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

 

November 13, 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.

 

The following exhibit is attached:

 

EXHIBIT NO.   DESCRIPTION
99.1  

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

  

1

 

 

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: November 13, 2019 LATAM AIRLINES GROUP S.A.
     
  By:

/s/ Ramiro Alfonsin

  Name:

Ramiro Alfonsin

  Title:

CFO of LATAM Airlines Group.

 

 

2

 

 

Exhibit 99.1

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

 

CONTENTS

 

Interim Consolidated Statement of Financial Position 1
Interim Consolidated Statement of Income by Function 3
Interim Consolidated Statement of Comprehensive Income 4
Interim Consolidated Statement of Changes in Equity 5
Interim Consolidated Statement of Cash Flows - Direct Method 7
Notes to the Interim Consolidated Financial Statements 8

 

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   8
2 - Summary of significant accounting policies   12
2.1. Basis of Preparation   12
2.2. Basis of Consolidation   21
2.3. Foreign currency transactions   22
2.4. Property, plant and equipment   24
2.5. Intangible assets other than goodwill   24
2.6. Goodwill   25
2.7. Borrowing costs   25
2.8. Losses for impairment of non-financial assets   25
2.9. Financial assets   26
2.10. Derivative financial instruments and hedging activities   26
2.11. Inventories   26
2.12. Trade and other accounts receivable   28
2.13. Cash and cash equivalents   28
2.14. Capital   28
2.15. Trade and other accounts payables   28
2.16. Interest-bearing loans   28
2.17. Current and deferred taxes   29
2.18. Employee benefits   29
2.19. Provisions   30
2.20. Revenue recognition   30
2.21. Leases   31
2.22. Non-current assets (or disposal groups) classified as held for sale   32
2.23. Maintenance   33
2.24. Environmental costs   33
3 - Financial risk management   33
3.1. Financial risk factors   33
3.2. Capital risk management   47
3.3. Estimates of fair value   47
4 - Accounting estimates and judgments   50
5 - Segmental information   53
6 - Cash and cash equivalents   58
7 - Financial instruments   59
7.1. Financial instruments by category   59
7.2. Financial instruments by currency   61
8 - Trade, other accounts receivable and non-current accounts receivable   62
9 - Accounts receivable from/payable to related entities   65
10 - Inventories   66
11 - Other financial assets   67
12 - Other non-financial assets   68
13 - Non-current assets and disposal group classified as held for sale   69

 

i

 

 

14 - Investments in subsidiaries 70
15 - Intangible assets other than goodwill 73
16 - Goodwill 74
17 - Property, plant and equipment 76
18 - Current and deferred tax 81
19 - Other financial liabilities 86
20 - Trade and other accounts payables 96
21 - Other provisions 98
22 - Other non financial liabiliies 100
23 - Employee benefits 102
24 - Accounts payable, non-current 104
25 - Equity 104
26 - Revenue 109
27 - Costs and expenses by nature 110
28 - Other income, by function 111
29 - Foreign currency and exchange rate differences 112
30 - Earnings per share 120
31 - Contingencies 121
32 - Commitments 132
33 - Transactions with related parties 134
34 - Share based payments 135
35 - Statement of cash flows 138
36 - The environment 140
37 - Events subsequent to the date of the financial statements 141

 

ii

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

      As of   As of   As of 
      September 30,   December 31,   January 1, 
   Note  2019   2018   2018 
      ThUS$   ThUS$   ThUS$ 
      Unaudited   Restated   Restated 
          Unaudited   Unaudited 
ASSETS               
Cash and cash equivalents               
Cash and cash equivalents  6 - 7   947,442    1,081,642    1,142,004 
Other financial assets  7 - 11   535,729    383,984    559,919 
Other non-financial assets  12   255,613    290,476    244,778 
Trade and other accounts receivable  7 - 8   1,381,583    1,162,582    1,202,945 
Accounts receivable from related entities  7 - 9   12,925    2,931    2,582 
Inventories  10   368,013    279,344    236,666 
Current tax assets  18   53,365    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      3,554,670    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   363,413    5,768    291,103 
                   
Total current assets      3,918,083    3,275,861    3,757,984 
                   
Non-current assets                  
Other financial assets  7 - 11   52,765    58,700    88,090 
Other non-financial assets  12   209,728    227,541    212,203 
Accounts receivable  7 - 8   4,472    5,381    6,891 
Intangible assets other than goodwill  15   1,355,640    1,441,072    1,617,247 
Goodwill  16   2,139,315    2,294,072    2,672,550 
Property, plant and equipment  17   12,359,187    12,501,809    12,930,652 
Current tax assets  18   -    757    17,532 
Deferred tax assets  18   255,640    273,529    370,564 
                   
Total non-current assets      16,376,747    16,802,861    17,915,729 
                   
Total assets      20,294,830    20,078,722    21,673,713 

 

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

 

1

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY               
                
      As of   As of   As of 
      September 30,   December 31,   January 1, 
  Note  2019   2018   2018 
      ThUS$   ThUS$   ThUS$ 
      Unaudited   Restated   Restated 
         Unaudited   Unaudited 
LIABILITIES               
Current liabilities               
Other financial liabilities  7 - 19   2,125,965    1,794,286    1,619,979 
Trade and other accounts payables  7 - 20   1,872,513    1,674,303    1,668,612 
Accounts payable to related entities  7 - 9   75    382    760 
Other provisions  21   5,016    4,794    2,783 
Current tax liabilities  18   6,027    3,738    3,511 
Other non-financial liabilities  22   2,583,782    2,454,746    2,901,603 
Total current liabilities other than non-current liabilities (or disposal groups) classified as held for sale      6,593,378    5,932,249    6,197,248 
Liabilities included in disposal groups classified as held for sale  13   -    -    15,546 
                   
Total current liabilities      6,593,378    5,932,249    6,212,794 
                   
Non-current liabilities                  
Other financial liabilities  7 - 19   8,432,493    8,359,462    9,433,450 
Accounts payable  7 - 24   600,569    529,277    559,443 
Other provisions  21   288,370    303,495    374,593 
Deferred tax liabilities  18   705,674    786,571    877,748 
Employee benefits  23   95,194    82,365    101,087 
Other non-financial liabilities  22   738,450    644,702    158,305 
                   
Total non-current liabilities      10,860,750    10,705,872    11,504,626 
                   
Total liabilities      17,454,128    16,638,121    17,717,420 
                   
EQUITY                  
Share capital  25   3,146,265    3,146,265    3,146,265 
Retained earnings  25   182,345    218,971    (41,012)
Treasury Shares  25   (178)   (178)   (178)
Other reserves      (482,509)   (4,365)   760,761 
Parent’s ownership interest      2,845,923    3,360,693    3,865,836 
Non-controlling interest  14   (5,221)   79,908    90,457 
                   
Total equity      2,840,702    3,440,601    3,956,293 
                   
Total liabilities and equity      20,294,830    20,078,722    21,673,713 

 

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

 

2

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

      For the 9 month period ended
September 30,
   For the 3 month period ended
September 30,
 
   Note  2019   2018   2019   2018 
      ThUS$   ThUS$   ThUS$   ThUS$ 
      Unaudited   Restated   Unaudited   Restated 
          Unaudited       Unaudited 
                    
Revenue  26   7,312,402    7,256,144    2,591,988    2,386,051 
Cost of sales      (5,884,897)   (5,744,249)   (1,936,536)   (1,896,663)
Gross margin      1,427,505    1,511,895    655,452    489,388 
Other income  28   247,923    323,727    73,112    105,930 
Distribution costs      (446,782)   (468,740)   (158,463)   (145,634)
Administrative expenses      (515,435)   (518,998)   (185,800)   (132,349)
Other expenses      (322,004)   (304,023)   (115,412)   (96,572)
Other gains/(losses)      6,969    39,719    5,042    12,044 
Income from operation activities      398,176    583,580    273,931    232,807 
Financial income      16,263    34,227    4,063    9,300 
Financial costs  27   (426,058)   (408,353)   (145,813)   (135,827)
Foreign exchange gains/(losses)  29   (41,834)   (269,310)   (74,788)   (92,357)
Result of indexation units      (2,479)   555    (2,573)   (2,534)
Income (loss) before taxes      (55,932)   (59,301)   54,820    11,389 
Income (loss) tax expense / benefit  18   22,928    (2,966)   32,202    26,365 
                        
NET INCOME (LOSS) FOR THE PERIOD      (33,004)   (62,267)   87,022    37,754 
Income (loss) attributable to owners of the parent      (36,626)   (80,368)   86,265    35,213 
Income (loss) attributable to non-controlling interest  14   3,622    18,101    757    2,541 
                        
Net income (loss) for the year      (33,004)   (62,267)   87,022    37,754 
                        
EARNINGS PER SHARE                       
Basic earnings (losses) per share (US$)  30   (0.06040)   (0.13253)   0.14225    0.05807 
Diluted earnings (losses) per share (US$)  30   (0.06040)   (0.13253)   0.14225    0.05807 

 

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

 

3

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

      For the 9 months period ended   For the 3 months period ended 
      September 30,   September 30, 
   Note  2019   2018   2019   2018 
      ThUS$   ThUS$   ThUS$   ThUS$ 
      Unaudited   Restated   Unaudited   Restated 
          Unaudited       Unaudited 
NET INCOME (LOSS)      (33,004)   (62,267)   87,022    37,754 
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   (11,108)   (3,668)   (8,121)   (1,695)
Total other comprehensive income that will not be reclassified to income before taxes      (11,108)   (3,668)   (8,121)   (1,695)
Components of other comprehensive income that will be reclassified to income before taxes                       
Currency translation differences Gains (losses) on currency translation, before tax  29   (341,762)   (614,855)   (308,354)   (95,868)
Other comprehensive income, before taxes, currency translation differences      (341,762)   (614,855)   (308,354)   (95,868)
Cash flow hedges                       
Gains (losses) on cash flow hedges before taxes  19   46,828    39,515    11,625    7,006 
Other comprehensive income (losses), before taxes, cash flow hedges      46,828    39,515    11,625    7,006 
Total other comprehensive income that will be reclassified to income before taxes      (294,934)   (575,340)   (296,729)   (88,862)
Other components of other comprehensive income (loss), before taxes      (306,042)   (579,008)   (304,850)   (90,557)
Income tax relating to other comprehensive income that will not be reclassified to income                       
Income tax relating to new measurements on defined benefit plans  18   2,994    960    2,188    455 
Accumulate income tax relating to other comprehensive income that will not be reclassified to income      2,994    960    2,188    455 
Income tax relating to other comprehensive income that will be reclassified to income                       
Income tax related to cash flow hedges in other comprehensive income      658    151    491    (41)
Income taxes related to components of other comprehensive income that will be reclassified to income      658    151    491    (41)
Total Other comprehensive income      (302,390)   (577,897)   (302,171)   (90,143)
Total comprehensive income (loss)      (335,394)   (640,164)   (215,149)   (52,389)
Comprehensive income (loss) attributable to owners of the parent      (327,502)   (640,369)   (179,427)   (47,029)
Comprehensive income (loss) attributable to non-controlling interests      (7,892)   205    (35,722)   (5,360)
TOTAL COMPREHENSIVE INCOME (LOSS)      (335,394)   (640,164)   (215,149)   (52,389)

 

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

 

4

 

 

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   -    -    -    -    -    -    -    -    (36,626)   (36,626)   3,622    (33,004)
Other comprehensive income      -    -    (330,680)   47,917    (8,113)   -       (290,876)   -   (290,876)   (11,514)   (302,390)
Total comprehensive income      -    -    (330,680)   47,917    (8,113)   -    -    (290,876)   (36,626)   (327,502)   (7,892)   (335,394)
Transactions with shareholders                                                               
Dividens  25   -    -    -    -    -    -    -    -    -    -    -    - 
Increase (decrease) through transfers and other changes, equity   25-34   -    -    -    -    -    (1,450)   (185,818)   (187,268)   -    (187,268)   (77,237)   (264,505)
Total transactions with shareholders      -    -    -    -    -    (1,450)   (185,818)   (187,268)   -    (187,268)   (77,237)   (264,505)
                                                                
Closing balance as of September 30, 2019 (Unaudited)      3,146,265    (178)   (2,987,324)   38,584    (23,291)   36,424    2,453,098    (482,509)   182,345    2,845,923    (5,221)   2,840,702 

 

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

5

 

 

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    (511,378)   (305,501)   (690)   (306,191)
Initial balance Restated (Unaudited)        3,146,265    (178)   (1,925,714)   18,140    (10,926)   39,481    2,639,780    760,761    (36,260)   3,870,588    90,457    3,961,045 
Total increase (decrease) in equity                                                                 
Comprehensive income Gain (losses)   25    -    -    -    -    -    -    -    -    (80,368)   (80,368)   18,101    (62,267)
Other comprehensive income        -    -    (597,721)   40,371    (2,651)   -    -    (560,001)   -    (560,001)   (17,896)   (577,897)
Total comprehensive income        -    -    (597,721)   40,371    (2,651)   -    -    (560,001)   (80,368)   (640,369)   205    (640,164)
Transactions with shareholders                                                                 
Dividens   25    -    -    -    -    -    -    -    -    (9,983)   (9,983)   -    (9,983)
Increase (decrease) through transfers and other changes, equity   25-34    -    -    -    -    -    (1,576)   (1,072)   (2,648)   -    (2,648)   (24,244)   (26,892)
Total transactions with shareholders        -    -    -    -    -    (1,576)   (1,072)   (2,648)   (9,983)   (12,631)   (24,244)   (36,875)
Closing balance as of September 30, 2018 Restated (Unaudited)        3,146,265    (178)   (2,523,435)   58,511    (13,577)   37,905    2,638,708    198,112    (126,611)   3,217,588    66,418    3,284,006 

  

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

 

6

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

      For the 9 month period ended 
      September 30, 
   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      8,230,559    7,448,849 
Other cash receipts from operating activities      64,919    68,738 
Payments for operating activities             
Payments to suppliers for goods and services      (5,096,491)   (4,722,978)
Payments to and on behalf of employees      (1,424,201)   (1,395,536)
Other payments for operating activities      (210,046)   (182,722)
Income taxes refunded (paid)      (32,566)   (50,426)
Other cash inflows (outflows)  35   117,423    (9,754)
Net cash flows from operating activities      1,649,597    1,156,171 
              
Cash flows used in investing activities             
Cash flows from losses of control of subsidiaries or other businesses      -    40,248 
Cash flows used to obtain control of subsidiaries or other businesses      (5)   - 
Cash flows used in the purchase ofnon-controlling interest      (294,105)   - 
Other cash receipts from sales of equity or debt instruments of other entities      3,066,595    2,690,336 
Other payments to acquire equity or debt instruments of other entities      (3,211,312)   (2,810,734)
Amounts raised from sale of property, plant and equipment      47,896    218,975 
Purchases of property, plant and equipment      (588,170)   (502,259)
Purchases of intangible assets      (62,842)   (71,215)
Cash advances and loans granted to third parties      (47,936)   - 
Interest received      14,043    7,360 
Other cash inflows (outflows)  35   (1,921)   416 
Net cash flow from (used in) investing activities      (1,077,757)   (426,873)
              
Cash flows from (used in) financing activities  35          
Amounts raised from long-term loans      1,349,970    769,162 
Amounts raised from short-term loans      64,000    243,000 
Loans repayments      (1,137,847)   (1,320,768)
Payments of lease liabilities      (292,082)   (280,768)
Dividends paid       (55,116)   (68,206)
Interest paid      (397,206)   (380,004)
Other cash inflows (outflows)      (58,341)   (7,969)
Net cash flows from (used in) financing activities      (526,622)   (1,045,553)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change      45,218    (316,255)
Effects of variation in the exchange rate on cash and cash equivalents      (179,418)   (139,310)
Net increase (decrease) in cash and cash equivalents      (134,200)   (455,565)
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   947,442    686,439 

 

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

  

7

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF SEPTEMBER 30, 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. 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 September 30, 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 September 30, 2019, the Company had a total of 1,415 shareholders in its registry. At that date, approximately 2.79% of the Company’s property was in the form of ADRs.

