Las Vegas, Boston, Rome, Lisbon and Tel Aviv.

As part of our mission, LATAM seeks to promote tourism to South America. Due to our large network of services, visitors from around the world can experience world-renowned destinations such as Cusco, Easter Island, the Galapagos Islands, Iguazu Falls in Brazil, and Patagonia in Chile and Argentina, including the cities of Punta Arenas, Puerto Natales, Ushuaia, El Calafate and Bariloche.

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Market Share Information

The following table presents air passenger traffic information for international flights (including intra-regional flights) and LATAM’s market share in each geographic market in which we operate:

	LATAM passenger figures			LATAM’s Market Share
Country	% variation 2018-2017			2018			2017			% variation
Brazil(1)		+6.6	%		68.5	%		74.9	%		-6.4	p.p.
Chile(2)		+2.5	%		57.5	%		58.0	%		-0.5	p.p.
Argentina(3)		-2.7	%		27.0	%		28.3	%		-1.3	p.p.
Peru(4)		+8.4	%		41.7	%		41.6	%		+0.1	p.p
Colombia(5)		-6.1	%		7.4	%		8.7	%		-1.3	p.p
Ecuador(6)		-1.5	%		15.5	%		15.9	%		-0.4	p.p.

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

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

^{(3) Source: EANA Argentina’s website. Market share considers passenger transported.}

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

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

^{(6) Source: Diio.net. Market share considers ASKs.}

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Competitors in international routes

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

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

^{Source: Diio.net considering ASKs.}

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Domestic Passenger Operations

As of December 31, 2018, domestic passenger services within Chile, Brazil, Peru, Ecuador, Argentina and Colombia were operated by LATAM Airlines Chile, LATAM Airlines Brazil, LATAM Airlines Peru, LATAM Airlines Ecuador, LATAM Airlines Argentina and LATAM Airlines Colombia, respectively.

Business Model for Domestic Operations

In November 2016, the group announced an important project to revamp the business model of our domestic services offerings in the six domestic markets where we operate in South America. The purpose of this change was to increase our competitiveness and ensure the long-term sustainability of our domestic business model. As of December 2018, LATAM had implemented this new travel model in its domestic operations in Brazil, Chile, Colombia, Ecuador, Argentina and Peru. This project seeks to increase our operational efficiency, allowing us to provide more competitive fares, and contributing to the development of tourism and the growth of air travel per capita in the region. The new domestic service model requires continuous cost reduction efforts, and we continue to implement a series of initiatives to reduce cost per ASK in all domestic operations. These efforts are aimed at significantly reducing selling and distribution expenses, increasing fleet utilization and operational productivity and simplifying back-office and support functions, thereby allowing us to expand our operations while controlling fixed costs.

Another key element of this business model is initiatives to increase our ancillary revenues, while allowing passengers to customize their journey. Customers on domestic flights are now able to access a simpler sales platform, which allows them to choose their fare depending on the type of journey they want, and to purchase additional services such as extra luggage, a variety of food and beverage options on board, preferred seating options and the flexibility to change tickets.

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

The following table shows LATAM’s number of destinations, passengers transported, market share and main competitors in each domestic market in which we operate:

	Brazil			Chile			Argentina			Peru			Colombia			Ecuador
Destinations		42			17			14			19			14			5
Passengers Transported (million) Change (YoY)		28.4 0.4	%		8.0 4.0	%		2.4 (6.5	)%		7.3 9.5	%		5.1 4.4	%		1.3 22.5	%
Market share		32	%(1)		65	%(2)		17	%(3)		58	%(4)		23	%(5)		29	%(6)
Main competitors		Gol, Azul,  Avianca Brazil			Sky Airlines, JetSmart			Aerolíneas Argentinas, Flybondi, Andes, Norwegian, Avianca Argentina			Peruvian Airlines, Avianca, Viva Air Peru, Star Peru			Avianca, Viva Colombia, Satena, Copa Airlines Colombia (“Wingo”), EasyFly			Tame, Avianca

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

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

^{(3) Source: EANA Argentina’s website. Market share considers passenger transported.}

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

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

^{(6) Source: Diio.net. Market share considers ASKs.}

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On April 3, 2019, LATAM Airlines Brazil, announced that it had been approached by Elliott Associates L.P., Elliott International L.P., and Manchester Securities Corporation (jointly "Elliott"), the largest debt holders of Oceanair Linhas Aéreas S.A. and AVB Holding S.A. (jointly "Avianca Brasil"), and has agreed to bid for at least one independent productive unit (“IPU”) of Avianca Brazil’s respective assets (including but not limited to certain contracts, operating certificates, permits, and slots), in Elliot’s restructuring proposal in upcoming auctions for a minimum amount of US$70 million. As part of the proposed restructuring, subject to compliance with certain conditions, LATAM Airlines Brazil has committed to extend to Avianca Brasil, directly and indirectly, up to US$13 million of debtor–in–possession loans to finance, in part, working capital in support of the ongoing operations, amount that will be reimbursed to LATAM Airlines Brazil if the restructuring proposal is successful. At this date it is not possible to determine the financial effects that this announcement may have on the assets, liabilities or results of the Company or the date on which the adjudication of the aforementioned productive unit could materialize, which, in any case, is subject to any and all required governmental and antitrust approvals being granted in a timely manner.

Passenger Alliances and Commercial Agreements

LATAM is currently a member of the oneworld global marketing alliance, which includes American Airlines, British Airways, Cathay Pacific Airways, Finnair, Iberia, Japan Airlines, Malaysia Airlines, Qantas, Qatar Airways, Royal Air Maroc, Royal Jordanian, Sri Lankan and S7 Airlines. In the aggregate, oneworld® members serve more than 1,000 destinations in 150 countries, operating approximately 14,000 daily departures.

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

Moreover, on January 14, 2016, we entered into two joint business agreements: an agreement with American Airlines and a separate agreement with British Airways and Iberia. These agreements further strengthen our relationship with these oneworld® partners. Both agreements were approved in Uruguay in 2016. During 2017, joint business agreement with American Airlines was approved without mitigation measures by the competition authorities of Colombia and Brazil in May and September, respectively. The agreement with airlines of the IAG group (Iberia and British Airways) was authorized by the antitrust authorities of Brazil and Colombia in March and July 2017, respectively. In Chile, the agreements were approved by TDLC (“Tribunal de la Libre Competencia”) in October 2018. However, TDLC's decision remains subject to an appeal procedure before the Supreme Court of Chile. Finally, at the end of June 2018, Brazil ratified the open skies agreement with the United States. Accordingly, the Department of Transportation of the United States (US - DOT) can now approve the Joint Business Agreement (JBA) between LATAM and American Airlines that was announced in January 2016.

Passenger Marketing and Sales

Our long-haul marketing strategy emphasizes attributes valued by our international customers: reliable, high-quality service centered on comfort and entertainment for long-haul travel. We also highlight our extensive network, which covers the most important destinations in South America and the Caribbean and provides frequent service to major overseas gateways such as New York, Los Angeles, Miami, Boston, Orlando, London, Madrid, Paris, Frankfurt, Rome, Milan, Lisbon, Barcelona, Johannesburg, Sydney, Melbourne and Tel Aviv.

In 2018, we launched 28 new routes, including Costa Rica, Pisco, Las Vegas, Boston, Rome, Lisbon and Tel Aviv, adding a new continent to our network with this last route. In 2019, we will begin the operation of our first flight to Montego Bay (Jamaica).

With the aim of delivering a better experience, we invest in innovation, because we know how valuable it is for our customers. In 2018, we began to implement our Internet connectivity service (Wi-Fi) on board our domestic flights in Brazil, we launched our new multi-destination search engine with dynamic map and prices in real time; and we were the first in the continent to include a virtual reality tool to our mobile application that allows passengers to measure hand luggage. We also launched one of the company’s key projects, the transformation of the cabins of most of our aircraft, to which we will commit over US$400 million in the next two years.

We strive to deliver on our promise to our customers. Therefore, we constantly monitor customer satisfaction with in-flight surveys and research, and measure our performance against the highest standards. This commitment to excellence is reflected in the numerous awards and recognitions earned by the Company. In the 2018 Official Airline Guide (OAG), we were named as the most punctual ‘Mega Airline’, which compares the largest 20 operators in terms of scheduled flights. In the APEX Official Airline Rating as we were rated as “Global Airline 5 stars”, in the APEX PASSENGER CHOICE AWARDS, which are awards given by passenger rating based on flight experience, we received “Best overall passenger experience Global Airlines in South America”; in SKYTRAX, most prestigious global annual airline customer satisfaction survey, we were awarded 1st place “Best Business Class Lounge South America”, 3rd place “The Best Airlines in South America”, and 3rd place “Best Airline Staff in South America”; in the PAX INTERNATIONAL READERSHIP AWARDS, which are awards given by passengers and PAX International readers based on surveys, we were highlighted as “South America, Outstanding Food Service by a carrier”; and in the TRAVELLERS CHOICE AWARDS, the only travel industry award based on million of reviews from travelers in terms of service, quality and customer satisfaction, we were awarded “Five Stars Business Class Services in South America”.

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Branding

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

We believe that building our brand begins from the inside out with, employees who are genuinely committed not just to taking responsibility for our customers, but also for our region and the planet; for this reason, we launched out internal campaign “We Are LATAM” under the promise “Together, further”.

For all of us at LATAM, our values define who we are as a company and how we want to relate to our customers in a long-term relationship: these values are Care, Efficiency, and Safety. Under these pillars, and jointly with LATAM products and services, we focus on our customers, providing them exclusive benefits, relevant information and priority. Also, based on our Care foundation, we are also planning improvements to our digital audio and voice branding focused on our special clients (high-value customers), who are frequent and premium flyers.

Distribution Channels

We are committed to being the preferred choice of our customers, placing the passenger at the center of our decision making. Our distribution structure is divided into direct and indirect distribution channels, both focused on improving their respective platforms to allow for easy interaction for our client in sales and services alike. Direct channels owned by LATAM are comprised of city ticket offices, contact-centers and e-Business (including website, mobile and smart business), and accounted for approximately 55% of total passengers in 2018 (including award passengers). These direct channels support sales and service, both before and after the flight.

Our city ticket offices include additional services in order to complement the experience of our customers. Our contact centers are a multi-service channel providing support in six languages (Spanish, English, Portuguese, French, German and Italian).

We are committed to constantly improving the way we offer our products via our distribution channels, including the adoption of new technology. The Company will continue to improve its e-Business platforms to support expected future growth and simplify our customers’ purchasing experience.

Our digital strategy includes mobile applications that provide trip information to our passengers. These applications improve management of contingencies, enable us to provide information and solutions to our customers in a timely and transparent manner and serve as a new direct sales channel.

Indirect channels currently include travel agencies, general sales agencies, direct channels from other airlines and online agencies, and accounted for a 45% of total passengers in 2018.

Frequent Flyer Programs

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

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

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

As of December 31, 2018, LATAM Pass and LATAM Fidelidade had 30.3 million members, representing an increase of 2.0% compared to 2017. Members of LATAM’s loyalty programs receive benefits and increased points for ticket purchases in accordance with their elite level status, as well as by purchasing the services of other partners in the LATAM Pass and LATAM Fidelidade programs. Customers of the program can redeem miles or points for free tickets as well as for other products. LATAM Pass and LATAM Fidelidade members are classified in four elite levels: Gold, Platinum, Black and Black Signature. These different groups determine which benefits customers are eligible to receive, including mile earning bonuses, free upgrades, VIP lounge access and preferred boarding and check-in, as well as determining reciprocal benefits on oneworld airlines.

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Multiplus

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

In 2018, 79.1 billion Multiplus points were redeemed, 85% of them for airline ticket redemption. As of the end of 2018, Multiplus had more than 288 partners and approximately 22.2 million participants that could earn Multiplus points directly (through LATAM Fidelidade, co-branded cards, apps, retail partners, etc.) and indirectly (by transferring points from a partner program), reaching 21.4 billion points accrued during 2018.

On December 10, 2009, Multiplus entered into an Operating Agreement with LATAM Airlines Brazil, effective as of January 1, 2010, which established the terms and conditions governing the relationship with TLA (the “Operating Agreement”). Under the Operating Agreement, Multiplus became responsible for, among other tasks, processing information on accumulating and redeeming points under the LATAM Airlines Brazil Loyalty Program, and delivering awards to the members of said program, in accordance with the rules of the TAM Loyalty Program and the Multiplus network. The Operating Agreement is valid for 15 years from it’s effective date and LATAM Airlines Brasil has announced that it will not be renewed.

Multiplus S.A. maintains a leadership position in the consumer loyalty sector. On January 11, 2018, Multiplus S.A launched the new Multiplus Club, the product has three categories of 1,000, 5,000 and 10,000 and subscribers will have access to a platform with exclusive benefits that are unprecedented in the market. Among the differentiating aspects are extra points accumulated with Multiplus that last indefinitely. For those who like to fly or travel frequently, Club 5000 and Club 10,000 will also offer the benefits of the LATAM Fidelidade Gold category, such as one free checked baggage for domestic flights and preferential check-in, among others.

On May 9, 2018, Multiplus S.A was granted the right to act exclusively as a coalition network in the following countries and regions: Brazil, Paraguay, Mexico, the United States of America, Canada and countries of the European continent, including Turkey and Russia. LATAM, through its coalition network LATAM Pass, will have the right to operate exclusively in the following countries and regions: Chile, Argentina, Peru, Ecuador, Colombia, Venezuela, Uruguay, Bolivia, Central American countries and in the other countries and regions not included within Multiplus’ exclusive operational area. Since May 11, 2018, Multiplus has unrestricted access to flights offered by airlines that are, or will be, part of the LATAM group.

On May 11, 2018 Multiplus signed a contract with Datalex, the market leader in digital commerce solutions for the travel industry, to build a new digital platform that will concentrate all of the travel cycle offerings. In this way, participants can organize the next trip in one place, from air tickets to accommodation and car rental. This new marketplace aims to unify and simplify the participants experience, concentrating all the offers of the travel cycle, from air tickets to accomodation and car rental.

As part of Multiplus’ strategy of delivering the best experience to its 22.2 million members, Multiplus introduced a new innovation in the loyalty industry by launching a Members’ Council whose main objective is to further reinforce the perception of Multiplus as a company that is focused on delivering the best experience to all members.

In June, LATAM launched the new Las Vegas route from Brazil, which operated in high season, and Multiplus participated in the launch with point promotions and marketing initiatives for the inaugural flight. This underlines the fact that the synergy and partnership between the companies have evolved over the years, always with the aim of stimulating and developing the business of both companies. Starting in 2018, members of Multiplus have been able to use their points to visit Rome, Boston and Lisbon on new LATAM direct routes.

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Multiplus became a publicly traded company in Brazil following its initial public offering in February 2010, and TAM S.A continued to own 72.74% of the ordinary shares of Multiplus. On September 5, 2018 LATAM Airlines Group announced that (i) LATAM Airlines Brazil did not intend to extend or renew the operational agreement entered into with Multiplus S.A. after December 31, 2024, and (ii) LATAM Airlines Brazil intended to launch a tender offer to acquire all of the outstanding shares of Multiplus S.A. that LATAM’s affiliates do not currently own, and to subsequently delist Multiplus S.A. from the B3 Novo Mercado and cancel its registration. On March 1, 2019 LATAM Airlines Brazil launched the tender offer of Multiplus, and on April 1, 2019, it completed the tender offer process for the common shares of Multiplus S.A. that it did not own. Following the tender offer, LATAM Airlines Brazil acquired 24.5% of Multiplus’ common shares, reaching 97.2% ownership interest in Multiplus’ capital stock, and, as a result, LATAM Airlines Brazil will de-list Multiplus from the B3 Novo Mercado and cancel its registration. Shareholders who did not trade their shares during the tender offer wishing to sell its free float common shares to LATAM Airlines Brazil will still able to do so during the period of three months following the tender offer, which is, from April 2, 2019 to July 2, 2019. The company intends to purchase the remaining minority interest to achieve 100% ownership of Multiplus. The frequent flyer program is a strategic asset for the airline group, and a core source of value that differentiates LATAM from other carriers. The acquisition of Multiplus and its full integration into LATAM’s network will, together with LATAM Pass, create what LATAM estimates will be the fourth largest frequent flyer and loyalty program in the world (measured by member base), and will cement the LATAM Group’s relationship with 22.2 million members at Multiplus. Multiplus members’ points and redemption benefits will remain intact, and Multiplus's commercial partners will benefit from enhanced customer acquisition, retention and share of wallet. LATAM Airline Brazil’s decision is consistent with recent transactions in the industry, and with the strategy of in-house frequent flyer business models of the largest global airlines, including LATAM’s oneworld partners.

Cargo Operations

The Cargo business is operated internationally and domestically by affiliate airlines under the unified LATAM Cargo brand, which has acquired significant market recognition. The cargo business generally operates on the same route network used by the passenger airline business. It includes approximately 150 destinations; of which around 143 are served by passenger and/or freighter aircraft and 7 are served only by freighter aircraft.

The following table sets forth certain of our cargo-operating statistics for domestic and international routes for the periods indicated:

	Year ended and as at December 31,
	2018			2017			2016
ATKs (millions)		6,497.6			6,230.3			6,704.1
RTKs (millions)		3,582.5			3,421.3			3,465.9
Weight of cargo carried (thousands of tons)		920.6			895.9			944.3
Total cargo yield (cargo revenues/RTKs, in U.S. cents)		33.1			32.7			32.0
Total cargo load factor (%)		55.1	%		54.9	%		51.7	%

We derive our revenues from the transport of cargo through our dedicated freighter fleet and in the bellies of our passenger aircraft.

1) Bellies of our passenger aircraft. We consider our passenger network to be a key competitive advantage due to the synergies between passenger and cargo operations and, accordingly, we have developed a strategy to increase our competitiveness by enhancing our belly offering.

2) Dedicated freighter fleet. As of December 31, 2018, our dedicated freighter fleet under operation consisted of nine Boeing 767-300 freighters, each with a capacity for 58 structural tons of freight each. As of December 31, 2018, an additional Boeing 767-300F was subleased to MasAir S.A. The freighter fleet program has two main focus areas: first, to support the group’s belly business, improving its load factor by feeding cargo into our passenger routes, and second, to provide our customers flexibility in scheduling and destinations. With these two objectives in mind, we are complementing and enhancing our network. In Latin America, the principal origins of our cargo are Chile, Colombia, Peru, Ecuador, Brazil and Argentina, which represent a large part of our northbound traffic. This demand is mainly concentrated on a small number of product categories, such as exports of fish, sea products and fruits from Chile, asparagus from Peru, and exports of fresh flowers from Ecuador and Colombia.

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

Our largest domestic cargo operations are in Brazil, where LATAM Cargo Brasil remains the market leader, carrying cargo for a variety of customers, including freight-forwarding companies, logistics operators, e-commerce companies and individual consumers.

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

During 2018, cargo traffic increased 4.7%, mainly due to an increase of 4.3% in cargo capacity partially as a result of the seven new destinations launched during the year, which led to an improvement of 0.2 percentile points in cargo load factors to 55.1%. Cargo yields improved 1.2% during 2018, mainly due to an improvement in imports from North America and Europe to Brazil driven by major imports of electronics and spare parts.

The cargo business in the region is highly competitive, as international and regional carriers often have spare capacity in their cargo operations. Despite this, we have been able to maintain solid market shares through efficient utilization of our fleet and network. Today, on Latin America-United States routes, our main competitors are Atlas Air, Avianca Cargo and American Airlines. On the Latin America-Europe routes, our main competitors are Cargolux, Lufthansa Cargo, Air France, IAG Cargo and Qatar Airways.

Divestiture of Aerotransportes Mas de Carga, S.A. de C.V. (November 30th 2018)

On November 30, 2018, LATAM Airlines Group sold it’s direct and indirect stakes in Mexican cargo airline MasAir S.A. At the time, MasAir operated one Boeing 767-300F subleased from the Company. MasAir continues leasing this aircraft under an operating sublease. As a result of this sale MasAir will no longer consolidate with LATAM. This divestiture is not considered material for LATAM.

Cargo-Related Investigations

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

Fleet

General

As of December 31, 2018, we operated a fleet of 312 aircraft, comprised of 303 passenger aircraft and 9 cargo aircraft. Along with that, we subleased 8 aircraft, comprised of 7 passenger aircraft and 1 cargo aircraft to third parties.

Number of aircraft in operation
	Total		On-Balance(1)		Off-Balance		Average term of lease remaining (years)		Average age (years)
Passenger aircraft(2)
Airbus A320-Family Aircraft
Airbus A319-100		46		37		9		3.6		11,1
Airbus A320-200 (3)		131		97		34		2.6		10.4
Airbus A321-200		49		30		19		7.5		4.6
Airbus A320-neo		4		1		3		9.8		1.6
Airbus A350-Family Aircraft
Airbus A350-900 (4)		9		5		4		10.7		2.0
Boeing Aircraft
Boeing 767-300ER		35		33		2		1.8		10.2
Boeing 787-8		10		6		4		7.2		5.1
Boeing 787-9		14		4		10		9.1		3.0
Boeing 777-200ER (5)		2		0		2		0,5		17,1
Boeing 777-300ER		10		4		6		7.1		7.7
Total passenger aircraft		310		217		93		5.4		8.6
Cargo aircraft
Boeing 767-300 Freighter (6)		10		9		1		3.0		15.5
Total cargo aircraft		10		9		1		3.0		15.5
Total fleet		320		226		94		5.4		8.9

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

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

(3) Five A320-200 aircraft leased to a third party.

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

(5) Two short-term leases with Boeing Capital.

(6) One B767-300F aircraft leased to a third party.

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

For short-haul domestic and continental flights, we operate Airbus A320-Family aircraft. The Airbus A320-Family has been incorporated into our fleet pursuant to operating leases or has been acquired directly from Airbus pursuant to various purchase agreements since 1999. In 2018, we redelivered one A320 aircraft under an operating lease, and received two A321 aircraft under operating leases.

For long-haul passengers we operate Boeing 767-300ER, Boeing 787-8 and 787-9, Boeing 777-200ER and 777-300ER, and the Airbus A350-900 aircraft.

For cargo flights, we operate Boeing 767-300F aircraft. In 2018, we received our first B767-300F aircraft conversion.

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

	2018		2017		2016
Passenger aircraft
Boeing 767-300ER		10.2		9.4		10.0
Boeing 787-8/9		9.3		11.2		11.0
Airbus A320-Family		9.7		9.2		8.9
Boeing 777-300ER		11.0		11.6		11.7
Airbus A330-200		-		-		4.4
Airbus A350-900		8.2		9.1		8.5
Total passenger aircraft		9.7		9.5		9.0
Cargo aircraft
Boeing 767-300 Freighter		11.9		11.5		12.0
Boeing 777-200 Freighter (1)		7.7		12.6		13.6
Total cargo aircraft		11.8		11.7		12.5
Total passenger and cargo		9.8		9.6		9.1

(1) Aircraft sold in April 2018.

Fleet Leasing and Financing Arrangements

LATAM’s fleet financing and leasing structures include borrowing from financial institutions and leasing under financial leases, tax leases, sale-leaseback transactions and pure operating leases. As of December 31, 2018, LATAM had a total fleet of 320 aircraft, of which eight were subleased to third parties resulting in 312 aircraft in operation. Of the aircraft in operation, 160 are operated by LATAM Airlines, 143 aircraft are operated by LATAM Airlines Brazil and 9 are operated by LATAM Airlines Cargo.

As of December 31, 2018, LATAM’s operating fleet was comprised of 158 financial leases, 12 tax leases, 86 operating leases, 43 aircraft as loan guarantees and 13 unencumbered aircraft. Most of LATAM’s financial and tax leases are structured with a 12-year initial term. LATAM has 35 financial aircraft leases supported by the U.S. Export-Import Bank (“EXIM Bank”) and 79 supported by the European Export Credit Agencies (the “ECAs”). LATAM’s operating lease maturities initially range from three to twelve years.

LATAM’s aircraft debt, which is comprised of financial and tax leases, is denominated in U.S. dollars and typically has quarterly amortization payments. Both the financial leases and tax leases have a bank (or a group of banks) as counterparty; however, the tax leases also include third parties. 54.15% of our aircraft debt has a fixed interest rate and the balance has a floating rate based on USD LIBOR.

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In order to reduce LATAM Airlines Brazil’s balance sheet FX exposure to the Brazilian real, as part of the integration plan following the combination with TAM, we have sought to transfer the majority of the LATAM Airlines Brazil aircraft under financial leases to the LATAM level. As of December 31, 2018, we have transferred 51 aircraft to LATAM. This program has helped reduce the exposure to approximately US$388 million equivalent. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of financing” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a description of expected sources of financing and expected expenditures on aircraft.

Maintenance

LATAM Maintenance

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

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

LATAM Line Maintenance

The Line Maintenance Network serves over 160 locations and carried out over 2.1 million man hours of preventive and corrective maintenance tasks on the LATAM fleet during 2018. We also rely on certified third party services in many of our international destinations where it is economically convenient, such as in Frankfurt, (where we are served by Lufthansa Technik), Milan (served by Air France-KLM), and Johannesburg (served by South African Airways), among others.

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

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

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

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

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

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

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

In order to strictly comply with applicable regulations, all of our maintenance operations are supervised and audited by the local authorities and international entities around the Network, such as DGAC Chile, ANAC Brazil, the Federal Aviation Administration in the United States (“FAA”), the International Air Transport Association Operational Safety Audit (“IOSA”) (by the International Air Transport Association or “IATA”) and the International Civil Aviation Organization (“ICAO”), among others. The audits are conducted in connection with each country’s certification procedures and enable us to perform maintenance for the aircraft types registered in the certificating jurisdictions. Our repair stations hold FAA Part-145 certifications under these approvals.

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In addition, to ensure the most qualified personnel as needed for safe, accurate and on-time Line Maintenance, we seek to improve our technicians’ skills through extensive training programs at our LATAM Technical Training Centers in Chile and Brasil, and through specific training programs designed and conducted by our partnerships.

LATAM MRO

Our two main MRO (“Maintenance, Repair and Overhaul”) facilities, one in São Carlos (Brazil) and one in Santiago (Chile), are equipped and certified to service our fleet of Airbus and Boeing aircraft and provide 72% of all heavy maintenance services that LATAM demands. The services not executed internally are contracted to our extensive network of MRO partners around the globe. Both of our MRO facilities are FAA Part-145 certified repair stations. We occasionally perform certain heavy maintenance and component services for other airlines or OEMs. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries.

In MRO São Carlos (LATAM Airlines Brazil MRO), we are prepared to service up to eight aircraft (narrow and wide body) simultaneously with a dedicated hangar for stripping and painting. In this facility we also have 22 technical component shops, including a full landing gear repair & overhaul shop, hydraulics, pneumatics, electronics, electrical components, electroplating, composites, wheels & brakes, interiors and emergency equipment shops. MRO São Carlos is certified and audited by major international aeronautical authorities such as the FAA, the European Aviation Safety Agency (“EASA”), ANAC Brazil, the Chilean DGAC, the Argentinean Administración Nacional de Aviación Civil (“ANAC Argentina”), the Ecuadorian Dirección General de Aviación Civil (“DGCA”), the Paraguayan Dirección Nacional de Aeronautica Civil (“DINAC”), and Transport Canada (“TC”) , among others, for Heavy Maintenance and Components Repair and Overhaul for the Airbus A-320 family and Boeing 767. The MRO also has some minor capabilities for the repair and overhaul of Boeing 777 components. MRO São Carlos includes its own support engineering capabilities and a full technical training center.

In MRO Santiago, located near Comodoro Arturo Merino Benítez International Airport in Santiago, we have two hangars capable of servicing one wide body aircraft and two narrow body aircraft simultaneously. MRO Santiago is certified and audited by FAA, ANAC Brazil, DGAC, ANAC Argentina and DGCA, among others, for Heavy Maintenance for the Airbus A320-Family (A318, A319, A320 and A321) and Boeing 767. MRO Santiago has 10 shops prepared to support hangar activities such as cabin shops, galleys, structures and composite materials. We also have the capability to retrofit aircraft interiors, including the installation of IFE (in-flight entertainment) equipment, as well as to install blended winglets on the Boeing 767 fleet.

During 2018, LATAM MRO effectively executed 1.13 million man-hours in more than 388 services, including C checks (158) and Special Checks (230) for the LATAM fleet.

LATAM Safety and Security

The safety of our passengers and employees is LATAM’s highest priority. It is for this reason that we have put significant effort into standardizing our operational indicators regarding safety, audits and emergency response.

This standarization is achieved through our Safety, Security and Emergency Management Departments, which function on the basis of uniform policies and procedures throughout the whole company, ranging from our corporate headquartes in Santiago, Chile to every affiliated location within LATAM Airlines Group. As a result of this unification, we can ensure the highest levels of safety and security throughout our operations.

Organizational Structure of LATAM Safety and Security Vicepresidency

Safety Management

This Department ensures that providing safe and reliable air service remains the company’s highest priority. Given the complexity of our operations, as well as the multicultural challenges of our organization, LATAM has decided to concentrate its safety management activities under the umbrella of a single corporate structure that is responsible for the implementation and oversight of unified policies and procedures throughout the company. The core foundation of this department lies within its robust Safety Management System (SMS), which is built upon four main components (policies and objectives, risk management, safety assurance, and safety promotion). These components give the SMS a proper structure and provide all the necessary tools for Safety Management to oversee the safety of our operations. For example, through Flight Data Monitoring (FDM), also known as Flight Operations Quality Assurance (FOQA), we are able to capture, analyze and even visualize the data recorded during revenue flights and compare it with standard operating procedures. In parallel, our Line Operations Monitoring Program (LOMP) permits us to monitor Flight Crew performance and detect errors ahead of time. As a result of these proactive activities, we are able to improve overall safety, increase maintenance effectiveness, and reduce operational costs.

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The company’s SMS is publicly documented and it provides the guidelines and responsibilities that each employee must meet, regardless of function or hierarchy. In doing so, not only can we assure strict compliance, but more importantly, we are able to rely on each of our employees’ most sincere commitment towards safety. IOSA certification ensures the proper qualification of our employees, including the provision of a Senior Safety Manager responsible for each system implementation within the Safety Department, as well as defining standardized procedures for measuring the quality of services provided by third party companies and contractors that intervene with the operational safety of LATAM.

Emergency Response Management

This Department is responsible for managing the company’s Emergency Response Plan (ERP). It has been designed to provide an effective response to various emergency scenarios, such as aircraft accidents, natural disasters, union strikes and pandemics. By doing so, we are able to mitigate the impact that these contingencies have on our passengers and their relatives, in addition to ensuring the continuation of our operations. The structure of the ERP includes (but is not limited to) Emergency Process and Procedures, Emergency Control Centers, a Relatives & Passengers Assistance Team, a Notification Team, Aircraft Recovery, and a dedicated “Go Team” that can be activated and address any given emergency situation.

Security Management

The Security Management Department is responsible for the security of all of LATAM’s passengers, employees, aircraft, equipment and facilities. This department secures the company’s infrastructure while protecting people against any threat or unlawful action.

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

In addition to protecting the organization against any threat or unlawful action, LATAM is committed to the general health and safety of all of its employees. Accordingly, Security Management has created a dedicated Health, Safety and Environment (HSE) Team to ensure a safe work environment, and educated against common dangers and risks associated with everyday activities, and retains a genuine concern for everyone’s wellbeing.

Last but not least, every LATAM affiliate is responsible for complying with the Security Program approved by the relevant local authority. These Security Programs provide clear definitions of the security functions required for every operation.

Fuel Supplies

Fuel costs comprise one of the single largest categories of our operating expenses. In 2016, mainly due to the significant drop in the international price of crude oil, LATAM saw a drop in its jet fuel costs. In 2017, crude oil prices increased resulting in higher fuel costs for LATAM. In 2018, fuel prices continued to increase and resulted in even higher jet fuel costs. In 2018, total fuel costs represented 30.9% of our total operating expenses. Our average into-wing price for 2018 (fuel price plus taxes and transportation costs, including hedging and gains/losses) was US$2.49 per gallon, representing an increase of 24.7% from the 2017 into-wing average fuel price. We can neither control nor accurately predict the volatility of fuel prices. Despite the foregoing, we believe it is possible to partially offset the price volatility risk through our hedging and fuel surcharge programs, which in place in both our passenger and cargo business. For more information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Fluctuations in Jet Fuel Prices.”

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The following table details our consolidated fuel consumption and operating expenses, after related hedging gains and losses (which exclude fuel costs related to charter operations because fuel expenses are covered by the entity that charters the flight) for the last three years.

	Year ended December 31, (1)
	2018			2017			2016
Fuel consumption (thousands of gallons)		1,205,188.8			1,156,062.3			1,185,508.8
ASK (millions)		143,264.7			136,398.4			134,967.7
Fuel gallons consumed per 1,000 ASK		8.41			8.48			8,78
Total fuel costs (US$ thousands)		2,983,028			2,318,816			2,056,643
Cost per gallon (US$)		2.49			2.00			1.70
Total fuel costs as a percentage of total operating expenses		30.9	%		24.5	%		23.0	%

⁽¹⁾ See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—LATAM Airlines Group Financial Results Discussion: Year ended December 31, 2018 compared to year ended December 31, 2017.” Total fuel costs (US$ thousands) include Hedging gains/losses.

In our fuel supply agreements, we manage different price structures and price update calculations. The main price structure is Jet Fuel plus fixed fees and taxes, and the main fuel price updates are in a weekly, bi-weekly and monthly basis. Brazil, our largest market, bases its price on a refinery posting updated every month, which is set in Brazilian real per liter, plus fees and taxes. Refinery prices in Brazil have stabilized recently creating a more competitive market for the region.

Our fuel supply agreements vary by airport and are distributed among 30 suppliers. Our fuel consumption volume is mainly concentrated in Brazil (39%), Chile (16%), the United States (10%) and Peru (12%). During 2018, we re-negotiated our fuel supply contracts in Chile, Argentina, major European, and certain Australian airports. We also extended our current contracts in Peru, Brazil and the United States strengthening our relationship with global fuel suppliers that improved our commercial conditions and extended our credit terms, and achieved conditions that improved LATAM´s cash flow significantly.

In Chile and Peru, we use a fuel import model in addition to the traditional local refinery supply, creating a more competitive market and ensuring our supply with different sources. During 2018 we implemented the fuel import model in Brazil, by creating a jet fuel import project that will allow imported jet fuel to reach the Terminal of San Sebastian in Sao Paulo and move from there to Guarulhos, Sao Paulo’s International Airport. LATAM was awarded pipeline capacity to move product from the Terminal into Guarulhos and became the first airline to do so.

As part of a comprehensive energy efficiency initiative, LATAM Airlines Group worked with a team of stakeholders to generate a streamlined fuel efficiency program (the “LATAM Fuel Efficiency Program”), which encompasses a wide range of different innovations and technologies for fuel efficiency:

· Investments in more modern and efficient aircraft, such as the Boeing 787, the Airbus A350 and the Airbus A320neo. Investment has been carried out to perform retrofits to the whole Airbus A320 fleet, allowing more efficient standard operational procedures.

· Weight reduction measures, such as minimizing unnecessary onboard water, using ultra-light service carts, optimizing fuel according to destination, improving the distribution of weight to have an optimal center of gravity and the improvement of freight factor (the combination of passenger and cargo services),

· As of 2019, LATAM Pilot Tools, an in-house developed mobile app was deployed. This app allows personalized feedback to flight crews, focusing on captain fuel requests and usage, and ground fuel consumption, among other effiency and safety indicators. This app is groundbreaking as it is the first time a direct communication channel has been created between the flight crews and the Company’s Safety Efficiency operations.

· Standardized operational procedures on every stage of the flight (taxiing, climb, cruise, approach and landing); for example, changes in climb profiles that generate savings with minimum changes in the workload of the flight crew, or minimizing the use of the auxiliary power unit when aircraft is on the ground.

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

· Improvements of the flight plan, management, including continuous feedback using a post flight analysis tool called Full Tracks developed by the Fuel Team with the support and collaboration of Operations and Safety. This tool allows us to better program and optimize our flight plans.

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

Ground Facilities and Services

Our main operations are based at the Guarulhos Airport in São Paulo, Brazil. We also operate significant ground facilities and services at LATAM Airlines Brazil’s headquarters located at Congonhas International Airport in São Paulo, Brazil. In 2018, LATAM Airlines Brazil inaugurated a Maintenance Hangar in Guarulhos with an approximate area of 65,080m².

We also have significant operations at the Comodoro Arturo Merino Benítez International Airport in Santiago, Chile, where we operate hangars, aircraft parking and other airport service facilities pursuant to concessions granted by the DGAC and other outsourced concessions. We also maintain a customs warehouse at the Comodoro Arturo Merino Benítez International Airport, additional customs warehouses in Chile and Argentina (Aeroparque) and operate cargo warehouses at the Miami International Airport to service our cargo customers. Our facilities at Miami International Airport include corporate offices for our cargo and passenger operations and temperature-controlled and freezer space for imports and exports. We also operate from various other airports in Chile and abroad.

We incur certain airport usage fees and other charges for services performed by the various airports where we operate, such as air traffic control charges, take-off and landing fees, aircraft parking fees and fees payable in connection with the use of passenger waiting rooms and check-in counter space.

Ancillary Airline Activities

In recent years, LATAM has been developing different initiatives to increase its ancillary revenues generated by its airline operations. The implementation of these initiatives aims to offer a better on-board experience, while allowing passengers to customize their journey. LATAM’s customers are able to purchase for additional services such as extra luggage, preferred seating options and the flexibility to change tickets on the same day of their flight, among others.

In addition to airline operations, LATAM generates revenues from a variety of other activities, including aircraft leases (including subleases, dry-leases, wet-leases and capacity sales to certain alliance partners) and charter flights, tours, duty-free in-flight sales, maintenance services for third parties, handling, storage and customs services, handling and activities and revenues of Multiplus and the sale of certain LATAM Pass miles to third parties. In 2018, LATAM generated other revenues of US$472.8 million from these activities.

Insurance

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

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

Information Technology

Information and Digital Technologies

2018 was a year of important achievements, changes and challenges in Information and Digital Technologies. During this year we executed a series of initiatives focused on simplifying the way we work, improving processes, tools, organization and technological platforms.

In the areas of processes and tools, we completed the implementation of a new project management system, which will help us to increase prioritization visibility and improve project management. These changes came together with a strong change management effort and training, which have allowed us to continue improving our delivery throughput.

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In 2018, our organizational structure was revised, achieving more agile and leaner structures. This simplification was made adjusting the area’s structure into four organizational layers, through the redistribution and reduction of approximately 40% of our personnel.

In technology platforms, we also made a strong effort towards simplification. Our focus is to develop an improved system landscape. Likewise, we push to create better visibility of our technological roadmaps in order to help focus on simple and automatic processes.

All these internal improvements have enabled a closer and more collaborative relation with business areas.

LATAM PSS Migration

In 2018, we completed the migration of LATAM’s Passenger Service System (PSS) migrating Brasil based operations from Amadeus to Sabre. This was a critical milestone in our system integration since the PSS manages reservations, seats & flights availability and sales, alongside a series of integrated systems.

This migration required a significant effort in terms of processes and systems in LATAM’s daily operation and direct customer interaction. Large amounts of data and systems migration were executed successfully with minimal impacts to operations and customer experience.

Cybersecurity

The Company has an Information Security Office with dedicated staff and strategic partners specialized in all areas of CyberSecurity, which includes organized units focused on potential cyber attacks.

As part of its mandate, the Information Security Office handles regular processes such as Governance, Risk and Compliance (GRC), Corporate Awareness Plan, Security Architecture and Project Management, Fraud and Detection processes, Identity Management, Endpoint Protection, Data Security, Perimetral Security, Intelligence, as well as a Security Operations Center that includes a CSIRT (Computer Security Incident Response Team).

Our Information Security Office also maintains continuous IT Vulnerability Management and a full scan process which identifies and mitigates threats that may be presented. Also, one Cybersecurity team often executes Ethical Hacking Tests (EHT) in a many systems within the company and performs forensics analysis and investigations. The Company employs a Web Application Firewall (WAF) to defend against emerging threats in the external network. We also have alarms and reports, which monitor potential violations of our security policies.

Other projects

Other key initiatives worth mentioning are those related to LATAM’s new business model with branded fares which were successfully implemented in our different geographies. We continue to work to increase our digital channel conversion rate, implementing our cloud strategy, building advanced analytics capabilities and optimizing our operations and cargo systems among others.

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Regulation

Below is a brief reference to the material effects of aeronautical and other regulations in force in the relevant jurisdictions in which we operate.

We are subject to the jurisdiction of various regulatory and enforcement agencies in each of the countries where we operate. We believe we have obtained and maintain the necessary authority, including authorizations and operative certificates where required, which are subject to ongoing compliance with statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

The countries where we carry out most of our operations are contracting states and permanent members of the ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transportation. The ICAO establishes technical standards for the international aviation industry. In the absence of an applicable local regulation concerning safety or maintenance, the countries where we operate have incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.

Environmental and Noise Regulation. There are no material environmental regulations or controls imposed upon airlines, applicable to aircraft, or that otherwise affect us, except for environmental laws and regulations of general applicability.

In Argentina, Brazil, Colombia, Ecuador, Peru and the United States, aircraft must comply with certain noise restrictions. We believe our aircraft substantially comply with all such restrictions. Chilean authorities are planning to pass a noise-related regulation governing aircraft that fly to and within Chile, observing a standard known as “Stage 3 requirements”. Our fleet already complies with such standards, so we do not believe that enactment of the proposed standards would impose a material burden on us.

In 2016, the ICAO adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), providing a framework for a global market-based measure to stabilize CO2 emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). With the adoption of this framework, the aviation industry became the first industry to achieve an agreement with respect to its CO2 emissions. The scheme, which defines a unified standard to regulate CO2 emissions in international flights, will be implemented in various phases by ICAO member states starting in 2020.

Safety and Security. Our operations are subject to the jurisdiction of various agencies in each of the countries where we operate, which set standards and requirements for the operation of aircraft and its maintenance.

In the United States, the Aviation and Transportation Security Act requires, among other things, the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security required under the Aviation Security Act is provided in part by a US$5.60 per segment passenger security fee, subject to a US$11.20 per roundtrip cap; however, airlines are responsible for costs in excess of this fee. Implementation of the requirements of the Aviation Security Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, Congress has mandated, and the TSA has implemented, numerous security procedures and requirements that have imposed and will continue to impose burdens on airlines, passengers and shippers.

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

Chile

Aeronautical Regulation

Both the Dirección Nacional de Aeronáutica Civil (“DGAC”) and the Junta de Aeronáutica Civil (“JAC”) oversee and regulate the Chilean aviation industry. The DGAC reports directly to the Chilean Air Force and is responsible for supervising compliance with Chilean laws and regulations relating to air navigation. The JAC is the Chilean civil aviation authority. Primarily on the basis of Decree Law No. 2,564, which regulates commercial aviation, the JAC establishes the main commercial policies for the aviation industry in Chile and regulates the assignment of international routes and the compliance with certain insurance requirements, while the DGAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authority from the Chilean government to conduct flight operations, including authorization certificates from the JAC and technical operative certificates from the DGAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

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Chile is a contracting state, as well as a permanent member, of the ICAO. Chilean authorities have incorporated ICAO’s technical standards for the international aviation industry into Chilean laws and regulations. In the absence of an applicable Chilean regulation concerning safety or maintenance, the DGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.

Route Rights

Domestic Routes. Chilean airlines are not required to obtain permits in order to carry passengers or cargo on any domestic routes, but only to comply with the technical and insurance requirements established respectively by the DGAC and the JAC. There are no regulatory barriers that would prevent a foreign airline from creating a Chilean subsidiary and entering the Chilean domestic market using that subsidiary. On January 18, 2012 the Secretary of Transportation and the Secretary of Economics of Chile announced a unilateral opening of the Chilean domestic skies. This was confirmed on November 2013, and has been in force since that date.

International Routes. As an airline providing services on international routes, LATAM is also subject to a variety of bilateral civil air transportation agreements that provide for the exchange of air traffic rights between Chile and various other countries. There can be no assurance that existing bilateral agreements between Chile and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.

International route rights, as well as the corresponding landing rights, are derived from a variety of air transportation agreements negotiated between Chile and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Chile, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the JAC awards it through a public auction for a period of five years. The JAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the JAC may terminate its rights to that route. International route frequencies are freely transferable. In the past, we have generally paid only nominal amounts for international route frequencies obtained in uncontested auctions.

Airfare Pricing Policy

Chilean airlines are permitted to establish their own domestic and international fares without government regulation. For more information, see “—Antitrust Regulation” below. In 1997, the Antitrust Commission approved and imposed a specific self-regulatory fare plan for our domestic operations in Chile consistent with the Antitrust Commission’s directive to maintain a competitive environment. According to this plan, we must file notice with the JAC of any increase or decrease in standard fares on routes deemed “non-competitive” by the JAC and any decrease in fares on “competitive” routes at least 20 days in advance. We must file notice with the JAC of any increase in fares on “competitive” routes at least 10 days in advance. In addition, the Chilean authorities now require that we justify any modification that we make to our fares on non-competitive routes. We must also ensure that our average yields on a non-competitive route are not higher than those on competitive routes of similar distance.

Argentina

Aeronautical Regulation

Both the Administración Nacional de Aviación Civil (“ANAC”) and the Ministry of Transport oversee and regulate the Argentinean aviation industry. ANAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management, and reports directly to the Ministry of Transport. ANAC also is responsible for supervising compliance with Argentinean laws and regulations relating to air navigation. The Ministry of Transport regulates the assignment of international routes and matters related to tariff regulation policies. We have obtained and maintain the necessary authorizations from the Argentinean government to conduct flight operations, including authorization certificates and technical operative certificates from ANAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

Argentina is a contracting state and a permanent member of the ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transport. The ICAO establishes technical standards for the international aviation industry, which Argentinean authorities have incorporated into Argentinean laws and regulations. In the absence of applicable Argentinean regulation concerning safety or maintenance, the ANAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.

Route Rights

Domestic Routes. In Argentina, airlines are required to obtain permits in connection with carrying passengers or cargo on any domestic routes, and to comply with the technical requirements established by the local authority. There are no regulatory barriers preventing a foreign airline from creating an Argentine subsidiary and entering the Argentine domestic market using that subsidiary. However, ownership of such subsidiary by the foreign airline may not be direct, but through a subsidiary formed in Argentina, which in turn may be directly or indirectly owned by the foreign company. However, such subsidiary should operate Argentine-registered aircraft and employ Argentine aeronautical personnel.

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International Routes. As an airline providing services on international routes, LATAM Argentina is also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Argentina and various other countries. There can be no assurance that existing bilateral agreements between Argentina and foreign governments will continue. Furthermore, a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.

International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Argentina and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Argentina, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. ANAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the ANAC may terminate its rights to that route.

Airfare Pricing Policy

Argentine airlines are permitted to establish their own international fares without government regulation, as long as they do not abuse any dominant market position they may enjoy. In the case of domestic flights, government-fixed maximum prices were in place until February 3, 2016, when the government eliminated the controls that limited maximum prices.However, there remain government-fixed minimum prices for one-way tickets, and also for tickets sold within 30 days before the flight. Prices for roundtrip tickets sold 30 days or more before the flight were de-regulated on July 31, 2018.

Peru

Aeronautical Regulation

The Peruvian DGAC (“PDGAC”) oversees and regulates the Peruvian aviation industry. The PDGAC reports directly to the Ministry of Transportation and Communications and is responsible for supervising compliance with Peruvian laws and regulations relating to air navigation. In addition, the PDGAC regulates the assignment of national and international routes, and the compliance with certain insurance requirements, and it regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authorizations from the Peruvian government to conduct flight operations, including authorization and technical operative certificates, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

Peru is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Peruvian authorities have incorporated into Peruvian laws and regulations. In the absence of an applicable Peruvian regulation concerning safety or maintenance, the PDGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all relevant technical standards.

Route Rights

Domestic Routes. Peruvian airlines are required to obtain permits in connection with carrying passengers or cargo on any domestic routes and to comply with the technical requirements established by the PDGAC. Non-Peruvian airlines are not permitted to provide domestic air service between destinations in Peru.

International Routes. As an airline providing services on international routes, LATAM Peru is also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Peru and various other countries. There can be no assurance that existing bilateral agreements between Peru and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.

International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Peru and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Peru, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the PDGAC awards it through a public auction for a period of four years. The PDGAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of 90 days or more, the PDGAC may terminate its rights to that route, although that has never happened in practice.

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Ecuador

Aeronautical Regulation

There are two institutions that control commercial aviation on behalf of the State: (i) The National Civil Aviation Board (“CNAC”), which directs aviation policy; and (ii) the General Civil Aviation Bureau (“EDGAC”), which is a technical regulatory and control agency. The CNAC issues operating permits and grants operating concessions to national and international airlines. It also issues opinions on bilateral and multilateral air transportation treaties, allocates routes and traffic rights, and approves joint operating agreements such as wet leases and shared codes.

Fundamentally, the EDGAC is responsible for:

· ensuring that the national standards and technical regulations and international ICAO standards and regulations are observed;  

· keeping records on insurance, airworthiness and licenses of Ecuadorian civil aircraft;

· maintaining the National Aircraft Registry;

· issuing licenses to crews;

· controlling air traffic control inside domestic air space;

· approving shared codes; and

· modifying operations permits.

The EDGAC also must comply with the standards and recommended methods of ICAO since Ecuador is a signatory of the 1944 Chicago Convention.

Route Rights

Domestic Routes. Airlines must obtain authorization from CNAC (an operating permit or concession) to provide air transportation. For domestic operations, only companies incorporated in Ecuador can operate locally, and only Ecuadorian-licensed aircraft and dry leases are authorized to operate domestically.

International Routes. Permits for international operations are based on air transportation treaties signed by Ecuador or, otherwise, the principle of reciprocity is applied. All airlines doing business in Latin America that are incorporated in countries that are members of the Comunidad Andina de Naciones (the Andean Community, or “CAN”) obtain their traffic rights on the basis of decisions currently in force under that regime, in particular decision N°582 of 2004, which guarantee free access to markets, with no type of restriction except technical considerations.

Airfare Pricing Policy.

On October 13, 2011, The Statutory Law of Regulation and Control of the Market Power was passed with a purpose to avoid, prevent, correct, eliminate and sanction the abuse of economic operators with market power, as well as to sanction restrictive, disloyal and agreements involving collusive practices. This Law creates a new public entity as the maximum authority of application and establishes the procedures of investigation and the applicable sanctions, which are severe. Rates are not regulated and are subject only to registration. In general, bilateral treaties regarding air transportation provide for airfares to be regulated by the regulation of the country of origin.

Brazil

Aeronautical Regulation

The Brazilian aviation industry is regulated and overseen by the ANAC. The ANAC reports directly to the Civil Aviation Secretary, which is subordinated by the Federal Executive Power of this country. Primarily on the basis of Law No. 11.182/2005, ANAC was created to regulate commercial aviation, air navigation, the assignment of domestic and international routes, compliance with certain insurance requirements, flight operations, including personnel, aircraft and security standards, air traffic control, in this case sharing its activities and responsibilities with the Departamento de Controle do Espaço Aéreo (Department of Airspace Control) (“DECEA”),which is a public secretary also subordinated to the Brazilian Defense Ministry, and airport management, in this last case sharing responsibilities with the Empresa Brasileira de Infra-Estrutura Aeroportuária (the Brazilian Airport Infrastructure Company, or “INFRAERO”), a public company that was created by Law No. 5862/72, and is responsible for administrating, operating and exploring Brazilian airports industrially and commercially (with the exception of Guarulhos International Airport, Viracopos International Airport and Brasilia International Airport, which were privatized in 2012 and are administrated by concession agreement).

We have obtained and maintain the necessary authority from the Brazilian government to conduct flight operations, including authorization and technical operative certificates from ANAC, the continuation of which is subject to ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.

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ANAC is the Brazilian civil aviation authority and it is responsible for supervising compliance with Brazilian laws and regulations relating to air navigation. Brazil is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Brazilian authorities, represented by the Brazilian Defense Ministry, have incorporated into Brazilian laws and regulations. In the absence of an applicable Brazilian regulation concerning safety or maintenance, ANAC has incorporated by reference the majority of the ICAO’s technical standards.

Route Rights

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

International Routes. Brazilian and non-Brazilian airlines providing services on international routes are also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Brazil and various other countries. International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Brazil and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Brazil, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency ANAC must carry out a public bid and award it to the elected airline. ANAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, ANAC may terminate its rights to that route. ANAC may also terminate its right if the recipient airline does not operate at least 80% of the frequency given for that specific route.

Airfare Pricing Policy.

Brazilian and non-Brazilian airlines are permitted to establish their own international and domestic fares, in this last case only for Brazilian airlines, without government regulation, as long as they do not abuse any dominant market position they may enjoy. Airlines may file complaints before the Antitrust Court with respect to monopolistic or other pricing practices by other airlines that violate Brazil’s antitrust laws.

Colombia

Aeronautical Regulation

The governmental entity in charge of regulating, directing and supervising civil aviation in Colombia is the Aeronáutica Civil (“AC”), a technical agency ascribed to the Ministry of Transportation. The AC is the aeronautical authority for the entire domestic territory, in charge of regulating and supervising the Colombian air space. The AC may interpret, apply and complement all civil aviation and air transportation regulation to ensure compliance with the Colombian Aeronautical Regulations (“RAC”). The AC also grants the necessary permits for air transportation.  

Route Rights

The AC grants operation permits to domestic and foreign carriers that intend to operate in, from and to Colombia. In the case of Colombian airlines, in order to obtain the operational permit, the company must comply with the RAC and fulfill legal, economic and technical requirements, to later be subject to public hearings where the public convenience and necessity of the service is considered. The same process must be followed to add national or international routes; whose concession is subject to the bilateral instruments entered into by Colombia. Routes cannot be transferred under any circumstance and there is no limit to foreign investment in domestic airlines.

Airfare Pricing Policy.

Since July 2007, as stated in resolution 3299 of the Aeronautical Civil entity, bottom level airfares for both international and domestic transportation were eliminated. Under resolution 904 issued in February 2012, the Aeronautical Civil authority ceased to impose the obligation of charging a fuel surcharge for both domestic and international transportation of passengers and cargo. As of April 1, 2012, air carriers may now freely decide whether or not to charge a fuel surcharge. In the case that a fuel surcharge is charged, it must be part of the fare, but shall be informed separately on the tickets, advertising or other methods of marketing used by the company.

In the same line, as of April 1, 2012, there is no longer any restriction on maximum fares published by the airlines or with respect to the obligations for air carriers to report to the Aeronautical civil authority the fares and conditions the day after being published.

Administrative fares are not subject to any changes, and its charge is mandatory for the transport of passengers under Aeronautical Civil Regulations. Differential administrative fares apply to ticket sales made through Internet channels.

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Antitrust Regulation

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

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

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

Chile

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

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

2. extension of the frequent flyer program to airlines operating or willing to operate the Santiago-Sao Paulo, Santiago-Río de Janeiro, Santiago-Montevideo and Santiago-Asunción routes during the five-year period from the effective time of the combination;

3. execution of interline agreements with airlines operating the Santiago-Sao Paulo, Santiago-Río de Janeiro and Santiago-Asunción routes;

4. certain capacity and other transitory restrictions applicable to the Santiago-São Paulo route;

5. certain amendments to LAN’s self-regulatory fare plan approved by the TDLC with respect to LAN’s domestic passenger business;

6. the obligation of LATAM to renounce to one global airline alliance within 24 months from the date in which the combination becomes effective, except in the case that the TDLC approves otherwise, or to elect not to participate in any global airline alliance;

7. certain restrictions on code-sharing agreements outside the global airline alliance to which LATAM belongs for routes with origin or destination in Chile or that connect to North America and Europe, or with Avianca/TACA or Gol for international routes in South America, including the obligation to consult with, and obtain approval from, the TDLC prior to its execution of certain of those codeshare agreements;

8. the abandonment of four air traffic frequencies with fifth freedom rights between Chile and Peru and limitations on acquiring in excess of 75%, as applicable, of the air traffic frequencies in that route and the period that certain air traffic frequencies may be granted by the Chilean air transport authorities to LATAM;

9. issuance of a statement by LATAM supporting the unilateral opening of the Chilean domestic skies (cabotage) and abstention from any actions that would prevent such opening;

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10. promotion by LATAM of the growth and normal operation of the Guarulhos (Brazil) and Arturo Merino Benítez (Chile) airports, to facilitate access thereto to other airlines;

11. certain restrictions regarding incentives to travel agencies;

12. to maintain temporarily 12 round trip flights per week between Chile and the United States and at least seven round trip non-stop flights per week between Chile and Europe;

13. certain transitory restrictions on increasing fares in the Santiago-Sao Paulo and Santiago-Río de Janeiro routes for the passenger business and for the Chile-Brazil routes for the cargo business; and

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

On or about June 2015, the FNE initiated a legal claim against LATAM before the TDLC alleging that LATAM was not complying with certain mitigation conditions related to the code share agreements with airlines outside LATAM’s global alliance as referenced above. Although LATAM opposed this allegation and responded the claim accordingly, a settlement agreement was reached between the FNE and LATAM. The Settlement Agreement approved by the TDLC on December 22, 2015 terminated the legal proceeding initiated by the FNE and did not establish any violation of the TDLC resolutions or any applicable antitrust regulations by LATAM. The Agreement did establish the obligation of LATAM to amend/terminate certain code share agreements and contract an independent third party consultant, which would act as an advisor to the FNE to monitor the compliance by LATAM of the Seventh Condition and the Agreement.

On October 31, 2018, the TDLC approved the joint business agreements between LATAM and American Airlines, and between LATAM and IAG, subject to nine mitigation measures, as generally described below:

1. The formula for revenue sharing between LATAM and American Airlines, and between LATAM and IAG, should be based on the aggregation into a pool of all of the revenues generated on the trunk flights for the routes included in the respective JBAs.

2. Commitment to a minimum capacity of passengers on direct flights from Santiago to Miami and Santiago to Madrid.

3. Commitment to increase the passenger capacity on flights to Europe and the United States/Canada.

4. The Parties cannot charge for their indirect flights prices that are less than those that they charge for the direct flights, when the latter are used as a supply for the former.

5. The Parties should enter into a frequent passenger agreement with the airlines that request this and that begin to operate the Santiago - Miami and Santiago - Madrid routes, nonstop, provided that they do not belong to the Oneworld, SkyTeam, and Star Alliance alliances, and are not related to any of the parties to the agreements or their corporate groups.

6. The Parties should enter into an agreement that enables the combination of fares with requesting airlines that start to operate the Santiago - Miami and Santiago - Madrid routes, nonstop.

7. The Parties should enter into a special prorating agreement with requesting airlines that begin to operate the Santiago-Miami and Santiago-Madrid routes, for the behind or beyond legs that are not covered by the requesting airline.

8. To hire a Consultant that will monitor compliance with the mitigation measures imposed in this resolution.

9. The Consulted JBAs are approved for a term of five years commencing from the time whenethis resolution is made final or enforceable.

Brazil

The Brazilian Council for Economic Defense – CADE approved the LAN/TAM merger by unanimous decision during the hearing session of December 14, 2011, subject to the following conditions: (1) the new combined group (LATAM) should leave one of the two global alliances to which it was part (Star Alliance or oneworld); and (2) the new combined group (LATAM) should offer to swap two pairs of slots in Guarulhos International Airport, to be used by an occasional third party interested in offering direct non-stop flights between São Paulo and Santiago, Chile. These impositions are in line with the mitigation measures adopted by the TDLC, in Chile.

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C. ORGANIZATIONAL STRUCTURE

Our corporate structure as of April 5, 2019 is as follows:

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

As of March 8, 2019 we held a 100% stake in Transporte Aéreo S.A. through direct and indirect interests, a 70% stake in LAN Peru through direct and indirect interests, a 55.00% stake of the voting shares of LAN Ecuador and a 100% of the non-voting shares of Holdco Ecuador S.A., who has 45.00% of the voting shares of LAN Ecuador, a 99.87% indirect stake in LAN Argentina, a 99.19% indirect stake in LAN Colombia and a 100.00% stake of the non-voting shares of TAM, and 51.04% of the voting shares and 100% of the non-voting shares of Holdco I S.A., which has 100.00% of the voting shares of TAM. Following changes in Brazilian law, which now permit foreign persons to own up to 100% of the voting capital of Brazilian airlines, on February, 2019, we increased our ownership of the voting shares of Holdco I S.A. to 51.04%.

Cargo operations are carried out by the affiliates under the brand LATAM Cargo. Our cargo operations are complemented by the operations of certain related companies, such ABSA and TAM Cargo in Brazil and LANCO in Colombia. As of March 8, 2019, we held 100% of the non-voting shares and 20% of the voting shares of ABSA and a 90% stake in LANCO through direct and indirect participations. TAM S.A. has 100% of the non-voting shares and 100% of the voting shares of ABSA. In the cargo business, we market ourselves internationally primarily under the LATAM Cargo brand.

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D. PROPERTY, PLANT AND EQUIPMENT

Chile

Headquarters

Our main facilities are located on approximately five acres of land that we own near the Comodoro Arturo Merino Benítez International Airport. The complex includes approximately 45,932 m² of office space, 9,843 m² of conference space and training facilities, 2,953 m² of dining facilities and mock-up cabins used for crew instruction.

In addition, we occupy 32897 m² for our executive offices in a central location of Santiago, Chile. This space includes five floors owned by LATAM in one building and four leased floors in adjacent buildings. We also occupy 15,057 m², in twelve floors (of which LATAM owns ten floors) in downtown in Santiago, Chile.

Finally, we recently acquired a 55,899 m² property, on which we plan to start constructing our new main headquarters next year.

Maintenance Base

Our 267,388 m² maintenance base is located on a site that we own inside Comodoro Arturo Merino Benítez International Airport. This facility contains our aircraft hangar, warehouses, workshops and offices, as well as a 170,603 m² aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We have a 16,404 m² office building plus a 3,084 m² office and workshop space. We also lease from the Sociedad Concesionaria Nuevo Pudahuel S.A. approximately 37,795 m² of space inside the Comodoro Arturo Merino Benítez International Airport for operational and service purposes. The lease has a duration of 30 days and is renewed monthly.

Other Facilities

We own sixteen acres of land and a building on the west side of the Comodoro Arturo Merino Benítez International Airport that houses a flight-training center. This facility features three full-flight simulators (which are not property of LATAM) for Boeing 767, Airbus A320 and Boeing 737 aircraft.

Fast Air Almacenes de Carga S.A., one of our affiliates that operates import customs warehouses, utilizes a 5,600 m² warehouse located at Comodoro Arturo Merino Benítez International Airport.

Brazil

Headquarters

LATAM Airlines Brazil’s main facilities are located in São Paulo, in hangars within the Congonhas Airport and nearby. At Congonhas Airport, LATAM Airlines Brazil leases office facilities in converted hangars belonging to INFRAERO (the Local Airport Administrator). These facilities comprise an area of approximately 38,807 m².

