UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

May 17, 2019

 

Commission File Number 1-14728

 

 

 

LATAM Airlines Group S.A.

(Translation of Registrant’s Name Into English)

 

 

 

Presidente Riesco 5711, 20th floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

 

 

 

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

 

Form 20-F  ☒             Form 40-F  ☐

 

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

 

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

 

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

FREE TRANSLATION

 

MARCH 31, 2019

 

CONTENTS

 

Interim Consolidated Statement of Financial Position  
Interim Consolidated Statement of Income by Function  
Interim Consolidated Statement of Comprehensive Income  
Interim Consolidated Statement of Changes in Equity  
Interim Consolidated Statement of Cash Flows - Direct Method  
Notes to the Interim 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

 

 

 

 

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

 

Notes Page
   
1 - General information 1
2 - Summary of significant accounting policies 5
2.1. Basis of Preparation 5
2.2. Basis of Consolidation 13
2.3. Foreign currency transactions 14
2.4. Property, plant and equipment 16
2.5. Intangible assets other than goodwill 16
2.6. Goodwill 17
2.7. Borrowing costs 17
2.8. Losses for impairment of non-financial assets 17
2.9. Financial assets 18
2.10. Derivative financial instruments and hedging activities 18
2.11. Inventories 20
2.12. Trade and other accounts receivable 20
2.13. Cash and cash equivalents 20
2.14. Capital 20
2.15. Trade and other accounts payables 20
2.16. Interest-bearing loans 21
2.17. Current and deferred taxes 21
2.18. Employee benefits 21
2.19. Provisions 22
2.20. Revenue recognition 22
2.21. Leases 23
2.22. Non-current assets (or disposal groups) classified as held for sale 25
2.23. Maintenance 25
2.24. Environmental costs 25
3 - Financial risk management 25
3.1. Financial risk factors 25
3.2. Capital risk management 39
3.3. Estimates of fair value 39
4 - Accounting estimates and judgments 42
5 - Segmental information 45
6 - Cash and cash equivalents 48
7 - Financial instruments 50
7.1. Financial instruments by category 50
7.2. Financial instruments by currency 52
8 - Trade, other accounts receivable and non-current accounts receivable 53
9 - Accounts receivable from/payable to related entities 56
10 - Inventories 57
11 - Other financial assets 58
12 - Other non-financial assets 59
13 - Non-current assets and disposal group classified as held for sale 60
14 - Investments in subsidiaries 61

 

 

 

 

15 - Intangible assets other than goodwill 64
16 - Goodwill 65
17 - Property, plant and equipment 67
18 - Current and deferred tax 72
19 - Other financial liabilities 77
20 - Trade and other accounts payables 86
21 - Other provisions 88
22 - Other non financial liabilities 90
23 - Employee benefits 92
24 - Accounts payable, non-current 94
25 - Equity 94
26 - Revenue 99
27 - Costs and expenses by nature 100
28 - Other income, by function 101
29 - Foreign currency and exchange rate differences 102
30 - Earnings per share 110
31 - Contingencies 111
32 - Commitments 124
33 - Transactions with related parties 126
34 - Share based payments 127
35 - Statement of cash flows 130
36 - The environment 132
37 - Events subsequent to the date of the financial statements 133

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS                        
          As of     As of     As of  
          March 31,     December 31,     January 1,  
    Note     2019     2018     2018  
          ThUS$     ThUS$     ThUS$  
          Unaudited     Restated     Restated  
                Unaudited     Unaudited  
                         
Cash and cash equivalents                                
Cash and cash equivalents     6 - 7       1,124,326       1,081,642       1,142,004  
Other financial assets     7 - 11       486,401       383,984       559,919  
Other non-financial assets     12       259,085       290,476       244,778  
Trade and other accounts receivable     7 - 8       1,125,376       1,162,582       1,202,945  
Accounts receivable from related entities     7 - 9       6,549       2,931       2,582  
Inventories     10       301,659       279,344       236,666  
Current tax assets     18       64,013       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             3,367,409       3,270,093       3,466,881  
                                 
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners     13       2,006       5,768       291,103  
                                 
Total current assets             3,369,415       3,275,861       3,757,984  
                                 
Non-current assets                                
Other financial assets     7 - 11       57,210       58,700       88,090  
Other non-financial assets     12       238,034       227,541       212,203  
Accounts receivable     7 - 8       5,348       5,381       6,891  
Intangible assets other than goodwill     15       1,434,324       1,441,072       1,617,247  
Goodwill     16       2,283,269       2,294,072       2,672,550  
Property, plant and equipment     17       12,565,500       12,501,809       12,930,652  
Current tax assets     18       757       757       17,532  
Deferred tax assets     18       271,650       273,529       370,564  
Total non-current assets             16,856,092       16,802,861       17,915,729  
Total assets             20,225,507       20,078,722       21,673,713  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY                        
          As of     As of     As of  
          March 31,     December 31,     January 1,  
LIABILITIES   Note     2019     2018     2018  
          ThUS$     ThUS$     ThUS$  
          Unaudited     Restated     Restated  
                Unaudited     Unaudited  
                         
Current liabilities                                
                                 
Other financial liabilities     7 - 19       1,790,900       1,794,286       1,619,979  
Trade and other accounts payables     7 - 20       1,704,729       1,674,303       1,668,612  
Accounts payable to related entities     7 - 9       2,569       382       760  
Other provisions     21       5,210       4,794       2,783  
Current tax liabilities     18       3,699       3,738       3,511  
Other non-financial liabilities     22       2,293,634       2,454,746       2,901,603  
Total current liabilities other than non-current liabilities (or disposal groups) classified as held for sale             5,800,741       5,932,249       6,197,248  
Liabilities included in disposal groups classified as held for sale     13       -       -       15,546  
Total current liabilities             5,800,741       5,932,249       6,212,794  
                                 
Non-current liabilities                                
Other financial liabilities     7 - 19       8,790,470       8,359,462       9,433,450  
Accounts payable     7 - 24       462,785       529,277       559,443  
Other provisions     21       312,641       303,495       374,593  
Deferred tax liabilities     18       778,951       786,571       877,748  
Employee benefits     23       89,416       82,365       101,087  
Other non-financial liabilities     22       628,236       644,702       158,305  
Total non-current liabilities             11,062,499       10,705,872       11,504,626  
Total liabilities             16,863,240       16,638,121       17,717,420  
                                 
EQUITY                                
Share capital     25       3,146,265       3,146,265       3,146,265  
Retained earnings     25       158,897       218,971       (41,012 )
Treasury Shares     25       (178 )     (178 )     (178 )
Other reserves             (36,890 )     (4,365 )     760,761  
Parent's ownership interest             3,268,094       3,360,693       3,865,836  
Non-controlling interest     14       94,173       79,908       90,457  
Total equity             3,362,267       3,440,601       3,956,293  
Total liabilities and equity             20,225,507       20,078,722       21,673,713  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

        For the period ended  
        March 31,  
    Note   2019     2018  
        ThUS$     ThUS$  
        Unaudited     Restated  
              Unaudited  
                 
Revenue   26     2,431,478       2,613,835  
Cost of sales         (2,021,555 )     (1,975,978 )
Gross margin         409,923       637,857  
Other income   28     93,790       116,701  
Distribution costs         (142,860 )     (169,683 )
Administrative expenses         (162,415 )     (202,597 )
Other expenses         (116,314 )     (111,834 )
Other gains/(losses)         (3,985 )     (3,456 )
Income from operation activities         78,139       266,988  
Financial income         5,891       12,187  
Financial costs   27     (138,446 )     (133,355 )
Foreign exchange gains/(losses)   29     8,949       811  
Result of indexation units         1,911       2,434  
Income (loss) before taxes         (43,556 )     149,065  
Income tax expense / benefit   18     (13,041 )     (43,213 )
                     
NET INCOME (LOSS) FOR THE PERIOD         (56,597 )     105,852  
Income (loss) attributable to owners of the parent         (60,074 )     92,169  
Income (loss) attributable to non-controlling interest   14     3,477       13,683  
                     
Net income (loss) for the year         (56,597 )     105,852  
                     
EARNINGS PER SHARE                    
Basic earnings (losses) per share (US$)   30     (0,09907 )     0,15199  
Diluted earnings (losses) per share (US$)   30     (0,09907 )     0,15199  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

        For the period ended  
        March 31,  
    Note   2019     2018  
        ThUS$     ThUS$  
        Unaudited     Restated  
              Unaudited  
                 
NET INCOME (LOSS)         (56,597 )     105,852  
Components of other comprehensive income that will not be reclassified to income before taxes                    
Other comprehensive income, before taxes, gains (losses) by new measurements on defined benefit plans   25     (2,395 )     (2,098 )
Total other comprehensive income that will not be reclassified to income before taxes         (2,395 )     (2,098 )
Components of other comprehensive income that will be reclassified to income before taxes                    
Currency translation differences                    
Gains (losses) on currency translation, before tax   29     (19,667 )     (23,737 )
Other comprehensive income, before taxes, currency translation differences         (19,667 )     (23,737 )
Cash flow hedges                    
Gains (losses) on cash flow hedges before taxes   19     26,624       17,119  
Other comprehensive income (losses), before taxes, cash flow hedges         26,624       17,119  
Total other comprehensive income that will be reclassified to income before taxes         6,957       (6,618 )
Other components of other comprehensive income (loss), before taxes         4,562       (8,716 )
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     656       525  
Accumulate income tax relating to other comprehensive income that will not be reclassified to income         656       525  
Income tax relating to other comprehensive income that will be reclassified to income                    
Income tax related to cash flow hedges in other comprehensive income         426       (527 )
Income taxes related to components of other comprehensive income that will be reclassified to income         426       (527 )
Total Other comprehensive income         5,644       (8,718 )
Total comprehensive income (loss)         (50,953 )     97,134  
Comprehensive income (loss) attributable to owners of the parent         (92,433 )     84,693  
Comprehensive income (loss) attributable to non-controlling interests         41,480       12,441  
TOTAL COMPREHENSIVE INCOME (LOSS)         (50,953 )     97,134  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM 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, 2019 Restated (Unaudited)         3,146,265       (178 )     (2,656,644 )     (9,333 )     (15,178 )     37,874       2,638,916       (4,365 )     218,971       3,360,693       79,908       3,440,601  
Total increase (decrease) in equity                                                                                                    
Comprehensive income                                                                                                    
Gain (losses)   25     -       -       -       -       -       -       -       -       (60,074 )     (60,074 )     3,477       (56,597 )
Other comprehensive income         -       -       (57,689 )     27,069       (1,739 )     -               (32,359 )     -       (32,359 )     38,003       5,644  
Total comprehensive income         -       -       (57,689 )     27,069       (1,739 )     -       -       (32,359 )     (60,074 )     (92,433 )     41,480       (50,953 )
Transactions with shareholders                                                                                                    
Dividends   25     -       -       -       -       -       -       -       -       -       -       -       -  
Increase (decrease) through transfers and other changes, equity   25-34     -       -       -       -       -       (70 )     (96 )     (166 )     -       (166 )     (27,215 )     (27,381 )
Total transactions with shareholders         -       -       -       -       -       (70 )     (96 )     (166 )     -       (166 )     (27,215 )     (27,381 )
Closing balance as of March 31, 2019 (Unaudited)         3,146,265       (178 )     (2,714,333 )     17,736       (16,917 )     37,804       2,638,820       (36,890 )     158,897       3,268,094       94,173       3,362,267  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM 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 )     (2,131,591 )     18,140       (10,926 )     39,481       2,639,780       554,884       475,118       4,176,089       91,147       4,267,236  
Increase (decrease) by application of new accounting standards   2 - 25     -       -       205,877       -       -       -       -       205,877       (516,130 )     (310,253 )     (690 )     (310,943 )
Initial balance Restated (Unaudited)         3,146,265       (178 )     (1,925,714 )     18,140       (10,926 )     39,481       2,639,780       760,761       (41,012 )     3,865,836       90,457       3,956,293  
Total increase (decrease) in equity                                                                                                    
Comprehensive income                                                                                                    
Gain (losses)   25     -       -       -       -       -       -       -       -       92,169       92,169       13,683       105,852  
Other comprehensive income         -       -       (22,571 )     16,611       (1,516 )     -       -       (7,476 )     -       (7,476 )     (1,242 )     (8,718 )
Total comprehensive income         -       -       (22,571 )     16,611       (1,516 )     -       -       (7,476 )     92,169       84,693       12,441       97,134  
Transactions with shareholders                                                                                                    
Dividends   25     -       -       -       -       -       -       -       -       (28,167 )     (28,167 )     -       (28,167 )
Increase (decrease) through transfers and other changes, equity   25-34     -       -       -       -       -       (1,938 )     5,783       3,845       -       3,845       (10,514 )     (6,669 )
Total transactions with shareholders         -       -       -       -       -       (1,938 )     5,783       3,845       (28,167 )     (24,322 )     (10,514 )     (34,836 )
Closing balance as of March 31, 2018 Restated (Unaudited)         3,146,265       (178 )     (1,948,285 )     34,751       (12,442 )     37,543       2,645,563       757,130       22,990       3,926,207       92,384       4,018,591  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

        For the period ended  
        March 31,  
    Note   2019     2018  
        ThUS$     ThUS$  
              Restated  
        Unaudited     Unaudited  
                 
Cash flows from operating activities                    
Cash collection from operating activities                    
Proceeds from sales of goods and services         2,536,205       2,698,081  
Other cash receipts from operating activities         27,027       25,539  
Payments for operating activities                    
Payments to suppliers for goods and services         (1,739,695 )     (1,605,394 )
Payments to and on behalf of employees         (504,940 )     (559,714 )
Other payments for operating activities         (51,345 )     (76,643 )
Income taxes refunded (paid)         (12,719 )     (11,796 )
Other cash inflows (outflows)   35     (27,988 )     (6,322 )
Net cash flows from operating activities         226,545       463,751  
Other cash receipts from sales of equity or debt  instruments of other entities         728,847       903,496  
Other payments to acquire equity  or debt instruments of other entities         (824,446 )     (1,083,699 )
Amounts raised from sale of property, plant and equipment         274       107,129  
Purchases of property, plant and equipment         (181,826 )     (178,566 )
Purchases of intangible assets         (18,504 )     (19,911 )
Interest received         7,730       3,790  
Other cash inflows (outflows)   35     (597 )     11,731  
Net cash flow from (used in) investing activities         (288,522 )     (256,030 )
Cash flows from (used in) financing activities   35                
Amounts raised from long-term loans         594,354       5,004  
Amounts raised from short-term loans         -       80,000  
Loans repayments         (306,081 )     (384,985 )
Payments of lease liabilities         (94,136 )     (91,416 )
Dividends paid         -       (9,716 )
Interest paid         (100,919 )     (107,005 )
Other cash inflows (outflows)         27,246       (2,449 )
Net cash flows from (used in) financing activities         120,464       (510,567 )
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change         58,487       (302,846 )
Effects of variation in the exchange rate on cash and cash equivalents         (15,803 )     (24,928 )
Net increase (decrease) in cash and cash equivalents         42,684       (327,774 )
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD   6     1,081,642       1,142,004  
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD   6     1,124,326       814,230  

 

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

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF MARCH 31, 2019 (UNAUDITED)

 

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 March 31, 2019 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 March 31, 2019, the Company had a total of 1,429 shareholders in its registry. At that date, approximately 2.55% of the Company's property was in the form of ADRs.

 

For the period ended March 31, 2019, the company had an average of 40,925 employees, ending this period with a total number of 40,746 people, distributed in 6,470 Administration employees, 4,955 in Maintenance, 12,945 in Operations, 9,216 Cabin Crew , 4,217 Cockpit Crew and 2,943 in Sales.

 

 

 

 

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

 

a) Participation rate

 

                As March 31, 2019     As December 31, 2018  
        Country   Functional                                    
Tax No.   Company   of origin   Currency   Direct     Indirect     Total     Direct     Indirect     Total  
                %     %     %     %     %     %  
                Unaudited                    
96.518.860-6   Latam Travel Chile  S.A. and Subsidiary   Chile   US$     99.9900       0.0100       100.0000       99.9900       0.0100       100.0000  
96.969.680-0   Lan Pax Group S.A. and Subsidiaries   Chile   US$     99.8361       0.1639       100.0000       99.8361       0.1639       100.0000  
Foreign   Lan Perú S.A.   Peru   US$     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  
Foreign   Connecta Corporation   U.S.A.   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Prime Airport Services Inc. and Subsidiary   U.S.A.   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.951.280-7   Transporte Aéreo S.A.   Chile   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.631.520-2   Fast Air Almacenes de Carga S.A.   Chile   CLP     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Laser Cargo S.R.L.   Argentina   ARS     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Lan Cargo Overseas Limited and Subsidiaries   Bahamas   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.969.690-8   Lan Cargo Inversiones S.A. and Subsidiary   Chile   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.575.810-0   Inversiones Lan S.A. and Subsidiaries   Chile   US$     99.7100       0.2900       100.0000       99.7100       0.2900       100.0000  
96.847.880-K   Technical Training LATAM S.A.   Chile   CLP     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  
Foreign   Peuco Finance Limited   Cayman Insland   US$     100.0000       0.0000       100.0000       100.0000       0.0000       100.0000  
Foreign   Professional Airline Services INC.   U.S.A.   US$     100.0000       0.0000       100.0000       100.0000       0.0000       100.0000  
Foreign   Jarletul S.A.   Uruguay   US$     99.0000       1.0000       100.0000       99.0000       1.0000       100.0000  
Foreign   TAM S.A. and Subsidiaries (*)   Brazil   BRL     63.0901       36.9099       100.0000       63.0901       36.9099       100.0000  

 

(*)          As of March 31, 2019, 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 51.04% of political rights its percentage arise as a result of the provisional measure No. 863 of the Brazilian government implemented in December 2018 that allows foreign capital to have up to 100% of the property.

 

  2  

 

 

b) Financial Information

 

        Statement of financial position     Net Income  
                                            For the period ended  
        As of March 31, 2019     As of December 31, 2018     March 31,  
                                            2019     2018  
Tax No.   Company   Assets     Liabilities     Equity     Assets     Liabilities     Equity     Gain /(loss)  
        ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                          Restated     Restated  
        Unaudited     Unaudited     Unaudited  
96.518.860-6   Latam Travel Chile  S.A. and Subsidary     11,391       4,232       7,159       10,841       3,909       6,932       227       708  
96.969.680-0   Lan Pax Group S.A. and Subsidiaries (*)     485,156       1,268,326       (797,728 )     526,017       1,281,800       (751,960 )     1,943       (22,059 )
Foreign   Lan Perú S.A.     348,683       347,032       1,651       419,325       409,221       10,104       (6,664 )     11,806  
93.383.000-4   Lan Cargo S.A.     654,634       476,696       177,938       513,367       336,715       176,652       1,341       (118 )
Foreign   Connecta Corporation     73,080       26,170       46,910       66,593       28,183       38,410       8,500       2,131  
Foreign   Prime Airport Services Inc. and Subsidary (*)     17,881       20,325       (2,444 )     15,817       17,654       (1,837 )     (608 )     183  
96.951.280-7   Transporte Aéreo S.A.     352,229       148,121       204,108       331,496       129,233       202,263       1,903       6,044  
96.631.520-2   Fast Air Almacenes de Carga S.A.     17,694       10,293       7,401       17,057       9,614       7,443       (248 )     (81 )
Foreign   Laser Cargo S.R.L.     (13 )     -       (13 )     26       13       13       -       -  
Foreign   Lan Cargo Overseas Limited and Subsidiaries (*)     58,737       21,852       36,629       53,326       13,040       40,028       (3,400 )     3,191  
96.969.690-8   Lan Cargo Inversiones S.A. and Subsidary (*)     191,987       208,211       (14,459 )     181,522       192,059       (9,614 )     (4,845 )     490  
96.575.810-0   Inversiones Lan S.A. and Subsidiaries (*)     1,397       51       1,346       1,383       50       1,333       13       837  
96.847.880-K   Technical Trainning LATAM S.A.     3,002       1,462       1,540       2,879       1,031       1,848       (192 )     (384 )
Foreign   Latam Finance Limited     1,225,973       1,320,857       (94,884 )     679,034       756,774       (77,740 )     (17,144 )     (11,893 )
Foreign   Peuco Finance Limited     664,458       664,458       -       608,191       608,191       -       -       -  
Foreign   Profesional Airline  Services INC.     1,633       6,114       (4,481 )     2,430       1,967       463       (4,944 )     56  
Foreign   Jarletul S.A.     214       306       (92 )     18       125       (107 )     (92 )     -  
Foreign   TAM S.A. and Subsidiaries (*)     4,370,696       3,283,500       1,012,585       4,420,546       3,256,017       1,095,695       (98,911 )     69,601  

 

(*) 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.