 

For the period ended September 30, 2019, the company had an average of 40,893 employees, ending this period with a total number of 41,193 people, distributed in 6,547 Administration employees, 4,994 in Maintenance, 13,245 in Operations, 9,254 Cabin Crew, 4,286 Cockpit Crew and 2,867 in Sales.

 

8

 

 

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

 

a)Participation rate

 

      Country of  Functional  As September 30, 2019   As December 31, 2018 
Tax No.  Company  origin  Currency  Direct   Indirect   Total   Direct   Indirect   Total 
            %   %   %   %   %   % 
            Unaudited             
                                  
96.518.860-6  Latam Travel Chile S.A. and Subsidary  Chile  US$   99.9900    0.0100    100.0000    99.9900    0.0100    100.0000 
96.969.680-0  Lan Pax Group S.A. and Subsidiaries  Chile  US$   99.8361    0.1639    100.0000    99.8361    0.1639    100.0000 
Foreign  Latam Airlines 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$   99.8940    0.0041    99.8980    99.8939    0.0041    99.8980 
Foreign  Connecta Corporation  U.S.A.  US$   100.0000    0.0000    100.0000    0.0000    100.0000    100.0000 
Foreign  Prime Airport Services Inc. and Subsidary  U.S.A.  US$   99.9714    0.0286    100.0000    0.0000    100.0000    100.0000 
96.951.280-7  Transporte Aéreo S.A.  Chile  US$   99.9999    0.0001    100.0000    0.0000    100.0000    100.0000 
96.631.520-2  Fast Air Almacenes de Carga S.A.  Chile  CLP   99.8900    0.1100    100.0000    0.0000    100.0000    100.0000 
Foreign  Laser Cargo S.R.L.  Argentina  ARS   96.2208    3.7792    100.0000    0.0000    100.0000    100.0000 
Foreign  Lan Cargo Overseas Limited and Subsidiaries  Bahamas  US$   99.9800    0.0200    100.0000    0.0000    100.0000    100.0000 
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidary  Chile  US$   99.0000    1.0000    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 Trainning LATAM S.A.  Chile  CLP   99.8300    0.1700    100.0000    99.8300    0.1700    10 0.0000 
Foreign  Latam Finance Limited  Cayman Insland  US$   100.0000    0.0000    100.0000    100.0000    0.0000    10 0.0000 
Foreign  Peuco Finance Limited  Cayman Insland  US$   100.0000    0.0000    100.0000    100.0000    0.0000    10 0.0000 
Foreign  Profesional Airline Services INC.  U.S.A.  US$   100.0000    0.0000    100.0000    100.0000    0.0000    10 0.0000 
Foreign  Jarletul S.A.  Uruguay  US$   99.0000    1.0000    100.0000    99.0000    1.0000    10 0.0000 
Foreign  TAM S.A. and Subsidiaries (*)  Brazil  BRL   63.0901    36.9099    100.0000    63.0901    36.9099    10 0.0000 

 

(*)As of September 30, 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.

 

9

 

 

b)Financial Information

 

      Statement of financial position   Net Income 
      As of September 30, 2019   As of December 31, 2018   For the period ended September 30, 
                              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   11,846    3,780    8,066    10,841    3,909    6,932    1,134    1,644 
96.969.680-0  Lan Pax Group S.A. and Subsidiaries (*)   585,084    1,440,210    (870,999)   526,017    1,281,800    (751,960)   (25,772)   (145,876)
Foreign  Latam Airlines Perú S.A.   340,523    342,234    (1,711)   419,325    409,221    10,104    (9,390)   (15,878)
93.383.000-4  Lan Cargo S.A.   633,600    465,169    168,431    513,367    336,715    176,652    (7,929)   (23,155)
Foreign  Connecta Corporation   75,858    24,978    50,880    66,593    28,183    38,410    12,470    13,208 
Foreign  Prime Airport Services Inc. and Subsidary (*)   22,381    23,565    (1,184)   15,817    17,654    (1,837)   652    527 
96.951.280-7  Transporte Aéreo S.A.   340,187    135,235    204,952    331,496    129,233    202,263    3,764    (31,045)
96.631.520-2  Fast Air Almacenes de Carga S.A.   17,212    9,764    7,448    17,057    9,614    7,443    421    152 
Foreign  Laser Cargo S.R.L.   (10)   -    (10)   26    13    13    -    (3)
Foreign  Lan Cargo Overseas Limited  and Subsidiaries (*)   48,805    14,022    34,532    53,326    13,040    40,028    (5,497)   (729)
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidary (*)   208,364    216,032    (7,170)   181,522    192,059    (9,614)   2,444    1,311 
96.575.810-0  Inversiones Lan S.A. and Subsidiaries (*)   1,345    49    1,296    1,383    50    1,333    (37)   (4,742)
96.847.880-K  Technical Trainning LATAM S.A.   2,492    1,147    1,345    2,879    1,031    1,848    (265)   119 
Foreign  Latam Finance Limited   1,386,718    1,529,155    (142,437)   679,034    756,774    (77,740)   (64,697)   (35,676)
Foreign  Peuco Finance Limited   664,458    664,458    -    608,191    608,191    -    -    - 
Foreign  Profesional Airline  Services INC.   5,251    3,889    1,362    2,430    1,967    463    899    35 
Foreign  Jarletul S.A.   173    568    (395)   18    125    (107)   (395)   - 
Foreign  TAM S.A. and Subsidiaries (*)   4,254,499    3,453,357    799,812    4,420,546    3,256,017    1,095,695    (11,149)   (155,437)

 

(*)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 secured bond collateralized with future credit card receivables; 3. Private investment funds. 4. Dia Patagonia Limited, Alma Leasing C.O. Limited, FC Initial Leasing Limited y Vari Leasing Limited, created to aircraft financing. These companies have been consolidated as required by IFRS 10.

 

All controlled entities have been included in the consolidation.

10

 

Changes occurred in the consolidation perimeter between January 1, 2018 and September 30, 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. ownsership is 3.77922% and Lan Cargo S.A. with a 96.22078% share of Laser Cargo SRL.

 

-On March 13, 2018, the company Jarletul S.A., was create. The company ownership is 99% of LATAM Airlines Group S.A. and a 1% is from Inversiones Lan S.A.. The company main activity is a Travel Agency.

 

-As of December 31, 2018, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 5,319 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, consequently, the indirect participation of LATAM Airlines Group S.A. corresponds to 99.2012%.

 

-In April 2019, TAM Linhas Aereas S.A, through a public offering of shares, acquired 26.08% of the shares of Multiplus S.A., owned by minority shareholders. Subsequently, the Company TAM S.A assigned 73.98% of its stake in Multiplus S.A., through a capital increase, to TAM Linhas Aerea S.A.; Because of 100% of the shares remain under the control of TAM Linhas Aereas S.A. a merge with Multiplus S.A. was materialized, leaving Multiplus S.A. from being an independent company on May 31, 2019. As result of the merger by incorporation, the Coalition and Loyalty Program of Multiplus S.A. which was identified as an independent Cash Generating Unit (CGU), and which also represented an operating segment, becomes part, as well as, the other loyalty programs of the group (LATAM Pass and LATAM Fidelidade), of the CGU Air Transport. Additionally from that moment Latam as a single operating segment within the Group.

 

(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.

 

11

 

 

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 September 30, 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.

 

12

 

 

 

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

 

(i)    Standards and amendments   Date of issue   Effective Date:
         
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.

  

13

 

 

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   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 

 

14

 

 

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 porcentage of credit losses, a risk matrix was used, grouping the portfolio, according to similar characteristics of risk and maturity. This change resulted in the recognition of an increase in the provision for impairment losses of US $ (11.1) million.

 

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

 

15

 

 

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   Up to   91 to   181 to   360     
   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             
  Loans   Hedge   Held   as fair value       At fair value     
   and   and   for   through profit   Cost   with changes     
   receivables   derivatives   traiding   and loss   amortized   in results   Total 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Assets                            
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 

  

16

 

  

   Classification IAS 39   Classification IFRS 9 
   Others   Held         
   financial   hedge   Cost     
   liabilities   derivatives   amortized   Total 
   ThUS$   ThUS$   ThUS$   ThUS$ 
Liabilities                
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.

  

17

 

 

-Effects of adopting IFRS 16

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

 

The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of September 30, 2018 are presented in the consolidated income statement:

 

     

For the nine months ended septermber 30, 2018

 
Reconciliation Revenue             Adjustments for reconciliation     
      Results   Adoption   Results       Deferred
revenues
       Results 
      under   Effect   under   Contract   recognition        under 
   Nota  IFRS 15   IFRS16   IFRS 15   costs (4)   [(5), (6)]   Reclassifications   IAS 18 
      ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
      Published       Restated                 
              IFRS 16                 
      Unaudited 
                                
Revenue  26   7,256,144    -    7,256,144    -    25,876    15,621    7,297,641 
Cost of sales      (5,883,840)   139,591    (5,744,249)   -    (24,811)   -    (5,769,060)
Gross margin      1,372,304    139,591    1,511,895    -    1,065    15,621    1,528,581 
                                       
Other income  28   323,727    -    323,727    -    -    39,090    362,817 
Distribution costs      (471,684)   2,944    (468,740)   1,737    -    (13,481)   (480,484)
Administrative expenses      (507,659)   (11,339)   (518,998)   4,057    -    (41,230)   (556,171)
Other expenses      (306,721)   2,698    (304,023)   -    -    -    (304,023)
Other gains (losses)      39,719    -    39,719    -    -    -    39,719 
Income from operation activities      449,686    133,894    583,580    5,794    1,065    -    590,439 
                                       
Financial income      34,227    -    34,227    -    -    -    34,227 
Financial costs  27   (268,779)   (139,574)   (408,353)   -    -    -    (408,353)
Foreing exchange gains (losses)  29   (145,593)   (123,717)   (269,310)   -    -    -    (269,310)
Result of indexation units      555    -    555    -    -    -    555 
Income (loss) before taxes      70,096    (129,397)   (59,301)   5,794    1,065    -    (52,442)
Income (loss) tax expense / benefit  18   (18,831)   15,865    (2,966)   (1,654)   600    -    (4,020)
                                       
NET INCOME (LOSS) FOR THE PERIOD      51,265    (113,532)   (62,267)   4,140    1,665    -    (56,462)
                                      
Income (loss) atributable to owners of the parent      33,277    (113,645)   (80,368)   4,140    1,665    -    (74,563)
Income (loss) atributable to non-controlling interest  14   17,988    113    18,101    -    -    -    18,101 
                                       
Net income (loss) for the period      51,265    (113,532)   (62,267)   4,140    1,665    -    (56,462)

 

19

 

 

      For the three months ended September 30, 2018 
Reconciliation Revenue             Adjustments for reconciliation     
      Results   Adoption   Results       Deferred
revenues
       Results 
      under   Effect   under   Contract   recognition       under 
   Nota  IFRS 15   IFRS16   IFRS 15   costs (4)   [(5), (6)]   Reclassifications   IAS 18 
      ThUS$   ThUS$   ThUS$   ThUS$   ThUS$       ThUS$ 
      Published       Restated                 
              IFRS 16                 
      Unaudited 
Revenue  26   2,386,051    -    2,386,051    -    256    14,907    2,401,214 
Cost of sales      (1,944,317)   47,654    (1,896,663)   -    (3,874)   -    (1,900,537)
Gross margin      441,734    47,654    489,388    -    (3,618)   14,907    500,677 
Other income  28   105,930    -    105,930    -    -    4,843    110,773 
Distribution costs      (146,662)   1,028    (145,634)   1,296    -    (6,364)   (150,702)
Administrative expenses      (128,616)   (3,733)   (132,349)   (1,334)   -    (13,386)   (147,069)
Other expenses      (97,435)   863    (96,572)   -    -    -    (96,572)
Other gains (losses)      12,044    -    12,044    -    -    -    12,044 
Income from operation activities      186,995    45,812    232,807    (38)   (3,618)   -    229,151 
                                       
Financial income      9,300    -    9,300    -    -    -    9,300 
Financial costs  27   (91,310)   (44,517)   (135,827)   -    -    -    (135,827)
Foreing exchange gains (losses)  29   (67,521)   (24,836)   (92,357)   -    -    -    (92,357)
Result of indexation units      (2,534)   -    (2,534)   -    -    -    (2,534)
Income (loss) before taxes      34,930    (23,541)   11,389    (38)   (3,618)   -    7,733 
Income (loss) tax expense / benefit  18   20,440    5,925    26,365    9    3,265    -    29,639 
                                       
NET INCOME (LOSS) FOR THE PERIOD      55,370    (17,616)   37,754    (29)   (353)   -    37,372 
Income (loss) atributable to owners of the parent      52,942    (17,729)   35,213    (29)   (353)   -    34,831 
Income (loss) atributable to non-controlling interest  14   2,428    113    2,541    -    -    -    2,541 
                                       
Net income (loss) for the period      55,370    (17,616)   37,754    (29)   (353)   -    37,372 

 

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.