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

We also lease office space for corporate purposes in the city of São Paulo, where we operate 1,500 workstations distributed in 11 floors. From November 2018 we returned 2 floors, reducing the number of floors from 11 to 9 and the number of stations from 1,500 to 1,225.

Maintenance Base

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

Headquarters of the Presidency

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

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Other Facilities

In São Paulo, LATAM Airlines Brazil has other facilities, including: a Call Center Building with 3,199 m2, distributed over five floors (plus a ground floor and a basement) that currently holds about 272 workstations and support rooms (meetings / training / dining room / coordination) of the operations of Call Center Reservations, Talk to People and ABSA back office.

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

New Facilities

LATAM Airlines Brazil completed several infrastructure projects in Brazil during 2018, including:

1. Maintenance Hangar Opening (Guarulhos): 65,080m²

2. Ground Handling area reduction due to third party outsourcing in Guarulhos: reduction of 2,478m²

3. Cargo Terminal Parking Area optimization: reduction of 1,374m²

4. Cargo Terminal optimization in Viracopos: reduction of 620m²

Other locations

We occupy a 36.3-acre site at the Miami International Airport that has been leased to us under a concession agreement by the Miami Dade Aviation Department. Our facilities include a 13,609 m² corporate building, a 115,824 m² cargo warehouse (including 35,561 m² refrigerated area) and a 238,658 m² aircraft-parking platform. These facilities were constructed and are now leased to us under a long-term contract by Aero Term, a division of Real Term Global. For the year ended 2018, we paid US$ 9.6 million in rent under the foregoing leases.

In February 2014, the Company entered into a lease agreement with Miami- Dade County covering approximately 1.81 acres of land located on the grounds of the Miami International Airport. The lease has a term of 30 years with a total annual land cost of US$166,969.

Under the lease, we retained the right to construct a hangar facility on the leased premises. The Company completed construction in November 2015 and the hangar has been operational since June 2016. The property has a 15,479 m² aircraft maintenance space, sufficient to house a Boeing B777 aircraft, in addition to a 9,888 m² area designated for office space. Total investment in this hangar in construction and related expenditures by LATAM was US$16.5 million.

ITEM 4A UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating Results

You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and the accompanying notes beginning on page F-1 of this annual report.

The summary consolidated annual financial information as of December 31, 2018, 2017 and 2016 and for the years ended December 31, 2018, 2017 and 2016, has been prepared in accordance with IFRS and has been derived from our audited consolidated annual financial statements included in this annual report.

Overview

We derive our revenues primarily from transporting passengers on our passenger aircraft, as well as from transporting cargo in the belly of our passenger aircraft and in our dedicated freighter aircraft. In 2018, 84.0% of our total revenues (including in the total for this purpose other income from operating activities) came from passenger revenues and 11.4% came from our cargo business. The remaining 4.6% was classified as other operating income, which consists primarily of revenues generated from our coalition and loyalty program Multiplus, tour operator services, aircraft leasing, customs and warehousing services, third-party maintenance, duty free sales and other miscellaneous income.

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Our operating environment in 2018 was marked by volatility in the region mainly resulting from political instability prior to the recent presidential election in Brazil and the economic decline in Argentina. In addition, LATAM faced high volatility and an increase in fuel prices and operational disruptions generated by strikes in Chile and Brazil.

Passenger Operations

In general, our passenger revenues are driven by international and country-specific political and economic conditions, competitive activity, and the attractiveness of the destinations that we serve. Passenger revenues are also affected by our capacity, traffic, load factors, yield and unit revenue. Our capacity is measured in terms of available seat kilometers, or ASKs, which represents the sum, across our network, of the number of seats we make available for sale on each flight, multiplied by the kilometers flown by the respective flight. We measure traffic in RPKs, as the sum, across our network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight. Load factors represent RPKs (traffic) as a percentage of ASKs (capacity), or the percentage of our capacity that is actually used by paying customers. We use yield, revenue from passenger operations divided by RPKs, to measure the average amount that one passenger pays to fly one kilometer and unit revenue, or revenue per ASK, to measure the effect of capacity on revenues. See “Item 3. Key Information—A. Selected Financial Data.”

Passenger demand during 2018 showed some recovery as compared to the previous year, mainly as a result of the improvement in the economic environment and higher GDP growth in certain countries such as Brazil, Chile and Colombia, despite the growth deceleration in Peru and Ecuador, the economic decline in Argentina and the increase in competition from operators to South America and within the region.

During 2018, domestic operations of our affiliate carriers based in Spanish Speaking Countries, which accounts for 17.2% of total passenger capacity, showed an increase of 4.2% in passenger traffic while capacity increased 3.5% as compared to 2017. As a result, the passenger load factor increased 0.5 percentage points to 82.0%. Despite intensifing competition in these markets, especially in Chile, Peru and Argentina, yields in the SSC domestic markets decreased only by 2.6% mainly due to the devaluation of the Argentinian Peso, and resulted in a 2.0% decrease in revenue per ASK in US dollars as compared to 2017.

In our domestic operations in Brazil, LATAM Airlines Brazil increased capacity by 3.7% in 2018, strengthening its connectivity especially at the Guarulhos hub. Passenger traffic increased by 1.8%, allowing for a decline of 1.5 percentage points in passenger load factors, which reached 81.2%. LATAM Airlines Brazil ended the year with a decrease of 5.0% in revenues per ASK in US dollars due to the devaluation of the Brazilian Real during 2018, as revenue per ASK in Brazilian Reals increased by 8.3% as compared to 2017.

In international operations, LATAM increased its passenger capacity by adding new destinations and strengthening the use of its regional hubs, mainly from Guaruhlos, consistent with the Company’s focus on network improvements. Capacity increases were mainy driven by growth in long haul routes from Brazil to new destinations in the US and in Europe, such as Rome, Lisbon, Boston and Las Vegas, and as a result, capacity in international operations increased by 6.1%. Traffic increased 3.0%, resulting in a decline of 2.5 percentage points in passenger load factors, which reached 84.3%. Revenue per ASK decreased 1.0% in US dollars, especially in the long haul routes of LATAM Airlines Brazil and driven by less international demand from Argentina, partially offset by routes from affliattes in the Spanish Speaking Countries both to United States and Europe.

Cargo Operations

Cargo operations depend on exports from South America to North America and Europe, and imports from North America and Europe to South America, where Brazil is the main import market. Cargo markets are affected by economic conditions, foreign exchange rates, changes in international trade, the health of particular industries and competition and fuel prices (which we usually pass on to our customers through a cargo fuel surcharge). Cargo revenues are affected by our capacity, traffic, cargo load factors and yield. Our capacity is measured in terms of available ton kilometers, or ATKs, which represents the number of tons available across our network for the transportation of cargo on each flight, multiplied by the kilometers flown by the respective flights. We measure traffic in revenue ton kilometers, or RTKs, as the amount of cargo loads (measured in tons) on each flight multiplied by the number of kilometers flown by the respective flights. Load factors represent RTKs (traffic) as a percentage of ATKs (capacity), or the percentage of our cargo capacity that is actually used to transport cargo for our customers. Finally, we use cargo yield, or revenue from cargo operations divided by RTKs, to measure the average amount that our customers pay to transport one ton of cargo one kilometer.

During 2018, cargo traffic increased 4.7% while cargo capacity grew by 4.3%, which led to an improvement of 0.2 percentage points in cargo load factors to 55.1%. Cargo yields increased 1.2%, and as a result, revenues per ATK increased by 1.6% as compared to the previous year. Both imports and exports showed recovery, especially during the first half of the year. However, in the second half of the year, as a result of the devaluation of the Brazilian and Argentinian currencies, imports towards the region declined. The Company continued its rational and disciplined approach toward freighter capacity deployment, while focused on maximizing the belly utilization of the passenger fleet.

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Cost Structure

LATAM Airlines Group’s costs are largely driven by the size of our operations, fuel prices, fleet costs and exchange rates. Our operating expenses are calculated in accordance with IFRS and comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses. The following is a discussion of the drivers of the most important costs.

As an airline, we are subject to fluctuations in costs that are outside of our control, particularly fuel prices. During 2018, average Jet fuel prices increased 29.7%, principally due to the decision by OPEC to cut oil supply, the sanctions imposed on Iran by the US (affecting the country’s production), and geopolitical factors in oil exporter countries such as Lybia, Iraq, Nigeria and Venezuela. LATAM Airlines Group has a hedging policy to protect medium term liquidity risk from fuel price increases, while participating in the benefits of fuel price reductions. Cost of fuel is also affected by the amount of gallons we consume, which depends on the size of our operation, the efficiency of our fleet and the impact of our efficiency programs.

Personnel expenses are another significant component of our overall costs. Because a significant portion of our labor costs are denominated in Chilean pesos and in Brazilian Reals, appreciation of these currencies against the U.S. dollar as well as increases in local inflation rates can result in increased costs in U.S. dollar terms and can negatively affect our results. Depreciation of local currencies results in decreases in costs in dollars. Other important drivers of personnel expenses are average headcount and average wages.

Commissions paid to travel and cargo agents are also a significant cost to the Company. We compete with other airlines over the amount of commission we pay per sale, particularly in connection with special programs and marketing efforts, and to maintain competitive incentives with travel agents.

Fleet related expenses, namely aircraft rentals and depreciation, are another significant cost, and mainly depend on the number and type of aircraft that are owned and that are under operating leases. These costs are largely fixed and can be reduced on a per unit basis by achieving higher aircraft utilization rates.

Results of Operations

LATAM Airlines Group Financial Results Discussion: Year ended December 31, 2018 compared to year ended December 31, 2017.

The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2018, and December 31, 2017. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”

	Year Ended December 31,
	2018			2017			2018			2017
	(in US$ millions, except per share and capital stock data)						As a percentage of total operating revenues						2018/2017 % change
Consolidated Results of Income by Function
Operating revenues
Passenger		8,709.0			8,494.5			88.0	%		88.4	%		2.5	%
Cargo		1,186.5			1,119.4			12.0	%		11.6	%		6.0	%
Total operating revenues		9,895.5			9,613.9			100.0	%		100.0	%		2.9	%
Cost of sales		(7,962.8	)		(7,441.8	)		(80.5	)%		(77.4	)%		7.0	%
Gross margin		1,932.7			2,172.1			19.5	%		22.6	%		(11.0	)%
Other operating income		472.8			549.9			4.8	%		5.7	%		(14.0	)%
Distribution costs		(619.2	)		(699.6	)		(6.3	)%		(7.3	)%		(11.5	)%
Administrative expenses		(721.4	)		(938.9	)		(7.3	)%		(9.8	)%		(23.2	)%
Other operating expenses		(359.8	)		(368.9	)		(3.6	)%		(3.8	)%		(2.5	)%
Financial income		53.3			78.7			0.5	%		0.8	%		(32.3	)%
Financial costs		(356.3	)		(393.3	)		(3.6	)%		(4.1	)%		(9.4	)%
Share of profit of investments accounted for using the equity method		0.0			0.0			0.0	%		0.0	%		0.0	%
Foreign exchange gains/(losses)		(157.7	)		(18.7	)		(1.6	)%		(0.2	)%		743.3	%
Result of indexation units		(0.9	)		0.7			(0.0	)%		0.0	%		n.a
Other gains/(losses)		53.5			(7.8	)		0.5	%		(0.1	)%		n.a

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	Year Ended December 31,
	2018			2017			2018			2017
	(in US$ millions, except per share and capital stock data)						As a percentage of total operating revenues						2018/2017 % change
Income (loss) before income taxes		297.0			374.2			3.0	%		3.9	%		(20.6	)%
Income (loss) tax expense		(83.8	)		(173.5	)		(0.8	)%		(1.8	)%		(51.7	)%
Net income (loss) for the period		213.2			200.7			2.2	%		2.1	%		6.2	%
Income (loss) for the period attributable to the parent company’s equity holders		181.9			155.3			1.8	%		1.6	%		17.1	%
Income (loss) for the period attributable to non-controlling interests		31.3			45.4			0.3	%		0.5	%		(31.1	)%
Net income (loss) for the period		213.2			200.7			2.2	%		2.1	%		6.2	%
Earnings per share
Basic earnings per share (US$)		0.30002			0.25610			n.a			n.a.			17.1	%
Diluted earnings per share (US$)		0.30002			0.25610			n.a			n.a.			17.1	%

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

Net Income

Net income for the year ended December 31, 2018 equaled US$213.2 million, representing an increase of US$12.5 million from a net income of US$200.7 million in 2017. Net income attributable to the parent company’s shareholders was US$181.9 million in 2018, representing an increase of US$26.6 million compared with a net income of US$155.3 million in 2017.

Operating Revenues

Our total operating revenues increased by 2.9% to US$9,895.5 million in the year ended December 31, 2018 compared to revenues of US$9,613.9 million in 2017. The 2018 increase in operating revenues was attributable to a 2.5% increase in passenger revenues, and a 6.0% increase in cargo revenues. Passenger and cargo revenues accounted for 88.0% and 12.0% of total operating revenues in 2018, respectively.

Our consolidated passenger revenues increased by 2.5% to US$8,709.0 million in 2018 from US$8,494.5 million in 2017, as a result of a 5.0% increase in capacity, offset by a decrease of 2.4% in our unit revenues (“RASK”). The passenger RASK decline resulted from a 0.4% yield reduction, together with a load factor decline of 1.7 percentage points, which reached 83.1%. The devaluation of the Argentinean Peso and the Brazilian Real during 2018 negatively affected demand, especially in our international operations. Cargo revenues increased by 6.0%, to US$1,186.5 million in 2018 from US$1,119.4 million in 2017, driven by a 4.3% increase in cargo capacity and an increase of 1.6% in unit revenues (“RATK”). Cargo yields increased 1.2%, while load factor reached 55.1%, an improvement of 0.2 points compared to 2017. Increases in RATK reflected an improvement in market conditions in Brazil, especially during the first half of the year, while import markets from North America and Europe to Brazil weakened in the second half of 2018, pressuring yields and traffic to the region.

Cost of Sales

Cost of sales increased by 7.0% to US$7,962.8 million for the year ended December 31, 2018 (from US$7,441.8 million in 2017), mainly due to higher aircraft fuel expenses. As a percentage of total operating revenues, cost of sales increased from 77.4% in 2017 to 80.5% in 2018.

The table below presents cost of sales information for the fiscal year ended December 31, 2018 and 2017.

	Year Ended December 31,
	2018			2017			2018			2017			2018/2017 % change
	(in US$ millions, except as otherwise stated)						As a percentage of total operating revenues
Revenues		9,895.5			9,613.9			100.0	%		100.0	%		2.9	%
Cost of sales		(7,962.8	)		(7,441.8	)		(80.5	)%		(77.4	)%		7.0	%
Aircraft Fuel		(2,983.0	)		(2,318.8	)		(30.1	)%		(24.1	)%		28.6	%

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	Year Ended December 31,
	2018			2017			2018			2017			2018/2017 % change
	(in US$ millions, except as otherwise stated)						As a percentage of total operating revenues
Wages and Benefits		(1,442.5	)		(1,545.6	)		(14.6	)%		(16.1	)%		(6.7	)%
Other Rental and Landing Fees		(1,217.6	)		(1,172.1	)		(12.3	)%		(12.2	)%		3.9	%
Depreciation and Amortization		(981.6	)		(1,001.6	)		(9.9	)%		(10.4	)%		(2.0	)%
Aircraft Rentals		(538.3	)		(579.6	)		(5.4	)%		(6.0	)%		(7.1	)%
Aircraft Maintenance		(382.2	)		(430.8	)		(3.9	)%		(4.5	)%		(11.3	)%
Passenger Services		(280.3	)		(288.7	)		(2.8	)%		(3.0	)%		(2.9	)%
Other Costs of Sales		(137.3	)		(104.6	)		(1.4	)%		(1.1	)%		31.3	%

The increase in our cost of sales was driven by higher aircraft fuel expenses, which increased by 30.1% to US$2,983.0 million in 2018 as a result of a 25.1% increase in the full year average fuel price (excluding hedging expenses and gains/losses) and a 4.2% increase in the gallons of fuel consumed. LATAM recognized a net gain of US$29.7 million in fuel hedging in 2018, compared to a fuel hedge gain of US$15.1 million in 2017. In 2018, the Company also recognized a US$18.3 million hedge gain related to foreign currency contracts, which were recognized in the fuel cost line, compared to a US$9.7 million loss in 2017.

Wages and benefits decreased by 6.7% to US$1,442.5 million in 2018 from US$1,545.6 million in 2017, explained by the 3.9% decline in the average headcount as well as the depreciation of local currencies during the year.

Other rental and landing fees increased by 3.9% to US$1,217.6 million in 2018 from U$1,172.1 million in 2017, mainly due to an increase of US$47.3 million in handling costs, as the company outsourced some of these services in the countries in which it operates.

Depreciation and amortization decreased by 2.0%, amounting to US$981.6 million in 2018, mainly due to the depreciation of the Brazilian real.

Aircraft rentals decreased by 7.1% to US$538.3 million in 2018 from US$579.6 million in 2017 as a result of the annual average reduction of four aircraft in our fleet under operating leases and a decrease in the average unit cost of fleet under operating leases.

Aircraft maintenance expenses decreased by 11.3%, from US$430.8 million in 2017 to US$382.2 million in 2018, mainly due to fewer redelivery costs, as the Company returned less aircraft during 2018.

Passenger service expenses decreased by 2.9%, to US$280.3 million in 2018 compared to US$288.7 million in 2017, due to lower catering costs related to the implementation of our buy-on-board system in domestic flights, generating savings of US$14.2 million.

As a result of the above, gross margin (defined as operating revenue minus cost of sales) decreased by 11.0% from US$2,172.1 million in 2017 to US$1,932.7 million in 2018.

Other Consolidated Results

Other operating income decreased in 2018 by 14.0%, from US$549.9 million in 2017 to US$472.8 million in 2018, mainly due to the adoption of IFRS15, lower revenues from Multiplus driven by the devaluation of the Brazilean real, and lower revenues from aircraft subleases to third parties. Please see “Recently Issed Acounting Pronouncement” above for an explanation of the impact of the adoption of IFRS15 on our operating results.

Distribution costs decreased by 11.5% from US$699.6 million in 2017 to US$619.2 million in 2018, mainly as a result of lower commissions to agents (which decreased by 11.9%, from US$252.5 million to US$222.5 million) in the passenger businesses.

Administrative expenses decreased by 23.2% from US$938.9 million in 2017 to US$721.3 million in 2018, mainly due to a 3.9% headcount reduction and the impact of the depreciation of local currencies during the year, especially the 14.5% of the Brazilian Real and the 69.6% of the Argentinean Peso, on wages denominated in those currencies, partially offset by the annual increase in unit salaries due to inflation adjustments.

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Other operating expenses decreased by 2.5% from US$368.9 million in 2017 to US$359.8 million in 2018 as a result of the Company’s ongoing efficiency initiatives.

Financial income decreased by 32.3% to US$53.3 million in the year ended December 31, 2018 compared with US$78.7 million in 2017, as a result of lower interest rates in Brazil and the depreciation of the Brazilian Real.

Financial costs decreased by 9.4% to US$356.3 million in 2018 from US$393.3 million in 2017, mainly due to a reduction in our gross debt.

Foreign exchange result decreased US$139.0 million to a net loss of US$157.7 million in 2018, mainly as a result of the devaluation of 17.2% of the Brazilian Real and 102.3% of the Argentinean Peso.

Income tax expense decreased by 51.7% to US$83.8 million for 2018, as compared to US$173.5 million in 2017. This decrease is explained mainly by reduced pre-tax results in 2018 (US$297.0 million gain) compared with 2017 (US$374.2 million gain), different income distribution by subsidiary, and by accumulated deferred tax liabilities due to the dissolution of some subsidiaries originally used for the acquisition of aircraft that were sold during the year.

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

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

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

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

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Net Income

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

Operating Revenues

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

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

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

Cost of Sales

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

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

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

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

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

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

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

Aircraft rentals increased by 1.9% to US$579.6 million in 2017 from US$569.0 million in 2016 as a result of the incorporation of larger and more modern aircraft under operating leases (i.e. Boeing 787s and Airbus A320 neos), partially offset by fewer aircraft in the fleet under operating leases.

Aircraft maintenance expenses increased by 17.6%, from US$366.2 million in 2016 to US$430.8 million in 2017, mainly due to redelivery costs, as the Company returned 21 aircraft during the year. Passenger service expenses increased by 0.7%, to US$288.7 million in 2017 compared to US$286.6 million in 2016, in line with the increase of 0.3% in the number of passengers transported.

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

Other Consolidated Results

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

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

Administrative expenses increased by 7.5% from US$873.0 million in 2016 to US$938.9 million in 2017, mainly due to the impact of the appreciation of local currencies during the year on wages denominated in those currencies, and the annual increase in unit salaries due to the inflation adjustment (which was based on 2016 inflation rates), especially in Brazil,

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

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

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

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

U.S. Dollar Presentation and Price-Level Adjustments

General

Foreign currency transactions

(a) Presentation and functional currencies

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

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(b) Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation, at the closing exchange rates, of the monetary assets and liabilities denominated in foreign currency, are shown in the consolidated statement of income.

(c) Adjustment due to hyperinflation

After July 1, 2018, the Argentine economy was considered, for purposes of IFRS, hyperinflationary. The financial statements of the subsidiaries whose functional currency is the Argentine Peso have been restated.

The non-monetary items of the statement of financial position as well as the income statement, comprehensive incomes and cash flows of the Argentine's entities, whose functional currency corresponds to a hyperinflationary economy, are adjusted for inflation and re-expressed in accordance with the variation of the consumer price index ("CPI"), at each presentation date of its financial statements. The re-expression of non-monetary items is made from the date of initial recognition in the statements of financial position and considering that the financial statements are prepared under the historical cost criterion. For more information see Note 4(g) to our audited consolidated financial statements.

Net losses or gains arising from the re-expression of non-monetary items and income and costs are recognized in the consolidated income statement under "Result of indexation units".

Net gains and losses on the re-expression of opening balances due to the initial application of IAS 29 are recognized in the consolidated retained earnings.

Re-expression due to hyperinflation will be recorded until the period in which the economy of the entity ceases to be considered as a hyperinflationary economy, at that time, the adjustments made by hyperinflation will be part of the cost of non-monetary assets and liabilities.

The comparative amounts in the Consolidated financial statements of the Company are presented in a stable currency and are not adjusted for subsequent changes in the price level or exchange rates.

(d) Group entities

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

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

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

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

For consolidation purposes, exchange differences arising from the translation of a net investment in foreign entities (or in local entities with a functional currency different to that of the parent), and of loans and other foreign currency instruments designated as hedges for such investments, are recorded within net equity. When the investment is sold, these exchange differences are shown in the consolidated statement of income as part of the loss or gain on the sale.

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

Effects of Exchange Rate Fluctuations

Our functional currency is the U.S. dollar in terms of the pricing of our products, composition of our balance sheet and effects on our results of operations. Most of our revenues (60% in 2018) are in U.S. dollars or in prices pegged to the U.S. dollar and a substantial portion of our expenses (66% in 2017) is denominated in dollars or pegged to the U.S. dollar, particularly fuel costs, landing and over-flight fees, aircraft rentals, insurance and aircraft components and supplies.

A substantial majority of our liabilities are denominated in U.S. dollars (71.4% as of December 31, 2018), including bank loans, certain air traffic liabilities, and certain amounts payable to our suppliers. As of December 31, 2018, 55.6% of our assets were denominated in U.S. dollars, principally aircraft, cash and cash equivalents, accounts receivable and other fixed assets. Substantially all of our commitments, including operating lease and purchase commitments for aircraft, are denominated in U.S. dollars.

Balance sheet imbalance denominated in currencies other than the functional currency of each specific entity creates a foreign exchange rate exposure that impacts our foreign exchange losses and gains due to exchange rate fluctuations. We recorded net foreign exchange losses of US$18.7 million in 2017 and net foreign exchange losses of US$157.7 million in 2018, which are set forth in our consolidated statement of income under “Foreign Exchange gains/(losses).” For more information, see Notes 2.3 and 29 to our audited consolidated financial statements.

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Critical Accounting Policies

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

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

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

(c) Recoverability of deferred tax assets

(d) Air tickets sold that will not be used.

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

(f) Required provisions and their valuation when required

(g) Consumer Price Index

(h) Investment in subsidiary (TAM)

Please see Note 4 – Accounting estimates and judgments – to our audited consolidated financial statements for a full description of our critical accounting policies.

Recently Issued Accounting Pronouncements

a) Accounting pronouncements with implementation effective from January 1, 2018

		Date of issue	Mandatory Application: Annual periods beginning on or after
(i)  Standards and amendments
IFRS 9: Financial instruments.	Disclosure initiative	December 2009	January 1, 2018
Amendment to IFRS 9: Financial instruments.	Novation of derivatives and continuation of hedge accounting	November 2013	January 1, 2018
IFRS 15: Revenue from ordinary activities from contracts with customers (1).	Implementation	May 2014	January 1, 2018
Amendment to IFRS 15: Revenue from ordinary activities from contracts with customers.	Clarifications	April 2016	January 1, 2018
Amendment to IFRS 2: Share-based payments	Classification and measurement of share based payment transactions	June 2016	January 1, 2018
Amendment to IFRS 4: Insurance contracts.	Pendiente Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts	September  2016	January 1, 2018
Amendment to IFRS 40: Investment property	Transfers of investment property	December 2016	January 1, 2018
(ii) Improvements
Improvements to International Financial Reporting Standards (2014-2016 cycle):		December 2016	January 1, 2018
IFRS 1: First-time adoption of international financial reporting standards.	Deletion of short-term exemptions for first-time adopters
IAS 28 investments in associates and joint ventures.	Measuring an associate or joint venture at fair value
(iii) Interpretations
IFRIC 22: Transactions in foreign currency and anticipated consideration	Disclosure initiative	December 2016	January 1, 2018

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The Company has recognized the changes identified as a result of the adoption of IFRS 9 and IFRS 15, recognizing the cumulative effect of the initial application of these standards as an adjustment to the opening balance of retained earnings as of January 1, 2018, therefore, the Financial statements as of December 31, 2017 have not been modified.

The impacts of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from ordinary contracts with customers are as follows:

Consolidated statement of financial position (extract)

		As of		Adoption						As of
		December 31,		effect						January 1
	Note	2017		IFRS 9			IFRS 15			2018
		ThUS$		THUS$			ThUS$			ThUS$
Current assets
Other non-financial assets, current	7 - 12		221,188		-			54,361	(4)		275,549
Trade debtors and other accounts receivable, current	7 - 8		1,214,050		(11,105	)(1)		-			1,202,945
Non-current assets
Deferred tax assets			364,021		89	(2)		6,005	(7)		370,115
Current liabilities
Accounts payable commercial and other Debts to pay	7 - 20		1,695,202		-			(22,192	)(5)		1,673,010
Other non-financial liabilities, current	22		2,823,963		-			77,640	(6)		2,901,603
Non-current liabilities
Deferred tax liability	18		949,697		(1,021	)(2)		4,472	(5)		953,148
Equity
Accumulated earnings	25		475,118		(9,995	)(3)		446	(8)		465,569

- Effects of adopting IFRS 9

(1) Expected credit losses: The Company modified the calculation of the impairment provision to comply with the expected credit loss model, established in IFRS 9 Financial Instruments, which replaces the current loss impairment model incurred. To calculate percentage of credit losses, a risk matrix was used, grouping the portfolio, according to similar characteristics of risk and maturity. This change resulted in the recognition of an increase in the provision for impairment losses of US $11.1 million.

This standard also includes requirements related to the classification and measurement of financial assets and liabilities and an expected credit loss model that replaces the current loss impairment model incurred.

As of January 1, 2018, the calculation of the impairment losses provision is as follows:

	Portfolio maturity
							Up to			Up to			More than
				Up to			91 to			181 to			360
	Up to date			90 days			180 days			360 days			days			Total
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Expected loss rate		1	%		21	%		46	%		67	%		94	%		8	%
Gross book value		1,046,909			36,241			12,001			14,623			66,022			1,175,796
Impairment provision		(13,570	)		(7,774	)		(5,499	)		(9,803	)		(61,787	)		(98,433	)

(2) Deferred tax adjustments originated by the application of IFRS 9.

(3) Net effect on accumulated results of the adjustments indicated above.

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In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition.

The Company analyzed the business models and classified its financial assets and liabilities according to the following:

	Classification IAS 39											Classification IFRS 9
									Initial
	Loans			Hedge		Held			as fair value					At fair value
	and			and		for			through profit			Cost		with changes
Assets	receivables			derivatives		trading			and loss			amortized		in results		Total
	ThUS$			ThUS$		ThUS$			ThUS$			ThUS$		ThUS$		ThUS$
Balance as of December 31, 2017		2,446,864			62,867		1,915			501,890			-		-		3,013,536
Cash and cash equivalents		(1,112,346	)		-		-			(29,658	)		1,112,346		29,658		-
Other financial assets, current		(23,918	)		-		(1,421	)		(472,232	)		23,918		473,653		-
Trade debtors and other accounts receivable, current		(1,214,050	)		-		-			-			1,214,050		-		-
Accounts receivable from entities related, current		(2,582	)		-		-			-			2,582		-		-
Other financial assets, non-current		(87,077	)		-		(494	)		-			87,077		494		-
Accounts receivable, non-current		(6,891	)		-		-			-			6,891		-		-
Balance as of January 1, 2018		-			62,867		-			-			2,446,864		503,805		3,013,536

	Classification IAS 39					Classification IFRS 9
	Others			Held
	financial			hedge		Cost
Liabilities	liabilities			derivatives		amortized		Total
	ThUS$			ThUS$		ThUS$		ThUS$
Balance as of December 31, 2017		10,086,434			14,817		-		10,101,251
Other current financial liabilities		(1,288,749	)		-		1,288,749		-
Trade accounts payable and other accounts payable, current		(1,695,202	)		-		1,695,202		-
Accounts payable to related entities, current		(760	)		-		760		-
Other financial liabilities, not current		(6,602,891	)		-		6,602,891		-
Accounts payable, not current		(498,832	)		-		498,832		-
Balance as of January 1, 2018		-			14,817		10,086,434		10,101,251

- Effects of adopting IFRS 15

(4) Contract costs: The Company has capitalized the costs related to the revenues from air transport of passengers, corresponding to the commissions charged by the credit card administrators for US$22.0 million and the air ticket booking services through the GDSs for US$15.6 million. Additionally, there is a reclassification of commissions from travel agencies for US$16.8 million, these previously were presented, according IAS 18, net of the air traffic liability in other non-financial liabilities.

(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore, they must be deferred until the benefit of the service have been rendered. These concepts are mainly related to ground transportation service for US $ 15.6 million and travelers checks (US$6.6 million).

(6) Performance Obligations: The Company analyzed the moment at which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redemption of some products associated with loyalty programs for US$60.8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16.8 million.

(7) Deferred tax adjustments originated by the application of IFRS 15.

(8) Net effect on accumulated results of the adjustments indicated above.

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Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of these services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.

The effects of the changes recognized in the application of IFRS 15 in the year 2018 in the consolidated income statement are presented below: 

		For the year ended December 31, 2018
Reconciliation Revenue					Adjustments for reconciliation
		Results						Deferred						Results
		under			Contract			revenues						under
	Note	IFRS 15			costs (4)			recognition [(5), (6)]			Reclassifications			IAS 18
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Revenue	26		9,895,456			-			48,561			31,501			9,975,518
Cost of sales			(7,962,843	)		-			(34,986	)		-			(7,997,829	)
Gross margin			1,932,613			-			13,575			31,501			1,977,689
Other income	28		472,758			-			-			42,563			515,321
Distribution costs			(619,200	)		(43	)		-			(20,003	)		(639,246	)
Administrative expenses			(721,270	)		(806	)		-			(54,061	)		(776,137	)
Other expenses			(359,781	)		-			-			-			(359,781	)
Other gains/(losses)			53,499			-			-			-			53,499
Income from operation activities			758,619			(849	)		13,575			-			771,345
Financial income			53,253			-			-			-			53,253
Financial costs	27		(356,269	)		-			-			-			(356,269	)
Foreign exchange gains/(losses)	29		(157,708	)		-			-			-			(157,708	)
Result of indexation units			(865	)		-			-			-			(865	)
Income (loss) before taxes			297,030			(849	)		13,575			-			309,756
Income (loss) tax expense / benefit	18		(88,456	)		(23	)		(1,030	)		-			(89,509	)
NET INCOME (LOSS) FOR THE			208,574			(872	)		12,545			-			220,247
Income (loss) attributable to of the parent			176,822			(872	)		12,545			-			188,495
Income (loss) attributable to non-controlling interest	14		31,752			-			-			-			31,752
Net income (loss) for the year			208,574			(872	)		12,545			-			220,247

(b) Accounting pronouncements not yet in force for financial years beginning on January 1, 2018 and for which early adoption has not been effected:

		Date of issue	Mandatory Application: Annual periods beginning on or after
(i)  Standards and amendments
IFRS 16: Leases (2).	Disclosure initiative	January 2016	January 1, 2019
Amendment to IFRS 9: Financial Instruments	Prepayment Features with Negative Compensation	October 2017	January 1, 2019
Amendment to IAS 28: Investments in associates and joint ventures	Long-term interests in associates and joint ventures	October 2017	January 1, 2019
IFRS 17: Insurance contracts	Disclosure initiative	May 2017	January 1, 2021
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	Sale or contribution of assets between an Investor  and its associate or joint venture	September 2014	To be determined
Amendment to IAS 19: Benefits to employees	Plan amendment, curtailment or settlement	February 2018	January 1, 2019
Amendment to IFRS 3: Business combination	Definition of a Business	October 2018	January 1, 2020
Amendment to IAS 1: Presentation of financial statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors	Definition of Material	October 2018	January 1, 2020

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		Date of issue	Mandatory Application: Annual periods beginning on or after
(ii)     Improvements
Improvements to International Financial Reporting Standards (2015-2017 cycle):		December 2017	January 1, 2019
IFRS 3: Business combinations	Previously held interest in a joint operation.
IAS 12: Income tax	Income tax consequences of payments on financial instruments classified as equity
IFRS 11: Joint arrangements	Previously held interest in a joint operation.
IAS 23: Borrowing costs	Borrowing costs eligible for capitalisation
(iii)  Interpretations
IFRIC 23: Uncertain tax positions	Uncertainty over Income Tax Treatments	June 2017	January 1, 2019

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

“IFRS 16: Leases” incorporates significant changes in the accounting for lessees by requiring a similar treatment to financial leases for all those leases that are currently classified as operating leases with a term greater than 12 months. This standard will be applied effective January 1, 2019 and requires, in general terms, the recognition of the right to use the underlying leased assets subject to an operating lease and the liability equivalent to the present value of the payments associated with the lease. The monthly depreciation will be recognized instead of the monthly lease payments amd the right of use will be recognized as a financial expense. Likewise, in the Statement of Cash Flows, the operating cash flow will decrease by the amount of the lease payment, increasing the cash flow for financing activities separating interest and principal, from the lease liability.

During the year 2018 the Company began the analysis of the effects of first adoption of IFRS 16, applying this new standard to the contracts identified as leases using IAS 17 "Leases" and IFRIC 4 "Determining whether an Arrangement Contains a Lease”.

The Company will apply this new standard with a retrospective application, restating the comparative financial statements, in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”.

The Company will continue to recognize the expenses associated with short-term lease contracts, as well as with the underlying low-value assets, in a straight-line manner as an expense in the profit or loss statement, as indicated by the exception established in IFRS 16.

When establishing the terms of the lease, the Company has evaluated the relevant facts or circumstances that may determine the possible exercise of the options to extend or terminate the lease agreements. These options will be evaluated on each closing date.

For the valuation of the right of use and the lease liability, the Company has determined the present value of the payments for non-cancelable leases, using the implicit interest rate for leases related to aircraft, and incremental borrowing rate for the rest of the contracts. For incremental borrowing rate, the company considered for its calculation historical information on financing of the Company, market variables, asset types, country risk and currency among other factors. The main impact due to the application of this new standard will came from the aircraft and engines, whose quantity and balance of non-cancellable lease commitments is disclosed in note 32 "Commitments" to our Consolidated Financial Statements.

As of the reporting date, the Company has non-cancellable operating lease commitments for aircraft and engines of US$3,581 million, in addition to US$161 million for other assets. Of these commitments, approximately US$59 million related to short-term leases and to low-value leases which will both be recognized on a straight-line basis as an expense in profit or loss.

For the remaining lease commitments, the Company expects to recognize right-of-use assets of approximately US$2,512 million on 1 January 2019, and lease liabilities for US$2,820 million. It is estimated that there will be no significant effects on net income for the year 2019.

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Operating cash flows will increase and financing cash flows will decrease by approximately US$ 521 million as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

IFRS/Non-IFRS Reconciliation

We use “Cost per ASK” and “Cost per ASK excluding fuel price variations” in analyzing operating expenses on a per unit basis. “ASKs” (available seat kilometers) measures the number of seats of capacity available for the transportation of passengers multiplied by the kilometers flown across our network. To obtain our unit costs, which are used by our management in the analysis of our results, we divide our total Operating Expenses by our total ASKs. The cost component is further adjusted to obtain “costs per ASK excluding fuel price variations,” in order to remove the impact of changes in fuel prices for the year. “Cost per ASK” and “Cost per ASK excluding fuel price variations” do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. These metrics should not be considered in isolation or as a substitute for operating expenses or as indicators of performance or cash flows or as a measure of liquidity.

	2018		2017		2016
Cost per ASK
Operating expenses (US$ thousands)		9,663,095		9,449,262		8,959,185
Divided by ASK (million)		143,264.7		136,398.4		134,967.7
= Cost per ASK (US$ cents)		6.74		6.93		6.64
Cost per ASK excluding fuel price variations
Operating expenses (US$ thousands)		9,663,095		9,449,262		8.959,185
– Aircraft fuel (US$ thousands)		2,983,028		2,318,816		2,056,643
Divided by ASK (million)		143,264.7		136,398.4		134,967.7
= Cost per ASK excluding fuel price variations (US$ cents)		4.66		5.23		5.11

Other Operating Measures

LATAM uses revenues per ASK or ATK, as applicable, in analyzing revenues on a per unit basis. To obtain unit revenues, we divide our passenger revenues by our total ASKs and our cargo revenues by our total ATKs. We use our revenues as defined under IFRS for purposes of the calculation of this metric. Revenues per ASK or ATK, as the case may be, do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. This metric is not an IFRS measure of performance or liquidity. It should not be considered in isolation or as a substitute for revenues or as indicators of performance or cash flows as a measure of liquidity.

The table below shows the calculation of our revenues per ASK or ATK, as applicable, in each of the periods indicated.

	2018		2017		2016
Passenger Revenues (US$ thousands)		8,708.988		8,494.477		7,877,715
ASK (million)		143,264.7		136,398.4		134,967.7
Passenger Revenues/ASK (US$ cents)		6.08		6.23		5.84
Cargo Revenues (US$ thousands)		1,186,468		1,119,430		1,110,625
ATK (million)		6,497.6		6,230.3		6,704.1
Cargo Revenues/ATK (US$ cents)		18.26		17.97		16.57

Seasonality

Our operating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns. Our passenger revenues are generally higher in the first and fourth quarters of each year, during the southern hemisphere’s spring and summer. In the Brazilian passenger air transportation market, there is generally higher demand for air transportation services in the second half of the year, making the second quarter the weakest for the Company. However, seasonality is partially mitigated by LATAM’s higher-than-market average concentration of business travel (which is less sensitive to seasonality). Additionally, the expansion of the Company into other countries with different seasonal patterns has also moderated the overall seasonality of the passenger business.

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B. Liquidity and Capital Resources

LATAM’s cash and cash equivalents amounted to US$1,081.6 million as of December 31, 2018, US$1,142.0 million as of December 31, 2017 and US$949.3 million as of December 31, 2016. Additionally, the Company had short term marketable securities totaling US$322.4 million as of December 31, 2018, US$472.2 million as of December 31, 2017 and US$537.0 million as of December 31, 2016. LATAM’s cash and cash equivalents and marketable securities totaled US$1,404.1 million as of December 31, 2018, US$1,614.2 million as of December 31, 2017 and US$1,486.3 million as of December 31, 2016.

The US$210.2 million decrease in cash and cash equivalents and marketables securities from 2017 to 2018 can be explained mainly by the depreciation of the Brazilian and Argentinian currencies.

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

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

Cash position and liquidity

The following table provides a summary of our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2018, 2017 and 2016 and our total cash position as of December 31, 2018, 2017 and 2016.

	2018			2017			2016
	(in US$ million)
Net cash flows from operating activities		1,516.9			1,666.7			980.9
Net cash flow from (used in) investing activities		(358.4	)		(287.4	)		(431.8	)
Net cash flows from (used in) financing activities		(1,052.2	)		(1,179.1	)		(396.3	)
Effects of variation in the exchange rate on cash and cash equivalents		(166.7	)		(7.7	)		43.0
Cash and cash equivalents at the beginning of the year		1,142.0			949.3			753.5
Cash and cash equivalents at the end of the year		1,081.6			1,142.0			949.3

In addition to cash and marketable securities, LATAM has access to short term credit lines. As of December 31, 2018, LATAM had working capital uncommitted credit facilities for a total amount of US$1,777.5 million, of which US$866.1 million were drawn as of December 31, 2018, and committed credit lines in the form of a fully undrawn revolving credit facility (“RCF”) of US$600 million¹. The RCF is secured by spare parts, engines, and aircrafts.

Net cash flows from operating activities

Cash from operations derives primarily from providing air passenger and cargo transportation to customers. Operating cash outflows are primarily related to expenses of airline operations, including fuel consumption. Net cash inflows from operating activities in 2018 decreased by US$149.8 million, or 8.9%, down from US$1,666.7 million, mainly due to a decrease in operating margin, driven higher fuel prices and the depreciation of the Brazilian and Argentinian currencies. In turn, this impact was partially offset by LATAM’s ongoing cost efficiency initiatives such as headcount reduction and higher aircraft utilization.

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

¹ Subject to borrowing base availability

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Net cash flow used in investing activities

Net cash used in investing activities in 2018 increased to US$ 358.4 million from US$287.4 million in 2017, due to an increase in purchases of property, plant and equipment including cabin retrofit, IT, and digital investments. In 2018, as in 2017, the company did not incur in any capital expenditures in aircraft. In 2018, the outflow related to the net predelivery payments reached US$ 54.7 million for year 2018, a 43.2% lower than the net predelivery payments outflows of US$126.5million for year 2017. For further details, please refer to Note 35 to our audited consolidated financial statements.

Net cash used in investing activities in 2017 decreased to US$287.4 million from US$431.8 million in 2016, due to a reduction in purchases of property, plant and equipment. This reduction resulted mainly from not having any capital expenditures in aircraft, in contrast with a US$861.1 million outflow for year 2016; this was offset by net predelivery payments outflows of US$126.5 million for year 2017, in contrast with the net predelivery payments inflow of US$556.9 million for year 2016.

Net cash flows used in financing activities

In 2018, net cash used in financing activities amounted to US$1,052.2 million, a decrease of US$126.9 million from the US$1,179.1 million in cash generated by financing activities in 2017. In 2018, the company paid US$1,045.7 million in loan repayments which were offset by US$779.1 million in debt issuances. Total debt issuances in year 2018 amounted to US$779.1 million, a decrease of US$526.3 million compared to US$1,305.4 million issued in 2017.

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

Sources of financing

Long term

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

From time to time in the past, we have considered, and may consider in the future, other forms of financing such as equity or debt, either secured or unsecured, securitization of ticket receivables or the securitization of fleet and engines.

Short term

We have generally been able to arrange for short-term loans with local and international banks when we have needed to finance working capital expenditures or increase our liquidity. As of December 31, 2018, we has an outstanding stock of US$348 million in short-term loans with both local and international banks.

We have diversified our sources of short term financing to include the following: PAE (“Prestamos a Exportadores”), which are foreign currency short term loans granted to exporting parties in Chile mainly to finance working capital; and credit card discounting in Brazil, a financing alternative where a bank provides in advance to the Company a percentage of the cash inflows related to the credit card installment sales and margin loans.

Capital expenditures

Our capital expenditures are related to the acquisition of aircraft, aircraft-related equipment, IT equipment, support infrastructure and the funding of pre-delivery deposits. LATAM’s capital expenditures totaled US$660.7 million in 2018, US$403.7 million in 2017 and US$694.4 million in 2016, and purchases of intangible assets totaled US$96.2 million in 2018, US$87.3 million in 2017 and US$88.6 million in 2016. See “—Sources of financing” above.

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The following chart sets forth the Company’s estimated capital expenditures for 2019, 2020 and 2021 calendar years:

	Estimated capital expenditures by year, as of December 31, 2018
	2019			2020		2021
	(in US$ millions)
Fleet Commitments (1)		1,197			708		1,118
PDPs (2)		(111	)		39		(150	)
Other expenditures (3)		1,117			864		610

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

⁽²⁾ Represents pre-delivery payments made by LATAM, or inflows received by LATAM after the delivery of the aircraft is made.

⁽³⁾ Other Expenditures include estimates of capital expenditures on spare engines and parts, maintenance of on balance fleet, projects and others, plus purchases of intangible assets.

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

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

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

D. Trend Information

For 2019, LATAM expects total passenger ASK growth to be between 4% and 6%. International passenger ASK growth for full year 2019 is expected to be between 3% and 5%. LATAM Airlines Brazil’s domestic passenger ASKs in the Brazilian market are expected to increase between 2% and 4%. LATAM’s ASKs in SSC are expected to increase by approximately 8% to 10%.

Regarding cargo operations, LATAM expects cargo ATKs to increase between 1% and 3% for full year 2019, driven by the increases in the capacity of LATAM’s international passenger operations which result in additional capacity related to the space in the belly of those aircrafts.

During 2018, LATAM operated in a context of increasing competitive pressures from different players across the region, including low cost operators, and the Company expects this trend to continue during 2019. LATAM’s goal is to continue to increase the efficiency of its operations, allowing the Company to provide the best and most convenient options for its customers with the distinctive customer experience LATAM passengers expect. In this context, the group has implemented significant changes with the objective of transforming LATAM into a simpler, leaner and more efficient organization. During 2018 the new travel model implementation was completed with its adoption by our affiliate airline in Argentina and across LATAM’s international operations. For more information on this new travel model, see “Item# 4. Information on the Company—B. Business Overview—Passenger Operations—Business Model for Domestic Operations”.

Over the last year, the Company has continued to strengthen its network, taking advantage of specific opportunities for profitable growth, mainly by launching new destinations departing from its main hubs, including new routes to Rome, Lisbon, Boston, Las Vegas and Tel Aviv from Sao Paulo.

LATAM will continue to use fuel hedging programs and fuel surcharge mechanisms in both our passenger and cargo businesses to help minimize the impact of short-term movements in crude oil prices. As of February 28, 2019, LATAM had hedged approximately 66%, 63%, 40% and 15% of its estimated fuel consumption for the first, second, third and fourth quarters of 2019 respectively.

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E. Off-Balance Sheet Arrangements

As of December 31, 2018, the Company had entered into operating leases for 85 aircraft (of which 5 are obligations of LATAM Airlines Brazil and 80 are obligations of LATAM) and 27 aircraft engines. These operating leases provide us with flexibility to adjust our fleet to any demand volatility and therefore we consider such arrangements to be of great value to our strategy and financial performance. The total future lease payments related to our operating leases as of December 31, 2018 was US$ 3,581 million, for all remaining periods through maturity (the longest of which expires in 2030). See “—F. Long Term Indebtedness—Tabular Disclosure of Contractual Obligations.”

Under the aforementioned operating leases, LATAM is responsible for all maintenance, insurance and other costs associated with operating these aircraft. The Company has not made any residual value or similar guarantees to our lessors. There are certain guarantees and indemnities to other unrelated parties that are not reflected on the Company’s balance sheet, but we believe that these will not have a significant impact on our results of operations or financial condition.

LATAM operates 12 aircraft under tax leasing structures. These methods involve the creation of special purpose entities that acquire aircraft with bank and third-party financing. Under IFRS, these aircraft are shown in the consolidated statement of financial position as part of “Property, plant and equipment” and the corresponding debt is shown as a liability. Of LATAM’s total tax leases, nine are classified as operating leases for accounting purposes as of December 31, 2018.

As of December 31, 2018, we are not aware of any event, lawsuit, commitment, trend or uncertainty that may result in, or is reasonably likely to result in, the termination of the operating leases. See Note 32 to our audited consolidated financial statements for a more detailed discussion of these commitments.

F. Long Term Indebtedness

Long Term Indebtedness

Secured Debt

Aircraft Debt

1. ECA/EX-IM: Bank bonds guaranteed by Export-Import Bank of the United States (“EX-IM Bank”) and Export Credit Agency (“ECA”) guaranteed loan debt. As of December 31, 2018, the total outstanding amount under these facilties was US$2,090 million. In general, ECA and EX–IM financings have a 12-year repayment profiles.

2. Enhanced Equipment Trust Certificates (“EETC”): In June 2015, LATAM issued the first EETC in Latin America for an aggregate par value of approximately US$1,021 million to finance 17 new aircraft deliveries comprising 11 Airbus A321-200, 2 Airbus A350-900 and 4 Boeing 787-9, with delivery dates from July 2015 through March 2016. The offering is comprised of Class A Certificates maturing in November 2027 and Class B Certificates maturing in November 2023. The annual interest rate for Class A and B Certificates are 4.20% and 4.50%, respectively. In April 2017, LATAM issued and privately placed Class C Certificates for an amount of US$140 million under the current EETC structure. The Class C Certificates have a six year term, maturing in May 2023. As of December 31, 2018, the outstanding EETC debt was US$949 million.

3. Commercial Bank Loans: As of December 31, 2018, secured commercial bank loans debt totalled US$1,628 million.

4. Tax Leases: LATAM has secured debt through Japanese Leases with a call option (“JOLCO”). As of December 31, 2018, the outstanding obligations under these tax leases were US$96 million.

Non Aircraft Debt

1. 2013-1 Series Note: LATAM issued a securitized bond in the amount of US$450 million in November 2013 with a seven-year term and a two year interest-only period (the “2013-1 Series Note”). This bond is secured by future flows of credit card sales of LATAM Airlines in the United States and Canada. The coupon is 6.0% fixed with quarterly payments. As of December 31, 2018, the principal outstanding amount of the 2013-1 Series Note was US$196 million.

2. Bank Commercial Loans: As of December 31, 2018, bank commercial loans debt was US$51 million.

Others

1. Pre-Delivery Payments (“PDP”) financing: As of December 31, 2018, outstanding amount under PDP financings was US$253 million.

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Unsecured Debt

1. LATAM 2020 Notes: On June 9, 2015, LATAM Airlines Group S.A. issued long-term bonds in the international markets in the amount of US$500 million, maturing in 2020 with an interest rate of 7.25% per year. As of December 31, 2018, outstanding amounts under the LATAM 2020 Notes were US$498 million.

2. LATAM 2024 Notes: On April 11, 2017, LATAM Finance Limited, an affiliate of LATAM Airlines Group S.A., issued long-term bonds in the international markets in the amount of US$700 million, maturing in 2024 with an annual interest rate of 6.875%. As of December 31, 2018, the outstanding amount under the LATAM 2024 Notes was US$709 million.

3. LATAM 2026 Notes: On February 4, 2019, LATAM Finance Limited, an affiliate of LATAM Airlines Group S.A., issued long-term bonds in the international markets in the amount of US$600 million, maturing in 2026 with an annual interest rate of 7.0%.

4. Local Bonds: On August 17, 2017, LATAM Airlines Group S.A. issued local bonds on the Santiago Stock Exchange in the aggregate amount of UF 9,000,000 comprised of the Series A Bonds (BLATM-A), Series B Bonds (BLATM-B), Series C Bonds (BLATM-C) and Series D Bonds (BLATM-D), which correspond to the first issue of bonds under the bond line registered in the Securities Registry of the CMF under number 862. The total amount of Series A Bonds issued was UF 2,500,000 with a maturity date of June 1, 2022 bearing interest at 5.25% annually. The total amount of Series B Bonds issued was UF 2,500,000 with a maturity date of January 1, 2028 bearing interest at 5.75% annually. The total amount of Series C Bonds issued was UF 1,850,000 with a maturity date of June 1, 2022 bearing interest at 5.25% annually. The total amount of Series D Bonds issued was UF 1,850,000, with a maturity date of January 1, 2028 bearing interest at 5.75% annually. As of December 31, 2018, the outstanding amount of Local Bonds was US$347 million.

5. Commercial Bank Loans: As of December 31, 2018, unsecured Commercial Bank loans debt stood at US$470 million.

As of December 31, 2018, the average interest rate of our debt was 4.62%. Out of the total debt, 59.6% accrues interest at a fixed rate (either through a stated fixed interest rate or through the use of interest rate swap agreements) or is subject to interest rate caps.

As of December 31, 2018, LATAM had US$1,334 million in current debt liabilities. Of this amount, US$350 million consisted of short-term debt, which represents 26% of our total current debt liabilities.

LATAM entered into various EX-IM Bank loans for the financing of Boeing 767, 767 freighter, and 787 aircraft that contain financial covenants and other restrictions, including restrictions in shareholder composition and disposal of assets.

As of December 31, 2018, we had purchase obligations totaling US$6.2 billion, with deliveries between 2018 and 2026, as set forth below:

· Airbus A320-Family, passenger aircraft deliveries: 51

· Wide-body passenger aircraft deliveries (which include the Airbus A350 900XWB, the Airbus A350 1000XWB and the Boeing 787-9): 24

Tabular Disclosure of Contractual Obligations

The following table sets forth our material expected obligations and commitments as of December 31, 2018:

	Payments due by period, as of December 31, 2018
(US$ in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Financial debt obligations(1)	US$	7,313	US$	1,334	US$	2,687	US$	1,350	US$	1,942
Operating lease obligations	US$	3,582	US$	513	US$	943	US$	777	US$	1,349
Fleet Commitments	US$	6,207	US$	1,197	US$	1,826	US$	1,818	US$	1,366
TOTAL	US$	17,102	US$	3,044	US$	5,456	US$	3,945	US$	4,657

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

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2018 Fleet Additions

During 2018, LATAM completed the addition of the following wide body aircraft:

· Two Airbus A350-900 passenger aircraft, financed through a sale and leaseback transaction with a 12-year term.

During 2018, LATAM completed the addition of the following narrow body aircraft:

· Two Airbus A321 passenger aircraft, financed through an operating lease with 10.5 year terms.

2017 Fleet Additions

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

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

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

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

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The LATAM Airlines Group board of directors consists of nine directors who are elected every two years for two-year terms at annual regular shareholders’ meetings or, if necessary, at an extraordinary shareholders’ meeting, and may be re-elected. The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Scheduled meetings of the board of directors are held once a month and extraordinary board of directors’ meetings are called by the chairman of the board of directors. Extraordinary meetings can be called by the chairman, or when requested by one or more directors if the need for such a meeting is previously approved by the chairman, unless the meeting is requested by a majority of the directors, in which case the meeting must be held without the previous approval of the chairman.

The current board of directors was elected at the ordinary shareholders’ meeting held on April 27, 2017 and will hold office until April 25, 2019.

The following are LATAM Airlines Group’s directors:

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

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

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

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

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

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Biographical Information

Set forth below are brief biographical descriptions of LATAM Airlines Group’s directors and senior management. All of LATAM’s directors are Chilean citizens, with the exception of three members.

Directors

Mr. Ignacio Cueto, has served as a member of LATAM Airlines Group’s board of directors and as Chairman since April 2017. Mr. Cueto’s career in the airline industry extends over 30 years. In 1985, Mr. Cueto assumed the position of Vice President of Sales at Fast Air Carrier, a national cargo company of that time. In 1985, Mr. Cueto became Service Manager and Commercial Manager for the Miami sales office. Mr. Cueto later served on the board of directors of Ladeco (from 1994 to 1997) and LAN (from 1995 to 1997). Mr. Cueto served as President of LAN Cargo from 1995 to 1998, as Chief Executive Officer-Passenger Business from 1999 to 2005, and as President and Chief Operating Officer of LAN since 2005 until the combination with TAM in 2012. Mr. Cueto later served as LAN’s CEO until April 2017. Mr. Cueto also led the establishment of the different affiliates that the Company has in South America, as well as the implementation of key alliances with other airlines. Mr. Cueto is a member of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2019, Mr. Cueto shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Carlos Heller, joined the board of LAN in May 2010 and was re-elected to the board of directors of LATAM in April 2017. Mr. Heller has vast experience in retail, communications, transport and agriculture industries. Mr. Heller is president of Bethia S.A. (“Bethia”) (parent company of Axxion S.A. and Inversiones HS SpA). He is also President of the Boards of Falabella Retail S.A., Red Televisiva Megavision S.A., Club Hípico de Santiago S.A., Sotraser S.A., and Blue Express S.A. On February 28, 2019, Mr. Heller indirectly held 33,367,357 ordinary shares of LATAM Airlines Group through Axxion S.A. and Inversiones HS Spa (5.50% of the shares of LATAM Airlines Group). For more information, see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Juan José Cueto, has served on LAN’s board of directors since 1994 and was reelected to the board of directors of LATAM in April 2017. Mr. Cueto currently serves as Executive Vice President of Inversiones Costa Verde S.A., a position he has held since 1990, and serves on the boards of directors of Consorcio Maderero S.A., Inversiones del Buen Retiro S.A., Costa Verde Aeronáutica S.A., Sinergia Inmobiliaria S.A., Valle Escondido S.A. and Fundación Colunga. Mr. Cueto is the brother of Messrs. Enrique and Ignacio Cueto, LATAM Airlines Group CEO and Chairman, respectively. Mr. Cueto is a member of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2019, Mr. Cueto shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Nicolás Eblen, has served on LATAM’s board of directors since April 2017. Mr. Eblen currently serves as CEO of Inversiones Andes SpA, a position he has held since 2010. In addition, he serves on the board of directors of Granja Marina Tornagaleones S.A., Río Dulce S.A., Patagonia SeaFarms Inc., SalmonChile A.G., and Sociedad Agrícola La Cascada Ltda. Mr. Eblen holds a Bachelor’s degree in Industrial Engineering, major in Computer Science from Pontificia Universidad Católica de Chile and a Master in Business Administration from Harvard Business School. As of February 28, 2019, the Eblen Group had the beneficial ownership of 35,945,199 common shares of LATAM Airlines Group (5.93% of LATAM Airlines Group’s outstanding shares). For more information, see “Item 7. Controlling Shareholders and Related Party Transactions.”

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

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

Mr. Giles Agutter has served on LATAM Airlines Group’s board of directors since January 2017 and was reelected to the board of directors of LATAM in April 2017. Mr. Agutter is the owner and Chief Executive Officer of Southern Sky Ltd, an airline consultant company specializing in airline strategy, fleet planning, aircraft acquisition and aircraft financing. He is also currently a member of the board of directors of Air Italy. Mr. Agutter has had vast experience in advising airlines, including Qatar Airways, on significant Merger and Acquisition projects within the airline industry. Mr Agutter is a British citizen and has a degree in Aerospace Engineering from Manchester University.

Mr. Eduardo Novoa has served on LATAM’s board of directors since April 2017. In addition, Mr. Novoa serves on the board of directors of Cementos Bio-Bio, Grupo Ecomac, ESSAL and is a member of the advisory board of STARS and Endeavor. He was also a member of the board of directors of Esval, Soquimich, Grupo Drillco, Techpack, Endesa-Americas, Grupo Saesa, Grupo Chilquinta, and several companies in the region that were subsidiaries of Enersis and AFP Provida. He has also been a member of the board of Amcham-Chile, the Association of Electric Companies, YPO-Chile, Chile Global Angels and several Start-Ups. Between 1990 and 2007 he was an executive of several companies such as CorpGroup, Enersis, Endesa, Blue Circle, PSEG and Grupo Saesa. Mr. Novoa has a Bachelor of Business and Administration from the Universidad de Chile and a Master in Business Administration from the University of Chicago. He has participated in executive programs at Harvard, Stanford and Kellogg and was professor of finance and economics at several universities in Chile.

Mrs. Sonia J.S. Villalobos joined the Board of LATAM Airlines in August 2018. Mrs. Villalobos is a Brazilian citizen and a regular member of the board of directors of Petrobras and Telefónica Vivo. She is a founding partner of the company Villalobos Consultoria since 2009 and a professor of post-graduate courses in finance at Insper since 2016. Between 2005 and 2009, she was the Manager of Funds in Latin America, in Chile, managing mutual and institutional funds of Larrain Vial AGF. From 1996 to 2002, she was responsible for Private Equity investments in Brazil, Argentina and Chile for Bassini, Playfair & Associates, LLC. As of 1989 she was Head of Research of Banco Garantia. She graduated in Public Administration from EAESP / FGV in 1984 and obtained a Master in Finance from the same institution in 2004. She was the first person to receive the CFA certification in Latin America, in 1994. As a volunteer, she participates in the Board of the CFA Society Brazil, a non-profit association that brings together nearly 1,000 professionals who hold the CFA (Chartered Financial Analyst) certification in Brazil.

Senior Management

Mr. Enrique Cueto, is LATAM Airlines Group’s Chief Executive Officer (“CEO”) and has held this position since the combination between LAN and TAM in June 2012. From 1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. From 1993 to 1994, Mr Cueto was a member of the board of LAN Airlines. Thereafter, Mr. Cueto held the position of CEO of LAN until June 2012. Mr. Cueto is member of the oneworld® Alliance Governing Board, the IATA (International Air Transport Association) Board of Governors. He is also member of the Board of the Endeavor foundation, an organization dedicated to the promotion of entrepreneurship in Chile, and Executive Member of the Latin American and Caribbean Air Transport Association (ALTA). Mr. Cueto is the brother of Messrs. Juan José and Ignacio Cueto, members of the board. Mr. Cueto is also a member of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2018, Mr. Cueto jointly shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Ramiro Alfonsín, is LATAM’s Chief Financial Officer (“CFO”), a position he holds since July 2016. Over the past 16 years, before joining LATAM, he worked for Endesa, a leading utility company, in Spain, Italy and Chile, having served as Deputy Chief Executive Officer and Chief Financial Officer for their Latin American operations. Before joining the utility sector, he worked for five years in Corporate and Investment Banking for several European banks. Mr. Alfonsín holds a degree in business administration from Pontificia Universidad Católica de Argentina.

Mr. Roberto Alvo is Commercial Vice President of LATAM since May 2017 being responsible of the Group’s passenger and cargo revenue management, with all the commercial units reporting to him. Previously, he was Senior Vice-President of International and Alliances at LATAM Airlines since 2015, and Vice-President of Strategic Planning and Development since 2008. Mr Alvo joined LAN Airlines in November 2001, where he served as Chief Financial Officer of LAN Argentina, as Manager of Development and Financial Planning at LAN Airlines, and as Deputy Chief Financial Officer of LAN Airlines. Before 2001, Mr. Alvo held various positions at Sociedad Química y Minera de Chile S.A., a leading Chilean non-metallic mining company. He is a civil engineer, and holds an MBA from IMD in Lausanne, Switzerland.