 

  3  

 

 

The changes that occurred in the consolidation perimeter between January 1, 2018 and March 31, 2019, are detailed below:

 

(1) Incorporation or acquisition of companies

 

- 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. ownership 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) Disposition of companies.

 

- 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.

 

  4  

 

 

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 March 31, 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting.

 

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

 

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

 

The consolidated interim financial statements have been prepared in accordance with the accounting policies used by the Company for the consolidated financial statements 2018, except for the standards and interpretations adopted as of January 1, 2019.

 

  5  

 

 

(a) Accounting pronouncements with implementation effective from January 1, 2019:

 

  Date of issue Effective Date:
(i)    Rules and amendments    
     
IFRS 16: Leases. january 2016 01/01/2019
     
Amendment to IFRS 9: Financial instruments october 2017 01/01/2019
     
Amendment to IAS 28: Investments in associates and joint ventures october 2017 01/01/2019
     
Amendment to IAS 19: Benefits to employees february  2018 01/01/2019
     
(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 01/01/2019
     
(iii)    Interpretations    
     
IFRIC 23: Uncertain tax positions june 2017 01/01/2019

 

During the reporting period, the Company has recognized the changes, in the consolidated financial statements, as a result of the adoption of IFRS 16 retrospectively; restating the comparative figures, in accordance with the provisions of IAS 8 Accounting policies, changes in accounting estimates and errors.

 

The Company has modified the initial balances corresponding to January 1, 2018. The disclosures corresponding to the initial application of IFRS 9 and IFRS 15, which also originated changes, have been maintained in the consolidated financial statements.

 

  6  

 

 

The impacts of the adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases are as follows:

 

Consolidated statement of financial position (extract)

 

a) As of January 1, 2018:

 

        As of   Adoption     As of     Adoption     As of  
        December 31,   effect     January 1     effect     January 1,  
    Note   2017     IFRS 9     IFRS 15     2018     IFRS 16     2018  
        ThUS$     THUS$     ThUS$     ThUS$     ThUS$     ThUS$  
              Unaudited     Unaudited     Unaudited     Unaudited     Restated  
                                      Unaudited  
Current assets                                                    
Other non-financial assets, current   12     221,188       -       54,361 (4)     275,549       (30,772 )(9)     244,777  
Trade debtors and other accounts receivable, current   7 - 8     1,214,050       (11,105 )(1)     -       1,202,945       -       1,202,945  
                                                     
Non-current assets                                                    
Other non-financial assets, non current   12     220,807       -       -       220,807       (8,603 )(9)     212,204  
Properties, plants and equipment   17     10,065,335       -       -       10,065,335       2,865,317 (9)     12,930,652  
Deferred tax assets   18     364,021       89 (2)     6,005 (7)     370,115       449 (10)     370,564  
                                                     
Current liabilities                                                    
Other current financial liabilities   7 - 19     1,300,949       -       -       1,300,949       319,030 (11)     1,619,979  
Trade and other accounts payables   7 - 20     1,695,202       -       (22,192 )(5)     1,673,010       (4,398 )(9)     1,668,612  
Other non-financial liabilities, current   22     2,823,963       -       77,640 (6)     2,901,603       -       2,901,603  
                                                     
Non-current liabilities                                                    
Other  non current financial liabilities   7-19     6,605,508       -       -       6,605,508       2,827,942 (11)     9,433,450  
Accounts payable commercial and other   7 - 24     498,832       -       -       498,832       60,611 (9)     559,443  
Deferred tax liability   18     949,697       (1,021 )(2)     4,472 (5)     953,148       (75,400 )(10)     877,748  
                                                     
Equity                                                    
Equity attributable to the owners of the parent                                                    
Accumulated earnings   25     475,118       (9,995 )(3)     446 (8)     465,569       (506,581 )(12)     (41,012 )
Other reserves   25     554,885       -       -       554,885       205,877 (12)     760,762  
Non-controlling interest   14     91,147       -       -       91,147       (690 )(12)     90,457  

 

  7  

 

 

b) As of December 31, 2018:

 

        As of     Adoption     As of                          
        December 31,     effect     December 31,                          
    Note   2018     IFRS 16     2018                          
        ThUS$     ThUS$     ThUS$                          
              Unaudited     Restated                          
                    Unaudited                          
Current assets                                                    
Other non-financial assets, current   12     320,977       (30,501 )(9)     290,476                          
                                                     
Non-current assets                                                    
Other non-financial assets, non current   12     233,741       (6,200 )(9)     227,541                          
Properties, plants and equipment   17     9,953,365       2,548,444 (9)     12,501,809                          
Deferred tax assets   18     273,327       201 (10)     273,528                          
                                                     
Current liabilities                                                    
Other current financial liabilities   7 - 19     1,430,789       363,497 (11)     1,794,286                          
                                                     
Non-current liabilities                                                    
Other  non current financial liabilities   7-19     5,864,910       2,494,552 (11)     8,359,462                          
Accounts payable commercial and other   7 - 24     483,656       45,621 (10)     529,277                          
Deferred tax liability   18     872,121       (85,550 )(9)     786,571                          
                                                     
Equity                                                    
Equity attributable to the owners of the parent                                                    
Accumulated earnings   25     597,675       (378,705 )(12)     218,970                          
Other reserves   25     (76,926 )     72,561 (12)     (4,365 )                        
Non-controlling interest   14     79,940       (32 )(12)     79,908                          

 

- Effects of adopting IFRS 9

 

(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 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.

 

  8  

 

 

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        
                      Initial                    
Assets   Loans     Hedge     Held     as fair value           At fair value        
    and     and     for     through profit     Cost     with changes        
    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  

 

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

 

(*) Balances as of January 1, 2018 do not contain the re-expression effects originated by IFRS 16.

 

- Effects of adopting IFRS 15

 

(4) Contract costs: The Company has capitalized the costs related to the revenues from air transport of passengers, corresponding to: the commissions charged by the credit card administrators for US$ 22.0 million and the air ticket booking services through the 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.

 

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(9) Company recognized under Property, plant and equipment right of use assets for US $ 2,865.3 million as of January 1, 2018 and US $ 2,548.4 as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 17).

 

The Company decrease other financial assets related to advance payments for leases for US $ 39.4 million as of January 1, 2018 and US $ 36.7 as of December 31, 2018, since with the application of the standard these amounts are considered in the initial measurement of the right of use asset.

 

The Company increased the cost of restoration associated with the return of aircraft and engines for US $ 56.2 million as of January 1, 2018 and US $ 45.6 million as of December 31, 2018. With the application of the standard, the net present value of this cost was included in the asset for right of use and its counterpart in the line of accounts payable, current or non-current, depending on the return date of the aircraft or engines.

 

(10) Deferred taxes: adjustments originated by the application of IFRS 16.

 

(11) Lease liabilities: The Company recognized within the Other financial liabilities for lease for US $ 3,147.0 million as of January 1, 2018 and US $ 2,858.0 million as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 19).

 

(12) The effect of the recognition of the leases under IFRS 16 generated a decrease in retained earnings of US $ 506.6 million as of January 1, 2018 (US $ 378.7 million as of December 31, 2018). The increase in Other reserves of US $ 205.9 millions as of January 1, 2018 ( decrease of US $72,5 millions as of December 31, 2018), was caused by the Cumulative translation adjustment of those subsidiaries with functional currencies other than the US dollar. The application of IFRS 16 also affected non-controlling interests.

 

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The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of March 31, 2018 are presented in the consolidated income statement:

 

          For the period ended March 31, 2018  
Reconciliation Revenue                     Adjustments for reconciliation      
                                     
          Results   Adoption   Results       Deferred       Results  
          under   Effect   under   Contract   revenues       under  
    Nota     IFRS 15   IFRS16   IFRS 15   costs (4 )   recognition [(5), (6 )]   Reclassifications   IAS 18  
          ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$  
          Published       Restated                  
          Restated       IFRS 16                  
                      Unaudited              
                                     
Revenue   26       2,613,835     -     2,613,835     -     30,273     4,830     2,648,938  
Cost of sales           (2,019,583 )   43,605     (1,975,978 )   -     (10,732)           (1,986,710 )
Gross margin           594,252     43,605     637,857     -     19,541     4,830     662,228  
                                                   
Other income   28       116,701     -     116,701     -     -     18,774     135,475  
Distribution costs           (170,635 )   952     (169,683)     964     -     (4,698 )   (173,417 )
Administrative expenses           (199,015 )   (3,582 )   (202,597 )   3,381     -     (18,906 )   (218,122)  
Other expenses           (112,767 )   933     (111,834 )   -     -     -     (111,834 )
Other gains (losses)           (3,456 )   -     (3,456 )   -     -     -     (3,456 )
Income from operation activities           225,080     41,908     266,988     4,345     19,541     -     290,874  
                                                   
Financial income           12,187     -     12,187     -     -     -     12,187  
Financial costs   27       (86,217 )   (47,138 )   (133,355 )   -     -     -     (133,355 )
Foreign exchange gains (losses)   29       811     -     811     -     -     -     811  
Result of indexation units           2,434     -     2,434     -     -     -     2,434  
Income (loss) before taxes           154,295     (5,230)     149,065     4,345     19,541     -     172,951  
Income (loss) tax expense / benefit   18       (46,723 )   3,510     (43,213 )   (1,240 )   (6,007 )   -     (50,460 )
NET INCOME (LOSS) FOR THE PERIOD           107,572     (1,720)     105,852     3,105     13,534     -     122,491  
                                                   
Income (loss) attributable to owners of the parent           93,889     (1,720)     92,169     3,105     13,534     -     108,808  
Income (loss) attributable to non- controlling interest   14       13,683     -     13,683     -     -     -     13,683  
Net income (loss) for the period           107,572     (1,720)     105,852     3,105     13,534     -     122,491  

 

In the income statement, with the implementation of the IFRS16 standard, restated were made in the following lines:

 

- Cost of sale, distribution costs, administrative expenses: net effect of derecognized of rental cost and recognition of the depreciation of the right of use.

 

- Financial Costs: interest expense corresponding to the lease liability.

 

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(b)          Accounting pronouncements not yet in force for financial years beginning on January 1, 2019 and which has not been effected early adoption

 

(i) Rules and amendments

Date of issue

Effective Date 

     

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 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

  

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.

 

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.

 

(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.

 

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(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.

 

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.

 

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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.

 

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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.

 

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(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.

 

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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 for hedge accounting and IFRS 9 for derivatives not qualify as hedge accounting, initially at fair value on the date on which the derivative contract was made and are subsequently valued at their fair value. The method to recognize the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if so, the nature of the item being hedged. The Company designates certain derivatives as:

 

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

 

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(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

 

The Company recognizes contracts that meet the definition of a lease, as a right of use asset and a lease liability on the date when the underlying asset is available for use.

 

Assets for right of use are measured at cost including the following:

 

- The amount of the initial measurement of the lease liability;
- Lease payment made at or before commencement date;
- Initial direct costs, and
- Restoration costs.

 

The assets by right of use are recognized in the statement of financial position in Properties, Plants and equipment (See Note 17).

 

Lease liabilities include the net present value of the following payments:

 

- Fixed payments including in sustance fixed payment.

 

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- Variable lease payments that depend on an index or a rate;
- The exercise price of a purchase options, if is reasonably certain to exercise that option.

 

The Company determines the present value of the lease payments using the implicit rates for the aircraft leasing contracts and for the rest of the underlying assets, uses the incremental borrowing rate.

 

Lease liabilities are recognized in the statement of financial position under Other financial liabilities, current or non-current (See Note 19).

 

Interest accrued on financial liabilities is recognized in the consolidated statement of income in "Financial costs".

 

Principal and inters is presented in the consolidated cash flow as “Payments of lease liability” and “Interest paid”, respectively in cash flows use in financing activities.

 

Payments associated with short-term leases without purchase options and leases of low-value assets are recognized on a straight-line basis in profit or loss at the time of accrual. Those payments are presented in cash flows use in operation activities.

 

The company analyzes the financing agreements of aircrafts, mainly considering characteristics such as:

 

(a) that the company initially acquired the aircraft or took an important part in the process of direct acquisition with the manufacturers,

 

(b) Due to the contractual conditions, it is virtually certain that the company will execute the purchase option of the aircraft at the end of the lease term.

 

Since these financing agreements are "substantially purchases" and not leases, the related liability is considered as a financial debt classified under IFRS 9 and continue to be presented within the "other financial liabilities" described in note 19. On the other hand, aircraft are presented in Property, Plants and Equipment as described in note 17, as "own aircrafts".

 

The Group qualifies as sale and leaseback transactions, operations which lead to a sale according to IFRS 15. More specifically, a sale is considered as such if there is no repurchase option on the goods at the end of the lease term.

 

- Sale according to IFRS 15

 

If the sale by the vendor-lessee is qualified as a sale according to IFRS 15, the vendor-lessee must: (i) derecognize the underlying asset, (ii) recognize a right-of-use asset equal to the retained portion of the net carrying amount of the asset.

 

- Not a sale according to IFRS 15

 

If the sale by the vendor-lessee is not qualified as a sale according to IFRS 15, the vendor-lessee keeps maintains the goods transferred on its balance sheet recognizes a financial liability equal to the disposal price (received from the buyer-lessor).

 

  24  

 

 

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

 

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

 

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

 

2.24. Environmental costs

 

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

 

NOTE 3 - FINANCIAL RISK MANAGEMENT

 

3.1. Financial risk factors

 

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

 

(a) Market risk

 

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

 

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

 

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

 

(i) Fuel-price risk:

 

Exposition:

 

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

 

Mitigation:

 

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

 

Fuel Hedging Results:

 

During the period ended March 31, 2019, the Company recognized gains of US$ 8.9 million for fuel coverage net of premium. During the same period of 2018, the Company recognized gains of US$ 6.5 million for the same concept.

 

As of March 31, 2019, the market value of fuel positions amounted to US$ 6.3 million (negative). At the end of December 2018, this market value was US$ 15.8 million (negative).

 

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

 

Positions as of  March 31, 2019 (*)   Maturities        
    Q219     Q319     Q419     Total        
Percentage of coverage over the expected volume of consumption 65 % 42 % 20 %   45 %      

 

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

 

Positions as of  December 31, 2018 (*)   Maturities  
    Q119     Q219     Q319     Q419   Total  
                                       
Percentage of coverage over the expected volume of consumption     66 %     58 %     40 %     15 %   45 %

 

(*) 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 March 2019 and the end of December, 2018.

 

    Positions as of March 31, 2019   Positions as of December 31, 2018
Benchmark price   effect on equity   effect on equity
(US$ per barrel)   (millions of US$)   (millions of US$)
         
 +5    +10.8    +7.4
 -5    - 9.5    - 5.5

 

Given the structure of fuel coverage during 2019, 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 $ 33.0 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 $ 30.5 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 2019, and securing the operating margin, LATAM makes hedges using FX derivatives.

 

As of March 31, 2019 and the end of December 2018, the Company does not maintain hedge FX derivatives.

 

During the period ended March 31, 2019, the Company did not recognize results due to FX coverage. During the same period of 2018, the company recognized gains of US$ 0.8 million.

 

As of March 31, 2019, and for the year end at December 2018, the company has not subscribed FX derivatives.

 

As of March 31, 2019 the company has contracted FX derivatives which have not been recorded under hedge accounting. The market value of these positions amounts to US$ 17.4 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. For the period ended March 31, 2019, the loss recognized in results amounts to US $ 8.1 million including 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 March 31, 2019, 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 March 31, 2019, the market value of derivative positions of currency swaps amounted to US$ 20.3 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 reals, 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 March 31, 2019   Effect at March 31, 2018
of R$/US$(*)   Millions of US$   Millions of US$
         
-10%   +34.3   +28.5
+10%   -34.3    -28.5

 

(*) 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 March 31, 2019   Effect at December 31, 2018
of R$/US$   Millions of US$   Millions of US$
         
-10%   +360.82   +384.73
+10%   -360.82   -314.78

 

(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.

 

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

 

Mitigation :

 

In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 63% (60% at December 31, 2018) of the debt is fixed to fluctuations in interest rate.

 

Rate Hedging Results :

 

As of March 31, 2019, the market value of the derivative positions of interest rates amounted to US $ 1.7 million (negative). At the end of December 2018, this market value was US $ 2.2 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 March 31, 2019   Positions as of December 31, 2018
futures curve   effect on profit or loss before tax   effect on profit or loss before tax
in libor 3 months   (millions of US$)   (millions of US$)
         
+100 basis points    -28.24    -28.50
-100 basis points   +28.24   +28.50

 

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 March 31, 2019   Positions as of December 31, 2018
futures curve   effect on equity   effect on equity
in libor 3 months   (millions of US$)   (millions of US$)
         
+100  basis points   +0.50   +0.70
-100   basis points   -0.51   -0.71

 

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.

 

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

 

(b) Credit risk

 

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

 

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

 

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

 

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.

 

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

 

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

 

Credit quality of financial assets

 

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

 

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

 

(c) Liquidity risk

 

Liquidity risk represents the risk that the Company has 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 March 31, 2019 is US$ 1,544 million (US$ 1,404 million at December 31, 2018), 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 March 31, 2019, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line of US$ 575 million (US$ 600 million as of December 31, 2018) 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 March 31, 2019 (Unaudited)

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$     76,275       38,697       -       -       -       114,972       113,000     At Expiration     3.48       3.48  
97.032.000-8   BBVA   Chile   UF     865       52,881       -       -       -       53,746       52,001     At Expiration     4.11       3.31  
97.036.000-K   BANCO DO BRASIL   Chile   US$     201,803       -       -       -       -       201,803       200,000     At Expiration     3.60       3.60  
97.003.000-K   HSBC   Chile   US$     12,095       -       -       -       -       12,095       12,000     At Expiration     3.15       3.15  
                                                                                         
Bank loans                                                                                  
                                                                                         
97.023.000-9   CORPBANCA   Chile   UF     5,879       17,348       11,328       -       -       34,555       33,553     Quarterly     3.35       3.35  
0-E   BLADEX   U.S.A.   US$     8,012       7,756       -       -       -       15,768       15,000     Semiannual     6.75       6.75  
97.036.000-K   SANTANDER   Chile   US$     540       48       51,283       -       -       51,871       51,283     Quarterly     5.40       5.40  
76.362.099-9   BTG PACTUAL  CHILE   Chile   UF     523       1,568       70,575       -       -       72,666       67,439     At Expiration     3.10       3.10  
                                                                                         
Obligations with the public                                                                                  
                                                                                         
97.030.000-7   ESTADO   Chile   UF     9,720       9,720       38,879       201,684       218,215       478,218       353,444     At Expiration     5.50       5.50  
0-E   BANK OF NEW YORK   U.S.A.   US$     42,188       86,521       698,375       180,250       1,408,063       2,415,397       1,800,000     At Expiration     7.33       7.02  
                                                                                         
Guaranteed obligations                                                                                  
                                                                                         
0-E   CREDIT AGRICOLE   France   US$     739       2,189       5,654       1,384       -       9,966       9,422     Quarterly     4.32       3.23  
0-E   BNP PARIBAS   U.S.A.   US$     20,316       56,157       151,315       143,516       237,514       608,818       501,147     Quarterly     4.42       4.41  
0-E   WILMINGTON TRUST COMPANY   U.S.A.   US$     36,141       106,003       267,521       291,259       508,443       1,209,367       932,069     Semiannual     4.47       4.47  
0-E   CITIBANK   U.S.A.   US$     12,777       38,168       101,305       70,622       59,468       282,340       258,590     Quarterly     3.85       2.96  
0-E   NATIXIS   France   US$     13,940       41,316       108,275       87,289       112,733       363,553       314,256     Quarterly     4.56       4.56  
0-E   INVESTEC   England   US$     3,985       9,682       27,057       22,646       -       63,370       52,560     Quarterly     7.23       7.23  
                                                                                         
Otras obligaciones garantizadas                                                                                  
                                                                                         
0-E   CREDIT AGRICOLE   France   US$     2,763       8,441       270,298       -       -       281,502       253,962     At Expiration     4.54       4.54  
0-E   DVB BANK SE   Germany   US$     27,760       81,686       208,628       101,296       15,157       434,527       398,648     Quarterly     4.23       4.23  
                                                                                         