 

20

 

 

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

 

(i) Standards 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 
          
Amendment to IFRS 9: Financial instruments; IAS 39:
Financial instruments: Recognition and measurement; Y
IFRS 7: Financial instruments: Disclosures
   September 2019   January 1, 2020 

 

The management of the Company estimates that the adoption of the standards, amendments and Interpretations described above, will not have a significant impact on the consolidated financial statements of the Company in the application of its first adoption. At the close consolidated financial statements the Company is analyzing the possible effects of the amendment issued in September 2019 to IFRS 9, IAS 39 and IFRS 7 for the reform of interest rates of reference.

 

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.

 

21

 

 

(b)Transactions with non-controlling interests

 

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

 

(c)Sales of subsidiaries

 

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

 

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

 

(d)Investees or associates

 

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

 

2.3.Foreign currency transactions

 

(a)Presentation and functional currencies

 

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

 

(b)Transactions and balances

 

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

 

22

 

 

 

(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.

 

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.

 

23

 

 

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.

 

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 – Air transport 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.

 

24

 

 

The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., program that is part of TAM Linhas Aereas S.A. (See Note 1).

 

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

 

(b) Computer software

 

Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 10 years.

 

Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets others than Goodwill when they have met all the criteria for capitalization.

 

(c) Brands

 

The Brands were acquired in the business combination with TAM S.A. And Subsidiaries and recognized at fair value under IFRS. During the year 2016, the estimated useful life of the brands change from an indefinite useful life to a five-year period, the period in which the value of the brands will be amortized (See Note 15).

 

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.

 

25

 

 

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);

 

26

 

 

(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.

 

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.

 

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

 

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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 interest 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.

 

If the sale by the vendor-lessee is classified as a sale in accordance with IFRS 15, the underlying asset is derecognised, and a right-of-use asset equal to the portion proportionally withhold from the amount of the asset is recognized.

 

If the sale by the seller-lessee is not qualified as a sale in accordance with IFRS 15, the assets transferred are maintained in the financial statements and a financial liability is recognized equal to the sale price (received from the buyer-lessor).

 

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.

 

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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 equipament, 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.

 

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.

 

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(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 September 30, 2019, the Company recognized in results amounts to US$ 23.0 million (negative) for fuel coverage net of premium. During the same period of 2018, the Company recognized gains of US$ 29.2 million for the same concept.

 

As of September 30, 2019, the market value of fuel positions amounted to US$ 21.1 million (positive). 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  September 30, 2019 ( Unaudited)(*)  Maturities     
   Q419   Q120   Q220   Q320   Total 
Percentage of coverage over the expected volume of consumption   53%   60%   52%   5%   43%

 

(*)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).

 

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.

 

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The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity.

 

The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2020.

 

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of September 2019 and the end of December, 2018.

 

    Positions as of September 30, 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    + 14.9    +7.4
 -5    - 14.5    - 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 $ 96.0 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 $ 90.6 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.

 

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 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.

 

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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 September 30, 2019, the market value of FX derivative positions amounted to US $ 0.8 million (positive). At the end of December 2018, the Company did not maintain derivatives of current FX hedges.

 

During the period ended September 30, 2019, the Company recognized gains of US $ 1.0 million for FX coverage net of premiums. During the same period of 2018, the company recognized gains of US$ 13.9 million.

 

As of September 30, 2019, the Company has contracted FX derivatives for US $ 12 million for BRL. At the end of December 2018, the Company did not maintain current FX derivatives.

 

During 2018 the company contracted FX derivatives which were not registered under hedge accounting. As of September 30, 2019, the amount recognized in results amounts to US $ 6.2 million (negative) net of premiums.

 

Sensitivity analysis:

 

A depreciation of the R$/US$ exchange rate, negatively affects the Company’s operating cash flows, however, also positively affects the value of the positions of derivatives contracted.

 

FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate has an impact on the market value of the derivatives, the changes of which affect the Company’s net equity.


The following table shows the sensitization of FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection period was defined until the end of the last coverage contract in force, with the last business day of the fourth quarter of the year 2019:

 

Appreciation (depreciation)   Effect at September 30, 2019
Millions of US$
  Effect at September 30, 2018
of R$  

Unaudited

  Millions of US$
         
-10%   -0,8   -
+10%   +0,2    -

 

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

 

During 2018 and 2019, the Company contracted swap currency derivatives for debt coverage issued the same year for a notional UF 8.7 million and UF 5.0 million, respectively. As of September 30, 2019, the market value of the currency swaps derivative positions amounted to US $ 7.5 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 dollar to real, they have an impact on the result of TAM S.A., which is consolidated in the Company’s Income Statement.

 

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In order to reduce the impact on the Company’s result 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 September 30, 2019   Effect at September 30, 2018
of R$/US$(*)   Millions of US$   Millions of US$
         
-10%   +67.7   +36.4
+10%   - 67.7    -36.4

  

(*) 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 September 30, 2019   Effect at December 31, 2018
of R$/US$   Millions of US$   Millions of US$
         
-10%   +313.55   +384.73
+10%   -256.55   -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.

 

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

 

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Mitigation:

 

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

 

Rate Hedging Results:

 

As of September 30, 2019, the market value of the derivative positions of interest rates amounted to US $ 0.6 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 September 30, 2019   Positions as of September 30, 2018
futures curve   effect on profit or loss before tax   effect on profit or loss before tax
in libor 3 months   (millions of US$)   (millions of US$)
         
+100 basis points    -27.92    -30.29
-100 basis points   +27.92   +30.29

 

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 September 30, 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   +2.10   +0.70
-100   basis points   -2.20   -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.

 

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

 

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(b)Credit risk

 

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

 

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

 

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

 

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

 

(i)Financial activities

 

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

 

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

 

The Company has no guarantees to mitigate this exposure.

 

(ii)Operational activities

 

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

 

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

 

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

 

Credit quality of financial assets

 

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

 

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

 

(c)Liquidity risk

 

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

 

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

 

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

 

At September 30, 2019 is US$ 1,392 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 September 30, 2019, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line of US$ 600 million (US$ 600 million as of December 31, 2018) subject to availability of collateral.

 

40

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of September (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 $   -    100,869    -    -    -    100,869    99,000   At Expiration   3.26    2.33 
97.032.000-8  BBVA  Chile  UF   50,139    -    -    -    -    50,139    49,305   At Expiration   2.64    1.84 
97.003.000-K  BANCO DO BRASIL  Chile  US $   151,328    50,747    -    -    -    202,075    200,000   At Expiration   3.21    3.20 
97.030.000-7  BANCO ESTADO  Chile  US $   14,076    -                   14,076    14,000   At Expiration   3.26    3.26 
97.951.000-4  HSBC  Chile  US $   12,096    -    -    -    -    12,096    12,000   At Expiration   2.85    2.85 
                                                          
Bank loans                                                         
                                                          
97.023.000-9  CORPBANCA  Chile  UF   5,484    16,176    -    -    -    21,660    21,209   Quarterly   3.35    3.35 
0-E  BLADEX  U.S.A.  US $   7,756    -    -    -    -    7,756    7,500   Semiannual   6.31    6.31 
97.036.000-K  SANTANDER  Chile  US $   133    -    20,523    -    -    20,656    20,523   Quarterly   5.20    5.20 
76.362.099-9  BTG  PACTUAL  CHILE  Chile  UF   496    1,487    65,925    -    -    67,908    63,943   At Expiration   3.10    3.10 
0-E  SANTANDER  Spain  US $   1,931    5,125    160,518              167,574    158,850   Quarterly   3.97    4.96 
                                                          
Obligations with the public                                                      
                                                          
97.030.000-7  BANCO ESTADO  Chile  UF   12,652    12,652    218,168    33,014    429,045    705,531    527,720   At Expiration   4.81    4.79 
0-E  BANK OF NEW YORK  U.S.A.  US $   31,069    351,133    208,250    908,250    884,000    2,382,702    1,761,588   At Expiration   7.25    6.99 
                                                          
Guaranteed obligations                                                      
                                                          
0-E  BNP PARIBAS  U.S.A.  US $   14,449    26,276    80,287    79,671    165,977    366,660    306,376   Quarterly   4.05    4.05 
0-E  WILMINGTON TRUST COMPANY  U.S.A.  US $   31,917    94,648    244,812    251,600    456,079    1,079,056    888,240   Quarterly   4.46    4.46 
0-E  CITIBANK  U.S.A.  US $   5,766    17,296    46,121    46,117    47,939    163,239    148,247   Quarterly   3.76    2.68 
0-E  NATIXIS  France  US $   13,542    40,481    102,858    87,396    90,805    335,082    293,467   Quarterly   4.05    4.05 
0-E  MUFG  U.S.A.  US $   37,804    8,049    24,173    24,324    75,019    169,369    144,823   Quarterly   3.72    3.72 
0-E  INVESTEC  England  US $   4,693    8,587    26,274    15,670    -    55,224    47,623   Semiannual   6.70    6.70 
                                                          
Otras obligaciones garantizadas                                                      
                                                          
0-E  CREDIT AGRICOLE  France  US $   2,534    7,069    262,955    -    -    272,558    253,692   At Expiration   3.99    3.99 
0-E  DVB BANK SE  Germany  US $   26,920    79,799    218,321    48,400    5,061    378,501    351,628   Quarterly   3.88    3.75 
                                                          
Other guaranteed obligations                                                      
                                                          
0-E  ING  U.S.A.  US $   4,025    10,092    2,041    -    -    16,158    15,631   Quarterly   5.70    5.01 
0-E  CREDIT AGRICOLE  France  US $   6,965    15,031    11,702    -    -    33,698    32,836   Quarterly   3.32    2.71 
0-E  CITIBANK  U.S.A.  US $   19,533    58,418    124,968    27,289    -    230,208    218,738   Quarterly   3.67    3.08 
0-E  PEFCO  U.S.A.  US $   3,880    3,899    -    -    -    7,779    7,610   Quarterly   5.65    5.03 
0-E  BNP PARIBAS  U.S.A.  US $   15,953    41,299    71,109    60,325    32,112    220,798    197,300   Quarterly   4.20    4.13 
0-E  WELLS FARGO  U.S.A.  US $   35,350    105,816    266,968    220,868    26,393    655,395    623,842   Quarterly   2.72    2.03 
97.036.000-K  SANTANDER  Chile  US $   6,205    18,501    48,992    8,335    -    82,033    78,211   Quarterly   3.31    2.77 
0-E  RRPF ENGINE  England  US $   1,156    3,444    9,002    8,717    1,636    23,955    20,128   Monthly   4.01    4.01 
0-E  APPLE BANK  U.S.A.  US $   1,684    5,011    13,318    9,049    -    29,062    27,180   Quarterly   3.65    3.05 
0-E  BTMU  U.S.A.  US $   3,401    10,149    26,950    17,525    -    58,025    54,328   Quarterly   3.62    3.02 
0-E  NATIXIS  France  US $   759    2,295    3,103    -    -    6,157    5,845   Quarterly   4.64    4.64 
0-E  KFW IPEX-BANK  Germany  US $   1,808    5,415    -    -    -    7,223    7,073   Quarterly   3.84    3.84 
0-E  AIRBUS FINANCIAL  U.S.A.  US $   2,043    6,100    1,689    -    -    9,832    9,625   Monthly   4.00    4.00 
0-E  US BANK  U.S.A.  US $   18,348    54,926    145,535    144,141    32,190    395,140    364,902   Quarterly   4.14    2.96 
0-E  PK AIRFINANCE  U.S.A.  US $   2,629    8,060    20,949    -    -    31,638    30,532   Monthly   3.74    3.74 
                                                          
Other loans                                                         
                                                          
0-E  CITIBANK (*)  U.S.A.  US $   27,226    77,627    27,226    -    -    132,079    126,355   Quarterly   6.00    6.00 
                                                          
Hedge derivative                                                      
                                                          
-  OTHERS  -  US $   6,145    4,781    13,092    13,172    -    37,190    (7,787)  -   0.00    0.00 
                                                          
    Total         581,895    1,251,258    2,465,829    2,003,863    2,246,256    8,549,101    7,182,083              

 

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

 

41

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of September 30, 2019 (Unaudited)

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

                More than   More than   More than   More                    
            Up to   90 days   one to   three to   than                    
      Creditor     90   to one   three   five   five       Nominal      Effective   Nominal 
Tax No.  Creditor  country  Currency  days   year   years   years   years   Total   value   Amortization  rate   rate 
            ThUS $   ThUS $   ThUS $   ThUS $   ThUS $   ThUS $   ThUS $      %   % 
                                                 
Bank loans                                             
                                                 
0-E  NCM  Holland  US $   173    499    888    -    -    1,560    1,433   Monthly   6.01    6.01 
                                                          
Financial leases                                                      
                                                          
0-E  NATIXIS  France  US $   2,408    9,500    79,145    -    -    91,053    87,950   Quarterly / Semiannual   6.29    6.29 
0-E  WACAPOU LEASING S.A.  Luxembourg  US $   836    2,447    4,094    -    -    7,377    7,029   Quarterly   4.32    4.32 
0-E  SOCIÉTÉ GÉNÉRALE  MILAN BRANCH  Italy  US $   11,372    59,202    102,576    -    -    173,150    179,668   Quarterly   5.39    5.39 
0-E  GA Telesis LLC  U.S.A.  US $   678    1,753    4,675    4,675    11,065    22,846    13,799   Monthly   14.72    14.72 
                                                          
    Total         15,467    73,401    191,378    4,675    11,065    295,986    289,879              

 

42

 

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of September 30, 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$   138,865    405,013    967,074    830,408    1,288,171    3,629,531    3,629,531    -    -    - 
-  OTHER ASSETS  OTHERS  US$   3,427    8,510    20,725    19,229    18,080    69,971    69,971    -    -    - 
         CLP   54    1    -    -    -    55    55    -    -    - 
         UF   603    322    387    -    -    1,312    1,312    -    -    - 
         COP   10    15    35    6    -    66    66    -    -    - 
         EUR   60    88    126    -    -    274    274    -    -    - 
         GBP   44    31    -    -    -    75    75    -    -    - 
         MXN   30    88    235    39    -    392    392    -    -    - 
         PEN   52    51    2    -    -    105    105    -    -    - 
         Other currencies   1,013    2,463    7,892    42,854    -    54,222    54,222    -    -    - 
Trade and other accounts payables                                                    
                                                            
-  OTHERS  OTHERS  US$   948,606    35,772    -    -    -    984,378    984,378    -    -    - 
         CLP   5,610    9    -    -    -    5,619    5,619    -    -    - 
         BRL   411,204    3    -    -    -    411,207    411,207    -    -    - 
         Other currencies   72,141    1,318    -    -    -    73,459    73,459    -    -    - 
Accounts payable to related parties currents                                                  
Foreing  Inversora Aeronáutica Argentina S.A.  Argentina  ARS   -    -    -    -    -    -    -    -    -    - 
78.997.060-2  Viajes Falabella Ltda.  Chile  CLP   -    -    -    -    -    -    -    -    -    - 
78.591.370-1  Bethia S.A. y Filiales  Chile  CLP   71    -    -    -    -    71    71    -    -    - 
Foreign  TAM Aviação Executiva e Taxi Aéreo S.A.  Brazil  BRL   4    -    -    -    -    4    4    -    -    - 
                                                            
   Total         1,581,794    453,684    996,476    892,536    1,306,251    5,230,741    5,230,741                
                                                            
   Total consolidated      1,581,794    453,684    996,476    892,536    1,306,251    5,230,741    5,230,741                

 

43

 

 

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 
97.03-0-7  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 
                                                   -      
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.