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

Mr. Hernán Pasman, has been the Vice-President of Operations, Maintenance and Fleet of LATAM airlines group since October, 2015. He joined LAN Airlines in 2005 as a head of strategic planning and financial analysis of the technical areas. Between 2007 and 2010, Mr. Pasman was the Chief operating officer of LAN Argentina, then, in 2011 he served as Chief Executive Officer for LAN Colombia. Prior to joining the company, between 2001 and 2005, Mr. Pasman was a consultant at McKinsey & Company in Chicago. Between 1995 and 2001, Hernan held positions at Citicorp Equity Investments, Telefonica de Argentina and Argentina Motorola. Mr. Pasman holds a Civil Engineering degree from ITBA (1995) and an MBA from Kellogg Graduate School of Management (2001).

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

Mr. Emilio del Real, is LATAM’s Vice-President of Human Resources, a position he assumed in August 2005. Between 2003 and 2005, Mr. del Real was the Human Resources Manager of D&S, a Chilean retail company. Between 1997 and 2003 Mr. del Real served in various positions at Unilever, including Human Resources Manager of Unilever Chile, and Manager of Training and Recruitment and Management Development for Latin America. Mr. del Real has a degree in Psychology from the Universidad Gabriela Mistral.

B. Compensation

In 2018, the Company paid its principal executives (executives who define the Company’s policies and major guidelines and who directly affect the results of the business, including Vice-Presidents, Chief Executives and Senior Directors) a total gross remuneration of US$58.2 million.

Under Chilean law, LATAM Airlines Group must disclose in its annual report details of all compensation paid to its board members during the relevant fiscal year, including any amounts that they received from LATAM Airlines Group for functions or employment other than serving as a member of the board of directors, including amounts received as per diem stipends, bonuses and, generally, all other payments. Additionally, pursuant to regulations of the CMF, the Chilean securities regulator, the annual report must also include the total compensation and severance payments received by managers and principal executives, and the terms of and the manner in which board members and executive officers participated in any stock option plans.

LATAM Airlines Group’s board members are paid 60 UF per meeting (120 UF for the chairman of the board) and 48 UF for attendance to the subcommittee of Directors meetings. LATAM Airlines Group also provides certain benefits to its board members and executive officers, such as free and discounted airline tickets and health insurance. We do not have contracts with any of our board members to provide benefits upon termination of employment.

As set forth in further detail in the following table, in 2018 the members of our board of directors, including board members who were members of the Board until April 28, 2018, received fees and salaries in the aggregate amount of US$307,292.  

Board Members	Fees (US$)(1)
Ignacio Cueto Plaza		46,839
Juan José Cueto Plaza		17,457
Carlos Heller Solari		15,747
Georges de Bourguignon Arndt		59,628
Henri Philippe Reichstul		24,983
Antonio Luiz Pizarro		7,821
Sonia Villalobos		11,669
Eduardo Novoa Castellón		57,923
Nicolás Eblén Hirmas		55,446
Giles Agutter		9,780
Total		307,292

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

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The above-mentioned board members were elected to the LATAM board of directors on April 27, 2017, with the exception of Sonia Villalobos, who was appointed as board members of LATAM on August 7, 2018 replacing Antonio Luis Pizarro, who resigned from the board on the same date.

As required by Chilean law, LATAM Airlines Group makes obligatory contributions to the privatized pension fund system on behalf of its senior managers and executives, but it does not maintain any separate program to provide pension, retirement or similar benefits to these or any other employees.

C. Board Practices

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

Committees

Board of Directors’ Committee and Audit Committee

Pursuant to Chilean Corporation Law, LATAM Airlines Group must have a board of directors’ committee composed of no less than three board members. LATAM Airlines Group has established a three-person board of directors’ Committee, which, among other duties, is responsible for:

• examining the reports of LATAM Airlines Group’s external auditors, the balance sheets and other financial statements submitted by LATAM Airlines Group’s administrators to the shareholders, and issuing an opinion with respect thereto prior to their presentation to the shareholders for their approval;

• evaluating and proposing external auditors and rating agencies;

• reviewing internal control reports pertaining to related-party transactions;

• examining and reporting on all related-party transactions; and

• reviewing the pay scale of LATAM Airlines Group’s senior management.  

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

Pursuant to U.S. regulations, we are required to have an audit committee of at least three board members, which complies with the independence requirements set forth in Rule 10A-3 under the Exchange Act. Given the similarity in the functions that must be performed by our board of directors’ Committee and the audit committee, our board of directors’ Committee serves as our Audit Committee for purposes of Rule 10A-3 under the Exchange Act.

As of December 31, 2018, all of the members of our board of directors’ Committee, which also serves as our Audit Committee, were independent under Rule 10A-3 of the Exchange Act. As of December 31, 2018, the committee members were Mr. Eduardo Novoa Castellón, Mr. Nicolás Eblen Hirmas and Mr. Georges de Bourguignon. We pay each member of the committee 80 UFs per monthly assistance to meetings.

Other LATAM Board Committees

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

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On June, 2014 LATAM’s board of directors established a Risk Committee to oversee the creation, implementation and management of a risk matrix for the Company.

Corporate Governance Practices

On March 30, 2018, LATAM Airlines Group filed the Company’s Corporate Practices Report prepared according to General Rule N° 385, previously N°341, of the Securities and Insurance Commission issued June 8, 2015. The reporting obligation stipulated in this rule is for practices in place as of December 31st of each year and the report must be presented no later than March 31st of the following year.

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

· how the Board works;

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

· how senior officers are replaced and compensated; and

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

D. Employees

The following table sets forth the number of employees in various positions at the Company.

Employees ending the period	As of December 31,
	2018(1)		2017		2016
Administrative		6,380		6,922		8,010
Sales		3,106		3,332		4,235
Maintenance		4,928		4,742		4,895
Operations		13,391		15,126		15,924
Cabin crew		9,196		9,016		8,970
Cockpit crew		4,169		3,957		3,882
Total		41,170		43,095		45,916

(1) As December 31, 2018, approximately 51% of our employees worked in Brazil, 26% in Chile, 20% in other Latin American countries and 3% in the rest of the world.

Our salary structure is comprised of: (a) fixed payments (base salary and other fixed payments such as legal gratifications, local bonus, company seniority and others, depending on each country’s law and market practice); (b) short term incentives (associated with corporate, area and individual performance), applicable to our ground staff; (c) long term incentives (applicable to our senior executives (Senior Directors and above)).

According to the local law requirements, we make pension and social security contributions on behalf of our employees. Additionally, for our air staff and specialized professionals such as mechanics, we have fixed and variable payments, subject to the local collective agreements.

Regarding benefits, we usually provide life insurance and medical insurance, complementary of the coverage provided by the legal system. We also grant other benefits, according to local market practice (meal, transportation, maternal and paternal leave, etc.). Additionally, we have a global staff travel program, which grants free and discounted tickets to our permanent employees.

Long Term Incentive Compensation Program

1. Compensation plan 2013

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

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2. Compensation plan 2016-2018

The Company implemented a long-term retention plan for executives, with an end date of December 2018 and a vesting period between October 2018 and March 2019. The plan contemplates an extraordinary bonus to be paid in cash, whose calculation formula based on the variation of the value of the Company’s shares over time.

3. Subsidiarys compensation plans

a. Multiplus S.A., a subsidiary of TAM S.A., has no outstanding stock options at December 31, 2018 (at December 31, 2017, the distribution of outstanding stock options amounted to 316,025 shares of Multiplus S.A.).

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

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

Labor Relations

We believe we generally maintain good relations with our employees and the unions, and expect to continue to enjoy good relations with our employees and the unions in the future. We also believe that we have built a solid base among our employees that will support and facilitate our growth plans. We can provide no assurance, however, that our employee compensation arrangements may not be subject to change or modification after the expiration of the contracts currently in effect, or that we will not be subject to labor-related disruptions due to strikes, stoppages or walk-outs.

Chile

In 2018 a new labor reform in Chile came into effect. Among the most significant changes that the labor reform promoted was the strengthening of the unions and the way they relate to the Company. Other relevant changes include the establishment of the last collective bargaining agreement as the starting point for any future labor contract negotiations, as well as the extension of the catalogue of conduct, which describes anti-union practices and the greater regulation of the obligation of companies to provide information to unions. As a general policy of labor relations for 2018 in Chile, the use of the new maximum legal term, namely three years, was assumed as a key element for all collective bargaining agreements, and we have established a strategy of negotiating all collective contracts in anticipation of their scheduled expirations. In 2018 there were two legal strikes with the following unions: LAN Express Cabin Crew Union and Intercompany Union of workers LATAM Airlines Group S.A., with whom the Company reached an agreement in 2018.

Ecuador

Additionally, three employee associations were formed in 2012, including pilots, other general employees but composed mostly of maintenance employees and other composed mostly by employees of airport administration.

In 2011 a union previously exclusive to cabin crew employees was integrated into the general employees union. This group maintains relations with the Company, but does not have the right to enter into or negotiate collective bargaining agreements under Ecuadorian law because less than 50% of our employees eligible for membership are members of this union.

In November 2015, the Company signed a voluntary agreement with the association of pilots, in force until July 2019; at this moment the company is in negotiations to renew the agreement.

Argentina

In Argentina, 84% percent of LATAM employees are affiliated with at least one of eight unions.

In December 2018 we began negotians for the annual adjustment for inflation with the eight unions, which concluded in February 2019.

In 2019 we will continue working on different initiatives based on productivity and efficiency avoiding conflicts or strikes, focusing on transforming LATAM Airlines Argentina into a more efficient company.

Colombia

In Colombia we have five different unions. The company held negotiations with: (i) the Technicians Union (ACMA), in 2018, and reached an agreement that will be in force until June of 2021, (ii) the Cabin Crew Union (ACAV), in 2018, and reached an agreement that will be in force until June of 2021, (iii) the Industrial Union of Aviation Workers (SINTRATAC), in 2018, and reached an agreement that will be in force until June of 2021, (iv) the Pilots’ Latam Colombia Union (ADALAC), in 2018, and reached an agreement that will be in force until January of 2021 and (v) the pilots’ union, ACDAC, in an arbitration during the last quarter of 2017.

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Peru

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

In 2018, LATAM Airlines Peru concluded negotiations with the pilot’s union, the cabin crew union and one of our aeronautical technicians' unions. Collective bargaining with the cabin crew union concluded through arbitration. During 2018, negotiations began with the other union of aeronautical technicians (January), airport workers (March) and flight dispatchers (September). It is expected that these three negotiations will conclude with a collective bargaining agreement in the first half of 2019.

Brazil

Under Brazilian law, the term of collective bargaining agreements is limited to two years. LATAM Airlines Brazil’s collective bargaining agreements are valid for one year. LATAM Airlines Brazil has historically negotiated collective bargaining agreements with ten unions in Brazil— one crew flight union, which represents pilots, copilots and flight attendants, and nine ground staff unions. In December 2018, LATAM Airlines Brazil renegotiated collective bargaining agreements with all the unions, which included a wage increase of 3.56%, in line with the inflation rate of the last 12 months.

E. Share Ownership

As of December 31, 2018, the members of our board of directors and our executive officers as a group owned 39.3% of our shares. See “Item 7. Controlling Shareholders and Related Party Transactions.”

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

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Mr. Ignacio Cueto (Chairman of the Board of LATAM), Mr. Enrique Cueto (the CEO LATAM) and certain other Cueto family members and entities controlled by them, comprise the Cueto Group. As of February 28, 2019 the Cueto Group beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act) 27.91% of LATAM Airlines Group’s common shares. The Cueto Group is entitled to elect three of the nine members of our board of directors and is in a position to direct the management of the Company. In connection with our combination with TAM, members of the Cueto Group (which we also refer to collectively as the “LATAM Controlling Shareholders”) entered into a shareholder’s agreement with the Amaro Family, acting through TEP Chile, and TEP Chile entered into shareholder’s agreements with LATAM and TAM. See “—Shareholders’ Agreements.”

Following the combination with TAM, the Amaro Group became a major shareholder of LATAM Airlines Group. Please see Item 4. Information on the Company – History and Development of the Company. As of February 28, 2019, the Amaro Group owned 2.58%⁽²⁾ of LATAM Airlines Group’s common shares. The terms of the shareholders’ agreement among the Amaro Group, LATAM and the LATAM Controlling Shareholders require the LATAM Controlling Shareholders and the Amaro Group to vote to elect individuals nominated to our board of directors in accordance with the direct and indirect shareholder interests in LATAM. See “—Shareholders’ Agreements.”

In addition to the Cueto Group and the Amaro Group, three other groups or entities are major shareholders of LATAM. As of February 28, 2019, the Eblen Group, which includes our director Nicolás Eblen, owned 5.93% of our common shares; the Bethia Group, which includes our vice-president of the board of directors Carlos Heller, owned 5.50% of our common shares; and Qatar Airways Investments (UK) Ltd., whose nominee Giles Agutter, one of our directors, owned 10.00%⁽⁴⁾ of our common shares.

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The table below sets forth additional information regarding the beneficial ownership of our common shares, as of February 28, 2019, by our controlling shareholders, other major shareholders or shareholder groups, and minority shareholders.

	Beneficial ownership (as of February 28, 2019)
	Number of shares of common stock beneficially owned		Percentage of common stock beneficially owned
Shareholder
Cueto Group(1)		169,248,377		27.91	%
Costa Verde Aeronautica S.A(2) (3)		88,259,650		14.55	%
Costa Verde Aeronautica Tres SpA		35,300,000		5.82	%
Inversiones Nueva Costa Verde Aeronautica Ltda.		23,578,077		3.89	%
Costa Verde Aeronautica SpA		12,000,000		1.98	%
Others		10,110,650		1.67	%
Qatar Airways		60,640,768		10.00	%
Qatar Airways Investments (UK) Ltda.		60,640,768		10.00	%
Eblen Group.		35,945,199		5.93	%
Inversiones Andes SpA.		17,146,529		2.83	%
Inversiones Andes II SpA		8,000,000		1.32	%
Inversiones PIA SpA.		5,403,804		0.89	%
Comercial las Vertientes SpA		5,394,866		0.89	%
Bethia Group.		33,367,357		5.50	%
Axxion S.A.		18,473,333		3.05	%
Inversiones HS SpA.		14,894,024		2.45	%
Amaro Group (2)(3)		15,615,113		2.58	%
TEP Chile S.A.		15,615,113		2.58	%
All other minority shareholders		291,394,195		48.05	%
Total		606,407,693		100.00	%

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

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

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

As of February 28, 2019, 2.44% of our capital stock was held in the form of ADSs. Chilean pension funds held 22.83% of our capital stock and other minority investors held 22.78% in the form of common shares. It is not practicable for us to determine the number of ADSs or common shares beneficially owned in the United States. As of February 28, 2019, we had 1,442 record holders of our common shares. It is not practicable for us to determine the portion of shares held in Chile or the number of record holders in Chile. All of our shareholders have identical voting rights.

Shareholders’ Agreements

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

Prior to the consummation of the business combination, LATAM Airlines Group and the LATAM Controlling Shareholders entered into several shareholders’ agreements with TAM, the Amaro Group (acting through TEP Chile) and Holdco I, establishing agreements and restrictions relating to corporate governance in an attempt to balance LATAM Airlines Group’s interests, as the owner of substantially all of the economic rights in TAM, and those of the Amaro Group by prohibiting the taking of certain specified material corporate actions and decisions without prior supermajority approval of the shareholders and/or the board of directors of Holdco I or TAM. These shareholders’ agreements also set forth the parties’ agreement regarding the governance and management of the LATAM Airlines Group following the consummation of the combination of LAN and TAM.

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Governance and Management of LATAM Airlines Group

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

This section describes the key provisions of the control group shareholders’ agreement and the LATAM Airlines Group-TEP shareholders’ agreement. The description of the LATAM Airlines Group-TEP shareholders’ agreement summarized below and elsewhere in this annual report on Form 20-F is qualified in its entirety by reference to the full text of such shareholders’ agreements, which has been filed as exhibit to this annual report on Form 20-F.

Composition of the LATAM Airlines Group Board

Since April 2017, there are no restrictions in the control group shareholders’ agreement nor in the LATAM Airlines Group-TEP shareholders’ agreement regarding the composition of LATAM Airlines Group’s board of directors. Therefore, once elected in accordance with Chilean regulation, members of the LATAM Airlines Group’s board of directors have the right to appoint any member as the chairman of LATAM Airlines Group’s board of directors, from time to time, in accordance with the LATAM Airlines Group’s by-laws. Accordingly, on May, 2017, Mr. Ignacio Cueto Plaza was elected as President of the Board.

On April, 2017, Mr. Maurício Rolim Amaro resigned from the LATAM Airline’s Group’s board of directors. Also in April 2017, Mr. Reichstul was re-elected to the board of directors with the favorable vote of TEP Chile S.A. pursuant to applicable regulations. On August 2018, Mr. Antonio Pizarro resigned from the LATAM Airline’s Group’s board of directors, and as his replacement, the board of directors appointed Mrs. Sonia Villalobos.

Management of the LATAM Airlines Group

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

The head office of the LATAM Airlines Group continues to be located in Santiago, Chile.

Governance and Management of Holdco I and TAM

We refer to the shareholders’ agreement between us, Holdco I and TEP Chile, which sets forth our agreement concerning the governance, management and operation of Holdco I, and voting and transfer of voting shares of Holdco I, as the “Holdco I shareholders’ agreement” and to the shareholders’ agreement between us, Holdco I, TAM and TEP Chile, which sets forth our agreement concerning the governance, management and operation of TAM and its subsidiaries following the effective time, as the “TAM shareholders’ agreement.” The Holdco I shareholders’ agreement and the TAM shareholders’ agreement set forth the parties’ agreement on the governance and management of Holdco I, TAM and its subsidiaries (collectively, the “TAM Group”) following the combination of LAN and TAM.

This section describes the key provisions of the Holdco I shareholders’ agreement and the TAM shareholders’ agreement. The description of the Holdco I shareholders’ agreement and the TAM shareholders’ agreement summarized below and elsewhere in this annual report on Form 20-F are qualified in their entirety by reference to the full text of the aforementioned shareholders’ agreements, which have been filed as exhibits to this annual report on Form 20-F.

Composition of the Holdco I and TAM Boards

The Holdco I shareholders’ agreement and TAM shareholders’ agreement generally provide for identical boards of directors and the same chief executive officer at Holdco I and TAM, with LATAM appointing two directors and TEP Chile appointing four directors (including the chairman of the board of directors).

The control group shareholders’ agreement provides that the persons elected by or on behalf of the LATAM Controlling Shareholders or the Amaro Group to our board of directors must also serve on the boards of directors of both Holdco I and TAM.

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Management of Holdco I and TAM

The day-to-day business and affairs of Holdco I will be managed by the TAM Group CEO under the oversight of the board of directors of Holdco I. The day-to-day business and affairs of TAM will be managed by the TAM Diretoria under the oversight of the board of directors of TAM. The TAM Diretoria will be comprised of the TAM Group CEO, the TAM CFO, the TAM COO and the TAM CCO, currently the CEO of TAM, will be the initial CEO of Holdco I and TAM, or the “TAM Group CEO” and any successor CEO will be selected by LATAM from three candidates proposed by TEP Chile. The TAM Group CEO will have general supervision, direction and control of the business and operations of the TAM Group (other than the international passenger business of the LATAM Airlines Group) and will carry out all orders and resolutions of the board of directors of TAM. The initial chief financial officer of TAM, or the “TAM CFO,” has been jointly selected by LATAM and TEP Chile and any successor CFO will be selected by TEP Chile from three candidates proposed by LATAM. The chief operating officer of TAM, or the “TAM COO,” and chief commercial officer of TAM, or the “TAM CCO,” will be jointly selected and recommended to the TAM board of directors by the TAM Group CEO and TAM CFO and approved by the TAM board of directors. These shareholders’ agreements also regulate the composition of the boards of directors of subsidiaries of TAM.

Following the combination, TAM continues to be headquartered in São Paulo, Brazil.

Supermajority Actions

Certain actions by Holdco I or TAM require supermajority approval by the board of directors or the shareholders of Holdco I or TAM which effectively require the approval of both LATAM and TEP Chile before the specified actions can be taken. Actions that require supermajority approval of the Holdco I board of directors or the TAM board of directors include, as applicable:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Actions requiring supermajority shareholder approval include:

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

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

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

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

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

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

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

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

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

Voting Agreements, Transfers and Other Arrangements

Voting Agreements

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

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

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

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

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

The parties to the Holdco I shareholder’s agreement and TAM shareholders agreement have agreed to vote their voting shares of Holdco I and shares of TAM so as to give effect to the agreements with respect to representation on the TAM board of directors discussed above.

Transfer Restrictions

Pursuant to the control group shareholders’ agreement, the LATAM Controlling Shareholders and TEP Chile are subject to certain restrictions on sales, transfers and pledges of the LATAM Airlines Group common shares and (in the case of TEP Chile only) the voting shares of Holdco I beneficially owned by them. Except for a limited amount of LATAM Airlines Group common shares, neither the LATAM Controlling Shareholders nor TEP Chile were permitted to sell any of their LATAM Airlines Group common shares, and TEP Chile was not permitted to sell its voting shares of Holdco I, until June 2015. Since then, sales of LATAM Airlines Group common shares by either party are permitted, subject to (i) certain limitations on the volume and frequency of such sales and (ii) in the case of TEP Chile only, TEP Chile satisfying certain minimum ownership requirements. On or after December 31, 2021, TEP Chile may sell all of its LATAM Airlines Group common shares and voting shares of Holdco I as a block, subject to (x) approval of the transferee by the LATAM board of directors, (y) the condition that the sale not have an adverse effect and (z) a right of first offer in favor of the LATAM Controlling Shareholders, which we refer to collectively as “block sale provisions.” An “adverse effect” is defined in the control group shareholders agreement to mean a material adverse effect on our and Holdco I’s ability to own or receive the full benefits of ownership of TAM and its subsidiaries or the ability of TAM and its subsidiaries to operate their airline businesses worldwide. The LATAM Controlling Shareholders have agreed to transfer any voting shares of Holdco I acquired pursuant to such right of first offer to LATAM for the same consideration paid for such shares.

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In addition, TEP Chile may sell all LATAM Airlines Group common shares and voting shares of Holdco I beneficially owned by it as a block, subject to satisfaction of the block sale provisions, if a release event (as described below) occurs or if TEP Chile is required to make two or more directed votes during any 24-month period at two meetings (consecutive or not) of the shareholders of LATAM Airlines Group held at least 12 months apart and LATAM Airlines Group has not yet fully exercised its conversion option described below. A “release event” will occur if (i) a capital increase of LATAM Airlines Group occurs, (ii) TEP Chile does not fully exercise the preemptive rights granted to it under applicable law in Chile with respect to such capital increase in respect of all of its restricted LATAM Airlines Group common shares, and (iii) after such capital increase is completed, the individual designated by TEP Chile for election to the board of directors of LATAM Airlines Group with the assistance of the LATAM Controlling Shareholders is not elected to the board of directors of LATAM Airlines Group.

In addition, after December 31, 2021 and after the occurrence of the full ownership trigger date (as described below under the “—Conversion Option” section), TEP Chile may sell all or any portion of its LATAM Airlines Group common shares, subject to (x) a right of first offer in favor of the LATAM Controlling Shareholders and (y) the restrictions on sales of LATAM Airlines Group common shares more than once in a 12-month period.

The control group shareholders agreement provides certain exceptions to these restrictions on transfer for certain pledges of LATAM Airlines Group common shares made by the parties and for transfers to affiliates, in each case under certain limited circumstances.

In addition, TEP Chile agreed in the Holdco I shareholders agreement not to vote its voting shares of Holdco I, or to take any other action, in support of any transfer by Holdco I of any equity securities or convertible securities issued by it or by any of TAM or its subsidiaries without our prior written consent.

Restriction on transfer of TAM shares

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

Conversion Option

Pursuant to the control group shareholders’ agreement and the Holdco I shareholders’ agreement, we have the unilateral right to convert our shares of non-voting stock of Holdco I into shares of voting stock of Holdco I to the maximum extent allowed under law and to increase our representation on the TAM and Holdco I boards of directors if and when permitted in accordance with foreign ownership control laws in Brazil and other applicable laws if the conversion would not have an adverse effect (as defined above under the “—Transfer Restrictions” section). In February 2019, we completed the procedures for the exchange of shares of Holdco I S.A., through which LATAM Airlines Group SA increased its indirect participation in TAM S.A., from 48.99% to 51.04%. This transaction was undertaken pursuant to the Provisional Measure 863/2018 of December 13, 2018, through which the participation of up to 100% of foreign capital in airlines in Brazil is permitted. 

On or after December 31, 2021, and after we have fully converted all of our shares of non-voting stock of Holdco I into shares of voting stock of Holdco I as permitted by Brazilian law and other applicable laws, we will have the right to purchase all of the voting shares of Holdco I held by the controlling shareholders of TAM for an amount equal to their then current tax basis in such shares and any costs incurred by them to effect such sale, which amount we refer to as the “sale consideration.” If we do not timely exercise our right to purchase these shares or if, after December 31, 2021, we have the right under applicable law in Brazil and other applicable law to fully convert all the shares of non-voting stock of Holdco I beneficially owned by us into shares of voting stock of Holdco I and such conversion would not have an adverse effect but we have not fully exercised such right within a specified period, then the controlling shareholders of TAM will have the right to put their shares of voting stock of Holdco I to us for an amount equal to the sale consideration.

Acquisitions of TAM Stock

The parties have agreed that all acquisitions of TAM common shares by LATAM Airlines Group, Holdco I, TAM or any of their respective subsidiaries from and after the effective time of the combination will be made by Holdco I.

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B. Related Party Transactions

General

We have engaged in a variety of transactions with our affiliates, including entities owned or controlled by certain of our controlling shareholders. In the ordinary course of our business we render to and receive from related companies’ services of various types, including aircraft leases, aircraft interchanges, freight transportation and reservation services. Such transactions, none of which is individually material, are summarized in Note 33 to our audited consolidated financial statements for the fiscal year ended December 31, 2018.

On August 2, 2016, the board of directors approved the Policy on Control of Related-Party Transactions of LATAM Airlines Group S.A. and its subsidiaries, which states:

· Related-party means, among others, subsidiaries, affiliates, natural persons or legal entities with control of 10% or more of the Company’s voting stock, vice presidents, directors or senior executives as well as their respective spouses, relatives, and companies in which said persons are either direct or indirect owners of 10% or more of the Company’s voting stock, or in which they have held a position over the last 18 months.

· Related-Party Transactions can only be executed if said transactions are in LATAM’s interest and adjust to price, terms and conditions prevalent in the market for similar transactions with other third parties at the time of its approval.

· Any and all negotiations, acts, contracts or operations in which a company of the LATAM Group and a party related to such company serve as the participants will be subject to the Policy.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Financial Statements and Other Financial Information

See “Item 3. Key Information—A. Selected Financial Data,” “Item 18. Financial Statements” and pages F-1 through F-131.

Legal and Arbitration Proceedings

We are involved in routine litigation and other proceedings relating to the ordinary course of our business. The following is a description of all the material legal and arbitration proceedings.

In February 2006 the European Commission (“EC”), the Department of Justice of the United States (“DOJ”), the Canadian Competition Bureau (“CCB”), and Conselho Administrativo de Defesa Econômica (“CADE”), among others, initiated a global investigation of a large number of international cargo airlines (among them LAN Cargo) for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets. As previously announced, LAN Cargo reached plea agreements with the DOJ and the CCB, which included the payment of fines, in relation to such investigation. On November 9, 2010, the EC imposed fines on 11 air carriers for a total amount of €799.4 million (equivalent to approximately US$1.1 billion). The fine imposed against LAN Cargo and its parent company, LAN, totaled €8.2 million (equivalent to approximately US$9.4 million). LAN provisioned US$25 million during the fourth quarter of 2007 for such fines, and maintained this provision until the fine was imposed in 2010. In 2010, LAN recorded a US$14.1 million gain (pre-tax) from the reversal of a portion of this provision. This was the lowest fine applied by the EC, which includes a significant reduction due to LAN’s cooperation with the Commission during the course of the investigation. In accordance with European Union law, on January 24, 2011 this administrative decision was appealed by LAN Cargo and LAN to the General Court in Luxembourg. Any judgment by the General Court may also be appealed to the Court of Justice of the European Union. The European Court of Justice overtuned the Commission’s decision on December 16, 2015. On May 20 2016 the EC confirmed that they had decided not to appeal the case and to issue a new decision with the aim of correcting the faults identified in the judgement by the European Court of Justice. On 17 March 2017, the EC re-adopted its decision and imposed on LAN Cargo and its parent company, LATAM, a fine in the same amount, €8.2 million, as the original fine. On May 31, 2017 LAN Cargo and LATAM requested the annulment of this EC decision to the General Court of the European Union. On December 2017 LAN Cargo and LATAM presented their arguments for this annulment. LATAM expects a further reduction of the fine included in the decision by the general court of the European Union.

On September 3, 2013, CADE published its decision to impose a fine of US$51.0 million against ABSA, after an investigation, commenced in 2008, against several cargo airlines and airlines officers over allegations of anticompetitive practices regarding fuel surcharges in the air cargo business. CADE also imposed fines upon a former Director and two former employees in the amounts of US$1.0 million and US$510,000 respectively. On December 5, 2013 ABSA filed its application for Administrative Reconsideration before CADE. On December 19, 2014, CADE issued a new decision which reduced the fine against ABSA to US$ 9,823,135 (based on an exchange rate of US$ 1 = R$ 3.3080). CADE also reduced the fines against ABSA’s Director and employees to US$ 247,896 and US$ 123,040, respectively (also based on an exchange rate of US$ 1 = R$ 3.3080). ABSA has initiated a judicial appeal against the Union Federal seeking an additional reduction of the fine amount. In December 2018, a Federal Court Judge ruled against ABSA, indicating that it will not apply an additional reduction to the fine imposed. The courts decision was published in March 12, 2019. On March 13, we filed a motion seeking clarification of the federal court’s decision.

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

Civil actions have also been initiated against many airlines, including LAN Cargo and LATAM Airlines Group, in various European countries (Great Britain, Norway, Holland and Germany). In the particular case of Great Britain there was a mediation process, at the end of the year 2018, with the participation of all involved airlines to try to find an agreement. LATAM Airlines Group S.A., reached an agreement for approximately GBP 636,000. A settlement was signed in December 2018 and payment was made in Janaury 2019. This concluded the claim for all class-action plaintiffs except one, with whom negotiations continue, but for a significantlty smaller amount. The negotiations so far indicate the possibility of a settlement agreement in the short term.

Agreements with the DOJ and the SEC. In 2011, authorities in Chile and the United States initiated investigations relating to certain payments by LATAM Airlines Group S.A. (formerly LAN Airlines S.A.) to a consultant who assisted in the resolution of labor issues in Argentina in 2006-2007. The Company voluntarily reported this situation to the Securities and Exchange Commission (“SEC”) and the Justice Department of the United States (“DOJ”) and actively cooperated in those investigations. On February 4, 2016, Ignacio Cueto, the  former CEO of LAN, consented to entry of a cease-and-desist order by the SEC relating to the payments described above. Mr. Cueto agreed to pay a US$75,000 penalty to the SEC, to remain in compliance with LATAM’s compliance structure and internal accounting controls and to comply with the SEC’s books and records requirements. In July 2016, after multiple and prolonged exchanges of opinions and conversations with the DOJ and the SEC, LATAM also reached definitive agreements with both authorities.

In the case of the DOJ, the agreement took the form of a Deferred Prosecution Agreement (“DPA”), pursuant to which the DOJ will dismiss the charges after the expiration of a three-year period if LATAM complies with all terms of the DPA. Pursuant to the DPA, LATAM has admitted that the accounting for the payments made to the consultant in Argentina was incorrect and that, at the time that such payments were made (2006-2007), it lacked adequate internal controls. LATAM has also accepted an independent consultant, for 27 months, whose function will be to monitor, evaluate, and report to the DOJ on the effectiveness of LATAM’s compliance program. LATAM also committed to reporting to the DOJ on the effectiveness of the aforementioned compliance program for 9 months after the work of the independent consultant is finished. Lastly, LATAM paid a fine of US$12,750,000 to the DOJ.

The settlement with the SEC included the issuance by the SEC of a cease-and-desist order, which is an administrative order closing the investigation whereby LATAM has accepted certain obligations and statements of fact. The order also refers to the obligations related to the monitorship agreed under the DPA with the DOJ. LATAM paid a fine of US$6.74 million and interest of US$2.69 million to the SEC.

Legal proceedings involving TAM

TAM Linhas Aéreas is party to one action filed by relatives of victims of an accident that occurred in October 1996 involving one of its Fokker 100 aircraft, in addition to 22 actions filed by residents of the region where the accident occurred, who claimed pain and suffering, and a class action related to this accident. Any damages resulting from the aforementioned legal claims are covered by the civil liability guarantee provided for in TAM’s insurance policy with Itaú Unibanco Seguros S.A. The cap of US$400 million in that insurance policy is sufficient to cover any potential penalties and judicial or extrajudicial agreements arising as a result of this matter.

In relation with the Airbus A320 aircraft accident of TAM Linhas Aereas on July 2007, settlements have been made directly between the insurance company and the victims’ families, and others are under negotiation. The insurance coverage is adequate and that LATAM Airlines Brazil will not incur any expenses that were not contemplated by the scope of the insurance policy.

On January 31, 2018, Airbus S.A.S., Airbus North America Customer Services, Inc. and Allianz Corporate & Specialty SE (France) filed an arbitration claim with the International Centre for Dispute Resolution against AIG Europe Limited (“AIG”), TAM S.A. (“TSA”) and TAM Linhas Aéreas S.A. (“TLA”) seeking a decision on the validity of a shared-defense agreement that had been discussed but never finalized or executed by the parties. The plaintiffs allege that the parties exchanged enough correspondence and drafts to reflect the terms of a contract. Based on this alleged contract, they are demanding that TAM reimburse Airbus a sum of approximately US$9,200 for settlement costs and US$3,000 for legal fees, in addition to interest and any other amount decided by the Arbitrator On October 8, 2018, the plaintiffs filed a formal complaint that contained declarations by their supporting experts. On November 7, 2018, the Arbitrator issued a procedural ruling dividing the jurisdiction phase from the grounds-for-arbitration phase, thus expressing his agreement with the arguments by TSA and TLA as well as AIG. Upon request of the parties, the Arbitrator postponed the respondents' deadline of December 14, 2018 to submit their briefs contesting jurisdiction, while the parties held settlement negotiations. Finally, in December 2018, the parties agreed to hold a meeting to discuss a potential settlement that resulted in an agreement whereby Allianz Corporate & Speciality SE will pay AIG US$95 million toward the loss already settled by AIG for the accident. In exchange, all lawsuits and arbitration claims will be withdrawn at no additional cost to LATAM. The insurance companies are now in the process of obtaining the approvals required from the signatories of the agreement and the case is expected to be closed in the first half of 2019. The arbitration is temporarily on hold until the agreement is concluded.

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Tax related

TAM Linhas Aereas and other plaintiffs filed an ordinary action with a request for injunctive relief for non-payment of the Airline Workers Fund, a tax charged monthly at the rate of 2.5% of an airline’s total payroll. Currently, judgment is pending on an appeal that TAM lodged challenging the initial decision (which was ruled in favor of the Brazilian National Institute of Social Security (“INSS”)). In 2004 and 2011, the INSS issued an assessment notice tolling the Statute of Limitations of the social security credit as a result of TAM Linhas Aereas’ non-payment of the Airline Workers Fund. The administrative proceedings have been suspended until completion of the judicial process. The approximate adjusted value of this proceeding as of December 31, 2012 was US$43.3 million. In the opinion of our legal advisors, losing in this proceeding is possible. Assuming payment of this tax is required by law, we have established a provision in the amount of US$100.2 million (R$ 331 million) related to the TAM’s part as of December 31, 2017, pending the final outcome of the matter.

TAM Linhas Aereas is a plaintiff in an action filed against the Brazilian government in 1993 seeking damages for the break-up of an air transportation concession agreement that resulted in the freezing of TAM’s prices from 1988 to September 1993 in order to maintain operations with the prices set by the Brazilian government during that period. The process is currently being heard before the Federal Regional Court and judgment is pending an appeal by TAM. The estimated value of the action on December 31, 2017 is MUS$240.3 (R$795million). This sum is subject to delinquent interest since September 1993 and inflation adjustment since November 1994. Based on the opinion of TAM’s legal advisors, and recent rulings handed down by the Brazilian Supreme Court of Justice in favor of airlines in similar cases (specifically, actions filed by Transbrasil and Varig), we believe that TAM’s likelihood of success is probable. We have not recognized these credits in our financial statements and will only do so if and when the aforementioned decision is final.  

TAM Linhas Aereas filed an ordinary claim, with a request for early judgment, in relation to a dispute concerning the legality of charging the Adicional das Tarifas Aeroportuárias (“Additional Airport Tariffs,” or “ATAERO”), which are charged at a rate of 50% on the value of tariffs and airport tariffs. A decision by the superior court is pending. The amount of potential recovery is indeterminate at this time.

In addition, one administrative proceeding had been filed against TAM Linhas Aéreas concerning the alleged failure to pay an Industrialized Products Tax (“IPI”) and Import Tax (“II”) due on imported aircraft. In response, we filed the appropriate challenges on the basis that no federal tax should be payable on the imported aircraft because it is a leased aircraft. The total amount involved in this administrative proceeding is US$2.33 millios (R$7.7 million) as of December 31, 2017. The administrative proceeding awaits a decision. In the opinion of our legal advisors, losing in this proceeding is possible.

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

A tax assessment was issued by the Sao Paulo Municipality in order to charge tax (ISS) on tour packages sold by Fidelidade Viagens e Turismo S/A between 2010 and 2015. On December 31, 2017 the updated amount of the assessment discussed was approximately US$108.22 million (R$ 358 million). The Company believes that a favorable outcome is not likely. These tax proceedings are currently in a judicial discussion (Annulatory Action filed in January 2018).

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

On October 29, 2018, the Federal Revenue Service issued a tax assessment notice against TLA in the amount of US$117 million (R$457 million), due to alleged irregularities of the Company related to the social security contribution on the risks of work accident (GILRAT - former "SAT"), in the term from 11/2013 until 12/2017. TLA has presented their defense to the administrative court, but on February 7, 2019 the court denied the defense and kept the tax assessment. The proceedings are now pending recourse to Superior Court (CARF). In the opinion of our legal advisors, losing in this proceeding is possible.

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

For additional Legal Proceedings relating to the ordinary course of our business, please see Note 31 – Contingencies – to our audited consolidated financial statements.

Dividend Policy

In accordance with the Chilean Corporation Law, LATAM must distribute cash dividends equal to at least 30% of its annual consolidated net income calculated in accordance with IFRS subject to the terms of Oficio Circular No. 856 issued on October 17, 2014 by the Chilean Superintendency of Securities and Insurance. If there is no net income in a given year, LATAM can elect but is not legally obligated to distribute dividends out of retained earnings. The board of directors may declare interim dividends out of profits earned during such interim period. Pursuant to LATAM’s by-laws, the annual cash dividend is approved by the shareholders at the annual ordinary shareholders’ meeting held between February 1 and April 30 of the year following the year with respect to which the dividend is proposed. All outstanding common shares are entitled to share equally in all dividends declared by LATAM, unless the shares have not been fully paid by the shareholder after being subscribed.

Holders of ADSs will be entitled to receive dividends on the underlying common shares to the same extent as holders of common shares. Holders of ADRs on the applicable record dates will be entitled to receive dividends paid on the common shares represented by the ADSs evidenced by such ADRs. Dividends payable to holders of ADSs will be paid by us to the depositary in Chilean pesos and remitted by the depositary to such holders net of foreign currency conversion fees and expenses of the depositary and will be subject to Chilean withholding tax currently imposed at a rate of 35% (subject to credits in certain cases as described under “Item 10. Additional Information— E. Taxation—Cash Dividends and Other Distributions”). Owners of the ADSs will not be charged any dividend remittance fee by the depositary with respect to cash dividends.

Chilean law requires that holders of shares of Chilean companies that are not residents of Chile register as foreign investors under one of the foreign investment regimes established by Chilean law in order to have dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market (Mercado Cambiario Formal). Under our Foreign Investment Contract, the depositary, on behalf of ADS holders, will be granted access to the Formal Exchange Market to convert cash dividends from pesos to U.S. dollars and to pay such U.S. dollars to ADS holders outside Chile.

B. Significant Changes

None.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

The principal trading market for our common shares is the Santiago Stock Exchange (“SSE”). The common shares have been listed on the SSE under the symbol “LAN” since 1989, and the ADSs were listed on the NYSE under the symbol “LFL” on November 7, 1997. On May 15, 2017, LATAM changed the symbol of its ADSs listed on the NYSE from “LFL” to “LTM”, as well as its shares listed on the SSE from “LAN” to “LTM”. The common shares also trade on the Bolsa Electrónica de Chile. The outstanding ADSs are identified by the CUSIP number 501723100.

As of December 31, 2018, a total of 606,407,693 million common shares were outstanding, including common shares represented by ADSs.

B. Plan of Distribution

Not applicable.  

C. Markets

Trading

Chile

The Chilean stock market, which is regulated by the CMF under Law 18,045 of October 22, 1981, as amended, which we refer to as the Securities Market Law, is one of the most developed among emerging markets, reflecting the particular economic history and development of Chile. The Chilean government’s policy of privatizing state-owned companies, implemented during the 1980s, led to an expansion of private ownership of shares, resulting in an increase in the importance of stock markets. Privatization extended to the social security system, which was converted into a privately managed pension fund system. These pension funds have been allowed, subject to certain limitations, to invest in stocks and are currently major investors in the stock market. Some market participants, including pension fund administrators, are highly regulated with respect to investment and remuneration criteria, but the general market is less regulated than the U.S. market with respect to disclosure requirements and information usage.

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Equities, closed-end funds, fixed-income securities, short-term and money market securities, gold and U.S. dollars are traded on the SSE. In 1991, the SSE initiated a futures market with two instruments: U.S. dollar futures and Selective Shares Price Index, or IPSA, futures. Securities are traded primarily through an open voice auction system; a firm offers system or daily auctions. Trading through the open voice system occurs on each business day from 9:30 a.m. to 4:30 p.m. The SSE has an electronic system of trade, called Telepregón HT, which operates continuously for stocks trading in high volumes from 9:30 a.m. to 4:00 p.m. (or 5:00 p.m., depending on the period of the year). The Chilean Electronic Stock Exchange operates continuously from 9:30 a.m. to 4:30 p.m. (or 5:30 p.m., depending on the period of the year) on each business day. In February 2000, the SSE Off-Shore Market began operations. In the Off-Shore Market, publicly offered foreign securities are traded and quoted in U.S. dollars.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

This Item reflects legal amendments effected by Chilean Law No. 20,382 on Corporate Governance, which was enacted on October 13, 2009, and came into effect on October 20, 2009, and Chilean Law No. 20,552, which modernized and encouraged competition in the financial system, was enacted on November 6, 2011 and came into effect on December 17, 2011.

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Set forth below is information concerning our share capital and a brief summary of certain significant provisions of our by-laws and Chilean law. This description contains all material information concerning the common shares but does not purport to be complete and is qualified in its entirety by reference to our by-laws, the Chilean Corporation Law and the Securities Market Law, each referred to below. For additional information regarding the common shares, reference is made to our by-laws, a copy of which is included as Exhibit 1.1 to this annual report on Form 20-F.

Organization and Register

LATAM Airlines Group is a publicly held stock corporation (sociedad anónima abierta) incorporated under the laws of Chile. LATAM Airlines Group was incorporated by a public deed dated December 30, 1983, an abstract of which was published in the Chilean Official Gazette (Diario Oficial de la República de Chile) No. 31,759 on December 31, 1983, and registered on page 20,341, No. 11,248 of the Chilean Real Estate and Commercial Registrar (Registro de Comercio del Conservador de Bienes Raices de Santiago) for the year 1983. Our corporate purpose, as stated in our by-laws, is to provide a broad range of transportation and related services, as more fully set forth in Article Four thereof.

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General

Shareholders’ rights in a Chilean company are generally governed by the company’s by-laws and the Chilean Corporation Law. Article 22 of the Chilean Corporation Law states that the purchaser of shares of a company implicitly accepts its by-laws and any prior agreements adopted at shareholders’ meetings. Additionally, the Chilean Corporation Law regulates the government and operation of corporations (“sociedades anónimas,” or S.A.) and provides for certain shareholder rights. Article 137 of the Chilean Corporation Law provides that the provisions of the Chilean Corporation Law take precedence over any contrary provision in a corporation’s by-laws. The Chilean Corporation Law and our by-laws also provide that all disputes arising among shareholders in their capacity as such or between us or our administrators and the shareholders may either be submitted to arbitration in Chile or to the courts of Chile at the election of the plaintiff initiating the action. Despite the foregoing, a recent legal amendment has forbidden certain individuals (directors, senior managers, administrators and main executives of the corporation, and any shareholder that directly or indirectly holds shares whose book or market value exceed 5,000 UF at the moment of filing of the action) from submitting such action before the ordinary courts, thus obligating them to proceed with arbitration in all situations. Finally, Decree-Law No. 3,500 on Pension Fund Administrators, which allows pension funds to invest in the stock of qualified corporations, indirectly affects corporate governance and prescribes certain rights of shareholders. The Chilean Corporation Law sets forth the rules and requirements under which a corporation is deemed to be “publicly held.” Article 2 of the Chilean Corporation Law defines publicly held corporations as corporations that register their shares with the Registro de Valores (Securities Registry) of the CMF, either voluntarily or pursuant to a legal obligation. In addition, Article 5 of the Chilean Securities Market Law indicates which corporation’s shares must be registered with the Securities Registry:

• one with 500 or more shareholders; and

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

The framework of the Chilean securities market is regulated by the CMF under the Securities Market Law and the Chilean Corporation Law, which imposes certain disclosure requirements, restricts insider trading, prohibits price manipulation and protects minority investors. In particular, the Securities Market Law establishes requirements for public offerings, stock exchanges and brokers and outlines disclosure requirements for corporations that issue publicly offered securities.

Ownership Restrictions

Under Articles 12 and 20 of the Securities Market Law and General Rule 269 issued by the SVS in 2009, certain information regarding transactions in shares of publicly held corporations must be reported to the CMF and the Chilean stock exchanges on which the shares are listed. Since the ADRs are deemed to represent the shares underlying the ADSs, transactions in ADRs will be subject to those reporting requirements. Among other matters, the beneficial owners of ADSs that directly or indirectly hold 10% or more of the subscribed capital of LATAM Airlines Group, or that reach or exceed such percentage through an acquisition, are required to report to the CMF and the Chilean stock exchanges, the day following the event:

• any acquisition or sale of shares; and

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

These obligations are extended (i) to certain individuals (immediate family, next of kin and others) if the ADS holder is a natural person; (ii) to any entity controlled by the holder, if the ADS is a legal entity; and (iii) to groups, if a holder has any joint action agreement with other holders and the group reaches or exceeds the cited threshold.

In addition, majority shareholders must state in their report whether their purpose is to acquire control of the company or if they are making a financial investment.

Under Article 54 of the Securities Market Law and under CMF regulations, persons or entities that intend to acquire control, whether directly or indirectly, of a publicly traded company, must follow certain notice requirements, regardless of the acquisition vehicle or procedure or whether the acquisition will be made through direct subscriptions or private transactions. In the first place, the potential acquiror must send a written communication to the target corporation, any companies controlling or controlled by the target corporation, the CMF and the Chilean stock exchanges on which the target’s securities are listed, stating, among other things, the person or entity purchasing or selling and the price and conditions of any negotiations. Subsequently, the potential acquiror must also inform the public of its planned acquisition by means of a publication in two Chilean newspapers with national distribution and by uploading such notice to the acquiror’s website, if available. Both requirements shall be met at least ten business days prior to the date on which the acquisition transaction is to close, and in any event, as soon as negotiations regarding the change of control have been formalized or when confidential information or documents concerning the target are delivered to the potential acquiror. The notices must state, among other things, the person or entity purchasing or selling and the price and conditions of any negotiations.  

In addition to the foregoing, Article 54A of the Securities Market Law requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a publicly traded company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.

Consequently, a beneficial owner of ADSs intending to acquire control of LATAM Airlines Group will be subject to the foregoing reporting requirements.

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The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.

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

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

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

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

Article 200 of the Securities Market Law prohibits any shareholder that has taken control of a publicly traded company from acquiring, for a period of 12 months from the date of the transaction that granted it control of the publicly traded company, a number of shares equal to or higher than 3.0% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on the floor of a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.

Title XV of the Securities Market Law sets forth the basis for determining what constitutes a controlling power, a direct holding and a related party.

Capitalization

Under Chilean law, the shareholders of a company, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in the company’s share capital. When an investor subscribes issued shares, the shares are registered in that investor’s name even without payment, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and return of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends of distribution of capital despite not having paid for the subscribed shares. The investor becomes eligible to receive dividends once it has paid for the shares, or, if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro rata portion of the dividends declared with respect to such shares, unless the company’s by-laws provide otherwise. If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the company is entitled under Chilean law to auction the shares on the appropriate stock exchange, and it has a cause of action against the investor to recover the difference between the subscription price and the price received for the sale of those shares at auction. However, until such shares are sold at auction, the investor continues to exercise all the rights of a shareholder (except the right to receive dividends and return of capital, as noted above). Regarding shares issued but not paid for within the period determined by the extraordinary shareholders’ meeting for their payment (which period cannot exceed three years from the date of such shareholders’ meeting), until January 1, 2010 they were canceled and no longer available for issuance by us. As of January 1, 2010, the board of directors of LATAM Airlines Group has a legal obligation to initiate the necessary legal actions to collect the unpaid amounts, unless the shareholders’ meeting which authorized the capital increase allowed the board to abstain from taking such action by a vote of two thirds of the issued shares, in which case the former rule still applies. Once the foregoing legal actions are exhausted, the board of directors shall propose to the shareholders’ meeting the appropriate capital adjustment measures, to be decided by simple majority. Fully paid shares are not subject to further calls or assessments or to liabilities of LATAM Airlines Group.

As of February, 28, 2019, our share capital consisted of 606,874,525 common shares of which 606,407,693 are subscribed and fully paid shares and 466,832 shares are pending subscription and payment. The unsubscribed shares include 466,832 that remain unsubscribed following our most recent capital increase. The current share capital amount reflects the expiration of stock options, covering 4,789,718 shares that had been granted under employee compensation plans. Upon the expiration of the stock options on December 21, 2016, the Company’s capital stock was reduced to 606,874,525 shares. Pursuant to one employee compensation plan approved by extraordinary shareholders’ meeting held on June 11, 2013, the issuance of the shares for this compensation plan has been authorized but has not been made effective.

Chilean law recognizes the right of corporations to issue shares of common and preferred stock.. To date, we have issued and are authorized by our shareholders to issue only shares of common stock. Each share of common stock is entitled to one vote.

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Preemptive Rights and Increases in Share Capital

The Chilean Corporation Law requires Chilean companies to offer existing shareholders the right to purchase a sufficient number of shares to maintain their existing percentage of ownership in a company whenever that company issues new shares for cash, except for up to 10% of the capital increase which may be designated to employee compensation pursuant to article 24 of the Corporation Law. Under this requirement, any preemptive rights will be offered by us to the depositary as the registered owner of the common shares underlying the ADSs, but holders of ADSs and shareholders located in the United States will not be allowed to exercise preemptive rights with respect to new issuances of shares by us unless a registration statement under the Securities Act is effective with respect to those common shares or an exemption from the registration requirements thereunder is available.

We intend to evaluate at the time of any preemptive rights offering the costs and potential liabilities associated with the preparation and filing of a registration statement with the SEC, as well as the indirect benefits of enabling the exercise by the holders of ADSs and shareholders located in the United States of preemptive rights and any other factors we consider appropriate at the time. No assurances can be given that any registration statement would be filed. If preemptive rights are not made available to ADS holders, the depositary may sell those holders’ preemptive rights and distribute the proceeds thereof if a secondary market for such rights exists and a premium can be recognized over the cost of such sale. In the event that the depositary does not sell such rights at a premium over the cost of any such sale, all or certain holders of ADRs may receive no value for the preemptive rights. The inability of holders of ADSs to exercise preemptive rights in respect of common shares underlying their ADSs could result in a change in their percentage ownership of common shares following a preemptive rights offering.

Under Chilean law, preemptive rights are freely exercisable, transferable or waived by shareholders during a 30-day period commencing upon publication of the official notice announcing the start of the preemptive rights period in the newspaper designated by the shareholders’ meeting. The preemptive right of the shareholders is the pro rata amount of the shares registered in their name in the shareholders’ registry of LATAM Airlines Group as of the fifth business day prior to the date of publication of the notice announcing the start of the preemptive rights period. During such 30-day period (except for shares as to which preemptive rights have been waived), Chilean companies are not permitted to offer any newly issued common shares for sale to third parties. For that 30-day period and an additional 30-day period, Chilean publicly held corporations are not permitted to offer any unsubscribed common shares for sale to third parties on terms that are more favorable to the purchaser than those offered to shareholders. At the end of such additional 30-day period, Chilean publicly held corporations are authorized to sell non-subscribed shares to third parties on any terms, provided they are sold on a Chilean stock exchange.

Directors

Our by-laws provide for a board of nine directors. Compensation to be paid to directors must be approved by vote at the annual shareholders’ meeting. We hold elections for all positions on the board of directors every two years. Under our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion his or her votes among any number of nominees. These voting provisions currently ensure that a shareholder owning more than 10% of our outstanding shares is able to elect at least one representative to our board of directors.

Under the Chilean Corporation Law, transactions of a publicly-traded company with a “related” party must be conducted on an arm’s-length basis and must satisfy certain approval and disclosure requirements which are different from the ones that apply to a privately-held company. The conditions apply to the publicly-traded company and to all of its subsidiaries .

These transactions include any negotiation, act, contract or operation in which the publicly-traded company intervenes together with either (i) parties which are legally deemed related pursuant to article 100 of the Chilean Securities Market Law, (ii) a director, senior manager, administrator, main executive or liquidator of the company, either on their own behalf or on behalf of a third party, including those individuals’ spouses or close relatives, (iii) companies in which the foregoing individuals own at least 10% (directly or indirectly), or in which they serve as directors, senior managers, administrators or main executives, (iv) parties indicated as such in the publicly-traded company’s by-laws, or identified by the directors’ committee or (v) those who have served as directors, senior managers, administrators, main executives or liquidators of the counterparty in the last 18 months and are now serving in one of those positions at the publicly-traded company.

Corporations may enter into transactions with related parties if (i) the transaction is in the interest of the corporation, (ii) the transaction is made on an arm’s-length basis at market conditions, (iii) the individuals involved in the transactions report them immediately to the board, (iv) the transaction is approved after a reasoned explanation by the majority of the board, excluding those directors or liquidators that are involved in the transaction (who shall, nonetheless, render an opinion on the matter if required by the board), (v) the decisions of the board are disclosed at the next shareholders’ meeting, and (vi) in case the majority of the board is disqualified to vote, the majority of the non-involved directors have approved the transaction, or two thirds of the voting shares have approved the transaction).

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

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

The Chilean Corporation Law sets forth a number of exceptions to the foregoing rules. In the following situations, transactions with related parties may be carried out without complying with the foregoing rules: (i) if a transaction does not involve a substantial amount (it is deemed that a transaction does not involve a substantial amount if it does not exceed 1.0% of the net worth of the company and does not exceed the equivalent of 2,000 UF or approximately US$79,352 as of the date of this annual report on Form 20-F) unless such a transaction exceeds 20,000 UF (for this calculation all similar transactions carried out within a consecutive 12-month period between the same parties or for the same subject matter, shall be deemed as a single transaction), (ii) transactions which according to the policies determined by the board of directors, are deemed to be within the ordinary course of business (the determination of such policies shall be disclosed as a material fact and made available to shareholders), and (iii) if the counterparty is an entity in which the publicly-traded company has, directly or indirectly, at least a 95.0% ownership. As per the exemption indicated in (ii) above, on December 29, 2009, the board of directors of LATAM Airlines Group established policies setting forth the transactions that fall within the ordinary course of business. That determination was publicly disclosed on the same day and is currently available on LATAM Airlines Group’s website under the “Corporate Governance” section.

 Shareholders’ Meetings and Voting Rights

The Chilean Corporation Law requires that an ordinary annual meeting of shareholders be held within the first four months of each year after being called by the board of directors (generally they are held in April, but in any case following the preparation of our financial statements, including the report of our auditors, for the previous fiscal year). LATAM Airlines Group’s by-laws further provide that the ordinary annual meeting of shareholders must take place between February 1 and April 30. The shareholders at the ordinary annual meeting approve the annual financial statements, including the report of our auditors, the annual report, the dividend policy and the final dividend on the prior year’s profits, elect the board of directors (in our case, every two years or earlier if a vacancy occurs) and approve any other matter that does not require an extraordinary shareholders’ meeting. The most recent extraordinary meeting of our shareholders was held on April 27, 2017, and the most recent ordinary annual meeting of our shareholders was held on April 26, 2018.

Extraordinary shareholders’ meetings may be called by the board of directors, if deemed appropriate, and ordinary or extraordinary shareholders’ meetings must be called by the board of directors when requested by shareholders representing at least 10.0% of the issued voting shares or by the CMF. In addition, as from January 1, 2010 there are two new rules in this regard: (i) the CMF may directly call for an extraordinary shareholders’ meeting in case of a publicly-traded company, and (ii) any kind of shareholders’ meeting may be self-convened and take place if all voting shares attend, regardless of the fulfillment of the notice and other type of procedural requirements.

Notice to convene the ordinary annual meeting or an extraordinary meeting is given by means of three notices which must be published in a newspaper of our corporate domicile (currently Santiago, Chile) designated by the shareholders at their annual meeting and, if the shareholders fail to make such designation, the notice must be published in the Chilean Official Gazette pursuant to legal requirements. The first notice must be published not less than 15 days and not more than 20 days in advance of the scheduled meeting. Notice also must be mailed not less than 15 days in advance of the meeting to each shareholder and to the CMF and the Chilean stock exchanges. Currently, we publish our official notices in the newspaper La Tercera (available online at www.latercera.com).

The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing a majority of our issued common shares. If that quorum is not reached, the meeting can be reconvened within 45 days, and at the second meeting the shareholders present are deemed to constitute a quorum regardless of the percentage of the common shares that they represent.

Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his or her proxy to attend and vote on his or her behalf. Proxies addressed to us that do not designate a person to exercise the proxy are taken into account in order to determine if there is a sufficient quorum to hold the meeting, but the shares represented thereby are not entitled to vote at the meeting. The proxies must fulfill the requirements set forth by the Chilean Corporation Law and its regulatory norms. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed.

The following matters can only be considered at an extraordinary shareholders’ meeting:

• our dissolution;

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• a merger, transformation, division or other change in our corporate form or the amendment of our by-laws;

• the issuance of bonds or debentures convertible into shares;

• the conveyance of 50% or more of our assets (whether or not it includes our liabilities);

• the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;

• the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;

• the conveyance of shares of a subsidiary which entails the transfer of control;

• granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless to secure or guarantee the obligations of a subsidiary, in which case only the approval of the board of directors will suffice; and

• other matters that require shareholder approval according to Chilean law or the by-laws.

The matters referred to in the first seven items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting.

The by-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting. However, under the Chilean Corporation Law, the vote of a two-thirds majority of the outstanding voting shares is required to approve any of the following actions:

• a change in our corporate form, division or merger with another entity;

• amendment to our term of existence, if any;

• our early dissolution;

• change in our corporate domicile;

• decrease of our capital stock;

• approval of contributions and the assessment thereof whenever consisting of assets other than money;

• any modification of the authority reserved for the shareholders’ meetings or limitations on the powers of the board of directors;

• decrease in the number of members of the board of directors;

• the conveyance of 50% or more of our assets (whether or not it includes our liabilities);

• the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;

• the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;

• the conveyance of shares of a subsidiary which entails the transfer of control;

• the form that dividends are paid in;

• granting a security interest or a personal guarantee in each case to secure obligations of third parties that exceeds 50% of our assets, unless to secure or guarantee the obligations of a subsidiary, in which case only approval of the board of directors will suffice;  

• the acquisition of our own shares, when, and on the terms and conditions, permitted by law;

• all other matters provided for in the by-laws;

• the correction of any formal defect in our incorporation or any amendment to our by-laws that refers to any of the matters indicated in the first 13 items listed above;

• the institution of the right of the controlling shareholder who has purchased at least 95% of the shares to purchase shares of the outstanding minority shareholders pursuant to the procedure set forth in article 71 bis of the Corporation Law; and

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

Amendments to the by-laws that have the effect of establishing, modifying or eliminating any special rights pertaining to any series of shares require the consenting vote of holders of two-thirds of the shares of the affected series. As noted above, LATAM Airlines Group does not have special series of shares.

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In general, Chilean law does not require a publicly held corporation to provide the level and type of information that the U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company and its subsidiaries within the 15-day period before a scheduled meeting. No later than 15 business days of the scheduled shareholder’s meeting, the board of directors of a publicly held corporation is required to send to every shareholder notice by regular mail, a notice containing a reference to the issues that will be discussed, together with instructions to obtain all the appropriate documentation regarding those issues, and publish such notice on its website. The board is also required to make available to the shareholders the annual report and the financial statements of the company, and to publish such information in the company’s webpage at least 10 days in advance of the scheduled shareholders meeting. In addition to these requirements, we regularly have provided, and currently intend to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend for shareholder approval. See “—Dividend and Liquidation Rights” below.

The Chilean Corporation Law provides that, whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include such shareholders’ comments and proposal in relation to the company’s affairs, together with the comments and proposals set forth by the directors’ committee. Similarly, the Chilean Corporation Law provides that whenever the board of directors of a publicly held corporation convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions or other similar material, it is obligated to include as an annex to its annual report any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be included, together with the comments and proposals set forth by the directors’ committee.

Dividend and Liquidation Rights

In accordance with the Chilean Corporation Law, LATAM Airlines Group must distribute an annual cash dividend equal to at least 30% of its annual net income calculated in accordance with IFRS, unless otherwise decided by a unanimous vote of the holders of all issued shares, and unless and except to the extent it has accumulated losses. If there is no net income in a given year, LATAM Airlines Group can elect but is not legally obligated to distribute dividends out of retained earnings. All outstanding common shares are entitled to share equally in all dividends declared by LATAM Airlines Group, unless the shares have not been fully paid by the shareholder after being subscribed.

For all dividend distributions agreed by the board of directors in excess of the mandatory minimum of 30% noted in the preceding paragraph, LATAM Airlines Group may grant an option to its shareholders to receive those dividends in cash, or in shares issued by either LATAM Airlines Group or other corporations. Shareholders who do not expressly elect to receive a dividend other than in cash are legally presumed to have decided to receive the dividend in cash. A U.S. holder of ADSs may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively is required to receive a dividend in cash. See “—Preemptive Rights and Increases in Share Capital” above.