Other guaranteed obligations                                                                                  
                                                                                         
0-E   ING   U.S.A.   US$     4,025       12,075       8,108       -       -       24,208       23,143     Quarterly     5.70       5.01  
0-E   CREDIT AGRICOLE   France   US$     12,747       16,808       14,708       -       -       44,263       43,231     Monthly     3.71       3.33  
0-E   CITIBANK   U.S.A.   US$     14,828       42,224       78,212       33,468       -       168,732       158,949     Quarterly     4.32       3.73  
0-E   PEFCO   U.S.A.   US$     5,779       9,711       1,950       -       -       17,440       16,921     Quarterly     5.64       5.02  
0-E   BNP PARIBAS   U.S.A.   US$     8,441       27,887       16,837       -       -       53,165       51,640     Quarterly     4.08       3.77  
0-E   WELLS FARGO   U.S.A.   US$     35,450       106,176       278,336       231,559       74,953       726,474       687,667     Quarterly     2.80       2.11  
97.036.000-K   SANTANDER   Chile   US$     6,332       18,794       49,193       20,529       -       94,848       89,447     Quarterly     3.77       3.23  
0-E   RRPF ENGINE   England   US$     1,164       3,468       9,069       8,790       3,787       26,278       22,183     Quarterly     4.01       4.01  
0-E   APPLE BANK   U.S.A.   US$     1,725       5,105       13,365       12,367       -       32,562       30,099     Monthly     4.14       3.54  
0-E   BTMU   U.S.A.   US$     3,480       10,332       27,044       24,238       -       65,094       60,255     Quarterly     4.05       3.46  
0-E   NATIXIS   France   US$     3,739       5,290       4,641       -       -       13,670       13,106     Quarterly     4.19       4.00  
0-E   KFW IPEX-BANK   Germany   US$     1,825       5,442       3,610       -       -       10,877       10,517     Quarterly     4.23       4.23  
0-E   AIRBUS FINANCIAL   U.S.A.   US$     2,065       6,151       5,750       -       -       13,966       13,501     Monthly     4.05       4.05  
0-E   US BANK   U.S.A.   US$     18,747       55,955       147,422       145,181       68,133       435,438       396,178     Quarterly     4.00       2.82  
0-E   PK AIRFINANCE   U.S.A.   US$     2,593       7,917       26,359       -       -       36,869       35,295     Quarterly     4.18       4.18  
                                                                                         
Other loans                                                                                  
                                                                                         
0-E   BOEING   U.S.A.   US$     917       1,371       83,592       -       -       85,880       83,592     Quarterly     4.29       4.29  
0-E   CITIBANK (*)   U.S.A.   US$     25,612       77,832       77,599       -       -       181,043       173,042     Monthly     6.00       6.00  
                                                                                         
Hedge derivative                                                                                  
                                                                                         
-   OTHERS   -   US$     2,749       1,768       7,473       -       -       11,990       (4,790 )   -     0.00       0.00  
                                                                                         
    Total             628,539       972,487       2,863,761       1,576,078       2,706,466       8,747,331       7,322,350                      

 

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

 

  33  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2019 (Unaudited)

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   NCM   Holland   US$     175       499       1,221       -       -       1,895       1,714     Monthly     6.01       6.01  
                                                                                         
Financial leases                                                                                  
                                                                                         
0-E   NATIXIS   France   US$     2,440       9,428       64,458       20,534       -       96,860       92,746     Quarterly / Semiannual     6.87       6.87  
0-E   WACAPOU LEASING S.A.   Luxembourg   US$     835       2,440       5,727       -       -       9,002       8,498     Quarterly     4.81       4.81  
0-E   SOCIÉTÉ GÉNÉRALE  MILAN BRANCH   Italy   US$     11,519       32,247       151,047       -       -       194,813       198,802     Quarterly     5.88       5.82  
0-E   GA Telesis LLC   U.S.A.   US$     679       1,753       4,675       4,675       12,234       24,016       14,403     Monthly     15.62       15.62  
    Total             15,648       46,367       227,128       25,209       12,234       326,586       316,163                      

 

  34  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2019 (Unaudited)

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$         %     %  
                                                                       
Lease Liability                                                                                  
-   AIRCRAFT   OTHERS   US$     124,800       369,560       896,995       740,491       1,179,090       3,310,936       2,893,323     -     -       -  
-   OTHER ASSETS   OTHERS   US$     3,193       8,696       18,235       16,380       18,959       65,463       65,463     -     -       -  
            CLP     3       172       -       -       -       175       175     -     -       -  
            UF     1,579       1,447       598       17       -       3,641       3,641     -     -       -  
            COP     69       37       39       16       -       161       161     -     -       -  
            EUR     257       262       191       -       -       710       710     -     -       -  
            GBP     46       113       13       -       -       172       172     -             -  
            MXN     33       92       241       100       -       466       466     -     -       -  
            PEN     152       354       42       -       -       548       548     -     -       -  
                                                                                         
Trade and other accounts payables                                                                                  
                                                                                         
-   OTHERS   OTHERS   US$     406,424       9,464       -       -       -       415,888       415,888     -     -       -  
            CLP     133,179       14,269       -       -       -       147,448       147,448     -     -       -  
            BRL     221,510       693       -       -       -       222,203       222,203     -     -       -  
            Other currencies     536,167       3,606       -       -       -       539,773       539,773     -     -       -  
Accounts payable to related parties currents                                                            
Foreign   Inversora Aeronáutica Argentina S.A.   Argentina   ARS     -       -       -       -       -       -       -     -     -       -  
78.591.370-1   Bethia S.A. y Filiales   Chile   CLP     2,553       -       -       -       -       2,553       2,553     -     -       -  
Extranjera   TAM Aviação Executiva e Taxi Aéreo S.A.   Brazil   BRL     16       -       -       -       -       16       16     -     -       -  
                                                                                         
    Total             1,429,981       408,765       916,354       757,004       1,198,049       4,710,153       4,292,540                      
                                                                                         
    Total  consolidated             2,074,168       1,427,619       4,007,243       2,358,291       3,916,749       13,784,070       11,931,053                      

 

  35  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated (Unaudited)

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       2.93  
0-E   US BANK   U.S.A.   US$     18,406       55,112       146,045       144,670       86,076       450,309       411,684     Quarterly     4.00       2.82  
0-E   NATIXIS   France   US$     14,027       42,132       111,528       92,228       124,910       384,825       324,524     Quarterly     4.69       4.69  
0-E   PK AirFinance   U.S.A.   US$     2,490       7,663       25,610       3,153       -       38,916       37,615     Monthly     4.15       4.14  
0-E   INVESTEC   England   US$     2,004       11,579       26,874       24,367       -       64,824       54,014     Semiannual     7.17       7.17  
                                                                                         
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  
                                                                              0.00          
Other loans                                                                            
                                                                                         
0-E   CITIBANK (*)   U.S.A.   US$     25,705       77,703       103,341       -       -       206,749       196,211     Quarterly     6.00       6.00  
0-E Boeing   U.S.A.   US$     559       1,425       55,728       -       -       57,712       55,727     At Expiration     4.01       4.01  
                                                                                         
Hedge derivative                                                                            
                                                                                         
-   OTHERS   -   US$     1,224       2,484       681       -       -       4,389       4,021     -     -       -  
                                                                                         
    Total             534,959       1,039,060       2,866,810       1,555,906       2,098,861       8,095,596       6,989,299                      

 

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

 

  36  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated (Unaudited)

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                      

 

  37  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated (Unaudited)

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$         %     %  
                                                                       
Leases Liability                                                      
-   AIRCRAFT   OTHERS   US$     140,780       420,561       1,015,495       785,417       1,298,585       3,660,838       2,721,352     -     -       -  
-   OTHER ASSETS   OTHERS   US$     4,968       14,536       25,689       20,029       21,138       86,360       86,360     -     -       -  
            CLP     57       170       1       -       -       228       228     -     -       -  
            UF     1,683       2,565       667       34       -       4,949       4,949     -     -       -  
            COP     304       731       366       21       -       1,422       1,422     -     -       0.00  
            EUR     311       431       215       -       -       957       957     -     -       0.00  
            GBP     45       128       36       -       -       209       209     -     -       -  
            MXN     33       92       235       115       -       475       475     -     -       -  
            PEN     183       409       114       -       -       706       706     -     -       0.00  
                                                                                         
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                                                                            
Foreign   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             1,411,747       456,598       1,042,818       805,616       1,319,723       5,036,502       4,097,016                      
                                                                                         
    Total consolidated             1,964,131       1,540,590       4,130,735       2,408,124       3,429,902       13,473,482       11,414,607                      

 

  38  

 

 

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

 

At the end of 2018, the Company had delivered US$ 5.0 million in guarantees for derivative margins, corresponding to cash and standby letters of credit. As of March 31, 2019, US$ 2.5 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 March 31, 2019 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 March 31, 2019, 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.

 

  39  

 

 

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 March 31, 2019     As of December 31, 2018  
          Fair value measurements using values
considered as 		          Fair value measurements using values
considered as 		 
    Fair value     Level I     Level II     Level III     Fair value     Level I     Level II     Level III  
    (Unaudited)                          
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
Assets                                                                
                                                                 
Cash and cash equivalents     148,625       148,625       -       -       43,653       43,653       -       -  
Short-term mutual funds     148,625       148,625       -       -       43,653       43,653       -       -  
                                                                 
Other financial assets, current     469,787       437,394       32,393       -       366,573       343,218       23,355       -  
Fair value interest rate derivatives     16,493       -       16,493       -       19,460       -       19,460       -  
Fair value of fuel derivatives     7,606       -       7,606       -       -       -       -       -  
Fair value of foreign currency derivative     8,294       -       8,294       -       3,895       -       3,895       -  
Accrued interest since the last payment date Swap of currencies     -       -       -       -       -       -       -       -  
Derivative not recognized as a hedge     17,362       17,362       -       -       19,396       19,396       -       -  
Private investment funds     420,016       420,016       -       -       322,428       322,428       -       -  
Domestic and foreign bonds     16       16       -       -       1,394       1,394       -       -  
                                                                 
Other financial assets, not current     -       -       -       -       -       -       -       -  
Fair value derived from foreign currency     -       -       -       -       -       -       -       -  
                                                                 
Liabilities                                                                
                                                                 
Other financial liabilities, current     18,069       13,801       4,268       -       33,633       7,712       25,921       -  
Fair value of interest rate derivatives     2,135       -       2,135       -       335       -       335       -  
Fair value of fuel derivatives     (88 )     -       (88 )     -       15,678       -       15,678       -  
Fair value of foreign currency derivatives     -       -       -       -       7,587       -       7,587       -  
Interest accrued since the last payment date of Currency Swap     2,221       -       2,221       -       2,321       -       2,321       -  
Derivative unregistered currency                                                                
Derivative not recognized as a hedge     13,801       13,801       -       -       7,712       7,712       -       -  
                                                                 
Other financial liabilities, non current     243       -       243       -       340       -       340       -  
Fair value of interest rate derivatives     -       -       -       -       -       -       -       -  
Interest accrued since the last date of Swap interest rates     243       -       243       -       340       -       340       -  

 

  40  

 

  

Additionally, at March 31, 2019, 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 March 31, 2019     As of December 31, 2018  
    Book     Fair     Book     Fair  
    value     value     value     value  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited              
Cash and cash equivalents     975,701       975,701       1,037,989       1,037,989  
Cash on hand     24,973       24,973       8,974       8,974  
Bank balance     323,474       323,474       331,218       331,218  
Overnight     151,942       151,942       282,164       282,164  
Time deposits     475,312       475,312       415,633       415,633  
Other financial assets, current     16,614       16,614       17,411       17,411  
Other financial assets     16,614       16,614       17,411       17,411  
Trade debtors, other accounts receivable and                                
Current accounts receivable     1,125,376       1,125,376       1,162,582       1,162,582  
Accounts receivable from entities related, current     6,549       6,549       2,931       2,931  
Other financial assets, not current     57,210       57,210       58,700       58,700  
Accounts receivable, non-current     5,348       5,348       5,381       5,381  
                                 
Other current financial liabilities     1,772,831       1,609,366       1,397,156       1,578,835  
Accounts payable for trade and other accounts payable, current     1,704,729       1,704,729       1,674,303       1,674,303  
Accounts payable to entities related, current     2,569       2,569       382       382  
Other financial liabilities, not current     8,790,227       6,472,087       5,864,570       5,893,387  
Accounts payable, not current     462,785       462,785       483,656       483,656  

 

The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.

 

The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end. The book value of Other financial liabilities, current or non-current, do not include lease liabilities.

 

  41  

 

 

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 March 31, 2019, goodwill amount to ThUS$ 2,283,269 (ThUS$ 2,294,072 as of December 31, 2018), while the intangible assets comprise the Airport Slots for ThUS$ 824,523 (ThUS$ 828,969 as of December 31, 2018) and Loyalty Program for ThUS$ 272,878 (ThUS$ 274,420 as of December 31, 2018).

 

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 March 31, 2019 amounts to ThUS$ 1,836,856 and ThUS$ 446,413 (ThUS$ $ 1,845,136 and ThUS$ 448,936 as of December 31, 2018), 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  
    March 31     December 31,     March 31     December 31,  
    2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport Slots     824,523       828,969       -       -  
Loyalty program     -       -       272,878       274,420  

 

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).

 

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(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 March 31, 2019, the Company has recognized deferred tax assets of ThUS$ 271,650 (ThUS$ 273,529 as of December 31, 2018) and has ceased to recognize deferred tax assets on tax losses of ThUS$ 199,582 (ThUS$ 137,761 December 31, 2018) (Note 18).

 

(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 March 31, 2019, deferred revenues associated with air tickets sold amounted to ThUS$ 1,137,235 (ThUS$ 1,299,304 as of December 31, 2018). 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 March 31, 2019, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS$ 1,306,388 (ThUS$ 1,324,635 as of December 31, 2018). A hypothetical change of one percentage point in the exchange probability would result in an impact of ThUS$ 28,630 on the results of 2019 (ThUS $ 27,726 in 2018). The deferred revenues associated with the LATAM Fidelidade and Multiplus loyalty programs amount to ThUS$ 300,277 as of March 31, 2019 (ThUS$ 293,831 as of December 31, 2018). A hypothetical change of two percentage points in the number of points pending to be exchanged would result in an impact of ThUS$ 3,150 on the results of 2019 (ThUS$ 13,140 in 2018).

 

(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) Leases

 

(i) Discount rate

 

  43  

 

 

The discount rate used to calculate the lease debt corresponds, for each aircraft, to the implicit interest rate induced by the contractual elements and residual market values. The implied rate of the contract is the discount rate that gives the aggregated present value of the minimum lease payments and the unguaranteed residual value. This present value should be equal to the sum of the fair value of the leased asset and any initial direct costs of the lessor.

 

For those lease other than aircraft, we use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

 

A 100 basis point decrease in our estimate of the rate at January 1, 2019 (the date of our adoption of the New Lease Standard) would increase our lease liability by approximately US$ 105 million.

 

(ii) Lease term

 

In determining the lease term, there are considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

 

(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.

 

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.

 

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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 22.6 million members, together with being an entity with a separate administration and a business not directly related to air transport.

 

  45  

 

 

For the period ended         Coalition and              
    Air     loyalty program              
    transportation     Multiplus     Eliminations     Consolidated  
    At March 31,     At March 31,     At March 31,     At March 31,  
    2019     2018     2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Restated     Unaudited     Restated     Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited           Unaudited           Unaudited  
                                                 
Income from ordinary activities from external customers (*)     2,423,316       2,613,835       20,558       -       (12,396 )     -       2,431,478       2,613,835  
Passenger     2,159,820       2,318,015       20,558       -       (12,396 )     -       2,167,982       2,318,015  
Freight     263,496       295,820       -       -       -       -       263,496       295,820  
Income from ordinary activities from transactions with other operating segments     -       -       -       13,498       -       (13,498 )     -       -  
Other operating income     71,638       72,050       22,152       44,651       -       -       93,790       116,701  
Interest income     1,666       5,009       4,225       7,178       -       5,891       12,187          
Interest expense     (138,446 )     (133,355 )     -       -       -       (138,446 )     (133,355 )        
Total net interest expense     (136,780 )     (128,346 )     4,225       7,178       -       -       (132,555 )     (121,168 )
Depreciation and amortization     (350,005 )     (346,772 )     (1,639 )     (2,115 )     -       -       (351,644 )     (348,887 )
Material non-cash items other than depreciation and amortization     (13,291 )     (6,132 )     (3 )     -       -       -       (13,294 )     (6,132 )
Disposal of fixed assets and inventory losses     (7,805 )     (5,779 )     -       -       -       -       (7,805 )     (5,779 )
Doubtful accounts     (16,292 )     (3,598 )     (57 )     -       -       -       (16,349 )     (3,598 )
Exchange differences     8,895       811       54       -       -       -       8,949       811  
Result of indexation units     1,911       2,434       -       -       -       -       1,911       2,434  
Income (loss) attributable to owners of the parents (**)     (81,093 )     56,696       21,019       35,473       -       -       (60,074 )     2,169  
Expenses for income tax     (1,573 )     (32,341 )     (11,468 )     (14,382 )     -       -       (13,041 )     (46,723 )
Segment profit / (loss)     (77,616 )     70,379       21,019       35,473       -       -       (56,597 )     105,852  
Assets of segment     19,059,300       19,900,235       1,171,644       1,521,024       (5,437 )     (6,482 )     20,225,507       21,414,777  
Segment liabilities     16,426,132       16,811,125       457,288       717,929       (20,180 )     (46,755 )     16,863,240       17,482,299  
Amount of non-current asset additions     189,918       160,425       -       -       -       -       189,918       160,425  
Property, plant and equipment     171,629       140,591       -       -       -       -       171,629       140,591  
Intangibles other than goodwill     18,289       19,834       -       -       -       -       18,289       19,834  
Purchase of non-monetary assets of segment     200,330       198,477       -       -       -       -       200,330       198,477  

  

(*) 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$ (582) resulting from the application of IAS 21 and IAS 29, for the subsidiaries that are in hyperinflationary economies.

 

  46  

 

 

For the period ended         Coalition and              
    Air     loyalty program              
    transportation     Multiplus     Eliminations     Consolidated  
    At March 31,     At March 31,     At March 31,     At March 31,  
    2019     2018     2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Restated     Unaudited     Restated     Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited           Unaudited           Unaudited  
Net cash flows from                                                                
Purchases of property, plant and equipment     181,819       178,566       7       -       -       -       181,826       178,566  
Additions associated with maintenance     122,098       88,872       -       -       -       -       122,098       88,872  
Other additions     59,721       89,694       7       -       -       -       59,728       89,694  
                                                                 
Purchases of intangible assets (***)     18,196       18,940       308       971       -       -       18,504       19,911  
                                                                 
Net cash flows from (used in) operating activities     242,751       460,763       (702 )     13,038       (15,504 )     (10,050 )     226,545       463,751  
Net cash flow from (used in) investing activities     (288,207 )     (255,748 )     (315 )     (282 )     -       -       (288,522 )     (256,030 )
Net cash flows from (used in) financing activities     120,464       (507,879 )     -       (2,688 )     -       -       120,464       (510,567 )

 

(***)The Company does not have cash flows from purchases of intangible assets associated with maintenance.

 

  47  

 

 

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

 

    For the period ended  
    At March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
       
Peru     180,933       154,974  
Argentina     186,352       333,712  
U.S.A.     261,846       255,511  
Europe     189,803       200,166  
Colombia     84,350       89,109  
Brazil     855,285       894,854  
Ecuador     48,907       49,018  
Chile     414,197       424,800  
Asia Pacific and rest of Latin America     209,805       211,691  
                 
Income from ordinary activities     2,431,478       2,613,835  
                 
Other operating income     93,790       116,701  

  

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  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Cash on hand     24,973       8,974  
Bank balances     323,474       331,218  
Overnight     151,942       282,164  
Total Cash     500,389       622,356  
                 
Cash equivalents                
Time deposits (*)     475,312       415,633  
Mutual funds     148,625       43,653  
Total cash equivalents     623,937       459,286  
Total cash and cash equivalents     1,124,326       1,081,642  

 

(*) Included ThUS $ 304,984 that are subject to restriction for guarantee the fulfillment of the operation indicated on note 14 and therefore are not available for the general use of the Company.