 

44

 

 

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   More than                        
            Up to   90 days   than
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              

 

45

 

 

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    -    -    - 
            EUR   311    431    215    -    -    957    957    -    -    - 
            GBP   45    128    36    -    -    209    209    -    -    - 
            MXN   33    92    235    115    -    475    475    -    -    - 
            PEN   183    409    114    -    -    706    706    -    -    - 
                                                               
Trade and other accounts payables                                                 
                                                               
-  OTHERS     OTHERS  US$   720,718    9,979    -    -    -    730,697    730,697    -    -    - 
            CLP   74,566    16,493    -    -    -    91,059    91,059    -    -    - 
            BRL   309,552    66    -    -    -    309,618    309,618    -    -    - 
            Other currencies   252,116    3,406    -    -    -    255,522    255,522    -    -    - 
Accounts payable to related parties currents                                                 
Foreing  Inversora Aeronáutica Argentina S.A.     Argentina  ARS   15    -    -    -    -    15    15    -    -    - 
78.591.370-1  Bethia S.A. y Filiales     Chile  CLP   365    -    -    -    -    365    365    -    -    - 
Foreign  TAM Aviação Executiva e Taxi Aéreo S.A.     Brazil  BRL   2    -    -    -    -    2    2    -    -    - 
                                                               
   Total            1,505,698    469,567    1,042,818    805,616    1,319,723    5,143,422    4,203,936                
                                                               
   Total consolidated     2,058,082    1,553,559    4,130,735    2,408,124    3,429,902    13,580,402    11,521,527                

 

46

 

 

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

 

At the end of 2018, the Company had delivered US$ 5.0 million in guarantees for derivative margins, corresponding to cash and standby letters of credit. As of September 30, 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 September 30, 2019 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a BB- rating with stable outlook by Fitch Ratings and a Ba3 rating with stable outlook by Moody’s.

 

3.3.Estimates of fair value.

 

At September 30, 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.

 

47

 

 

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 September 30, 2019   As of December 31, 2018 
       Fair value measurements using values       Fair value measurements using values 
       considered as       considered as 
   Fair value   Level I   Level II   Level III   Fair value   Level I   Level II   Level III 
   (Unaudited)                 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Assets                                
                                 
Cash and cash equivalents   142,496    142,496    -    -    43,653    43,653    -    - 
Short-term mutual funds   142,496    142,496    -    -    43,653    43,653    -    - 
                                       - 
Other financial assets, current   517,432    493,484    23,948    -    366,573    343,218    23,355    - 
Fair value interest rate derivatives   -    -    -    -    19,460    -    19,460    - 
Fair value of fuel derivatives   23,169    -    23,169    -    -    -    -    - 
Fair value of foreign currency derivative   779    -    779    -    3,895    -    3,895    - 
Derivative not recognized as a hedge   45,933    45,933    -    -    19,396    19,396    -    - 
Private investment funds   445,028    445,028    -    -    322,428    322,428    -    - 
Domestic and foreign bonds   2,523    2,523    -    -    1,394    1,394    -    - 
                                         
Liabilities                                        
                                         
Other financial liabilities, current   40,805    -    40,805    -    33,633    7,712    25,921    - 
Fair value of interest rate derivatives   34,426    -    34,426    -    335    -    335    - 
Fair value of fuel derivatives   1,711    -    1,711    -    15,678    -    15,678    - 
Fair value of foreign currency derivatives   -    -    -    -    7,587    -    7,587    - 
Interest accrued since the last payment date of Currency Swap   4,668    -    4,668    -    2,321    -    2,321    - 
Derivative not recognized as a hedge   -    -    -    -    7,712    7,712    -    - 
Other financial liabilities, non current   659    -    659    -    340    -    340    - 
Interest accrued since the last date of Swap interest rates   659    -    659    -    340    -    340    - 

 

48

 

 

Additionally, at September 30, 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 September 30, 2019   As of December 31, 2018 
   Book   Fair   Book   Fair 
   value   value   value   value 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited         
                 
Cash and cash equivalents   804,946    804,946    1,037,989    1,037,989 
Cash on hand   37,065    37,065    8,974    8,974 
Bank balance   362,145    362,145    331,218    331,218 
Overnight   241,945    241,945    282,164    282,164 
Time deposits   163,791    163,791    415,633    415,633 
Other financial assets, current   18,297    18,297    17,411    17,411 
Other financial assets   18,297    18,297    17,411    17,411 
Trade debtors, other accounts receivable and Current accounts receivable   1,381,583    1,381,583    1,162,582    1,162,582 
Accounts receivable from entities related, current   12,925    12,925    2,931    2,931 
Other financial assets, not current   -    -    58,700    58,700 
Accounts receivable, non-current   -    -    5,381    5,381 
                     
Other current financial liabilities   2,085,160    1,864,853    1,397,156    1,578,835 
Accounts payable for trade and other accounts payable, current   1,872,513    1,872,513    1,674,303    1,674,303 
Accounts payable to entities related, current   75    75    382    382 
Other financial liabilities, not current   8,431,834    6,142,217    5,864,570    5,893,387 
Accounts payable, not current   600,569    600,569    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.

 

49

 

 

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 September 30, 2019, goodwill amount to ThUS$ 2,139,315 (ThUS$ 2,294,072 as of December 31, 2018), while the intangible assets comprise the Airport Slots for ThUS$ 773,956 (ThUS$ 828,969 as of December 31, 2018) and Loyalty Program for ThUS$ 255,336 (ThUS$ 274,420 as of December 31, 2018).

 

The Company checks at least once a year if goodwill and intangible assets of indefinite useful life have suffered any impairment loss. For this evaluation, the Company had identified two cash generating units (CGU), “Air transport” and “Multiplus coalition and loyalty program”, until December 31, 2018, the book value of the capital gain assigned to each CGU, amounted to ThUS $ 1,845,136 and ThUS $ 448,936, respectively. After the merger of Multiplus (see Note 1), administrator of the Multiplus coalition and loyalty program, the Company has determined the existence of the only CGU corresponding to Air Transport; As of September 30, 2019, the total of the Goodwill for ThUS $ 2,139,315, is assigned to the Air Transport CGU. The classification of intangible assets of indefinite useful life in the CGUs, before and after the merger of Multiplus S.A. is the next:

 

   Air Transport
CGU
   Coalition and loyalty
Program Multiplus CGU
 
   As of   As of   As of   As of 
   September 30   December 31,   September 30   December 31, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited     
Airport Slots   773,956    828,969    -    - 
Loyalty program   255,336    -    -    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.

 

50

 

 

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

 

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

 

(c) Recoverability of deferred tax assets

 

Deferred taxes are calculated according to the liability method, on the temporary differences that arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available with which to offset the temporary differences. The Company makes financial and fiscal projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that these projections are consistent with those used to measure other long-lived assets. As of September 30, 2019, the Company has recognized deferred tax assets of ThUS$ 255,640 (ThUS$ 273,529 as of December 31, 2018) and has ceased to recognize deferred tax assets on tax losses of ThUS$ 167,804 (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 September 30, 2019, deferred revenues associated with air tickets sold amounted to ThUS$ 1,303,915 (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 September 30, 2019, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS$ 1,413,940 (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$ 30,506 on the results of 2019 (ThUS $ 27,726 in 2018). The deferred revenues associated with the LATAM Pass Brazil Program (Note 22) amount to ThUS$ 295,253 as of September 30, 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$ 3,605 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.

 

51

 

 

(g) Leases

 

(i) Discount rate

 

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.

 

52

 

 

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

 

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

 

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

 

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

 

NOTE 5 - SEGMENTAL INFORMATION

 

The Company considers that it has two operating segments: air transport and the Multiplus loyalty and coalition program.

 

The air transport segment corresponds to the route network for air transport and is based on the way in which the business is managed according to the centralized nature of its operations, the ability to open and close routes, as well as reallocating resources (aircraft, crew, personnel, etc.) within the network, which implies a functional interrelation between them, making them inseparable. This segment definition is one of the most common at the level of the airline industry worldwide.

 

The Multiplus Coalition and Loyalty Program segment, unlike the LATAM Pass and LATAM Fidelidade programs, which are frequent flyer programs that operate as a unilateral loyalty system, offers a flexible, interrelated coalition system among its members, which has 22,9 million members, together with being an entity with a separate administration and a business not directly related to air transport.

 

As indicated in the scope of consolidation of Note 1, the company Multiplus S.A. Administrator of the Coalition and Loyalty Program Multiplus merged with TAM Linhas Aereas S.A., ceasing to be an entity with independent administration. The Multiplus Coalition and Loyalty Program, which was defined as an operating segment, due to this independent administration, becomes part of the Air Transport segment, together with the LATAM Pass and LATAM loyalty programs. Due to the foregoing as of Junio 2019, the Company has only one operating segment.

 

53

 

 

 

For the 9 months ended      Coalition and             
   Air   loyalty program             
   transportation   Multiplus   Eliminations   Consolidated 
   At September 30,   At September 30,   At September 30,   At September 30, 
   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 (*)   7,312,402    7,248,754    -    46,612    -    (39,222)   7,312,402    7,256,144 
Passenger   6,527,954    6,374,348    -    46,612    -    (39,222)   6,527,954    6,381,738 
Freight   784,448    874,406    -    -    -    -    784,448    874,406 
Income from ordinary activities from  transactions with other operating segments   -    -    -    -    -    -    -    - 
Other operating income   247,923    238,302    -    85,425    -    -    247,923    323,727 
Interest income   16,263    12,349    -    21,878         -    16,263    34,227 
Interest expense   (426,058)   (408,353)   -    -         -    (426,058)   (408,353)
Total net interest expense   (409,795)   (396,004)   -    21,878    -    -    (409,795)   (374,126)
Depreciation and amortization   (1,079,214)   (1,025,238)   -    (5,164)   -    -    (1,079,214)   (1,030,402)
Material non-cash items other than depreciation and amortization   (87,109)   (299,320)   -    36    -    -    (87,109)   (299,284)
Disposal of fixed assets and inventory losses   (30,456)   (19,307)   -    -    -    -    (30,456)   (19,307)
Doubtful accounts   (12,340)   (11,221)   -    (1)   -    -    (12,340)   (11,222)
Exchange differences   (41,834)   (269,347)   -    37    -    -    (41,834)   (269,310)
Result of indexation units   (2,479)   555    -    -    -    -    (2,479)   555 
Income (loss) atributable to owners of the parents (**)   (36,626)   (160,243)   -    79,875    -    -    (36,626)   (80,368)
Expenses for income tax   22,928    29,109    -    (32,105)   -    -    22,928    (2,996)
Segment profit / (loss)   (33,004)   (116,847)   -    54,580    -    -    (33,004)   (62,267)
Assets of segment   20,294,830    16,015,418    -    1,190,623    -    (5,124)   20,294,830    17,200,917 
Segment liabilities   17,454,128    13,108,783    -    530,946    -    (23,105)   17,454,128    13,616,624 
Amount of non-current asset additions   1,480,950    476,536    -    -    -    -    1,480,950    476,536 
Property, plant and equipment   1,418,605    406,194    -    -    -    -    1,418,605    406,194 
Intangibles other than goodwill   62,345    70,342    -    -    -    -    62,345    70,342 
Purchase of non-monetary assets of segment   651,012    573,474    -    -    -    -    651,012    573,474 

 

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

 

(**)The result of the Company includes a net result of ThUS$ (8,162) resulting from the application of IAS 21 and IAS 29, for the subsidiaries that are in hyperinflationary economies.

 

54

 

 

For the 9 months ended        
       Coalition and             
   Air   loyalty program             
   transportation   Multiplus   Eliminations   Consolidated 
   At September 30,   At September 30,   At September 30,   At September 30, 
   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   588,170    502,197    -    62    -    -    588,170    502,259 
Additions associated with maintenance   305,937    250,543    -    -    -    -    305,937    250,543 
Other additions   282,233    251,654    -    62    -    -    282,233    251,716 
Purchases of intangible assets (***)   62,842    67,477    -    3,738    -    -    62,842    71,215 
Other additions   62,842    67,477         3,738    -    -    62,842    71,215 
Net cash flows from (used in) operating activities   1,649,597    1,079,984    -    115,369    -    (39,182)   1,649,597    1,156,171 
Net cash flow from (used in) investing activities   (1,077,757)   (423,640)   -    (3,233)   -    -    (1,077,757)   (426,873)
Net cash flows from (used in) financing activities   (526,622)   (972,694)   -    (72,859)   -    -    (526,622)   (1,045,553)

 

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

 

55

 

 

For the 3 months ended      Coalition and             
   Air   loyalty program             
   transportation   Multiplus   Eliminations   Consolidated 
   At September 30,   At September 30,   At September 30,   At September 30, 
   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 (*)   2,591,988    2,389,034    -    9,028    -    (12,011)   2,591,988    2,386,051 
Passenger   2,340,297    2,110,151    -    9,028    -    (12,011)   2,340,297    2,107,168 
Freight   251,691    278,883    -    -    -    -    251,691    278,883 
Income from ordinary activities from transactions with other operating segments   -    -    -    -    -    -    -    - 
Other operating income   73,112    81,273    -    24,657    -    -    73,112    105,930 
Interest income   4,063    4,604    -    4,696         -    4,063    9,300 
Interest expense   (145,813)   (135,827)   -    -         -    (145,813)   (135,827)
Total net interest expense   (141,750)   (131,223)   -    4,696    -    -    (141,750)   (126,527)
Depreciation and amortization   (375,841)   (342,451)   -    (1,629)   -    -    (375,841)   (344,080)
Material non-cash items other than depreciation and amortization   (88,065)   (107,691)   -    34    -    -    (88,065)   (107,657)
Disposal of fixed assets and inventory losses   (12,276)   (7,163)   -    -    -    -    (12,276)   (7,163)
Doubtful accounts   1,572    (5,602)   -    (1)   -    -    1,572    (5,603)
Exchange differences   (74,788)   (92,392)   -    35    -    -    (74,788)   (92,357)
Result of indexation units   (2,573)   (2,534)   -    -    -    -    (2,573)   (2,534)
Income (loss) atributable to owners of the parents (**)   86,265    16,248    -    18,965    -    -    86,265    35,213 
Expenses for income tax   32,202    33,176    -    (6,811)   -    -    32,202    26,365 
Segment profit / (loss)   87,022    37,754    -    -    -    -    87,022    37,754 
Assets of segment   20,294,830    16,015,418    -    1,190,623    -    (5,124)   20,294,830    17,200,917 
Segment liabilities   17,454,128    13,108,783    -    530,946    -    (23,105)   17,454,128    13,616,624 
Amount of non-current asset additions   964,682    168,477    -    -    -    -    964,682    168,477 
Property, plant and equipment   943,321    142,642    -    -    -    -    943,321    142,642 
Intangibles other than goodwill   21,361    25,835    -    -    -    -    21,361    25,835 
Purchase of non-monetary assets of segment   203,371    251,292    -    -    -    -    203,371    251,292 

  

(*)The Company has no income interest from ordinary activities.