Dividends that are declared but not paid within the appropriate time period set forth in the Chilean Corporation Law (as to minimum dividends, 30 days after declaration; as to additional dividends, the date set for payment at the time of declaration) are adjusted to reflect the change in the value of the UF. The UF is a daily indexed, Chilean peso-denominated accounting unit designed to discount the effect of Chilean inflation and it is based on the previous month’s inflation rate as officially determined. Such dividends also accrue interest at the then-prevailing rate for UF-denominated deposits during such period. The right to receive a dividend lapses if it is not claimed within five years from the date such dividend is payable. After that period, the amount not claimed is given to a non-profit organization, the Cuerpos de Bomberos de Chile (the National Corporation of Firefighters).

In the event of LATAM Airlines Group’s liquidation, the holders of fully paid common shares would participate pro rata in the distribution of assets remaining after payment of all creditors. Holders of shares not fully paid will participate in such distribution in proportion to the amount paid.

Approval of Financial Statements

The board of directors is required to submit our consolidated financial statements to the shareholders for their approval at the annual ordinary shareholders’ meeting. If the shareholders reject the financial statements, the board of directors must submit new financial statements not later than 60 days from the date of that meeting. If the shareholders reject the new financial statements, the entire board of directors is deemed removed from office and a new board is to be elected at the same meeting. Directors who approved such financial statements are disqualified for re-election for the ensuing period.

Right of Dissenting Shareholders to Tender Their Shares

The Chilean Corporation Law provides that, upon the adoption at an extraordinary meeting of shareholders of any of the resolutions or if any of the situations enumerated below takes place, dissenting or affected shareholders acquire the right to withdraw and to compel the company to repurchase their shares, subject to the fulfillment of certain terms and conditions. However, such right shall be suspended if we are a debtor in a bankruptcy liquidation proceeding, or if we are subject to a reorganization agreement approved in accordance with Chilean law No. 20,720, unless such agreement allows the right to withdraw, or unless it is terminated by the issuance of a liquidation resolution. In the case of holders of ADRs, however, in order to exercise such rights, holders of ADRs would be required to first withdraw the common shares represented by the ADRs pursuant to the terms of the deposit agreement. Such holders of ADRs would need to perfect the withdrawal of the common shares on or before the fifth business day prior to the date of the meeting.

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“Dissenting shareholders” are defined as those who attend a shareholders’ meeting and vote against a resolution which results in the withdrawal right, or, if absent at such a meeting, those who state in writing to the company their opposition to such resolution within the following 30 days. Dissenting shareholders must perfect their withdrawal rights by tendering their stock to the company within thirty days after adoption of the resolution.

The price paid to a dissenting shareholder of a publicly held corporation is the weighted average of the sales prices for the shares as reported on the Chilean stock exchanges on which the shares are quoted during the 60 stock-exchange-business-day period elapsed between the 30^th and the 90^th stock-exchange-business-days-preceding the event giving rise to the withdrawal right. If, because of the volume, frequency, number and diversity of the buyers and sellers, the CMF determines that the shares are not shares actively traded on a stock exchange (acciones de transacción bursátil), the price paid to the dissenting shareholder is the book value. Book value for this purpose equals paid capital plus reserves and profits, less losses, divided by the total number of subscribed shares (whether entirely or partially paid). For the purpose of making this calculation, the last annual balance sheet is used and adjusted to reflect inflation up to the date of the shareholders’ meeting that gave rise to the withdrawal right.

The resolutions and situations that result in a shareholder’s right to withdraw are the following:

• the transformation of the company;

• the merger of the company with or into another company;

• the conveyance of 50% or more of the assets of the company, whether or not such sale includes the company’s liabilities;

• the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;

• the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;

• the conveyance of shares of a subsidiary which entails the transfer of control;

• the creation of preferential rights for a class of shares or an extension, amendment or reduction to those already existing, in which case the right to withdraw only accrues to the dissenting shareholders of the class or classes of shares adversely affected;

• the correction of any formal defect in the incorporation of the company or any amendment to the company’s by-laws that grants the right to withdraw;

• the granting of security interests or personal guarantees to secure or guarantee third parties’ obligations exceeding 50% of the company’s assets, except with regard to subsidiaries;

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

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

• if the controlling shareholder of a publicly-traded company reaches over 95% of the shares (in such case, the right must be exercised within 30 days of the date in which the threshold is reached, circumstance that must be communicated by means of a publication); and

• such other causes as may be established by the company’s by-laws (no such additional resolutions currently are specified in our by-laws).

In addition, shareholders of publicly held corporations have the right to withdraw if a person acquires two-thirds or more of the outstanding shares of such corporation with the right to vote (except as a result of other shareholders not having subscribed and paid a capital increase) and does not make a tender offer for the remaining shares within 30 days after acquisition.

Under article 69 bis of the Chilean Corporation Law, the right to withdraw also is granted to shareholders (other than pension funds that administer private pension plans under the national pension law), under certain terms and conditions, if a company were to become controlled by the Chilean government, directly or through any of its agencies, and if two independent rating agencies downgrade the rating of its stock from first class because of certain actions specified in Article 69 bis undertaken by the company or the Chilean government that affect negatively and substantially the earnings of the company. Shareholders must perfect their withdrawal rights by tendering their shares to the company within 30 days of the date of the publication of the new rating by two independent rating agencies. If the withdrawal right is exercised by a shareholder invoking Article 69 bis, the price paid to the dissenting shareholder shall be the weighted average of the sales price for the shares as reported on the stock exchanges on which the company’s shares are quoted for the six-month period preceding the publication of the new rating by two independent rating agencies. If, as previously described, the CMF determines that the shares are not actively traded on a stock exchange, the price shall be the book value calculated as described above.

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There is no legal precedent as to whether a shareholder that has voted both for and against a proposal (such as the depositary) may exercise withdrawal rights with respect to the shares voted against the proposal. As such, there is doubt as to whether holders of ADRs who have not surrendered their ADRs and withdrawn common shares on or before the fifth business day prior to the shareholder meeting will be able to exercise withdrawal rights either directly or through the depositary with respect to the shares represented by ADRs. Under the provisions of the deposit agreement the depositary will not exercise these withdrawal rights.

The circumstance indicated above regarding ownership in excess of 95% by the controlling shareholder creates not only a withdrawal right for the remaining minority shareholders, but as of January 1, 2010, it also creates a “squeeze out” right by the controlling shareholder with respect to those same shareholders (granting a call option by means of which the controlling shareholder may buy-out the existing ownership participations pursuant to the provisions of article 71 bis of the Corporation Law).

Registration and Transfers

The Depósito Central de Valores (“DCV”), a local depository corporation, acts as LATAM Airlines Group’s registration agent. In the case of jointly owned common shares, an attorney-in-fact must be appointed to represent the joint owners in dealings with us.

C. Material Contracts

Table of Material Contracts for the Purchase of Aircrafts

Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Boeing 767-300 Fleet
Purchase Agreement No. 2126 with the Boeing Company	January 30, 1998	Ø    Boeing 767-300 passenger aircrafts (2)	US$200,000,000
Supplemental Agreement No. 16 to Purchase Agreement No. 2126	November 11, 2004	Ø    Boeing 767-300 passenger aircrafts (3) Ø    Boeing 767-300 freighter aircraft (1)	US$140,000,000
Supplemental Agreement No. 20 to Purchase Agreement No. 2126	April 28, 2005	Ø    Boeing 767-300 passenger aircraft (1) Ø    Boeing 767-300 freighter aircrafts (2)	US$300,000,000
Supplemental Agreement No. 21 to Purchase Agreement No. 2126	July 20, 2005	Ø    Boeing 767-300 passenger aircrafts (3)	US$410,000,000
Supplemental Agreement No. 22 to Purchase Agreement No. 2126	March 31, 2006	Ø    Boeing 767-300 (3) Ø    Converted two (2) Boeing 767-300 freighter aircrafts to two (2) Boeing 767-300 passenger aircrafts	US$430,000,000
Supplemental Agreement No. 23 to Purchase Agreement No. 2126	December 14, 2006	Ø    Boeing 767-300 passenger aircrafts (3)	US$460,000,000
Supplemental Agreement No. 24 to Purchase Agreement No. 2126	November 10, 2008	Ø    Boeing 767-300 passenger aircrafts (4) Ø    Two (2) aircrafts delivered in 2011, and two (2) aircrafts delivered in 2012 Ø    Two purchase rights for Boeing 767-300 aircraft	US$636,000,000

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Supplemental Agreement No. 28 to the Purchase Agreement No. 2126	March 22, 2010	Ø    Accelerate the delivery of ten 787-8 aircraft, substitute four aircraft from 787-9 to 787-8 and substitute three 767-316ER to 767-316F freighter aircraft
Supplemental Agreement No. 29 to the Purchase Agreement No. 2126	November 10, 2010	Ø    Accelerate the delivery of three Aircraft and substitute those three aircraft from 767-316F to 767-316ER.
Supplemental Agreement No. 30 to Purchase Agreement No. 2126	February 15, 2011	Ø    Boeing 767-300 passenger aircrafts (3) Ø    Delivery was scheduled to take place in 2012	US$510,000,000
Supplemental Agreement No. 31 to Purchase Agreement No. 2126	May 10, 2011	Ø    Boeing 767-300 passenger aircrafts (5) Ø    Four purchase rights for Boeing 767-300 passsenger aircraft Ø    Delivery was scheduled to take place in 2012	US$780,000,000
Supplemental Agreement No. 32 to Purchase Agreement No. 2126	December 22, 2011	Ø    Exercise two purchase options for Boeing 767-300 aircrafts (2) Ø    Delivery was scheduled to take place in 2012 Ø    Remaining purchase options deleted	US$340,000,000
Boeing 787-8/9 Fleet
Purchase Agreement No. 3256 with the Boeing Company	October 29, 2007	Ø    Boeing 787-8 aircrafts (18) Ø    Boeing 787-9 aircrafts (8) Ø    Option of purchasing fifteen additional aircraft to be delivered in 2017 and 2018	US$3,200,000,000
Supplemental Agreement No. 1 to the Purchase Agreement No. 3256	March 22, 2010	Ø    Advance scheduled delivery date of ten Boeing 787-8 aircraft and substitute four Boeing 787-9 aircraft into four Boeing 787-8 aircraft.
Supplemental Agreement No. 3 to the Purchase Agreement No. 3256	August 24, 2012	Ø    Replace two Boeing 787-8 aircraft with two Boeing 787-8 aircraft with a later delivery.
Delay Settlement Agreement to the Purchase Agreement No. 3256	September 16, 2013	Ø    Agreed to update delivery dates, settle consequences of delays and convert several future deliveries of B787-8 aircraft to B787-9 aircraft. This agreement was amended on April 22, 2015 to update delivery dates of certain aircraft.
Supplemental Agreement No. 4 to the Purchase Agreement No. 3256	April 22, 2015	Ø    Reschedule the delivery dates of four Boeing 787-8 aircraft and replace four Boeing 787-8 aircraft with four Boeing 787-9 aircraft.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Supplemental Agreement No. 6 to the Purchase Agreement No. 3256	May 27, 2016	Ø    Convert four Model 787-8 Aircraft to four Model 787-9 Aircraft, and  Defer of two Model 787-9 Aircraft from 1Q 2018 and 2Q 2018 to 3Q 2018 and 4Q 2018 respectively.
Boeing 777 Freighter Fleet
Purchase Agreement No. 3194 with the Boeing Company	July 3, 2007	Ø    Boeing 777 freighter aircrafts (2) Ø    Delivery was scheduled to take place in 2011 and 2012	US$545,000,000
Letter Agreement 6-1162-KSW-6454R2 to the Purchase Agreement No. 3194	March 22, 2010	Ø    Transfer two purchase rights from Purchase Agreement No. 2126 to Purchase Agreement No. 3194.
Supplemental Agreement No. 2 to Purchase Agreement No. 3194	November 2, 2010	Ø    Exercise purchase option for Boeing 777 freighter aircraft (1)	US$280,000,000
Supplemental Agreement No. 4 to the Purchase Agreement No. 3194	August 9, 2012	Ø    Reflect the configuration of the aircraft covered under such Purchase Agreement.
Airbus A320-Family Fleet
Second A320-Family Purchase Agreement with Airbus S.A.S.	March 20, 1998	Ø    Airbus A320-Family aircrafts (5)	US$230,000,000
Amendment No. 1 to the Second A320-Family Purchase Agreement	November 14, 2003	Ø    Exercise three purchase rights for Airbus 319 aircraft, among other things.
Amendment No. 2 to the Second A320-Family Purchase Agreement	October 4, 2005	Ø    Acquire 25 additional Airbus 320 family aircraft and 15 purchase rights for Airbus A320-Family aircraft.
Amendment No. 3 to the Second A320-Family Purchase Agreement	March 6, 2007	Ø    Exercise 15 purchase rights for 15 Airbus A320-Family Aircraft. Ø    According to clause 12.2 of the Second A320-Family Purchase Agreement, applicable to all subsequent amendments, in case of a failure, as defined in such agreement, a service life policy for a period of 12 years after delivery of any given aircraft shall apply.
Amendment No. 5 to the Second A320-Family Purchase Agreement	December 23, 2009	Ø    Airbus A320-Family aircrafts (30)	US$2,000,000,000
Amendment No. 6 to the Second A320-Family Purchase Agreement	May 10, 2010	Ø    Convert the aircraft type of three aircraft and advance the scheduled delivery date of 13 aircraft.
Amendment No. 8 to the Second A320-Family Purchase Agreement	September 23, 2010	Ø    Convert the aircraft type of one aircraft and advance the scheduled delivery date of four aircraft.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Amendment No. 9 to the Second A320-Family Purchase Agreement	December 21, 2010	Ø    Airbus A320-Family aircrafts (50)	US$2,600,000,000
Amendment No. 10 to the Second A320-Family Purchase Agreement	June 10, 2011	Ø    Convert the aircraft type of three aircraft, to select sharklets for some aircraft and to notify delivery dates for some aircraft.
Amendment No. 11 to the Second A320-Family Purchase Agreement	November 3, 2011	Ø    Convert the aircraft type of three aircraft and defer the scheduled delivery date of four aircraft.
Amendment No. 12 to the Second A320-Family Purchase Agreement	November 19, 2012	Ø    Convert the aircraft type of three aircraft, identify certain aircraft as Sharklet Installed Aircraft and others as Sharklet Capable Aircraft, as those are defined in such Purchase Agreement, and notify the scheduled delivery month for certain aircraft.
Amendment No. 13 to the Second A320-Family Purchase Agreement	August 19, 2013	Ø    Convert several A320 aircraft to A321 aircraft and to postpone the scheduled delivery dates of several aircraft.
Amendment No. 16 to the Second A320-Family Purchase Agreement	July 15, 2014	Ø    Covering cancellation and substitution of certain Aircraft.
Novation Agreement to the Second A320-Family Purchase Agreement	October 30, 2014	Ø    Novation of the original TAM A320/A330 Family Purchase Agreement from TAM to LATAM.
Amendment No. 17 to the Second A320-Family Purchase Agreement	December 11, 2014	Ø    Covering the substitution of certain Aircraft.
Airbus A320 NEO-Family Fleet
A320 NEO Purchase Agreement	June 22, 2011	Ø    Airbus 320 NEO Family aircraft (20) Ø    Delivery scheduled to take place in 2017 and 2018	US$1,700,000,000
Amendment No. 1 to the A320 NEO Purchase Agreement	February 27, 2014	Ø    Covering the advancement of the date by which LATAM selects the propulsion systems.
Amendment No. 2 to the A320 NEO Purchase Agreement	July 15, 2014	Ø    Covering the order of incremental A320 NEO Aircraft.
Amendment No. 3 to the A320 NEO Purchase Agreement	December 11, 2014	Ø    Covering the order of incremental A320 NEO Aircraft and A321 NEO Aircraft.
Amendment No. 4 to the A320 NEO Purchase Agreement	April 15, 2016	Ø    Covering the reschedule of the delivery of eight Original NEO Aircraft and the conversion of four Original NEO Aircraft into A321 NEO Aircraft

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Amendment No. 5 to the A320 NEO Purchase Agreement	April 15, 2016	Ø    Changes in the technical specifications of the aircraft to be received under this agreement.
Amendment No. 6 to the A320 NEO Purchase Agreement	August 8, 2016	Ø    Covering the cancellation of the delivery of four A320 NEO Aircraft.
TAM Material Contracts – A320/A330 Family Purchase Agreement
Purchase Agreement with Airbus S.A.S.	November 2006	Ø    Airbus A320-Family aircrafts (31) Ø    Airbus A330-200 aircrafts (6) Ø    Delivery was scheduled to take place between 2007 and 2010	US$3,300,000,000
New Purchase Agreement with Airbus S.A.S.	January 2008	Ø    Airbus A320-Family aircrafts (20) Ø    Airbus A330-200 aircrafts (4) Ø    Delivery was scheduled to take place between 2007 and 2014	US$2,140,000,000
New Purchase Agreement with Airbus S.A.S.	July 2010	Ø    Airbus A320-Family aircrafts (20) Ø    Delivery was scheduled to take place between 2014 and 2015	US$1,450,000,000
New Purchase Agreement with Airbus S.A.S.	October 2011	Ø    Airbus A320-Family aircrafts (10) Ø    Airbus A320 NEO Family aircrafts (22) Ø    Delivery scheduled to take place between 2016 and 2018 Ø    Ten option rights for Airbus A320 NEO Family aircraft	US$1,730,000,000
Amendment No. 13 to the A320/A330 Purchase Agreement	November 2012	Ø    Convert the aircraft type of A320 family aircraft.
Amendment No. 14 to the A320/A330 Purchase Agreement	December 2012	Ø    Convert the aircraft type of an A320 family aircraft and reschedule the delivery date of such aircraft.
Amendment No. 15 to the A320/A330 Purchase Agreement	February 2013	Ø    Changes to the scheduled delivery month of certain A320 Family Aircraft.
Amendment No. 16 to the A320/A330 Purchase Agreement	February 2013	Ø    Change to the aircraft type of certain A320 Family Aircraft, to the scheduled delivery month/quarter of certain A320 Family Aircraft and make certain changes to the dates by which TAM will select the propulsion systems and NEO propulsion systems for certain Aircraft.
Amendment No. 17 to the A320/A330 Purchase Agreement	August 2013	Ø    Change to the scheduled delivery month of a certain A320 Family Aircraft and to make the selection of the propulsion systems and NEO propulsion systems for certain Aircraft.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Amendment No. 20 to the A320/A330 Purchase Agreement	June 2015	Ø    Change to the schedule delivery month of one A321 Aircraft.
Amendment No. 21 to the A320/A330 Purchase Agreement	December 2015	Ø    Change to the schedule delivery month of two A320 NEO Aircraft.
Amendment No. 23 to the A320/A330 Purchase Agreement	April 15, 2016	Ø    Reflect the changes in the technical specifications of the aircraft to be received under this agreement.
Amendment No. 24 to the A320/A330 Purchase Agreement	August 8, 2016	Ø    Cancel the delivery of eight A320 NEO Aircraft.
Amendment No. 26 to the A320/A330 Purchase Agreement	December 21, 2018	Ø    Reschedule of the delivery of five A320 NEO Aircraft and eleven A321 NEO Aircraft. Ø    Cancel the delivery of one A321 Aircraft.
TAM Material Contracts – A350 Family Purchase Agreement
Purchase Agreement with Airbus S.A.S.	January 2008	Ø    Airbus A350 aircrafts (22) Ø    Ten option rights for Airbus A350 aircraft	US$6,480,000,000
Amendment No. 1 to the A350 Purchase Agreement	July 2010	Ø    Exercise its option of five A350 XWB options.
Amendment No. 2 to the A350 Purchase Agreement	July 2014	Ø    Reschedule the delivery of certain A350-900XWB and to amend certain provisions to reflect the latest aircraft specification.
Novation Agreement to the A350 Purchase Agreement	July 2014	Ø    Novating the A350 purchase agreement from TAM to LATAM.
Amendment No. 4 to the A350 Purchase Agreement	September 2015	Ø    Modify certain terms and conditions of such agreement and to convert a number of A350-900 XWB Aircraft into A350-1000 XWB Aircraft.
Amendment No. 5 to the A350 Purchase Agreement	November 2015	Ø    Convert a number of A350-900 XWB aircraft into six A350-1000 XWB aircraft and to reschedule the delivery of certain A350-900 XWB.
Amendment No. 7 to the A350 Purchase Agreement	August 8, 2016	Ø    Change aircraft type, from two A350-900 XWB Aircraft to two A350 - 1000 XWB Aircraft.
Amendment No. 9 to the A350 Purchase Agreement	September 22, 2017	Ø    Convert two A350-1000 XWB Aircraft into A350-900 XWB Aircraft

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft at List Price
Amendment No. 10 to the A350 Purchase Agreement	December 21, 2018	Ø    Convert four A350-1000 XWB Aircraft into A350-900 XWB Aircraft. Ø    Reschedule of six A350-900 XWB Aircraft and eight A350-1000 XWB.
TAM Material Contracts – Boeing 777 Purchase Agreement
Purchase Agreement with Boeing	February 2007	Ø    Boeing 777-32WER aircrafts (4)	US$1,070,000
Supplemental Agreement No. 1 to the Purchase Agreement	August 2007	Ø    Exercise four option aircraft and to define certain aircraft configuration.
Supplemental Agreement No. 2 to the Purchase Agreement	March 2008	Ø    Document its agreement on the descriptions and pricing of some options and master changes related to certain aircraft.
Supplemental Agreement No. 3 to the Purchase Agreement	December 2008	Ø    Purchase of two incremental 777 aircraft.
Supplemental Agreement No. 5 to the Purchase Agreement	July 2010	Ø    Reschedule the delivery of certain aircraft.
Supplemental Agreement No. 6 to the Purchase Agreement	February 2011	Ø    Purchase of two incremental 777 aircraft.
Supplemental Agreement No. 7 to the Purchase Agreement	May 2014	Ø    Substitute two 777-300ER aircraft originally scheduled for delivery in 2014 for two 777-F aircraft for scheduled delivery in 2017.
Supplemental Agreement No. 8 to the Purchase Agreement	April 2015	Ø    Reschedule the delivery of certain aircraft.

Other Material Contracts

Boeing

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

Boeing Aircraft Holding Company

On May 8, 2018, we also entered into an Aircraft Lease Common Terms Agreement with The Boeing Aircraft Holding Company for the lease of two B777-200ER aircraft. The average term of the lease is 12 months.

Airbus A320-Family Fleet

Between April and August 2011, we entered into Buyback Agreements No. 3001, 3030, 3062, 3214 and 3216 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$107 million.

Between August 2012 and January 2013, we entered into Buyback Agreements No. 3371, 3390, 3438, 3469 and 3509 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$102 million.

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Aercap Holdings N.V.

On May 28, 2013, we entered into a framework deed with Aercap Holdings N.V. for the sale and leaseback of several used A330-200 aircraft, which were returned to the lessor, and several new aircraft to be received from the manufacturer including A350-900, B787-8 and B787-9 aircraft. The estimated gross value (at list prices) of these aircraft is US$3.0 billion.

Aircastle Holding Corporation Limited

On February 21, 2014, we entered into a framework deed with Aircastle Holding Corporation Limited for the lease of four B777-300ER already in fleet. The four aircraft were manufactured in 2012 and the estimated market value (at list prices) of these aircraft is US$580 million. The average term of the original leases were 60 months, and the agreement was extended for another 84 months.

GE Commercial Aviation

On April 30, 2007, we also entered into an Aircraft Lease Common Terms Agreement with GE Commercial Aviation Services Limited and two Aircraft Lease Agreements with Wells Fargo Bank Northwest N.A., as owner trustee, for the lease of two Boeing B777-200LRF aircraft. These aircraft were delivered in 2009 and the leases shall remain in place for a term of 96 months.

GE Engine Services LLC

On June 12, 2014, we (and TAM Linhas Aereas S.A.) entered into engine services agreement with GE Engine Services, LLC and GE Celma Ltda. for the provision of maintenance services of CF6-80C2B6F engines (which powers our B767 fleet) during 200 shop visits or 10 years, whichever occurs first.

On July 28, 2009, TAM Linhas Aereas S.A. entered into an engine services agreement with GE Engine Services, Inc. for the provision of maintenance services of GE90-115BL engines, which power 10 B777 passenger fleet and 4 spare engines, for a period of 12 years per engine.

CFM International

On December 17, 2010, we entered into General Terms Agreement No. CFM-1-2377460475 (the “GTA”) and Letter Agreement No. 1 to GTA with CFM International, Inc. (“CFM”) for the sale and support by CFM of CFM56-5B engines to power 70 A320 family aircraft and up to 14 CFM56-5B spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with CFM for the provision by CFM of maintenance services for the above-mentioned installed and spare engines.

On December 31, 2014, we entered Letter Agreement No. 2 to GTA with CFM International, Inc. (“CFM”) for the sale and support by CFM of CFM56-5B engines to power 20 A320 family aircraft and one spare engine.

On March 15, 2006, TAM Linhas Aereas S.A. entered into an engine services agreement with GE Celma Ltda. for the provision of maintenance services for CFM56-5B engines, which power 47 A320 Fam passenger fleet and 6 spare engines, for a period of 15 years per engine.

PW1100G-JM Engine Maintenance Agreement

In February 2014, we entered into an engine support and maintenance agreement with United Technologies Internation Corporation, Pratt & Whitney Division (“PW”) for the sale, support and maintenance by PW of PW1100G-JM engines to power 42 A320NEO family aircraft and nine spare engines. It is also a rate per engine flight hour contract agreement, which includes cost control mechanisms for LATAM.

Rolls-Royce PLC & Rolls-Royce TotalCare Services Limited

On September 30, 2009, we entered into General Terms Agreement No. DEG5307 (the “GTA”) with Rolls-Royce PLC for the sale and support by Rolls-Royce of Trent 1000 engines to power 32 B787 family aircraft and up to 10 Trent 1000 spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with Rolls-Royce TotalCare Services Limited for the provision by Rolls-Royce of maintenance services for the above-mentioned installed and spare engines, for a period of 15 years per engine.

On January 11, 2011, TAM Linhas Aereas S.A. entered into General Terms Agreement No. DEG5292 (the “GTA”) with Rolls-Royce PLC for the sale and support by Rolls-Royce of Trent XWB engines to power 27 A350XWB family aircraft and up to 7 Trent XWB spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with Rolls-Royce TotalCare Services Limited for the provision by Rolls-Royce of maintenance services for the above-mentioned installed and spare engines, for a period of 12 years per engine. Subsequently, on July 31, 2015, the aforementioned agreements were assigned, so that LATAM Airlines Group S.A. replaces TAM Linhas Aereas S.A. in both agreements.

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International Aero Engines AG

On October 12, 2006, we entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services of V2500-A5 engines, which power 53 A320 Fam passenger fleet and 9 spare engines, for a period of 12 years per engine.

On October 21, 2010, TAM Linhas Aereas S.A. entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services of V2500-A5 engines, which power 26 A320 Fam passenger fleet and 7 spare engines, for a period of 12 years per engine.

CFM International

On June 29, 2016, we entered into a Rate Per Flight Hour Agreement for Engine Shop Maintenance Services with CFM International, Inc., covering the maintenance, repair and overhaul of certain CFM56-5B engines.

PAAL Gemini Company Limited – PAAL Aquila Company Limited

During 2016, we entered into operating lease agreements with PAAL Gemini Company Limited and PAAL Aquila Company Limited, for the sale and lease back of four Airbus A321 received in our fleet in 2016. The term of each of the leases is 10 years and the estimated market value (at list prices) of these aircraft is US$200 million.

Jackson Square

During 2016, we entered into operating lease agreements with JSA Aircraft 7126, LLC, JSA Aircraft 7128, LLC, JSA Aircraft 7239, LLC and JSA Aircraft 7298, LLC, for the sale and lease back of three Airbus A321 and one Airbus A320 Neo received in our fleet in 2016. The term of each of the leases is 10 years and the estimated market value (at list prices) of these aircraft is US$200 million.

Avolon Aerospace

On May 10, 2017, we entered into a Framework Agreement with Avolon Aerospace for the assignment of two A350-900 aircraft. The estimated market value of these aircraft is US$ 246,000,000.

On September 8, 2017, we entered into an Operating Lease Agreement with Avolon Aerospace for the Sale and Leaseback of five A320 neo aircraft. The estimated market value of these aircraft is US$ 241,000,000. The average term of the leases is 144 months.

On January 16, 2018, we entered into an Operating Lease Agreement with Avolon Aerospace of two A321-200 aircraft. The estimated market value of these aircraft is US$ 88,600,000. The average term of the lease is 124 months.

SABRE Contract

In November 2009, we entered into a master agreement with SABRE Inc., pursuant to which LATAM was granted with access and use of certain reservation systems and other SABRE software solutions. This agreement will remain in force for five years or until the expiration of all Work Orders to the agreement. In addition, on May 4, 2015, we entered into a Master Services License Agreement with SABRE Inc. Pursuant to this agreement SABRE Inc., will grant LATAM access and use of certain reservation systems. This agreement will enter into force after the expiration of Work Order No. 1 to the agreement entered in November 2009 by LATAM and SABRE Inc. and will be effective for an initial period of 10 years.

In addition, LATAM has distribution agreements in place with SABRE as well as with other distribution providers.

CFM56-5B Engine Maintenance Contract

In March 2006, TAM entered into a services agreement with GE Celma, a Brazilian subsidiary of General Electric Engine Services division, for the maintenance by GE Celma of CFM56-5B engines to power 25 A320 family aircraft and four spare engines.

In March 2007 TAM entered into the Amendment 1 to the above-mentioned services agreement with GE Celma, extending the maintenance services to the engines powering additional 16 A320 family aircraft and two spare engines.

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V2500-A5 Engine Maintenance Agreement

In 2000, TAM entered into an engine maintenance contract with MTU Motoren-und Turbinen-Union München GmbH, or MTU, pursuant to which MTU agreed to provide certain maintenance, refurbishment, repair and modification services with respect to approximately 105 TAY650-15 aircraft engines. This contract is complemented by a novation and amendment agreement between us and Rolls-Royce Brazil Ltda. pursuant to which Rolls-Royce Brazil Ltda. replaced MTU as contract counterparty. This agreement terminates on June 30, 2015.  

SABRE Contract

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

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

Amadeus Contract

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

Wamos Air

Between March and May 2018, we entered into an ACMI Lease Contract  (wet lease) with Wamos Air S.A of four A330-200 aircraft and one B747-400 aircraft, which Wamos provided the services for aircraft, crew, maintenance and insurance. These aircraft were delivered in 2018 and the average term of lease was six months.

D. Exchange Controls

Foreign Investment and Exchange Controls in Chile

The Central Bank of Chile is responsible, among other things, for monetary policies and exchange controls in Chile. Equity investments, including investments in shares of stock by persons who are non-Chilean residents, have been generally subject in the past to various exchange control regulations restricting the repatriation of their investments and the earnings thereon.

Article 47 of the Central Bank Act and former Chapter XXVI of the Central Bank Foreign Exchange Regulations regulated the foreign exchange aspects of the issuance of ADSs by a Chilean company until April 2001. According to former Chapter XXVI, the Central Bank of Chile and the depositary had to enter into an agreement in order to gain access to the formal exchange market. The issuers of the shares underlying the ADSs and the custodian could also be parties to these agreements.

On April 16, 2001, the Central Bank of Chile agreed that, effective April 19, 2001:

• prior foreign exchange restrictions would be eliminated; and

• a new Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) would be applied.

The main objective of these amendments, as declared by the Central Bank of Chile, is to facilitate movement of capital in and out of Chile and to encourage foreign investment.

In connection with the change in policy, the Central Bank of Chile eliminated the following restrictions:

• a reserve requirement with the Central Bank of Chile for a period of one year (this mandatory reserve was imposed on foreign loans and funds brought into Chile to purchase shares other than those acquired in the establishment of a new company or in the capital increase of the issuing company; the reserve requirement was gradually decreased from 30% of the proposed investment to 0%);

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

• mandatory return of foreign currency to Chile; and

• mandatory conversion of foreign currency into Chilean pesos.

Under the new regulations, only the following limitations apply to these operations:

• the Central Bank of Chile must be provided with information related to certain operations; and

• certain operations must be conducted with the Formal Exchange Market.

The Central Bank of Chile also eliminated Chapter XXVI of the Compendium of Foreign Exchange Regulations, which regulated the establishment of an ADR facility by a Chilean company. Pursuant to the new rules, it is no longer necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADR facility or to enter into a foreign investment contract with the Central Bank of Chile. The establishment of an ADR facility is now regarded as an ordinary foreign investment, and simply requires that the Central Bank of Chile be informed of the transaction pursuant to Chapter XIV of the amended Compendium of Foreign Exchange Regulations and that the foreign currency transactions related thereby be conducted through the Formal Exchange Market.

However, all contracts executed under the provisions of former Chapter XXVI (including the foreign investment contract among LATAM Airlines Group, the Central Bank of Chile and the ADS depositary, or the “Foreign Investment Contract”), remained in full force and effect and continued to be governed by the provisions, and continued to be subject to the restrictions, set forth in former Chapter XXVI at the time of its abrogation. Our Foreign Investment Contract guaranteed ADS investors access to the Formal Exchange Market to convert amounts from Chilean pesos into U.S. dollars and repatriate amounts received with respect to deposited common shares or common shares withdrawn from deposit or surrender of ADRs (including amounts received as cash dividends and proceeds from the sale in Chile of the underlying common shares and any rights arising from them).

On May 10, 2007, the Board of the Central Bank of Chile resolved to interpret the regulations regarding the former Chapter XXVI in connection with the access granted to the Formal Exchange Market. These regulations allowed entities that carry out capital increases by means of the issuance of cash shares before August 31, 2007 to apply the aforementioned regulation to their capital increases, but only once and only if those shares can be fully subscribed and paid by August 31, 2008, among other conditions. Consequently, capital increases carried out after August 31, 2007 will have no guaranteed access to the Formal Exchange Market.

On October 17, 2012, the Central Bank of Chile, the depositary and LATAM Airlines Group entered into a termination agreement in respect of LATAM’s existing foreign investment contract. ADR holders were notified about this termination in accordance with Section 16 of the Deposit Agreement. Upon termination of the foreign investment contract, holders of ADSs and the depositary no longer have guaranteed access to the Formal Exchange Market. Currently, the ADS facility is governed by Chapter XIV of the Compendium on “Regulations applicable to Credits, Deposits, Investments and Capital Contributions from Abroad.” According to Chapter XIV, the establishment or maintenance of an ADS facility is regarded as an ordinary foreign investment, and it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADS facility. The establishment or maintenance of an ADS facility only requires that the Central Bank of Chile be informed of the transaction, and that the foreign currency transactions related thereby be conducted through the Formal Exchange Market.  

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

As a result of the combination with TAM, investments made in shares of our common stock are subject to the following requirements:

• any foreign investor acquiring shares of our common stock who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;

• any foreign investor acquiring shares of our common stock to be converted into ADSs or deposited into an ADR program who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;

• in both cases, the entity of the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile;

• all remittances of funds from Chile to the foreign investor upon the sale of the acquired shares of our common stock or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market;

• all remittances of funds from Chile to the foreign investor upon the sale of shares underlying ADSs or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and

• all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile by the intervening entity of the Formal Exchange Market.

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When funds are brought into Chile for a purpose other than to acquire shares to convert them into ADSs or deposit them into an ADR program and subsequently such funds are used to acquire shares to be converted into ADSs or deposited into an ADR program such investment must be reported to the Central Bank of Chile by the custodian within 10 days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.

When funds to acquire shares of our common stock or to acquire shares to convert them into ADSs or deposit them into an ADR program are received by us abroad (i.e., outside of Chile), such investment must be reported to the Central Bank of Chile directly by the foreign investor or by an entity participating in the Formal Exchange Market within ten days following the end of the month in which the investment was made.

All payments in foreign currency in connection with our shares of common stock or ADSs made from Chile through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.

There can be no assurance that additional Chilean restrictions applicable to the holders of ADSs, the disposition of shares of our common shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.

This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank of Chile’s Foreign Exchange Regulations, a copy of which is available in Spanish and English versions at the Central Bank’s website at www.bcentral.cl.

Voting Rights

Holders of our ADSs, which represent common shares, may instruct the depositary to vote the shares underlying their ADRs. If we ask holders for instructions, the depositary will notify such holders of the upcoming vote and arrange to deliver our voting materials to such holders. The materials will describe the matters to be voted on and explain how holders may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as they direct by a specified date. For instructions to be valid, the depositary must receive them on or before the date specified as “Vote Cut-Off Date.” The depositary will try, as far as practical, subject to Chilean law and the provisions of our by-laws, to vote or to have its agents vote the shares or other deposited securities as holders instruct. Otherwise, holders will not be able to exercise their right to vote unless they withdraw the shares. However, holders may not know about the meeting far enough in advance to withdraw the shares. We will use our best efforts to request that the depositary notify holders of upcoming votes and ask for their instructions.

If the depositary does not receive voting instructions from a holder by the specified date, it will consider such holder to have authorized and directed it to give a discretionary proxy to a person designated by our board of directors to vote the number of deposited securities represented by such holder’s ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions to be voted upon unless we notify the depositary that:

• we do not wish to receive a discretionary proxy;

• we think there is substantial shareholder opposition to the particular question; or

• we think the particular question would have an adverse impact on our shareholders.

The depositary will only vote or attempt to vote as such holder instructs or as described above.

We cannot assure holders that they receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. This means that holders may not be able to exercise their right to vote and there may be nothing they can do if their shares are not voted as they requested.

Exchange Rates

Prior to 1989, Chilean law permitted the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile. The Central Bank Act liberalized the rules that govern the ability to buy and sell foreign currency. The Central Bank Act empowers the Central Bank of Chile to determine that certain purchases and sales of foreign currency specified by law must be carried out exclusively in the Formal Exchange Market, which is made up of the banks and other entities authorized by the Central Bank of Chile. All payments and distributions with respect to the ADSs must be conducted exclusively in the Formal Exchange Market.

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

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

Prior to September 3, 1999, the Central Bank of Chile was authorized to buy or sell dollars in the Formal Exchange Market to maintain the observed exchange rate within a specified range above or below the reference exchange rate. On September 3, 1999, the Central Bank of Chile eliminated the exchange band. As a result, the Central Bank of Chile may buy and sell foreign exchange in the Formal Exchange Market in order to maintain the observed exchange rate at a level the Central Bank of Chile determines.

Purchases and sales of foreign exchange may be effected outside the Formal Exchange Market through the Informal Exchange Market (Mercado Cambiario Informal) established by the Central Bank in 1990. There are no limits on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate.  

Although our results of operations have not been significantly affected by fluctuations in the exchange rates between the peso and the U.S. dollar because our functional currency is the U.S. dollar, we are exposed to foreign exchange losses and gains due to exchange rate fluctuations. Even though the majority of our revenues are denominated in or pegged to the U.S. dollar, the Chilean government’s economic policies affecting foreign exchange and future fluctuations in the value of the peso against the U.S. dollar could adversely affect our results of operations and an investor’s return on an investment in ADSs.

E. Taxation

Chilean Tax

The following discussion relates to Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean Internal Revenue Service (“Chilean IRS”) and other applicable regulations and rulings, all of which are subject to change. The discussion summarizes the principal Chilean income tax consequences of an investment in the ADSs or common shares by a person who is neither domiciled in, nor a resident of, Chile or by a legal entity that is incorporated abroad not organized under the laws of Chile and does not have a branch or a permanent establishment located in Chile (such an individual or entity is referred to herein as a Foreign Holder). For purposes of Chilean tax law, an individual holder is a resident of Chile if such person has resided in Chile for more than six consecutive months in one calendar year or for a total of six months in two consecutive tax years. In addition, an individual is considered domiciled in Chile in case he or she resides in Chile with the actual or presumptive intent of staying in the country. The discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.

Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities enact rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations and interpretations, but Chilean tax authorities may change these rulings, regulations and interpretations prospectively. On February 4, 2010, representatives of the governments of the United States and Chile signed an income tax treaty. The treaty will have to be approved by the U.S. Senate and  before it becomes effective (the Chilean Congress ratified it in 2017).

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

In addition, in August 2018, a tax reform bill was presented in the Chilean congress, which proposes to reverse the current coexistence of two alternative tax regimes established in the Tax Reform Act by going back to a fully integrated system with a 100% credit of the corporate tax against individual or foreign entity taxes. Additionally, this tax reform bill seeks to modernize and provide more certainty with respect to the current tax system. For example, the bill proposes to modernize the current ledgers system and to include tax deductions for certain ordinary course business disbursements that are a part of, but not directly associated with, an entity’s primary business activities. In addition, this tax reform bill includes an amendment to the green tax regulation, allowing for taxation of all pollution credits and tax credits for reductions in all polluting emissions, which should in totality reduce most businesses’ net green tax payments. As currently proposed, we do not expect any material adverse effect on our business from this bill. However, we cannot offer any assurance that there will not be additional changes made to the tax bill that would negatively affect our business, results of operations or financial condition.

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Cash Dividends and Other Distributions

Under the new Partially Integrated Regime, cash dividends we pay with respect to the ADSs or common shares held by a Foreign Holder will be subject to a 35% Chilean withholding tax, which we withhold and pay over to the Chilean tax authorities and which we refer to as the Withholding Tax. A credit against the Withholding Tax is available based on the corporate income tax rate of the year of distribution and provided a sufficient balance of accumulated corporate income tax credits is available. These credits correspond to corporate income tax we actually paid on the accumulated income (referred to herein as the First Category Tax or FCIT). However, this credit does not reduce the Withholding Tax on a one-for-one basis because it also increases the base on which the Withholding Tax is imposed. If we register net income but taxable losses, no credit against the Withholding Tax may be available. In addition, if we distribute less than all of our distributable income, the credit for First Category Tax we pay is proportionately reduced.

The Partially Integrated Regime reduces the amount of First Category Tax creditable against the Withholding Tax for certain Foreign Holders. As a general rule, only 65% of the First Category Income Tax credit will actually offset the Withholding Tax. 35% of the credit must be added back to the Withholding Tax amount to be paid into the Treasury (referred to herein as First Category Tax Credit Restitution). However, if a tax treaty is in place between Chile and the country of domicile of a Foreign Holder and such Foreign Holder is entitled to treaty benefits in relation to the income, the full First Category Tax credit will continue to be available to offset against the Withholding Tax.

Under a transitory provision in force until December 31, 2021, the full 27% First Category Tax will also be creditable against the 35% Withholding Tax if the recipient of a dividend distribution is a shareholder resident in a country with which Chile has a tax treaty signed before January 1st, 2019, although such treaty is not yet in force.

In general, the example below illustrates the effective Withholding Tax burden on a cash dividend received by a Foreign Holder assuming a Withholding Tax rate of 35%, a First Category Tax rate of 27% and a distribution of 30% of the consolidated net income of the Company after payment of the First Category Tax:

	Foreign Holder in Treaty Country			Foreign Holder in Non Treaty Country
The Company’s taxable income		100.00			100.00
First Category Tax (27% of Ch$100)		(27.00	)		(27.00	)
Net distributable income		73.00			73.00
Dividend distributed (*)		21.90			21.90
First category increase		8.10			8.10
Amount subject to Withholding Tax (**)		30.00			30.00
Withholding Tax		(10.50	)		(10.50	)
Credit for First Category Tax		8.10			8.10
Add back 35% of the First Category Tax		N/A			(2.84	)
Net tax withheld		(2.40	)		(5.24	)
Net dividend received		19.5			16.66
Effective dividend withholding rate		11	%		24	%

(*) 30% of net distributable income.

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

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The effective rate of Withholding Tax to be imposed on dividends we pay will depend on the First Category Tax rate applicable in the year of distribution and on the balance of First Category Income Tax credits accumulated by the company. The First Category Tax rate will be 27% for 2018 and following years. The First Category Income Tax credits generated under the new tax regime, i.e. as of 2017, will be allocated first. Once the balance of First Category Tax credits generated as of 2017 are exhausted, the First Category Tax credits accumulated until December 31, 2016 will be used. In that event the First Category Tax credit available against the Withholding Tax will not correspond to the First Category Tax rate of the year of distribution but to the average rate of First Category Tax credits accumulated until December 31, 2016. This average rate will be determined by dividing the aggregate First Category Tax Credits accumulated until December 31, 2016 by the aggregate retained taxable profits accumulated at the same date. The First Category Tax credits accumulated until December 31, 2016 are not subject to the First Category Tax Credit Restitution irrespective of whether a tax treaty is in place with the country of the Foreign Holder or not.

The First Category Tax credits accumulated until December 31, 2016 correspond to the First Category Tax we actually paid on the income generated in a given year. For earnings generated from 1991 until 2001, the First Category Tax rate was 15%. The rate was 16.0% in 2002, 16.5% in 2003, 17% from 2004 until 2010, 20% from 2011 until 2013, 21% in 2014, 22.5% in 2015, 24% in 2016 and 25.5% in 2017 for companies subject to the Partially Integrated System.

In the event that the accumulated First Category Tax credits are not sufficient to cover any particular dividend, we will generally withhold tax from the dividend at the full 35% rate.

Dividend distributions made in kind would be subject to the same Chilean tax rules as cash dividends based on the fair market value of the relevant assets. Stock dividends and the distribution of preemptive rights are not subject to Chilean taxation.

Capital Gains

Gain from the sale or other disposition by a Foreign Holder of ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.

Gain recognized on a sale or disposition of common shares by a Foreign Holder (as distinguished from sales or exchanges of ADRs evidencing ADSs representing such common shares) may be subject to a 35% Withholding Tax. Moreover, a gain not exceeding 10 Annual Tax Units (US$8,351 as of December 31, 2018) recognized by a Foreign Holder without taxable presence in Chile in a sale to a non-related buyer will not be taxable.

The gain on the sale of shares of common stock by a Foreign Holder is subject to a withholding of 35% of the gain. If the gain subject to taxation cannot be determined, the Foreign Holder is subject to a provisional withholding of 10% of the total (sale price) amount, without any deduction, when the amounts are paid to, credited to, accounted for, put at the disposal of, or corresponding to, the Foreign Holder.The Foreign Holder would be entitled to request a tax refund for any amounts withheld in excess of the taxes actually due in April of the following year upon filing its corresponding tax return. Gain recognized in the transfer of common shares that have a high presence in the stock exchange, however, is not subject to capital gains tax in Chile, provided that the common shares are transferred in a local stock exchange or within the process of a public tender of common shares governed by the Securities Market Law. The common shares must have been acquired either in a local stock exchange, within the process of a public tender of common shares governed by the Securities Market Law, in an initial public offer of common shares resulting from the formation of a corporation or a capital increase of the same, or in an exchange of convertible bonds.

Notwithstanding the foregoing paragraph, Chile’s tax authority Ruling No. 1,480 (issued on August 22, 2014) confirmed that capital gains stemming from the sale of shares with high stock market presence acquired through the exchange of American Depositary Receipts (ADRs) for shares is not subject to capital gains tax in Chile. Such exemption is applicable provided that the ADRs comply with the requirements established by the CMF for the public offering of securities in Chile (i.e. if the ADRs are registered in the Foreign Securities Registry of the CMF, or their registration has been exempted by the CMF under a cooperation agreement signed with regulators of foreign markets), and the underlying shares have been registered in the Securities Registry of the CMF and on a Chilean Stock exchange. Shares are considered to have a high presence in the stock exchange when they:

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• are registered in the Securities Registry;

• are registered in a Chilean Stock exchange; and

• meet at least one of the following requirements:

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

ii. have a Market Maker.

To calculate the adjusted presence of a particular share, the aforementioned regulation first requires a determination of the number of days in which the operations regarding the stock exceeded, in Chilean pesos, the equivalent of 1,000 UF (US$39,676 as of December 31, 2018) within the previous 180 business days of the stock market. That number must then be divided by 180, multiplied by 100, and expressed in a percentage value. This tax regime does not apply if the transaction involves an amount of shares that would allow the acquirer to take control of the publicly traded corporation, in which case the ordinary tax regime referred to in the previous paragraph will apply, unless the transfer is part of a tender offer governed by the Securities Market Law or the transfer is done on a Chilean stock exchange, without substantially exceeding the market price.

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

A capital gains tax exemption for “foreign institutional investors” such as mutual funds and pension funds was repealed as from May 1, 2014 by Law 20,712. However, the law includes a grandfathering provision for shares acquired before May 1, 2014. This provision establishes an exemption on the capital gain obtained in the sale of shares that are publicly traded and have a high presence in a stock exchange when the sale is made by a foreign institutional investor, provided that the sale is made in a local stock exchange or in a public tender in accordance with the provisions of the Securities Market Law, or in the redemption of fund quotas, and the shares were acquired before May 1, 2014.

Pursuant to the regulations of the grandfathering rule, to qualify as a foreign institutional investor an entity must be formed outside of Chile, not have a domicile in Chile, and must be at least one of the following:

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

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

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

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

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

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The foreign institutional investor must not directly or indirectly participate in the control of the corporations issuing the shares it invests in, nor possess or participate directly or indirectly in 10% or more of the capital or the profits of such corporations.

Another requirement for the exemption is that the foreign institutional investor must execute a written contract with a bank or a stock broker incorporated in Chile. In this contract, the bank or stock broker must undertake to execute purchase and sale orders, verify the applicability of the tax exemption or tax withholding and inform the Chilean IRS of the investors it works with and the transactions it performs. Finally, the foreign institutional investor must register with the Chilean IRS by means of a sworn statement issued by such bank or stock broker.

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

The exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Any gain obtained by a Foreign Holder without taxable presence in Chile on the sale of preemptive rights relating to the common shares will be subject to Withholding Tax (the former being creditable against the latter).

Other Chilean Taxes

There are no Chilean inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of ADSs by a Foreign Holder, but such taxes generally will apply to the transfer at death or by gift of the common shares by a Foreign Holder. There are no Chilean stamp, issue, registration or similar taxes or duties payable by Foreign Holders of ADSs or common shares.

Withholding Tax Certificates

Upon request, we will provide to Foreign Holders appropriate documentation evidencing the payment of the Withholding Tax (net of the applicable First Category Tax credit).

Material United States Federal Income Tax Considerations

This section describes the material U.S. federal income tax consequences to a U.S. holder (as defined below) of owning common shares or ADSs. It applies to you only if you hold your common shares or ADSs as capital assets for tax purposes. This section does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may be relevant to U.S holders with respect to their ownership and disposition of ADSs or common shares. Accordingly, it is not intended to be, and should not be construed as, tax advice.This section does not apply to you if you are a member of a special class of holders subject to special rules, including:

• a dealer in securities,

• a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,

• a tax-exempt organization,

• a financial institution,

• a regulated investment company,

• a real estate investment trust,

• a life insurance company,

• a person liable for alternative minimum tax,

• a person that directly, indirectly or constructively owns 10% or more of the vote or value of our stock,

• a person that holds common shares or ADSs as part of a straddle or a hedging or conversion transaction,

• a person that purchases or sells common shares or ADSs as part of a wash sale for tax purposes,

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

• a U.S. expatriate,

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• a person who acquired our ADSs or common shares pursuant to the exercise of any employee share option or otherwise as compensation, or

• a partnership or other pass-through entity or arrangement treated as such (or a person holding our ADSs or common shares through a partnership or other pass through entity or arrangement treated as such).

If you are a member of a special class of holders subject to special rules, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or ADSs, including the potential impact of recently enacted legislation (P.L. 115-97) commonly referred to as the Tax Cut and Jobs Act (the “Act”). Moreover, this summary does not address the U.S. federal estate, gift, or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the acquisition, ownership and disposition of common shares and ADSs.

This section is based on the Internal Revenue Code of 1986, as amended, (the “Code”) its legislative history, existing and proposed Treasury regulations, published rulings and court decisions, all as of the date hereof. These laws are subject to change or differing interpretation, possibly on a retroactive basis. No ruling has been sought from the U.S. Internal Revenue Service with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the U.S. Internal Revenue Service or a court will not take a contrary position. On February 4, 2010, representatives of the governments of the United States and Chile signed an income tax treaty but the treaty is not yet in effect since it has not yet been ratified by both the U.S. Senate and the Chilean Congress. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

If a partnership holds the common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the common shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or ADSs, including the potential impact of the Act.

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

• an individual who is a citizen or resident of the United States,

• a corporation (or other entity taxable as a corporation) created or organized under the laws of the United States, any state thereof or the District of Columbia,

• an estate whose income is subject to U.S. federal income tax regardless of its source, or

• a trust if (1) a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust or (2) a valid election is in effect under applicable Treasury regulations to treat the trust as a U.S. person.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL AND THE CHILEAN AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF COMMON SHARES AND ADSs IN YOUR PARTICULAR CIRCUMSTANCES.  

ADSs

In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the beneficial owner of the common shares represented by those ADRs. Exchanges of common shares for ADRs, and ADRs for common shares, generally will not be subject to U.S. federal income tax.

The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly, the creditability of any foreign taxes paid and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders (as discussed below), could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and us if as a result of actions the holders of ADSs are not properly treated as beneficial owners of the underlying common shares.

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Taxation of Dividends

Under the U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your adjusted tax basis in the common shares or ADSs, as the case may be, and thereafter as capital gain from the sale or exchange of the common shares or ADSs, as the case may be. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to generally treat any distributions we make as dividend income for U.S. federal income tax purposes.

If you are an individual, trust, or estate U.S. holder, dividends paid on the ADSs or common shares that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains. Dividends paid on the ADSs or common shares will be treated as qualified dividend income if:

• (a) the ADSs or common shares are readily tradable on an established securities market in the United States; or (b) we are eligble for benefits of a comprehensive tax treaty with the United States, which the IRS determines is satisfactory for this purpose, which includes an exchange of information program;

• we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC.

• you hold the ADSs or common shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirement; and the U.S. holder is not under an obligation to make related payments with respect to positions • in substantially similar or related property.

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

The ADSs are listed on the New York Stock Exchange, and should qualify as readily tradable on an established securities market in the United States so long as they are so listed. Accordingly, we expect that dividends we pay with respect to the ADSs will be qualified dividend income (provided that the other conditions listed above are met). Because our common shares are not expected to be listed on any United States securities market, dividends we pay with respect to the common shares will not be qualified dividend income (as long as there is no income tax treay in effect between Chile and the United States), and therefore, the U.S. dollar amount of such dividends received by an individual, trust, or estate U.S. holder will be subject to taxation at ordinary U.S. federal income tax rates. Corporate U.S. holders are taxed on dividend income at the U.S. federal corporate income tax rate whether or not the dividend income is qualified dividend income.

The dividend is taxable to you when you, in the case of common shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations or certain foreign corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean pesos payments made, determined at the spot Chilean pesos/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.

The dividend income you have to include in gross income includes the amount of any Chilean tax withheld from the dividend payment even though you do not in fact receive such amount. Subject to generally applicable limitations and conditions under the Code, Chilean Withholding Tax withheld and paid over to the Chilean tax authorities (after taking into account the credit for the First Category Tax, when it is available) generally will be creditable or deductible against your U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to qualified dividend income that is subject to preferential U.S. federal income tax rates. To the extent a refund of the tax withheld is available to you under Chilean law, as is the case if the amount of Chilean Withholding Tax initially withheld from a dividend is determined to be excessive as described above under “—Taxation—Chilean Tax—Cash Dividends and Other Distributions,” the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability.  

Dividends will generally be income from sources outside the United States and will, depending on your circumstances, generally be either “passive” or “general”or “foreign branch” income for purposes of computing the foreign tax credit allowable to you. The rules relating to foreign tax credits and deductions are complex. U.S. holders should consult their tax advisors concerning the application of these rules in their particular circumstances.

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Taxation of Capital Gains

Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your common shares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your adjusted tax basis, determined in U.S. dollars, in your common shares or ADSs. Capital gain of an individual trust, or estate U.S. holder is generally taxed at preferential rates (i.e. a maximum U.S. federal income tax rate of 20% plus 3.8% “Net Investment Income Tax” if certain income threshholds are met; see “Net Investment Income Tax” below) where the property is held for more than one year. The deductibility of capital losses is subject to significant limitations. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Consequently, you may not be able to use the Chilean tax imposed on the disposition of common shares or ADSs as a foreign tax credit against your U.S. federal income tax liability on such disposition, but you may apply such Chilean taxes as a foreign tax credit against U.S. federal income tax due on other inocme you may have that is treated as derived from foreign sources in the appropriate foreign tax credit limitation category.

If the consideration received for our common shares or ADSs is paid in foreign currency (which should not be the case in respect of our ADSs), the amount realized will be the U.S. dollar value of the payment received translated at the spot rate of exchange on the date of disposition. If our common shares or ADSs are treated as traded on an established securities market and the relevant U.S. holder is either a cash basis taxpayer or an accrual basis taxpayer who has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the U.S. Internal Revenue Service), such holder will determine the U.S. dollar value of the amount realized in a foreign currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If our common shares or ADSs are not treated as traded on an established securities market, or the relevant U.S. holder is an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement date, such U.S. holder will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar amount realized on the date of disposition (as determined above) and the U.S. dollar value of the currency received at the spot rate on the settlement date. A U.S. holder’s initial tax basis in our common shares or ADSs will equal the cost of such ADSs or common shares. If a U.S. holder used foreign currency to purchase our common shares or ADSs, the cost of our common shares or ADSs will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. If our common shares or ADSs are treated as traded on an established securities market and the relevant U.S. holder is either a cash basis taxpayer or an accrual basis taxpayer who has made the special election described above, such holder will determine the U.S. dollar value of the cost of such common shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.

Net Investment Income Tax

A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% “net investment income” tax on the lesser of (1) the U.S. holder’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment income generally includes its dividend income and its net gains from the disposition of common shares or ADSs, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the “net investment income” tax to your income and gains in respect of your investment in the common shares or ADSs.

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PFIC Rules

We believe that common shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your common shares or ADSs would in general not be treated as capital gain that is eligible for preferential tax rates in the case of non-corporate U.S. holders. Instead, if you are a U.S. holder, unless you make a timely “mark-to-market” election electing to be taxed annually on a mark-to-market basis with respect to your common shares or ADSs, or you make a timely “qualified electing fund” election electing to be taxed annually on the earnings and gains of the PFIC attributable to your shares or ADSs (irrespective of distributions), you would be treated as if you had realized such gain ratably over your holding period in the common shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year except for the current year. In addition, unless you make a timely “mark-to-market” election or “qualified electing fund” election, distributions that you receive from us as a direct or indirect U.S. holder will not be eligible for the preferential tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at the tax rates applicable to ordinary income, and to the extent they are treated as “excess distributions” under the PFIC rules, they will also be subject to the PFIC interest charge described above. A U.S. holder will be required to make an annual filing with the U.S. Internal Revenue Service if such holder holds or ADSs or common shares in any year in which we are classified as a PFIC. With certain exceptions, your common shares or ADSs will continue to be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your common shares or ADSs even if we no longer meet the PFIC tests in a later year.

The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their own tax advisers with respect to the application of the PFIC rules to their investment in the common shares or ADSs.

Information Reporting and Backup Withholding

U.S. information reporting and backup withholding tax requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, common shares or ADSs made within the United States to a holder of common shares or ADSs (other than an exempt recipient, including a corporation, a payee that is not a U.S. holder that provides an appropriate certification, and certain other persons).

A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, common shares or ADSs within the United States to you, unless you are an exempt recipient, if you fail to furnish your correct taxpayer identification number or otherwise fail to establish an exception from backup withholding tax requirements. U.S. holders who are required to establish their exempt status may be required to provide such certification on U.S. Internal Revenue Service Form W-9. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you may be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is furnished timely to the U.S. Internal Revenue Service.

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Foreign Asset Reporting

Certain U.S. holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include the common shares or ADSs) with an aggregate value in excess of certain threshold amounts are required to report information relating to such assets, subject to certain exceptions (including an exception for stock held in accounts maintained by certain financial institutions). Penalties can apply if U.S. holders fail to satisfy such reporting requirements. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of common shares and ADSs.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to the information requirements of the Exchange Act, as amended. In accordance with these requirements, we file reports, including annual reports on Form 20-F and other information with the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SEC’s public reference rooms in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. In addition, some of our SEC filings, including those filed on and after February 19, 2002, are also available to the public through the SEC’s website at www.sec.gov.

As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we furnish our shareholders with annual reports containing financial statements audited by our independent auditors and make available to our shareholders quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. We file such quarterly reports with the SEC within two months of each quarter of our fiscal year, and we file annual reports on Form 20-F within the time period required by the SEC, which is currently six months from December 31, the end of our fiscal year.  

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

Given the nature of its business, LATAM is exposed mainly to three types of market risk:

• Fuel price fluctuations;

• Foreign exchange fluctuations; and

• Interest rate fluctuations.

Management assesses the level of our exposure to these risks periodically to determine which oneshould be hedged and the most effective mechanisms to be implemented. LATAM purchases derivative instruments in foreign markets to offset market risk exposure, typically utilizing a mix of financial and commodity derivatives. LATAM does not enter into or hold derivative contracts for trading purposes.

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

Risk of Fluctuations in Fuel Prices

Jet fuel price fluctuations are largely dependent on supply and demand for crude oil, OPEC decisions, refinery capacities, stock levels of crude oil, natural disasters, climatic risk and geopolitical factors.

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LATAM fuel consumption for 2018 was 1,205.2 million gallons. To manage its exposure to the cost of fuel, LATAM has a hedging program based on our Fuel Hedging Policy, which is annually updated and approved by board of directors. LATAM’s Fuel Hedging Policy aims to mitigate the liquidity risk in the short/medium term, avoiding cash and financial distress. LATAM has established three hedging zones based on advance purchase behavior, pass-through and fuel invoicing process, which are managed by Management.

Jet Fuel is not the only underlying asset that LATAM may use for hedging purposes. It may also consider derivative instruments in other underlying commodity assets such as ICE Brent, West Texas Intermediate (WTI) or NYMEX Heating Oil (HO).

LATAM has decided to use protective and non-speculative instruments to reduce the operating margin exposure. Also, LATAM will not use financial derivatives to speculate on financial markets and consequently obtain gains from these types of transactions, and will not receive premiums as cash from sold options (nevertheless LATAM could buy and sell options as a structured product).

LATAM periodically reviews its exposure with each counterparty in order to monitor its credit concentration. For more information see “Item 3. Key Information— D. Risk Factors—Risks Related to Our Operations and the Airline Industry—Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.”  

During 2018, 2017 and 2016 we entered into a mix of swaps and option contracts on NYMEX HEATING OIL and JET FUEL 54 USGC with investment grade banks and other financial entities for notional fuel purchases (non-delivery). Details of the fuel hedging program are shown below:

	LATAM Fuel Hedging Year ended December 31,
	2018 LATAM			2017 LATAM			2016 LATAM
Gallons Purchased (million)		521.9			441.1			781.2
% Total Annual Fuel Consumption		40.8	%		37.7	%		66.7	%
Combined Result of Hedges (in million of US$)		29.7			15.1			(48.0	)

As of December 31, 2018, the fair value of our outstanding fuel related derivative contracts was estimated to be US$ 15.8 million (negative).