 

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Cash and cash equivalents are denominated in the following currencies:

 

    As of     As of  
  March 31,     December 31,  
Currency   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Argentine peso     11,267       17,786  
Brazilian real     393,534       131,760  
Chilean peso     210,762       415,713  
Colombian peso     18,174       10,843  
Euro     20,904       20,339  
US Dollar     382,509       394,215  
Other currencies     87,176       90,986  
                 
Total     1,124,326       1,081,642  

 

  49  

 

 

NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1.       Financial instruments by category

 

As of March 31, 2019 (Unaudited)

 

Assets   Measured at     At fair value              
    amortized     with changes     Hedge        
    cost     in results     derivatives     Total  
    ThUS$     ThUS$     ThUS$     ThUS$  
Cash and cash equivalents     975,701       148,625       -       1,124,326  
Other financial assets, current (*)     14,354       439,654       32,393       486,401  
Trade and others accounts receivable, current     1,125,376       -       -       1,125,376  
Accounts receivable from related entities, current     6,549       -       -       6,549  
Other financial assets, non current (*)     57,210       -       -       57,210  
Accounts receivable, non current     5,348       -       -       5,348  
Total     2,184,538       588,279       32,393       2,805,210  
                           
Liabilities     Measured at              
            amortized     Hedge        
            cost     derivatives     Total  
            ThUS$     ThUS$     ThUS$  
Other liabilities, current             1,786,632       4,268       1,790,900  
Trade and others accounts payable, current             1,704,729       -       1,704,729  
Accounts payable to related entities, current             2,569       -       2,569  
Other financial liabilities, non-current             8,790,227       243       8,790,470  
Accounts payable, non-current             462,785       -       462,785  
Total             12,746,942       4,511       12,751,453  

  

(*) 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.

 

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As of December 31, 2018 (Restated)

 

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$  
            Restated           Restated  
            Unaudited           Unaudited  
Other liabilities, current             1,768,365       25,921       1,794,286  
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             8,359,122       340       8,359,462  
Accounts payable, non-current             529,277       -       529,277  
Total             12,331,449       26,261       12,357,710  

 

(*)       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.

 

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7.2. Financial instruments by currency

 

    As of     As of  
    March 31,     December 31,  
a)       Assets   2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Cash and cash equivalents     1,124,326       1,081,642  
Argentine peso     11,267       17,786  
Brazilian real     393,534       131,760  
Chilean peso     210,762       415,713  
Colombian peso     18,174       10,843  
Euro     20,904       20,339  
US Dollar     382,509       394,215  
Other currencies     87,176       90,986  
Other financial assets (current and non-current)     543,611       442,684  
Argentine peso     133       152  
Brazilian real     430,723       327,110  
Chilean peso     26,145       25,972  
Colombian peso     492       1,748  
Euro     7,609       7,438  
US Dollar     76,448       78,121  
Other currencies     2,061       2,143  
Trade and other accounts receivable, current     1,125,376       1,162,582  
Argentine peso     76,425       82,893  
Brazilian real     511,897       511,171  
Chilean peso     79,267       113,168  
Colombian peso     500       7,259  
Euro     43,390       49,044  
US Dollar     130,409       110,312  
Other currencies (*)     283,488       288,735  
Accounts receivable, non-current     5,348       5,381  
Brazilian real     3       3  
Chilean peso     5,345       5,378  
Accounts receivable from related entities, current     6,549       2,931  
Brazilian real     -       293  
Chilean peso     65       200  
US Dollar     6,484       2,438  
Total assets     2,805,210       2,695,220  
Argentine peso     87,825       100,831  
Brazilian real     1,336,157       970,337  
Chilean peso     321,584       560,431  
Colombian peso     19,166       19,850  
Euro     71,903       76,821  
US Dollar     595,850       585,086  
Other currencies     372,725       381,864  

 

(*)       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.

 

  52  

 

 

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

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Trade accounts receivable     1,007,092       1,077,561  
Other accounts receivable     236,759       188,393  
Total trade and other accounts receivable     1,243,851       1,265,954  
Less: Allowance for impairment loss     (113,127 )     (97,991 )
Total net trade and  accounts receivable     1,130,724       1,167,963  
Less: non-current portion – accounts receivable     (5,348 )     (5,381 )
Trade and other accounts receivable, current     1,125,376       1,162,582  

 

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

 

For 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.

 

    As of March 31, 2019     As December 31, 2018  
    Expected     Gross book     Impairment loss     Expected     Gross book     Impairment loss  
Portfolio maturity   loss rate (1)     value (2)     Provision     loss rate (1)     value (2)     Provision  
    %     ThUS$     ThUS$     %     ThUS$     ThUS$  
    (Unaudited)                    
                                     
Up to date     3 %     826,114       (23,506 )     3 %     888,930       (23,933 )
From 1 to 90 days     13 %     58,902       (7,401 )     5 %     91,387       (5,014 )
From 91 to 180 days     39 %     21,403       (8,332 )     45 %     11,085       (4,983 )
From 181 to 360 days     44 %     29,701       (13,052 )     65 %     15,078       (9,864 )
more of 360 days     86 %     70,972       (60,836 )     76 %     71,081       (54,197 )
Total     11 %     1,007,092       (113,127 )     9 %     1,077,561       (97,991 )

 

(1) Corresponds to the expected average rate.

(2) the gross book value represents the maximum growth risk value of trade accounts receivable.

 

  53  

 

 

Currency balances that make up the Trade and other accounts receivable and non-current accounts receivable are the following:

 

    As of     As of  
    March 31,     December 31,  
Currency   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Argentine Peso     76,425       82,893  
Brazilian Real     511,900       511,174  
Chilean Peso     84,612       118,546  
Colombian peso     500       7,259  
Euro     43,390       49,044  
US Dollar     130,409       110,312  
Other currency (*)     283,488       288,735  
Total     1,130,724       1,167,963  
                 
(*) Other currencies                
Australian Dollar     90,874       100,733  
Chinese Yuan     43       5,106  
Danish Krone     945       475  
Pound Sterling     25,844       18,129  
Indian Rupee     8,800       7,163  
Japanese Yen     59,955       56,589  
Norwegian Kroner     1,000       283  
Swiss Franc     5,988       5,046  
Korean Won     28,061       31,381  
New Taiwanese Dollar     7,569       6,180  
Other currencies     54,409       57,650  
Total     283,488       288,735  

 

  54  

 

 

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 March 31, 2018 (Unaudited)     (87,909 )     (10,524 )     1,307       (3,858 )     (100,984 )
From April 1 to December 31, 2018     (100,984 )     -       7,470       (4,477 )     (97,991 )
From January 1 to March 31, 2019 (Unaudited)     (97,991 )     -       421       (15,557 )     (113,127 )

 

(*) 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 March 31, 2019     As of December 31, 2018  
    Gross  exposure     Gross     Exposure net     Gross  exposure     Gross     Exposure net  
    according to     impaired     of risk     according to     Impaired     of risk  
    balance     exposure     concentrations     balance     exposure     concentrations  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited        
Trade accounts receivable     1,007,092       (113,127 )     893,965       1,077,561       (97,991 )     979,570  
Other accounts receivable     236,759       -       236,759       188,393       -       188,393  

 

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.

 

  55  

 

 

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a)       Accounts Receivable

 

                    As of     As of  
            Country       March 31,     December 31,  
Tax No.   Related party   Relationship   of origin   Currency   2019     2018  
                    ThUS$     ThUS$  
                    Unaudited        
Foreign   Qatar Airways   Indirect shareholder   Qatar   US$     6,489       1,907  
78.591.370-1   Bethia S.A. and Subsidiaries   Related director   Chile   CLP     -       988  
Foreign   Inversora Aeronáutica Argentina S.A.   Related director   Argentina   US$     5       -  
87.752.000-5   Granja Marina Tornagaleones S.A.   Common shareholder   Chile   CLP     42       31  
96.810.370-9   Inversiones Costa Verde Ltda. y CPA.   Related director   Chile   CLP     13       5  
    Total current assets                 6,549       2,931  

 

(b)       Accounts payable

 

                    As of     As of  
            Country       March 31,     December 31,  
Tax No.   Related party   Relationship   of origin   Currency   2019     2018  
                    ThUS$     ThUS$  
                          Unaudited  
78.591.370-1   Bethia S.A. and Subsidiaries   Related director   Chile   CLP     2,553       365  
Foreign   Inversora Aeronáutica Argentina S.A.   Related director   Argentina   US$     -       15  
Foreign   TAM Aviação Executiva e Taxi Aéreo S.A.   Common shareholder   Brazil   BRL     16       2  
    Total current liabilities                 2,569       382  

 

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.

 

  56  

 

 

NOTE 10 -INVENTORIES

 

The composition of Inventories is as follows:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Technical stock     259,452       233,276  
Non-technical stock     42,207       46,068  
Total     301,659       279,344  

 

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  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Provision for obsolescence Technical stock     20,644       20,500  
Provision for obsolescence Non-technical stock     7,171       4,621  
Total     27,815       25,121  

 

The resulting amounts do not exceed the respective net realization values.

 

For the period ended March 31, 2019, the Company recorded ThUS$ 32,239 (ThUS$ 32,456 for the period ended March 31, 2018) in results, mainly related to on-board consumption and maintenance, which is part of the Cost of sales.

 

  57  

 

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
(a) Other financial assets                                                
Private investment funds     420,016       322,428       -       -       420,016       322,428  
Deposits in guarantee (aircraft)     9,330       9,610       36,728       37,636       46,058       47,246  
Guarantees for margins of derivatives     291       661       -       -       291       661  
Other investments     -       -       494       494       494       494  
Domestic and foreign bonds     16       1,394       -       -       16       1,394  
Other guarantees given     6,993       7,140       19,988       20,570       26,981       27,710  
Subtotal of other financial assets     436,646       341,233       57,210       58,700       493,856       399,933  
(b) Hedging assets                                                
Fair value of interest rate derivatives     16,493       19,460       -       -       16,493       19,460  
Fair value of foreign currency derivatives     8,294       3,895       -       -       8,294       3,895  
Fair value of fuel price derivatives     7,606       -       -       -       7,606       -  
Subtotal of hedging assets     32,393       23,355       -       -       32,393       23,355  
(c) Derivatives not recognized as a hedge                                                
Foreign currency derivatives not recognized as a hedge     17,362       19,396       -       -       17,362       19,396  
Subtotal of derivatives not recognized as a hedge     17,362       19,396       -       -       17,362       19,396  
Total Other Financial Assets     486,401       383,984       57,210       58,700       543,611       442,684  

 

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

 

  58  

 

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Restated     Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited           Unaudited  
(a) Advance payments                                                
                                                 
Aircraft insurance and other     9,480       16,483       -       -       9,480       16,483  
Others     17,108       20,105       3,417       4,460       20,525       24,565  
Subtotal advance payments     26,588       36,588       3,417       4,460       30,005       41,048  
                                                 
(b) Contract assets (1)                                                
                                                 
GDS costs     14,410       14,708       -       -       14,410       14,708  
Credit card commissions     17,048       21,614       -       -       17,048       21,614  
Travel agencies commissions     13,534       12,635       -       -       13,534       12,635  
Subtotal advance payments     44,992       48,957       -       -       44,992       48,957  
                                                 
(c) Other assets                                                
                                                 
Aircraft maintenance reserve (2)     -       831       51,836       51,836       51,836       52,667  
Sales tax     175,665       187,410       39,150       38,186       214,815       225,596  
Other taxes     11,582       15,255       -       -       11,582       15,255  
Contributions to Société Internationale de Télécommunications Aéronautiques ("SITA")     258       258       739       739       997       997  
Judicial deposits     -       -       142,838       132,267       142,838       132,267  
Others     -       1,177       54       53       54       1,230  
Subtotal other assets     187,505       204,931       234,617       223,081       422,122       428,012  
                                                 
Total Other Non - Financial Assets     259,085       290,476       238,034       227,541       497,119       518,017  

 

(1) Movement of Contracts assets:

 

                Adjustments     Difference              
                by the application     by              
    Initial balance     Activation     IFRS 15     conversion     Amortization     Final balance  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2018 (Unaudited)     -       57,919       54,361       -       (69,400 )     42,880  
From April 1 to December 31, 2018     42,880       122,252       -       (5,020 )     (111,155 )     48,957  
From January 1 to March 31, 2019 (Unaudited)     48,957       48,771       -       (4,937 )     (47,799 )     44,992  

 

(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.

 

  59  

 

 

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 March 31, 2019, maintenance reserves amount to ThUS$ 51,836 (ThUS$ 52,667 as of December 31, 2018), corresponding to 8 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.

 

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

 

NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

 

Non-current assets and groups in expropriation held for sale at March 31, 2019 and December 31, 2018, are detailed below:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Current assets                
Aircraft     -       265  
Engines and rotables     1,852       5,299  
Other assets     154       204  
Total     2,006       5,768  

 

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

 

As of March 31, 2019, adjustments were recognized for ThUS$ 200.0 to register these assets at their net realizable value.

 

Additionally, during the period 2019, the sale of one motor spare Boeing 767 was produced.

 

(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.

 

As of March 31, 2019, has been recognized of US $ 3.1 million to record these assets at their net realizable value.

 

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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   March 31,     December 31,  
Name of significant subsidiary   incorporation   currency   2019     2018  
            %     %  
            Unaudited        
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.

 

  61  

 

 

Summary financial information of significant subsidiaries

 

                                        Results for the period  
    Statement of financial position as of March 31, 2019     ended March 31, 2019  
    Total     Current     Non-current     Total     Current     Non-current           Net  
Name of significant subsidiary   Assets     Assets     Assets     Liabilities     Liabilities     Liabilities     Revenue     Income  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Unaudited  
Lan Perú S.A.     348,683       309,400       39,283       347,032       345,576       1,456       282,733       (3,266 )
Lan Cargo S.A.     654,634       367,145       287,489       476,696       435,526       41,170       67,892       1,341  
Lan Argentina S.A.     317,763       311,032       6,731       80,961       78,586       2,375       61,734       (10,813 )
Transporte Aéreo S.A.     352,229       94,153       258,076       148,121       48,142       99,979       85,610       1,903  
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     108,242       96,325       11,917       98,226       87,848       10,378       59,551       1,097  
Aerovías de Integración Regional, AIRES S.A.     112,931       51,001       61,930       77,354       69,035       8,319       68,878       (3,393 )
TAM S.A. (*)     4,370,696       1,962,007       2,408,689       3,283,500       1,919,200       1,364,300       1,141,875       (98,911 )

 

                                        Results for the period  
    Statement of financial position as of December 31, 2018     ended March 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$  
    Restated     Restated  
    Unaudited     Unaudited  
Lan Perú S.A.     419,325       379,490       39,835       409,221       406,159       3,062       292,954       2,732  
Lan Cargo S.A.     513,367       243,499       269,868       336,715       292,399       44,316       64,885       (34,248 )
Lan Argentina S.A.     243,230       235,919       7,311       239,234       236,786       2,448       111,013       37,410  
Transporte Aéreo S.A.     331,496       72,597       258,899       129,233       28,277       100,956       89,652       (17,490 )
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     108,735       96,564       12,171       98,238       89,921       8,317       57,204       1,995  
Aerovías de Integración Regional, AIRES S.A.     116,352       55,865       60,487       77,984       69,150       8,834       75,501       8,804  
TAM S.A. (*)     4,420,546       2,007,830       2,412,716       3,256,017       1,832,796       1,423,221       1,211,235       358,616  

 

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

 

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(b)       Non-controlling

 

            As of     As of     As of     As of  
Equity       Country   March 31,     December 31,     March 31,     December 31,  
    Tax No.   of origin   2019     2018     2019     2018  
            %     %     ThUS$     ThUS$  
            Unaudited           Unaudited     Restated  
                              Unaudited  
Lan Perú S.A   0-E   Peru     30.00000       30.00000       499       3,032  
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10196       0.10196       476       (101 )
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     0.13940       0.13940       19,661       8,684  
Lan Argentina S.A.   0-E   Argentina     0.02890       0.02890       (405 )     (472 )
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       (2 )     1  
Americonsult Costa Rica S.A.   0-E   Costa Rica     1.00000       1.00000       12       11  
Linea Aérea Carguera de Colombiana S.A.   0-E   Colombia     10.00000       10.00000       (1,030 )     (462 )
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.79880       0.79880       349       378  
Transportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       1,921       1,740  
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       72,691       67,096  
Total                             94,173       79,908  

 

            For the period ended     For the period ended  
Incomes       Country   March 31,     March 31,     March 31,  
    Tax No.   of origin   2019     2018     2019     2018  
            %     %     ThUS$     ThUS$  
            Unaudited     Unaudited  
                                 
Lan Perú S.A   0-E   Peru     30.00000       30.00000       (2,000 )     3,533  
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10196       0.10196       9       12  
Promotora Aerea Latinoamericana S.A. and Subsidiaries   0-E   Mexico     0.00000       51.00000       -       261  
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     0.13940       0.13940       82       -  
Lan Argentina S.A.   0-E   Argentina     0.02890       0.02842       19       -  
Americonsult  S.A. and Subsidiaries   0-E   Mexico     0.00000       0.20000       (2 )     -  
Linea Aérea Carguera de Colombiana S.A.   0-E   Colombia     10.00000       10.00000       (569 )     58  
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.79880       0.80944       (27 )     (2 )
Transportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       239       220  
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       5,726       9,601  
Total                             3,477       13,683  

 

(*) On February 28, 2019, the company TAM, a subsidiary of LATAM Airlines Group SA, received an official letter from the Comissão de Valores Mobiliários, in which it communicates the acceptance to the request for registration of the public offer for the acquisition of the shares of its subsidiary Multiplus SA, corresponding to the minority shareholders of said company, which will give rise to the cancellation of the registration and exit of the special trading segment called "Novo Mercado".

 

  63  

 

 

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  
    March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport slots     824,523       828,969       824,523       828,969  
Loyalty program     272,878       274,420       272,878       274,420  
Computer software     177,330       156,038       564,749       529,009  
Developing software     132,646       151,853       132,646       151,853  
Trademarks (1)     26,541       29,361       53,091       53,391  
Other assets     406       431       1,315       1,325  
Total     1,434,324       1,441,072       1,849,202       1,838,967  

 

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, 2018     160,970       123,415       964,513       368,349       1,617,247  
Additions     750       19,084       -       -       19,834  
Withdrawals     (27 )     (2 )     -       -       (29 )
Transfer software     35,956       (35,960 )     -       -       (4 )
Foreing exchange     (340 )     (147 )     (4,405 )     (1,751 )     (6,643 )
Amortization     (12,590 )     -       -       (3,112 )     (15,702 )
Closing balance as of March 31, 2018 (Unaudited)     184,719       106,390       960,108       363,486       1,614,703  
                                         
Opening balance as of April 1, 2018     184,719       106,390       960,108       363,486       1,614,703  
Additions     42       75,216       -       -       75,258  
Withdrawals     (376 )     (122 )     -       -       (498 )
Transfer software     23,719       (25,127 )     -       -       (1,408 )
Foreign exchange     (9,796 )     (4,504 )     (131,139 )     (51,770 )     (197,209 )
Amortization     (41,959 )     -       -       (7,935 )     (49,894 )
Hyperinflation Argentina     62       -       -       -       62  
Adjustment application 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  
                                         
Opening balance as of January 1, 2019     156,469       151,853       828,969       303,781       1,441,072  
Additions     139       18,150       -       -       18,289  
Withdrawals     -       (10 )     -       -       (10 )
Transfer software     37,007       (37,075 )     -       -       (68 )
Foreign exchange     (431 )     (272 )     (4,446 )     (1,707 )     (6,856 )
Amortization     (15,448 )     -       -       (2,655 )     (18,103 )
Closing balance as of March 31, 2019 (Unaudited)     177,736       132,646       824,523       299,419       1,434,324  

 

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.

 

  64  

 

 

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 March 31, 2019, amounts to ThUS $ 457,162 (ThUS $ 439,059 as of December 31, 2018).