 

(**)The result of the Company includes a net result of ThUS $ (8,943) as a result of the application of IAS 21 and IAS 29, for subsidiaries that are in hyperinflationary economies.

 

56

 

 

For the 3 months ended                    
       Coalition and             
   Air   loyalty program             
   transportation   Multiplus   Eliminations   Consolidated 
   At September 30,   At September 30,   At September 30,   At September 30, 
   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   181,613    224,845    -    62    -    -    181,613    224,907 
Additions associated with maintenance   38,534    79,180    -    -    -    -    38,534    79,180 
Other additions   143,079    145,665    -    62    -    -    143,079    145,727 
Purchases of intangible assets (***)   21,758    26,154    -    231    -    -    21,758    26,385 
Other additions   21,758    26,154    -    231    -    -    21,758    26,385 
Net cash flows from (used in) operating activities   800,300    396,277    -    54,925    -    (41,736)   800,300    409,466 
Net cash flow from (used in) investing activities   (355,829)   (378,062)   -    (324)   -    -    (355,829)   (378,386)
Net cash flows from (used in) financing activities   (437,767)   (122,655)   -    (12,510)   -    -    (437,767)   (135,165)

 

(***)The Company has no cash flows from purchases of intangible assets associated with maintenance.

  

57

 

 

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

 

   For the 9 months ended   For the 3 months ended 
   At September 30,   At September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
                 
Perú   566,188    489,693    205,299    193,780 
Argentina   455,473    811,594    134,488    217,495 
E.E.U.U.   741,029    725,692    248,641    233,918 
Europa   513,762    560,473    174,860    187,369 
Colombia   263,249    269,199    91,659    90,770 
Brasil   2,820,081    2,476,241    1,087,119    842,598 
Ecuador   153,522    150,278    50,973    49,448 
Chile   1,175,818    1,163,163    394,361    381,675 
Asia Pacific and rest of Latin America   623,280    609,811    204,588    188,998 
Income from ordinary activities   7,312,402    7,256,144    2,591,988    2,386,051 
Other operating income   247,923    323,727    73,112    105,930 

 

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 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Cash on hand   37,065    8,974 
Bank balances   362,145    331,218 
Overnight   241,945    282,164 
Total Cash   641,155    622,356 
           
Cash equivalents          
Time deposits   163,791    415,633 
Mutual funds   142,496    43,653 
Total cash equivalents   306,287    459,286 
           
Total cash and cash equivalents   947,442    1,081,642 

 

58

 

 

 

 

Cash and cash equivalents are denominated in the following currencies:

 

   As of   As of 
  September 30,   December 31, 
Currency  2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Argentine peso   11,161    17,786 
Brazilian real   181,516    131,760 
Chilean peso   62,810    415,713 
Colombian peso   25,551    10,843 
Euro   45,675    20,339 
US Dollar   547,768    394,215 
Other currencies   72,961    90,986 
Total    947,442    1,081,642 

 

NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1.Financial instruments by category

 

As of September 30, 2019 (Unaudited)

 

  Measured at   At fair value         
   amortized   with changes   Hedge     
Assets  cost   in results   derivatives   Total 
   ThUS$   ThUS$   ThUS$   ThUS$ 
Cash and cash equivalents   804,946    142,496    -    947,442 
Other financial assets, current (*)   64,446    447,335    23,948    535,729 
Trade and others accounts receivable, current   1,381,583    -    -    1,381,583 
Accounts receivable from related entities, current   12,925    -    -    12,925 
Other financial assets, non current   52,765    -    -    52,765 
Accounts receivable, non current   4,472    -    -    4,472 
Total   2,321,137    589,831    23,948    2,934,916 

 

  Measured at         
   amortized   Hedge     
Liabilities  cost   derivatives   Total 
   ThUS$   ThUS$   ThUS$ 
Other liabilities, current   2,085,160    40,805    2,125,965 
Trade and others accounts payable, current   1,872,513    -    1,872,513 
Accounts payable to related entities, current   75    -    75 
Other financial liabilities, non-current   8,431,834    659    8,432,493 
Accounts payable, non-current   600,569    -    600,569 
Total   12,990,151    41,464    13,031,615 

  

(*)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.

  

59

 

 

As of December 31, 2018 (Restated)

 

  Measured at   At fair value         
   amortized   with changes   Hedge     
Assets  cost   in results   derivatives   Total 
   ThUS$   ThUS$   ThUS$   ThUS$ 
Cash and cash equivalents   1,037,989    43,653    -    1,081,642 
Other financial assets, current (*)   16,203    344,426    23,355    383,984 
Trade and others accounts receivable, current   1,162,582    -    -    1,162,582 
Accounts receivable from related entities, current   2,931    -    -    2,931 
Other financial assets, non current   58,700    -    -    58,700 
Accounts receivable, non current   5,381    -    -    5,381 
Total   2,283,786    388,079    23,355    2,695,220 

 

  Measured at         
   amortized   Hedge     
Liabilities  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.

 

60

 

 

7.2.Financial instruments by currency

 

a)Assets

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited   Restated 
       Unaudited 
Cash and cash equivalents   947,442    1,081,642 
Argentine peso   11,161    17,786 
Brazilian real   181,516    131,760 
Chilean peso   62,810    415,713 
Colombian peso   25,551    10,843 
Euro   45,675    20,339 
US Dollar   547,768    394,215 
Other currencies   72,961    90,986 
           
Other financial assets (current and non-current)   588,494    442,684 
Argentine peso   100    152 
Brazilian real   457,305    327,110 
Chilean peso   26,092    25,972 
Colombian peso   3,001    1,748 
Euro   7,000    7,438 
US Dollar   92,335    78,121 
Other currencies   2,661    2,143 
           
Trade and other accounts receivable, current   1,381,583    1,162,582 
Argentine peso   38,079    82,893 
Brazilian real   712,013    511,171 
Chilean peso   110,764    113,168 
Colombian peso   2,667    7,259 
Euro   28,251    49,044 
US Dollar   249,783    110,312 
Other currencies (*)   240,026    288,735 
           
Accounts receivable, non-current   4,472    5,381 
Brazilian real   3    3 
Chilean peso   4,469    5,378 
           
Accounts receivable from related entities, current   12,940    2,931 
Argentine peso   3    - 
Brazilian real   -    293 
Chilean peso   12,873    200 
US Dollar   64    2,438 
           
Total assets   2,934,931    2,695,220 
Argentine peso   49,343    100,831 
Brazilian real   1,350,837    970,337 
Chilean peso   204,199    560,431 
Colombian peso   31,219    19,850 
Euro   80,926    76,821 
US Dollar   902,759    585,086 
Other currencies   315,648    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.

  

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

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited   Restated 
       Unaudited 
Trade accounts receivable   1,089,640    1,077,561 
Other accounts receivable   399,492    188,393 
Total trade and other accounts receivable   1,489,132    1,265,954 
Less: Allowance for impairment loss   (103,077)   (97,991)
Total net trade and  accounts receivable   1,386,055    1,167,963 
Less: non-current portion – accounts receivable   (4,472)   (5,381)
Trade and other accounts receivable, current   1,381,583    1,162,582 

 

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

 

To determine the expected credit losses, the company groups accounts receivable for passenger and cargo transportation; depending on the characteristics of shared credit risk and maturity.

 

   As of September 30, 2019   As December 31, 2018 
   Expectated   Gross book   Impairment loss   Expectated   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%   877,242    (22,527)   3%   888,930    (23,933)
From 1 to 90 days   9%   47,409    (4,380)   5%   91,387    (5,014)
From 91 to 180 days   15%   51,974    (7,767)   45%   11,085    (4,983)
From 181 to 360 days   39%   43,312    (17,058)   65%   15,078    (9,864)
more of 360 days   74%   69,703    (51,345)   76%   71,081    (54,197)
Total   10%   1,089,640    (103,077)   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.

   

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

 

   As of   As of 
   September 30,   December 31, 
Currency  2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Argentine Peso   38,079    82,893 
Brazilian Real   712,016    511,174 
Chilean Peso   115,233    118,546 
Colombian peso   2,667    7,259 
Euro   28,251    49,044 
US Dollar   249,783    110,312 
Other currency (*)   240,026    288,735 
Total   1,386,055    1,167,963 
           
(*) Other currencies          
Australian Dollar   15,235    100,733 
Chinese Yuan   32    5,106 
Danish Krone   501    475 
Pound Sterling   31,148    18,129 
Indian Rupee   10,714    7,163 
Japanese Yen   75,145    56,589 
Norwegian Kroner   617    283 
Swiss Franc   7,750    5,046 
Korean Won   32,276    31,381 
New Taiwanese Dollar   9,303    6,180 
Other currencies   57,305    57,650 
Total   240,026    288,735 

  

63

 

 

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 September  30, 2018 (Unaudited)   (87,909)   (10,524)   7,820    1,150    (89,463)
From October 1 to December  31, 2018   (89,463)   -    800    (9,328)   (97,991)
From January 1 to September 30, 2019  (Unaudited)   (97,991)   -    1,980    (7,066)   (103,077)

 

(*)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 September 30, 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   1,089,640    (103,077)   986,563    1,077,561    (97,991)   979,570 
Other accounts receivable   399,492    -    399,492    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.

  

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NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a)Accounts Receivable

 

               As of   As of 
         Country     September 30,   December 31, 
Tax No.  Related party  Relationship  of origin  Currency  2019   2018 
               ThUS$   ThUS$ 
               Unaudited     
Foreign  Qatar Airways  Indirect shareholder  Qatar  US$   12,873    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  ARS   3    - 
87.752.000-5  Granja Marina Tornagaleones S.A.  Common shareholder  Chile  CLP   46    31 
96.782.530-1  Inmobiliaria e Inversiones Asturias S.A.  Related director  Chile  CLP   1    - 
76.335.600-0  Parque de Chile S.A.  Related director  Chile  CLP   2    - 
96.810.370-9  Inversiones Costa Verde Ltda. y CPA.  Related director  Chile  CLP   -    5 
   Total current assets            12,925    2,931 

 

(b)Accounts payable

 

               As of   As of 
         Country     September 30,   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   71    365 
Foreign  Inversora Aeronáutica Argentina S.A.  Related director  Argentina  ARS   -    15 
   Taxi Aéreo S.A.  Common shareholder  Brazil  BRL   4    2 
   Total current liabilities            75    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.

  

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NOTE 10 -INVENTORIES

 

The composition of Inventories is as follows:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Technical stock   321,221    233,276 
Non-technical stock   46,792    46,068 
Total   368,013    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 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Provision for obsolescence Technical stock   17,582    20,500 
Provision for obsolescenceNon-technical stock   5,396    4,621 
Total   22,978    25,121 

 

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

 

For the period ended September 30, 2019, the Company recorded ThUS$ 96,900 (ThUS$ 96,865 for the period ended September 30, 2018) in results, mainly related to on-board consumption and maintenance, which is part of the Cost of sales.

 

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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 
   September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
   2019   2018   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited       Unaudited     
(a) Other financial assets                        
                         
Private investment funds   445,028    322,428    -    -    445,028    322,428 
Deposits in guarantee (aircraft)   10,423    9,610    32,666    37,636    43,089    47,246 
Guarantees for margins of derivatives   291    661    -    -    291    661 
Other investments   -    -    493    494    493    494 
Domestic and foreign bonds   2,523    1,394    -    -    2,523    1,394 
Other guarantees given   7,583    7,140    19,606    20,570    27,189    27,710 
                               
Subtotal of other financial assets   465,848    341,233    52,765    58,700    518,613    399,933 
                               
(b) Hedging assets                              
Accrued Interest since the last payment date                              
Cross currency swap of currencies   44,703                   44,703    - 
Fair value of interest rate derivatives   -    19,460    -    -    -    19,460 
Fair value of foreign currency derivatives   2,009    3,895    -    -    2,009    3,895 
Fair value of fuel price derivatives   23,169    -    -    -    23,169    - 
                               
Subtotal of hedging assets   69,881    23,355    -    -    69,881    23,355 
                               
(c) Derivatives not recognized as a hedge                              
                               
Foreign currency derivatives not recognized as a hedge   -    19,396    -    -    -    19,396 
                               
Subtotal of derivatives not recognized as a hedge   -    19,396    -    -    -    19,396 
                               
Total Other Financial Assets   535,729    383,984    52,765    58,700    588,494    442,684 

 

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

  

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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 
   September 30,   December 31,   September 30,   December 31,   September 30,   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   9,104    16,483    -    -    9,104    16,483 
Others   16,733    20,105    2,090    4,460    18,823    24,565 
Subtotal advance payments   25,837    36,588    2,090    4,460    27,927    41,048 
                               
(b) Contract assets (1)                              
                               
GDS costs   14,625    14,708    -    -    14,625    14,708 
Credit card commissions   18,640    21,614    -    -    18,640    21,614 
Travel agencies commissions   13,322    12,635    -    -    13,322    12,635 
Subtotal advance payments   46,587    48,957    -    -    46,587    48,957 
                               
(c) Other assets                              
                               
Aircraft maintenance reserve (2)   20,597    831    25,234    51,836    45,831    52,667 
Sales tax   147,374    187,410    38,042    38,186    185,416    225,596 
Other taxes   14,129    15,255    -    -    14,129    15,255 
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”)   258    258    739    739    997    997 
Judicial deposits   4    -    143,572    132,267    143,576    132,267 
Others   827    1,177    51    53    878    1,230 
Subtotal other assets   183,189    204,931    207,638    223,081    390,827    428,012 
Total Other Non - Financial Assets   255,613    290,476    209,728    227,541    465,341    518,017 

 

(1) Movement of Contracts assets:

 

           Adjustments            
   Initial       by the application   Difference by       Final 
   balance   Activation   IFRS 15   conversion   Amortization   balance 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                         
From January 1 to September 30, 2018 (Unaudited)   -    127,741    54,361    16,109    (151,309)   46,902 
From October 1 to December 31, 2018    46,902    52,430    -    (21,128)   (29,247)   48,957 
From January 1 to September 30, 2019 (Unaudited)   48,957    160,118    -    (20,182)   (142,306)   46,587 

 

(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.