Gains and losses on the hedging contracts outlined above are recognized as a cost of sales in the income statement when the fuel subject to the hedge is consumed. Premiums paid related to fuel derivative contracts are recorded as prepaid expenses (current assets) and recorded as an expense at the time the contract expires.

Under IFRS, the fair value of the hedging derivatives is booked as a non-current asset or liability if the remaining maturity of the item is hedged for more than 12 months, and as a current asset or liability if the remaining term of the item is hedged for less than 12 months. The fair value of the derivative contracts is deferred within an equity reserve account. Please see Note 2.10 to our audited consolidated financial statements. As the current positions do not represent changes in cash flows but a variation in the exposure to the market value, the Company’s current hedge positions have no impact on income; they are booked as cash flow hedge contracts, so a variation in fuel prices has an impact on the Company’s net equity.

The following table shows the sensitivity analysis of our hedging contracts to reasonable changes in fuel prices and their effect on equity. The term used for the projection was December 31, 2018, the last maturity date of our current fuel hedge contracts. The calculations were made considering a parallel movement of US$5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2018, 2017 and 2016.

	LATAM fuel price sensitivity (effect on equity) Position as of December 31,
	2018 LATAM		2017 LATAM		2016 LATAM
	(millions of US$ per barrel)
HO or JET benchmark price
+5		+7.4		+1.8		+3.1
–5		-5.5		-3.3		–4.8

During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement pursuant to IFRS principles for recognizing and measuring financial instruments.

Given the fuel hedge structure as of December 31, 2018, which reflects only a partial hedge of our expected fuel consumption, a vertical fall by US$5 in the BRENT and JET benchmark price (the monthly daily average) for each month would have meant savings of approximately US$ 135.2 million in the cost of the Company’s total fuel consumption. A vertical increase by US$5 in the JET and BRENT benchmark price (the monthly daily average) for each month would have meant an additional cost of approximately US$ 146.5 million of the Company’s total fuel consumption.

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Risk of Variation in Foreign Exchange Rates

The functional currency of the LATAM holding company is the U.S. dollar. Since LATAM conducts its business in local currencies in several countries, it faces the risk of variations in multiple foreign currency exchange rates. Depreciation of these currencies against the U.S. dollar could have adverse effects both transactional and translational, because part of our revenues and expenses are denominated in those currencies.

At the same time, LATAM’s affiliates are exposed to foreign exchange risk, which could in turn impact the consolidated results of the Company.

The greatest exposure to future cash flows is mainly presented by the subsidiary TAM S.A. and volatility in the R$/US$ exchange rate. TAM S.A.’s earnings are generated largely in R$. We actively manage the R$/US$ exchange rate risk by entering into FX derivative contracts and carrying out internal operations for obtaining natural hedging.

In lower concentration, the company also faces foreign exchange risk relating to additional currencies such as: Great Britain Pound, Euro, Chilean Peso, Australian Dollars, Argentinean Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Nuevo Sol, Colombian Peso and New Zealand Dollars. Those currencies could be hedged as long as they turn relevant (higher exposure and volatility) to the LATAM’s market risk management. As of December 31, 2018, LATAM doesn’t have current hedge instruments on its portfolio.

Because of changes in the values of existing FX derivative positions do not represent changes in cash flows, but a variation in the exposure of market value, the outstanding hedging positions do not impact results (they are registered as cash flow hedges under IFRS, therefore, a change in the foreign exchange rate has an impact on the equity of the Company).

As of December 31, 2018 the Company has entered into derivatives that are not registered under hedge accounting. The fair value of that derivatives was estimated to be US$ 19.4 million (positive). Balance sheet exposure of LATAM to the Brazilian Real is related to the functional currency of TAM and its balance sheet currency mismatch, as TAM has a net US$ liability position. When the balance sheet denominated in U.S. dollars is translated to Brazilian Real, the financial results of TAM may fluctuate and therefore could impact LATAM’s financial results.

The exposure to the Brazilian real on TAM’s balance sheet has been reduced from over US$4.0 billion since the combination in June 2012 to around US$0.4 billion as of December 31, 2018. The Company continues working to mitigate this exposure through financial and operational proposals.

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

	TAM exchange rate sensitivity Position effect on pre-tax earnings as of December 31,
	2018		2017		2016
	LATAM		LATAM		LATAM
	(millions of US$)
Appreciation (depreciation) of R$/US$
–10%		+39.8		+80.5		+119.2
+10%		-39.8		-80.5		–119.2

Our foreign currency exchange exposure as of December 31, 2018 was as follows:

	LATAM foreign currency exchange exposure
	U.S. Dollars MUS$		% of total			Brazilian real MUS$		% of total			Chilean pesos MUS$		% of total			Other currencies MUS$		% of total			Total MUS$
Current assets		147,834		4.47	%		1,751,801		52.98	%		722,338		21.85	%		684,389		20.70	%		3,306,362
Other assets		9,616,793		67.44	%		4,449,941		31.20	%		9,412		0.07	%		184,269		1.29	%		14,260,415
Total assets		9,764,627		55.59	%		6,201,742		35.30	%		731,750		4.17	%		868,658		4.94	%		17,566,777
Current liabilities		2,805,200		50.37	%		1,503,369		27.00	%		591,812		10.63	%		668,371		12.00	%		5,568,752
Long-term liabilities		7,061,184		85.58	%		660,590		8.01	%		513,470		6.22	%		16,005		0.19	%		8,251,249
Total liabilities and shareholders’ equity		9,866,384		71.39	%		2,163,959		15.66	%		1,105,282		8.00	%		684,376		4.95	%		13,820,001

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Risk of Fluctuations in Interest Rates

As of December 31, 2018, LATAM had US$7,313million in outstanding interest bearing loans. LATAM uses interest rate derivatives to reduce the impact of an increase of interest rates. 59.5% of LATAM outstanding debt as of December 31, 2018 was effectively at a fixed rate, either as fixed rate loans or variable rate loans hedged using a floating to fixed rate derivative instrument.

LATAM’s interest bearing loans can be classified by: variable interest rate debt, fixed interest rate debt and interest rate hedged debt. LATAM’s variable interest rate debt amounts to US$2,962 million, from which 85.7% is assigned to aircraft financing and 14.3% to non-aircraft financing. The fixed interest rate debt amounts are US$ 4,352 million of which 54.2% is assigned to aircraft financing and 45.8% to non-aircraft financing. The interest rate hedged debt amounts to US$101 million of which 100% is assigned to interest rate swaps.

Under IFRS, the positive fair value of these interest rate swaps is reflected in the balance sheet as hedging assets and the negative fair value of these agreements is reflected as hedging liabilities. As of December 31, 2018, the fair value of all the interest rate swaps was US$ 2.2 million (negative).

The use of the aforementioned hedging instruments, combined with fixed interest rate financing for our aircraft financing, has enabled the Company to have predictable interest rate costs, reducing the cash volatility.

As of December 31, 2018, the average interest rate of our entire outstanding interest-bearing long-term debt rate was 4.62%.

The following table summarizes our principal payment obligations on all of our interest-bearing debt as of December 31, 2018 and the related average interest rate for such debt. The average interest rate has been calculated based on the prevailing interest rate on December 31, 2018 for each loan.

	LATAM’s principal payment obligations by year of expected maturity(1)
	Average interest rate(2)			2019		2020		2021		2022		2023		2024 and thereafter
	(millions of US$)
Interest-bearing liabilities		4.62	%		1,334		1,514		1,173		823		526		1,943

⁽¹⁾ At cost.

⁽²⁾ Average interest rate means the average prevailing interest rate on our debt on December 31, 2018 after giving effect to hedging arrangements.

The following table shows the sensitivity of changes in our long-term interest bearing liabilities and capital leases that are not hedged against interest-rate variations. These changes are considered reasonably possible based on current market conditions.

	LATAM’s interest rate sensitivity (effect on pre-tax earnings) Position as of December 31,
	2018 LATAM		2017 LATAM		2016 LATAM
	(millions of US$)
Increase (decrease) in LIBOR
+100 basis points		-29.62		-29.26		–33.92
–100 basis points		+29.62		+29.26		+33.92

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Changes in market conditions produce a change in the valuation of current financial instruments hedging against fluctuations in interest rates, causing an effect on the Company’s equity (because they are booked as cash-flow hedges). These changes are considered reasonably possible based on current market conditions. The calculations were made by increasing (decreasing) 100 basis points of the three-month Libor futures curve.

	LATAM’s interest rate sensitivity (effect on equity) Position as of December 31,
	2018 LATAM		2017 LATAM		2016 LATAM
	(millions of US$)
Increase (decrease) in three month LIBOR
Future rates
+100 basis points		+0.7		+1,9		+3.9
–100 basis points		-0.7		-1,9		–4.0

During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement pursuant to IFRS.

There are market-related limitations in the method used for the sensitivity analysis. These limitations derive from the fact that the levels indicated by the futures curves may not be necessarily met and may change in each period.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

In the United States, our common shares trade in the form of ADS. Since August 2007, each ADS represents one common share, issued by The Bank of New York Mellon, as Depositary pursuant to a Deposit Agreement. ADSs commenced trading on the NYSE in 1997. In October 2011, our Depositary bank changed from The Bank of New York Mellon to JP Morgan Chase Bank, N.A. (“JP Morgan”).

Fees and Charges for ADR Holders

JP Morgan, as depositary, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees. The depositary may also collect its annual fee for depositary services by deductions from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.  

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Persons depositing or withdrawing shares must pay:	For:
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	•        Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property •        Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
US$0.05 (or less) per ADS	•        Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs	•        Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
US$0.052 (or less) per ADSs per calendar year	•        Depositary services
Registration or transfer fees	•        Transfer and registration of shares on the depositary’s share register to or from the name of the depositary or its agent when investors deposit or withdraw shares
Expenses of the depositary	•        Cable, telex and facsimile transmissions •        Conversion of foreign currencies into U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADS or share underlying an ADS, such as stock transfer taxes, stamp duty or withholding taxes	•        As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities	•        As necessary

Fees and Direct and Indirect Payments Made by the Depositary to the Foreign Issuer

Past Fees and Payments

During 2018, the Company received US$1,062,277 from the depositary for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), payments related to applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.

Future Fees and Payments

JP Morgan, as the depositary bank, has agreed to reimburse the Company for certain of our reasonable expenses related to our ADS program and incurred by us in connection with the program. The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived).

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.  

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

Management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon such evaluation, management, with the participation of the chief executive officer and chief financial officer concluded that the disclosure controls and procedures, as of December 31, 2018, were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

² Withdrawing Deposited Securities; there are no such fees in respect of the Shares as of the date of the Deposit Agreement), and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). Such charges may at any time and from time to time be changed by agreement between the Company and the Depositary.

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(b) Management’s annual report on internal control over financial reporting

The management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate. LATAM Airlines Group S.A.’s management, including the Chief Executive Officer and the Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 based on the criteria established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and, based on such criteria, LATAM Airlines Group S.A.’s management has concluded that, as of December 31, 2018, the Company’s internal control over financial reporting is effective. The company’s internal control over financial reporting effectiveness as of December 31, 2018 has been audited by PricewaterhouseCoopers Consultores Auditores SpA, an independent registered public accounting firm, as stated in their report included herein.

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

(d) Changes in internal controls over financial reporting. There have been no changes that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.

ITEM 16. RESERVED

ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16 B. CODE OF ETHICS

We have adopted a code of ethics and conduct, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our senior management, including our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, as well as to other employees. Our code is freely available online at our website, www.latamairlinesgroup.net, under the heading “Corporate Governance” on the Investor Relations page. In addition, upon written request, by regular mail, to the following address: LATAM Airlines Group S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, 20th Floor, Las Condes, Santiago, Chile, or by e-mail at InvestorRelations@latam.com we will provide any person with a copy of it without charge. If we amend the provisions of our code of ethics that apply to our senior management or to other persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.

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ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The following table sets forth the fees paid to our independent registered public accounting firm, PricewaterhouseCoopers, during the fiscal years ended December 31, 2018 and 2017:

	2018		2017
	USD (in thousands)
Audit fees		2,213		1,780
Audit-related fees		9		19
Tax fees		-		-
All Other fees		5		15
Total fees		2,227		1,814

Audit-related fees in the above table are the aggregate fees billed by PricewaterhouseCoopers for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, including due diligence and other audit related services. Fees in 2018 correspond to to attestation services related with revenues in Argentina. Fees in 2017 correspond to attestation services related with revenues in Argentina and expenses in Ecuador.

Other fees in the above table are fees billed by PricewaterhouseCoopers as of December 31, 2018 and correspond to foreign trade & customs training; fees in 2017 correspond to training in connection with the Foreign Corrupt Practices Act.

Board of Directors’ Committee Pre-Approval Policies and Procedures

Since January 2004, LATAM has complied with SEC regulations regarding the type of additional services our independent auditors are authorized to offer to us. In addition, our board of directors’ Committee (which serves as our Audit Committee) has decided to automatically authorize any such accepted services for an amount of up to 10% of the fees charged by the auditing firm, and for an amount of up to 50% when adding all such services provided by the auditing firm in the aggregate. If the amount of any services is larger than these thresholds, approval by the board of directors’ Committee will be required.

ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16 F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16 G. CORPORATE GOVERNANCE

New York Stock Exchange Corporate Governance Comparison

Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards. We are a Chilean corporation with shares listed on the SSE and the Chilean Electronic Exchange and our ADSs listed on the NYSE. Our corporate governance practices are governed by our bylaws, the Chilean Corporation Law and the Securities Market Law.

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The table below discloses the significant differences between our corporate governance practices and the NYSE standards.

NYSE Standards	Our Corporate Governance Practice
Director Independence. Majority of board of directors must be independent. §303A.01	Under Chilean law, we are not required to have a majority of independent directors on our board.
	Our board of directors’ committee (all of whom are members of our board of directors) is composed of three board members, two of whom must be independent if we have a sufficient number of independent board members on our board.
	The definition of independence applicable to us pursuant to the Chilean Corporation Law differs in certain respects from the definition applicable to U.S. issuers under the NYSE rules.
	Pursuant to Law No. 20,382 on Corporate Governance, which came into effect on January 1, 2010, we are also required to have at least one independent board member.
	Starting on January 1, 2010, directors are deemed to be independent if they have not fallen within any of the following categories during the 18 months prior to their election: (i) had a relevant relationship, interest or dependence on us, our affiliates, controlling shareholders, main executives or any of them, or had served any of the foregoing a directors, managers, administrators, main executives or advisors; (ii) had a close family relationship with any of the individuals indicated in (i); (iii) had served as directors, managers, administrators or main executives in a non-profit organization which received significant funds from the individuals indicated in (i); (iv) had been a partner or shareholder (with a direct or indirect participation in excess of 10%) in, or had served as directors, managers, administrators or main executives at a company which has rendered legal or consulting services (for relevant amounts) or external auditing services to the individuals indicated in (i); (v) had been a partner or shareholder (with a direct or indirect participation in excess of 10%) in, or had served as directors, managers, administrators or main executives, our main competitors, suppliers or clients. In addition, the election of such an independent director is subject to a procedure set forth by the cited Corporation Law.
Executive Sessions. Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03	There is no similar requirement under our bylaws or under applicable Chilean law.
Audit committee. Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act, as amended, and the more stringent requirements under the NYSE standards is required. §§303A.06, 303A.07	We are in compliance with Rule 10A-3. We are not required to satisfy the NYSE independence and other audit committee standards that are not prescribed by Rule 10A-3.
Nominating/corporate governance committee. Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04	We are not required to have, and do not have, a nominating/corporate governance committee.
Compensation committee. Compensation committee of independent directors is required, which must approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.05	We are not required to have a compensation committee. Pursuant to the Chilean Corporation Law, our board of directors’ committee must approve our senior management’s and employee’s compensation.
Equity compensation plans. Equity compensation plans require shareholder approval, subject to limited exemptions. §303A.08	Under the Chilean Corporation Law, equity compensation plans require shareholder approval.

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NYSE Standards	Our Corporate Governance Practice
Disclosure of Corporate Governance. Listed companies must adopt and disclose corporate governance guidelines. §303A.09	Chilean law does not require that corporate governance guidelines be adopted.  Directors’ responsibilities and access to management and independent advisors are directly provided for by applicable law.  Directors’ compensation is approved at the annual meeting of shareholders, pursuant to applicable law.
Code of Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. §303A.10	We have adopted a code of ethics and conduct applicable to our senior management, including our chief executive officer, our chief financial officer and our chief accounting officer, as well as to other employees. Our code is freely available online at our website, www.latamairlinesgroup.net, under the heading “Corporate Governance” in the Investor Relations informational page. In addition, upon written request, by regular mail to LATAM Airlines Group S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, 20th floor, Comuna Las Condes, Santiago, Chile or by e-mail at Investor.Relations@latam.com, we will provide any person with a copy of our code of ethics without charge. We are required by Item 16B of Form 20-F to disclose any waivers granted to our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions.
Disclosure of Compliance. Each listed company CEO must (a) certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards; (b) promptly notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with any applicable provisions of Section 303A; and (c) must submit an executed Written Affirmation annually to the NYSE.   In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. The annual and interim Written Affirmations must be in the form specified by the NYSE. §303A.12	Not required in the Chilean regulations.  The Company must only comply with Section 303A.12 (b) and (c).

The disclosure of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards is also posted on our website and can be accessed at www.latamairlinesgroup.net

ITEM 16 H. Mine Safety Disclosure

Not applicable.

ITEM 17. FINANCIAL STATEMENTS

See “Item 18. Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

See our consolidated Financial Statements beginning on page F-1.

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ITEM 19. EXHIBITS

Documents filed as exhibits to this annual report

Exhibit No.	Description
1.1*	Amended By-laws of LATAM Airlines Group S.A.
2.1	Second Amended and Restated Deposit Agreement, dated as of October 28, 2011, between the Company and JPMorgan Chase Bank, N.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
2.3	Indenture, dated as of April 25, 2007, among TAM Capital Inc., Tam S.A., TAM Linhas Aéreas S.A., The Bank of New York and The Bank of New York (Luxembourg) S.A., incorporated herein by reference from our second pre-effective amendment to our Registration Statement on Form F-4, File No. 333-131938.
2.4	Indenture, dated as of October 29, 2009, among TAM Capital 2 Inc., TAM S.A., TAM Linhas Aéreas S.A., The Bank of New York Mellon and The Bank of New York Mellon (Luxembourg) S.A., incorporated herein by reference from our Annual Report for the fiscal year ended December 31, 2009 on Form 20-F, filed June 30, 2010, File No. 333-131938.
2.5	Indenture, dated as of June 3, 2011, between TAM Capital 3 Inc., TAM S.A., TAM Linhas Aéreas S.A., The Bank of New York Mellon and The Bank of New York Mellon (Luxembourg) S.A., incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.6	Indenture, dated as of November 7, 2013, between Guanay Finance Limited and Citibank N.A., incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.7	Form of Indenture and Security Agreement between Parina Leasing Limited, Cuclillo Leasing Limited, Rayador Leasing Limited or Canastero Leasing Limited and Wilmington Trust Company (including Annex A), incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.8	Indenture, dated as of June 9, 2015, between LATAM Airlines Group S.A. and The Bank of New York Mellon, incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.9	Indenture, dated as of April 11, 2017, between LATAM Finance Limited, as issuer, LATAM Airlines Group S.A., as guarantor, and The Bank of New York Mellon, as trustee, transfer agent and paying agent.
2.10*	Indenture dated as of February 11, 2019 by and among, Latam Finance Limited, as issuer, Latam Airlines Group S.A., as guarantor, and the Bank of New York Mellon, as trustee, registrar, transfer agent and paying agent in respect of the 7.00% Senior Notes Due 2026.
2.11	We hereby agree to furnish to the SEC, upon its request, copies of any instruments defining the rights of holders of our long-term debt (or any long-term debt of our subsidiaries for which we are required to file consolidated or unconsolidated financial statements), where such indebtedness does not exceed 10% of our total consolidated assets.
4.1.1	Amendment No. 1, dated as of November 14, 2003, and Amendment No. 2, dated as of October 4, 2005, to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (as successor to Airbus Industry) (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 30, 2006, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.2	Amendment No. 3, dated as of March 6, 2007, to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 30, 2006, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.3	Amendment No. 5, dated as of December 23, 2009, to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 29, 2010, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.4	Amendments No. 6, 7, 8 and 9 (dated as of May 10, 2010, May 19, 2010, September 23, 2010 and December 21, 2010, respectively), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).

125

Exhibit No.	Description
4.1.5	Amendments No. 10 and 11 (dated as of June 10, 2011 and November 8, 2011, respectively), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012 and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.6	Amendment No. 12 (dated as of November 19, 2012), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.7	Amendment No. 13 (dated as of August 19, 2013), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.1.8	Amendments No. 14, 15, 16 and 17 (dated as of March 31, 2014, May 16, 2014, July 15, 2015 and December 11, 2014, respectively), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.9	Novation Agreement (dated as of October 30, 2014) between TAM Linhas Aereas S.A., LATAM Airlines Group S.A. and Airbus S.A.S., relating to the A320 Family/A330 purchase agreement dated November 14, 2006, as amended and restated, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.2	Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company as amended and supplemented, relating to Model 767-316ER, Model 767-38EF, and Model 767-316F Aircraft (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on December 21, 2004, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.1	Supplemental Agreements No. 16, 19, 20, 21 and 22 (dated as of November 11, 2004, January 21, March 10, April 1, April 28, and July 20, 2005, and March 31, 2006, respectively) to the Purchase Agreement No. 2126, dated January 30, 1998, between the Company and The Boeing Company, relating to Model 767-316ER, Model 767-38EF, and Model 767-316F Aircraft (incorporated by reference to our amended annual report filed on Form 20-F (File No. 001-14728) filed on May 7, 2007 and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.2	Supplemental Agreement No. 23, dated as of March 6, 2007, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on April 23, 2007, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.3	Supplemental Agreement No. 24, dated as of November 10, 2008, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 25, 2009, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.4	Supplemental Agreements No. 28 and 29 (dated as of March 22, 2010 and November 10, 2010, respectively), to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company. Portions of these documents have been omitted pursuant to a request for confidential treatment (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.5	Supplemental Agreements No. 30, 31 and 32 (dated as of February 15, 2011, May 10, 2011 and December 22, 2011, respectively), to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.3	Aircraft Lease Common Terms Agreement between GE Commercial Aviation Services Limited and LAN Cargo S.A., dated as of April 30, 2007, and Aircraft Lease Agreements between Wells Fargo Bank Northwest N.A., as owner trustee, and LAN Cargo S.A., dated as of April 30, 2007 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 7, 2007, and portions of which have been omitted pursuant to a request for confidential treatment).

126

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

127

Exhibit No.	Description
4.8	Implementation Agreement, dated as of January 18, 2011, among the Company, Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011).
4.9.1	Extension Letter to the Implementation Agreement and Exchange Offer Agreement, dated January 12, 2012, among the Company, Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.9	Exchange Offer Agreement, dated as of January 18, 2011, among LAN Airlines S.A., Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011).
4.10	Shareholders Agreement, dated as of January 25, 2012, between the Company and TEP Chile S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.11	Shareholders Agreement, dated as of January 25, 2012, among the Company, TEP Chile S.A. and Holdco I S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.12	Shareholders Agreement, dated as of January 25, 2012, among the Company, TEP Chile S.A., Holdco I S.A. and TAM S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.13	Letter Agreement No. 12 (GTA No. 6-9576), dated July 11, 2011, between the Company and the General Electric Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14	A320 NEO Purchase Agreement, dated as of June 22, 2011, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.1	Amendments No. 1, 2 and 3 (dated as of February 27, 2013, July 15, 2014 and December 11, 2014, respectively), to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.2	Letter Agreement No. 1 (dated as of July 15, 2014) to Amendment No. 2 (dated as of July 15, 2014) to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.3	Amendment No. 4, 5 and 6 (dated as of April 15, 2016, April 15, 2016, and August 8, 2016, respectively), to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.15	Buyback Agreement No. 3001 relating to One (1) Airbus A318-100 Aircraft MSN 3001, dated as of April 14, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.16	Buyback Agreement No. 3030 relating to One (1) Airbus A318-100 Aircraft MSN 3003, dated as of August 10, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.17	Buyback Agreement No. 3062, to One (1) Airbus A318-100 Aircraft MSN 3062, dated as of May 13, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).

128

Exhibit No.	Description
4.18	Buyback Agreement No. 3214, to One (1) Airbus A318-100 Aircraft MSN 3214, dated as of June 9, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.19	Buyback Agreement No. 3216, to One (1) Airbus A318-100 Aircraft MSN 3216, dated as of July 13, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.20	Aircraft General Terms Agreement Number AGTA-LAN, dated May 9, 1997, between the Company and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.21	Buyback Agreement No. 3371, dated as of July 25, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.22	Buyback Agreement No. 3390, dated as of October 26, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.23	Buyback Agreement No. 3438, dated as of December 5, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.24	Buyback Agreement No. 3469, dated as of January 4, 2013, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.25	Buyback Agreement No. 3509, dated as of February 20, 2013, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.26	A320 Family Purchase Agreement, dated March 19, 1998, between Airbus S.A.S. (formerly known as Airbus Industrie GIE) and TAM Linhas Aéreas S.A. (formerly known as TAM Transportes Aéreas Meridionais S.A. and as successor in interest in TAM-Transportes Aéreas Regionais S.A.), incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.
4.26.1	Amendments No. 12, 13 and 14 (dated as of January 27, 2012 and November 30, 2012 and December 14, 2012, respectively), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.27	A350 Family Purchase Agreement, dated December 20, 2005, between Airbus S.A.S. and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.
4.27.1	A350 Family Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).

129

Exhibit No.	Description
4.27.2	Amendments No. 1, 2 and 3 (dated July 28, 2010, July 15, 2014 and October 30, 2014, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.3	Novation Agreement (dated as of July 21, 2014) between TAM Linhas Aereas S.A., LATAM Airlines Group S.A. and Airbus S.A.S., relating to the A350 Family Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.4	Amendments No. 4 and 5 (dated September 15, 2015 and November 19, 2015, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.5	Amendments No. 6, 7 and 8 (dated February 3, 2016, August 8, 2016, and September 9, 2016, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.29	V2500 Maintenance Agreement, dated September 14, 2000, between TAM Transportes Aéreos Regionais S.A. (incorporated by TAM Linhas Aéreas S.A.) and MTU Maintenance Hannover GmbH (MTU), incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.
4.30	PW1100G-JM Engine Support and Maintenance Agreement, dated February 26, 2014, between LATAM Airlines Group S.A. and Pratt & Whitney Division. Portions of this document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.31	Framework Deed, dated May 28, 2013, between LATAM Airlines Group S.A. and Aercap Holdings N.V. Portions of this document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.32	A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.1	Amendments No. 15, 16, 17, 18, and 19 (dated as of February 18, 2013, February 27, 2013, August 19, 2013, July 15, 2014 and December 11, 2014, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.2	Amendments No. 20 and 21 (dated as of June 3, 2015 and December 21, 2015, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.3	Amendments No. 22, 23 and 24 (dated as of April 15, 2016, April 15, 2016, and August 8, 2016, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.33	Supplemental Agreement No. 7 (dated as of May 2014) to the Boeing 777-32WER Purchase Agreement (dated as of February 2007) between TAM – Linhas Aereas S.A. and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).

130

Exhibit No.	Description
4.33.1	Supplemental Agreement No. 8, dated as of April 22, 2015, to the Boeing 777-32WER Purchase Agreement (dated as of February 2007) between TAM Linhas Aéreas and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016 and portions of which have been omitted pursuant to a request for confidential treatment).
8.1*	List of subsidiaries of the Company.
12.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certifications of Chief Financial Officer and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

131

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

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

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and shareholders of Latam Airlines Group S.A.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Latam Airlines Group S.A. and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of income by function, comprehensive income, changes in equity and cash flows direct - method for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December, 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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

RUT: 81.513.400-1 ½ Teléfone: (562) 2940 0000 ½ www.pwc.cl

F-2

Latam Airlines Group S.A.

2

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Santiago – Chile

April 9, 2019

We have served as the Company’s auditor since 1991.

F-3

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

Notes	Page
1 - General information	F-14
2 - Summary of significant accounting policies	F-18
2.1. Basis of Preparation	F-18
2.2. Basis of Consolidation	F-25
2.3. Foreign currency transactions	F-26
2.4. Property, plant and equipment	F-28
2.5. Intangible assets other than goodwill	F-28
2.6. Goodwill	F-29
2.7. Borrowing costs	F-29
2.8. Losses for impairment of non-financial assets	F-29
2.9. Financial assets	F-30
2.10. Derivative financial instruments and hedging activities	F-30
2.11. Inventories	F-32
2.12. Trade and other accounts receivable	F-32
2.13. Cash and cash equivalents	F-32
2.14. Capital	F-32
2.15. Trade and other accounts payables	F-32
2.16. Interest-bearing loans	F-33
2.17. Current and deferred taxes	F-33
2.18. Employee benefits	F-33
2.19. Provisions	F-34
2.20. Revenue recognition	F-34
2.21. Leases	F-35
2.22. Non-current assets (or disposal groups) classified as held for sale	F-36
2.23. Maintenance	F-36
2.24. Environmental costs	F-36
3 - Financial risk management	F-36
3.1. Financial risk factors	F-36
3.2. Capital risk management	F-48
3.3. Estimates of fair value	F-48
4 - Accounting estimates and judgments	F-50
5 - Segmental information	F-54
6 - Cash and cash equivalents	F-57
7 - Financial instruments	F-58
7.1. Financial instruments by category	F-58
7.2. Financial instruments by currency	F-60
8 - Trade, other accounts receivable and non-current accounts receivable	F-61
9 - Accounts receivable from/payable to related entities	F-64
10 - Inventories	F-65
11 - Other financial assets	F-66
12 - Other non-financial assets	F-67
13 - Non-current assets and disposal group classified as held for sale	F-68
14 - Investments in subsidiaries	F-69

F-4

15 - Intangible assets other than goodwill	F-73
16 - Goodwill	F-74
17 - Property, plant and equipment	F-76
18 - Current and deferred tax	F-82
19 - Other financial liabilities	F-87
20 - Trade and other accounts payables	F-96
21 - Other provisions	F-98
22 - Other non-financial liabilities	F-100
23 - Employee benefits	F-102
24 - Accounts payable, non-current	F-104
25 - Equity	F-104
26 - Revenue	F-109
27 - Costs and expenses by nature	F-110
28 - Other income, by function	F-111
29 - Foreign currency and exchange rate differences	F-112
30 - Earnings per share	F-120
31 - Contingencies	F-121
32 - Commitments	F-132
33 - Transactions with related parties	F-136
34 - Share based payments	F-137
35 - Statement of cash flows	F-140
36 - The environment	F-142
37 - Events subsequent to the date of the financial statements	F-143

F-5

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

		As of		As of
		December 31,		December 31,
	Note	2018		2017
		ThUS$		ThUS$
Current assets
Cash and cash equivalents	6 - 7		1,081,642		1,142,004
Other financial assets	7 - 11		383,984		559,919
Other non-financial assets	12		320,977		221,188
Trade and other accounts receivable	7 - 8		1,162,582		1,214,050
Accounts receivable from related entities	7 - 9		2,931		2,582
Inventories	10		279,344		236,666
Current tax assets	18		69,134		77,987
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners			3,300,594		3,454,396
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners	13		5,768		291,103
Total current assets			3,306,362		3,745,499
Non-current assets
Other financial assets	7 - 11		58,700		88,090
Other non-financial assets	12		233,741		220,807
Accounts receivable	7 - 8		5,381		6,891
Intangible assets other than goodwill	15		1,441,072		1,617,247
Goodwill	16		2,294,072		2,672,550
Property, plant and equipment	17		9,953,365		10,065,335
Current tax assets	18		757		17,532
Deferred tax assets	18		273,327		364,021
Total non-current assets			14,260,415		15,052,473
Total assets			17,566,777		18,797,972

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

F-6

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

LIABILITIES AND EQUITY

		As of			As of
		December 31,			December 31,
	Note	2018			2017
		ThUS$			ThUS$
LIABILITIES
Current liabilities
Other financial liabilities	7 - 19		1,430,789			1,300,949
Trade and other accounts payables	7 - 20		1,674,303			1,695,202
Accounts payable to related entities	7 - 9		382			760
Other provisions	21		4,794			2,783
Current tax liabilities	18		3,738			3,511
Other non-financial liabilities	22		2,454,746			2,823,963
Total current liabilities other than non-current liabilities (or disposal groups) classified as held for sale			5,568,752			5,827,168
Liabilities included in disposal groups classified as held for sale	13		-			15,546
Total current liabilities			5,568,752			5,842,714
Non-current liabilities
Other financial liabilities	7 - 19		5,864,910			6,605,508
Accounts payable	7 - 24		483,656			498,832
Other provisions	21		303,495			374,593
Deferred tax liabilities	18		872,121			949,697
Employee benefits	23		82,365			101,087
Other non-financial liabilities	22		644,702			158,305
Total non-current liabilities			8,251,249			8,688,022
Total liabilities			13,820,001			14,530,736
EQUITY
Share capital	25		3,146,265			3,146,265
Retained earnings	25		597,675			475,117
Treasury Shares	25		(178	)		(178	)
Other reserves			(76,926	)		554,885
Parent's ownership interest			3,666,836			4,176,089
Non-controlling interest	14		79,940			91,147
Total equity			3,746,776			4,267,236
Total liabilities and equity			17,566,777			18,797,972

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

F-7

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

		For the year ended
		December 31,
	Note	2018			2017			2016
		ThUS$			ThUS$			ThUS$
Revenue	26		9,895,456			9,613,907			8,988,340
Cost of sales			(7,962,843	)		(7,441,849	)		(6,967,037	)
Gross margin			1,932,613			2,172,058			2,021,303
Other income	28		472,758			549,889			538,748
Distribution costs			(619,200	)		(699,600	)		(747,426	)
Administrative expenses			(721,270	)		(938,931	)		(872,954	)
Other expenses			(359,781	)		(368,883	)		(373,738	)
Other gains/(losses)			53,499			(7,754	)		(72,634	)
Income from operation activities			758,619			706,779			493,299
Financial income			53,253			78,695			74,949
Financial costs	27		(356,269	)		(393,286	)		(416,336	)
Foreign exchange gains/(losses)	29		(157,709	)		(18,718	)		121,651
Result of indexation units			(865	)		748			311
Income (loss) before taxes			297,029			374,218			273,874
Income tax expense / benefit	18		(83,782	)		(173,504	)		(163,204	)
NET INCOME (LOSS) FOR THE PERIOD			213,247			200,714			110,670
Income (loss) attributable to owners of the parent			181,935			155,304			69,220
Income (loss) attributable to non-controlling interest	14		31,312			45,410			41,450
Net income (loss) for the year			213,247			200,714			110,670
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)	30		0.30002			0.25610			0.12665
Diluted earnings (losses) per share (US$)	30		0.30002			0.25610			0.12665

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

F-8

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the year ended
		December 31,
	Note	2018			2017			2016
		ThUS$			ThUS$			ThUS$
NET INCOME (LOSS)			213,247			200,714			110,670
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		(5,820	)		2,763			(3,105	)
Total other comprehensive income that will not be reclassified to income before taxes			(5,820	)		2,763			(3,105	)
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax	29		(610,201	)		(47,494	)		494,362
Other comprehensive income, before taxes, currency translation differences			(610,201	)		(47,494	)		494,362
Cash flow hedges
Gains (losses) on cash flow hedges before taxes	19		(27,797	)		18,344			127,390
Other comprehensive income (losses), before taxes, cash flow hedges			(27,797	)		18,344			127,390
Total other comprehensive income  that will be reclassified to income before taxes			(637,998	)		(29,150	)		621,752
Other components of other comprehensive  income (loss), before taxes			(643,818	)		(26,387	)		618,647
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		1,567			(785	)		921
Accumulate income tax relating to other comprehensive income that will not be reclassified to income			1,567			(785	)		921
Income tax relating to other comprehensive income that will be reclassified to income
Income tax related to cash flow hedges in other comprehensive income			(269	)		(1,770	)		(34,695	)
Income taxes related to components of other comprehensive incomethat will be reclassified to income			(269	)		(1,770	)		(34,695	)
Total Other comprehensive income			(642,520	)		(28,942	)		584,873
Total comprehensive income (loss)			(429,273	)		171,772			695,543
Comprehensive income (loss) attributable to  owners of the parent			(447,405	)		128,877			648,539
Comprehensive income (loss) attributable to non-controlling interests			18,132			42,895			47,004
TOTAL COMPREHENSIVE INCOME (LOSS)			(429,273	)		171,772			695,543

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

F-9

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
							Change in other reserves
													Actuarial gains
													or losses on
							Currency			Cash flow			defined benefit			Shares based			Other			Total						Parent's			Non-
		Share		Treasury			translation			hedging			plans			payments			sundry			other			Retained			ownership			controlling			Total
	Note	capital		shares			reserve			reserve			reserve			reserve			reserve			reserve			earnings			interest			interest			equity
		ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Equity as of January 1, 2018			3,146,265		(178	)		(2,131,590	)		18,140			(10,926	)		39,481			2,639,780			554,885			475,117			4,176,089			91,147			4,267,236
Increase (decrease) by application of new accounting standards	25		-		-			-			-			-			-			-			-			(4,797	)		(4,797	)		-			(4,797	)
Initial balance modified			3,146,265		(178	)		(2,131,590	)		18,140			(10,926	)		39,481			2,639,780			554,885			470,320			4,171,292			91,147			4,262,439
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-		-			-			-			-			-			-			-			181,935			181,935			31,312			213,247
Other comprehensive income			-		-			(597,615	)		(27,473	)		(4,252	)		-						(629,340	)		-			(629,340	)		(13,180	)		(642,520	)
Total comprehensive income			-		-			(597,615	)		(27,473	)		(4,252	)		-			-			(629,340	)		181,935			(447,405	)		18,132			(429,273	)
Transactions with shareholders Dividens	25		-		-			-			-			-			-			-			-			(54,580	)		(54,580	)		-			(54,580	)
Increase (decrease) through transfers and other changes, equity	25-34		-		-			-			-			-			(1,607	)		(864	)		(2,471	)		-			(2,471	)		(29,339	)		(31,810	)
Total transactions with shareholders			-		-			-			-			-			(1,607	)		(864	)		(2,471	)		(54,580	)		(57,051	)		(29,339	)		(86,390	)
Closing balance as of December 31, 2018			3,146,265		(178	)		(2,729,205	)		(9,333	)		(15,178	)		37,874			2,638,916			(76,926	)		597,675			3,666,836			79,940			3,746,776

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

F-10

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
								Change in other reserves
													Actuarial gains
													or losses on
								Currency			Cash flow		defined benefit			Shares based		Other			Total						Parent's			Non-
		Share			Treasury			translation			hedging		plans			payments		sundry			other			Retained			ownership			controlling			Total
	Note	capital			shares			reserve			reserve		reserve			reserve		reserve			reserve			earnings			interest			interest			equity
		ThUS$			ThUS$			ThUS$			ThUS$		ThUS$			ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Equity as of January 1, 2017			3,149,564			(178	)		(2,086,555	)		1,506		(12,900	)		38,538		2,640,281			580,870			366,404			4,096,660			88,644			4,185,304
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-			-			-			-		-			-		-			-			155,304			155,304			45,410			200,714
Other comprehensive income			-			-			(45,035	)		16,634		1,974			-					(26,427	)		-			(26,427	)		(2,515	)		(28,942	)
Total comprehensive income			-			-			(45,035	)		16,634		1,974			-		-			(26,427	)		155,304			128,877			42,895			171,772
Transactions with shareholders
Dividens	25		-			-			-			-		-			-		-			-			(46,591	)		(46,591	)		-			(46,591	)
Increase (decrease) through transfers and other changes, equity	25-34		(3,299	)		-			-			-		-			943		(501	)		442			-			(2,857	)		(40,392	)		(43,249	)
Total transactions with shareholders			(3,299	)		-			-			-		-			943		(501	)		442			(46,591	)		(49,448	)		(40,392	)		(89,840	)
Closing balance as of December 31, 2017			3,146,265			(178	)		(2,131,590	)		18,140		(10,926	)		39,481		2,639,780			554,885			475,117			4,176,089			91,147			4,267,236

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

F-11

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
								Change in other reserves
														Actuarial gains or
								Currency			Cash flow			losses on defined			Shares based		Other		Total						Parent's						Non-
		Share			Treasury			translation			hedging			benefit plans			payments		sundry		other			Retained			ownership			controlling			Total
	Note	capital			shares			reserve			reserve			reserve			reserve		reserve		reserve			earnings			interest			interest			equity
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$		ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Equity as of January 1, 2016			2,545,705			(178	)		(2,576,041	)		(90,510	)		(10,717	)		35,647		2,634,679		(6,942	)		317,950			2,856,535			81,013			2,937,548
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-			-			-			-			-			-		-		-			69,220			69,220			41,450			110,670
Other comprehensive income			-			-			489,486			92,016			(2,183	)		-		579,319		-			579,319			5,554			584,873
Total comprehensive income			-			-			489,486			92,016			(2,183	)		-		-		579,319			69,220			648,539			47,004			695,543
Transactions with shareholders
Equity issue	25-34		608,496			-			-			-			-			-		-		-			-			608,496			-			608,496
Dividens	25		-			-			-			-			-			-		-		-			(20,766	)		(20,766	)		-			(20,766	)
Increase (decrease) through transfers and other changes, equity	25-34		(4,637	)		-			-			-			-			2,891		5,602		8,493			-			3,856			(39,373	)		(35,517	)
Total transactions with shareholders			603,859			-			-			-			-			2,891		5,602		8,493			(20,766	)		591,586			(39,373	)		552,213
Closing balance as of December 31, 2016			3,149,564			(178	)		(2,086,555	)		1,506			(12,900	)		38,538		2,640,281		580,870			366,404			4,096,660			88,644			4,185,304

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

F-12

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

		For the year ended
		December 31,
	Note	2018			2017			2016
		ThUS$			ThUS$			ThUS$
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services			10,787,805			10,595,718			9,918,589
Other cash receipts from operating activities			95,099			73,668			70,359
Payments for operating activities
Payments to suppliers for goods and services			(7,331,390	)		(6,722,713	)		(6,756,121	)
Payments to and on behalf of employees			(1,789,022	)		(1,955,310	)		(1,820,279	)
Other payments for operating activities			(255,988	)		(223,706	)		(162,839	)
Income taxes refunded (paid)			(29,186	)		(91,986	)		(59,556	)
Other cash inflows (outflows)	35		39,612			(8,931	)		(209,269	)
Net cash flows from operating activities			1,516,930			1,666,740			980,884
Cash flows used in investing activities
Cash flows from losses of control of subsidiaries or other businesses			69,724			6,503			-
Cash flows used in the purchase of non-controlling interest			(2	)		-			-
Other cash receipts from sales of equity or debt instruments of other entities			3,645,608			3,248,693			2,969,731
Other payments to acquire equity or debt instruments of other entities			(3,548,239	)		(3,106,411	)		(2,706,733	)
Amounts raised from sale of property, plant and equipment			223,753			51,316			76,084
Purchases of property, plant and equipment			(660,707	)		(403,666	)		(694,370	)
Amounts raised from sale of intangible assets			-			-			1
Purchases of intangible assets			(96,206	)		(87,318	)		(88,587	)
Interest received			10,175			12,684			11,242
Other cash inflows (outflows)	35		(2,476	)		(9,223	)		843
Net cash flow from (used in) investing activities			(358,370	)		(287,422	)		(431,789	)
Cash flows from (used in) financing activities	35
Amounts raised from issuance of shares			-			-			608,496
Amounts raised from long-term loans			779,062			1,305,384			1,820,016
Amounts raised from short-term loans			293,000			132,280			279,593
Loans repayments			(1,045,662	)		(1,829,191	)		(2,121,130	)
Payments of finance lease liabilities			(692,687	)		(344,901	)		(314,580	)
Dividends paid			(72,620	)		(66,642	)		(41,223	)
Interest paid			(357,355	)		(389,724	)		(398,288	)
Other cash inflows (outflows)			44,053			13,706			(229,163	)
Net cash flows from (used in) financing activities			(1,052,209	)		(1,179,088	)		(396,279	)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change			106,351			200,230			152,816
Effects of variation in the exchange rate on cash and cash equivalents			(166,713	)		(7,553	)		43,014
Net increase (decrease) in cash and cash equivalents			(60,362	)		192,677			195,830
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD	6		1,142,004			949,327			753,497
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD	6		1,081,642			1,142,004			949,327

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

F-13

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2018

NOTE 1 - GENERAL INFORMATION

LATAM Airlines Group S.A. (the "Company") is a public limited company registered with the Commission for the Financial Market under No. 306, whose shares are listed in Chile on the Electronic Stock Exchange of Chile - Stock Exchange and the Santiago Stock Exchange - Stock Exchange, besides being listed in the United States of America on the New York Stock Exchange ("NYSE"), in the form of American Depositary Receipts ("ADRs").

Its main business is the air transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by its subsidiaries in Ecuador, Peru, Brazil, Colombia, Argentina and Paraguay different countries. In addition, the Company has subsidiaries that operate in the cargo business in Chile, Brazil and Colombia.

The Company is located in Chile, in the city of Santiago, on Avenida Americo Vespucio Sur No. 901, Renca commune.

As of December 31, 2018 the statutory capital of the Company is represented by 606,874,525 shares, all ordinary, without par value, which is divided into: (a) 606,407,693 subscribed and paid shares; and (b) 466,832 shares pending subscription and payment, which correspond to the balance of shares pending placement of the last capital increase approved at the extraordinary shareholders meeting of August 18, 2016.

The controller of the Company is the Cueto Group, which through the companies Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Ltda., Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A. and Inversiones La Espasa Dos y Cía. Ltda., Owns 27.91% of the shares issued by the Company, so it is the controller of the Company in accordance with the provisions of letter b) of Article 97 and Article 99 of the Market Law of Values, taken care of that it influences decisively in the administration of this one.

As of December 31, 2018, the Company had a total of 1,451 shareholders in its registry. At that date, approximately 2.45% of the Company's property was in the form of ADRs.

For the period ended December 31, 2018, the company had an average of 41,097 employees, ending this period with a total number of 41,170 people, distributed in 6,380 Administration employees, 4,928 in Maintenance, 13,391 in Operations, 9,196 Cabin Crew , 4,169 Cockpit Crew and 3,106 in Sales.

F-14

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

a) Participation rate

				As December 31, 2018						As December 31, 2017						As December 31, 2016
		Country	Functional
Tax No.	Company	of origin	Currency	Direct		Indirect		Total		Direct		Indirect		Total		Direct		Indirect		Total
				%		%		%		%		%		%		%		%		%
96.518.860-6	Latam Travel Chile  S.A. and Subsidary	Chile	US$		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000
96.763.900-1	Inmobiliaria Aeronáutica S.A.	Chile	US$		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000		99.0100		0.9900		100.0000
96.969.680-0	Lan Pax Group S.A. and Subsidiaries	Chile	US$		99.8361		0.1639		100.0000		99.8361		0.1639		100.0000		99.8361		0.1639		100.0000
Foreign	Lan Perú S.A.	Peru	US$		49.0000		21.0000		70.0000		49.0000		21.0000		70.0000		49.0000		21.0000		70.0000
93.383.000-4	Lan Cargo S.A.	Chile	US$		99.8939		0.0041		99.8980		99.8939		0.0041		99.8980		99.8939		0.0041		99.8980
Foreign	Connecta Corporation	U.S.A.	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
Foreign	Prime Airport Services Inc. and Subsidary	U.S.A.	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.951.280-7	Transporte Aéreo S.A.	Chile	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.631.520-2	Fast Air Almacenes de Carga S.A.	Chile	CLP		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
Foreign	Laser Cargo S.R.L.	Argentina	ARS		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
Foreign	Lan Cargo Overseas Limited and Subsidiaries	Bahamas	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.969.690-8	Lan Cargo Inversiones S.A. and Subsidary	Chile	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.575.810-0	Inversiones Lan S.A. and Subsidiaries	Chile	US$		99.7100		0.2900		100.0000		99.7100		0.2900		100.0000		99.7100		0.2900		100.0000
96.847.880-K	Technical Trainning LATAM S.A.	Chile	CLP		99.8300		0.1700		100.0000		99.8300		0.1700		100.0000		99.8300		0.1700		100.0000
Foreign	Latam Finance Limited	Cayman Insland	US$		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000
Foreign	Peuco Finance Limited	Cayman Insland	US$		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000
Foreign	Profesional Airline Services INC.	U.S.A.	US$		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000
Foreign	Jarletul S.A.	Uruguay	US$		99.0000		1.0000		100.0000		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000
Foreign	TAM S.A. and Subsidiaries (*)	Brazil	BRL		63.0901		36.9099		100.0000		63.0901		36.9099		100.0000		63.0901		36.9099		100.0000

(*) As of December 31, 2018, the indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., a company over which LATAM Airlines Group S.A. it has a 99.9983% share on economic rights and 49% of political rights its percentage arise as a result of the provisional measure No. 714 of the Brazilian government implemented during 2016 that allows foreign capital to have up to 49% ownership. In this way, since April 2016, LATAM Airlines Group S.A. owns 901 shares with the right to vote of Holdco I S.A., which is equivalent to 49% of the total shares with voting rights of said company and TEP Chile S.A. owns 938 shares with the right to vote of Holdco I S.A., which is equivalent to 51% of the total shares with voting rights.

F-15

b) Financial Information

		Statement of financial position																					Net Income
																							For the year ended
																							December 31,
		As of December 31, 2018							As of December 31, 2017							As of December 31, 2016							2018			2017			2016
Tax No.	Company	Assets		Liabilities		Equity			Assets		Liabilities		Equity			Assets		Liabilities		Equity						Gain/(loss )
		ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$			ThUS$			ThUS$
96.518.860-6	Latam Travel Chile S.A. and Subsidary		10,165		3,210		6,955			6,771		2,197		4,574			5,468		2,727		2,741			2,385			1,833			2,650
96.763.900-1	Inmobiliaria Aeronáutica S.A.		-		-		-			-		-		-			36,756		8,843		27,913			-			-			3,443
96.969.680-0	Lan Pax Group S.A. and Subsidiaries (*)		522,855		1,278,349		(762,139	)		499,345		1,101,548		(596,406	)		475,763		1,045,761		(561,472	)		(128,345	)		(35,943	)		(36,331	)
Foreign	Lan Perú S.A.		417,767		407,570		10,197			315,607		303,204		12,403			306,111		294,912		11,199			3,372			1,205			(2,164	)
Foreign	Lan Chile Investments Limited and Subsidiary (*)		-		-		-			-		-		-			-		-		-			-			-			23
93.383.000-4	Lan Cargo S.A.		511,275		334,498		176,777			584,169		371,934		212,235			480,908		239,728		241,180			(34,401	)		(30,220	)		(24,813	)
Foreign	Connecta Corporation		66,593		28,183		38,410			38,735		17,248		21,487			31,981		23,525		8,456			16,923			13,030			9,684
Foreign	Prime Airport Services Inc. and Subsidary (*)		15,817		17,654		(1,837	)		12,671		15,722		(3,051	)		7,385		11,294		(3,909	)		1,225			857			588
96.951.280-7	Transporte Aéreo S.A.		330,777		128,428		202,349			324,498		104,357		220,141			340,940		124,805		216,135			(17,847	)		2,172			8,206
Foreign	Aircraft International Leasing Limited		-		-		-			-		-		-			-		-		-			-			-			9
96.631.520-2	Fast Air Almacenes de Carga S.A.		15,499		7,962		7,537			12,931		4,863		8,068			10,023		3,645		6,378			386			939			1,717
Foreign	Laser Cargo S.R.L.		26		13		13			18		27		(9	)		21		32		(11	)		(3	)		2			(1	)
Foreign	Lan Cargo Overseas Limited and Subsidiaries (*)		53,326		13,040		38,812			66,039		42,271		18,808			54,092		35,178		15,737			19,876			3,438			176
96.969.690-8	Lan Cargo Inversiones S.A. and Subsidary (*)		181,522		192,059		(9,614	)		144,884		156,005		(10,112	)		80,644		95,747		(13,506	)		497			3,389			(910	)
96.575.810-0	Inversiones Lan S.A. and Subsidiaries (*)		1,383		50		1,333			11,681		5,201		6,377			10,971		6,452		4,452			(4,774	)		1,561			2,549
96.847.880-K	Technical Trainning LATAM S.A.		2,879		1,031		1,848			1,967		367		1,600			1,745		284		1,461			884			109			73
Foreign	Latam Finance Limited		679,034		756,774		(77,740	)		678,289		708,306		(30,017	)		-		-		-			(47,723	)		(30,017	)		-
Foreign	Peuco Finance Limited		608,191		608,191		-			608,191		608,191		-			-		-		-			-			-			-
Foreign	Profesional Airline Services INC.		2,430		1,967		463			3,703		3,438		265			-		-		-			197			294			-
Foreign	Jarletul S.A.		18		125		(107	)		-		-		-			-		-		-			(107	)		-			-
Foreign	TAM S.A. and Subsidiaries (*)		4,304,126		3,013,831		1,221,459			4,490,714		3,555,423		856,829			5,287,286		4,710,308		495,562			(12,538	)		160,582			2,107

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

Additionally, we have proceeded to consolidate the following special purpose entities: 1. Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 2. Guanay Finance Limited created to issue a bond collateralized with future credit card receivables; 3. Private investment funds. These companies have been consolidated as required by IFRS 10.

All controlled entities have been included in the consolidation.

F-16

The changes that occurred in the consolidation perimeter between January 1, 2017 and December 31, 2018, are detailed below:

(1) Incorporation or acquisition of companies

- Prismah Fidelidade Ltda. was constituted on June 29, 2012, whose ownership corresponds 99.99% to Multiplus S.A. direct subsidiary of TAM S.A. The operation of this company began in December 2017.

- On November 2015, the company Peuco Finance Limited was created, whose ownership corresponds 100% to LATAM Airlines Group S.A. The operation of this company began in December 2017.

- During the month of December 2017, a capital increase in TAM S.A was reported to the Finance Committee for up to US $ 900 million.

The contributions were made on December 11, 2017 for US $ 210 million, January 24, 2018 for US $ 449 million and February 5, 2018 for US $ 200 million, without issuance of new shares.

These capital increases were made and integrated 100% by the shareholder LATAM Airlines Group S.A.

The foregoing, in accordance with the TAM's shareholder Holdco I S.A., who renounces to any right arisinged from this increase.

- On January 22, 2018, Lan Pax Group S.A., purchased 17,717 shares of Laser Cargo SRL. to Andes Airport Service S.A., consequently Lan Pax Group S.A. ownsership is 3.77922% and Lan Cargo S.A. with a 96.22078% share of Laser Cargo SRL.

- On March 13, 2018, the company Jarletul S.A., was create. The company ownership is 99% of LATAM Airlines Group S.A. and a 1% is from Inversiones Lan S. A.. The company main activity is a Travel Agency.

- As of December 31, 2018, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 5,319 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, consequently, the indirect participation of LATAM Airlines Group S.A. correspond to 99.2012%

(2) Dissolution of companies

- On November 20, 2017 LATAM Airlines Group S.A. acquires 100% of the shares of Inmobiliaria Aeronáutica S.A. consequently, a merger and subsequent dissolution of said company was carried out.

F-17

(3) Disappropriation of companies.

- On May 5, 2017 Lan Pax Group S.A. and Inversiones Lan S.A., both subsidiaries of LATAM Airlines Group S.A., sold to Talma Servicios Aeroportuarios S.A. and Inversiones Talma S.A.C., 100% of the capital stock of Rampas Andes Airport Services S.A.

The sale value of Rampas Andes Airport Services S.A. it was of ThUS$ 8,624.

- On May 7, 2018 LATAM Airlines Group S.A. and its subsidiaries Inversiones LAN S.A. and LAN Pax Group S.A., sold, assigned and transferred to the Spanish companies Acciona Airport Services, S.A. and Acciona Aeropuertos, S.L., 100% of its shares in the subsidiary Andes Airport Services S.A.

The sale value of Andes Airport Services S.A. it was ThUS$ 39,108

- On November 30, 2018, Mas Investment Limited, a subsidiary of LATAM Airlines Group S.A., sold to Puente Aéreo Corporación S.A. de C.V. his participation in the companies Air Transportes Mas de Carga S.A. de C.V. and Promotora Aérea Latino Americana S.A. de C.V.

The sale value of this transaction was ThUS$ 29,466.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

2.1. Basis of Preparation

The consolidated financial statements of LATAM Airlines Group S.A. for the period ended December 31, 2018, have been prepared in accordance with International Financial Reporting Standards (IFRS) as issue by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

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

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

In order to facilitate comparison, some minor reclassifications have been made to the consolidated financial statements for the previous year.

F-18

(a) Accounting pronouncements with implementation effective from January 1, 2018:

	Date of issue	Mandatory application: exercises started at from
(i) Rules and amendments
IFRS 9: Financial instruments.	December 2009	01/01/2018
Amendment to IFRS 9: Financial instruments.	November 2013	01/01/2018
IFRS 15: Revenue from ordinary activities from contracts with customers.	May 2014	01/01/2018
Amendment to IFRS 15: Revenue from ordinary activities 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 contract	September 2016	01/01/2018
Amendment to IAS 40: Investment property	December 2016	01/01/2018
(ii) Improvements
Improvements to the International Financial Reporting Standards (cycle 2014-2016) IFRS 1: Adoption for the first time of international financial reporting standards and IAS 28 Investments in associates and joint ventures.	December 2016	01/01/2018
(iii) Interpretations
IFRIC 22: Transactions in foreign currency and anticipated consideration	December  2016	01/01/2018

The Company has recognized the changes identified as a result of the adoption of IFRS 9 and IFRS 15, recognizing the cumulative effect of the initial application of these standards as an adjustment to the opening balance of retained earnings as of January 1, 2018, therefore, the Financial statements as of December 31, 2017 have not been modified.

F-19

The impacts of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from ordinary contracts with customers are as follows:

Consolidated statement of financial position (extract) 

		As of		Adoption						As of
		December 31,		effect						January 1
	Note	2017		IFRS 9			IFRS 15			2018
		ThUS$		ThUS$			ThUS$			ThUS$
Current assets
Other non-financial assets, current	7 - 12		221,188		-			54,361	(4)		275,549
Trade debtors and other accounts receivable, current	7 - 8		1,214,050		(11,105	)(1)		-			1,202,945
Non-current assets
Deferred tax assets			364,021		89	(2)		6,005	(7)		370,115
Current liabilities
Accounts payable commercial and other Debts to pay	7 - 20		1,695,202		-			(22,192	)(5)		1,673,010
Other non-financial liabilities, current	22		2,823,963		-			77,640	(6)		2,901,603
Non-current liabilities
Deferred tax liability	18		949,697		(1,021	)(2)		4,472	(5)		953,148
Equity
Accumulated earnings	25		475,118		(9,995	)(3)		446	(8)		465,569

- Effects of adopting IFRS 9

(1) Expected credit losses: The Company modified the calculation of the impairment provision to comply with the expected credit loss model, established in IFRS 9 Financial Instruments, which replaces the current loss impairment model incurred. To the calculate porcentage of credit losses, a risk matrix was used, grouping the portfolio, according to similar characteristics of risk and maturity. This change resulted in the recognition of an increase in the provision for impairment losses of US $ (11.1) million.

This standard also includes requirements related to the classification and measurement of financial assets and liabilities and an expected credit loss model that replaces the current loss impairment model incurred.

F-20

As of January 1, 2018, the calculation of the impairment losses provision are as follows:

	Portfolio maturity
							Up to			Up to			More than
				Up to			91 to			181 to			360
	Up to date			90 days			180 days			360 days			days			Total
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Expected loss rate		1	%		21	%		46	%		67	%		94	%		8	%
Gross book value		1,046,909			36,241			12,001			14,623			66,022			1,175,796
Impairment provision		(13,570	)		(7,774	)		(5,499	)		(9,803	)		(61,787	)		(98,433	)

(2) Deferred tax adjustments originated by the application of IFRS 9.

(3) Net effect on accumulated results of the adjustments indicated above.

In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition.

The Company analyzed the business models and classified its financial assets and liabilities according to the following:

	Classification IAS 39											Classification IFRS 9
	Loans			Hedge		Held			Initial as fair value					At fair value
	and			and		for			through profit			Cost		with changes
Assets	receivables			derivatives		traiding			and loss			amortized		in results		Total
	ThUS$			ThUS$		ThUS$			ThUS$			ThUS$		ThUS$		ThUS$
Balance as of December 31, 2017		2,446,864			62,867		1,915			501,890			-		-		3,013,536
Cash and cash equivalents		(1,112,346	)		-		-			(29,658	)		1,112,346		29,658		-
Other financial assets, current		(23,918	)		-		(1,421	)		(472,232	)		23,918		473,653		-
Trade debtors and other accounts receivable, current		(1,214,050	)		-		-			-			1,214,050		-		-
Accounts receivable from entities related, current		(2,582	)		-		-			-			2,582		-		-
Other financial assets, non-current		(87,077	)		-		(494	)		-			87,077		494		-
Accounts receivable, non-current		(6,891	)		-		-			-			6,891		-		-
Balance as of January 1, 2018		-			62,867		-			-			2,446,864		503,805		3,013,536

F-21

	Classification IAS 39					Classification IFRS 9
	Others			Held
	financial			hedge		Cost
Liabilities	liabilities			derivatives		amortized		Total
	ThUS$			ThUS$		ThUS$		ThUS$
Balance as of December 31, 2017		10,086,434			14,817		-		10,101,251
Other current financial liabilities		(1,288,749	)		-		1,288,749		-
Trade accounts payable and other accounts payable, current		(1,695,202	)		-		1,695,202		-
Accounts payable to related entities, current		(760	)		-		760		-
Other financial liabilities, not current		(6,602,891	)		-		6,602,891		-
Accounts payable, not current		(498,832	)		-		498,832		-
Balance as of January 1, 2018		-			14,817		10,086,434		10,101,251

- Effects of adopting IFRS 15

(4) Contract costs: The Company has capitalized the costs related to the revenues from air transport of passengers, corresponding to: the commissions charged by the credit card administrators for US$ 22.0 million and the air ticket booking services through the system general distribution (GDS) for US$ 15.6 million. Additionally, there is a reclassification of commissions from travel agencies for US$ 16.8 million, which previously were presented, according IAS 18, net of the liability to fly in other non-financial liabilities.

(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore they must be deferred until the benefit of the service have been rendered. These concepts are mainly related to the ground transportation service for US $ 15.6 million and traveler's checks for US $ 6.6 million.

(6) Performance Obligations: The Company analyzed the moment in which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redeem of some products associated with loyalty programs for US$ 60.8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16.8 million.

(7) Deferred tax adjustments originated by the application of IFRS 15.

(8) Net effect on accumulated results of the adjustments indicated above.

Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of these services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.