 

NOTE 16 – GOODWILL

 

Goodwill as of March 31, 2019, amounts to ThUS $ 2,283,269 (ThUS $ 2,294,072 as of December 31, 2018). The goodwill movement, separated by CGU, includes the following:

 

          Coalition        
Movement of Goodwill, separated by CGU:         and loyalty        
    Air     program        
    Transport     Multiplus     Total  
    ThUS$     ThUS$     ThUS$  
Opening balance as of January 1, 2018     2,146,692       525,858       2,672,550  
Increase (decrease) due to exchange rate differences     (4,838 )     (2,500 )     (7,338 )
Closing balance as of March 31, 2018 (Unaudited)     2,141,854       523,358       2,665,212  
Opening balance as of April 1, 2018     2,141,854       523,358       2,665,212  
Increase (decrease) due to exchange rate differences     (295,365 )     (74,422 )     (369,787 )
Adjustment IAS 29, hyperinflation Argentina     335       -       335  
Others     (1,688 )     -       (1,688 )
Closing balance as of December 31, 2018     1,845,136       448,936       2,294,072  
Opening balance as of January 1, 2019     1,845,136       448,936       2,294,072  
Increase (decrease) due to exchange rate differences     (8,280 )     (2,523 )     (10,803 )
Closing balance as of March 31, 2019 (Unaudited)     1,836,856       446,413       2,283,269  

 

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.

 

  65  

 

 

As of December 31, 2018 the recoverable values were determined using the following assumptions presented below:

 

        Air transportation   Coalition and loyalty  
        CGU   program Multiplus CGU (2)  
Annual growth rate (Terminal)   %   1.0 - 2.0   4.0 - 5.0  
Exchange rate (1)   R$/US$   3.7 - 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.

 

As of March 31, 2019, no impairment indicator have been identified either for the CGU Multiplus coalition and loyalty program and for the Air Transport CGU that require impairment test.

 

  66  

 

 

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

 

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

 

    Gross Book Value     Accumulated depreciation     Net Book Value  
    As of     As of     As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Restated     Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited           Unaudited  
Construction in progress (1)     605,854       630,320       -       -       605,854       630,320  
Land     53,166       45,424       -       -       53,166       45,424  
Buildings     179,691       179,907       (68,795 )     (67,342 )     110,896       112,565  
Plant and equipment     13,460,687       13,333,837       (4,482,807 )     (4,361,337 )     8,977,880       8,972,500  
Own aircraft     12,686,766       12,595,223       (4,212,763 )     (4,096,975 )     8,474,003       8,498,248  
Other (2)     773,921       738,614       (270,044 )     (264,362 )     503,877       474,252  
Machinery     34,045       34,253       (27,939 )     (27,659 )     6,106       6,594  
Information technology equipment     161,855       160,936       (140,096 )     (138,372 )     21,759       22,564  
Fixed installations and accessories     182,717       182,629       (114,215 )     (111,620 )     68,502       71,009  
Motor vehicles     68,001       69,653       (59,602 )     (60,531 )     8,399       9,122  
Leasehold improvements     224,280       211,322       (132,903 )     (128,055 )     91,377       83,267  
Right of use     5,159,191       4,987,953       (2,537,630 )     (2,439,509 )     2,621,561       2,548,444  
Aircraft     4,932,850       4,761,529       (2,397,737 )     (2,305,195 )     2,535,113       2,456,334  
Other assets     226,341       226,424       (139,893 )     (134,314 )     86,448       92,110  
Total     20,129,487       19,836,234       (7,563,987 )     (7,334,425 )     12,565,500       12,501,809  

 

(1)      As of March 31, 2019, includes advances paid to aircraft manufacturers for ThUS$ 560,967 (ThUS$ 612,236 as of December 31, 2018)

 

(2)      Consider mainly rotables and tools.

 

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a)       Movement in the different categories of Property, plant and equipment:

 

                            Information     Fixed                 Rights     Property,  
                      Plant and     technology     installations     Motor     Leasehold     of     Plant and  
    Construction           Buildings     equipment     equipment     & accessories     vehicles     improvements     use     equipment  
    in progress     Land     net     net     net     net     net     net     net     net  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                                                                               
Opening balance as of January 1, 2018 Restated  (Unaudited)     556,822       49,780       124,548       9,138,591       30,156       80,777       436       84,225       2,865,317       12,930,652  
Additions     1,210       -       -       136,598       2,729       51       3       -       70,963       211,554  
Disposals     -       -       (791 )     -       -       (45 )     -       -       -       (836 )
Retirements     (6 )     -       -       (6,844 )     (86 )     (22 )     -       (4 )     -       (6,962 )
Depreciation expenses     -       -       (1,614 )     (180,588 )     (3,376 )     (3,348 )     (45 )     (7,188 )     (97,645 )     (293,804 )
Foreign exchange     (6 )     (105 )     (128 )     (3,026 )     (58 )     (111 )     (1 )     (81 )     (207 )     (3,723 )
Other increases (decreases)     41,342       -       -       3,869       5       2,802       -       8,753       (2,434 )     54,337  
Changes, total     42,540       (105 )     (2,533 )     (49,991 )     (786 )     (673 )     (43 )     1,480       (29,323 )     (39,434 )
                                                                               
Closing balance as of March 31, 2018 Restated  (Unaudited)     599,362       49,675       122,015       9,088,600       29,370       80,104       393       85,705       2,835,994       12,891,218  
                                                                               
Opening balance as of April 1, 2018 Restated  (Unaudited)     599,362       49,675       122,015       9,088,600       29,370       80,104       393       85,705       2,835,994       12,891,218  
Additions     6,717       -       -       498,768       2,266       13       21       20,410       255,335       783,530  
Disposals     -       (8 )     (622 )     (4,747 )     (30 )     (28 )     (14 )     -       -       (5,449 )
Retirements     (74 )     -       (19 )     (56,929 )     (8 )     (5 )     -       -       -       (57,035 )
Depreciation expenses     -       -       (4,605 )     (524,989 )     (8,301 )     (9,190 )     (101 )     (20,578 )     (293,493 )     (861,257 )
Foreign exchange     (707 )     (4,243 )     (4,116 )     (91,461 )     (1,760 )     (8,388 )     (27 )     (2,270 )     (13,544 )     (126,516 )
Other increases (decreases)     24,649       -       (88 )     74,472       728       7,392       273       -       (235,848 )     (128,422 )
Hyperinflation Argentina     373       -       -       3,868       299       1,111       89       -       -       5,740  
Changes, total     30,958       (4,251 )     (9,450 )     (101,018 )     (6,806 )     (9,095 )     241       (2,438 )     (287,550 )     (389,409 )
                                                                               
Closing balance as of December 31, 2018 Restated  (Unaudited)     630,320       45,424       112,565       8,987,582       22,564       71,009       634       83,267       2,548,444       12,501,809  
                                                                               
Opening balance as of January 1, 2019 (Restated  Unaudited)     630,320       45,424       112,565       8,987,582       22,564       71,009       634       83,267       2,548,444       12,501,809  
Additions     6,879       7,950       -       188,281       1,442       13       14       13,127       171,629       389,335  
Disposals     -       -       -       (28 )     -       -       (11 )     -       -       (39 )
Retirements     -       -       -       (9,661 )     -       -       -       -       -       (9,661 )
Depreciation expenses     -       -       (1,521 )     (186,049 )     (2,363 )     (2,908 )     (27 )     (4,950 )     (97,819 )     (295,637 )
Foreign exchange     (92 )     (208 )     (148 )     (3,835 )     95       (339 )     (115 )     (67 )     (693 )     (5,402 )
Other increases (decreases)     (31,253 )     -       -       15,600       21       727       -       -       -       (14,905 )
Changes, total     (24,466 )     7,742       (1,669 )     4,308       (805 )     (2,507 )     (139 )     8,110       73,117       63,691  
                                                                               
Closing balance as of March 31, 2019 (Unaudited)     605,854       53,166       110,896       8,991,890       21,759       68,502       495       91,377       2,621,561       12,565,500  

 

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(b)       Composition of the fleet:

 

        Aircraft included     Aircraft included              
        in Property,     as Rights     Total  
        plant and equipment     of use assets     fleet  
        As of     As of     As of     As of     As of     As of  
Aircraft   Model   March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
        2019     2018     2019     2018     2019     2018  
        Unaudited           Unaudited           Unaudited        
Boeing 767   300ER     33       33       2       2       35       35  
Boeing 767   300F     9 (1)     9 (1)     1       1       10 (1)     10 (1)
Boeing 777   300ER     4       4       6       6       10       10  
Boeing 777   200ER     -       -       2       2       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)     97 (2)     33       34       130 (2)     131 (2)
Airbus A320   NEO     1       1       5       3       6       4  
Airbus A321   200     30       30       19       19       49       49  
Airbus A350   900     5 (3)     5 (3)     5       4 (3)     10 (3)     9 (3)
Total         226       226       96       94       322       320  

 

(1) One aircraft leased to Aerotransportes Mas de Carga S.A. de C.V. to December 2018

(2) Three aircraft leased to Salam Air and two to Sundair

(3) Three aircraft leased to Qatar Air. Two in rights of use assets and one in Property, plant and equipment.

 

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

 

    Method   Useful life (years)  
        minimum     maximum  
Buildings   Straight line without residual value     20       50  
Plant and equipment   Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)     5       30  
Information technology equipment   Straight line without residual value     5       10  
Fixed installations and accessories   Straight line without residual value     10       10  
Motor vehicle   Straight line without residual value     10       10  
Leasehold improvements   Straight line without residual value     5       5  
Assets for rights of use   Straight line without residual value     1       25  

 

(*) 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 March 31, 2019, the charge to income for the depreciation of the period, which is included in the consolidated statement of income, amounts to ThUS $ 295,637 and ThUS $ 293,804 for the same period of the year 2018; those amounts include depreciation of assets for right of use, for ThUS $ 97,819 and ThUS $ 97,645, respectively). This expense is recognized in the cost of sales and administrative expenses of the consolidated statement of income.

 

  69  

 

 

(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  
            March 31,     December 31,  
            2019     2018  
Guarantee   Assets       Existing     Book     Existing     Book  
agent (1)   committed   Fleet   Debt     Value     Debt     Value  
            ThUS$     ThUS$     ThUS$     ThUS$  
            Unaudited              
Wilmington   Aircraft and engines   Airbus A319     90,721       241,199       96,057       234,329  
Trust Company       Airbus A320     91,839       232,080       98,903       220,390  
        Airbus A321 / A350     574,642       673,110       587,382       682,639  
        Boeing 767     77,527       207,325       82,793       206,868  
        Boeing 787     653,688       726,276       672,065       736,858  
Banco Santander S.A.   Aircraft and engines   Airbus A320     -       -       172,474       275,511  
        Airbus A321     -       -       25,661       41,957  
BNP Paribas   Aircraft and engines   Airbus A319     8,990       18,662       26,702       45,520  
Credit Agricole   Aircraft and engines   Airbus A319     10,495       38,550       11,154       31,865  
        Airbus A320     143,960       152,954       134,328       132,301  
        Airbus A350     22,439       24,815       22,439       24,939  
        Boeing 767     18,697       38,510       21,830       43,568  
        Boeing 787     74,023       40,724       74,023       42,228  
Wells Fargo   Aircraft and engines   Airbus A320     -       -       196,540       285,877  
Bank of Utah   Aircraft and engines   Airbus A320 / A350     544,716       611,821       556,019       630,065  
Natixis   Aircraft and engines   Airbus A320     191,055       247,335       -       -  
        Airbus A321     123,222       157,463       324,524       410,771  
Citibank N. A.   Aircraft and engines   Airbus A320     73,761       130,359       78,049       132,296  
        Airbus A321     27,129       67,553       28,938       70,333  
PK AirFinance US, Inc.   Aircraft and engines   Airbus A320     -       -       37,615       52,435  
Banco BBVA   Land and buildings (3)         51,805       63,898       50,785       64,500  
Total direct guarantee             2,778,709       3,672,634       3,298,281       4,365,250  

 

(1) For syndicated loans, is the Guarantee Agent that, represent different creditors.

 

(2) 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 March 31, 2019, amounts to ThUS$ 1,960,083 (ThUS$ 1,633,504 as of December 31, 2018). The book value of the assets with indirect guarantees as of March 31, 2019, amounts to ThUS$ 3,860,613 (ThUS$ 3,258,950 as of December 31, 2018).

 

  70  

 

 

As of March 31, 2019, the Company keeps valid letters of credit related to assets by right of use according to the following detail:

 

            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     Sep 30, 2019
ACS Aero 1 Alpha Limited   LATAM Airlines Group S.A.   One letter of credit     3,255     Aug 31, 2019
Bank of Utah   LATAM Airlines Group S.A.   One letter of credit     2,000     Mar 24, 2020
GE Capital Aviation Services Ltd.   LATAM Airlines Group S.A.   Three letter of credit     14,327     Dec 6, 2019
ORIX Aviation Systems Limited   LATAM Airlines Group S.A.   Three letter of credit     8,004     Sep 30, 2019
Sky High XXIV Leasing Company   LATAM Airlines Group S.A.   Eight letter of credit     6,831     Aug 5, 2019
Wells Fargo Bank   LATAM Airlines Group S.A.   Eight letter of credit     13,505     Sep 30, 2019
Merlin Aviation Leasing (Ireland) 18 Limited   Tam Linhas Aéreas S.A.   One letter of credit     3,000     Mar 1, 2020
Shapphire Leasing (AOE) Limited   Tam Linhas Aéreas S.A.   One letter of credit     7,000     Oct 25, 2019
                     
              61,189      

 

(ii) Commitments and others

 

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

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Gross book value of fully depreciated property, plant and equipment still in use     197,906       192,606  
Commitments for the acquisition of aircraft (*)     14,000,000       14,400,000  
(*) According 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.     10       9       13       11       21       64  
    A320-NEO     7       5       6       5       7       30  
    A321-NEO     -       4       5       4       6       19  
    A350-1000     -       -       -       -       8       8  
    A350-900     3       -       2       2       -       7  
The Boeing Company     2       2       2       -       4       10  
    Boeing 777-F     -       -       -       -       2       2  
    Boeing 787-9     2       2       2       -       2       8  
Total     12       11       15       11       25       74  

 

As of March 31, 2019, as a result of the different aircraft purchase contracts and agreements signed with Airbus SAS, there are remaining to receive 49 Airbus aircraft of the A320 family, with deliveries between 2018 and 2024, and 15 Airbus aircraft of the A350 family with dates delivery between 2018 and 2026. The approximate amount, according to manufacturer's list prices, is ThUS$ 11,000,000.

 

  71  

 

 

As of March 31, 2019, 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$ 3,000,000.

 

Additionally, during 2019 the Company signed a contract to rent 10 aircraft Airbus A320-200 with delivery since second quarter of this year.

 

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

 

    For the period ended  
    March 31,  
    2019     2018  
        Unaudited  
           
Average rate of capitalization of capitalized interest costs   %     3.95       4.47  
Costs of capitalized  interest   ThUS$     7,060       5,456  

 

NOTE 18 - CURRENT AND DEFERRED TAXES

 

In the period ended March 31, 2019, 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.

 

(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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provisional monthly payments (advances)     46,003       48,480       -       -       46,003       48,480  
Other recoverable credits     18,010       20,654       757       757       18,767       21,411  
Total  assets by current tax     64,013       69,134       757       757       64,770       69,891  

 

  72  

 

 

(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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Income tax provision     3,699       3,738       -       -       3,699       3,738  
Total liabilities by current tax     3,699       3,738       -       -       3,699       3,738  

  

(b) Deferred taxes

 

The balances of deferred tax are the following:

 

    Assets     Liabilities  
    As of     As of     As of     As of  
Concept   March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited  
Properties, Plants and equipment     160,967       150,831       1,750,488       1,733,327  
Assets by right of use     272       202       (121,402 )     (85,550 )
Amortization     (938 )     (983 )     54,191       55,880  
Provisions     (89,728 )     (38,303 )     (53,847 )     (75,631 )
Revaluation of financial instruments     (177 )     445       (2,402 )     458  
Tax losses     210,494       170,980       (1,187,730 )     (1,198,170 )
Intangibles     -       -       334,575       351,238  
Others     (9,240 )     (9,643 )     5,078       5,019  
Total     271,650       273,529       778,951       786,571  

 

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

 

  73  

 

 

Movements of Deferred tax assets and liabilities

 

(a) From January 1 to March 31, 2018 Restated (Unaudited)

 

    Opening     Recognized in     Recognized in           Ending  
    balance     consolidated     comprehensive     Exchange     balance  
    Assets/(liabilities)     income     income     rate     Asset (liability)  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                               
Property, plant and equipment     (1,568,764 )     (27,696 )     -       195       (1,596,265 )
Assets for right of use     75,849       3,511       -       -       79,360  
Amortization     (54,820 )     (1,124 )     -       55       (55,889 )
Provisions     (10,461 )     (22,385 )     (260 )     (1,514 )     (34,620 )
Revaluation of financial instruments     3,750       6,364       (2,297 )     (38 )     7,779  
Tax losses     1,479,560       1,217       -       (398 )     1,480,379  
Intangibles     (406,536 )     29,721       -       (2,150 )     (378,965 )
Others     (28,405 )     20,931       -       (101 )     (7,575 )
                                         
Total     (509,827 )     10,539       (2,557 )     (3,951 )     (505,796 )

 

(b) From April 1 to December 31, 2018 Restated (Unaudited)

 

    Opening     Recognized in     Recognized in     Exchange     Ending  
    balance     consolidated     comprehensive     rate     balance  
    Assets/(liabilities)     income     income     variation     Asset (liability)  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                               
Property, plant and equipment     (1,596,265 )     7,961       -       5,808       (1,582,496 )
Assets for right of use     79,360       6,392       -       -       85,752  
Amortization     (55,889 )     (2,611 )     -       1,637       (56,863 )
Provisions     (34,620 )     115,189       1,827       (45,068 )     37,328  
Revaluation of financial instruments     7,779       (8,690 )     2,028       (1,130 )     (13 )
Tax losses     1,480,379       (99,371 )     -       (11,858 )     1,369,150  
Intangibles     (378,965 )     (9,721 )     -       37,448       (351,238 )
Others     (7,575 )     (4,078 )     -       (3,009 )     (14,662 )
                                         
Total     (505,796 )     5,071       3,855       (16,172 )     (513,042 )

 

(c) From January 1 to March 31, 2019 (Unaudited)

 

    Opening     Recognized in     Recognized in     Exchange     Ending  
    balance     consolidated     comprehensive     rate     balance  
    Assets/(liabilities)     income     income     variation     Asset (liability)  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                               
Property, plant and equipment     (1,582,496 )     (7,222 )     -       197       (1,589,521 )
Assets for right of use     85,752       35,922       -       -       121,674  
Amortization     (56,863 )     1,679       -       55       (55,129 )
Provisions     37,328       (72,336 )     655       (1,528 )     (35,881 )
Revaluation of financial instruments     (13 )     1,850       426       (38 )     2,225  
Tax losses     1,369,150       29,476       -       (402 )     1,398,224  
Intangibles     (351,238 )     14,647       -       2,016       (334,575 )
Others     (14,662 )     (1,056 )     -       1,400       (14,318 )
                                         
Total     (513,042 )     2,960       1,081       1,700       (507,301 )

 

  74  

 

 

Deferred tax assets not recognized:

 

  As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Tax losses     199,582       137,761  
Total Deferred tax assets not recognized     199,582       137,761  

 

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 March 31, 2019, the Company no longer recognizes deferred tax assets for ThUS $ 199,582 (ThUS $ 137,761 as of December 31, 2018) with respect to losses of ThUS $ 622,275 (ThUS $ 447,150 at December 31, 2018).