 

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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 September 30, 2019, maintenance reserves amount to ThUS$ 40,835 (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 September 30, 2019 and December 31, 2018, are detailed below:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Current assets        
         
Aircraft   326,569    265 
Engines and rotables   1,863    5,299 
Other assets   34,923    204 
Foreign currency translation   58    - 
Total   363,413    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.

 

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

 

During the period of 2019, three Airbus A350 aircraft, a building located at Av. Americo Vespucio 901 and the offices located at Presidente Riesco 5711 were reclassified from Property, plants and equipment to Non-current assets or groups of assets for disposal classified as held for sale.

 

Additionally, during the period 2019, the sale of one motor spare model CF6-80C2B7F and one Boeing 767 aircraft were materialized. As a result of the above, during the period of 2019, adjustments for US $ 2 million were recognized to record these assets at their net realizable value.

 

69

 

 

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  September 30,   December 31, 
Name of significant subsidiary  incorporation  currency  2019   2018 
         %   % 
         Unaudited     
Latam Airlines Perú S.A.  Peru  US$   70.00000    70.00000 
Lan Cargo S.A.  Chile  US$   99.89395    99.89803 
Lan Argentina S.A.  Argentina  ARS   99.98370    99.86560 
Transporte Aéreo S.A.  Chile  US$   100.00000    100.00000 
Latam Airlines Ecuador S.A.  Ecuador  US$   100.00000    100.00000 
Aerovías de Integración Regional, AIRES S.A.  Colombia  COP   99.19414    99.19061 
TAM S.A.  Brazil  BRL   99.99938    99.99938 

 

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

 

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Summary financial information of significant subsidiaries

 

   Statement of financial position as of September 30, 2019   Results for the period ended September 30, 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 
Latam Airlines Perú S.A.   340,523    301,057    39,466    342,234    340,916    1,318    859,840    (4,601)
Lan Cargo S.A.   633,600    328,082    305,518    465,169    398,061    67,108    204,610    (7,929)
Lan Argentina S.A.   298,659    292,748    5,911    117,316    115,415    1,901    140,397    (25,751)
Transporte Aéreo S.A.   340,187    80,955    259,232    135,235    37,178    98,057    230,302    3,764 
Latam Airlines Ecuador S.A.   128,235    117,518    10,717    113,539    102,049    11,490    181,190    3,671 
Aerovías de Integración Regional, AIRES S.A.   99,287    43,393    55,894    79,489    71,722    7,767    201,858    (16,180)
TAM S.A. (*)   4,254,499    1,969,711    2,284,788    3,453,357    2,290,345    1,163,012    3,589,807    (11,149)

 

   Statement of financial position as of December 31, 2018   Results for the period ended September 30, 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 
Latam Airlines Perú S.A.   419,325    379,490    39,835    409,221    406,159    3,062    871,860    (7,996)
Lan Cargo S.A.   513,367    243,499    269,868    336,715    292,399    44,316    190,997    (23,241)
Lan Argentina S.A.   243,230    235,919    7,311    239,234    236,786    2,448    154,878    (132,538)
Transporte Aéreo S.A.   331,496    72,597    258,899    129,233    28,277    100,956    231,221    (31,281)
Latam Airlines Ecuador S.A.   108,735    96,564    12,171    98,238    89,921    8,317    174,821    4,354 
Aerovías de Integración Regional, AIRES S.A.   116,352    55,865    60,487    77,984    69,150    8,834    215,366    (6,396)
TAM S.A. (*)   4,420,546    2,007,830    2,412,716    3,256,017    1,832,796    1,423,221    3,434,453    (18,283)

 

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

 

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(b) Non-controlling

 

   Tax No.  Country of origin   As of September 30, 2019    As of December 31,
2018
    As of September 30,
2019
    As of December 31,
2018
 
          %    %    ThUS$    ThUS$ 
          Unaudited         Unaudited    Restated 
                         Unaudited 
Latam Airlines Perú S.A  0-E  Peru   30.00000    30.00000    (512)   3,032 
Lan Cargo S.A. and Subsidiaries  93.383.000-4  Chile   0.10196    0.10196    371    (101)
Inversora Cordillera S.A. and Subsidiaries  0-E  Argentina   4.22000    0.13940    (6,431)   8,684 
Lan Argentina S.A.  0-E  Argentina   0.00344    0.02890    6    (472)
Americonsult de Guatemala S.A.  0-E  Guatemala   0.87000    1.00000    1    1 
Americonsult S.A. and Subsidiaries  0-E  Mexico   0.20000    0.20000    (7)   1 
Americonsult Costa Rica S.A.  0-E  Costa Rica   0.20000    1.00000    2    11 
Linea Aérea Carguera de Colombiana S.A.  0-E  Colombia   10.00000    10.00000    (176)   (462)
Aerolíneas Regionales de Integración Aires S.A.  0-E  Colombia   0.79880    0.79880    194    378 
Transportes Aereos del Mercosur S.A.  0-E  Paraguay   5.02000    5.02000    1,331    1,740 
Multiplus S.A.  0-E  Brazil   0.00000    27.26000    -    67,096 
Total                   (5,221)   79,908 

 

         For the period ended   For the 9 months ended   For the 3 months ended 
        At September 30,   At September 30,   At September 30, 
   Tax No.  Country  2019   2018   2019   2018   2019   2018 
         %   %   ThUS$   ThUS$   ThUS$   ThUS$ 
        Unaudited   Unaudited 
Incomes                              
Latam Airlines Perú S.A  0-E  Perú   30.00000    30.00000    (2,817)   (4,895)   (659)   (3,045)
Lan Cargo S.A. y Filiales  93.383.000-4  Chile   0.10196    0.10196    280    (43)   272    (68)
Promotora Aerea Latinoamericana S.A. y Filiales  0-E  México   -    51.00000    -    310    -    80 
Inversora Cordillera S.A. y Filiales  0-E  Argentina   4.22000    0.70422    437    92    252    92 
Lan Argentina S.A.  0-E  Argentina   0.00344    0.13440    (340)   19    (357)   19 
Americonsult S.A. y Filiales  0-E  México   0.20000    1.00000    (7)   (1)   1    - 
Linea Aérea Carguera de Colombiana S.A.  0-E  Colombia   10.00000    10.00000    287    154    1,155    (27)
Aerolíneas Regionales de Integración Aires S.A.  0-E  Colombia   0.79880    0.79880    (161)   (52)   (104)   (25)
Transportes Aereos del Mercosur S.A.  0-E  Paraguay   5.02000    5.02000    217    792    197    256 
Multiplus S.A.  0-E  Brasil   -    27.26000    5,726    21,612    -    5,146 
Total                   3,622    17,988    757    2,428 

 

72

 

 

NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL

 

The details of intangible assets are as follows:

 

   Classes of intangible assets
(net)
   Classes of intangible assets (gross) 
   As of September 30, 2019   As of December 31, 2018   As of September 30, 2019   As of December 31, 2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited             
Airport slots   773,956    828,969    773,956    828,969 
Loyalty program   255,336    274,420    255,336    274,420 
Computer software   231,509    156,038    642,347    529,009 
Developing software   74,616    151,853    74,616    151,853 
Trademarks (1)   19,868    29,361    49,678    53,391 
Other assets   355    431    1,315    1,325 
Total   1,355,640    1,441,072    1,797,248    1,838,967 

 

Movement in Intangible assets other than goodwill:

 

   Computer
software
Net
   Developing
software
   Airport
slots (2)
   Trademarks
and loyalty
program (1) (2)
   Total 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Opening balance as of January 1, 2018   160,970    123,415    964,513    368,349    1,617,247 
Additions   791    69,551    -    -    70,342 
Withdrawals   (403)   (120)   -    -    (523)
Transfer software   56,008    (57,425)   -    -    (1,417)
Foreing exchange   (12,455)   (5,872)   (161,051)   (63,395)   (242,773)
Amortization   (40,294)   -    -    (8,377)   (48,671)
Adjustment application IAS 29 by hyperinflation Argentina   58    -    -    -    58 
Closing balance as of September 30, 2018 (Unaudited)   164,675    129,549    803,462    296,577    1,394,263 
Opening balance as of October 1, 2018   164,675    129,549    803,462    296,577    1,394,263 
Additions   -    24,750    -    -    24,750 
Withdrawals   -    (5)   -    -    (5)
Transfer software   3,763    (3,662)   -    -    101 
Foreing exchange   2,224    1,221    25,507    9,873    38,825 
Amortization   (14,255)   -    -    (2,669)   (16,924)
Hyperinflation Argentina   -    -    -    -    - 
Adjustment application IAS 29 by hyperinflation Argentina   62    -    -    -    62 
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   141    62,204    -    -    62,345 
Withdrawals   (270)   (1,123)   -    -    (1,393)
Transfer software   131,511    (134,694)   -    -    (3,183)
Foreing exchange   (4,806)   (3,624)   (55,013)   (20,739)   (84,182)
Amortization   (51,181)   -    -    (7,838)   (59,019)
Closing balance as of September 30, 2019 (Unaudited)   231,864    74,616    773,956    275,204    1,355,640 

 

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.

 

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 September 30, 2019, amounts to ThUS $ 498,071 (ThUS $ 439,059 as of December 31, 2018).

 

73

 

 

NOTE 16 – GOODWILL

 

Goodwill as of September 30, 2019, amounts to ThUS $ 2,319,315 (ThUS $ 2,294,072 as of December 31, 2018). The goodwill movement, separated by CGU, includes the following:

 

Movement of Goodwill, separated by CGU:

 

   Air Transport   Coalition
and loyalty
program
Multiplus
   Total 
   ThUS$   ThUS$   ThUS$ 
Opening balance as of January 1, 2018   2,146,692    525,858    2,672,550 
Increase (decrease) due to exchange rate differences   (350,286)   (91,397)   (441,683)
Adjustment IAS 29, hyperinflation Argentina   335    -    335 
Others   (1,688)   -    (1,688)
Closing balance as of September 30, 2018 (Unaudited)   1,795,053    434,461    2,229,514 
Opening balance as of October 1, 2018   1,795,053    434,461    2,229,514 
Increase (decrease) due to exchange rate differences   50,083    14,475    64,558 
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   (123,538)   (31,219)   (154,757)
From merge of Multiplus S.A. (see note 1)   417,717    (417,717)   - 
Closing balance as of Obtober 30, 2019 (Unaudited)   2,139,315    -    2,139,315 

 

As of December 31, 2018 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 and operating segments 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.

 

74

 

 

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

 

      Air transportation CGU  Coalition and loyalty program Multiplus CGU (2)
Annual growth rate (Terminal)  %  1.0 - 2.0  4.0 - 5.0
Exchange rate (1)  R$/US$  3.7 - 4.6  3.5 - 4.3
Discount rate based on the weighted average cost of capital (WACC)  %  8.07 - 10.07   
Discount rate based on cost of equity (CoE)  %     12.0 - 13.0
Fuel Price from futures price curves commodities markets  US$/barrel  75-80   

 

(1)In line with the expectations of the Central Bank of Brazil
(2)The flows, like the growth and discount rates, are denominated in reais.

 

The result of the impairment test, which includes a sensitivity analysis of the main variables, showed that the estimated recoverable amount is higher than carrying value of the book value of net assets allocated to the cash generating unit, and therefore impairment was not detected.

 

CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:

 

   Increase
Maximum
WACC
   Increase
Maximum
CoE
   Decrease
Minimum
terminal
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 September 30, 2019, no signs of deterioration have been identified for the Air Transport CGU that require an impairment test.

 

As of September 30, 2019, the Company maintains the CGU “Air Transport”, due to the merger of Multiplus S.A. in TAM Linhas Aereas (see Note 1), and also a change on administration structure. No impairment indication have been identified after this operation.

 

75

 

 

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

 

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

 

   Gross Book Value   Acumulated depreciation   Net Book Value 
   As of
September 30,
2019
   As of
December 31,
2018
   As of September 30, 2019   As of December 31, 2018   As of September 30, 2019   As of December 31, 2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited   Restated   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited       Unaudited 
Construction in progress (1)   488,681    630,320    -    -    488,681    630,320 
Land   47,627    45,424    -    -    47,627    45,424 
Buildings   138,770    179,907    (58,624)   (67,342)   80,146    112,565 
Plant and equipment   13,718,014    13,333,837    (4,881,386)   (4,361,337)   8,836,628    8,972,500 
Own aircraft   12,983,538    12,595,223    (4,673,499)   (4,096,975)   8,310,039    8,498,248 
Other (2)   734,476    738,614    (207,887)   (264,362)   526,589    474,252 
Machinery   32,607    34,253    (27,257)   (27,659)   5,350    6,594 
Information technology equipment   159,584    160,936    (138,766)   (138,372)   20,818    22,564 
Fixed installations and accessories   169,549    182,629    (109,411)   (111,620)   60,138    71,009 
Motor vehicles   65,866    69,653    (58,785)   (60,531)   7,081    9,122 
Leasehold improvements   232,579    211,322    (142,040)   (128,055)   90,539    83,267 
Right of use   5,441,519    4,987,953    (2,719,340)   (2,439,509)   2,722,179    2,548,444 
Aircraft   5,203,334    4,761,529    (2,571,363)   (2,305,195)   2,631,971    2,456,334 
Other assets   238,185    226,424    (147,977)   (134,314)   90,208    92,110 
Total   20,494,796    19,836,234    (8,135,609)   (7,334,425)   12,359,187    12,501,809 

 

(1)As of September 30, 2019, includes advances paid to aircraft manufacturers for ThUS$ 466,677 (ThUS$ 612,236 as of December 31, 2018)

(2)Consider mainly rotables and tools.