F-22

The effects of the changes recognized in the application of IFRS 15 in the year 2018 in the consolidated income statement are presented below:

		For the year ended December 31, 2018
Reconciliation Revenue					Adjustments for reconciliation
		Results						Deferred						Results
		under			Contract			revenues						under
	Note	IFRS 15			costs (4)			recognition [(5), (6)]			Reclassifications			IAS 18
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Revenue	26		9,895,456			-			48,561			31,501			9,975,518
Cost of sales			(7,962,843	)		-			(34,986	)		-			(7,997,829	)
Gross margin			1,932,613			-			13,575			31,501			1,977,689
Other income	28		472,758			-			-			42,563			515,321
Distribution costs			(619,200	)		(43	)		-			(20,003	)		(639,246	)
Administrative expenses			(721,270	)		(806	)		-			(54,061	)		(776,137	)
Other expenses			(359,781	)		-			-			-			(359,781	)
Other gains/(losses)			53,499			-			-			-			53,499
Income from operation activities			758,619			(849	)		13,575			-			771,345
Financial income			53,253			-			-			-			53,253
Financial costs	27		(356,269	)		-			-			-			(356,269	)
Foreign exchange gains/(losses)	29		(157,708	)		-			-			-			(157,708	)
Result of indexation units			(865	)		-			-			-			(865	)
Income (loss) before taxes			297,030			(849	)		13,575			-			309,756
Income (loss) tax expense / benefit	18		(88,456	)		(23	)		(1,030	)		-			(89,509	)
NET INCOME (LOSS) FOR THE PERIOD			208,574			(872	)		12,545			-			220,247
Income (loss) attributable to owners of the parent			176,822			(872	)		12,545			-			188,495
Income (loss) attributable to non-controlling interest	14		31,752			-			-			-			31,752
Net income (loss) for the year			208,574			(872	)		12,545			-			220,247

(b)          Accounting pronouncements not yet in force for financial years beginning on January 1, 2018 and which has not been effected early adoption

(i) Rules and amendments	Date of issue	Mandatory application: exercises started at from
IFRS 16: Leases	January 2016	January 1, 2019
Amendment to IFRS 9: Financial Instruments	October 2017	January 1, 2019
Amendment to IAS 28: Investments in associates and joint ventures	October 2017	January 1, 2019
IFRS 17: Insurance contracts	May 2017	January 1, 2021
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	September 2014	To be determined
Amendment to IAS 19: Benefits to employees	February 2018	January 1, 2019

F-23

	Date of issue	Mandatory application: exercises started at from
Amendment to IFRS 3: Business combination	October 2018	January 1, 2020
Amendment to IAS 1: Presentation of financial statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors	October 2018	January 1, 2020
(ii) Improvements
Improvements to International Financial Reporting Standards (cycle 2015-2017) IFRS 3: Business combination; IAS 12: Income tax; IFRS 11: Joint agreements and IAS 23 Costs for loans.	December 2017	January 1, 2019
(iii) Interpretations
IFRIC 23: Uncertain tax positions	June 2017	January 1, 2019

The Company's management believes that the adoption of the standards, amendments and interpretations described above will not have a significant impact on the consolidated financial statements of the Company in the exercise of its first application, except for IFRS 16.

IFRS 16 Leases incorporates significant changes in the accounting of tenants by requiring a similar treatment to financial leases for all those leases that are currently classified as operational lease with a term greater than 12 months. This standard will be applied since January 1, 2019 and means, in general terms, that an asset representative of the right to use the assets subject to operational leasing contracts and a liability equivalent to the present value of the payments associated with the contract must be recognized. The effects on the income statement will be; the monthly lease payments will be replaced by the depreciation of the right of use and the recognition of a financial expense. Likewise, in the Statement of Cash Flows, the operating flow will decrease by the amount of the lease payment, increasing the flow of financing, separated in interest and principal, from the lease liability.

During the year 2018 the Company began the analysis of the effects of first adoption of IFRS 16, applying this new standard to the contracts identified as leases using IAS 17 "Leases" and IFRIC 4 "Determining whether an Arrangement Contains a Lease”.

The Company will apply this new standard with a retrospective application, restating the comparative financial statements, in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”.

The Company will continue to recognize the expenses associated with short-term lease contracts, as well as with the underlying low-value assets, in a straight-line manner as an expense in profit or loss, as indicated by the exception established in IFRS 16.

When establishing the terms of the lease, the Company has evaluated the relevant facts or circumstances that may determine the possible exercise of the options to extend or terminate the lease agreements. These options will be evaluated on each closing date.

F-24

For the valuation of the right of use and the lease liability, the Company has determined the present value of the payments for non-cancelable leases, using the implicit interest rate for leases related to aircraft, and incremental borrowing rate for the rest of the contracts. For incremental borrowing rate, the company considered for its calculation historical information on financing of the Company, market variables, asset types, country risk and currency among other factors.

The main impact due to the application of this new standard will came from the aircraft and engines, whose quantity and balance of non-cancelable lease commitments is disclosed in note 32 "Commitments".

As at the reporting date, the group has non-cancellable operating lease commitments for aircraft and engines of US$ 3,581 millions, additionally for other assets, it amounts of US$ 161 millions. Of these commitments, approximately US$ 59 millions relate to short-term leases and to low value leases which will both be recognized on a straight-line basis as expense in profit or loss.

For the remaining lease commitments the group expects to recognize right-of-use assets of approximately US$ 2,512 millions on 1 January 2019, and lease liabilities for US$ 2,820 millions. It is estimated that there will be no significant effects on net income for the year 2019.

Operating cash flows will increase and financing cash flows decrease by approximately US$ 521 millions as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

2.2. Basis of Consolidation

(a) Subsidiaries

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

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

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

F-25

(b) Transactions with non-controlling interests

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

(c) Sales of subsidiaries

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

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

(d) Investees or associates

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

2.3. Foreign currency transactions

(a) Presentation and functional currencies

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

(b) Transactions and balances

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

(c) Adjustment due to hyperinflation

After July 1, 2018, the Argentine economy was considered, for purposes of IFRS, hyperinflationary. The financial statements of the subsidiaries whose functional currency is the Argentine Peso have been restated.

F-26

The non-monetary items of the statement of financial position as well as the income statement, comprehensive incomes and cash flows of the group's entities, whose functional currency corresponds to a hyperinflationary economy, are adjusted for inflation and re-expressed in accordance with the variation of the consumer price index ("CPI"), at each presentation date of its financial statements. The re-expression of non-monetary items is made from the date of initial recognition in the statements of financial position and considering that the financial statements are prepared under the historical cost criterion. (See Note 4(g))

Net losses or gains arising from the re-expression of non-monetary items and income and costs are recognized in the consolidated income statement under "Result of indexation units".

Net gains and losses on the re-expression of opening balances due to the initial application of IAS 29 are recognized in the consolidated retained earnings.

Re-expression due to hyperinflation will be recorded until the period in which the economy of the entity ceases to be considered as a hyperinflationary economy, at that time, the adjustments made by hyperinflation will be part of the cost of non-monetary assets and liabilities.

The comparative amounts in the Consolidated financial statements of the Company are presented in a stable currency and are not adjusted for subsequent changes in the price level or exchange rates.

(d) Group entities

The results and the financial situation of the Group's entities, whose functional currency is different from the presentation currency of the consolidated financial statements, of LATAM Airlines Group S.A., which does not correspond to the currency of a hyperinflationary economy, are converted into the currency of presentation as follows:

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

(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.

For those subsidiaries of the group whose functional currency is different from the presentation currency and, moreover, corresponds to the currency of a hyperinflationary economy; its restated results, cash flow and financial situation are converted to the presentation currency at the closing exchange rate on the date of the consolidated financial statements.

The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar.

Adjustments to the 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, restated when the currency came from the functional entity of the foreign entity corresponds to that of a hyperinflationary economy, the adjustments for the restatement of goodwill are recognized in the consolidated equity.

F-27

2.4. Property, plant and equipment

The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in their initial recognition and in their subsequent measurement, at their historical cost, restated for inflation when appropriate, less the corresponding depreciation and any loss due to deterioration.

The amounts of advances paid to the aircraft manufacturers are activated by the Company under Construction in progress until they are received.

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

The depreciation of the properties, plants and equipment is calculated using the linear method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown.

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

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

Losses and gains from the sale of property, plant and equipment are calculated by comparing the consideration with the book value and are included in the consolidated statement of income.

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.

F-28

(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.

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.

F-29

2.9. Financial assets

As of January 1, 2018, the Company classifies its financial assets in the following categories: at fair value (either through other comprehensive income, or through gains or losses), and at amortized cost. The classification depends on the business model of the entity to manage the financial assets and the contractual terms of the cash flows.

The group reclassifies debt investments when, and only when, it changes its business model to manage those assets.

In the initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset classified at amortized cost, the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets accounted for at fair value through profit or loss are recorded as expenses in the income statement.

(a) Debt instruments

The subsequent measurement of debt instruments depends on the group's business model to manage the asset and cash flow characteristics of the asset. The Company has two measurement categories in which the group classifies its debt instruments:

Amortized cost: the assets held for the collection of contractual cash flows where those cash flows represent only payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in income when the asset is derecognized or impaired. Interest income from these financial assets is included in financial income using the effective interest rate method.

Fair value through profit or loss: assets that do not meet the criteria of amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and is presented net in the income statement within other gains / (losses) in the period in which it arises.

(b) Equity instruments

Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gains / (losses) in the statement of income as appropriate.

The Company evaluates in advance the expected credit losses associated with its debt instruments recorded at amortized cost. The applied impairment methodology depends on whether there has been a significant increase in credit risk.

2.10. Derivative financial instruments and hedging activities

Derivatives are recognized, in accordance with IAS 39, initially at fair value on the date on which the derivative contract was made and are subsequently valued at their fair value. The method to recognize the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if so, the nature of the item being hedged. The Company designates certain derivatives as:

F-30

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

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

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

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

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

(a) Fair value hedges

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

(b) Cash flow hedges

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

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(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

Commercial accounts receivable are initially recognized at their fair value and subsequently at their amortized cost in accordance with the effective rate method, less the provision for impairment according to the model of the expected credit losses. The company applies the simplified approach permitted by IFRS 9, which requires that expected lifetime losses be recognized upon initial recognition of accounts receivable.

The existence of significant financial difficulties on the part of the debtor, the probability that the debtor goes bankrupt or financial reorganization are considered indicators of a significant increase in credit risk.

The carrying amount of the asset is reduced as the provision account is used and the loss is recognized in the consolidated income statement under "Cost of sales". When an account receivable is written off, it is regularized against the provision account for the account receivable.

2.13. 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.

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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 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.

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(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 from contracts with customers

(a) Transportation of passengers and cargo

The Company recognizes the sale for the transportation service as a deferred income liability, which is recognized as income when the transportation service has been lent or expired. In the case of air transport services sold by the Company and that will be made by other airlines, the liability is reduced when they are remitted to said airlines. The Company periodically reviews whether it is necessary to make an adjustment to deferred income liabilities, mainly related to returns, changes, among others.

Compensations granted to clients for changes in the levels of services or billing of additional services such as additional baggage, change of seat, among others, are considered modifications of the initial contract, therefore, they are deferred until the corresponding service is provided.

(b) Expiration of air tickets

The Company estimates in a monthly basis the probability of expiration of air tickets, with refund clauses, based on the history of use of the same. Air tickets without refund clause are expired on the date of the flight in case the passenger does not show up.

(c) Costs associated with the contract

The costs related to the sale of air tickets are activated and deferred until the corresponding service is provided. These assets are included under Other non-financial assets in the Consolidated Classified Statement of Financial Position.

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(d) Frequent passenger program

The Company maintains the following loyalty programs: LATAM Pass, LATAM Fidelidade and Multiplus, whose objective is loyalty through the delivery of miles or points.

Members of these programs accumulate miles when flying with LATAM Airlines Group or any other member airline of the oneworld® program, as well as using the services of the associated entities.

When the miles and points are exchanged for products and services other than the services provided by the Company, the income is immediately recognized. When the exchange is made through air tickets of an airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the transportation service are rendered or expiration for non-use.

In addition, the Company has contracts with certain non-airline companies for the sale of miles or points. These contracts include some performance obligations in addition to the sale of the mile or point, such as marketing, advertising and other benefits. The income associated with these concepts is recognized in the income statement to the extent that the miles are accredited.

The calculation of the deferred income by loyalty programs at the end of the period corresponds to the valuation of the miles and points awarded to the holders of the loyalty programs, pending use, weighted by the probability of their exchange.

The miles and points that the Company estimates will not be exchanged, the proportionally associated value is recognized during the period in which it is expected that the remaining miles and points will be exchanged. The Company uses statistical models to estimate the exchange probability, which is based on historical patterns and projections.

(e) Dividend income

Dividend income is recognized when the right to receive 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.

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(b) When the Company is the lessee – operating lease

Leases, in which the lessor retains an important part of the risks and benefits deriving from ownership, are classified as operating leases. Payments with respect to operating leases (net of any incentive received from the lessor) are charged in the consolidated statement of income on a straight-line basis over the term of the lease.

2.22. Non-current assets or disposal groups classified as held for sale

Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.

2.23. Maintenance

The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are capitalized and depreciated until the next maintenance. The depreciation rate is determined on technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.

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

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

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

2.24. Environmental costs

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

NOTE 3 - FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

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

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(a) Market risk

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

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

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

(i) Fuel-price risk:

Exposition:

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

Mitigation:

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

Fuel Hedging Results:

During the year ended December 31, 2018, the Company recognized gains of US$ 29.7 million for fuel coverage net of premium. During the same period of 2017, the Company recognized gains of US$ 15.1 million for the same concept.

As of December 31, 2018, the market value of fuel positions amounted to US$ 15.8 million (negative). At the end of December 2017, this market value was US$ 10.7 million (positive).

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

Positions as of  December 31, 2018 (*)	Maturities
	Q119			Q219			Q319			Q419			Total
Percentage of coverage over the expected volume of consumption		66	%		58	%		40	%		15	%		45	%

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

Positions as of  December 31, 2017 (*)	Maturities
	Q118			Q218			Q318			Total
Percentage of coverage over the expected volume of consumption		19	%		12	%		5	%		12	%

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

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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 fourth quarter of 2019.

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2018 and the end of December, 2017.

	Positions as of December 31, 2018	Positions as of December 31, 2017
Benchmark price	effect on equity	effect on equity
(US$ per barrel)	(millions of US$)	(millions of US$)
+5	+7.4	+1.8
-5	- 5.5	-3.3

Given the structure of fuel coverage during 2018, considers a hedge-free portion, a vertical drop of 5 dollars in the JET reference price (considered as the monthly average), would have meant an approximate impact US $ 135.2 million of lower fuel costs. For the same period, a vertical rise of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact of approximately US $ 146.5 million of higher fuel costs.

(ii) Foreign exchange rate risk:

Exposition:

The functional and presentation currency of the Financial Statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.

The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.

The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.

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At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: Euro, Pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.

Mitigation:

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

FX Hedging Results:

With the objective of reducing exposure to the exchange rate risk in the operational cash flows of 2018, and securing the operating margin, LATAM makes hedges using FX derivatives.

As of December 31, 2018, the Company does not maintain hedge derivatives. At the end of December 2017, this market value was US $ 4.4 million (positive).

During the period ended December 31, 2018, the Company recognized gains of US$ 18.3 million for FX net premium coverage. During the same period of 2017, the company recognized losses of US$ 9.7 million for this concept.

As of December 31, 2018, the Company has not subscribed new FX derivatives. By the end of December 2017, the company had contracted FX derivatives for US$ 180 million for BRL.

As of December 31, the company has contracted FX derivatives which have not been recorded under hedge accounting. The market value of these positions amounts to US$ 19.4 million (positive). The premium associated with the contracting of this derivative is accrued linearly during the months elapsed until the expiration of the instrument. The Company registered the derivative as fair value through profits and loss. As of December 31, 2018, the amount recognized in results amounts to US $ 11.7 million (positive) net of premiums.

Sensitivity analysis:

A depreciation of the R$/US$ exchange rate, negatively affects the Company's operating cash flows, however, also positively affects the value of the positions of derivatives contracted.

FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate has an impact on the market value of the derivatives, the changes of which affect the Company's net equity.

As of December 31, 2018, the Company does not have FX derivatives in its portfolio. During 2017, the Company contracted derivative currency swaps to hedge debt issued the same year for a notional UF 8.7 million. As of December 31, 2018, the market value of derivative positions of currency swaps amounted to US$ 15.1 million (positive).

In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's Income Statement.

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With the objective of reducing the impact on the Company's results caused by appreciations or depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure in US$ for TAM S.A.

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

Appreciation (depreciation)	Effect at December 31, 2018	Effect at December 31, 2017
of R$/US$(*)	Millions of US$	Millions of US$
-10%	+39.8	+80.5
+10%	-39.8	-80.5

(*) 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, 2018	Effect at December 31, 2017
of R$/US$	Millions of US$	Millions of US$
-10%	+384.73	+386.62
+10%	-314.78	-316.33

(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").

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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 60% (63% at December 31, 2017) of the debt is fixed to fluctuations in interest rate.

Rate Hedging Results:

As of December 31, 2018, the market value of the derivative positions of interest rates amounted to US $ 2.2 million (negative). At the end of December 2017, this market value was US $ 6.6 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, 2018	Positions as of December 31, 2017
futures curve	effect on profit or loss before tax	effect on profit or loss before tax
in libor 3 months	(millions of US$)	(millions of US$)
+100 basis points	-29.62	-29.26
-100 basis points	+29.62	+29.26

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, 2018	Positions as of December 31, 2017
futures curve	effect on equity	effect on equity
in libor 3 months	(millions of US$)	(millions of US$)
+100  basis points	+0.70	+1.9
-100   basis points	-0.71	-1.9

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.

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(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.

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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.

At December 31, 2018 is US$ 1,404 million (US$ 1,614 million at December 31, 2017), invested in short term instruments through financial high credit rating levels entities.

In addition to the balance of liquid funds, the Company has access to short-term credit lines. As of December 31, 2018, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line of US $ 600 million (US $ 450 million as of December 31, 2017) subject to availability of collateral.

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Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018

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$		38,625		76,275		-		-		-		114,900		113,000	At Expiration		3.36		3.36
97.032.000-8	BBVA	Chile	UF		-		52,490		-		-		-		52,490		50,785	At Expiration		3.31		3.31
97.036.000-K	SANTANDER	Chile	US$		23,070		-		-		-		-		23,070		23,000	At Expiration		3.90		3.90
97.003.000-K	BANCO DO BRASIL	Chile	US$		201,884		-		-		-		-		201,884		200,000	At Expiration		3.64		3.64
97.951.000-4	HSBC	Chile	US$		12,094		-		-		-		-		12,094		12,000	At Expiration		3.14		3.14
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		5,778		17,086		16,662		-		-		39,526		38,231	Quarterly		3.35		3.35
0-E	BLADEX	U.S.A.	US$		-		15,766		-		-		-		15,766		15,000	Semiannual		6.74		6.74
97.036.000-K	SANTANDER	Chile	US$		1,347		587		102,521		-		-		104,455		102,521	Quarterly		5.60		5.60
76.362.099-9	BTG	Chile	UF		510		1,531		69,435		-		-		71,476		65,862	At Expiration		3.10		3.10
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	US$		-		84,375		614,375		96,250		724,063		1,519,063		1,200,000	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		18,985		37,970		196,970		213,114		467,039		345,182	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		743		2,201		5,718		2,086		-		10,748		10,080	Quarterly		3.23		3.23
0-E	BNP PARIBAS	U.S.A.	US$		14,741		61,973		152,826		145,252		250,387		625,179		511,698	Quarterly		4.55		4.55
0-E	WILMINGTON TRUST COMPANY	U.S.A.	US$		31,336		96,304		248,720		289,251		509,168		1,174,779		952,758	Quarterly		4.47		4.47
0-E	CITIBANK	U.S.A.	US$		12,757		38,398		102,062		77,710		65,232		296,159		269,365	Quarterly		3.82		2.94
0-E	US BANK	U.S.A.	US$		18,406		55,112		146,045		144,670		86,076		450,309		411,684	Quarterly		4.00		2.82
0-E	NATIXIS	France	US$		14,027		42,132		111,528		92,228		124,910		384,825		324,524	Quarterly		4.69		4.69
0-E	PK AirFinance	U.S.A.	US$		2,490		7,663		25,610		3,153		-		38,916		37,615	Monthly		4.15		4.15
0-E	INVESTEC	England	US$		2,004		11,579		26,874		24,367		-		64,824		54,014	Semiannual		7.17		7.17
Otras obligaciones garantizadas
0-E	CREDIT AGRICOLE	France	US$		2,576		8,380		273,122		-		-		284,078		253,692	At Expiration		4.11		4.11
0-E	DVB BANK SE	Germany	US$		28,087		83,260		213,177		122,674		20,274		467,472		422,065	Quarterly		4.42		4.42
Other guaranteed obligations
0-E	ING	U.S.A.	US$		4,025		12,075		12,134		-		-		28,234		26,831	Quarterly		5.70		5.01
0-E	CREDIT AGRICOLE	France	US$		7,618		21,994		27,811		1,684		-		59,107		56,403	Quarterly		3.66		3.31
0-E	CITIBANK	U.S.A.	US$		14,870		44,570		83,389		42,178		-		185,007		172,158	Quarterly		4.40		3.80
0-E	PEFCO	U.S.A.	US$		5,771		13,541		3,899		-		-		23,211		22,407	Quarterly		5.64		5.02
0-E	BNP PARIBAS	U.S.A.	US$		8,467		25,214		26,933		1,641		-		62,255		59,567	Quarterly		3.90		3.58
0-E	WELLS FARGO	U.S.A.	US$		35,458		106,397		282,923		239,168		99,232		763,178		719,338	Quarterly		2.77		2.09
97.036.000-K	SANTANDER	Chile	US$		6,340		19,025		49,945		26,779		-		102,089		95,022	Quarterly		3.68		3.14
0-E	RRPF ENGINE	England	US$		1,167		3,480		9,103		8,826		4,870		27,446		23,012	Monthly		4.01		4.01
0-E	APPLE BANK	U.S.A.	US$		1,711		5,175		13,640		13,394		760		34,680		31,544	Quarterly		3.93		3.33
0-E	BTMU	U.S.A.	US$		3,489		10,485		27,605		27,062		775		69,416		63,189	Quarterly		4.06		3.46
0-E	NATIXIS	France	US$		4,242		9,870		9,815		563		-		24,490		23,161	Quarterly		4.28		4.12
0-E	KFW IPEX-BANK	Germany	US$		1,764		5,328		5,378		-		-		12,470		12,215	Quarterly		4.20		4.19
0-E	AIRBUS FINANCIAL	U.S.A.	US$		2,074		6,197		7,840		-		-		16,111		15,417	Monthly		4.19		4.19
Other loans
0-E	CITIBANK (*)	U.S.A.	US$		25,705		77,703		103,341		-		-		206,749		196,211	Quarterly		6.00		6.00
0-E	Boeing	U.S.A.	US$		559		1,425		55,728		-		-		57,712		55,727	At Expiration		4.01		4.01
Hedge derivative
-	OTHERS	-	US$		1,224		2,484		681		-		-		4,389		4,021	-		0.00		0.00
	Total				534,959		1,039,060		2,866,810		1,555,906		2,098,861		8,095,596		6,989,299

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

F-44

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018

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
	NCM	Holland	US$		175		499		1,332		55		-		2,061		1,851	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	US$		4,195		7,935		46,780		41,872		-		100,782		95,789	Quarterly / Semiannual		6.87		6.87
0-E	WACAPOU LEASING S.A.	Luxembourg	US$		839		2,433		6,542		-		-		9,814		9,226	Quarterly		4.81		4.81
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	US$		11,536		32,312		161,778		-		-		205,626		208,224	Quarterly		5.88		5.82
0-E	GA Telesis LLC	U.S.A.	US$		680		1,753		4,675		4,675		11,318		23,101		13,202	Monthly		15.62		15.62
	Total				17,425		44,932		221,107		46,602		11,318		341,384		328,292

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018

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$		356,342		11,773		-		-		-		368,115		368,115	-		0.00		0.00
			CLP		137,296		359		-		-		-		137,655		137,655	-		0.00		0.00
			BRL		250,915		925		-		-		-		251,840		251,840	-		0.00		0.00
			Other currencies		518,448		3,918		-		-		-		522,366		522,366	-		0.00		0.00
Accounts payable to related parties currents
Foreing	Inversora Aeronáutica Argentina S.A.	Argentina	ARS		15		-		-		-		-		15		15	-		0.00		0.00
78.591.370-1	Bethia S.A. y Filiales	Chile	CLP		365		-		-		-		-		365		365	-		0.00		0.00
Extranjera	TAM Aviação Executiva e Taxi Aéreo S.A.	Brazil	BRL		2		-		-		-		-		2		2	-		0.00		0.00
	Total				1,263,383		16,975		-		-		-		1,280,358		1,280,358
	Total  consolidated				1,815,767		1,100,967		3,087,917		1,602,508		2,110,179		9,717,338		8,597,949

F-45

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

						More than		More than		More than
				Up to		90 days		one to		three to		More than
		Creditor		90		to one		three		five		five				Nominal			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		Total		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Loans to exporters
97.032.000-8	BBVA	Chile	US$		75,863		-		-		-		-		75,863		75,000	At Expiration		2.30		2.30
97.032.000-8	BBVA	Chile	UF		-		57,363		-		-		-		57,363		55,801	At Expiration		3.57		2.77
97.036.000-K	SANTANDER	Chile	US$		30,131		-		-		-		-		30,131		30,000	At Expiration		2.49		2.49
97.030.000-7	ESTADO	Chile	US$		40,257		-		-		-		-		40,257		40,000	At Expiration		2.57		2.57
97.003.000-K	BANCO DO BRASIL	Chile	US$		100,935		-		-		-		-		100,935		100,000	At Expiration		2.40		2.40
97.951.000-4	HSBC	Chile	US$		12,061		-		-		-		-		12,061		12,000	At Expiration		2.03		2.03
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		22,082		22,782		43,430		-		-		88,294		84,664	Quarterly		3.68		3.68
0-E	BLADEX	U.S.A.	US$		-		16,465		15,628		-		-		32,093		30,000	Semiannual		5.51		5.51
97.036.000-K	SANTANDER	Chile	US$		2,040		3,368		202,284		-		-		207,692		202,284	Quarterly		4.41		4.41
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	US$		-		84,375		650,625		96,250		772,188		1,603,438		1,200,000	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		20,860		41,720		226,379		245,067		534,026		379,274	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		8,368		25,415		56,305		12,751		-		102,839		98,091	Quarterly		2.66		2.22
0-E	BNP PARIBAS	U.S.A.	US$		14,498		59,863		148,469		145,315		313,452		681,597		575,221	Quarterly		3.41		3.40
0-E	WELLS FARGO	U.S.A.	US$		30,764		92,309		246,285		246,479		245,564		861,401		808,987	Quarterly		2.46		1.75
0-E	WILMINGTON TRUST COMPANY	U.S.A.	US$		32,026		95,042		253,469		244,836		676,474		1,301,847		1,034,853	Quarterly		4.48		4.48
0-E	CITIBANK	U.S.A.	US$		14,166		42,815		114,612		112,435		102,045		386,073		351,217	Quarterly		3.31		2.47
0-E	BTMU	U.S.A.	US$		3,292		9,997		26,677		26,704		14,133		80,803		74,734	Quarterly		2.87		2.27
0-E	APPLE BANK	U.S.A.	US$		1,611		4,928		13,163		13,196		7,369		40,267		37,223	Quarterly		2.78		2.18
0-E	US BANK	U.S.A.	US$		18,485		55,354		146,709		145,364		158,236		524,148		472,833	Quarterly		4.00		2.82
0-E	DEUTSCHE BANK	U.S.A.	US$		4,043		12,340		32,775		32,613		32,440		114,211		96,906	Quarterly		4.39		4.39
0-E	NATIXIS	France	US$		18,192		54,952		129,026		105,990		166,011		474,171		413,011	Quarterly		3.42		3.40
0-E	PK AirFinance	U.S.A.	US$		2,375		7,308		20,812		18,104		-		48,599		46,500	Monthly		3.18		3.18
0-E	KFW IPEX-BANK	Germany	US$		2,570		7,111		16,709		1,669		-		28,059		26,888	Quarterly		3.31		3.31
0-E	AIRBUS FINANCIAL	U.S.A.	US$		2,033		6,107		15,931		-		-		24,071		22,925	Monthly		3.19		3.19
0-E	INVESTEC	England	US$		1,930		11,092		26,103		26,045		11,055		76,225		63,378	Semiannual		6.04		6.04
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		1,757		5,843		246,926		-		-		254,526		241,287	At Expiration		3.38		3.38
Financial leases
0-E	ING	U.S.A.	US$		5,890		12,076		28,234		-		-		46,200		42,957	Quarterly		5.67		5.00
0-E	CITIBANK	U.S.A.	US$		12,699		38,248		91,821		51,222		2,880		196,870		184,274	Quarterly		3.78		3.17
0-E	PEFCO	U.S.A.	US$		13,354		34,430		23,211		-		-		70,995		67,783	Quarterly		5.46		4.85
0-E	BNP PARIBAS	U.S.A.	US$		13,955		35,567		50,433		2,312		-		102,267		98,105	Quarterly		3.66		3.25
0-E	WELLS FARGO	U.S.A.	US$		12,117		38,076		98,424		66,849		21,253		236,719		221,113	Quarterly		3.17		2.67
97.036.000-K	SANTANDER	Chile	US$		6,049		18,344		48,829		47,785		3,156		124,163		117,023	Quarterly		2.51		1.96
0-E	RRPF ENGINE	England	US$		370		3,325		8,798		8,692		9,499		30,684		25,983	Monthly		4.01		4.01
Other loans
0-E	CITIBANK (*)	U.S.A.	US$		25,783		77,810		206,749		-		-		310,342		285,891	Quarterly		6.00		6.00
Hedge derivative
-	Others	-	US$		5,656		6,719		6,228		-		-		18,603		17,407	-		0.00		0.00
	Total				535,352		960,284		3,010,385		1,630,990		2,780,822		8,917,833		7,633,613

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

F-46

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

						More than		More than		More than
				Up to		90 days		one to		three to		More than
		Creditor		90		to one		three		five		five				Nominal			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		Total		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Bank loans
0-E	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	US$		176		497		1,332		722		-		2,727		2,382	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	US$		4,248		7,903		23,141		71,323		-		106,615		99,036	Quarterly / Semiannual		5.59		5.59
0-E	WACAPOU LEASING S.A.	Luxembourg	US$		837		2,411		6,509		3,277		-		13,034		12,047	Quarterly		3.69		3.69
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	US$		11,735		32,230		204,836		-		-		248,801		244,513	Quarterly		4.87		4.81
0-E	BANCO IBM S.A	Brazil	BRL		34		-		-		-		-		34		21	Monthly		6.89		6.89
0-E	SOCIÉTÉ GÉNÉRALE	France	BRL		161		12		-		-		-		173		109	Monthly		6.89		6.89
	Total				17,191		43,053		235,818		75,322		-		371,384		358,108

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

						More than		More than		More than
				Up to		90 days		one to		three to		More than
		Creditor		90		to one		three		five		five				Nominal			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		Total		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Trade and other accounts payables
-	OTHERS	OTHERS	ThUS$		566,838		-		-		-		-		566,838		566,838	-		0.00		0.00
			CLP		165,299		-		-		-		-		165,299		165,299	-		0.00		0.00
			BRL		315,605		-		-		-		-		315,605		315,605	-		0.00		0.00
			Other currencies		290,244		11,215		-		-		-		301,459		301,459	-		0.00		0.00
Accounts payable to related parties currents
78.997.060-2	Viajes Falabella Ltda.	Chile	CLP		534		-		-		-		-		534		534	-		0.00		0.00
0-E	Inversora Aeronáutica Argentina	Argentina	ThUS$		4		-		-		-		-		4		4	-		0.00		0.00
0-E	Consultoría Administrativa Profesional S.A. de C.V.	Mexico	MXN		210		-		-		-		-		210		210	-		0.00		0.00
78.591.370-1	Bethia S.A. y Filiales	Chile	CLP		12		-		-		-		-		12		12	-		0.00		0.00
	Total				1,338,746		11,215		-		-		-		1,349,961		1,349,961
	Total  consolidated				1,891,289		1,014,552		3,246,203		1,706,312		2,780,822		10,639,178		9,341,682

F-47

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 2017, the Company had delivered US$ 16.4 million in guarantees for derivative margins, corresponding to cash and standby letters of credit. As of December 31, 2018, US$ 5.0 million were delivered in guarantees corresponding to cash and standby letters of credit. The decrease was due to: i) the expiration of hedge contracts, ii) acquisition of new fuel contracts, and iii) changes in fuel prices, changes in exchange rates 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, 2018 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with positive outlook by Fitch Ratings and a Ba3 rating with stable outlook by Moody’s.

3.3. Estimates of fair value.

At December 31, 2018, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:

1. Hedge Instruments:

This category includes the following instruments:

- Interest rate derivative contracts,

- Fuel derivative contracts,

- Currency derivative contracts.

2. Financial Investments:

This category includes the following instruments:

- Investments in short-term Mutual Funds (cash equivalent)

- Private investment funds.

F-48

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, 2018								As of December 31, 2017
			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		43,653		43,653		-		-		29,658		29,658		-		-
Short-term mutual funds		43,653		43,653		-		-		29,658		29,658		-		-
Other financial assets, current		366,573		343,218		23,355		-		536,001		473,653		62,348		-
Fair value interest rate derivatives		19,460		-		19,460		-		3,113		-		3,113		-
Fair value of fuel derivatives		-		-		-		-		10,711		-		10,711		-
Fair value of foreign currency derivative		3,895		-		3,895		-		48,322		-		48,322		-
Accrued interest since the last payment date Swap of currencies		-		-		-		-		202		-		202		-
Derivative not recognized as a hedge		19,396		19,396		-		-		-		-		-		-
Private investment funds		322,428		322,428		-		-		472,232		472,232		-		-
Domestic and foreign bonds		1,394		1,394		-		-		1,421		1,421		-		-
Other financial assets, not current		-		-		-		-		519		-		519		-
Fair value derived from foreign currency		-		-		-		-		519		-		519		-
Liabilities
Other financial liabilities, current		33,633		7,712		25,921		-		12,200		-		12,200		-
Fair value of interest rate derivatives		335		-		335		-		8,919		-		8,919		-
Fair value of fuel derivatives		15,678		-		15,678		-		-		-		-		-
Fair value of foreign currency derivatives		7,587		-		7,587		-		2,092		-		2,092		-
Interest accrued since the last payment date of Currency Swap		2,321		-		2,321		-		1,189		-		1,189		-
Derivative not recognized as a hedge		7,712		7,712		-		-		-		-		-		-
Other financial liabilities, non current		340		-		340		-		2,617		-		2,617		-
Fair value of interest rate derivatives		-		-		-		-		2,617		-		2,617		-
Interest accrued since the last date of Swap interest rates		340		-		340		-		-		-		-		-

F-49

Additionally, at December 31, 2018, 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, 2018				As of December 31, 2017
	Book		Fair		Book		Fair
	value		value		value		value
	ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		1,037,989		1,037,989		1,112,346		1,112,346
Cash on hand		8,974		8,974		8,562		8,562
Bank balance		331,218		331,218		330,430		330,430
Overnight		282,164		282,164		239,292		239,292
Time deposits		415,633		415,633		534,062		534,062
Other financial assets, current		17,411		17,411		23,918		23,918
Other financial assets		17,411		17,411		23,918		23,918
Trade debtors, other accounts receivable and Current accounts receivable		1,162,582		1,162,582		1,214,050		1,214,050
Accounts receivable from entities related, current		2,931		2,931		2,582		2,582
Other financial assets, not current		58,700		58,700		87,571		87,571
Accounts receivable, non-current		5,381		5,381		6,891		6,891
Other current financial liabilities		1,397,156		1,578,835		1,288,749		1,499,495
Accounts payable for trade and other accounts payable, current		1,674,303		1,674,303		1,695,202		1,695,202
Accounts payable to entities related, current		382		382		760		760
Other financial liabilities, not current		5,864,570		5,893,387		6,602,891		6,738,872
Accounts payable, not current		483,656		483,656		498,832		498,832

The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.

The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end.

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

The Company has used estimates to value and record some of the assets, liabilities, income, expenses and commitments. Basically these estimates refer to:

(a)       Evaluation of possible losses due to impairment of goodwill and intangible assets with indefinite useful life

As of December 31, 2018, goodwill amount to ThUS$ 2,294,072 (ThUS$ 2,672,550 as of December 31, 2017), while the intangible assets comprise the Airport Slots for ThUS$ 828,969 (ThUS$ 964,513 as of December 31, 2017) and Loyalty Program for ThUS$ 274,420 (ThUS$ 321,440 as of December 31, 2017).

F-50

The Company checks at least once a year whether goodwill and intangible assets with an indefinite useful life have suffered an impairment loss. For this evaluation, the Company has identified two cash generating units (CGU), "Air transport" and "Multiplus coalition and loyalty program". The book value of the surplus value assigned to each CGU as of December 31, 2018 amounts to ThUS$ 1,845,136 and ThUS$ 448,936 (ThUS$ $ 2,146,692 and ThUS$ 525,858 as of December 31, 2017), which include the following intangible assets with an indefinite useful life:

	Air Transport CGU				Coalition and loyalty Program Multiplus CGU
	As of		As of		As of		As of
	December 31		December 31,		December 31		December 31,
	2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$
Airport Slots		828,969		964,513		-		-
Loyalty program		-		-		274,420		321,440

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

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

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

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

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

(c)       Recoverability of deferred tax assets

Deferred taxes are calculated according to the liability method, on the temporary differences that arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available with which to offset the temporary differences. The Company makes financial and fiscal projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that these projections are consistent with those used to measure other long-lived assets. As of December 31, 2018, the Company has recognized deferred tax assets of ThUS$ 273,327 (ThUS$ 364,021 as of December 31, 2017) and has ceased to recognize deferred tax assets on tax losses of ThUS$ 137,761 (ThUS$ 81,155 December 31, 2017) (Note 18).

F-51

(d)       Air tickets sold that will not be finally used.

The Company records the advance sale of air tickets as deferred revenue. Revenue from the sale of tickets is recognized in the income statement when the passenger transport service is provided or expired due to non-use. The Company evaluates in a monthly basis the probability of expiration of air tickets, with refund clauses, based on the history of use of air tickets. A change in this probability could have an impact on ordinary income in the year in which the change occurs and in future periods. As of December 31, 2018, deferred revenues associated with air tickets sold amounted to ThUS$ 1,299,304 (ThUS$ 1,550,447 as of December 31, 2017). A hypothetical change of one percentage point in passenger behavior with respect to use would result in an impact of up to ThUS $ 6,000 per month.

(e)       Valuation of miles and points awarded to holders of loyalty programs, pending use.

As of December 31, 2018, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS$ 1,324,635 (ThUS$ 853,505 as of December 31, 2017). A hypothetical change of one percentage point in the exchange probability would result in an impact of ThUS$ 26,726 on the results of 2018 (ThUS $ 25,000 in 2017). The deferred revenues associated with the LATAM Fidelidade and Multiplus loyalty programs amount to ThUS$ 293,831 as of December 31, 2018 (ThUS$ 364,866 as of December 31, 2017). A hypothetical change of two percentage points in the number of points pending to be exchanged would result in an impact of ThUS$ 13,140 on the results of 2018 (ThUS$ 11,187 in 2017).

(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)       Consumer Price Index

For the calculation of the hyperinflation adjustment of companies with functional Argentine Peso, the company uses the index calculated by the Argentine Federation of Professional Councils of Economic Sciences resulting from combining the National Consumer Price Index ("CPI") published by the National Institute of Statistics and Censuses of the Argentine Republic ("INDEC") (base month: December 2016) with the IPIM published by the FACPCE.

F-52

For hyperinflation application on balances as of December 31, 2017, depending on the age of the non-monetary assets and liabilities, the index used were the following:

Year	2004		2005		2014		2015		2016		2017
Index		240.23		266.3		841.66		986.04		1,327.09		1,656.15

For the hyperinflation adjustment of the 2018 items, the following index were used:

Month	Jan-18		Feb-18		Mar-18		Apr-18		May-18		Jun-18		Jul-18		Aug-18		Sep-18		Oct-18		Nov-18
Index		1,685.25		1,726.02		1,766.42		1,814.81		1,852.47		1,921.69		1,981.30		2,058.36		2,192.86		2,311.09		2,383.96

The consolidated effects of IAS 29 adjustment on the balances as of January 1, 2018 were as follows:

	ThUS$
Assets		5,129
Liabilities		377
Retained earings		4,752

The effect of inflation on the Company’s net monetary position in the consolidated income statements for the year ended December 31, 2018 were as follows:

	ThUS$
Assets		1,379
Liabilities		(2,005	)
Loss		(626	)

(h)        Investment in subsidiary (TAM)

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

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

F-53

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 considers that it has two operating segments: air transport and the Multiplus loyalty and coalition program.

The air transport segment corresponds to the route network for air transport and is based on the way in which the business is managed according to the centralized nature of its operations, the ability to open and close routes, as well as reallocating resources (aircraft, crew, personnel, etc.) within the network, which implies a functional interrelation between them, making them inseparable. This segment definition is one of the most common at the level of the airline industry worldwide.

The Multiplus Coalition and Loyalty Program segment, unlike the LATAM Pass and LATAM Fidelidade programs, which are frequent flyer programs that operate as a unilateral loyalty system, offers a flexible, interrelated coalition system among its members, which has 22.2 million members, together with being an entity with a separate administration and a business not directly related to air transport.

F-54

For the year ended

										Coalition and
	Air									loyalty program
	transportation									Multiplus									Eliminations									Consolidated
	At December 31,									At December 31,									At December 31,									At December 31,
	2018			2017			2016			2018			2017			2016			2018			2017			2016			2018			2017			2016
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Income from ordinary activities from external customers (*)		9,887,090			9,159,031			8,587,772			60,020			454,876			400,568			(51,654	)		-			-			9,895,456			9,613,907			8,988,340
Passenger		8,700,622			8,039,601			7,477,147			60,020			454,876			400,568			(51,654	)		-			-			8,708,988			8,494,477			7,877,715
Freight		1,186,468			1,119,430			1,110,625			-			-			-			-			-			-			1,186,468			1,119,430			1,110,625
Income from ordinary activities from transactions with other operating segments		-			454,876			400,568			-			67,554			65,969			-			(522,430	)		(466,537	)		-			-
Other operating income		346,315			308,937			364,551			126,443			240,952			174,197			-			-			-			472,758			549,889			538,748
Interest income		27,181			28,184			27,287			26,072			50,511			58,380						-			(10,718	)		53,253			78,695			74,949
Interest expense		(356,269	)		(393,286	)		(427,054	)		-			-			-						-			10,718			(356,269	)		(393,286	)		(416,336	)
Total net interest expense		(329,088	)		(365,102	)		(399,767	)		26,072			50,511			58,380			-			-			-			(303,016	)		(314,591	)		(341,387	)
Depreciation and amortization		(974,827	)		(994,416	)		(952,285	)		(6,819	)		(7,209	)		(8,043	)		-			-			-			(981,646	)		(1,001,625	)		(960,328	)
Material non-cash items other than depreciation and amortization		(223,677	)		(75,479	)		10,069			(85	)		(145	)		(991	)		-			-			-			(223,762	)		(75,624	)		9,078
Disposal of fixed assets and inventory losses		(46,351	)		(39,238	)		(82,734	)		-			-			-			-			-			-			(46,351	)		(39,238	)		(82,734	)
Doubtful accounts		(18,741	)		(18,272	)		(29,674	)		(96	)		(144	)		(476	)		-			-			-			(18,837	)		(18,416	)		(30,150	)
Exchange differences		(157,720	)		(18,717	)		122,129			11			(1	)		(478	)		-			-			-			(157,709	)		(18,718	)		121,651
Result of indexation units		(865	)		748			348			-			-			(37	)		-			-			-			(865	)		748			311
Income (loss) atributable to owners of the parents (**)		72,333			(3,482	)		(83,653	)		109,602			158,783			152,873			-			-			-			181,935			155,301			69,220
Participation of the entity in the income of associates		-			-			-			-			-			-			-			-			-			-			-			-
Expenses for income tax		(36,506	)		(104,376	)		(92,476	)		(47,276	)		(69,128	)		(70,728	)		-			-			-			(83,782	)		(173,504	)		(163,204	)
Segment profit / (loss)		103,645			41,931			(42,203	)		109,602			158,783			152,873			-			-			-			213,247			200,714			110,670
Assets of segment		16,431,182			17,430,937			17,805,749			1,145,942			1,373,049			1,400,432			(10,347	)		(6,014	)		(7,987	)		17,566,777			18,797,972			19,198,194
Segment liabilities		13,394,785			14,007,916			14,469,505			449,347			563,849			572,065			(24,131	)		(41,029	)		(28,680	)		13,820,001			14,530,736			15,012,890
Amount of non-current asset additions		763,878			412,846			1,481,090			-			-			-			-			-			-			763,878			412,846			1,481,090
Property, plant and equipment		668,786			325,513			1,390,730			-			-			-			-			-			-			668,786			325,513			1,390,730
Intangibles other than goodwill		95,092			87,333			90,360			-			-			-			-			-			-			95,092			87,333			90,360
Purchase of non-monetary assets of segment		756,913			490,983			782,957			-			-			-			-			-			-			756,913			490,983			782,957

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

(**) The result of the Company includes a net result of ThUS$ (10,489) resulting from the application of IAS 21 and IAS 29, for the subsidiaries that are in hyperinflationary economies.

F-55

For the year ended

										Coalition and
	Air									loyalty program
	transportation									Multiplus									Eliminations								Consolidated
	At December 31,									At December 31,									At December 31,								At December 31,
	2018			2017			2016			2018			2017			2016			2018		2017			2016			2018			2017			2016
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Net cash flows from
Purchases of property, plant and equipment		660,631			403,282			693,581			76			384			789			-		-			-			660,707			403,666			694,370
Additions associated with maintenance		375,634			218,537			197,866			-			-			-			-		-			-			375,634			218,537			197,866
Other additions		284,997			184,745			495,715			76			384			789			-		-			-			285,073			185,129			496,504
Purchases of intangible assets (***)		85,628			79,102			84,377			10,578			8,216			4,210			-		-			-			96,206			87,318			88,587
Net cash flows from (used in) operating activities		1,394,146			1,489,797			827,108			111,161			186,367			154,411			11,623		(9,424	)		(635	)		1,516,930			1,666,740			980,884
Net cash flow from (used in) investing activities		(348,348	)		(278,790	)		(426,989	)		(10,022	)		(8,632	)		(4,800	)		-		-			-			(358,370	)		(287,422	)		(431,789	)
Net cash flows from (used in) financing activities		(956,510	)		(1,010,705	)		(246,907	)		(95,699	)		(168,383	)		(149,372	)		-		-			-			(1,052,209	)		(1,179,088	)		(396,279	)

(***)The Company does not have cash flows from purchases of intangible assets associated with maintenance.

F-56

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

	For the year ended
	At December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Peru		705,133		626,316		627,215
Argentina		989,883		1,113,467		1,030,973
U.S.A.		985,919		900,413		933,130
Europe		782,197		676,282		714,436
Colombia		372,794		359,276		343,001
Brazil		3,433,877		3,436,402		2,974,234
Ecuador		203,842		190,268		198,171
Chile		1,591,313		1,527,158		1,512,570
Asia Pacific and rest of Latin America		830,498		784,325		654,610
Income from ordinary activities		9,895,456		9,613,907		8,988,340
Other operating income		472,758		549,889		538,748

The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area.

The Company has no customers that individually represent more than 10% of sales.

NOTE 6 - CASH AND CASH EQUIVALENTS

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Cash on hand		8,974		8,562
Bank balances		331,218		330,430
Overnight		282,164		239,292
Total Cash		622,356		578,284
Cash equivalents
Time deposits		415,633		534,062
Mutual funds		43,653		29,658
Total cash equivalents		459,286		563,720
Total cash and cash equivalents		1,081,642		1,142,004

F-57

Cash and cash equivalents are denominated in the following currencies:

	As of		As of
Currency	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Argentine peso		17,786		12,135
Brazilian real		131,760		106,499
Chilean peso		415,713		81,845
Colombian peso		10,843		7,264
Euro		20,339		11,746
US Dollar		394,215		882,114
Other currencies		90,986		40,401
Total		1,081,642		1,142,004

NOTE 7 - FINANCIAL INSTRUMENTS

7.1. Financial instruments by category

As of December 31, 2018

Assets	Measured at		At fair value
	amortized		with changes		Hedge
	cost		in results		derivatives		Total
	ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		1,037,989		43,653		-		1,081,642
Other financial assets, current (*)		16,203		344,426		23,355		383,984
Trade and others accounts receivable, current		1,162,582		-		-		1,162,582
Accounts receivable from related entities, current		2,931		-		-		2,931
Other financial assets, non current (*)		58,700		-		-		58,700
Accounts receivable, non current		5,381		-		-		5,381
Total		2,283,786		388,079		23,355		2,695,220

Liabilities	Measured at
	amortized		Hedge
	cost		derivatives		Total
	ThUS$		ThUS$		ThUS$
Other liabilities, current		1,404,868		25,921		1,430,789
Trade and others accounts payable, current		1,674,303		-		1,674,303
Accounts payable to related entities, current		382		-		382
Other financial liabilities, non-current		5,864,570		340		5,864,910
Accounts payable, non-current		483,656		-		483,656
Total		9,427,779		26,261		9,454,040

(*)       The value presented in designated at the initial moment at fair value with changes in results, corresponds mainly to private investment funds, and in loans and accounts receivable, corresponds to guarantees delivered.

F-58

As of December 31, 2017

							Initial designation
Assets	Loans				Held		as fair value
	and		Hedge		for		through
	receivables		derivatives		trading		profit and loss		Total
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		1,112,346		-		-		29,658		1,142,004
Other financial assets, current (*)		23,918		62,348		1,421		472,232		559,919
Trade and others accounts receivable, current		1,214,050		-		-		-		1,214,050
Accounts receivable from related entities, current		2,582		-		-		-		2,582
Other financial assets, non current (*)		87,077		519		494		-		88,090
Accounts receivable, non current		6,891		-		-		-		6,891
Total		2,446,864		62,867		1,915		501,890		3,013,536

Liabilities	Other		Held
	financial		Hedge
	liabilities		derivatives		Total
	ThUS$		ThUS$		ThUS$
Other liabilities, current		1,288,749		12,200		1,300,949
Trade and others accounts payable, current		1,695,202		-		1,695,202
Accounts payable to related entities, current		760		-		760
Other financial liabilities, non-current		6,602,891		2,617		6,605,508
Accounts payable, non-current		498,832		-		498,832
Total		10,086,434		14,817		10,101,251

(*)       The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

F-59

7.2. Financial instruments by currency

a) Assets

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Cash and cash equivalents		1,081,642		1,142,004
Argentine peso		17,786		12,135
Brazilian real		131,760		106,499
Chilean peso		415,713		81,845
Colombian peso		10,843		7,264
Euro		20,339		11,746
US Dollar		394,215		882,114
Other currencies		90,986		40,401
Other financial assets (current and non-current)		442,684		648,009
Argentine peso		152		297
Brazilian real		327,110		475,810
Chilean peso		25,972		26,679
Colombian peso		1,748		1,928
Euro		7,438		7,853
US Dollar		78,121		133,431
Other currencies		2,143		2,011
Trade and other accounts receivable, current		1,162,582		1,214,050
Argentine peso		82,893		49,958
Brazilian real		511,171		635,890
Chilean peso		113,168		83,415
Colombian peso		7,259		3,249
Euro		49,044		48,286
US Dollar		110,312		257,324
Other currencies (*)		288,735		135,928
Accounts receivable, non-current		5,381		6,891
Brazilian real		3		4
Chilean peso		5,378		6,887
Accounts receivable from related entities, current		2,931		2,582
Brazilian real		293		2
Chilean peso		200		735
US Dollar		2,438		1,845
Total assets		2,695,220		3,013,536
Argentine peso		100,831		62,390
Brazilian real		970,337		1,218,205
Chilean peso		560,431		199,561
Colombian peso		19,850		12,441
Euro		76,821		67,885
US Dollar		585,086		1,274,714
Other currencies		381,864		178,340

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

b) Liabilities

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

F-60

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

	As of			As of
	December 31,			December 31,
	2018			2017
	ThUS$			ThUS$
Trade accounts receivable		1,077,561			1,175,796
Other accounts receivable		188,393			133,054
Total trade and other accounts receivable		1,265,954			1,308,850
Less: Allowance for impairment loss		(97,991	)		(87,909	)
Total net trade and accounts receivable		1,167,963			1,220,941
Less: non-current portion – accounts receivable		(5,381	)		(6,891	)
Trade and other accounts receivable, current		1,162,582			1,214,050

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

The maturity of the portfolio as of December 31, 2017 is as follows:

Up to date	1,040,671
Matured accounts receivable, but not impaired
Expired from 1 to 90 days	34,153
Expired from 91 to 180 days	10,141
More than 180 days overdue (*)	2,922
Total matured accounts receivable, but not impaired	47,216
Matured accounts receivable and impaired Judicial, pre-judicial collection and protested documents	43,175
Debtor under pre-judicial collection process and portfolio sensitization	44,734
Total matured accounts receivable and impaired	87,909
Total	1,175,796

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

As of December 31, 2018, in order to determine the expected credit losses, the company groups accounts receivable for passenger and cargo transportation; depending on the characteristics of shared credit risk and maturity.

F-61

	Portfolio maturity
				from 1 to			from 91 to			from 181 to			more of
	Up to date			90 days			180 days			360 days			360 days			Total
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Expected loss rate (1)		3	%		5	%		45	%		65	%		76	%		9	%
Gross book value (2)		888,930			91,387			11,085			15,078			71,081			1,077,561
Impairment loss provision		(23,933	)		(5,014	)		(4,983	)		(9,864	)		(54,197	)		(97,991	)

(1) Corresponds to the expected average rate.

(2) the gross book value represents the maximum growth risk value of trade accounts receivable.

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	2018		2017
	ThUS$		ThUS$
Argentine Peso		82,893		49,958
Brazilian Real		511,174		635,894
Chilean Peso		118,546		90,302
Colombian peso		7,259		3,249
Euro		49,044		48,286
US Dollar		110,312		257,324
Other currency (*)		288,735		135,928
Total		1,167,963		1,220,941
(*) Other currencies
Australian Dollar		100,733		40,303
Chinese Yuan		5,106		37
Danish Krone		475		197
Pound Sterling		18,129		5,068
Indian Rupee		7,163		3,277
Japanese Yen		56,589		18,756
Norwegian Kroner		283		133
Swiss Franc		5,046		2,430
Korean Won		31,381		18,225
New Taiwanese Dollar		6,180		2,983
Other currencies		57,650		44,519
Total		288,735		135,928

F-62

The movements of the provision for impairment losses of the Trade Debtors and other accounts receivable are as follows:

				Adoption
	Opening			adjustment					(Increase)			Closing
	balance			IFRS 9 (*)			Write-offs		Decrease			balance
Periods	ThUS$			ThUS$			ThUS$		ThUS$			ThUS$
From January 1 to December 31, 2016		(60,072	)		-			20,910		(37,892	)		(77,054	)
From January 1 to December 31, 2017		(77,054	)		-			8,249		(19,104	)		(87,909	)
From January 1 to December 31, 2018		(87,909	)		(10,524	)		8,620		(8,178	)		(97,991	)

(*) Adjustment to the balance as of December 31, 2017 registered in retained earnings as of 01.01.2018 for the adoption of IFRS 9.

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

The historical and current renegotiations are not very relevant and the policy is to analyze case by case to classify them according to the existence of risk, determining if their reclassification corresponds to pre-judicial collection accounts.

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

As of December 31, 2018

As of December 31, 2017

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

1,077,561

(97,991

)

979,570

1,175,796

(87,909

)

1,087,887

Other accounts receivable

188,393

-

188,393

133,054

-

133,054

There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.

F-63

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	2018		2017
					ThUS$		ThUS$
Foreign	Qatar Airways	Indirect shareholder	Qatar	US$		1,907		1,845
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		988		728
Foreign	TAM Aviação Executiva e
	Taxi Aéreo S.A.	Common shareholder	Brazil	BRL		-		2
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	CLP		31		5
96.810.370-9	Inversiones Costa Verde
	Ltda. y CPA.	Related director	Chile	CLP		5		2
	Total current assets					2,931		2,582

(b) Accounts payable

					As of		As of
			Country		December 31,		December 31,
Tax No.	Related party	Relationship	of origin	Currency	2018		2017
					ThUS$		ThUS$
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		365		546
Foreign	Inversora Aeronáutica Argentina S.A.	Related director	Argentina	US$		15		4
Foreign	Consultoría Administrativa
	Profesional S.A. de C.V.	Related company	México	MXN		-		210
Foreign	TAM Aviação Executiva
	e Taxi Aéreo S.A.	Common shareholder	Brazil	BRL		2		-
	Total current liabilities					382		760

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

F-64

NOTE 10 -INVENTORIES

The composition of Inventories is as follows:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Technical stock		233,276		195,530
Non-technical stock		46,068		41,136
Total		279,344		236,666

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,
	2018		2017
	ThUS$		ThUS$
Provision for obsolescence Technical stock		20,500		21,839
Provision for obsolescence Non-technical stock		4,621		6,488
Total		25,121		28,327

The resulting amounts do not exceed the respective net realization values.

As of December 31, 2018, the Company recorded ThUS$ 120,214 (ThUS$ 155,421 as of December 31, 2017) in results, mainly related to on-board consumption and maintenance, which is part of the Cost of sales.

F-65

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,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)      Other financial assets
Private investment funds		322,428		472,232		-		-		322,428		472,232
Deposits in guarantee (aircraft)		9,610		15,690		37,636		41,058		47,246		56,748
Guarantees for margins of derivatives		661		2,197		-		-		661		2,197
Other investments		-		-		494		494		494		494
Domestic and foreign bonds		1,394		1,421		-		-		1,394		1,421
Other guarantees given		7,140		6,031		20,570		46,019		27,710		52,050
Subtotal of other financial assets		341,233		497,571		58,700		87,571		399,933		585,142
(b)      Hedging assets
Interest accrued since the last payment date of Cross currency swap		-		202		-		-		-		202
Fair value of interest rate derivatives		19,460		3,113		-		-		19,460		3,113
Fair value of foreign currency derivatives		3,895		48,322		-		519		3,895		48,841
Fair value of fuel price derivatives		-		10,711		-		-		-		10,711
Subtotal of hedging assets		23,355		62,348		-		519		23,355		62,867
(c)      Derivatives not recognized as a hedge
Foreign currency derivatives not recognized as a hedge		19,396		-		-		-		19,396		-
Subtotal of derivatives not recognized as a hedge		19,396		-		-		-		19,396		-
Total Other Financial Assets		383,984		559,919		58,700		88,090		442,684		648,009

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

F-66

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,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)   Advance payments
Aircraft leases		31,284		31,322		9,687		4,718		40,971		36,040
Aircraft insurance and other		16,483		17,681		-		-		16,483		17,681
Others		19,322		10,012		973		1,186		20,295		11,198
Subtotal advance payments		67,089		59,015		10,660		5,904		77,749		64,919
(b)   Contract assets (1)
GDS costs		14,708		-		-		-		14,708		-
Credit card commissions		21,614		-		-		-		21,614		-
Travel agencies commissions		12,635		-		-		-		12,635		-
Subtotal advance payments		48,957		-		-		-		48,957		-
(c)   Other assets
Aircraft maintenance reserve (2)		831		21,505		51,836		51,836		52,667		73,341
Sales tax		187,410		137,866		38,186		37,959		225,596		175,825
Other taxes		15,255		2,475		-		-		15,255		2,475
Contributions to Société Internationale de Télécommunications Aéronautiques ("SITA")		258		327		739		670		997		997
Judicial deposits		-		-		132,267		124,438		132,267		124,438
Others		1,177		-		53		-		1,230		-
Subtotal other assets		204,931		162,173		223,081		214,903		428,012		377,076
Total Other Non - Financial Assets		320,977		221,188		233,741		220,807		554,718		441,995

(1) Movement of Contracts assets:

	Contracts assets
	ThUS$
Initial balance as of January 1, 2018		-
Activation		180,171
Adjustments by the application of IFRS 15		54,361
Difference by conversion		(5,020	)
Amortization		(180,555	)
Final balance as of December 31, 2018		48,957

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

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

F-67

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

As of December 31, 2018, maintenance reserves amount to ThUS$ 52,667 (ThUS$ 73,341 as of December 31, 2017), corresponding to 9 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.

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

NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

Non-current assets and groups in expropriation held for sale at December 31, 2018 and December 31, 2017, are detailed below:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Current assets
Aircraft		265		236,022
Engines and rotables		5,299		9,197
Other assets		204		45,884
Total		5,768		291,103
Current liabilities
Other liabilities		-		15,546
Total		-		15,546

The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.

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

During fiscal year 2017, adjustments were recognized for US$ 17.4 million to register these assets at their net realizable value.

Additionally, during the same period 2017, the sale of seven Airbus A330 spare engines occurred.

F-68

During the 2018 period, an engine spare Boeing 767 was transferred from the property, plant and equipment and adjustments for US$ 2.3 million were recognized to record these assets at their net realizable value.

In addition, during the 2018 period, two Boeing 777 aircraft were sold, an Airbus A330 aircraft, an a Airbus A330 spare engine were sold and an Airbus A320 aircraft was transferred from the property, plant and equipment.

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	2018		2017
Boeing 777 Freighter		-		2	(*)
Airbus A330-200		-		1
Airbus A320-200		-		1
ATR42-300		1		1
Total		1		5

(*) One aircraft leased to DHL.

(b) Assets reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale

During in the first quarter of 2017, technical stocks of the fleet Airbus A330, were reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale.

During fiscal year 2017, an adjustment of US $ 1.3 million was recognized to record these assets at their net realizable value.