 

Deferred tax expense and current income taxes:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Current tax expense                
Current tax expense     16,001       39,696  
Total current tax expense, net     16,001       39,696  
                 
Deferred tax expense                
Deferred expense for taxes related to the creation and reversal of temporary differences     (2,960 )     3,517  
Total deferred tax expense, net     (2,960 )     3,517  
Income tax expense     13,041       43,213  

 

Composition of income tax expense (income):

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Current tax expense, net, foreign     15,721       38,966  
Current tax expense, net, Chile     280       730  
Total current tax expense, net     16,001       39,696  
                 
Deferred tax expense, net, foreign     (1,823 )     (208 )
Deferred tax expense, net, Chile     (1,137 )     3,725  
Deferred tax expense, net, total     (2,960 )     3,517  
Income tax expense     13,041       43,213  

 

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Profit before tax by the legal tax rate in Chile (27% at March 31, 2019 and 2018)

 

    For the period ended     For the period ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
    ThUS$     ThUS$     %     %  
    Unaudited     Restated     Unaudited     Restated  
          Unaudited           Unaudited  
                         
Tax expense using the legal rate     (8,238 )     38,850       27.00       27.00  
Tax effect of rates in other jurisdictions     (5,918 )     6,588       19.39       4.58  
Tax effect of non-taxable operating revenues     (631 )     97       2.07       0.07  
Tax effect of disallowable expenses     18,932       4,023       (62.04 )     2.80  
Tax effect of due to the non-use of tax losses     -       1,087       -       0.76  
Other increases (decreases) in legal tax charge     8,896       (7,432 )     (29.15 )     (5.17 )
Total adjustments to tax expense using the legal rate     21,279       4,363       (69.73 )     3.04  
Tax expense using the effective rate     13,041       43,213       (42.73 )     30.04  

 

Deferred taxes related to items charged to net equity:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
                 
Aggregate deferred taxation of components of other comprehensive income     1,081       2,557  

 

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NOTE 19 - OTHER FINANCIAL LIABILITIES

 

The composition of other financial liabilities is as follows:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Current                
(a)  Interest bearing loans     1,392,358       1,397,156  
(b)  Lease Liability     380,473       363,497  
(c)  Hedge derivatives     4,268       25,921  
(d)  Derivative non classified as hedge accounting     13,801       7,712  
Total current     1,790,900       1,794,286  
                 
Non-current                
(a)  Interest bearing loans     6,233,328       5,864,570  
(b) Lease Liability     2,556,899       2,494,552  
(b)  Hedge derivatives     243       340  
Total non-current     8,790,470       8,359,462  

 

(a) Interest bearing loans

 

Obligations with credit institutions and debt instruments:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Current            
Loans to exporters     379,843       400,721  
Bank loans     38,453       37,743  
Guaranteed obligations     255,009       324,976  
Other guaranteed obligations     97,491       97,143  
Subtotal bank loans     770,796       860,583  
                 
Obligation with the public     47,290       14,643  
Financial leases     475,187       425,100  
Other loans     99,085       96,830  
Total current     1,392,358       1,397,156  
                 
Non-current                
Bank loans     130,071       184,998  
Guaranteed obligations (1)     1,798,743       2,209,045  
Other guaranteed obligations     553,013       576,309  
Subtotal bank loans     2,481,827       2,970,352  
                 
Obligation with the public (1)     2,141,046       1,538,436  
Financial leases (2)     1,450,433       1,199,754  
Other loans     160,022       156,028  
Total non-current     6,233,328       5,864,570  
Total obligations with financial institutions     7,625,686       7,261,726  

 

  77  

 

 

(1) On February 11, 2019, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group SA, has issued on the international market, pursuant to Rule 144-A and Regulation S of the securities laws of the United States of America, unsecured long-term bonds for a nominal amount of US $ 600,000,000 at an annual interest rate of 7.00%. The bonds were placed at an issue price of 99.309%. The bonds expire on March 1, 2026, unless they will be redeemed early according to their terms. As reported to the market, the issuance and placement was intended to finance general corporate purposes.

 

(2) In the period ended March 31, 2019, the Company sold its participation in twenty one special-purpose entities. As a result of this, the classification of the financial liabilities associated with 23 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  
    March 31,     December 31,  
    2019     2018  
Currency   ThUS$     ThUS$  
    Unaudited        
             
Chilean peso (U.F.)     512,441       500,398  
US Dollar     7,113,245       6,761,328  
                 
Total     7,625,686       7,261,726  

 

  78  

 

 

Interest-bearing loans due in installments to March 31, 2019 (Unaudited)

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       38,000       -       -       -       113,000       76,261       38,127       -       -       -       114,388     At Expiration     3.48       3.48  
97.032.000-8   BBVA   Chile   UF     52,001       -       -       -       -       52,001       52,579       -       -       -       -       52,579     At Expiration     4.11       3.31  
97.003.000-K   BANCO DO BRASIL   Chile   ThUS$     200,000       -       -       -       -       200,000       200,863       -       -       -       -       200,863     At Expiration     3.60       3.60  
97.951.000-4   HSBC   Chile   ThUS$     12,000       -       -       -       -       12,000       12,013       -       -       -       -       12,013     At Expiration     3.15       3.15  
                                                                                                                                 
Bank loans                                                                                                                                
                                                                                                                                 
97.023.000-9   CORPBANCA   Chile   UF     5,592       16,777       11,184       -       -       33,553       5,612       16,777       11,050       -       -       33,439     Quarterly     3.35       3.35  
0-E   BLADEX   U.S.A.   ThUS$     7,500       7,500       -       -       -       15,000       7,809       7,438       -       -       -       15,247     Semiannual     6.75       6.75  
97.036.000-K   SANTANDER   Chile   ThUS$     -       -       51,283       -       -       51,283       115       -       51,283       -       -       51,398     Quarterly     5.40       5.40  
76.362.099-9   BTG PACTUAL CHILE   Chile   UF     -       -       67,439       -       -       67,439       121       -       66,596       -       -       66,717     At Expiration     3.10       3.10  
                                                                                                                                 
Obligations with the public                                                                                                                            
0-E   ESTADO   Chile   UF     -       -       -       176,722       176,722       353,444       6,497       -       -       176,603       176,603       359,703     At Expiration     5.50       5.50  
97.030.000-7   BANK OF NEW YORK   U.S.A.   ThUS$     -       -       500,000       -       1,300,000       1,800,000       35,087       5,706       495,617       -       1,292,223       1,828,633     At Expiration     7.33       7.02  
                                                                                                                                 
Guaranteed obligations                                                                                                                            
                                                                                                                                 
0-E   CREDIT AGRICOLE   France   ThUS$     660       1,992       5,400       1,370       -       9,422       713       1,992       5,400       1,370       -       9,475     Quarterly     4.32       3.23  
0-E   BNP PARIBAS   U.S.A.   ThUS$     16,189       38,204       115,132       117,641       213,981       501,147       20,768       38,554       111,877       115,842       212,289       499,330     Quarterly     4.42       4.41  
0-E   WILMINGTON TRUST   U.S.A.   ThUS$     21,879       66,057       179,432       227,738       436,963       932,069       27,427       66,056       174,392       225,617       434,768       928,260     Quarterly     4.47       4.47  
0-E   CITIBANK   U.S.A.   ThUS$     10,854       33,024       91,653       65,785       57,274       258,590       11,985       33,024       86,942       63,751       56,047       251,749     Quarterly     3.85       2.96  
0-E   NATIXIS   France   ThUS$     10,357       31,668       89,633       75,862       106,736       314,256       11,303       31,668       87,881       74,934       105,591       311,377     Quarterly     4.56       4.56  
0-E   INVESTEC   England   ThUS$     3,435       6,575       21,855       20,695       -       52,560       4,342       6,683       21,360       20,604       -       52,989     Semiannual     7.23       7.23  
-   SWAP Aviones llegados   -   ThUS$     167       327       78       -       -       572       167       327       78       -       -       572     Quarterly     -       -  
                                                                                  -                                              
Other guaranteed obligations                                                                                                                            
                                                                                                                                 
0-E   CREDIT AGRICOLE   France   ThUS$     -       -       253,962       -       -       253,962       2,780       -       252,342       -       -       255,122     At Expiration     4.54       4.54  
0-E   DVB BANK SE   Germany   ThUS$     23,479       70,816       191,745       97,727       14,881       398,648       23,895       70,816       188,881       97,083       14,707       395,382     Quarterly     4.23       4.23  
                                                                                                                                 
Financial leases                                                                                                                            
                                                                                                                                 
0-E   ING   U.S.A.   ThUS$     3,734       11,478       7,931       -       -       23,143       3,939       11,478       7,819       -       -       23,236     Quarterly     5.70       5.01  
0-E   CREDIT AGRICOLE   France   ThUS$     12,472       16,270       14,489       -       -       43,231       12,460       16,271       14,489       -       -       43,220     Quarterly     3.71       3.33  
0-E   CITIBANK   U.S.A.   ThUS$     13,347       38,708       74,071       32,823       -       158,949       14,058       38,708       72,491       32,686       -       157,943     Quarterly     4.32       3.73  
0-E   PEFCO   U.S.A.   ThUS$     5,573       9,422       1,926       -       -       16,921       5,693       9,422       1,864       -       -       16,979     Quarterly     5.64       5.02  
0-E   BNP PARIBAS   U.S.A.   ThUS$     8,025       27,071       16,544       -       -       51,640       8,381       27,071       16,350       -       -       51,802     Quarterly     4.08       3.77  
0-E   WELLS FARGO   U.S.A.   ThUS$     31,831       96,472       260,907       224,270       74,187       687,667       34,842       96,472       244,122       218,788       73,162       667,386     Quarterly     2.80       2.11  
97.036.000-K   SANTANDER   Chile   ThUS$     5,604       16,982       46,634       20,227       -       89,447       6,014       16,981       45,687       20,161       -       88,843     Quarterly     3.77       3.23  
0-E   RRPF ENGINE   England   ThUS$     558       2,557       7,216       7,831       4,021       22,183       605       2,557       7,216       7,831       4,021       22,230     Monthly     4.01       4.01  
0-E   APPLE BANK   U.S.A.   ThUS$     1,455       4,420       12,225       11,999       -       30,099       1,667       4,420       11,833       11,922       -       29,842     Quarterly     4.14       3.54  
0-E   BTMU   U.S.A.   ThUS$     2,961       8,965       24,794       23,535       -       60,255       3,215       8,966       24,011       23,389       -       59,581     Quarterly     4.05       3.46  
0-E   NATIXIS   France   ThUS$     3,606       5,048       4,452       -       -       13,106       3,648       5,048       4,452       -       -       13,148     Quarterly     4.19       4.00  
0-E   KFW IPEX-BANK   Germany   ThUS$     1,714       5,235       3,568       -       -       10,517       1,735       5,235       3,568       -       -       10,538     Quarterly     4.23       4.23  
0-E   AIRBUS FINANCIAL   U.S.A.   ThUS$     1,930       5,884       5,687       -       -       13,501       1,964       5,884       5,687       -       -       13,535     Monthly     4.05       4.05  
0-E   US BANK   U.S.A.   ThUS$     15,594       47,318       130,200       136,262       66,804       396,178       17,427       47,318       115,915       130,640       65,301       376,601     Quarterly     4.00       2.82  
0-E   PK AIRFINANCE   U.S.A.   ThUS$     2,361       7,334       25,600       -       -       35,295       2,426       7,334       25,600       -       -       35,360     Monthly     4.18       4.18  
                                                                                                                                 
Other loans                                                                                                                            
                                                                                                                                 
0-E   BOEING   U.S.A.   ThUS$     -       -       83,592       -       -       83,592       -       2,069       83,592       -       -       85,661     At Expiration     4.29       4.25  
0-E   CITIBANK (*)   U.S.A.   ThUS$     23,316       73,296       76,430       -       -       173,042       23,720       73,296       76,430       -       -       173,446     Quarterly     6.00       6.00  
                                                                                                                                 
    Total             573,194       687,400       2,375,062       1,240,487       2,451,569       7,327,712       642,131       695,698       2,314,825       1,221,221       2,434,712       7,308,587                      

 

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

 

  79  

 

 

Interest-bearing loans due in installments to March 31, 2019 (Unaudited) 

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$     140       432       1,142       -       -       1,714       149       432       1,142       -       -       1,723     Monthly     6.01       6.01  
                                                                                                                                 
Financial leases                                                                                                                            
                                                                                                                                 
0-E   NATIXIS   France   ThUS$     1,652       8,081       62,505       20,508       -       92,746       1,934       8,081       62,505       20,508       -       93,028     Quarterly/Semiannual     6.87       6.87  
0-E   WACAPOU LEASING S.A.   Luxemburg   ThUS$     730       2,245       5,523       -       -       8,498       756       2,245       5,523       -       -       8,524     Quarterly     4.81       4.81  
0-E   SOCIÉTÉ GÉNÉRALE MILAN BRANCH   Italy   ThUS$     9,532       29,194       160,076       -       -       198,802       10,256       29,194       159,876       -       -       199,326     Quarterly     5.88       5.88  
0-E   GA Telessis LLC   U.S.A   ThUS$     301       913       2,511       2,640       8,038       14,403       569       913       3,838       2,640       6,538       14,498     Monthly     15.62       15.62  
                                                                                                                                 
    Total             12,355       40,865       231,757       23,148       8,038       316,163       13,664       40,865       232,884       23,148       6,538       317,099                      
                                                                                                                                 
    Total consolidated             585,549       728,265       2,606,819       1,263,635       2,459,607       7,643,875       655,795       736,563       2,547,709       1,244,369       2,441,250       7,625,686                      

 

  80  

 

 

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.

 

  81  

 

 

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                      

 

  82  

 

 

(b) Lease Liability:

 

The movement of the lease liabilities corresponding to the period reported is as follows:

 

                Lease  
                Liability  
    Aircraft     Others     total  
    ThUS$     ThUS$     ThUS$  
                   
Opening balance as January 1, 2018                        
Restated (Unaudited)     3,045,982       109,053       3,155,035  
New contracts and renegotiations     68,541       -       68,541  
Payments     (130,242 )     (7,602 )     (137,844 )
Accrued interest     44,063       2,365       46,428  
Exchange differences     -       (912 )     (912 )
Cumulative translation adjustment     -       (122 )     (122 )
Other increases (decreases)     (3,618 )     3       (3,615 )
Total cambios     (21,256 )     (6,268 )     (27,524 )
Closing balance as of March 31,2018                        
Restated (Unaudited)     3,024,726       102,785       3,127,511  
Opening balance as April 1, 2018                        
Restated (Unaudited)     3,024,726       102,785       3,127,511  
New contracts and renegotiations     (21,068 )     32,404       11,336  
Payments     (395,929 )     (22,325 )     (418,254 )
Accrued interest     130,189       6,069       136,258  
Exchange differences     -       1,670       1,670  
Cumulative translation adjustment     -       (3,882 )     (3,882 )
Other increases (decreases)     (109 )     3,519       3,410  
Total cambios     (286,917 )     17,455       (269,462 )
Closing balance as of December 31,2018                        
Restated (Unaudited)     2,737,809       120,240       2,858,049  
Opening balance as January 1, 2019                        
Restated (Unaudited)     2,737,809       120,240       2,858,049  
New contracts and renegotiations     171,970       -       171,970  
Payments     (129,343 )     (8,753 )     (138,096 )
Accrued interest     41,199       3,093       44,292  
Exchange differences     -       108       108  
Cumulative translation adjustment     773       268       1,041  
Other increases (decreases)     195       (187 )     8  
Total cambios     84,794       (5,471 )     79,323  
Closing balance as of March 31,2019                        
(Unaudited)     2,822,603       114,769       2,937,372  

 

The company recognizes the interest payments related to the lease liabilities in the consolidated result under Financial expenses (See note 27 (d)).

 

  83  

 

 

(c) Hedge derivatives

 

                      Total hedge  
    Current liabilities     Non-current liabilities     derivatives  
    As of     As of     As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Accrued interest from the last date of interest rate swap     2,221       2,321       243       340       2,464       2,661  
Fair value of interest rate derivatives     2,135       335       -       -       2,135       335  
Fair value of fuel derivatives     (88 )     15,678       -       -       (88 )     15,678  
Fair value of foreign currency derivatives     -       7,587       -       -       -       7,587  
Total hedge derivatives     4,268       25,921       243       340       4,511       26,261  

 

(d) Derivatives do not qualify for hedge accounting

 

                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  
    March of     December of     March of     December of     March of     December of  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited             Unaudited             Unaudited          
Derivative of foreign currency not registered as hedge     13,801       7,712       -       -       13,801       7,712  
Total derived not qualify as hedge accounting     13,801       7,712       -       -       13,801       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  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Cross currency swaps (CCS) (1)     21,887       15,099  
Interest rate swaps (2)     (1,699 )     (2,194 )
Fuel options (3)     (1,010 )     (15,811 )

 

(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.

 

  84  

 

 

(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.

 

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 period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Debit (credit) recognized in comprehensive income during the period     17,268       15,533  
Debit (credit) transferred from net equity to income during the period     (7,412 )     4,907  

 

  85  

 

 

NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES

 

The composition of Trade and other accounts payables is as follows:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Current            
(a) Trade and other accounts payables     1,325,312       1,279,976  
(b) Accrued liabilities at the reporting date     379,417       394,327  
Total trade and other accounts payables     1,704,729       1,674,303  

 

(a) Trade and other accounts payable:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Trade creditors     1,139,624       1,048,033  
Other accounts payable     185,688       228,943  
Total     1,325,312       1,276,976  

 

  86  

 

  

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

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Aircraft Fuel     347,537       304,426  
Boarding Fee     189,941       210,621  
Suppliers technical purchases     133,446       75,402  
Handling and ground handling     100,639       84,213  
Airport charges and overflight     95,943       82,181  
Other personnel expenses     94,205       92,047  
Professional services and advisory     72,481       83,182  
Air companies     54,169       59,524  
Leases, maintenance and IT services     51,039       55,427  
Services on board     43,078       44,434  
Marketing     42,689       60,303  
Land services     29,959       26,014  
Achievement of goals     21,550       21,265  
Crew     21,532       21,943  
Aviation insurance     9,342       11,943  
Maintenance     2,701       8,244  
Communications     144       92  
Others     14,917       38,715  
Total trade and other accounts payables     1,325,312       1,279,976  

 

(b) Liabilities accrued:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Accrued personnel expenses     146,410       116,242  
Aircraft and engine maintenance     188,795       170,731  
Accounts payable to personnel (*)     15,900       81,222  
Others accrued liabilities     28,312       26,132  
Total accrued liabilities     379,417       394,327  

 

(*) Profits and bonus participation (Note 23 letter b)

 

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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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provision for contingencies (1)                                                
Tax contingencies     2,990       2,982       199,200       197,038       202,190       200,020  
Civil contingencies     1,637       1,207       64,400       59,834       66,037       61,041  
Labor contingencies     583       605       26,177       23,244       26,760       23,849  
Other     -       -       13,642       13,976       13,642       13,976  
Provision for European                                                
Commission investigation (2)     -       -       9,222       9,403       9,222       9,403  
Total other provisions (3)     5,210       4,794       312,641       303,495       317,851       308,289  

 

(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 st March 31, 2019, and December 31, 2018, 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.

 

  88  

 

 

Movement of provisions:

 

          European        
    Legal     Commission        
    claims (1)     Investigation (2)     Total  
    ThUS$     ThUS$     ThUS$  
                   
Opening balance as of January 1, 2018     367,493       9,883       377,376  
Increase in provisions     27,623       -       27,623  
Provision used     (9,956 )     -       (9,956 )
Difference by subsidiaries conversion     (1,642 )     -       (1,642 )
Reversal of provision     (5,670 )     -       (5,670 )
Exchange difference     246       224       470  
Closing balance as of March 31, 2018 (Unaudited)     378,094       10,107       388,201  
                         
Opening balance as of April 1, 2018     378,094       10,107       388,201  
Increase in provisions     79,247       -       79,247  
Provision used     (49,076 )     -       (49,076 )
Difference by subsidiaries conversion     (46,688 )     -       (46,688 )
Reversal of provision     (61,295 )     -       (61,295 )
Exchange difference     (1,396 )     (704 )     (2,100 )
Closing balance as of December 31, 2018     298,886       9,403       308,289  
                         
Opening balance as of January 1, 2019     298,886       9,403       308,289  
Increase in provisions     34,401       -       34,401  
Provision used     (17,989 )     -       (17,989 )
Difference by subsidiaries conversion     (1,564 )     -       (1,564 )
Reversal of provision     (5,094 )     -       (5,094 )
Exchange difference     (11 )     (181 )     (192 )
Closing balance as of March 31, 2019 (Unaudited)     308,629       9,222       317,851  

 

(1) Cumulative balances include judicial deposit delivered as security, with respect to the "Aerovía Fundo" (FA), for US$ 88 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 March 31, 2019 is described in Note 31 in the Role of the case 2001.51.01.012530-0.

 

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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 March 31, 2019 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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited      
Deferred revenues (*)     2,170,774       2,330,058       628,236       644,702       2,799,010       2,974,760  
Sales tax     12,070       12,726       -       -       12,070       12,726  
Retentions     44,463       34,434       -       -       44,463       34,434  
Others taxes     4,882       7,700       -       -       4,882       7,700  
Dividends payable     54,580       54,580       -       -       54,580       54,580  
Other sundry liabilities     6,865       15,248       -       -       6,865       15,248  
Total other non-financial liabilities     2,293,634       2,454,746       628,236       644,702       2,921,870       3,099,448  

 

  90  

 

 

Movement of Other non-financial liabilities

 

                                  Adjustment              
          Deferred income           application              
                      Loyalty           IAS 29,              
                      (accreditation     Expiration of     Argentina     Others        
    Initial balance     Recognition     Use     and exchange)     tickets     hyperinflation     provisions     Final balance  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
                                                 
From January 1 to March 31, 2018 (Unaudited)     2,849,266       2,065,620       (2,083,793 )     124,959       (59,506 )     -       7,220       2,903,766  
From April 1 to December 31, 2018     2,903,766       5,625,352       (6,146,957 )     819,287       (225,224 )     927       (2,391 )     2,974,760  
From January 1 to March 31, 2019 (Unaudited)     2,974,760       1,758,847       (1,899,223 )     21,196       (64,961 )     -       8,391       2,799,010  

  

(*) Note 2.20.