 

76

 

 

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

 

   Construction
in progress
   Land   Buildings
net
   Plant and equipment net   Information technology equipment net   Fixed installations & accessories net   Motor vehicles net   Leasehold improvements net   Rights of use net   Property, Plant and equipment 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   4,417    -    -    386,829    4,654    64    24    10,205    182,114    588,307 
Disposals   -    (8)   (1,412)   (1,856)   (30)   (64)   (14)   -    -    (3,384)
Retirements   (80)   -    (19)   (19,629)   (89)   (24)   -    (4)   -    (19,845)
Depreciation expenses   -    -    (4,708)   (527,597)   (9,224)   (9,455)   (114)   (21,537)   (296,427)   (869,062)
Foreing exchange   (1,178)   (5,120)   (5,011)   (112,873)   (1,950)   (8,893)   (29)   (2,752)   (16,450)   (154,256)
Other increases (decreases)   110,189    -    (89)   32,720    865    6,558    251    8,753    (120,492)   38,755 
Adjustment application IAS 29                                                - 
Hyperinflation Argentina   265    -    -    3,329    264    1,018    65    -    -    4,941 
Changes, total   113,613    (5,128)   (11,239)   (239,077)   (5,510)   (10,796)   183    (5,335)   (251,255)   (414,544)
Closing balance as of September 30, 2018 Restated (Unaudited)   670,435    44,652    113,309    8,899,514    24,646    69,981    619    78,890    2,614,062    12,516,108 
Opening balance as of October 1, 2018 Restated (Unaudited)   670,435    44,652    113,309    8,899,514    24,646    69,981    619    78,890    2,614,062    12,516,108 
Additions   3,510    -    -    248,538    341    -    -    10,205    144,184    406,778 
Disposals   -    -    -    (2,891)   -    (10)   -    -         (2,901)
Retirements   -    -    -    (44,145)   (3)   (3)   -    -    -    (44,151)
Depreciation expenses   -    -    (1,511)   (177,980)   (2,453)   (3,083)   (32)   (6,229)   (94,711)   (285,999)
Foreing exchange   464    772    767    18,385    131    394    1    401    2,699    24,014 
Other increases (decreases)   (44,197)   -    -    45,621    (133)   3,637    22         (117,790)   (112,840)
Adjustment application IAS 29                                                  
Hyperinflation Argentina   108    -    -    540    35    93    24    -         800 
Changes, total   (40,115)   772    (744)   88,068    (2,082)   1,028    15    4,377    (65,618)   (14,299)
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   19,014    7,950    -    787,467    5,089    17    43    23,332    575,693    1,418,605 
Disposals   -    (28)   (47)   (23,767)   (6)   -    (11)   -    -    (23,859)
Retirements   (5)   -    -    (34,678)   (84)   (2)   -    -    -    (34,769)
Depreciation expenses   -    -    (4,436)   (573,096)   (6,612)   (9,310)   (72)   (15,307)   (291,543)   (900,376)
Foreing exchange   (1,481)   (1,842)   (1,585)   (43,611)   (404)   (3,093)   (123)   (753)   (7,223)   (60,115)
Other increases (decreases)   (159,167)   (3,877)   (26,351)   (251,309)   271    1,517    -    -    (103,192)   (542,108)
Changes, total   (141,639)   2,203    (32,419)   (138,994)   (1,746)   (10,871)   (163)   7,272    173,735    (142,622)
Closing balance as of September 30, 2019 (Unaudited)   488,681    47,627    80,146    8,848,588    20,818    60,138    471    90,539    2,722,179    12,359,187 

 

77

 

 

 

(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 
    September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
Aircraft  Model  2019   2018   2019   2018   2019   2018 
      Unaudited       Unaudited       Unaudited     
Boeing 767  300ER   31    33    2    2    33    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   -    -    1    2    1    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   96(2)   97(2)   45    34    141(2)   131(2)
Airbus A320  NEO   5    1    5    3    10    4 
Airbus A321  200   30    30    19    19    49    49 
Airbus A350  900   2     5(3)   6(3)   4(3)   8(3)   9(3)
Total      224    226    108    94    332    320 

 

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

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

(3) 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    8 
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 September 30, 2019, the charge to income for the depreciation of the period, which is included in the consolidated statement of income, amounts to ThUS $ 900,375 and ThUS $ 869,062 for the same period of the year 2018; those amounts include depreciation of assets for right of use, for ThUS $ 291,543 and ThUS $ 296,427, respectively). This expense is recognized in the cost of sales and administrative expenses of the consolidated statement of income.

 

78

 

 

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

 

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

 

Description of Property, plant and equipment pledged as guarantee:

 

         As of   As of 
         September 30,   December 31, 
         2019   2018 
Guarantee  Assets     Existing   Book   Existing   Book 
agent (1)  committed  Fleet  Debt   Value   Debt   Value 
         ThUS$   ThUS$   ThUS$   ThUS$ 
         Unaudited         
Wilmington Trust Company  Aircraft and engines  Airbus A319   80,048    240,332    96,057    234,329 
      Airbus A320   77,710    235,986    98,903    220,390 
      Airbus A321 / A350   547,652    653,064    587,382    682,639 
      Boeing 767   66,994    197,435    82,793    206,868 
      Boeing 787   615,713    703,629    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   -    -    26,702    45,520 
Credit Agricole  Aircraft and engines  Airbus A319   1,073    7,803    11,154    31,865 
      Airbus A320   137,460    126,244    134,328    132,301 
      Airbus A321 / A350   30,733    30,072    22,439    24,939 
      Boeing 767   10,404    33,549    21,830    43,568 
      Boeing 787   74,023    37,752    74,023    42,228 
Wells Fargo  Aircraft and engines  Airbus A320   -    -    196,540    285,877 
Bank of Utah  Aircraft and engines  Airbus A320 / A350   36,201    40,251    556,019    630,065 
Natixis  Aircraft and engines  Airbus A321   293,489    391,509    324,524    410,771 
Citibank N. A.  Aircraft and engines  Airbus A320   -    -    78,049    132,296 
      Airbus A321   -    -    28,938    70,333 
MUFG Bank  Aircraft and engines  Airbus A320   73,785    100,723    -    - 
PK AirFinance US, Inc.  Aircraft and engines  Airbus A320   -    -    37,615    52,435 
Banco BBVA  Land and buildings (2)      49,308    36,233    50,785    64,500 
Total direct guarantee         2,094,593    2,834,582    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 September 30, 2019, amounts to ThUS$ 1,982,596 (ThUS$ 1,633,504 as of December 31, 2018). The book value of the assets with indirect guarantees as of September 30, 2019, amounts to ThUS$ 4,098,236 (ThUS$ 3,258,950 as of December 31, 2018).

 

79

 

 

As of September 30, 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, 2020
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.  Four letter of credit   8,642   Dec 26, 2019
Sky High XXIV Leasing Company  LATAM Airlines Group S.A.  Eight letter of credit   6,831   Dec 14, 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
Wells Fargo Bank  LATAM Airlines Group S.A.  Nine letter of credit   15,160   Feb 4, 2020
Banc Of America  LATAM Airlines Group S.A.  Three letter of credit   1,044   Jul 2, 2020
Macquaire Aircraft Leasing Services  LATAM Airlines Group S.A.  Five letter of credit   2,582   Jul 2, 2020
          63,853    

 

(ii) Commitments and others

 

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

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Gross book value of fully depreciated property, plant and equipment still in use   249,675    192,606 
Commitments for the acquisition of aircraft (*)   13,000,000    14,400,000 

 

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

 

Purchase commitment of aircraft

 

   Year of delivery     
Manufacturer  2019   2020   2021   2022   2023-2026   Total 
                         
Airbus S.A.S.   5    9    13    11    21    59 
A320-NEO   3    5    6    5    7    26 
A321-NEO   -    4    5    4    6    19 
A350-1000   -    -    -    -    8    8 
A350-900   2    -    2    2    -    6 
The Boeing Company   2    2    2    -    4    10 
Boeing 777-F   -    -    -    -    2    2 
Boeing 787-9   2    2    2    -    2    8 
Total   7    11    15    11    25    69 

 

As of September 30, 2019, as a result of the different aircraft purchase contracts and agreements signed with Airbus SAS, there are remaining to receive 45 Airbus aircraft of the A320 family, with deliveries between 2019 and 2024, and 14 Airbus aircraft of the A350 family with dates delivery between 2019 and 2026. The approximate amount, according to manufacturer’s list prices, is ThUS$ 11,000,000.

 

80

 

 

As of September 30, 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 lease 14 Airbus A320-200 aircraft with arrivals from the second quarter of this year, the are 1 aircraft remaing to receive.

 

During the third quarter of 2019 the company signed a sale contract for 14 Airbus A350 family aircraft, 11 are within the current aircraft purchase commitments and 3 were reclassified from PPE to the assets held for sale.

 

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

 

      For the period ended 
      September 30, 
      2019   2018 
      Unaudited 
Average rate of capitalization of capitalized interest costs  %   4.84    4.64 
Costs of capitalized interest  ThUS$   8,121    13,007 

 

NOTE 18 - CURRENT AND DEFERRED TAXES

 

In the period ended September 30, 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.

 

81

 

 

(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 
   September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
   2019   2018   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited       Unaudited     
Provisional monthly payments (advances)   39,529    48,480         -       -    39,529    48,480 
Other recoverable credits   13,836    20,654    -    757    13,836    21,411 
Total assets by current tax   53,365    69,134    -    757    53,365    69,891 

 

(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 
   September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
   2019   2018   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited       Unaudited     
Income tax provision   6,027    3,738        -        -    6,027    3,738 
Total liabilities by current tax   6,027    3,738    -    -    6,027    3,738 

 

(b) Deferred taxes

 

The balances of deferred tax are the following:

 

   Assets   Liabilities 
   As of   As of   As of   As of 
  September 30,   December 31,   September 30,   December 31, 
Concept  2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
Properties, Plants and equipment   176,189    150,831    1,762,366    1,733,327 
Assets by right of use   49,460    202    (56,640)   (85,550)
Amortization   (826)   (983)   53,443    55,880 
Provisions   (119,602)   (38,303)   (107,782)   (75,631)
Revaluation of financial instruments   (421)   445    (9,121)   458 
Tax losses   158,257    170,980    (1,267,810)   (1,198,170)
Intangibles   -    -    326,094    351,238 
Others   (7,417)   (9,643)   5,124    5,019 
Total   255,640    273,529    705,674    786,571 

 

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

 

82

 

 

Movements of Deferred tax assets and liabilities

 

(a) From January 1 to September 30, 2018 Restated (Unaudited)

 

   Opening balance   Recognized in   Recognized in       Ending 
   Assets/   consolidated   comprehensive   Exchange   balance 
   (liabilities)   income   income   rate   Asset (liability) 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Property, plant and equipment   (1,568,764)   (7,733)   -    6,091    (1,570,406)
Assets for right of use   75,849    8,640    -    -    84,489 
Amortization   (54,820)   (3,073)   -    1,716    (56,177)
Provisions   (10,461)   (42,174)   961    (47,258)   (98,932)
Revaluation of financial instruments   3,750    9,704    151    (1,185)   12,420 
Tax losses   1,479,560    34,552    -    (12,434)   1,501,678 
Intangibles   (406,536)   32,007    -    49,611    (324,918)
Others   (28,405)   22,318    -    (3,155)   (9,242)
Total   (509,827)   54,241    1,112    (6,614)   (461,088)

 

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

 

   Opening balance   Recognized in   Recognized in   Exchange   Ending 
   Assets/   consolidated   comprehensive   rate   balance 
   (liabilities)   income   income   variation   Asset (liability) 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Property, plant and equipment   (1,570,406)   (12,002)   -    (88)   (1,582,496)
Assets for right of use   84,489    1,263    -    -    85,752 
Amortization   (56,177)   (662)   -    (24)   (56,863)
Provisions   (98,932)   134,978    606    676    37,328 
Revaluation of financial instruments   12,420    (12,030)   (420)   17    (13)
Tax losses   1,501,678    (132,706)   -    178    1,369,150 
Intangibles   (324,918)   (18,722)   -    (7,598)   (351,238)
Others   (9,242)   (5,465)   -    45    (14,662)
Total   (461,088)   (45,346)   186    (6,794)   (513,042)

 

(c) From January 1 to September 30, 2019 (Unaudited)

 

   Opening balance   Recognized in   Recognized in   Exchange   Ending balance 
   Assets/   consolidated   comprehensive   rate   Asset 
   (liabilities)   income   income   variation   (liability) 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Property, plant and equipment   (1,582,496)   (6,131)   -    2,450    (1,586,177)
Assets for right of use   85,752    20,348    -    -    106,100 
Amortization   (56,863)   1,904    -    690    (54,269)
Provisions   37,328    (33,134)   2,994    (19,008)   (11,820)
Revaluation of financial instruments   (13)   8,532    658    (477)   8,700 
Tax losses   1,369,150    61,918    -    (5,001)   1,426,067 
Intangibles   (351,238)   2,742    -    22,402    (326,094)
Others   (14,662)   1,634    -    487    (12,541)
Total   (513,042)   57,813    3,652    1,543    (450,034)

 

83

 

 

Deferred tax assets not recognized:

 

  As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Tax losses   167,804    137,761 
Total Deferred tax assets not recognized   167,804    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 September 30, 2019, the Company no longer recognizes deferred tax assets for ThUS $ 167,804 (ThUS $ 137,761 as of December 31, 2018) with respect to losses of ThUS $ 520,657 (ThUS $ 447,150 at December 31, 2018).