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	2018		2017
			%		%
Lan Perú S.A.	Peru	US$		70.00000		70.00000
Lan Cargo S.A.	Chile	US$		99.89803		99.89803
Lan Argentina S.A.	Argentina	ARS		99.86560		99.86560
Transporte Aéreo S.A.	Chile	US$		100.00000		100.00000
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.	Ecuador	US$		100.00000		100.00000
Aerovías de Integración Regional, AIRES S.A.	Colombia	COP		99.19061		99.19061
TAM S.A.	Brazil	BRL		99.99938		99.99938

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

F-69

Summary financial information of significant subsidiaries

													Results for the year
	Statement of financial position as of December 31, 2018												ended December 31, 2018
	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.		417,767		379,490		38,277		407,570		406,157		1,413		1,161,205		1,652
Lan Cargo S.A.		511,275		243,499		267,776		334,498		292,153		42,345		269,783		(34,401	)
Lan Argentina S.A.		243,173		235,919		7,254		239,127		236,702		2,425		254,069		(148,032	)
Transporte Aéreo S.A.		330,777		72,597		258,180		128,428		27,440		100,988		304,084		(17,847	)
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.		106,487		96,564		9,923		95,860		89,819		6,041		234,169		(1,135	)
Aerovías de Integración Regional, AIRES S.A.		116,118		55,865		60,253		77,746		69,149		8,597		291,827		(5,068	)
TAM S.A. (*)		4,304,126		2,007,830		2,296,296		3,013,831		1,727,151		1,286,680		4,650,526		(12,538	)

													Results for the year
	Statement of financial position as of December 31, 2017												ended December 31, 2017
	Total		Current		Non-current		Total		Current		Non-current				Net
Name of significant subsidiary	Assets		Assets		Assets		Liabilities		Liabilities		Liabilities		Revenue		Income
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Lan Perú S.A.		315,607		294,308		21,299		303,204		301,476		1,728		1,046,423		1,205
Lan Cargo S.A.		584,169		266,836		317,333		371,934		292,529		79,405		264,544		(30,220	)
Lan Argentina S.A.		198,951		166,445		32,506		143,731		139,914		3,817		387,557		(41,636	)
Transporte Aéreo S.A.		324,498		30,909		293,589		104,357		36,901		67,456		317,436		2,172
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.		96,407		66,166		30,241		84,123		78,817		5,306		219,039		3,722
Aerovías de Integración Regional, AIRES S.A.		138,138		64,160		73,978		91,431		80,081		11,350		279,414		526
TAM S.A. (*)		4,490,714		1,843,822		2,646,892		3,555,423		2,052,633		1,502,790		4,621,338		160,582

F-70

													Results for the year
	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

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

F-71

(b) Non-controlling

			As of		As of		As of			As of
Equity		Country	December 31,		December 31,		December 31,			December 31,
	Tax No.	of origin	2018		2017		2018			2017
			%		%		ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		3,063			3,722
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10196		(100	)		849
Promotora Aérea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		0.00000		51.00000		-			4,578
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0.13940		0.13940		8,684			3,502
Lan Argentina S.A.	0-E	Argentina		0.02890		0.02842		(472	)		79
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		1			1
Americonsult S.A. and Subsidiaries	0-E	Mexico		0.20000		0.20000		1			-
Americonsult Costa Rica S.A.	0-E	Costa Rica		1.00000		1.00000		11			12
Linea Aérea Carguera de Colombiana S.A.	0-E	Colombia		10.00000		10.00000		(462	)		(520	)
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.79880		0.80944		378			461
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		1,740			1,324
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		67,096			77,139
Total								79,940			91,147

			For the year ended						For the year ended
Incomes		Country	December 31,		December 31,		December 31,					December 31,
	Tax No.	of origin	2018		2017		2016		2018			2017			2016
			%		%		%		ThUS$			ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		30.00000		1,012			360			(649	)
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10196		0.10196		(395	)		(4	)		(7	)
Promotora Aerea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		0.00000		51.00000		51.00000		-			1,416			96
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0.13940		0.13940		0.70422		183			117			364
Lan Argentina S.A.	0-E	Argentina		0.02890		0.02842		0.13440		39			24			77
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		1.00000		-			-			(4	)
Americonsult S.A. and Subsidiaries	0-E	Mexico		0.20000		0.20000		0.00000		2			-			-
Linea Aérea Carguera de Colombiana S.A.	0-E	Colombia		10.00000		10.00000		10.00000		58			398			(106	)
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.79880		0.80944		0.80944		(41	)		4			(140	)
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		5.02000		717			299			146
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		27.26000		29,737			42,796			41,673
Total										31,312			45,410			41,450

(*) On September 4, 2018, LATAM Airlines Brazil send a communication to Multiplus informing it that it intends to: (i) not renew or extend the contract of the operation when it expires; and (ii) make a public offer to acquire the shares of Multiplus that are not owned by it, in order to cancel the registration of Multiplus as a public limited company in the Comissão de Valores de Mobiliários of the Federative Republic of Brazil (CVM) and delist it from the Novo Mercado de B3. This process is subject to the approval of the Brazilian securities regulator and the public offer for the acquisition of shares is successful.

F-72

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,
	2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$
Airport slots		828,969		964,513		828,969		964,513
Loyalty program		274,420		321,440		274,420		321,440
Computer software		156,038		160,970		529,009		509,377
Developing software		151,853		123,415		151,853		123,415
Trademarks (1)		29,361		46,909		53,391		62,539
Other assets		431		-		1,325		-
Total		1,441,072		1,617,247		1,838,967		1,981,284

Movement in Intangible assets other than goodwill:

	Computer									Trademarks
	software			Developing			Airport			and loyalty
	Net			software			slots (2)			program (1) ( 2)			Total
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2016		104,258			74,887			816,987			325,293			1,321,425
Additions		6,688			83,672			-			-			90,360
Withdrawals		(736	)		(191	)		-			-			(927	)
Transfer software		85,029			(74,376	)		-			-			10,653
Foreing exchange		5,689			7,061			161,862			64,447			239,059
Amortization		(43,912	)		-			-			(6,345	)		(50,257	)
Closing balance as of December 31, 2016		157,016			91,053			978,849			383,395			1,610,313
Opening balance as of January 1, 2017		157,016			91,053			978,849			383,395			1,610,313
Additions		8,453			78,880			-			-			87,333
Withdrawals		(244	)		(684	)		-			-			(928	)
Transfer software		45,783			(45,580	)		-			-			203
Foreing exchange		(1,215	)		(254	)		(14,336	)		(5,459	)		(21,264	)
Amortization		(48,823	)		-			-			(9,587	)		(58,410	)
Closing balance as of December 31, 2017		160,970			123,415			964,513			368,349			1,617,247
Opening balance as of January 1, 2018		160,970			123,415			964,513			368,349			1,617,247
Additions		792			94,300			-			-			95,092
Withdrawals		(403	)		(124	)		-			-			(527	)
Transfer software		59,675			(61,087	)		-			-			(1,412	)
Foreing exchange		(10,136	)		(4,651	)		(135,544	)		(53,521	)		(203,852	)
Amortization		(54,549	)		-			-			(11,047	)		(65,596	)
Hyperinflation Argentina		62			-			-			-			62
Adjustment aplication IAS 29 by hyperinflation Argentina		58			-			-			-			58
Closing balance as of December 31, 2018		156,469			151,853			828,969			303,781			1,441,072

1) In 2016, the Company resolved to adopt a unique name and identity, and announced that the group's brand will be LATAM, which united all the companies under a single image.

The estimate of the new useful life is 5 years, equivalent to the period necessary to complete the change of image.

F-73

2) See Note 2.5

The amortization of each period is recognized in the consolidated income statement in the administrative expenses. The cumulative amortization of computer programs and brands as of December 31, 2018, amounts to ThUS $ 439,059 (ThUS $ 373,463 as of December 31, 2017).

NOTE 16 – GOODWILL

Goodwill as of December 31, 2018, amounts to ThUS $ 2,294,072 (ThUS $ 2,672,550 as of December 31, 2017 and ThUS $ 2,710,382 as of December 31, 2016). The goodwill movement, separated by CGU, includes the following:

Movement of Goodwill, separated by CGU:

				Coalition
				and loyalty
	Air			program
	Transport			Multiplus			Total
	ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2016		1,835,088			445,487			2,280,575
Increase (decrease) due to exchange rate differences		341,813			88,261			430,074
Others		(267	)		-			(267	)
Closing balance as of December 31, 2016		2,176,634			533,748			2,710,382
Opening balance as of January 1, 2017		2,176,634			533,748			2,710,382
Increase (decrease) due to exchange rate differences		(29,942	)		(7,890	)		(37,832	)
Closing balance as of December 31, 2017		2,146,692			525,858			2,672,550
Opening balance as of January 1, 2018		2,146,692			525,858			2,672,550
Increase (decrease) due to exchange rate differences		(300,203	)		(76,922	)		(377,125	)
Adjustment IAS 29, hyperinflation Argentina		335			-			335
Others		(1,688	)		-			(1,688	)
Closing balance as of December 31, 2018		1,845,136			448,936			2,294,072

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

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

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

F-74

As of December 31, 2018 the recoverable values were determined using the following assumptions presented below:

		Air transportation CGU	Coalition and loyalty program Multiplus CGU (2)
Annual growth rate (Terminal)	%	1.0 - 2.0	4.0 - 5.0
Exchange rate (1)	R$/US$	3.7 - 4.6	3.5 - 4.3
Discount rate based on the weighted average cost of capital (WACC)	%	8.07 - 10.07
Discount rate based on cost of equity (CoE)	%	-	12.0 - 13.0
Fuel Price from futures price curves commodities markets	US$/barrel	75-80

(1) In line with the expectations of the Central Bank of Brazil

(2) The flows, like the growth and discount rates, are denominated in reais.

The result of the impairment test, which includes a sensitivity analysis of the main variables, showed that the estimated recoverable amount is higher than carrying value of the book value of net assets allocated to the cash generating unit, and therefore impairment was not detected.

CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:

					Decrease
	Increase		Increase		Minimum
	Maximum		Maximum		terminal
	WACC		CoE		growth rate
		%		%		%
Air transportation CGU		10.07		-		1.0
Coalition and loyalty program Multiplus CGU		-		13.00		4.0

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

F-75

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,
	2018		2017		2018			2017			2018		2017
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$		ThUS$
Construction in progress (1)		630,320		556,822		-			-			630,320		556,822
Land		45,424		49,780		-			-			45,424		49,780
Buildings		179,907		190,552		(67,342	)		(66,004	)		112,565		124,548
Plant and equipment		8,371,990		9,222,540		(2,727,539	)		(2,390,142	)		5,644,451		6,832,398
Own aircraft (2)		7,732,238		8,544,185		(2,492,940	)		(2,138,612	)		5,239,298		6,405,573
Other (3)		639,752		678,355		(234,599	)		(251,530	)		405,153		426,825
Machinery		34,253		39,084		(27,659	)		(29,296	)		6,594		9,788
Information technology equipment		160,936		166,713		(138,372	)		(136,557	)		22,564		30,156
Fixed installations and accessories		182,629		186,989		(111,620	)		(106,212	)		71,009		80,777
Motor vehicles		69,653		70,290		(60,531	)		(58,812	)		9,122		11,478
Leasehold improvements		211,322		186,679		(128,055	)		(102,454	)		83,267		84,225
Other property, plants and equipment		4,961,847		3,640,838		(1,633,798	)		(1,355,475	)		3,328,049		2,285,363
Financial leasing aircraft (2)		4,862,985		3,551,041		(1,604,035	)		(1,328,421	)		3,258,950		2,222,620
Other		98,862		89,797		(29,763	)		(27,054	)		69,099		62,743
Total		14,848,281		14,310,287		(4,894,916	)		(4,244,952	)		9,953,365		10,065,335

(1) As of December 31, 2018, includes advances paid to aircraft manufacturers for ThUS$ 612,236 (ThUS$ 543,720 as of December 31, 2017)

(2) In the period ended December 31, 2018, the Company sold its participation in twenty special-purpose entities. As a result of this, 50 aircraft were reclassified from the category Plants and equipment to the category Other properties, plants and equipment.

(3) Consider mainly rotables and tools.

F-76

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, 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	)		(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	)		532			200			(384	)		16,706			(277,658	)		(1,195,607	)
Changes, total		(672,747	)		4,835			38,728			448,800			(4,175	)		(5,046	)		(480	)		50,453			(300,876	)		(440,508	)
Closing balance as of December 31, 2016		470,065			50,148			130,219			7,789,875			39,714			83,912			1,045			104,541			1,828,630			10,498,149
Opening balance as of January 1, 2017		470,065			50,148			130,219			7,789,875			39,714			83,912			1,045			104,541			1,828,630			10,498,149
Additions		11,145			-			-			258,615			5,708			329			77			8,156			41,483			325,513
Disposals		-			-			-			(16,004	)		(6	)		(10	)		(43	)		-			(27	)		(16,090	)
Retirements		(127	)		-			(6	)		(24,341	)		(473	)		(497	)		-			-			(1,610	)		(27,054	)
Depreciation expenses		-			-			(7,946	)		(496,857	)		(14,587	)		(14,124	)		(187	)		(27,266	)		(204,237	)		(765,204	)
		107			(368	)		(275	)		(4,603	)		(183	)		(820	)		(8	)		(243	)		(5,113	)		(11,506	)
Other increases (decreases)		75,632			-			2,556			(653,457	)		(17	)		11,987			(448	)		(963	)		626,237			61,527
Changes, total		86,757			(368	)		(5,671	)		(936,647	)		(9,558	)		(3,135	)		(609	)		(20,316	)		456,733			(432,814	)
Closing balance as of December 31, 2017		556,822			49,780			124,548			6,853,228			30,156			80,777			436			84,225			2,285,363			10,065,335
Opening balance as of January 1, 2018		556,822			49,780			124,548			6,853,228			30,156			80,777			436			84,225			2,285,363			10,065,335
Additions		7,927			-			-			593,210			4,995			64			24			20,410			42,156			668,786
Disposals		-			(8	)		(1,413	)		(4,747	)		(30	)		(73	)		(14	)		-			-			(6,285	)
Retirements		(80	)		-			(19	)		(63,711	)		(94	)		(27	)		-			(4	)		(62	)		(63,997	)
Depreciation expenses		-			-			(6,219	)		(406,714	)		(11,677	)		(12,538	)		(146	)		(27,766	)		(298,863	)		(763,923	)
Foreing exchange		(713	)		(4,348	)		(4,244	)		(42,077	)		(1,818	)		(8,499	)		(28	)		(2,351	)		(52,410	)		(116,488	)
Other increases (decreases)		65,991			-			(88	)		(1,273,218	)		733			10,194			273			8,753			1,351,559			164,197
Adjustment application IAS 29		265			-			-			3,053			264			1,018			65			-			275			4,940
Hyperinflation Argentina		108			-			-			509			35			93			24			-			31			800
Changes, total		73,498			(4,356	)		(11,983	)		(1,193,695	)		(7,592	)		(9,768	)		198			(958	)		1,042,686			(111,970	)
Closing balance as of December 31, 2018		630,320			45,424			112,565			5,659,533			22,564			71,009			634			83,267			3,328,049			9,953,365

F-77

(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	2018			2017			2018			2017			2018			2017
Boeing 767	300ER		33			34			2			2			35			36
Boeing 767	300F		9	(4)		8	(1)		1			2			10	(4)		10	(1)
Boeing 777	300ER		4			4			6			6			10			10
Boeing 777	200ER		-			-			2			-			2			-
Boeing 787	800		6			6			4			4			10			10
Boeing 787	900		4			4			10			10			14			14
Airbus A319	100		37			37			9			9			46			46
Airbus A320	200		97	(2)		93	(2)		34			38			131	(2)		131	(2)
Airbus A320	NEO		1			1			3			3			4			4
Airbus A321	200		30			30			19			17			49			47
Airbus A350	900		5	(3)		5	(3)		4	(3)		2	(3)		9	(3)		7	(3)
Total			226			222			94			93			320			315

(1) One aircraft leased to FEDEX as of December 2017; three aircraft as of December 2016.

(2) Three aircraft leased to Salam Air and two to Sundair

(3) Two aircraft leased to Qatar Air. One in operating lease and one in Properties, plant and equipment.

(4) One aircraft leased to Aerotransportes Mas de Carga S.A. de C.V. as of December 2018

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

		Useful life (years)
	Method	minimum		maximum
Buildings	Straight line without residual value		20		50
Plant and equipment	Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)		5		23
Information technology equipment	Straight line without residual value		5		10
Fixed installations and accessories	Straight line without residual value		10		10
Motor vehicle	Straight line without residual value		10		10
Leasehold improvements	Straight line without residual value		5		5
Other property, plant and equipment	Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)		10		23

(*) Except in the case of the Boeing 767 300ER and Boeing 767 300F fleets that consider a lower residual value due to the extension of their useful life to 22 and 30 years respectively. Additionally, certain technical components are depreciated based on cycles and hours flown.

The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values ​​are estimated according to market value at the end of such contracts.

(**) Aircraft with remarketing clause are those that are required to sell at the end of the contract.

As of December 31, 2018, the charge to income for the depreciation of the period, which is included in the consolidated statement of income, amounts to ThUS$ 763,923 (ThUS$ 765,204 as of December 31, 2017). This charge is recognized in the cost of sales and administrative expenses of the consolidated statement of income.

F-78

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

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

Description of Property, plant and equipment pledged as guarantee:

			As of				As of
			December 31,				December 31,
			2018				2017
Guarantee	Assets		Existing		Book		Existing		Book
agent  (1)	committed	Fleet	Debt		Value		Debt		Value
			ThUS$		ThUS$		ThUS$		ThUS$
Wilmington	Aircraft and engines	Airbus A319		96,057		234,329		-		-
		Airbus A320		98,903		220,390		-		-
		Airbus A321 / A350		587,382		682,639		637,934		721,602
Trust Company		Boeing 767		82,793		206,868		593,655		888,948
		Boeing 787		672,065		736,858		720,267		842,127
Banco Santander S.A.	Aircraft and engines	Airbus A320		172,474		275,511		199,165		291,649
		Airbus A321		25,661		41,957		29,296		40,584
BNP Paribas	Aircraft and engines	Airbus A319		26,702		45,520		84,767		136,407
		Airbus A320		-		-		110,267		175,650
Credit Agricole	Aircraft and engines	Airbus A319		11,154		31,865		20,874		38,826
		Airbus A320		134,328		132,301		46,895		98,098
		Airbus A321		-		-		30,322		85,463
		Airbus A350		22,439		24,939		-		-
		Boeing 767		21,830		43,568		-		-
		Boeing 787		74,023		42,228		-		-
Wells Fargo	Aircraft and engines	Airbus A320		196,540		285,877		224,786		306,660
Bank of Utah	Aircraft and engines	Airbus A320 / A350		556,019		630,065		614,632		666,665
Natixis	Aircraft and engines	Airbus A320		-		-		34,592		72,388
		Airbus A321		324,524		410,771		378,418		481,397
Citibank N. A.	Aircraft and engines	Airbus A320		78,049		132,296		94,882		141,817
		Airbus A321		28,938		70,333		36,026		72,741
KfW IPEX-Bank	Aircraft and engines	Airbus A319		-		-		5,592		5,505
		Airbus A320		-		-		21,296		30,513
Airbus Financial Services	Aircraft and engines	Airbus A319		-		-		22,927		26,973
				-		-		-		-
PK AirFinance US, Inc.	Aircraft and engines	Airbus A320		37,615		52,435		46,500		56,539
JP Morgan	Aircraft and engines	Boeing 777 (2)		-		-		169,674		216,000
Banco BBVA	Land and buildings (3)			50,785		64,500		55,801		66,876
Total direct guarantee				3,298,281		4,365,250		4,178,568		5,463,428

(1) For syndicated loans, is the Guarantee Agent that, represent different creditors.

(2) At December 31, 2017 these assets were classified on Non-current assets and groups in expropriation held for sale.

(3) Corresponds to a debt classified in item loans to exporters (see Note 19).

The amounts of the current debt are presented at their nominal value. The book value corresponds to the goods granted as collateral.

Additionally, there are indirect guarantees associated with assets registered in properties, plants and equipment whose total debt as of December 31, 2018, amounts to ThUS$ 1,633,504 (ThUS$ 1,087,052 as of December 31, 2017). The book value of the assets with indirect guarantees as of December 31, 2018, amounts to ThUS$ 3,258,950 (ThUS$ 2,222,620 as of December 31, 2017).

F-79

(ii) Commitments and others

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

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Gross book value of fully depreciated property, plant and equipment still in use		192,606		136,811
Commitments for the acquisition of aircraft (*)		14,400,000		15,400,000

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

Purchase commitment of aircraft

	Year of delivery
Manufacturer	2019		2020		2021		2022		2023-2026		Total
Airbus S.A.S.		13		9		13		11		21		67
A320-NEO		9		5		6		5		7		32
A321-NEO		-		4		5		4		6		19
A350-1000		-		-		-		-		8		8
A350-900		4		-		2		2		-		8
The Boeing Company		2		2		2		-		4		10
Boeing 777-F		-		-		-		-		2		2
Boeing 787-9		2		2		2		-		2		8
Total		15		11		15		11		25		77

As of December 31, 2018, as a result of the different aircraft purchase contracts and agreements signed with Airbus SAS, there are remaining to receive 51 Airbus aircraft of the A320 family, with deliveries between 2018 and 2024, and 17 Airbus aircraft of the A350 family with dates delivery between 2018 and 2026. The approximate amount, according to manufacturer's list prices, is ThUS$ 11,500,000.

As of December 31, 2018, as a result of the different aircraft purchase contracts signed with The Boeing Company, there are remaining 8 Boeing 787 Dreamliner aircraft, with delivery dates between 2019 and 2023, and 2 Boeing 777-300 Freighter aircraft, with delivery scheduled for the year 2024. The approximate amount, according to manufacturer's list prices, is ThUS$ 2,900,000.

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

		For the year ended
		December 31,
		2018		2017		2016
Average rate of capitalization of capitalized interest costs	%		4.62		4,12		3.54
Costs of capitalized  interest	ThUS$		15,398		8,210		(696	)

F-80

(iv) Financial leases

The detail of the main financial leases is as follows:

			As of		As of
	Aircraft		December 31,		December 31,
Lessor	engines and rotables	Model	2018		2017
777 Components Leasing. LLC	Boeing 777	Rotables		1		-
Amendoeira Leasing Limited	Airbus A319	100		1		-
Angelim Leasing Limited	Airbus A319	100		1		-
Angelim Leasing Limited	Airbus A320	200		2		-
Angelim Leasing Limited	Airbus A321	200		2		-
Araucaria Leasing Limited	Airbus A320	200		1		-
Azalea Leasing Limited	Airbus A320	200		1		-
Bandurria Leasing Limited	Airbus A319	100		3		3
Bandurria Leasing Limited	Airbus A320	200		4		4
Becacina Leasing LLC	Boeing 767	300ER		1		1
Chucao Leasing Limited	Airbus A319	100		2		-
Caiquen Leasing LLC	Boeing 767	300F		-		1
Cisne Leasing LLC	Boeing 767	300ER		2		2
Conure Leasing Limited	Airbus A320	200		2		2
Figueira Leasing Limited	Airbus A320	200		1		-
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
Fragata Leasing LLC	Boeing 787	800		1		-
Garza Leasing LLC	Boeing 767	300ER		1		1
Golondrina Leasing LLC	Boeing 767	300ER		4		-
Imbuia Leasing Limited	Airbus A320	200		1		-
Jacarandá Leasing Limited	Airbus A320	200		1		-
Jatobá Leasing Limited	Airbus A319	100		1		-
Jilguero Leasing LLC	Boeing 767	300ER		3		3
Loica Leasing Limited	Airbus A319	100		2		2
Loica Leasing Limited	Airbus A320	200		2		2
Massaranduba Leasing Limited	Airbus A320	200		2		-
Massaranduba Leasing Limited	Airbus A321	200		3		-
Mirlo Leasing LLC	Boeing 767	300ER		1		1
Mogno Leasing Limited	Airbus A319	100		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
Patagon Leasing Limited	Airbus A319	100		3		3
Petrel Leasing LLC	Boeing 767	300ER		-		1
Pau Brasil Leasing Limited	Airbus A319	100		1		-
Pochard Leasing LLC	Boeing 767	300ER		2		2
Quetro Leasing LLC	Boeing 767	300ER		-		3
Rolls Royce Leasing Limited	Motor	TRENTXWB		1		-
SG Infraestructure Italia S.R.L.	Boeing 777	300ER		1		1
Sibipiruna Leasing Limited	Airbus A320	200		2		-
SL Alcyone LTD (Showa)	Airbus A320	200		1		1
Tagua Leasing LLC	Boeing 767	300ER		9		-
Tiuque Leasing Limited	Airbus A319	100		1		-
Tiuque Leasing Limited	Airbus A320	200		5		-
Torcaza Leasing Limited	Airbus A320	200		8		8
Tricahue Leasing LLC	Boeing 767	300ER		3		3
Wacapou Leasing S.A	Airbus A320	200		1		1
Wells Fargo Trust Company, N.A.	Airbus A319	100		-		1
Ype Leasing Limited	Airbus A319	100		1		-
Total				92		60

F-81

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

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

The assets acquired under the financial leasing modality are classified under Other property, plant and equipment. As of December 31, 2018, the Company registers under this modality ninety aircraft, one spare engine and rotables (sixty aircraft as of December 31, 2017).

The minimum payments under financial leases are as follows:

	As of December  31, 2018							As of December  31, 2017							As of December  31, 2016
	Gross					Present		Gross					Present		Gross					Present
	Value		Interest			Value		Value		Interest			Value		Value		Interest			Value
	ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$
No later than one year		442,030		(43,871	)		398,159		303,863		(32,447	)		271,416		285,168		(32,365	)		252,803
Between one and five years		1,188,032		(50,610	)		1,137,422		835,696		(30,050	)		805,646		704,822		(43,146	)		661,676
Over five years		116,955		(5,830	)		111,125		36,788		(816	)		35,972		43,713		(120	)		43,593
Total		1,747,017		(100,311	)		1,646,706		1,176,347		(63,313	)		1,113,034		1,033,703		(75,631	)		958,072

NOTE 18 - CURRENT AND DEFERRED TAXES

In the year ended December 31, 2018, the income tax provision was calculated for such period, applying the partially integrated taxation system and a rate of 27%, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.

The effect in the income statement for deferred tax corresponds to the variation of the year, of the assets and liabilities for deferred taxes generated by temporary differences and tax losses.

There are the permanent differences that give rise to an accounting value of the assets and liabilities other than their tax value, no deferred tax has been recorded since they are caused by transactions that are recorded in the financial statements and that will not affect the expense tax for income tax.

F-82

(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,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provisional monthly payments (advances)		48,480		65,257		-		-		48,480		65,257
Other recoverable credits		20,654		12,730		757		17,532		21,411		30,262
Total  assets by current tax		69,134		77,987		757		17,532		69,891		95,519

(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,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Income tax provision		3,738		3,511		-		-		3,738		3,511
Total liabilities by current tax		3,738		3,511		-		-		3,738		3,511

(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,
	2018			2017			2018			2017
	ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		225,967			210,855			1,225,199			1,401,277
Leased assets		(75,136	)		(103,201	)		508,128			275,142
Amortization		(983	)		(484	)		55,880			54,335
Provisions		(38,303	)		(9,771	)		(75,631	)		690
Revaluation of financial instruments		445			(734	)		458			(4,484	)
Tax losses		170,980			290,973			(1,198,170	)		(1,188,586	)
Intangibles		-			-			351,238			406,536
Others		(9,643	)		(23,617	)		5,019			4,787
Total		273,327			364,021			872,121			949,697

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

F-83

Movements of Deferred tax assets and liabilities

(a) 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	)

(b) From January 1 to December 31, 2017

	Opening			Recognized in			Recognized in			Exchange			Ending
	balance			consolidated			comprehensive			rate			balance
	Assets/(liabilities)			income			income			variation			Asset (liability)
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		(1,376,025	)		185,282			-			322			(1,190,421	)
Leased assets		(239,758	)		(138,879	)		-			294			(378,343	)
Amortization		(77,480	)		22,486			-			174			(54,820	)
Provisions		281,369			(286,267	)		(785	)		(4,778	)		(10,461	)
Revaluation of financial instruments		3,223			2,417			(1,770	)		(120	)		3,750
Tax losses (*)		1,328,736			152,081			-			(1,257	)		1,479,560
Intangibles		(430,705	)		24,436			-			(267	)		(406,536	)
Others		(20,539	)		(7,547	)		-			(319	)		(28,405	)
Total		(531,179	)		(45,991	)		(2,555	)		(5,951	)		(585,676	)

(c) From January 1 to December 31, 2018

	Opening			Recognized in			Recognized in			Exchange			Ending
	balance			consolidated			comprehensive			rate			balance
	Assets/(liabilities)			income			income			variation			Asset (liability)
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		(1,190,421	)		188,052			-			3,137			(999,232	)
Leased assets		(378,343	)		(207,787	)		-			2,866			(583,264	)
Amortization		(54,820	)		(3,735	)		-			1,692			(56,863	)
Provisions		(10,461	)		92,804			1,567			(46,582	)		37,328
Revaluation of financial instruments		3,750			(2,326	)		(269	)		(1,168	)		(13	)
Tax losses (*)		1,479,560			(98,154	)		-			(12,256	)		1,369,150
Intangibles		(406,536	)		20,000			-			35,298			(351,238	)
Others		(28,405	)		16,853			-			(3,110	)		(14,662	)
Total		(585,676	)		5,707			1,298			(20,123	)		(598,794	)

F-84

Deferred tax assets not recognized:	As of		As of
	December  31,		December  31,
	2018		2017
	ThUS$		ThUS$
Tax losses		137,761		81,155
Total Deferred tax assets not recognized		137,761		81,155

Deferred tax assets due to negative tax results are recognized to the extent that the corresponding tax benefit is probable in the future. As a result, as of December 31, 2018, the Company no longer recognizes deferred tax assets for ThUS $ 137,761 (ThUS $ 81,155 as of December 31, 2017) with respect to losses of ThUS $ 447,150 (ThUS $ 247,920 at December 31, 2017), additionally, and after the re-evaluation of the financial and fiscal projections, it has written off during the year ThUS $ 46,492 that were no longer considered recoverable.

Deferred tax expense and current income taxes:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Current tax expense
Current tax expense		77,713		127,024		87,307
Adjustment to previous period’s current tax		362		489		2,083
Total current tax expense, net		78,075		127,513		89,390
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences		5,707		45,991		73,814
Total deferred tax expense, net		5,707		45,991		73,814
Income tax expense		83,782		173,504		163,204

Composition of income tax expense (income):

	For the year ended
	December 31,
	2018			2017		2016
	ThUS$			ThUS$		ThUS$
Current tax expense, net, foreign		65,850			100,657		80,600
Current tax expense, net, Chile		12,225			26,856		8,790
Total current tax expense, net		78,075			127,513		89,390
Deferred tax expense, net, foreign		58,271			21,846		119,175
Deferred tax expense, net, Chile		(52,564	)		24,145		(45,361	)
Deferred tax expense, net, total		5,707			45,991		73,814
Income tax expense		83,782			173,504		163,204

F-85

Profit before tax by the legal tax rate in Chile (27% and 25.5% at December 31, 2018 and 2017, respectively)

	For the year ended									For the year ended
	December 31,									December 31,
	2018			2017			2016			2018			2017			2016
	ThUS$			ThUS$			ThUS$			%			%			%
Tax expense using the legal rate		80,198			95,425			65,449			27.00			25.50			24.00
Tax effect by change in tax rate		5,587			897			-			1.88			0.24			-
Tax effect of rates in other jurisdictions		3,287			42,326			16,333			1.11			11.31			5.99
Tax effect of non-taxable operating revenues		(3,076	)		(44,593	)		(62,419	)		(1.04	)		(11.92	)		(22.89	)
Tax effect of disallowable expenses		61,295			35,481			132,469			20.64			9.48			48.58
Tax effect of due to the non-use of tax losses		46,492			211			-			15.65			0.06			-
Other increases (decreases) in legal tax charge		(110,001	)		43,757			11,372			(37.03	)		11.69			4.17
Total adjustments to tax expense using the legal rate		3,584			78,079			97,755			1.21			20.86			35.85
Tax expense using the effective rate		83,782			173,504			163,204			28.21			46.36			59.85

Thus, at December 31, 2018 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.

Other increases (decreases) in legal tax charges (US$ 110 millions) mainly includes the effect of the decrease in deferred tax liabilities (US$ 172.9 millions) that occurs at the anticipated end of the financing of aircraft that were in leasing with related companies outside of Chile; and other adjustments for permanent differences in the other group companies (US$ 62.9 millions).

Deferred taxes related to items charged to net equity:

	For the year ended
	December 31,
	2018		2017
	ThUS$		ThUS$
Aggregate deferred taxation of components of other comprehensive income		1,298		(2,555	)

F-86

NOTE 19 - OTHER FINANCIAL LIABILITIES

The composition of other financial liabilities is as follows:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Current
(a)  Interest bearing loans		1,397,156		1,288,749
(b)  Hedge derivatives		25,921		12,200
(c)  Derivative non classified as hedge acounting		7,712		-
Total current		1,430,789		1,300,949
Non-current
(a)  Interest bearing loans		5,864,570		6,602,891
(b)  Hedge derivatives		340		2,617
Total non-current		5,864,910		6,605,508

(a) Interest bearing loans

Obligations with credit institutions and debt instruments:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Current
Loans to exporters		400,721		314,618
Bank loans (1)		37,743		59,017
Guaranteed obligations		324,976		531,173
Other guaranteed obligations		97,143		2,170
Subtotal bank loans		860,583		906,978
Obligation with the public (2)		14,643		14,785
Financial leases		425,100		276,541
Other loans		96,830		90,445
Total current		1,397,156		1,288,749
Non-current
Bank loans		184,998		260,433
Guaranteed obligations (3) (7)		2,209,045		3,505,669
Other guaranteed obligations		576,309		240,007
Subtotal bank loans		2,970,352		4,006,109
Obligation with the public (4) (5) (6)		1,538,436		1,569,281
Financial leases (7)		1,199,754		832,964
Other loans		156,028		194,537
Total non-current		5,864,570		6,602,891
Total obligations with financial institutions		7,261,726		7,891,640

F-87

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

On March 30, 2017, TAM Linhas Aéreas S.A. restructured the financing mentioned in the previous paragraph, modifying the nominal amount of the transaction to US $ 137 million.

On September 27, 2017, TAM Linhas Aéreas S.A. made the payment of capital plus interest corresponding to the last installment of the financing described above. Simultaneously, all the garments were lifted on the shares of Multiplus S.A. delivered as collateral.

(2) On April 25, 2017, the payment of the principal plus interest on the long-term bonds issued by the company TAM Capital Inc. for an amount of US$ 300,000,000 at an interest rate of 7.375% annual. The payment consisted of 100% of the capital, US$ 300,000,000, and interest accrued as of the date of payment for ThUS $ 11,063.

(3) On April 10, 2017, the issuance and private placement of debt securities in the amount of US$ 140,000,000 was made under the current structure of the Enhanced Equipment Trust Certificates ("EETC") issued and placed the year 2015 to finance the acquisition of eleven Airbus A321-200, two Airbus A350-900 and four Boeing 787-9 with arrivals between July 2015 and April 2016. The offer is made up of Class C Certificates, which are subordinate to the Current Class A Certificates and Class B Certificates held by the Company. The term of the Class C Certificates is six years and expires in 2023.

(4) On April 11, 2017, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group SA, has issued and placed on the international market, pursuant to Rule 144 -A and Regulation S of the securities laws of the United States of America, long-term unsecured bonds in the amount of US$ 700,000,000, maturing in 2024 at an annual interest rate of 6.875%.

As reported in the essential fact of April 6, 2017, the Issue and placement of the 144-A Bonds was intended to finance general corporate purposes of LATAM.

(5) On August 17, 2017, LATAM made the placement in the local market (Santiago Stock Exchange) of the Series A Bonds (BLATM-A), Series B (BLATM-B), Series C (BLATM-) C) and Series D (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in the Securities Registry of the Commission for the Financial Market (“CMF”), under number 862 for a total of UF 9,000,000.

The total amount placed of the Series A Bond was UF 2,500,000; The total amount placed of the Series B Bond was UF 2,500,000. The total amount placed of the Series C Bond was UF 1,850,000. The total amount placed of the Series D Bond was UF 1,850,000, thus totaling UF 8,700,000.

The Series A Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series B Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%. The Series C Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series D Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%.

F-88

The proceeds of the placement of the Series A, Series B, Series C and Series D Bonds were allocated in full to the partial financing of the early redemption of the total bonds of TAM Capital 3 inc.

(6) On September 1, 2017, TAM Capital 3 Inc., a company controlled indirectly by TAM S.A. through its subsidiary TAM Linhas Aéreas SA, which consolidates its financial statements with LATAM, made the full advance redemption of the bonds it placed abroad on June 3, 2011, for an amount of US $ 500 million at a 8.375% rate and with an expiration date on June 3, 2021. The total redemption was partially financed with the placement of bonds in the local market described in number (5) above, and the balance, with other funds available from the Company.

(7) In the period ended December 31, 2018, the Company sold its participation in twenty one special-purpose entities. As a result of this, the classification of the financial liabilities associated with 50 aircraft from bonds guaranteed to finance leases was modified.

All interest-bearing liabilities are recorded according to the effective rate method. Under IFRS, in the case of fixed rate loans, the effective rate determined does not vary over the duration of the loan, whereas in variable rate loans, the effective rate changes to the date of each payment of interest.

Currency balances that make the interest bearing loans:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Currency
Brazilian real		-		130
Chilean peso (U.F.)		500,398		521,122
US Dollar		6,767,812		7,370,388
Total		7,268,210		7,891,640

F-89

Interest-bearing loans due in installments to December 31, 2018

Debtor: LATAM Airlines Group S.A. and Subsidiaries,  Tax No. 89.862.200-2, Chile.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Loans to exporters
97.032.000-8	BBVA	Chile	ThUS$		38,000		75,000		-		-		-		113,000		38,432		75,623		-		-		-		114,055	At Expiration		3.36		3.36
97.032.000-8	BBVA	Chile	UF		-		50,785		-		-		-		50,785		-		50,930		-		-		-		50,930	At Expiration		3.31		3.31
97.036.000-K	SANTANDER	Chile	ThUS$		23,000		-		-		-		-		23,000		23,025		-		-		-		-		23,025	At Expiration		3.90		3.90
97.030.000-7	ESTADO	Chile	ThUS$		-		-		-		-		-		-		-		-		-		-		-		-	At Expiration		-		-
97.003.000-K	BANCO DO BRASIL	Chile	ThUS$		200,000		-		-		-		-		200,000		200,698		-		-		-		-		200,698	At Expiration		3.64		3.64
97.951.000-4	HSBC	Chile	ThUS$		12,000		-		-		-		-		12,000		12,013		-		-		-		-		12,013	At Expiration		3.14		3.14
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		5,461		16,385		16,385		-		-		38,231		5,480		16,385		16,232		-		-		38,097	Quarterly		3.35		3.35
0-E	BLADEX	U.S.A.	ThUS$		-		15,000		-		-		-		15,000		-		14,964		-		-		-		14,964	Semiannual		6.74		6.74
97.036.000-K	SANTANDER	Chile	ThUS$		-		-		102,521		-		-		102,521		223		-		102,521		-		-		102,744	Quarterly		5.60		5.60
76.362.099-9	BTG PACTUAL CHILE	Chile	UF		-		-		-		65,862		-		65,862		118		-		-		64,957		-		65,075	At Expiration		3.10		3.10
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	ThUS$		-		-		500,000		-		700,000		1,200,000		13,057		-		495,617		-		697,869		1,206,543	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		-		-		172,591		172,591		345,182		1,586		-		-		172,420		172,530		346,536	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		658		1,986		5,384		2,052		-		10,080		715		1,986		5,384		2,052		-		10,137	Quarterly		3.23		3.23
0-E	BNP PARIBAS	U.S.A.	ThUS$		10,553		43,430		114,247		117,556		225,912		511,698		13,334		44,191		110,977		115,747		224,093		508,342	Quarterly		4.55		4.55
0-E	WILMINGTON TRUST	U.S.A.	ThUS$		20,689		65,846		178,818		237,334		450,071		952,758		26,365		65,846		173,617		235,058		447,686		948,572	Quarterly		4.47		4.47
0-E	CITIBANK	U.S.A.	ThUS$		10,776		32,790		90,991		72,189		62,619		269,365		11,923		32,790		86,130		70,048		61,203		262,094	Quarterly		3.82		2.93
0-E	US BANK	U.S.A.	ThUS$		15,506		47,050		129,462		135,489		84,177		411,684		17,433		47,050		114,729		129,547		82,137		390,896	Quarterly		4.00		2.82
0-E	NATIXIS	France	ThUS$		10,247		31,350		88,688		77,693		116,546		324,524		11,250		31,350		86,883		76,760		115,285		321,528	Quarterly		4.69		4.69
0-E	PK AIRFINANCE	U.S.A.	ThUS$		2,319		7,208		24,944		3,144		-		37,615		2,387		7,208		24,944		3,144		-		37,683	Monthly		4.15		4.14
0-E	INVESTEC	England	ThUS$		1,454		8,472		21,667		22,421		-		54,014		1,879		8,661		21,154		22,309		-		54,003	Semiannual		7.17		7.17
-	SWAP Aviones llegados	-	ThUS$		194		414		158		-		-		766		194		414		158		-		-		766	Quarterly		-		-
																					-
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		-		-		253,692		-		-		253,692		2,646		-		252,207		-		-		254,853	At Expiration		4.11		4.11
0-E	DVB  BANK  SE	Germany	ThUS$		23,417		70,626		191,207		117,084		19,731		422,065		23,871		70,626		188,231		116,185		19,686		418,599	Quarterly		4.42		4.42
Financial leases
0-E	ING	U.S.A.	ThUS$		3,687		11,338		11,806		-		-		26,831		3,923		11,338		11,657		-		-		26,918	Quarterly		5.70		5.01
0-E	CREDIT AGRICOLE	France	ThUS$		13,171		24,577		18,655		-		-		56,403		13,187		24,331		18,655		-		-		56,173	Quarterly		3.66		3.31
0-E	CITIBANK	U.S.A.	ThUS$		13,209		40,365		77,587		40,997		-		172,158		13,998		40,365		75,830		40,801		-		170,994	Quarterly		4.40		3.80
0-E	PEFCO	U.S.A.	ThUS$		5,486		13,094		3,827		-		-		22,407		5,641		13,094		3,743		-		-		22,478	Quarterly		5.65		5.02
0-E	BNP PARIBAS	U.S.A.	ThUS$		7,926		29,494		22,147		-		-		59,567		8,320		29,493		21,891		-		-		59,704	Quarterly		3.90		3.58
0-E	WELLS FARGO	U.S.A.	ThUS$		31,673		95,981		263,239		230,417		98,028		719,338		34,816		95,981		245,615		224,395		96,589		697,396	Quarterly		2.77		2.09
97.036.000-K	SANTANDER	Chile	ThUS$		5,576		16,895		46,386		26,165		-		95,022		6,000		16,895		45,346		26,063		-		94,304	Quarterly		3.68		3.14
0-E	RRPF ENGINE	England	ThUS$		552		2,531		7,142		7,752		5,035		23,012		552		2,531		7,142		7,752		5,035		23,012	Monthly		4.01		4.01
0-E	APPLE BANK	U.S.A.	ThUS$		1,444		4,393		12,146		12,808		753		31,544		1,658		4,393		11,726		12,713		752		31,242	Quarterly		3.93		3.31
0-E	BTMU	U.S.A.	ThUS$		2,933		8,916		24,635		25,937		768		63,189		3,199		8,916		23,798		25,751		767		62,431	Quarterly		4.06		3.46
0-E	NATIXIS	France	ThUS$		10,056		7,951		5,154		-		-		23,161		10,135		7,952		5,154		-		-		23,241	Quarterly		4.28		4.12
0-E	KFW IPEX-BANK	Germany	ThUS$		1,699		5,188		5,328		-		-		12,215		1,723		5,188		5,328		-		-		12,239	Quarterly		4.20		4.19
0-E	AIRBUS FINANCIAL	U.S.A.	ThUS$		1,915		5,838		7,664		-		-		15,417		1,954		5,838		7,664		-		-		15,456	Monthly		4.19		4.19
Other loans
0-E	BOEING	U.S.A.	ThUS$		-		-		55,727		-		-		55,727		-		1,229		55,727		-		-		56,956	At Expiration		4.01		4.01
0-E	CITIBANK (*)	U.S.A.	ThUS$		23,167		72,018		101,026		-		-		196,211		23,583		72,018		100,301		-		-		195,902	Quarterly		6.00		6.00
	Total				496,768		804,921		2,380,633		1,367,491		1,936,231		6,986,044		535,318		807,586		2,318,361		1,345,702		1,923,632		6,930,599

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

F-90

Interest-bearing loans due in installments to December 31, 2018

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Bank loans
0-E	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	ThUS$		138		426		1,233		54		-		1,851		147		426		1,233		54		-		1,860	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	ThUS$		3,043		6,490		44,525		41,731		-		95,789		3,656		6,490		44,525		41,731		-		96,402	Quarterly/Semiannual		6.87		6.87
0-E	WACAPOU LEASING S.A.	Luxemburg	ThUS$		728		2,219		6,280		-		-		9,227		756		2,219		6,280		-		-		9,255	Quarterly		4.81		4.81
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	ThUS$		9,422		28,872		169,930		-		-		208,224		10,212		28,871		169,730		-		-		208,813	Quarterly		5.88		5.82
0-E	GA Telessis LLC	U.S.A	ThUS$		299		908		2,496		2,623		6,876		13,202		568		908		3,823		2,623		6,876		14,798	Quarterly		15.62		15.62
	Total				13,630		38,915		224,464		44,408		6,876		328,293		15,339		38,914		225,591		44,408		6,876		331,128
	Total consolidated				510,398		843,836		2,605,097		1,411,899		1,943,107		7,314,337		550,657		846,500		2,543,952		1,390,110		1,930,508		7,261,727

F-91

Interest-bearing loans due in installments to December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries,  Tax No. 89.862.200-2, Chile.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Loans to exporters
97.032.000-8	BBVA	Chile	ThUS$		75,000		-		-		-		-		75,000		75,781		-		-		-		-		75,781	At Expiration		2.30		2.30
97.032.000-8	BBVA	Chile	UF		-		55,801		-		-		-		55,801		-		55,934		-		-		-		55,934	At Expiration		3.57		2.77
97.036.000-K	SANTANDER	Chile	ThUS$		30,000		-		-		-		-		30,000		30,129		-		-		-		-		30,129	At Expiration		2.49		2.49
97.030.000-7	ESTADO	Chile	ThUS$		40,000		-		-		-		-		40,000		40,071		-		-		-		-		40,071	At Expiration		2.57		2.57
97.003.000-K	BANCO DO BRASIL	Chile	ThUS$		100,000		-		-		-		-		100,000		100,696		-		-		-		-		100,696	At Expiration		2.40		2.40
97.951.000-4	HSBC	Chile	ThUS$		12,000		-		-		-		-		12,000		12,007		-		-		-		-		12,007	At Expiration		2.03		2.03
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		21,298		21,360		42,006		-		-		84,664		21,542		21,360		41,548		-		-		84,450	Quarterly		3.68		3.68
0-E	BLADEX	U.S.A.	ThUS$		-		15,000		15,000		-		-		30,000		-		15,133		14,750		-		-		29,883	Semiannual		5.51		5.51
97.036.000-K	SANTANDER	Chile	ThUS$		-		-		202,284		-		-		202,284		439		-		202,284		-		-		202,723	Quarterly		4.41		4.41
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	ThUS$		-		-		500,000		-		700,000		1,200,000		-		13,047		492,745		-		697,536		1,203,328	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		-		-		189,637		189,637		379,274		-		1,738				189,500		189,500		380,738	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		7,767		23,840		54,074		12,410		-		98,091		8,101		23,840		52,924		12,026		-		96,891	Quarterly		2.66		2.22
0-E	BNP PARIBAS	U.S.A.	ThUS$		10,929		44,145		114,800		119,948		285,399		575,221		13,328		44,781		111,319		117,987		282,714		570,129	Quarterly		3.41		3.40
0-E	WELLS FARGO	U.S.A.	ThUS$		27,223		82,402		225,221		233,425		240,716		808,987		30,143		82,402		203,371		224,295		236,179		776,390	Quarterly		2.46		1.75
0-E	WILMINGTON TRUST	U.S.A.	ThUS$		20,427		61,669		175,334		183,332		594,091		1,034,853		26,614		61,669		169,506		180,520		590,723		1,029,032	Quarterly		4.48		4.48
0-E	CITIBANK	U.S.A.	ThUS$		11,994		36,501		101,230		104,308		97,184		351,217		13,231		36,501		95,208		101,558		94,807		341,305	Quarterly		3.31		2.47
0-E	BTMU	U.S.A.	ThUS$		2,856		8,689		24,007		25,278		13,904		74,734		3,082		8,689		22,955		24,941		13,849		73,516	Quarterly		2.87		2.27
0-E	APPLE BANK	U.S.A.	ThUS$		1,401		4,278		11,828		12,474		7,242		37,223		1,583		4,278		11,303		12,303		7,212		36,679	Quarterly		2.78		2.18
0-E	US BANK	U.S.A.	ThUS$		15,157		45,992		126,550		132,441		152,693		472,833		17,364		45,992		109,705		125,006		148,318		446,385	Quarterly		4.00		2.82
0-E	DEUTSCHE  BANK	U.S.A.	ThUS$		2,965		9,127		25,826		28,202		30,786		96,906		3,534		9,127		25,130		27,739		30,323		95,853	Quarterly		4.39		4.39
0-E	NATIXIS	France	ThUS$		14,645		44,627		107,068		91,823		154,848		413,011		15,642		44,627		105,056		90,823		153,124		409,272	Quarterly		3.42		3.40
0-E	PK AIRFINANCE	U.S.A.	ThUS$		2,163		6,722		19,744		17,871		-		46,500		2,225		6,722		19,744		17,871		-		46,562	Monthly		3.18		3.18
0-E	KFW IPEX-BANK	Germany	ThUS$		2,397		6,678		16,173		1,640		-		26,888		2,428		6,677		16,174		1,640		-		26,919	Quarterly		3.31		3.31
0-E	AIRBUS FINANCIAL	U.S.A.	ThUS$		1,855		5,654		15,416		-		-		22,925		1,900		5,654		15,416		-		-		22,970	Monthly		3.19		3.19
0-E	INVESTEC	England	ThUS$		1,374		7,990		20,440		22,977		10,597		63,378		1,808		8,181		19,801		22,769		10,565		63,124	Semiannual		6.04		6.04
-	SWAP Aviones llegados	-	ThUS$		301		749		765		-		-		1,815		301		749		765		-		-		1,815	Quarterly				-
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		-		-		241,287		-		-		241,287		2,170		-		240,007		-		-		242,177	At Expiration		3.38		3.38
Financial leases
0-E	ING	U.S.A.	ThUS$		5,347		10,779		26,831		-		-		42,957		5,717		10,779		26,500		-		-		42,996	Quarterly		5.67		5.00
0-E	CITIBANK	U.S.A.	ThUS$		11,206		34,267		86,085		49,853		2,863		184,274		12,013		34,267		84,104		49,516		2,859		182,759	Quarterly		3.78		3.17
0-E	PEFCO	U.S.A.	ThUS$		12,526		32,850		22,407		-		-		67,783		12,956		32,850		22,088		-		-		67,894	Quarterly		5.46		4.85
0-E	BNP PARIBAS	U.S.A.	ThUS$		13,146		33,840		48,823		2,296		-		98,105		13,548		33,840		48,253		2,293		-		97,934	Quarterly		3.66		3.25
0-E	WELLS FARGO	U.S.A.	ThUS$		10,630		33,866		91,162		64,471		20,984		221,113		11,460		33,866		88,674		63,860		20,903		218,763	Quarterly		3.17		2.67
97.036.000-K	SANTANDER	Chile	ThUS$		5,459		16,542		45,416		46,472		3,134		117,023		5,813		16,542		44,010		46,153		3,128		115,646	Quarterly		2.51		1.96
0-E	RRPF ENGINE	England	ThUS$		265		2,430		6,856		7,441		8,991		25,983		265		2,430		6,856		7,441		8,991		25,983	Monthly		4.01		4.01
Other loans
0-E	CITIBANK (*)	U.S.A.	ThUS$		21,822		67,859		196,210		-		-		285,891		22,586		67,859		194,537		-		-		284,982	Quarterly		6.00		6.00
	Total				482,153		713,657		2,562,843		1,346,299		2,513,069		7,618,021		508,477		729,534		2,484,733		1,318,241		2,490,731		7,531,716

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

F-92

Interest-bearing loans due in installments to December 31, 2017

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Bank loans
0-E	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	ThUS$		130		401		1,161		690		-		2,382		142		401		1,161		690		-		2,394	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	ThUS$		2,853		6,099		19,682		70,402		-		99,036		3,592		6,099		19,682		70,402		-		99,775	Quarterly/Semiannual		5.59		5.59
0-E	WACAPOU LEASING S.A.	Luxemburg	ThUS$		696		2,125		6,020		3,206		-		12,047		732		2,125		6,020		3,207		-		12,084	Quarterly		3.69		3.69
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	ThUS$		8,964		27,525		208,024		-		-		244,513		9,992		27,525		208,024		-		-		245,541	Quarterly		4.87		4.81
0-E	BANCO IBM S.A	Brazil	BRL		21		-		-		-		-		21		21		-		-		-		-		21	Monthly		6.89		6.89
0-E	SOCIETE GENERALE	France	BRL		101		8		-		-		-		109		101		8		-		-		-		109	Monthly		6.89		6.89
	Total				12,765		36,158		234,887		74,298		-		358,108		14,580		36,158		234,887		74,299		-		359,924
	Total consolidated				494,918		749,815		2,797,730		1,420,597		2,513,069		7,976,129		523,057		765,692		2,719,620		1,392,540		2,490,731		7,891,640

F-93

(b) Hedge derivatives

									Total hedge
	Current liabilities				Non-current liabilities				derivatives
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Accrued interest from the last date of interest rate swap		2,321		1,189		340		-		2,661		1,189
Fair value of interest rate derivatives		335		8,919		-		2,617		335		11,536
Fair value of fuel derivatives		15,678		-		-		-		15,678		-
Fair value of foreign currency derivatives		7,587		2,092		-		-		7,587		2,092
Total hedge derivatives		25,921		12,200		340		2,617		26,261		14,817

(c) Derivatives of non-coverage

									Total derivatives of
	Current liabilities				Non-current liabilities				no coverage
	As of 31		As of 31		As of 31		As of 31		As of 31		As of 31
	december of		december of		december of		december of		december of		december of
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Derivative of foreign currency not registered as coverage		7,712		-		-		-		7,712		-
Total derived from non-coverage		7,712		-		-		-		7,712		-

The foreign currency derivatives correspond to options, forwards and swaps.

Hedging operation

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

	As of			As of
	December 31,			December 31,
	2018			2017
	ThUS$			ThUS$
Cross currency swaps (CCS) (1)		15,099			38,875
Interest rate swaps (2)		(2,194	)		(6,542	)
Fuel options (3)		(15,811	)		10,711
Currency options  R$/US$  (4)		-			4,370
Currency options  CLP/US$  (4)		-			636

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

F-94

(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 CLP/US$, R$/US$, US$/EUR and US$/GBP. These contracts are recorded as cash flow hedges.

During the periods presented, the Company only has cash flow and fair value hedges (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will occur and will impact results in the next 9 months from the date of the consolidated statement of financial position, while in the case of hedges of interest rates, these they will occur and will impact results throughout the life of the associated loans, up to their maturity. In the case of currency hedges through a CCS, there is a group of hedging relationships, in which two types of hedge accounting are generated, one of cash flow for the US $ / UF component; and another of fair value, for the floating rate component US $. The other group of hedging relationships only generates cash flow hedge accounting for the US $ / UF component.

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

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

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

	For the year ended
	December 31,
	2018			2017			2016
	ThUS$			ThUS$			ThUS$
Debit (credit) recognized in comprehensive income during the period		(27,797	)		18,344			127,390
Debit (credit) transferred from net equity to income during the period		30,018			(15,000	)		(113,403	)

F-95

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,
	2018		2017
	ThUS$		ThUS$
Current
(a) Trade and other accounts payables		1,279,976		1,349,201
(b) Accrued liabilities at the reporting date		394,327		346,001
Total trade and other accounts payables		1,674,303		1,695,202

(a) Trade and other accounts payable:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Trade creditors		1,048,033		1,096,540
Leasing obligation		6,981		4,448
Other accounts payable		224,962		248,213
Total		1,279,976		1,349,201

F-96

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

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Aircraft Fuel		304,426		219,601
Boarding Fee		210,621		249,898
Other personnel expenses		92,047		89,621
Handling and ground handling		84,213		103,784
Professional services and advisory		83,182		81,679
Airport charges and overflight		82,181		106,534
Suppliers technical purchases		75,402		114,690
Marketing		60,303		75,220
Air companies		59,524		31,381
Leases, maintenance and IT services		55,427		69,873
Services on board		44,434		68,605
Land services		26,014		31,151
Crew		21,943		24,163
Achievement of goals		21,265		5,732
Aviation insurance		11,943		5,108
Maintenance		8,244		26,244
Aircraft and engines leasing		6,981		4,285
Communications		92		5,273
Others		31,734		36,359
Total trade and other accounts payables		1,279,976		1,349,201

(b) Liabilities accrued:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Accrued personnel expenses		116,242		125,246
Aircraft and engine maintenance		170,731		92,711
Accounts payable to personnel (*)		81,222		99,862
Others accrued liabilities		26,132		28,182
Total accrued liabilities		394,327		346,001

(*) Profits and bonus participation (Note 23 letter b)

F-97

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,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provision for contingencies (1)
Tax contingencies		2,982		1,913		197,038		258,305		200,020		260,218
Civil contingencies		1,207		497		59,834		62,858		61,041		63,355
Labor contingencies		605		373		23,244		28,360		23,849		28,733
Other		-		-		13,976		15,187		13,976		15,187
Provision for European Commision investigation (2)		-		-		9,403		9,883		9,403		9,883
Total other provisions (3)		4,794		2,783		303,495		374,593		308,289		377,376

(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.

(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, 2018, and 2017, 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.

F-98

Movement of provisions:

				European
	Legal			Commission
	claims (1)			Investigation (2)			Total
	ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2016		418,453			8,966			427,419
Increase in provisions		141,797			-			141,797
Provision used		(21,997	)		-			(21,997	)
Difference by subsidiaries conversion		79,396			-			79,396
Reversal of provision		(201,425	)		-			(201,425	)
Exchange difference		249			(302	)		(53	)
Closing balance as of December 31, 2016		416,473			8,664			425,137
Opening balance as of January 1, 2017		416,473			8,664			425,137
Increase in provisions		106,943			-			106,943
Provision used		(14,860	)		-			(14,860	)
Difference by subsidiaries conversion		(5,830	)		-			(5,830	)
Reversal of provision		(135,109	)		-			(135,109	)
Exchange difference		(124	)		1,219			1,095
Closing balance as of December 31, 2017		367,493			9,883			377,376
Opening balance as of January 1, 2018		367,493			9,883			377,376
Increase in provisions		106,870			-			106,870
Provision used		(59,032	)		-			(59,032	)
Difference by subsidiaries conversion		(48,330	)		-			(48,330	)
Reversal of provision		(66,965	)		-			(66,965	)
Exchange difference		(1,150	)		(480	)		(1,630	)
Closing balance as of December 31, 2018		298,886			9,403			308,289

(1) Cumulative balances include judicial deposit delivered as security, with respect to the "Aerovía Fundo" (FA), for US $ 85 million, made in order to suspend the application of the tax credit. The Company is discussing in the Court the constitutionality of the requirement made by FA in a lawsuit. Initially it was covered by the effects of a precautionary measure, this means that the Company would not be obliged to collect the tax, as long as there is no judicial decision in this regard. However, the decision taken by the judge in the first instance was published unfavorably, revoking the injunction. As the lawsuit is still underway (TAM appealed this first decision), the Company needed to make the judicial deposit, for the suspension of the enforceability of the tax credit; deposit that was classified in this item, discounting the existing provision for this purpose. Finally, if the final decision is favorable to the Company, the deposit made will return to TAM. On the other hand, if the court confirms the first decision, said deposit will become a final payment in favor of the Government of Brazil. The procedural stage as of December 31, 2018 is described in Note 31 in the Role of the case 2001.51.01.012530-0.

F-99

2) European Commission Provision:

Provision constituted on the occasion of the process initiated in December 2007 by the General Competition Directorate of the European Commission against more than 25 cargo airlines, among which is Lan Cargo SA, which forms part of the global investigation initiated in 2006 for possible infractions of free competition in the air cargo market, which was carried out jointly by the European and United States authorities.

With respect to Europe, the General Directorate of Competition imposed fines totaling € 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros) for infractions of European Union regulations on free competition against eleven (11 ) airlines, among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A .. For its part, LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these infractions, an amount that was provisioned in the financial statements of LATAM. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the Court of Justice of the European Union. On December 16, 2015, the European Court resolved the appeal and annulled the Commission's Decision. The European Commission did not appeal the judgment, but on March 17, 2017, the European Commission again adopted its original decision to impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of 776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed the same fine of 8.2 million Euros. The procedural stage as of December 31, 2018 is described in Note 31 in section (ii) judgments received by LATAM Airlines Group S.A. and Subsidiaries.

NOTE 22 - OTHER NON-FINANCIAL LIABILITIES

	Current liabilities				Non-current liabilities				Total Liabilities
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Deferred revenues (*)		2,330,058		2,690,961		644,702		158,305		2,974,760		2,849,266
Sales tax		12,726		22,902		-		-		12,726		22,902
Retentions		34,434		38,197		-		-		34,434		38,197
Others taxes		7,700		8,695		-		-		7,700		8,695
Dividends payable		54,580		46,591		-		-		54,580		46,591
Other sundry liabilities		15,248		16,617		-		-		15,248		16,617
Total other non-financial liabilities		2,454,746		2,823,963		644,702		158,305		3,099,448		2,982,268

(*) Note 2.20.

The balance comprises, mainly, deferred income by services not yet rendered at December 31, 2018 and 2017; and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:

LATAM Pass is the frequent passenger program created by LAN to reward the preference and loyalty of its customers with multiple benefits and privileges, through the accumulation of miles that can be exchanged for free flight tickets or for a varied range of products and services. Customers accumulate LATAM Pass miles every time they fly on LAN, TAM, oneworld® member companies and other airlines associated with the program, as well as buying at stores or using the services of a vast network of companies that have an agreement with the program around the world.

F-100

For its part, TAM, thinking of people who travel constantly, created the LATAM Fidelidade program, in order to improve the service and give recognition to those who choose the company. Through the program, customers accumulate points in a wide variety of loyalty programs in a single account and can redeem them in all TAM destinations and associated airline companies, and even more, participate in the Multiplus Fidelidade Network.

Multiplus is a coalition of loyalty programs, with the objective of operating accumulation and exchange of points. This program has a network integrated by associated companies, including hotels, financial institutions, retail companies, supermarkets, vehicle leases and magazines, among many other partners from different segments.

The Company signed a renewal of the agreement with Banco Santander-Chile, which extends its alliance in Chile to continue developing travel benefits to its respective clients during the next 7 years.