 

The balance includes, mainly, deferred income for services not provided as of March 31, 2019 and December 31, 2018; and programs such as: LATAM Pass, LATAM Fidelidade and 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.

 

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.

 

  91  

 

 

NOTE 23 - EMPLOYEE BENEFITS

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Retirements payments     59,924       56,126  
Resignation payments     9,552       8,802  
Other obligations     19,940       17,437  
Total liability for employee benefits     89,416       82,365  

  

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 March 31, 2018 (Unaudited)     101,087       4,921       (1,470 )     2,098       6,539       113,175  
                                                 
From April 1 to December 31, 2018     113,175       (12,305 )     (4,548 )     3,722       (17,679 )     82,365  
                                                 
From January 1 to March 31, 2019 (Unaudited)     82,365       17,729       (1,538 )     2,394       (11,534 )     89,416  

  

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

 

    For the period ended  
    March 31,  
Assumptions   2019     2018  
    Unaudited  
Discount rate     3.95 %     4.47 %
Expected rate of salary increase     4.50 %     4.50 %
Rate of turnover     6.04 %     6.98 %
Mortality rate     RV-2014       RV-2014  
Inflation rate     2.75 %     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.

 

  92  

 

 

The sensitivity analysis for these variables is presented below:

 

    Effect on the liability  
    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Discount rate            
Change in the accrued liability an closing for increase in 100 p.b.     (6,545 )     (6,538 )
Change in the accrued liability an closing for decrease of 100 p.b.     5,587       4,918  
                 
Rate of wage growth                
Change in the accrued liability an closing for increase in 100 p.b.     5,340       4,750  
Change in the accrued liability an closing for decrease of 100 p.b.     (6,505 )     (6,547 )

  

(b) The liability for short-term:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited          
Profit-sharing and bonuses (*)     15,900       81,222  

 

(*) 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 period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Salaries and wages     408,443       414,634  
Short-term employee benefits     15,957       33,743  
Termination benefits     15,748       14,622  
Other personnel expenses     35,864       51,544  
Total     476,012       514,543  

  

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NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Aircraft and engine maintenance     447,209       513,544  
Provision for vacations and bonuses     15,242       15,357  
Other sundry liabilities     334       376  
Total accounts payable, non-current     462,785       529,277  

 

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 March 31, 2019 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, 2018), 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 March 31, 2019, the number of subscribed and paid shares of the Company reached 606,407,693.

 

  94  

 

 

Consequently, as of March 31, 2019, 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, 2018     608,374,525       (1,500,000 )(*)     606,874,525  
From January 1 to March 31, 2019 (Unaudited)     606,874,525       -       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, 2018     606,407,693       3,160,718       (14,453 )     3,146,265  
There are no movements of shares paid during the 2018 period     -       -       -       -  
Paid shares as of December 31, 2018     606,407,693       3,160,718       (14,453 )     3,146,265  
Paid shares as of January 1, 2019     606,407,693       3,160,718       (14,453 )     3,146,265  
There are no movements of shares paid during the 2019 period     -       -       -       -  
Paid shares as of March 31, 2019 (Unaudited)     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 March 31, 2019, 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 March 31, 2019, 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.

 

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(d) Reserve of share- based payments

 

Movement of Reserves of share- based payments:

 

          Stock        
    Opening     option     Closing  
Periods   balance     plan     balance  
    ThUS$     ThUS$     ThUS$  
                   
From January 1 to March 31, 2018 (Unaudited)     39,481       (1,938 )     37,543  
From April 1 to December 31, 2018     37,543       331       37,874  
From January 1 to March 31, 2019 (Unaudited)     37,874       (70 )     37,804  

 

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 March 31, 2018 (Unaudited)     2,639,780       5,783       2,645,563  
From April 1 to December 31, 2018     2,645,563       (6,647 )     2,638,916  
From January 1 to March 31, 2019 (Unaudited)     2,638,916       (96 )     2,638,820  

 

Balance of Other sundry reserves comprises the following:

 

    As of     As of  
    March 31,     December 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Higher value for TAM S.A. share exchange (1)     2,665,692       2,665,692  
Reserve for the adjustment to the value of fixed assets (2)     2,620       2,620  
Transactions with non-controlling interest (3)     (25,913 )     (25,913 )
Others     (3,579 )     (3,483 )
Total     2,638,820       2,638,916  

 

(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.

 

(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.

 

  96  

 

 

(3)        The balance as of March 31, 2019 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:

 

                Actuarial gain        
    Currency     Cash flow     or loss on defined        
    translation     hedging     benefit plans        
    reserve     reserve     reserve     Total  
    ThUS$     ThUS$     ThUS$     ThUS$  
                         
Opening balance as of January 1, 2018     (2,131,591 )     18,140       (10,926 )     (2,124,377 )
Increase (decrease) by application of new accounting standards     205,877       -       -       205,877  
Initial balance Restated (Unaudited)     (1,925,714 )     18,140       (10,926 )     (1,918,500 )
                                 
Derivatives valuation gains (losses)     -       17,148       -       17,148  
Deferred tax     -       (537 )     -       (537 )
Actuarial reserves by employee benefit plans     -       -       (2,041 )     (2,041 )
Deferred tax actuarial IAS by employee benefit plans     -       -       525       525  
Difference by subsidiaries conversion     (22,571 )     -       -       (22,571 )
Closing balance as of March 31, 2018 Restated (Unaudited)     (1,948,285 )     34,751       (12,442 )     (1,925,976 )
                                 
Opening balance as of April 1, 2018     (1,948,285 )     34,751       (12,442 )     (1,925,976 )
Derivatives valuation gains (losses)     -       (44,047 )     -       (44,047 )
Deferred tax     -       (37 )     -       (37 )
Actuarial reserves by employee benefit plans     -       -       (3,778 )     (3,778 )
Deferred tax actuarial IAS by employee benefit plans     -       -       1,042       1,042  
Difference by subsidiaries conversion     (708,359 )     -       -       (708,359 )
Closing balance as of December 31, 2018 Restated (Unaudited)     (2,656,644 )     (9,333 )     (15,178 )     (2,681,155 )
                                 
Opening balance as of January 1, 2019     (2,656,644 )     (9,333 )     (15,178 )     (2,681,155 )
Derivatives valuation gains (losses)     -       26,653       -       26,653  
Deferred tax     -       416       -       416  
Actuarial reserves by employee benefit plans     -       -       (2,395 )     (2,395 )
Deferred tax actuarial IAS by employee benefit plans     -       -       656       656  
Difference by subsidiaries conversion     (57,689 )     -       -       (57,689 )
Closing balance as of March 31, 2019 (Unaudited)     (2,714,333 )     17,736       (16,917 )     (2,713,514 )

 

  97  

 

 

(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:

 

          Increase                          
          (decrease) by                 Other        
          application of     Result           increase        
    Opening     new accounting     for the           (decreases)     Closing  
Periods   balance     standars     period     Dividends     (1) (2)     balance  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2018 restated (Unaudited)     475,118       (516,130 )     92,169       (28,167 )     -       22,990  
From April 1 to December 31, 2018 restated (Unaudited)     22,990       -       217,642       (26,413 )     4,752       218,971  
From January 1 to March 31, 2019 (Unaudited)     218,971       -       (60,074 )     -       -       158,897  

 

(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  

 

  98  

 

 

(h) Dividends per share

 

    Minimum mandatory     Minimum mandatory     Final dividend  
    dividend     dividend     dividend  
Description of dividend   2019     2018     2017  
                   
Date of dividend     03/31/2019       12/31/2018       12/31/2017  
Amount of the dividend (ThUS$)     -       54,580       46,591 (*)
Number of shares among which the dividend is distributed     606,407,693       606,407,693       606,407,693  
Dividend per share (US$)     0.0000       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 period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
             
Passengers     2,167,982       2,318,015  
Cargo     263,496       295,820  
Total     2,431,478       2,613,835  

 

  99  

 

 

NOTE 27 - COSTS AND EXPENSES BY NATURE

 

(a) Costs and operating expenses

 

The main operating costs and administrative expenses are detailed below:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Aircraft fuel     746,551       717,854  
Other rentals and landing fees     322,821       311,610  
Aircraft maintenance     104,056       98,677  
Commissions     54,066       60,120  
Passenger services     64,246       79,756  
Other operating expenses (*)     323,748       328,645  
                 
Total     1,615,488       1,596,662  

 

(*) Lease expenses are included within this amount (See note 2.21)

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
             
Payments for leases of low-value assets     9,821       7,475  
                 
Total     9,821       7,475  

 

(b) Depreciation and amortization

 

Depreciation and amortization are detailed below:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Depreciation (*)     333,541       333,185  
Amortization     18,103       15,702  
Total     351,644       348,887  

 

(*) Included within this amount is the depreciation of the Properties, plants and equipment (See Note 17 (a)) and the maintenance of the aircraft recognized as assets by right of use. The maintenance cost amount included in the depreciation line for the period ended March 31, 2019 is ThUS $ 98.056 and ThUS $ 89,270 for the same period 2018.

 

  100  

 

 

(c) Personnel expenses

 

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

 

(d) Financial costs

 

The detail of financial costs is as follows:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited     Restated  
          Unaudited  
Bank loan interest     73,941       68,977  
Financial leases     15,022       15,730  
Lease liability     45,343       47,138  
Other financial instruments     4,140       1,510  
Total     138,446       133,355  

 

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 period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
             
Coalition and loyalty program Multiplus     22,152       44,651  
Tours     28,939       32,463  
Aircraft leasing     22,168       16,029  
Customs and warehousing     7,146       6,510  
Maintenance     2,168       1,379  
Duty free     -       517  
Other miscellaneous income     11,217       15,152  
Total     93,790       116,701  

 

  101  

 

 

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  
    March 31,     December 31,  
Current assets   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Cash and cash equivalents     391,636       606,673  
Argentine peso     5,775       4,236  
Brazilian real     10,671       34,360  
Chilean peso     209,557       415,399  
Colombian peso     2,635       2,732  
Euro     20,904       20,339  
U.S. dollar     70,339       51,382  
Other currency     71,755       78,225  
                 
Other financial assets, current     35,443       57,132  
Argentine peso     9       11  
Brazilian real     4,812       25,829  
Chilean peso     26,076       25,904  
Colombian peso     141       139  
U.S. dollar     4,070       4,923  
Other currency     335       326  

 

  102  

 

 

    As of     As of  
    March 31,     December 31,  
Current assets   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Other non - financial assets, current     82,537       106,952  
Argentine peso     14,745       13,077  
Brazilian real     18,862       37,794  
Chilean peso     20,831       30,916  
Colombian peso     515       434  
Euro     5,077       3,935  
U.S. dollar     6,034       8,949  
Other currency     16,473       11,847  
                 
Trade and other accounts receivable, current     461,672       518,006  
Argentine peso     51,111       54,053  
Brazilian real     4,577       6,037  
Chilean peso     77,702       112,133  
Colombian peso     278       5,065  
Euro     43,390       49,044  
U.S. dollar     3,140       2,938  
Other currency     281,474       288,736  
                 
Accounts receivable from related entities, current     794       593  
Chilean peso     65       200  
U.S. dollar     729       393  
                 
Tax current assets     26,591       20,774  
Argentine peso     2,067       812  
Brazilian real     1,824       1,106  
Chilean peso     6,057       4,860  
Colombian peso     639       5  
Euro     184       -  
U.S. dollar     429       429  
Peruvian sun     13,892       13,306  
Other currency     1,499       256  
                 
Total current assets     998,673       1,310,130  
Argentine peso     73,707       72,189  
Brazilian real     40,746       105,126  
Chilean peso     340,288       589,412  
Colombian peso     4,208       8,375  
Euro     69,555       73,318  
U.S. Dollar     84,741       69,014  
Other currency     385,428       392,696  

  

  103  

 

 

    As of     As of  
    March 31,     December 31,  
Non-current assets   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
             
Other financial assets, non-current     21,679       21,850  
Brazilian real     4,015       4,941  
Chilean peso     69       68  
Colombian peso     263       145  
Euro     7,609       7,438  
U.S. dollar     7,997       7,441  
Other currency     1,726       1,817  
                 
Other non - financial assets, non-current     30,229       31,126  
Argentine peso     75       86  
Brazilian real     7,637       7,465  
U.S. dollar     3       3  
Other currency     22,514       23,572  
                 
Accounts receivable, non-current     5,345       5,378  
Chilean peso     5,345       5,378  
                 
Deferred tax assets     3,247       2,102  
Colombian peso     80       78  
U.S. dollar     1,172       29  
Other currency     1,995       1,995  
                 
Total  non-current assets     60,500       60,456  
Argentine peso     75       86  
Brazilian real     11,652       12,406  
Chilean peso     5,414       5,446  
Colombian peso     343       223  
Euro     7,609       7,438  
U.S. dollar     9,172       7,473  
Other currency     26,235       27,384  
  104  

 

 

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  
    March 31,     December 31,     March 31,     December 31,  
Current liabilities   2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Other financial liabilities, current     77,639       63,920       -       107,815  
Argentine peso     1       3       -       -  
Brazilian real     247       261       -       -  
Chilean peso     50,014       41,694       -       68,901  
Euro     247       704       -       -  
U.S. dollar     26,914       16,773       -       38,914  
Other currency     216       4,485       -       -  
                                 
Trade and other accounts payables, current     1,037,058       970,872       37,918       37,809  
Argentine peso     242,025       229,907       2,920       6,142  
Brazilian real     31,846       30,974       693       1,152  
Chilean peso     190,937       198,766       25,020       26,113  
Colombian peso     4,783       7,915       13       752  
Euro     89,768       84,903       47       1,375  
U.S. dollar     380,149       325,385       3,176       55  
Peruvian sol     38,177       37,285       5,746       1,124  
Mexican peso     4,340       5,975       17       167  
Pound sterling     16,616       13,395       102       305  
Uruguayan peso     523       847       -       -  
Other currency     37,894       35,520       184       624  
                                 
Accounts payable to related entities, current     2,545       365       -       -  
Chilean peso     1,950       253       -       -  
U.S. dollar     595       112       -       -  
Other currency     -       -       -       -  
                                 
Other provisions, current     1,813       1,434       -       -  
Chilean peso     28       28       -       -  
Other currency     1,785       1,406       -       -  
                                 
Tax liabilities, current     -       13       -       -  
Argentine peso     -       4       -       -  
Chilean peso     -       9       -       -  

 

  105  

 

 

    Up to 90 days     91 days to 1 year  
    As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,  
Current liabilities   2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
                         
Other non-financial liabilities, current     34,133       38,120       -       -  
Argentine peso     639       1,089       -       -  
Brazilian real     2,712       1,455       -       -  
Chilean peso     10,880       14,130       -       -  
Colombian peso     708       1,009       -       -  
Euro     5,926       4,411       -       -  
U.S. dollar     3,975       10,468       -       -  
Other currency     9,293       5,558       -       -  
                                 
Total current liabilities     1,153,188       1,074,724       187,662       145,624  
Argentine peso     242,665       231,003       2,920       6,142  
Brazilian real     34,805       32,690       693       1,152  
Chilean peso     253,809       254,880       95,957       95,014  
Colombian peso     5,491       8,924       13       752  
Euro     95,941       90,018       293       1,375  
U.S. dollar     411,633       352,738       81,217       38,969  
Other currency     108,844       104,471       6,569       2,220  

  

  106  

 

 

    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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
Non-current liabilities   2019     2018     2019     2018     2019     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Other financial liabilities, non-current     371,356       299,735       231,335       281,785       184,640       179,406  
Chilean peso     78,168       16,259       176,545       237,377       176,602       172,530  
Brazillian real     897       948       -       -       -       -  
Euro     207       296       -       -       -       -  
U.S. dollar     291,842       280,197       54,698       44,408       8,038       6,876  
Other currency     242       2,035       92       -       -       -  
                                                 
Accounts payable, non-current     252,949       294,704       -       -       -       -  
Chilean peso     13,879       14,027       -       -       -       -  
U.S. dollar     237,865       279,437       -       -       -       -  
Other currency     1,205       1,240       -       -       -       -  
                                                 
Other provisions, non-current     37,065       36,120       -       -       -       -  
Argentine peso     462       542       -       -       -       -  
Brazillian real     20,986       19,815       -       -       -       -  
Colombian peso     299       295       -       -       -       -  
Euro     9,222       9,403       -       -       -       -  
U.S. dollar     6,096       6,065       -       -       -       -  
                                                 
Provisions for employees benefits, non-current     77,442       72,674       -       -       -       -  
Chilean peso     76,900       72,187       -       -       -       -  
U.S. dollar     542       487       -       -       -       -  
                                                 
Other non-financial liabilities, non-current     -       -       -       -       -       -  
Colombian peso     -       -       -       -       -       -  
                                                 
Total non-current liabilities     738,812       703,233       231,335       281,785       184,640       179,406  
Argentine peso     462       542       -       -       -       -  
Brazilian real     21,883       20,763       -       -       -       -  
Chilean peso     168,947       102,473       176,545       237,377       176,602       172,530  
Colombian peso     299       295       -       -       -       -  
Euro     9,429       9,699       -       -       -       -  
U.S. dollar     536,345       566,186       54,698       44,408       8,038       6,876  
Other currency     1,447       3,275       92       -       -       -  

 

  107  

 

             
    As of     As of  
    March 31,     December 31,  
General summary of foreign currency:   2019     2018  
    ThUS$     ThUS$  
    Unaudited        
Total assets     1,059,173       1,370,586  
Argentine peso     73,782       72,275  
Brazilian real     52,398       117,532  
Chilean peso     345,702       594,858  
Colombian peso     4,551       8,598  
Euro     77,164       80,756  
U.S. dollar     93,913       76,487  
Other currency     411,663       420,080  
                 
Total liabilities     2,495,637       2,446,785  
Argentine peso     246,047       237,687  
Brazilian real     57,381       54,605  
Chilean peso     871,860       862,274  
Colombian peso     5,803       9,971  
Euro     105,663       101,092  
U.S. dollar     1,091,931       1,071,190  
Other currency     116,952       109,966  
                 
Net position                
Argentine peso     (172,265 )     (165,412 )
Brazilian real     (4,983 )     62,927  
Chilean peso     (526,158 )     (267,416 )
Colombian peso     (1,252 )     (1,373 )
Euro     (28,499 )     (20,336 )
U.S. dollar     (998,018 )     (994,703 )
Other currency     294,711       310,114  

 

  108  

 

 

(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 March 31, 2019 and 2018, amounted a credit of ThUS$ 8,949 and ThUS$ 811, respectively.

 

The exchange differences recognized in statement of comprehensive income as reserves for translation exchange differences for the period ended March 31, 2019 and 2018 meant a charge of ThUS $ 19,667 and ThUS$ 13,041, respectively.

 

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

 

    As of March 31,     As of December 31,  
    2019     2018     2017     2016  
    Unaudited                    
Argentine peso     43.34       37.74       18.57       15.84  
Brazilian real     3.9       3.87       3.31       3.25  
Chilean peso     678.53       694.77       614.75       669.47  
Colombian peso     3,184.62       3,239.45       2,984.77       3,000.25  
Euro     0.89       0.87       0.83       0.95  
Strong bolivar     -       -       3,345.00       673.76  
Sovereign bolivar (*)     3,294.48       638.18       -       -  
Australian dollar     1.41       1.42       1.28       1.38  
Boliviano     6.86       6.86       6.86       6.86  
Mexican peso     19.45       19.68       19.66       20.63  
New Zealand dollar     1.47       1.49       1.41       1.44  
Peruvian Sol     3.32       3.37       3.24       3.35  
Uruguayan peso     33.43       32.38       28.74       29.28  

  

(*) 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.