Movement of Other non-financial liabilities:                                                  

	Deferred income
	Air transport
	and other
	ThUS$
Opening balance as of january 1, 2018		2,849,266
Recognition of deferred income		7,690,972
Use deferred income		(8,230,750	)
Expiration of tickets		(284,730	)
Deferred revenue loyalty (accreditation and exchange)		944,246
Others provisions		6,894
Adjustment application IAS 29, Argentina hyperinflation		927
Closing balance as of December 31 ,2018		2,976,825

F-101

NOTE 23 - EMPLOYEE BENEFITS

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Retirements payments		56,126		55,119
Resignation payments		8,802		10,124
Other obligations		17,437		35,844
Total liability for employee benefits		82,365		101,087

The movement in retirements and resignation payments and other obligations:

			Increase (decrease)						Actuarial
	Opening		current service			Benefits			(gains)			Currency			Closing
	balance		provision			paid			losses			translation			balance
	ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
From January 1 to December 31, 2016		65,271		17,487			(4,536	)		3,105			995			82,322
From January 1 to December 31, 2017		82,322		21,635			(5,399	)		(2,763	)		5,292			101,087
From January 1 to December 31, 2018		101,087		(7,384	)		(6,018	)		5,820			(11,140	)		82,365

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

	As of
	December 31,
Assumptions	2018	2017
Discount rate	4.27%	4.55%
Expected rate of salary increase	4.50%	4.50%
Rate of turnover	6.60%	6.98%
Mortality rate	RV-2014	RV-2014
Inflation rate	2.70%	2.72%
Retirement age of women	60	60
Retirement age of men	65	65

The discount rate corresponds to the 20-year term rate of the BCP Central Bank of Chile Bonds. The RV-2014 mortality tables correspond to those established by the Commission for the Financial Market of Chile and for the determination of the inflation rates; the market performance curves of Central Bank of Chile papers of the BCUs have been used. BCP long term at the date of scope.

The calculation of the present value of the defined benefit obligation is sensitive to the variation of some actuarial assumptions such as discount rate, salary increase, rotation and inflation.

F-102

The sensitivity analysis for these variables is presented below:

	Effect on the liability
	As of			As of
	December 31,			December 31,
	2018			2017
		ThUS$			ThUS$
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.		(6,538	)		(5,795	)
Change in the accrued liability an closing for decrease of 100 p.b.		4,918			6,617
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.		4,750			6,412
Change in the accrued liability an closing for decrease of 100 p.b.		(6,547	)		(5,750	)

(b) The liability for short-term:

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Profit-sharing and bonuses (*)		81,222		99,862

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

The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives.

(c) Employment expenses are detailed below:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Salaries and wages		1,481,357		1,604,552		1,549,402
Short-term employee benefits		132,394		145,245		132,436
Termination benefits		54,007		85,070		79,062
Other personnel expenses		152,211		188,767		190,233
Total		1,819,969		2,023,634		1,951,133

F-103

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
Aircraft and engine maintenance		467,923		483,795
Provision for vacations and bonuses		15,357		14,725
Other sundry liabilities		376		312
Total accounts payable, non-current		483,656		498,832

NOTE 25 - EQUITY

(a) Capital

The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.

The paid capital of the Company at December 31, 2018 amounts to ThUS$ 3,146,265 divided into 606,407,693 common stock of a same series (ThUS$ 3,146,265 (*) divided into 606,407,693 shares as of December 31, 2017), a single series nominative, ordinary character with no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.

(*) Includes deduction of issuance costs for ThUS $ 3,299 and adjustment for placement of 10,282 shares for ThUS $ 156, approved at the Extraordinary Shareholders Meeting of the Company on April 27, 2017.

(b) Subscribed and paid shares

On August 18, 2016, the Company held an extraordinary shareholders' meeting at which it was approved to increase the capital by issuing 61,316,424 payment shares, all ordinary, without par value. As of December 31, 2016, 60,849,592 shares had been placed against said increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the end of the pre-emptive option period, which expired on December 23, 2016; December 2016, collecting the equivalent of US $ 304,996,850; and (b) 30,349,907 additional shares subscribed on December 28, 2016, collecting the equivalent of US $ 303,499,070. Due to this last described placement, as of December 31, 2018, the number of subscribed and paid shares of the Company reached 606,407,693.

F-104

Consequently, as of December 31, 2018, the statutory capital of the Company is represented by 606,874,525 shares, all of the same and unique series, registered, ordinary, without par value, which is divided into: (a) 606,407,693 subscribed and paid shares mentioned above; and (b) 466,832 shares pending subscription and payment, which correspond to the balance of shares pending placement of the last capital increase, described in the previous paragraph.

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

Movement of authorized shares

			Expired shares
	Opening		intended for			Closing
Nro. Of shares	balance		compensation plans			balance
From January 1 to December 31, 2017		608,374,525		-			608,374,525
From January 1 to December 31, 2018		608,374,525		(1,500,000	)(*)		606,874,525

(*) On June 11, 2018, the term of subscription and payment of 1,500,000 shares to create and implement compensation plans for Company employees expired.

Movement fully paid shares

				Movement
				value		Cost of issuance
				of shares		and placement			Paid- in
	N° of			(1)		of shares (2)			Capital
	shares			ThUS$		ThUS$			ThUS$
Paid shares as of January 1, 2017		606,407,693			3,160,718		(11,154	)		3,149,564
Capital reserve		-			-		(3,299	)		(3,299	)
Paid shares as of December 31, 2017		606,407,693			3,160,718		(14,453	)		3,146,265
Paid shares as of January 1, 2018		606,407,693			3,160,718		(14,453	)		3,146,265
Paid shares as of December 31, 2018		606,407,693	(3)		3,160,718		(14,453	)		3,146,265

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

(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, 2018, the difference between authorized shares and fully paid shares are 466,832 shares, of which correspond to the shares issued and unsubscribed from the capital increase approved at the Extraordinary Shareholders Meeting held on August 18, 2016.

(c) Treasury stock

At December 31, 2018, 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.

F-105

(d) Reserve of share- based payments

Movement of Reserves of share- based payments:

			Stock
	Opening		option			Deferred			Net movement			Closing
Periods	balance		plan			tax			of the period			balance
	ThUS$		ThUS$			ThUS$			ThUS$			ThUS$
From January 1 to December 31, 2016		35,647		3,698			(807	)		2,891			38,538
From January 1 to December 31, 2017		38,538		943			-			943			39,481
From January 1 to December 31, 2018		39,481		(1,607	)		-			(1,607	)		37,874

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, 2016		2,634,679		5,602			2,640,281
From January 1 to December 31, 2017		2,640,281		(501	)		2,639,780
From January 1 to December 31, 2018		2,639,780		(864	)		2,638,916

Balance of Other sundry reserves comprises the following:

	As of			As of			As of
	December 31,			December 31,			December 31,
	2018			2017			2016
	ThUS$			ThUS$			ThUS$
Higher value for TAM S.A. share exchange (1)		2,665,692			2,665,692			2,665,692
Reserve for the adjustment to the value of fixed assets (2)		2,620			2,620			2,620
Transactions with non-controlling interest (3)		(25,913	)		(25,911	)		(25,911	)
Cost of issuance and placement of shares		-			-			(9	)
Others		(3,483	)		(2,621	)		(2,111	)
Total		2,638,916			2,639,780			2,640,281

(1) Corresponds to the difference between the value of the shares of TAM S.A., acquired by Sister Holdco S.A. (under the Subscriptions) and by Holdco II S.A. (by virtue of the Exchange Offer), which is recorded in the declaration of completion of the merger by absorption, and the fair value of the shares exchanged by LATAM Airlines Group S.A. as of June 22, 2012.

F-106

(2) Corresponds to the technical revaluation of the fixed assets authorized by the Commission for the Financial Market in the year 1979, in Circular No. 1529. The revaluation was optional and could be made only once; the originated reserve is not distributable and can only be capitalized.

(3) The balance as of December 31, 2018 corresponds to the loss generated by: Lan Pax Group S.A. e Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires S.A. for ThUS $ (3,480) and ThUS $ (20), respectively; the acquisition of TAM S.A. of the minority interest in Aerolinhas Brasileiras S.A. for ThUS $ (885), the acquisition of Inversiones Lan S.A. of the minority participation in Aires Integra Regional Airlines S.A. for an amount of ThUS $ (2) and the acquisition of a minority stake in Aerolane S.A. by Lan Pax Group S.A. for an amount of ThUS $ (21,526) through Holdco Ecuador S.A.

(f) Reserves with effect in other comprehensive income.

Movement of Reserves with effect in other comprehensive income:

	Currency			Cash flow			Actuarial gain or loss on defined
	translation			hedging			benefit plans
	reserve			reserve			reserve			Total
	ThUS$			ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2016		(2,576,041	)		(90,510	)		(10,717	)		(2,677,268	)
Derivatives valuation gains (losses)		-			126,360			-			126,360
Deferred tax		-			(34,344	)		-			(34,344	)
Actuarial reserves by employee benefit plans		-			-			(3,104	)		(3,104	)
Deferred tax actuarial IAS by employee benefit plans		-			-			921			921
Difference by subsidiaries conversion		489,486			-			-			489,486
Closing balance as of December 31, 2016		(2,086,555	)		1,506			(12,900	)		(2,097,949	)
Opening balance as of January 1, 2017		(2,086,555	)		1,506			(12,900	)		(2,097,949	)
Derivatives valuation gains (losses)		-			18,436			-			18,436
Deferred tax		-			(1,802	)		-			(1,802	)
Actuarial reserves by employee benefit plans		-			-			2,758			2,758
Deferred tax actuarial IAS by employee benefit plans		-			-			(784	)		(784	)
Difference by subsidiaries conversion		(45,035	)		-			-			(45,035	)
Closing balance as of December 31, 2017		(2,131,590	)		18,140			(10,926	)		(2,124,376	)
Opening balance as of January 1, 2018		(2,131,590	)		18,140			(10,926	)		(2,124,376	)
Derivatives valuation gains (losses)		-			(26,899	)		-			(26,899	)
Deferred tax		-			(574	)		-			(574	)
Actuarial reserves by employee benefit plans		-			-			(5,819	)		(5,819	)
Deferred tax actuarial IAS by employee benefit plans		-			-			1,567			1,567
Difference by subsidiaries conversion		(597,615	)		-			-			(597,615	)
Closing balance as of December 31, 2018		(2,729,205	)		(9,333	)		(15,178	)		(2,753,716	)

F-107

(f.1) Currency translation reserve

These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.

(f.2) Cash flow hedging reserve

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

(f.3) Reserves of actuarial gains or losses on defined benefit plans

Correspond to the increase or decrease in the obligation present value for defined benefit plan due to changes in actuarial assumptions, and experience adjustments, which is the effects of differences between the previous actuarial assumptions and what has actually occurred.

(g) Retained earnings

Movement of Retained earnings:

								Other
			Result					increase
	Opening		for the					(decreases)			Closing
Periods	balance		period		Dividends			(1) (2)			balance
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$
From January 1 to December 31, 2016		317,950		69,220		(20,766	)		-			366,404
From January 1 to December 31, 2017		366,404		155,304		(46,591	)		-			475,117
From January 1 to December 31, 2018		475,117		181,935		(54,580	)		(4,797	)		597,675

(1) Adjustments adoption IFRS 9 and IFRS 15 ThUS (9,549) (See Note 2)

(2) Variation effect in Accumulated results, by application IAS 29, Argentina hyperinflation:

Items	ThUS$
Property, plant and equipment		4,573
Intangible assets other than goodwill		69
Goodwill		335
Deferred incomes		(377	)
Other non-financial assets		152
Total Adjust accumulated results		4,752

F-108

(h) Dividends per share

	Minimum mandatory		Final dividend
	dividend		dividend
Description of dividend	2018		2017
Date of dividend		12/31/2018		12/31/2017
Amount of the dividend (ThUS$)		54,580		46,591	(*)
Number of shares among which the dividend is distributed		606,407,693		606,407,693
Dividend per share (US$)		0.0900		0.0768

(*) By virtue of the Essential Fact issued on April 26, 2018, the shareholders of LATAM approved the distribution of the final dividend proposed by the Board of Directors in Ordinary Session of April 26, 2018, which amounts to ThUS $ 46,591, which corresponds to 30% of the profits for the year corresponding to 2017.

The payment was made on May 17, 2018.

NOTE 26 - REVENUE

The detail of revenues is as follows:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Passengers		8,708,988		8,494,477		7,877,715
Cargo		1,186,468		1,119,430		1,110,625
Total		9,895,456		9,613,907		8,988,340

F-109

NOTE 27 - COSTS AND EXPENSES BY NATURE

(a) Costs and operating expenses

The main operating costs and administrative expenses are detailed below:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Aircraft fuel		2,983,028		2,318,816		2,056,643
Other rentals and landing fees		1,217,647		1,172,129		1,077,407
Aircraft rentals		538,347		579,551		568,979
Aircraft maintenance		382,242		430,825		366,153
Comissions		222,506		252,474		269,296
Passenger services		280,279		288,662		286,621
Other operating expenses		1,237,430		1,381,546		1,424,595
Total		6,861,479		6,424,003		6,049,694

(b) Depreciation and amortization

Depreciation and amortization are detailed below:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Depreciation (*)		916,050		943,215		910,071
Amortization		65,596		58,410		50,257
Total		981,646		1,001,625		960,328

(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at December 31, 2018 is ThUS$ 366,393, ThUS$ 359,940 and ThUS$ 345,651 for the same period of 2017 and 2016 respectavely.

(c) Personnel expenses

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

F-110

(d) Financial costs

The detail of financial costs is as follows:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Bank loan interest		283,786		347,551		352,405
Financial leases		62,202		37,522		32,573
Other financial instruments		10,281		8,213		31,358
Total		356,269		393,286		416,336

Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 23, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.

NOTE 28 - OTHER INCOME, BY FUNCTION

Other income by function is as follows:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Coalition and loyalty program Multiplus		126,443		240,952		174,197
Tours		108,448		109,463		133,575
Aircraft leasing		78,056		103,741		65,011
Customs and warehousing		26,667		26,793		24,548
Maintenance		16,569		8,038		11,141
Duty free		3,555		6,585		17,090
Other miscellaneous income		113,020		54,317		113,186
Total		472,758		549,889		538,748

F-111

NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the chilean peso, argentine peso, colombian peso, brazilian real and guaraní.

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

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

(a) Foreign currency

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

	As of		As of
	December 31,		December 31,
Current assets	2018		2017
	ThUS$		ThUS$
Cash and cash equivalents		606,673		260,092
Argentine peso		4,236		7,309
Brazilian real		34,360		14,242
Chilean peso		415,399		81,693
Colombian peso		2,732		1,105
Euro		20,339		11,746
U.S. dollar		51,382		108,327
Other currency		78,225		35,670
Other financial assets, current		57,132		36,484
Argentine peso		11		21
Brazilian real		25,829		17
Chilean peso		25,904		26,605
Colombian peso		139		150
U.S. dollar		4,923		9,343
Other currency		326		348

F-112

	As of		As of
	December 31,		December 31,
Current assets	2018		2017
	ThUS$		ThUS$
Other non - financial assets, current		106,952		107,170
Argentine peso		13,077		16,507
Brazilian real		37,794		19,686
Chilean peso		30,916		34,258
Colombian peso		434		340
Euro		3,935		2,722
U.S. dollar		8,949		21,907
Other currency		11,847		11,750
Trade and other accounts receivable, current		518,006		373,447
Argentine peso		54,053		49,680
Brazilian real		6,037		22,006
Chilean peso		112,133		82,369
Colombian peso		5,065		1,169
Euro		49,044		48,286
U.S. dollar		2,938		34,268
Other currency		288,736		135,669
Accounts receivable from related entities, current		593		958
Chilean peso		200		735
U.S. dollar		393		223
Tax current assets		20,774		33,575
Argentine peso		812		1,679
Brazilian real		1,106		3,934
Chilean peso		4,860		3,317
Colombian peso		5		660
Euro		-		179
U.S. dollar		429		327
Peruvian sol		13,306		21,948
Other currency		256		1,531
Total current assets		1,310,130		811,726
Argentine peso		72,189		75,196
Brazilian real		105,126		59,885
Chilean peso		589,412		228,977
Colombian peso		8,375		3,424
Euro		73,318		62,933
U.S. Dollar		69,014		174,395
Other currency		392,696		206,916

F-113

	As of		As of
	December 31,		December 31,
Non-current assets	2018		2017
	ThUS$		ThUS$
Other financial assets, non-current		21,850		20,975
Brazilian real		4,941		3,831
Chilean peso		68		74
Colombian peso		145		281
Euro		7,438		7,853
U.S. dollar		7,441		7,273
Other currency		1,817		1,663
Other non - financial assets, non-current		31,126		9,108
Argentine peso		86		172
Brazilian real		7,465		6,368
U.S. dollar		3		38
Other currency		23,572		2,530
Accounts receivable, non-current		5,378		6,887
Chilean peso		5,378		6,887
Deferred tax assets		2,073		2,081
Colombian peso		78		86
Other currency		1,995		1,995
Total non-current assets		60,427		39,051
Argentine peso		86		172
Brazilian real		12,406		10,199
Chilean peso		5,446		6,961
Colombian peso		223		367
Euro		7,438		7,853
U.S. dollar		7,444		7,311
Other currency		27,384		6,188

F-114

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

	Up to 90 days				91 days to 1 year
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
Current liabilities	2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$
Other financial liabilities, current		56,842		36,000		107,815		115,182
Chilean peso		41,503		21,542		68,901		79,032
U.S. dollar		15,339		14,458		38,914		36,150
Trade and other accounts payables, current		970,872		919,373		37,809		33,707
Argentine peso		229,907		122,452		6,142		8,636
Brazilian real		30,974		28,810		1,152		669
Chilean peso		198,766		233,202		26,113		11,311
Colombian peso		7,915		2,964		752		855
Euro		84,903		58,081		1,375		9,165
U.S. dollar		325,385		409,380		55		1,154
Peruvian sol		37,285		39,064		1,124		825
Mexican peso		5,975		2,732		167		115
Pound sterling		13,395		5,839		305		199
Uruguayan peso		847		1,890		-		-
Other currency		35,520		14,959		624		778
Accounts payable to related entities, current		365		760		-		-
Chilean peso		253		546		-		-
U.S. dollar		112		4		-		-
Other currency		-		210		-		-
Other provisions, current		1,434		959		-		-
Chilean peso		28		30		-		-
Other currency		1,406		929		-		-
Tax liabilities, current		13		-		-		174
Argentine peso		4		-		-		174
Chilean peso		9		-		-		-

F-115

	Up to 90 days				91 days to 1 year
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
Current liabilities	2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$
Other non-financial liabilities, current		38,120		25,190		-		-
Argentine peso		1,089		393		-		-
Brazilian real		1,455		542		-		-
Chilean peso		14,130		11,283		-		-
Colombian peso		1,009		837		-		-
Euro		4,411		5,954		-		-
U.S. dollar		10,468		3,160		-		-
Other currency		5,558		3,021		-		-
Total current liabilities		1,067,646		982,282		145,624		149,063
Argentine peso		231,000		122,845		6,142		8,810
Brazilian real		32,429		29,352		1,152		669
Chilean peso		254,689		266,603		95,014		90,343
Colombian peso		8,924		3,801		752		855
Euro		89,314		64,035		1,375		9,165
U.S. dollar		351,304		427,002		38,969		37,304
Other currency		99,986		68,644		2,220		1,917

F-116

	More than 1 to 3 years				More than 3 to 5 years				More than 5 years
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
Non-current liabilities	2018		2017		2018		2017		2018		2017
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Other financial liabilities, non-current		241,823		276,436		281,785		263,798		179,406		189,500
Chilean peso		16,232		41,548		237,377		189,500		172,530		189,500
U.S. dollar		225,591		234,888		44,408		74,298		6,876		-
Accounts payable, non-current		308,715		362,964		-		-		-		-
Chilean peso		14,027		13,251		-		-		-		-
U.S. dollar		293,448		348,329		-		-		-		-
Other currency		1,240		1,384		-		-		-		-
Other provisions, non-current		36,120		41,514		-		-		-		-
Argentine peso		542		940		-		-		-		-
Brazillian real		19,815		24,074		-		-		-		-
Colombian peso		295		551		-		-		-		-
Euro		9,403		9,883		-		-		-		-
U.S. dollar		6,065		6,066		-		-		-		-
Provisions for employees benefits, non-current		72,674		77,579		-		-		-		-
Chilean peso		72,187		73,399		-		-		-		-
U.S. dollar		487		4,180		-		-		-		-
Other non-financial liabilities, non-current		-		3		-		-		-		-
Colombian peso		-		3		-		-		-		-
Total non-current liabilities		659,332		758,496		281,785		263,798		179,406		189,500
Argentine peso		542		940		-		-		-		-
Brazilian real		19,815		24,074		-		-		-		-
Chilean peso		102,446		128,198		237,377		189,500		172,530		189,500
Colombian peso		295		554		-		-		-		-
Euro		9,403		9,883		-		-		-		-
U.S. dollar		525,591		593,463		44,408		74,298		6,876		-
Other currency		1,240		1,384		-		-		-		-

F-117

	As of			As of
	December 31,			December 31,
General summary of foreign currency:	2018			2017
	ThUS$			ThUS$
Total assets		1,370,557			850,777
Argentine peso		72,275			75,368
Brazilian real		117,532			70,084
Chilean peso		594,858			235,938
Colombian peso		8,598			3,791
Euro		80,756			70,786
U.S. dollar		76,458			181,706
Other currency		420,080			213,104
Total liabilities		2,333,793			2,343,136
Argentine peso		237,684			132,595
Brazilian real		53,396			54,095
Chilean peso		862,056			864,144
Colombian peso		9,971			5,207
Euro		100,092			83,083
U.S. dollar		967,148			1,132,067
Other currency		103,446			71,945
Net position
Argentine peso		(165,409	)		(57,227	)
Brazilian real		64,136			15,989
Chilean peso		(267,198	)		(628,206	)
Colombian peso		(1,373	)		(1,416	)
Euro		(19,336	)		(12,297	)
U.S. dollar		(890,690	)		(950,361	)
Other currency		316,634			141,159

F-118

(b) Exchange differences

The exchange differences recognized in profit or loss, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2018, 2017 and 2016, amounted a charge of ThUS$ 157,708 and ThUS$ 18,718 and a credit of ThUS$ 121,651, respectively.

The exchange differences recognized in statement of comprehensive income as reserves for translation exchange differences for the period ended December 31, 2018, 2017 and 2016 meant a charge of ThUS $ 610,201 and ThUS$ 47,495 and a credit of ThUS$ 494,362, respectively.

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

	As of December 31,
	2018		2017		2016		2015
Argentine peso		37.74		18.57		15.84		12.97
Brazilian real		3.87		3.31		3.25		3.98
Chilean peso		694.77		614.75		669.47		710.16
Colombian peso		3,239.45		2,984.77		3,000.25		3,183.00
Euro		0.87		0.83		0.95		0.92
Strong bolivar		0.00		3,345.00		673.76		198.70
Sovereign bolivar (*)		3,299.12		-		-		-
Australian dollar		1.42		1.28		1.38		1.37
Boliviano		6.86		6.86		6.86		6.85
Mexican peso		19.68		19.66		20.63		17.34
New Zealand dollar		1.49		1.41		1.44		1.46
Peruvian Sol		3.37		3.24		3.35		3.41
Uruguayan peso		32.38		28.74		29.28		29.88

(*) On August 20, 2018, in Venezuela there was a change of currency, five zeros were eliminated to simplify and the surname was changed to sovereign.

F-119

NOTE 30 - EARNINGS / (LOSS) PER SHARE

	For the year ended
	December 31,
Basic earnings / (loss) per share	2018		2017		2016
Earnings / (loss) attributable to owners of the parent (ThUS$)		181,935		155,304		69,220
Weighted average number of shares, basic		606,407,693		606,407,693		546,559,599
Basic earnings / (loss) per share (US$)		0.30002		0.25610		0.12665

	For the year ended
	December 31,
Diluted earnings / (loss) per share	2018		2017		2016
Earnings / (loss) attributable to owners of the parent (ThUS$)		181,935		155,304		69,220
Weighted average number of shares, basic		606,407,693		606,407,693		546,559,599
Weighted average number of shares, diluted		606,407,693		606,407,693		546,559,599
Diluted earnings / (loss) per share (US$)		0.30002		0.25610		0.12665

F-120

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$
Tam Viagens S.A.	Fazenda Pública do Município de São Paulo.	1004194-37.2018.8.26.0053	This is a voidance action appealing the charges for violations and fines (67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965). We are arguing that numbers are missing from the ISS calculation base since the company supposedly made improper deductions.	The lawsuit was assigned on January 31, 2018. That same day, a decision was rendered suspending the charges without any bond. We are waiting for the deadline for the municipality to appeal to expire. The municipality filed an appeal against this decision on April 30, 2018, that is pending a decision. The voidance action is now in the evidentiary period.	85,883

F-121

2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
LATAM Airlines Group S.A. y Lan Cargo S.A.	European Commission.	-	Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight.	On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011. On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction). On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of THUS$ 9,402 (8.220.000 Euros) This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the decision, but presented a new one on March 17, 2017 reiterating the imposition of the same fine on the eleven original airlines. The fine totals 776,465,000 Euros. It imposed the same fine as before on Lan Cargo and its parent, LATAM Airlines Group S.A., totaling 8.2 million Euros. On May 31, 2017 Lan Cargo S.A. and LATAM Airlines Group S.A. filed a petition with the General Court of the European Union seeking vacation of this decision. We presented our defense in December 2017. LATAM AIRLINES GROUP S.A. expects that the Court of the European Union will reduce this fine.	9,402

F-122

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. In the case in England, mediation was held with nearly all the airlines involved in the aim of attempting to reach an agreement. It began in September, and LATAM Airlines Group S.A. reached an agreement for approximately GBP 636,000. A settlement was signed in December 2018 and payment was made in January 2019. This concluded the claim for all class-action plaintiffs except one, with whom negotiations continue. The amount is undetermined, but small.	-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$10,479; (ii) Norberto Jochmann: ThUS$201; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper. This obligation had also been stayed by the court of federal justice in this process. Awaiting CADE’s statement. ABSA began a judicial review in search of an additional reduction in the fine amount. In December 2018, the Federal Court Judge ruled against ABSA, indicating that it will not apply an additional reduction to the fine imposed. We are now awaiting publication of the Judge’s ruling to file our appeal against it.	10,541

F-123

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Aerolinhas Brasileiras S.A.	Federal Justice.	0001872-58.2014.4.03.6105	An annulment action with a motion for preliminary injunction, was filed on 28/02/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006.43.	We have been waiting since August 21, 2015 for a statement by Serasa on TAM’s letter of indemnity and a statement by the Union. The statement was authenticated on January 29, 2016. A petition on evidence and replications were filed on June 20, 2016. A new insurance policy was submitted on March 3, 2016 with the change to the guarantee requested by PGFN, which was declared on June 3, 2016. A decision is pending.	14,083
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	The lawsuit was converted into a measure in January 2018. A statement will be made after the prosecutor’s measure has concluded. The Brazilian Administrative Council of Tax Appeals (CARF) issued a decision in favor of the Company on September 22, 2018. We are currently expecting that the Ministry of Finance of Brazil will appea.	59,317
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 ThUS$106. The court decision requesting that the Expert make all clarifications requested by the parties in a period of 30 days was published on March 29, 2016. The plaintiffs’ submitted a petition on June 21, 2016 requesting acceptance of the opinion of their consultant and an urgent ruling on the dispute. No amount additional to the deposit that has already been made is required if this case is lost.	88,421

F-124

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Tam Linhas Aéreas S.A.	Internal Revenue Service of Brazil.	10880.725950/2011-05	Compensation credits of the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS) Declared on DCOMPs.	The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed. The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of Tax Appeals (CARF) on June 8, 2015. TAM’s appeal was included in the CARF session held August 25, 2016. An agreement that converted the proceedings into a formal case was published on October 7, 2016.	57,287
Aerovías de Integración Regional, AIRES S.A.	United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.	2013-20319 CA 01	The July 30th , 2012 Aerovías de Integración Recional, Aires S.A. ( LATAM AIRLINES COLOMBIA) initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LATAM AIRLINES COLOMBIA arising from breach of contractual obligations of the aircraft HK-4107. The June 20th , 2013 AIRES SA And / Or LATAM AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LATAM AIRLINES COLOMBIA customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.	This case is being heard by the 45th Civil Court of the Bogota Circuit in Colombia. Statements were taken from witnesses presented by REGIONAL ONE and VAS on February 12, 2018. The court received the expert opinions requested by REGIONAL ONE and VAS and given their petition, it asked the experts to expand upon their opinions. It also changed the experts requested by LATAM AIRLINES COLOMBIA. . The case was brought before the Court on September 10, 2018 and these rulings are pending processing so that a new hearing can be scheduled. On October 31, 2018, the judge postponed the deadline for the parties to answer the objection because of a serious error brought to light by VAS regarding the translation submitted by the expert. On March 26, 2014, the Federal Court in the State of Florida, USA, approved the petition by LATAM Airlines Colombia to suspend the case in the United States  until  the  lawsuit  under way in	12,443

F-125

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Aerovías de Integración Regional, AIRES S.A.	United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.	2013-20319 CA 01 (Continuation)		Colombia was decided. The U.S. judge also closed the case administratively. Based on the petition by Regional One, the Federal Court in the State of Florida, USA, lifted the suspension of the case on July 11, 2018 and returned the case to the State Court. At the same time, VAS filed suit against LATAM AIRLINES COLOMBIA at the end of May 2018 seeking an indemnity because of the lawsuit by Regional One against VAS due to contract default. According to the requirements for civil suits in Florida, VAS has only claimed damages from LATAM AIRLINES COLOMBIA totaling more than US$15,000. The VAS lawsuit and Regional One lawsuit have been consolidated before the same State Court, which has set the trial by jury for September 19, 2019. A reconciliation hearing was held on December 10, 2018 that was attended by all parties, but no agreement was reached. The claim is continuing forward. It is possible that later on, the amount petitioned in the case may vary. Any change will be reported in due course. In the meantime, the State Court has yet to render a decision on the motions by LATAM Airlines Colombia to dismiss both the Regional One and VAS claims because they have no legal basis.
Tam Linhas Aéreas S.A.	Internal Revenue Service of Brazil	10880.722.355/2014-52	On August 19th, 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.	An administrative objection was filed on September 17th, 2014. A first-instance ruling was rendered on June 1, 2016 that was partially favorable. The separate fine was revoked. A voluntary appeal was filed on June 30, 2016, which is pending a decision by CARF. On January 9, 2016, the case was referred to the Second Division, Fourth Chamber, of the Third Section of the Administrative Council of Tax Appeals (CARF).	65,914

F-126

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM Linhas Aéreas S.A.	Sao Paulo Labor Court, Sao Paulo	1001531-73.2016.5.02.0710	The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.	In August 2016, the Ministry of Labor filed a new lawsuit before the competent Labor Court in Sao Paulo, in the same terms as case 0000009-45.2016.5.02.090, as previously reported, the hearing date is set for October 22, 2018.	16,575
LATAM Airlines Group S.A.	22° Civil Court of Santiago	C-29.945-2016	The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it.	The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017. LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit. A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement.  The Court issued the evidentiary decree on May 12, 2017. We filed a petition for reconsideration because we disagreed with certain points of evidence. That petition was partially sustained by the Court on June 27, 2017. The evidentiary stage commenced and then concluded on July 20, 2017. Observations to the evidence must now be presented. That period expires August 1, 2017.  We filed our observations to the evidence on August 1, 2017.  We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable. The plaintiff filed an appeal on December 26, 2017.  We are currently waiting for the case to be heard by the Court of Appeals.	19,080
TAM Linhas Aéreas S.A.	10th Jurisdiction of Federal Tax Enforcement of Sao Paulo	0061196-68.2016.4.03.6182	Tax Enforcement Lien No. 0020869-47.2017.4.03.6182 on Profit-Based Social Contributions from 2004 to 2007.	This tax enforcement was referred to the 10th Federal Jurisdiction on February 16, 2017. A petition reporting our request to submit collateral was recorded on April 18, 2017. At this time, the period is pending for the plaintiff to respond to our petition. The bond was replaced.	39,222

F-127

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM Linhas Aéreas S.A.	Federal Revenue Bureau	10880.900360/2017-55	A claim regarding the negative Company Income Tax (IRPJ) balance. Appraisals of compensation that were not accepted.	The case was referred to the National Claims Management Center of the Federal Revenue Bureau for Sao Paulo on May 11, 2017. The administrative case was closed in favor of the company and its right to a credit was recognized on June 15, 2018.	-0-
TAM Linhas Aéreas S.A.	Internal Revenue Service of Brazil	16643.000085/2009-47	Notice of claim to recover income taxes and social contributions paid on the basis of net profits (SCL) according to the royalty expenses and use of the TAM trademark.	Before the Internal Revenue Service of Brazil. A service of process is expected in the lawsuit on admissibility of the special appeal, filed by the General Counsel of the National Treasury, as well as notification of the decision rendered by the Administrative Council of Tax Appeals (CARF). The decision was made to file a lawsuit on December 5, 2017.	15,590
TAM Linhas Aéreas S.A.	Internal Revenue Service of Brazil	10831.012344/2005-55	Notice of an infringement filed by the Company to request the import tax (II), the Social Integration Program (PIS) of the Social Security Funding Contribution (COFINS) as a result of an unidentified international cargo loss.	Before the Internal Revenue Service of Brazil. The administrative decision was against the company. The matter is pending a decision by the CARF.	15,649
TAM Linhas Aéreas S.A.	DERAT SPO (Delegacía de Receita Federal)	13808.005459/2001-45	Collection of the Social Security Funding Contribution (COFINS) based on gross revenue of the company in the period 1999-2000.	The decision on collection was pending through June 2, 2010.	23,720
TAM Linhas Aéreas S.A.	Federal Revenue Bureau	10880.938.664/2016-12	An administrative lawsuit about compensation not being proportional to the negative corporate income tax balance.	A decision is pending by CARF on the appeal.  The Company’s right to its credit was recognized on November 21, 2018, which closed the administrative process in its favor.	-0-
TAM Linhas Aéreas S.A.	Delegacía de Receita Federal	10611.720630/2017-16	This is an administrative claim about a fine for the incorrectness of an import declaration (new lawsuit).	The administrative defensive arguments were presented September 28, 2017. A ruling on the defense is currently pending in this lawsuit.	20,155

F-128

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM Linhas Aéreas S.A	Delegacía de Receita Federal	10611.720852/2016-58	An improper charge of the Contribution for the Financing of Social Security (COFINS) on an import (new lawsuit).	We are currently awaiting a decision. There is no predictable decision date because it depends on the court of the government agency.	14,501
TAM Linhas Aéreas S.A	Delegacía de Receita Federal	16692.721.933/2017-80	The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport.	We are awaiting the presentation of an administrative defense. An administrative defense was presented on May 29, 2018.	30,954
SNEA (Sindicato Nacional das empresas aeroviárias)	União Federal	0012177-54.2016.4.01.3400	A claim against the 72% increase in airport control fees (TAT-ADR) and approach control fees (TAT-APP) charged by the Airspace Control Department (“DECEA”).	A decision is now pending on the appeal presented by SNEA.	42,423
TAM Linhas Aéreas S/A	União Federal	2001.51.01.020420-0	TAM and other airlines filed a recourse claim seeking a finding that there is no legal or tax basis to be released from collecting the Additional Airport Fee (“ATAERO”).	A decision by the superior court is pending. The amount is indeterminate because even though TAM is the plaintiff, if the ruling is against it, it could be ordered by the trial judge to pay certain fees	-0-
TAM Linhas Aéreas S/A	Delegacia da Receita Federa	10880-900.424/2018-07	This is a claim for a negative Legal Entity Income Tax (IRPJ) balance for the 2014 calendar year (2015 fiscal year) because set-offs were not allowed.	The administrative defensive arguments were presented March 19, 2018. An administrative decision is now pending.	16,959
TAM linhas Aérea S/A	International Centre for dispute resolution (“ICDR”)	01-18-0000-6332	Arbitration filed by Airbus S.A.S., Airbus North America Customer Services, Inc. and Allianz Corporate & Specialty SE (France) against AIG Europe Limited (“AIG”), TAM S.A. (“TSA”) and TAM Linhas Aéreas S.A. (“TLA”). In 2008, the parties exchanged draft agreements on sharing the costs of any indemnity for certain claims related to the Flight JJ3054 accident, but they did not reach an agreement, so the draft was never finalized or executed. Despite this, Airbus and its  insured filed a formal arbitration	On January 31, 2018, Airbus S.A.S., Airbus North America Customer Services, Inc. and Allianz Corporate & Specialty SE (France) filed an arbitration claim with the International Centre for Dispute Resolution against AIG Europe Limited (“AIG”), TAM S.A. (“TSA”) and TAM Linhas Aéreas S.A. (“TLA”) seeking a decision on the validity of a shared-defense agreement that had been discussed but never finalized or executed by the parties.  The plaintiffs allege that the  parties exchanged enough	12,200

F-129

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM Linhas Aéreas S.A	International Centre for dispute resolution (“ICDR”)	01-18-0000-6332 (Continuation)	claim and served AIG, TSA and TLA as defendants, seeking a decision on the validity of the agreement as well as a damage indemnity to Airbus because it could not share its defense with TAM. TAM has retained legal counsel in Switzerland, Brazil and the United States to handle this claim.	correspondence and drafts to reflect the terms of a contract. Based on this alleged contract, they are demanding that TAM reimburse Airbus a sum of approximately ThUS$9.2 for settlement costs and ThUS$3 for legal fees, in addition to interest and any other amount decided by the Arbitrator On October 8, 2018, the plaintiffs filed a formal complaint that contained declarations by their supporting experts. On November 7, 2018, the Arbitrator issued a procedural ruling dividing the jurisdiction phase from the grounds-for-arbitration phase, thus expressing his agreement with the arguments by TSA and TLA as well as AIG. After a petition agreed by all parties, the Arbitrator postponed the deadline of December 14, 2018 while the parties held reconciliation negotiations. Finally, in December 2018, the parties agreed to hold a meeting to discuss a potential settlement that resulted in an agreement whereby Allianz Corporate & Speciality SE will pay AIG US$95 million toward the loss already settled by AIG for the accident. In exchange, all lawsuits and arbitration claims will be withdrawn at no additional cost to LATAM. The insurance companies are now in the process of obtaining the approvals required from the signatories of the agreement and the case is expected to be closed in the first half of 2019. The arbitration is temporarily on hold until the agreement is concluded.
TAM Linhas Aéreas S/A	Delegacía de Receita Federal	19515-720.823/2018-11	An administrative claim to collect alleged differences in SAT payments for the periods 11/2013 to 12/2017.	A defense was presented on November 28, 2018. We are now awaiting the administrative ruling.	118,558

F-130

- In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2018, 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.

II. Governmental Investigations.

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

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

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

The agreements signed, included the following:

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

F-131

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

NOTE 32 – COMMITMENTS

(a) Loan covenants

With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis, for which, in any case non-compliance does not generate acceleration of the loans.

Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership, in relation to the ownership structure and the controlling group, and disposal of the assets which mainly refers to important transfers of assets.

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

The revolving credit facility ("Revolving Credit Facility") with aircraft, engines, parts and supplies guaranteed for a total available amount of US$ 600 million, contemplates minimum liquidity restrictions, measured at the level of the Consolidated Company and measured at the for companies LATAM Airlines Group SA and TAM Linhas Aéreas S.A., which remain standby while the credit line is not used. As of December 31, 2018 and 2017 this line of credit established with a consortium of eleven banks led by Citibank, is not used.

As of December 31, 2018 and 2017, the Company is in compliance with all the indicators detailed above.

F-132

(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	2018		2017
ACS Aero 1 Alpha Limited	Airbus A320		-		1
Aircraft 76B-26329 Inc.	Boeing 767		1		1
Aircraft 76B-28206 Inc.	Boeing 767		1		1
Aviacion 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 62 Limited	Boeing 777		1		1
Avolon Aerospace AOE 99 Limited	Airbus A320		1		-
Avolon Aerospace AOE 100 Limited	Airbus A320		1		2
Avolon Aerospace AOE 134 Limited	Airbus A321		2		-
AWAS 5234 Trust	Airbus A320		1		1
Baker & Spice Aviation Limited	Airbus A320		-		1
Bank of America	Airbus A321		2		2
Bank of Utah	Airbus A320		1		-
Bank of Utah	Airbus A350		1		-
Bank of Utah	Boeing 787		2		2
Boeing Aircraft Holding Company	Boeing 777		2		-
Castlelake	Airbus A319		1		1
Chishima Real State Co., Ltd.	Airbus A321		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
IC Airlease One Limited	Airbus A321		1		1
JSA Aircraft 38484, LLC	Boeing 787		1		1
JSA Aircraft 7126, LLC	Airbus A320		1		1
JSA Aircraft 7128, LLC	Airbus A321		1		1
JSA Aircraft 7239, LLC	Airbus A321		1		1
JSA Aircraft 7298, LLC	Airbus A321		1		1
Macquarie Aerospace Finance 5125-2 Trust	Airbus A320		1		1
Macquarie Aerospace Finance 5178 Limited	Airbus A320		1		1
Merlin Aviation Leasing (Ireland) 18 Limited	Airbus A320		1		1
Merlin Aviation Leasing (Ireland) 7 Limited	Airbus A320		-		1
NBB Crow Co.,Ltd	Boeing 787		1		-
NBB Cuckoo Co., Ltd	Airbus A321		1		1
NBB Grosbeak Co., Ltd	Airbus A321		1		1
NBB Redstart Co. Ltd	Airbus A321		1		1
NBB-6658 Lease Partnership	Airbus A321		1		1
NBB-6670 Lease Partnership	Airbus A321		1		1
Orix Aviation Systems Limited	Airbus A320		4		4
PAAL Aquila Company Limited	Airbus A321		2		2
Sapphire Leasing I (AOE 7) Limited	Airbus A320		1		1
Shenton Aircraft Leasing Limited	Airbus A320		1		1
Sky High XXIV Leasing Company Limited	Airbus A320		5		5
Sky High XXV Leasing Company Limited	Airbus A320		2		2
SMBC Aviation Capital Limited	Airbus A320		4		4
SMBC Aviation Capital Limited	Airbus A321		2		2
Wells Fargo Trust Company, N.A.	Airbus A319		1		2
Wells Fargo Trust Company, N.A.	Airbus A320		10		11
Wells Fargo Trust Company, N.A.	Airbus A350		2		2
Wells Fargo Trust Company, N.A.	Boeing 767		1		2
Wells Fargo Trust Company, N.A.	Boeing 777		4		4
Wells Fargo Trust Company, N.A.	Boeing 787		10		11
Wilgmington Trust SP Services (Dublin) Limited	Airbus A350		1		-
Total			94		93

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

F-133

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

	As of		As of
	December 31,		December 31,
	2018		2017
	ThUS$		ThUS$
No later than one year		513,214		462,205
Between one and five years		1,719,490		1,620,253
Over five years		1,348,470		1,498,064
Total		3,581,174		3,580,522

The operating lease payments charged to income are the following:

	For the year ended
	December 31,
	2018		2017		2016
	ThUS$		ThUS$		ThUS$
Operating lease payments		538,347		579,551		568,979
Total		538,347		579,551		568,979

During 2018, through operating lease two Airbus A321-200 aircraft were added for a period of 10 years each, two aircrafts Boeing 777-200ER for a period of 1 year and two aircraft A350-900 for a period of 12 years. On the other hand, one Airbus A320-200 aircraft, one Boeing 767-300 Freighter aircraft were returned and two Boeing 777-300 Freighter aircraft were sold.

The operating lease agreements entered into by the Parent Company and its subsidiaries establish that aircraft maintenance must be carried out in accordance with the technical provisions of the manufacturer and a cost by the lessee. Additionally, for each aircraft, the lessee must purchase policies that cover the associated risk. As for the rent payments, they are unrestricted, and cannot be netted from other accounts receivable or payable by the lessor and the lessee.

The ACMI lease agreements entered into by the Parent Company and its subsidiaries establish that the costs of the aircraft, crew, maintenance and insurance are the responsibility of the lessor. As for the rent payments, they are unrestricted, and cannot be netted from other accounts receivable or payable by the lessor and the lessee.

F-134

At December 31, 2018 the Company has existing letters of credit related to operating leasing as follows:

			Value		Release
Creditor Guarantee	Debtor	Type	ThUS$		date
GE Capital Aviation Services Limited	Lan Cargo S.A.	One letter of credit		1,100	Nov 30, 2019
Avolon Aerospace AOE 62 Limited	LATAM Airlines Group S.A.	Three letter of credit		2,167	Aug 30, 2019
Bank of America	LATAM Airlines Group S.A.	Three letter of credit		1,044	Jul 2, 2019
Bank of Utah	LATAM Airlines Group S.A.	One letter of credit		2,000	Mar 24, 2019
DVB Bank	LATAM Airlines Group S.A.	One letter of credit		886	Aug 30, 2019
GE Capital Aviation Services Ltd.	LATAM Airlines Group S.A.	Four letter of credit		14,327	Nov 30, 2019
ORIX Aviation Systems Limited	LATAM Airlines Group S.A.	Two letter of credit		7,366	Dec 11, 2019
Sky High XXIV Leasing Company	LATAM Airlines Group S.A.	Eight letter of credit		6,831	Mar 24, 2019
Wells Fargo Bank	LATAM Airlines Group S.A.	Nine letter of credit		15,160	Mar 13, 2019
Merlin Aviation Leasing (Ireland) 18 Limite	Tam Linhas Aéreas S.A.	One letter of credit		3,000	Mar 1, 2019
Shapphire Leasing (AOE) Limited	Tam Linhas Aéreas S.A.	One letter of credit		7,000	Oct 25, 2019
ACG Acquisition	Tam Linhas Aéreas S.A.	One letter of credit		852	Aug 30, 2019
				61,733

(c) Other commitments

At December 31, 2018 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:

			Value		Release
Creditor Guarantee	Debtor	Type	ThUS$		date
Servicio Nacional de Aduana del Ecuador	Líneas Aéreas Nacionales del Ecuador S.A.	Three letter of credit		1,705	Aug 5, 2019
Corporación Peruana de Aeropuertos y Aviación Comercial	Lan Perú S.A.	Twenty four letter of credit		3,475	Feb 18, 2019
Lima Airport Partners S.R.L.	Lan Perú S.A.	Twenty three letter of credit		2,263	Sep 17, 2019
Superintendencia Nacional de Aduanas y de Administración Tributaria	Lan Perú S.A.	Seventeen letter of credit		136,000	Feb 10, 2019
Aena Aeropuertos S.A.	LATAM Airlines Group S.A.	Four letter of credit		2,770	Nov 15, 2018
American Alternative Insurance Corporation	LATAM Airlines Group S.A.	Six letter of credit		3,690	Apr 5, 2019
Citibank N.A.	LATAM Airlines Group S.A.	One letter of credit		27,226	Dec 20, 2019
Comisión Europea	LATAM Airlines Group S.A.	One letter of credit		9,734	Dec 31, 2019
Deutsche Bank A.G.	LATAM Airlines Group S.A.	One letter of credit		5,000	Mar 31, 2019
Dirección General de Aeronáutica Civil	LATAM Airlines Group S.A.	Fifty three letter of credit		19,918	Jan 30, 2019
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador	LATAM Airlines Group S.A.	One letter of credit		5,500	Jun 18, 2019
Metropolitan Dade County	LATAM Airlines Group S.A.	Eight letter of credit		2,273	Mar 13, 2019
Conselho Administrativo de Conselhos Federais	Tam Linhas Aéreas S.A.	Two letter of credit		1,626	Nov 24, 2020
Procon	Tam Linhas Aéreas S.A.	One letter of credit		1,309	Apr 1, 2021
União Federal	Tam Linhas Aéreas S.A.	Two letter of credit		3,217	Sep 28, 2021
Vara da Fazenda Pública da Comarca do Rio de Janeiro - RJ	Tam Linhas Aéreas S.A.	One letter of credit		1,047	Sep 27, 2023
Vara das Execuções Fiscais Estaduais	Tam Linhas Aéreas S.A.	Four letter of credit		8,541	May 23, 2021
Procon	ABSA linhas Aereas Brasileira S/A	One letter of credit		10,495	May 19, 2020
Vara Federal da Subseção de Campinas SP	ABSA linhas Aereas Brasileira S/A	One letter of credit		5,457	Oct 20, 2021
Conselho Administrativo de Conselhos Federais	ABSA linhas Aereas Brasileira S/A	One letter of credit		15,919	Feb 22, 2021
				267,165

F-135

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	2018			2017			2016
						ThUS$			ThUS$			ThUS$
96.810.370-9	Inversiones Costa Verde Ltda. y CPA.	Related  director	Chile	Tickets sales	CLP		16			18			6
65.216.000-K	Comunidad Mujer	Related  director	Chile	Tickets sales	CLP		-			14			9
				Services provided for advertising	CLP		-			-			(12	)
78.591.370-1	Bethia S.A and subsidiaries	Related  director	Chile	Services received of cargo transport	CLP		1,778			1,643			(394	)
				Services received from National and International
				Courier	CLP		(85	)		(382	)		(285	)
				Services provided of cargo transport	CLP		-			(17	)		192
				Sales commissions	CLP		(821	)		(761	)		(727	)
				Services received of transfer of passengers	CLP		112			-			-
				Services received advertising	CLP		(1,025	)		-			-
79.773.440-3	Transportes San Felipe S.A	Related  director	Chile	Services received of transfer of passengers	CLP		-			-			(84	)
				Tickets sales	CLP		-			1			3
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	Tickets sales	CLP		51			72			76
Foreign	Consultoría Administrativa
	Profesional S.A. de C.V.	Associate	Mexico	Professional counseling services received	MXN		-			(2,357	)		(2,563	)
Foreign	Inversora Aeronáutica Argentina	Related  director	Argentina	Property leases received	ARS$		(231	)		(251	)		(264	)
Foreign	TAM Aviação Executiva
	e Taxi Aéreo S/A	Common shareholder	Brazil	Services provided	BRL		62			45			(120	)
				Services received of cargo transport	BRL		8			-			-
				Services received at airports	BRL		(2	)		(39	)		7
Foreign	Qatar Airways	Indirect shareholder	Qatar	Services provided by aircraft lease	US$		21,321			31,707			-
				Interlineal received service	US$		(6,345	)		(2,139	)		-
				Interlineal provided  service	US$		8,635			5,279			-
				Services provided of handling	US$		1,392			1,002			-
				Services provided / received others	US$		1,805			-			-

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

Transactions between related parties have been carried out under market conditions between interested and duly informed parties.

F-136

(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 year ended
	December 31,
	2018			2017		2016
	ThUS$			ThUS$		ThUS$
Remuneration		14,841			17,826		16,514
Management fees		307			468		556
Non-monetary benefits		748			740		778
Short-term benefits		45,653			36,970		23,459
Long-term benefits		2,412			-		-
Share-based payments		(7,210	)		13,173		8,085
Termination benefits		1,404			-		-
Total		58,155			69,177		49,392

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 2013 not current as of this date

At the Extraordinary Shareholders' Meeting held on June 11, 2013, the shareholders of the Company approved, among other matters, the increase in the share capital, of which 1,500,000 shares were allocated to compensation plans for the employees of the Company. Company and its subsidiaries, in accordance with the provisions of Article 24 of the Law on Public Limited Companies.

On June 11, 2018, expired the term to subscribe said actions, which were neither subscribed nor paid, reducing the capital of full rights.

F-137

(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 recorded in accordance with the provisions of IFRS 2 "Payments based on shares" and has been considered as a cash settled award and, therefore, recorded at fair value as a liability, which is updated at the closing date. of each financial statement with effect on the result of the period.

	Base Units
	Opening										Closing
Periods	balance		Granted		Annulled			Exercised			Balance
From January 1 to December 31, 2017		4,719,720		37,359		(1,193,286	)		(630,897	)		2,932,896
From January 1 to December 31, 2018		2,932,896		-		(171,419	)		(1,168,700	)		1,592,777

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.

As of December 31, 2018 and 2017, the amount recorded is ThUS $ (7,210) and 13,173, respectively, classified under the line "Administrative expenses" of the Consolidated Income Statement by function.

(c) Subsidiaries compensation plans

(c.1) Stock Options

Multiplus S.A., subsidiaries of TAM S.A., have outstanding stock options at December 31, 2018, which amounted to 247,500 shares (at December 31, 2017, the distribution of outstanding stock options amounted to 316,025 for Multiplus S.A.).

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, 2017		84,249		163,251		68,525		316,025
Outstanding option number as December 31, 2018		84,249		163,251		-		247,500

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.

F-138

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	2018		2017		2018		2017
Multiplus S.A.		-		247,500		-		316,025

In accordance with IFRS 2 - Payments based on shares, the fair value of the option must be recalculated and recorded in the liability of the Company, once cash payment is made (cash-settled). The fair value of these options was calculated using the "Black-Scholes-Merton" method, where the assumptions were updated with information from LATAM Airlines Group S.A. As of December 31, 2018 and 2017 there is no value recorded in liabilities and results.

(c.2) Payments based on restricted stock

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

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

a.       Compliance with the performance goal defined by this Council as return on Capital Invested.

b.       The Beneficiary must remain as an administrator or employee of the Company for the period running from the date of issue to the following dates described, in order to obtain rights over the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third) after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.

Number shares in circulation

								Not acquired due
	Opening							to breach of employment			Closing
	balance		Granted		Exercised			retention conditions			balance
From January 1 to December 31, 2016		175,910		138,282		(15,811	)		(60,525	)		237,856
From January 1 to December 31, 2017		237,856		129,218		(41,801	)		(15,563	)		309,710
From January 1 to December 31, 2018		309,710		-		(83,958	)		(8,916	)		216,836

F-139

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 theyear ended
	December 31,
	2018			2017			2016
	ThUS$			ThUS$			ThUS$
Fuel hedge		77,234			19,862			(50,029	)
Hedging margin guarantees		14,755			(4,201	)		1,184
Guarantees		1,573			59,988			(51,559	)
Tax paid on bank transaction		318			(6,635	)		(10,668	)
Change reservation systems		-			(16,120	)		-
SEC agreement		-			-			(4,719	)
DOJ fine		-			-			(12,750	)
Currency hedge		(1,282	)		(17,798	)		(39,534	)
Bank commissions, taxes paid and other		(8,179	)		(7,738	)		(769	)
Fuel derivatives premiums		(13,947	)		(2,832	)		(6,840	)
Court deposits		(30,860	)		(33,457	)		(33,635	)
Others		-			-			50
Total Other inflows (outflows) Operation flow		39,612			(8,931	)		(209,269	)
Others deposits in guarantees		-			3,754			-
Recovery loans convertible into shares		-			-			8,896
Tax paid on bank transaction		(2,476	)		(2,594	)		(3,716	)
Others		-			(10,383	)		(4,337	)
Total Other inflows (outflows) Investment flow		(2,476	)		(9,223	)		843
Loan guarantee		-			80,615			(74,186	)
Aircraft Financing advances		55,728			(26,214	)		(125,149	)
Settlement of derivative contracts		(11,675	)		(40,695	)		(29,828	)
Total Other inflows (outflows) Financing flow		44,053			13,706			(229,163	)

Dividends:

	For the year ended
	December 31,
	2018			2017			2016
	ThUS$			ThUS$			ThUS$
Latam Airlines Group S.A.		(46,591	)		(20,766	)		-
Multiplus S.A. (*)		(26,029	)		(45,876	)		(40,823	)
Lan Perú S.A. (*)		-			-			(400	)
Total dividends paid		(72,620	)		(66,642	)		(41,223	)

(*) Dividends paid to minority shareholders

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d) Reconciliation of liabilities arising from financing activities:

	As of		Cash flows								Non-Flow Movements					As of
Obligations with	December 31,		Obtainment		Payment						Interest accrued					December 31,
financial institutions	2017		Capital		Capital			Interest			and others		Reclassifications			2018
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$		ThUS$			ThUS$
Loans to exporters		314,619		293,001		(202,000	)		(10,467	)		5,568		-			400,721
Bank loans		321,633		74,663		(167,548	)		(13,961	)		7,954		-			222,741
Guaranteed obligations		4,036,843		-		(315,698	)		(122,639	)		99,320		(1,163,805	)		2,534,021
Other guaranteed obligations		242,175		704,398		(274,339	)		(16,873	)		18,091		-			673,452
Obligation with the public		1,584,066		-		1,561			(107,629	)		75,081		-			1,553,079
Financial leases		1,109,504		-		(691,390	)		(69,808	)		112,743		1,163,805			1,624,854
Other loans		282,800		55,728		(88,935	)		(15,978	)		19,243		-			252,858
Total Obligations with financial institutions		7,891,640		1,127,790		(1,738,349	)		(357,355	)		338,000		-			7,261,726

(e) Advances of aircraft

Below are the cash flows associated with aircraft purchases, which are included in the statement of consolidated cash flow, in the item Purchases of properties, plants and equipment:

	For the year ended
	December 31,
	2018			2017
	ThUS$			ThUS$
Increases (payments)		(212,163	)		(205,143	)
Recoveries		157,508			103,065
Total cash flows		(54,655	)		(102,078	)

f) The net effect by the hyperinflation application in the consolidated statement of cash flow for the exercise ended December 31, 2018 corresponds to:

	ThUS$
Net cash flows from (used in) operating activities		6,088
Net cash flows from (used in) investment activities		(17,611	)
Net cash flows from (used in) financing activities		3,914
Effects of variation in the exchange rate on cash and cash equivalents		7,609
Net increase (decrease) in cash and cash equivalents		-

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NOTE 36 - THE ENVIRONMENT

LATAM Airlines Group S.A has a commitment to sustainable development seeking to generate value taking into account the governance, environmental and social aspects. The company manages environmental issues at a corporate level, centralized in the Sustainability Management. For the company to monitor and minimize its impact on the environment is a commitment of the highest level; where the continuous improvement and contribute to the solution of the global climate change problem, generating added value to the company and the region, are the pillars of its management.

One of the functions of the Sustainability Management in environmental issues, together with the various areas of the Company, is to ensure environmental compliance, implement a management system and environmental programs that comply with the requirements every day more demanding worldwide; in addition to continuous improvement programs in their internal processes, which generate environmental, social and economic benefits and which are added to those currently carried out.

Within the sustainability strategy, the Environment dimension of LATAM Airlines Group S.A., is called Climate Change and is based on the goal of achieving world leadership in this area, and for which we work on the following aspects:

i. Carbon footprint

ii. Eco Efficiency

iii. Sustainable Alternative Energy

iv. Standards and Certifications

This is how, during 2018, the following initiatives have been carried out:

- Implementation of an Environmental Management System for the main operations of the company. It is highlighted that the company during 2016 has recertified its environmental management system in Miami facilities following the guidelines of the international standard ISO 14.001. During 2018, the system will be recertified with the new version of the standard.

- Maintenance of the Stage 2 Certification of IATA Environmental Assestment (IEnvA) whose scope is the international flights operated from Chile, the most advanced level of this certification; being the first in the continent and one of the four airlines in the world that have this certification.

- During 2018, the Colombian operation achieved its certification in Stage 1 of IEnvA

- Preparation of the environmental chapter for the sustainability report of the company, which allows to measure progress in environmental issues.

- Answer to the questionnaire of the DJSI.

- Measurement and external verification of the Corporate Carbon Footprint.

- Neutralization of land operations in the operations of Colombia and Peru with emblematic reforestation projects in the respective countries.

- In the second semester of 2018 the facilities of the maintenance base and the corporate building of the operations in Chile have 100% electric power from renewable sources

It is highlighted that in 2018, LATAM Airlines Group maintained its inclusion for the fifty consecutive year in the world category of the Dow Jones Sustainability Index, with only 3 airlines in the world belonging to this select group.

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

On February 11, 2019, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group S.A., has issued in the international market, pursuant to Rule 144-A and Regulation S of the securities laws of the United States of America, long-term unsecured bonds in the nominal amount of US$ 600,000,000 at an annual interest rate of 7.00%. The bonds were placed at an offer price of 99.309%. The bonds will mature on March 1, 2026, unless they have been redeemed in advance in accordance with their terms. As reported to the market, the issue and placement of the bonds was intended to finance general corporate purposes.

By of the Provisional Measure 863/2018 of December 13, 2018, issued by the President of Brazil, through which the participation of up to 100% of foreign capital in airlines of that country is authorized, in February 2019 they were completed the procedures for the exchange of shares in Holdco I S.A., through which LATAM Airlines Group SA increased its indirect participation in TAM S.A., from 48.99% to 51.04%.

On February 28, 2019, the company TAM, a subsidiary of LATAM Ailines Group SA, received an official letter from the Comissão de Valores Mobiliários (CMV), in which it communicates the acceptance to the request for registration of the public offer for the acquisition of shares of TAM subsidiary, Multiplus SA, corresponding to the non controlling interes of the company, which will give rise to the cancellation of the registration and exit of the special trading segment called "Novo Mercado", in case the transaction is successful. 

On April 1, 2019, TAM S.A., an affiliate of LATAM Airlines Group S.A., announces that the tender offer process for the common shares of Multiplus S.A. ("Multiplus") that LATAM's affiliates do not currently own, expired. TAM S.A. acquired 23.49% of Multiplus' common shares, reaching 96.23% of its capital stock, and, as a result, TAM S.A. will de-list Multiplus from the B3 Novo Mercado and cancel its registration, as announced on September 5, 2018, Shareholders who did not trade their shares during the tender offer wishing to sell its free float common shares to TAM S.A. may still do it during the period of three months following the tender offer, which is, from April 02, 2019 to July 02, 2019.

Between April 1, 2019 and April 4, 2019, TAM acquired additional shares of Multiplus and reached 97.2% of its capital stock. For the 24.5% acquired the company paid ThUS$ 272,540 and it is expected to pay ThUS$ 31,163 for the remaining 2.8%.

On April 3, 2019, LATAM Airlines Brazil, announced that it has been approached by Elliott Associates L.P., Elliott International L.P., and Manchester Securities Corporation (jointly "Elliott"), the largest debt holders of Oceanair Linhas Aéreas S.A. and AVB Holding S.A. (jointly "Avianca Brasil"), and has agreed to bid for at least one independent productive unit (“IPU”) of its respective assets (including but not limited to certain contracts, operating certificates, permits, and slots), of Elliot’s restructuring proposal in upcoming auctions for a minimum amount of US$70 million. As part of the proposed restructuring, subject to compliance with certain conditions, LATAM Airlines Brazil has committed to extend to Avianca Brasil, directly and indirectly, up to US$13 million of debtor–in–possession loans to finance, in part, working capital in support of the ongoing operations, amount that will be reimbursed to LATAM Airlines Brazil if the restructuring proposal is successful. At this date it is not possible to determine the financial effects that this announcement may have on the assets, liabilities or results of the Company or the date on which the adjudication of the aforementioned productive unit could materialize, which, in any case, is subject to any and all required governmental and antitrust approvals being granted in a timely manner.

On December 31, 2018 and until the date of issuance of these financial statements, there is no knowledge of other financial or other events that significantly affect the balances or their interpretation.

The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of December 31, 2018, have been approved in an Ordinary Board Meeting on April 9, 2019.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 12, 2019	LATAM AIRLINES GROUP S.A.
	By:	/s/ Ramiro Alfonsín Balza
	Name: Ramiro Alfonsín Balza
	Title: LATAM Airlines Group CFO