 

  109  

 

 

NOTE 30 - EARNINGS / (LOSS) PER SHARE

 

    For the period ended  
    March 31,  
Basic earnings / (loss) per share   2019     2018  
    Unaudited     Restated
 Unaudited 		 
Earnings / (loss) attributable to   owners of the parent (ThUS$)     (60,074 )     92,169  
                 
Weighted average number of shares, basic     606,407,693       606,407,693  
                 
Basic earnings / (loss) per share (US$)     (0.09907 )     0.15199  

 

    For the period ended  
    March 31,  
Diluted earnings / (loss) per share   2019     2018  
    Unaudited     Restated
 Unaudited 		 
             
Earnings / (loss) attributable to   owners of the parent (ThUS$)     (60,074 )     92,169  
                 
Weighted average number of shares, basic     606,407,693       606,407,693  
                 
Weighted average number of shares, diluted     606,407,693       606,407,693  
                 
Diluted earnings / (loss) per share (US$)     (0.09907 )     0.15199  

 

  110  

 

 

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.   86,629  

 

  111  

 

 

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 26 th , 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 14 th , 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 9 th , 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$ 9,222 (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.

  9,222  

 

  112  

 

 

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$10,438; (ii) Norberto Jochmann: ThUS$201; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper. This obligation had also been stayed by the court of federal justice in this process. Awaiting

 

CADE’s statement. ABSA began a judicial review in search of an additional reduction in the fine amount. The Judge’s decision was published on March 12, 2019, and we filed an appeal against it on March 13, 2019.

  10,532  

 

  113  

 

 

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.  

14,146

 
                       

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 appeal.   59,650  
                       

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.

  88,604  

 

  114  

 

 

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.

 

 

57,470

 
                       
Aerovías de Integración Regional,                AIRES S.A.  

United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.

 

45th Civil Court of the Bogota Circuit in Colombia.

  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 GROUP S.A. 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. The appointment of a new damage settlement expert is pending, requested by LATAM AIRLINES COLOMBIA because the previous designate did not take office.  Also pending is a decision on the objection to the Spanish translation of the documents provided in English due to serious errors.  VAS made this motion, which was served to the parties in October 2018.  The claims by VAS and Regional One have been joined before the same State Court, which has set the date for the trial by jury for August 19, 2019.  On March 27, 2019, the State Court denied LATAM Airlines Colombia’s petitions to dismiss the claims by Regional One and VAS for a lack of merits.  Discovery is now underway until the trial begins.  There may be some change in the amount claimed later on, which will be disclosed in due course.   12,443  

 

  115  

 

  

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

Tam Linhas

Aéreas S.A.

  Internal Revenue Service of Brazil   10880.722.355/2014-52   On August 19th, 2014 the Federal Tax Service issued a notice of violation stating  that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.  

An administrative objection was filed on September 17th, 2014. A first-instance ruling was rendered on June 1, 2016 that was partially favorable. The separate fine was revoked. A voluntary appeal was filed on June 30, 2016, which is pending a decision by CARF. On September 9, 2016, , the case was referred to the Second Division, Fourth Chamber, of the Third Section of the Administrative Council of Tax Appeals (CARF).

  66,230  
                       
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.  We were served the decision completely dismissing the claim in March 2019, against which the plaintiff has filed an appeal.  We are now awaiting the hearing by the Court of Appeals.   16, 981  

 

  116  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

LATAM Airlines Group S.A.

 

 

 

22° Civil Court of Santiago

 

  C-29.945-2016  

The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it.

 

  The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017.  LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit.  A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement.   The Court issued the evidentiary decree on May 12, 2017.  We filed a petition for reconsideration because we disagreed with certain points of evidence.  That petition was partially sustained by the Court on June 27, 2017.  The evidentiary stage commenced and then concluded on July 20, 2017.  Observations to the evidence must now be presented.  That period expires August 1, 2017.  We filed our observations to the evidence on August 1, 2017.  We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable.  The plaintiff filed an appeal on December 26, 2017.  Arguments were pled before the Santiago Court of Appeals on April 23, 2019, and on April 30, 2019, this Court confirmed the ruling of the trial court absolving LATAM.  The losing party was ordered to pay costs in both cases.  

19,537

 
                       

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.   39,514  
                       

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-

 

 

 

  117  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

TAM Linhas Aéreas S.A.

 

 

 

Internal Revenue Service of Brazil

 

 

 

16643.000085/2009-47

 

 

 

Notice of claim to recover income taxes and social contributions paid on the basis of net profits (SCL) according to the royalty expenses and use of the TAM trademark.

 

 

 

The company presented its administrative defenses on canceling all charges in the administrative proceedings, which were judged admissible by the District Court. The tax administration filed an appeal before the Administrative Council of Tax Appeals (CARF), and CARF vacated the lower court’s decision and sustained the charges. The company then filed a new Special Appeal to the Superior Chamber of Tax Appeals (CSRF). In January 2018, CSRF partially admitted the company’s appeal to remove the Social Tax on Net Profits (CSL) and keep the Corporate Income Tax (IRPJ). The company filed a new appeal in July 2018 (clarification of ruling). The company was notified of the decision on the latter appeal in February 2019, which ruled that IRPJ was payable but not the CSL, which closed the case administratively.

 

15,503

 

 

 
                       

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  

 

15,662

 

 
                       

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.

 

 

23,702

 

 
                       

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-  

 

  118  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

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.  

20,323

 
                       

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.  

14,607

 

 
                       

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.   31,220  
                       

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.

 

 

48,055

 

 
                       

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 Federal

 

  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.  

17,108

 

 

 

  119  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

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 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.   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 KUS$9.2 for settlement costs and kUS$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 received the necessary approvals from the agreement’s signatories, which took place on March 25, 2019.  This agreement also ended the arbitration.  

12,200

 

 

 

  120  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

TAM Linhas Aéreas S/A

 

  Department of Federal Revenue of Brazil   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.  

119,675

 

 
                       

TAM Linhas Aéreas S/A

 

  Department of Federal Revenue of Brazil   5002912.29.2019.4.03.6100   A court action against the charge in administrative proceeding 16643.000085/2009-47.   This claim was heard on February 28 and March 1, 2019.  The preliminary decision was to not require a bond.  The final decision is pending.  

11,052

 

 
                       

TAM Linhas Aéreas S/A

 

 

Department of Federal Revenue of Brazil

 

  10880.938832/2013-19   The decision denied the reallocation petition  and did not equate the Social Security Tax (COFINS) credit declarations for the second quarter of 2011, which were determined to be in the non-cumulative system.   An administrative defense was argued on March 19, 2019.  The decision is pending.  

15,981

 

 
                       

TAM Linhas Aéreas S/A

 

  Department of Federal Revenue of  Brazil   10880.938834/2013-16   The decision denied the reallocation petition  and did not equate the Social Security Tax (COFINS) credit declarations for the third quarter of 2011, which were determined to be in the non-cumulative system.   An administrative defense was argued on March 19, 2019.  The decision is pending.  

11,684

 

 
                       

TAM Linhas Aéreas S/A

 

 

Department of Federal Revenue of Brazil

 

  10880.938837/2013-41   The decision denied the reallocation petition  and did not equate the Social Security Tax (COFINS) credit declarations for the fourth quarter of 2011, which were determined to be in the non-cumulative system.   An administrative defense was argued on March 19, 2019.  The decision is pending.  

15,658

 

 
                       

TAM Linhas Aéreas S/A

 

 

Department of Federal Revenue of Brazil

 

  10880.938838/2013-96   The decision denied the reallocation petition  and did not equate the Social Security Tax (COFINS) credit declarations for the first quarter of 2012, which were determined to be in the non-cumulative system.   We will argue our administrative    defense.  

10,805

 

 

 

  121  

 

  

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

 
                    ThUS$  
                       

TAM Linhas Aéreas S/A

 

 

Department of Federal Revenue of Brazil

 

  0012541-56.2016.5.03.0144   A class action in which the Union is petitioning that TAM be ordered to make payment of the correct calculation of Sundays and holidays.  

A hearing was set for December 17, 2019

 

 

 

13,932

 

 
                       

LATAM Airlines Group Argentina

 

  Commercial Trial Court No. 15 of Buenos Aires.  

11479/2012

 

  Proconsumer and Rafaella Cabrera filed a claim citing discriminating fees charged to foreign users as compared to domestic users for services retained in Argentina.   The trial court judge dismissed Mrs. Cabrera’s claim on March 7, 2019 and sustained the motion of lack of standing entered by Proconsumer.  The ruling was appealed by the plaintiff on April 8, 2019 and will be decided by Room D.   -0-  
                       

LATAM Airlines Group Argentina, Brasil, Perú, Ecuador y TAM Mercosur

 

  Commercial and Civil Trial Court No. 11 of  Buenos Aires.   1408/2017   Consumidores Libres Coop. Ltda. filed this claim on March 14, 2017 regarding a provision of services.  It petitioned for the reimbursement of certain fees or the difference in fees charged for passengers who purchased a ticket in the last 10 years but did not use it.   Federal Commercial and Civil Trial Court No. 11 in the city of Buenos Aires.  After two years of arguments on jurisdiction and competence, the claim was assigned to this court and an answer was filed on March 19, 2019.  

-0-

 

 

 

  122  

 

 

- In order to deal with any financial obligations arising from legal proceedings in effect at March 31, 2019, 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.

 

  123  

 

 

(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$ 575 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 March 31, 2019 this line of credit established with a consortium of eleven banks led by Citibank, is not used.

 

As of March 31, 2019, the Company is in compliance with all the indicators detailed above.

 

  124  

 

 

(c)        Other commitments

 

At March 31, 2019 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-05-19
Corporación Peruana de Aeropuertos y Aviación Comercial   Lan Perú S.A.   Twenty nine letter of credit     3,506     May-30-19
Lima Airport Partners S.R.L.   Lan Perú S.A.   Two letter of credit     1,758     May-21-19
Superintendencia Nacional de Aduanas y de Administración Tributaria   Lan Perú S.A.   Nineteen letter of credit     152,000     Apr-21-19
Aena Aeropuertos S.A.   LATAM Airlines Group S.A.   Four letter of credit     3,102     Nov-15-19
American Alternative Insurance Corporation   LATAM Airlines Group S.A.   Six letter of credit     3,690     Abr-05-19
Citibank N.A.   LATAM Airlines Group S.A.   One letter of credit     27,226     Dec-20-19
Comisión Europea   LATAM Airlines Group S.A.   One letter of credit     9,409     Dec-31-19
Deutsche Bank A.G.   LATAM Airlines Group S.A.   One letter of credit     2,500     March-31-20
Dirección General de Aeronáutica Civil   LATAM Airlines Group S.A.   Forty seven letter of credit     19,390     Apr-30-19
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador   LATAM Airlines Group S.A.   One letter of credit     5,500     Jun-18-19
Metropolitan Dade County   LATAM Airlines Group S.A.   Seven letter of credit     2,191     Apr-09-19
Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual   LATAM Airlines Group S.A.   Forty letter of credit     1,310     May-16-19
Conselho Administrativo de Conselhos Federais   Tam Linhas Aéreas S.A.   Two letter of credit     1,626     Nov-24-20
Procon   Tam Linhas Aéreas S.A.   One letter of credit     1,309     Apr-01-21
União Federal   Tam Linhas Aéreas S.A.   Two letter of credit     3,217     Sep-28-21
Vara da Fazenda Pública da Comarca do Rio de Janeiro - RJ   Tam Linhas Aéreas S.A.   One letter of credit     1,047     Sep-27-23
Vara das Execuções Fiscais Estaduais   Tam Linhas Aéreas S.A.   Four letter of credit     8,541     May-23-19
Procon   ABSA linhas Aereas Brasileira S/A   One letter of credit     10,495     May-19-20
Vara Federal da Subseção de Campinas SP   ABSA linhas Aereas Brasileira S/A   One letter of credit     5,457     Oct-20-21
Conselho Administrativo de Conselhos Federais   ABSA linhas Aereas Brasileira S/A   One letter of credit     15,919     Feb-22-21
              280,898      

 

  125  

 

 

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 March 31,  
Tax No.   Related party   related parties   of origin   transactions   Currency   2019     2018  
                        Unaudited  
                        ThUS$     ThUS$  
96.810.370-9   Inversiones Costa Verde Ltda. y CPA.   Related  director   Chile   Tickets sales   CLP     9       4  
78.591.370-1   Bethia S.A and subsidiaries   Related  director   Chile   Services received of cargo transport   CLP     556       212  
                Services received from National and International Courier   CLP     (3 )     (17 )
                Services provided of cargo transport   CLP     -       -  
                Sales commissions   CLP     (54 )     (353 )
                Services received of transfer of passengers   CLP     (230 )     -  
                Services received advertising   CLP     4       -  
87.752.000-5   Granja Marina Tornagaleones S.A.   Common shareholder   Chile   Services provided   CLP     13       14  
Foreign   Consultoría Administrativa Profesional S.A. de C.V.   Associate   Mexico   Professional counseling services received   MXN     -       (668 )
Foreign   Inversora Aeronáutica Argentina   Related director   Argentina   Property leases received   ARS$     -       (66 )
Foreign   TAM Aviação Executiva e Taxi Aéreo S/A   Common shareholder   Brazil   Services provided   BRL     2       17  
                Services received of cargo transport   BRL     -       1  
                Services received at airports   BRL     (10 )     -  
Foreign   Qatar Airways   Indirect shareholder   Qatar   Services provided by aircraft lease   US$     6,260       5,325  
                Interlineal received service   US$     (340 )     (306 )
                Interlineal provided  service   US$     2,804       1,330  
                Services provided of handling   US$     393       441  
                Services provided / received others   US$     81       159  

 

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.

 

  126  

 

 

(b) Compensation of key management

 

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

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Remuneration     3,594       3,427  
Management fees     79       34  
Non-monetary benefits     460       186  
Short-term benefits     17,807       22,284  
Long-term benefits     8,343       -  
Share-based payments     2,644       7,735  
Termination benefits     -       59  
Total     32,927       33,725  

 

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.

 

  127  

 

 

(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, 2018     2,932,896       -       (171,419 )     (1,168,700 )     1,592,777  
From January 1 to March 31, 2019 (Unaudited)     1,592,777       93,481       -       (1,635,562 )     50,696  

 

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 March 31, 2019 and as of December 31, 2018, the amount recorded is ThUS $ 2,664 and 7,335, 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, 2018     84,249       163,251       -       247,500  
Outstanding option number as March 31, 2019 (Unaudited)     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.

 

  128  

 

 

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  
    March 31,     December 31,     March 31,     December 31,  
Company   2019     2018     2019     2018  
    Unaudited           Unaudited        
Multiplus S.A.     247,500       247,500       247,500       247,500  

 

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, 2018     309,710       -       (83,958 )     (8,916 )     216,836  
From January 1 to March 31, 2019 (Unaudited)     216,836       -       (91,595 )     (25,294 )     99,947  

 

  129  

 

 

NOTE 35 - STATEMENT OF CASH FLOWS

 

(a)           The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 17 letter (d), additional information in numeral (iv) Financial leases.

 

(b)           Other inflows (outflows) of cash:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Fuel hedge     (1,561 )     14,654  
Hedging margin guarantees     (1,607 )     (5,844 )
Guarantees     (8,943 )     1,799  
Tax paid on bank transaction     (960 )     (3,308 )
Currency hedge     -       (1,064 )
Bank commissions, taxes paid and other     (2,082 )     (3,319 )
Fuel derivatives premiums     -       1,566  
Court deposits     (12,835 )     (10,806 )
                 
Total Other inflows (outflows) Operation flow     (27,988 )     (6,322 )
                 
Tax paid on bank transaction     (597 )     (621 )
Others     -       12,352  
                 
Total Other inflows (outflows) Investment flow     (597 )     11,731  
                 
Aircraft Financing advances     27,864       -  
Settlement of derivative contracts     (618 )     (2,449 )
                 
Total Other inflows (outflows) Financing flow     27,246       (2,449 )

 

(c)           Dividends:

 

    For the period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Multiplus S.A. (*)     -       (9,716 )
Total dividends paid     -       (9,716 )

 

(*) 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           March 31,  
financial institutions   2018     Capital     Capital     Interest     and others     Reclassifications     2019  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Restated                                   Unaudited  
    Unaudited                                      
Loans to exporters     400,721       -       (23,000 )     (2,413 )     4,535       -       379,843  
Bank loans     222,741       -       (56,871 )     (2,270 )     4,924       -       168,524  
Guaranteed obligations     2,534,021       -       (53,849 )     (22,886 )     (403,534 )     -       2,053,752  
Other guaranteed obligations     673,452       -       (23,044 )     (7,770 )     7,866       -       650,504  
Obligation with the public     1,553,079       594,354       -       -       40,903       -       2,188,336  
Financial leases     1,624,854       -       (126,150 )     (18,742 )     445,658       -       1,925,620  
Other loans     252,858       27,864       (23,167 )     (2,878 )     3,705       725       259,107  
Lease liability     2,855,874               (94,136 )     (43,960 )     219,594               2,937,372  
Total Obligations with financial institutions     10,117,600       622,218       (400,217 )     (100,919 )     323,651       725       10,563,058  

 

    As of     Cash flows     Non-Flow Movements     As of  
Obligations with   December 31,     Obtainment     Payment     Interest accrued           March 31,  
financial institutions   2017     Capital     Capital     Interest     and others     Reclassifications     2018  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Restated                                   Unaudited  
    Unaudited                                      
Loans to exporters     314,619       80,001       (70,000 )     (2,246 )     3,287       -       325,661  
Bank loans     321,633       5,003       (22,095 )     (3,294 )     5,804       -       307,051  
Guaranteed obligations     4,036,843       -       (87,713 )     (30,300 )     30,550       (854,854 )     3,094,526  
Other guaranteed obligations     242,175       -       213       (2,274 )     2,333       -       242,447  
Obligation with the public     1,584,066       -       -       -       36,906       -       1,620,972  
Financial leases     1,109,504       -       (183,839 )     (17,903 )     25,627       854,854       1,788,243  
Other loans     282,800       -       (21,551 )     (4,560 )     4,499       -       261,188  
Lease liability     3,155,035               (91,416 )     (46,428 )     110,320       -       3,127,511  
Total Obligations with financial institutions     11,046,675       85,004       (476,401 )     (107,005 )     219,326       -       10,767,599  

 

(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 period ended  
    March 31,  
    2019     2018  
    ThUS$     ThUS$  
    Unaudited  
Increases (payments)     (27,864 )     (33,772 )
Recoveries     51,239       (30,050 )
Total cash flows     23,375       (63,822 )

 

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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     -  

 

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 2019, 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 2018 has recertified its environmental management system in Miami facilities following the guidelines of the international standard ISO 14.001.
- Maintenance of the Stage 2 Certification of IATA Environmental Assessment (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.

 

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- Preparation of the environmental chapter for the sustainability report of the company 2019, 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.
- Incorporation of 100% electric power from renewable sources in the maintenance base facilities and the corporate building of operations in Chile.

 

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.

 

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

 

On April 3, 2019, Tam Linhas Aereas S.A. a subsidiary of Latam Airliens Group S.A., 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 Brazil"), 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, Tam Linhas Aereas S.A. has committed to extend to Avianca Brazil, 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 TAM Linhas Aereas S.A. if the restructuring proposal is successful. At this date, the process is suspended.

 

On April 16, 2019, LATAM Airlines Group S.A. received the notification of the resolution issued by the National Economic Prosecutor's Office (FNE) that initiates an investigation into the LATAM Pass frequent passenger program. The Company is cooperating with this process.

 

At the Ordinary Shareholders' Meeting held on April 25, 2019, the shareholders approved the distribution of the final dividend proposed by the Board in the last meeting held on April 9 which proposed consists in distributing as dividend 30% of the Profit for the year 2018, equivalent to an amount of US $ 54,580,443.06, which will be paid on May 16, 2019.

 

On May 8, 2019, the Brazilian securities regulator, CVM (Comissão de Valores Mobiliários), approved the delisting of Multiplus S.A. converting it into a private equity company that are no longer trading on the B3 Novo Mercado or any other market, as of May 6, 2019, TAM S.A. a subsidiary of LATAM Airlines Group SA, informed that the de-listing continues at the end of the successful public offering to acquire the shares of Multiplus SA (approximately 27.3% of the circulating stock), operation that was successfully completed on April 1, 2019.

 

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On March 31, 2019 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 interim consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of March 31, 2019, have been approved in an Extraordinary Board Meeting on _____ __, 2019.

 

  134  

 

 

SIGNATURES

 

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

 

Date: May 17, 2019       LATAM AIRLINES GROUP S.A.
       
        By:   /s/ Ramiro Alfonsin
        Name:   Ramiro Alfonsin
        Title:   CFO

 

 

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