 

Deferred tax expense and current income taxes:

 

   For the 9 months ended   For the 3 months ended 
   September 30,   June 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Current tax expense                
Current tax expense   34,868    57,207    8,162    19,779 
Adjustment to previous period’s current tax   17    -    17    - 
Total current tax expense, net   34,885    57,207    8,179    19,779 
                     
Deferred tax expense                    
Deferred expense for taxes related to the creation and reversal of temporary differences   (57,813)   (54,241)   (40,381)   (46,144)
Total deferred tax expense, net   (57,813)   (54,241)   (40,381)   (46,144)
    (22,928)   2,966    (32,202)   (26,365)

 

Composition of income tax expense (income):

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Current tax expense, net, foreign   33,255    55,237    7,325    19,308 
Current tax expense, net, Chile   1,630    1,970    854    471 
Total current tax expense, net   34,885    57,207    8,179    19,779 
                     
Deferred tax expense, net, foreign   8,998    38,830    7,653    15,582 
Deferred tax expense, net, Chile   (66,811)   (93,071)   (48,034)   (61,726)
Deferred tax expense, net, total   (57,813)   (54,241)   (40,381)   (46,144)
Income tax expense   (22,928)   2,966    (32,202)   (26,365)

 

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Profit before tax by the legal tax rate in Chile (27% at September 30, 2019 and 2018)

 

   For the period ended   For the period ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   %   % 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
Tax expense using the legal rate   (15,103)   (16,011)   27.00    27.00 
Tax effect of rates in other jurisdictions   922    (4,772)   (1.65)   8.05 
Tax effect of non-taxable operating revenues   (7,393)   (1,738)   13.22    2.93 
Tax effect of disallowable expenses   45,157    63,155    (80.74)   (106.50)
Tax effect of due to the non-use of tax losses   -    46,242    -    (77.98)
Other increases (decreases) in legal tax charge   (46,511)   (83,910)   83.16    141.50 
Total adjustments to tax expense using the legal rate   (7,825)   18,977    13.99    (32.00)
Tax expense using the effective rate   (22,928)   2,966    40.99    (5.00)

 

Deferred taxes related to items charged to net equity:

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Aggregate deferred taxation of components of other comprehensive income   3,652    1,112    2,679    415 

 

 

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NOTE 19 - OTHER FINANCIAL LIABILITIES

 

The composition of other financial liabilities is as follows:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited   Restated 
      Unaudited 
Current        
(a) Interest bearing loans   1,671,191    1,397,156 
(b) Lease Liability   413,969    363,497 
(c) Hedge derivatives   40,805    25,921 
(d) Derivative non classified as hedge acounting   -    7,712 
Total current   2,125,965    1,794,286 
           
Non-current          
(a) Interest bearing loans   5,814,070    5,864,570 
(b) Lease Liability   2,617,764    2,494,552 
(b) Hedge derivatives   659    340 
Total non-current   8,432,493    8,359,462 

 

(a)Interest bearing loans

 

Obligations with credit institutions and debt instruments:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Current        
Loans to exporters   375,538    400,721 
Bank loans   29,963    37,743 
Guaranteed obligations   243,119    324,976 
Other guaranteed obligations   97,631    97,143 
Subtotal bank loans   746,251    860,583 
Obligation with the public   298,300    14,643 
Financial leases   526,812    425,100 
Other loans   99,828    96,830 
Total current   1,671,191    1,397,156 
           
Non-current          
Bank loans   243,487    184,998 
Guaranteed obligations (1)   1,574,377    2,209,045 
Other guaranteed obligations   506,227    576,309 
Subtotal bank loans   2,324,091    2,970,352 
Obligation with the public (1)   2,043,294    1,538,436 
Financial leases (2)   1,419,862    1,199,754 
Other loans   26,823    156,028 
Total non-current   5,814,070    5,864,570 
Total obligations with financial institutions   7,485,261    7,261,726 

  

(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.

 

86

 

 

(2) On June 6, 2019, LATAM Airlines Group S.A. has issued in the local market (Santiago Stock Exchange) long-term unsecured bonds called Series E (BLATM-E), which correspond to the first series of bonds charged to the line registered in the Registro de Comisión para el Mercado Financiero (“CMF”) under the number Nº 921 dated November 26, 2018 for a total of UF 9,000,000.

 

The total amount issued was UF 5,000,000 with an expiration date on April 15, 2029 and a 3.60% annual coupon rate with semiannual interest payments. The placement rate was 2.73%, equivalent to an amount of ThUS$ 215,093.

 

The funds from the issuance were allocated 50% to the refinancing of liabilities, 30% for the financing of investments and 20% for general corporate purposes.

 

(3) On July 11, 2019, LATAM Finance Limited, a company incorporated in the islands Cayman with limited liability and exclusive property of LATAM Airlines Group S.A., issued bonds for US $200,000,000 at a yield of 5.979% at maturity, whose interests they will be paid in March and September of each year, beginning on September 1, 2019. This issuance was a reopening of the unsecured senior bond issue with a coupon rate of 7.00% issued on February 11, 2019 with expiration in the year 2026.

 

Together, the Company initiated a public offer for the early redemption of its senior bonds not guaranteed at 7.25% due in 2020, in which US $ 1,038 was offered for each $ 1,000 principal value, which includes $ 30 payable only to bonds offered on or before from July 24, 2019, the anticipated rescue date. As of July 24, 2019 the holders of the outstanding bonds offered US $ 238,162,000 of the principal amount, which were accepted entirely by the Company. As of August 7, 2019, the expiration date of the offer 82 public, the bondholders offered an additional US $ 250,000 of the principal amount, the which were also accepted by the Society. After the public offer, a total of US $ 238,412,000 of the principal amount.

 

The income obtained from the issuance of the additional bonds at 5.979% were used to pay a portion of the public offer for the rescue of senior unsecured bonds at 7.25% whose Expiration date was the year 2020, interest accrued and unpaid from repurchase and expenses incurred The remainder of the public offer was paid in cash.

 

(4) In the 9 month period ended September 30, 2019, the Company sold its participation in eight permanent establishments. As a result of the above, the classification of financial liabilities associated with 41 aircraft of guaranteed obligations to finance leases.

 

87

 

 

Currency balances that make the interest bearing loans:

 

   As of   As of 
   September 30,   December 31, 
Currency  2019   2018 
  ThUS$   ThUS$ 
   Unaudited     
         
Chilean peso (U.F.)   684,478    500,398 
US Dollar   6,800,783    6,761,328 
Total   7,485,261    7,261,726 

 

88

 

 

Interest-bearing loans due in installments to September 30, 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  US$   24,000    75,000    -    -    -    99,000   24,076    75,000    -    -    -    99,076   At Expiration   3.26   2.33
97.032.000-8  BBVA  Chile  UF   49,305    -    -    -    -    49,305   49,610    -    -    -    -    49,610   At Expiration   2.64   1.84
97.030.000-7  ESTADO  Chile  US$   14,000    -    -    -    -    14,000   14,007    -    -    -    -    14,007   At Expiration   3.26   3.26
97.003.000-K  BANCO DO BRASIL  Chile  US$   200,000    -    -    -    -    200,000   200,832    -    -    -    -    200,832   At Expiration   3.21   3.20
97.951.000-4  HSBC  Chile  US$   12,000    -    -    -    -    12,000   12,013    -    -    -    -    12,013   At Expiration   2.85   2.85
Bank loans                                                                              
97.023.000-9  CORPBANCA  Chile  UF   5,302    15,907    -    -    -    21,209   5,292    15,843    -    -    -    21,135   Quarterly   3.35   3.35
0-E  BLADEX  U.S.A.  US$   7,500    -    -    -    -    7,500   7,635    -    -    -    -    7,635   Semiannual   6.31   6.31
97.036.000-K  SANTANDER  Chile  US$   -    -    20,523    -    -    20,523   181    -    20,523    -    -    20,704   Quarterly   5.20   5.20
76.362.099-9  BTG PACTUAL CHILE  Chile  UF   -    -    63,943    -    -    63,943   109    -    63,271    -    -    63,380   At Expiration   3.10   3.10
0-E  SANTANDER  España  US$   -    -    158,850    -    -    158,850   306    -    158,850    -    -    159,156   Quarterly   3.97   4.96
Obligations with the public                                                                           
0-E  ESTADO  Chile  UF   -    -    167,561    -    360,159    527,720   8,686    -    167,561    -    374,107    550,354   At Expiration   4.81   4.79
97.030.000-7  BANK OF NEW YORK  U.S.A.  US$   -    261,588    -    700,000    800,000    1,761,588   29,905    259,709    -    698,063    803,563    1,791,240   At Expiration   7.25   6.99
Guaranteed obligations                                                                           
0-E  BNP PARIBAS  U.S.A.  US$   9,935    18,938    60,724    64,866    151,913    306,376   13,033    19,283    58,756    63,933    151,040    306,045   Quarterly   4.05   4.05
0-E  WILMINGTON TRUST  U.S.A.  US$   22,018    66,488    181,190    207,798    410,746    888,240   27,201    66,488    176,477    205,958    408,917    885,041   Quarterly   4.46   4.46
0-E  CITIBANK  U.S.A.  US$   4,773    14,511    40,145    42,343    46,475    148,247   5,451    14,511    35,746    40,532    45,602    141,842   Quarterly   3.76   2.68
0-E  NATIXIS  France  US$   10,561    32,360    86,357    77,360    86,829    293,467   11,350    32,360    84,709    76,432    85,915    290,766   Quarterly   4.05   4.05
0-E  INVESTEC  England  US$   3,535    6,765    22,501    14,822    -    47,623   4,314    6,854    22,076    14,769    -    48,013   Semiannual   6.70   6.70
0-E  MUFG  U.S.A.  US$   36,119    5,199    17,389    18,805    67,311    144,823   36,776    5,199    17,389    18,805    67,311    145,480   Quarterly   3.72   3.72
-  SWAP Aviones llegados  -  US$   117    182    10    -    -    309   117    182    10    -    -    309   Quarterly   -   -
Other guaranteed obligations                                                                           
0-E  CREDIT AGRICOLE  France  US$   -    -    253,692    -    -    253,692   2,573    -    252,612    -    -    255,185   At Expiration   3.99   3.99
0-E  DVB  BANK  SE  Germany  US$   23,605    71,203    205,584    46,220    5,016    351,628   23,855    71,203    202,901    45,756    4,958    348,673   Quarterly   3.88   3.75
Financial leases                                                                           
0-E  ING  U.S.A.  US$   3,825    9,790    2,016    -    -    15,631   3,968    9,790    1,962    -    -    15,720   Quarterly   5.70   5.01
0-E  CREDIT AGRICOLE  France  US$   6,745    14,610    11,481    -    -    32,836   6,894    14,610    11,481    -    -    32,985   Quarterly   3.32   2.71
0-E  CITIBANK  U.S.A.  US$   17,830    54,373    119,710    26,825    -    218,738   18,663    54,373    118,478    26,770    -    218,284   Quarterly   3.67   3.08
0-E  PEFCO  U.S.A.  US$   3,783    3,827    -    -    -    7,610   3,837    3,827    (16)   -    -    7,648   Quarterly   5.65   5.03
0-E  BNP PARIBAS  U.S.A.  US$   13,879    36,002    61,178    55,012    31,229    197,300   15,167    36,002    59,898    54,225    30,810    196,102   Quarterly   4.20   4.13
0-E  WELLS FARGO  U.S.A.  US$   32,157    97,458    252,401    215,647    26,179    623,842   34,901    97,458    237,261    211,224    25,846    606,690   Quarterly   2.72   2.03
97.036.000-K  SANTANDER  Chile  US$   5,659    17,165    47,133    8,254    -    78,211   5,982    17,165    46,372    8,235    -    77,754   Quarterly   3.31   2.77
0-E  RRPF ENGINE  England  US$   855    2,324    6,995    7,993    1,961    20,128   899    2,324    6,995    7,993    1,961    20,172   Monthly   4.01   4.01
0-E  APPLE BANK  U.S.A.  US$   1,473    4,480    12,390    8,837    -    27,180   1,645    4,480    12,052    8,794    -    26,971   Quarterly   3.65   3.05
0-E  BTMU  U.S.A.  US$   2,988    9,091    25,114    17,135    -    54,328   3,195    9,091    24,441    17,054    -    53,781   Quarterly   3.62   3.02
0-E  NATIXIS  France  US$   690    2,140    3,015    -    -    5,845   714    2,140    3,015    -    -    5,869   Quarterly   4.64   4.64
0-E  KFW IPEX-BANK  Germany  US$   1,745    5,328    -    -    -    7,073   1,757    5,328    -    -    -    7,085   Quarterly   3.84   3.84
0-E  AIRBUS FINANCIAL  U.S.A.  US$   1,961    5,979    1,685    -    -    9,625   1,983    5,979    1,685    -    -    9,647   Monthly   4.00   4.00
0-E  US BANK  U.S.A.  US$   15,773    47,859    131,690    137,872    31,708    364,902   17,592    47,859    118,551    133,058    31,102    348,162   Quarterly   4.14   2.96
0-E  PK AIRFINANCE  U.S.A.  US$   2,444    7,595    20,493    -    -    30,532   2,492    7,595    20,493    -    -    30,580   Monthly   3.74   3.74
Other loans                                                                          
0-E  CITIBANK (*)  U.S.A.  US$   25,330    74,202    26,823    -    -    126,355   25,626    74,202    26,823    -    -    126,651   Quarterly   6.00   6.00
    Total         559,907    960,364    2,000,593    1,649,789    2,019,526    7,190,179   622,637    958,855    1,950,372    1,631,601    2,031,132    7,194,597           

 

89

 

 

Interest-bearing loans due in installments to September 30, 2019 (Unaudited) 

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil. 

 

                  Nominal values   Accounting values             
                  More   More   More than               More   More   More than                     
              Up to   than 90 days   than one to   three to   More than   Total   Up to   than 90 days   than one to   three to   More than   Total             
      Creditor       90   to one   three   five   five   nominal   90   to one   three   five   five   accounting       Effective   Nominal 
Tax No.  Creditor  country   Currency   days   year   years   years   years   value   days   year   years   years   years   value   Amortization   rate   rate 
              ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$       %   % 
Bank loans                                                                       
0-E  NEDERLANDSCHE                                                                                    
   CREDIETVERZEKERING MAATSCHAPPIJ  Holland    US$    144    446    843    -    -    1,433    151    446    843    -    -    1,440    Monthly    6.01    6.01 
Financial leases                                                                                       
0-E  NATIXIS  France    US$    1,702    8,343    77,905    -    -    87,950    1,957    8,343    77,905    -    -    88,205    Quarterly/Semiannual    6.29    6.29 
0-E  WACAPOU LEASING S.A.  Luxemburg    US$    749    2,293    3,987    -    -    7,029    771    2,293    3,987    -    -    7,051    Quarterly    4.32    4.32 
0-E  SOCIÉTÉ GÉNÉRALE MILAN BRANCH  Italy    US$    9,737    64,109    105,822    -    -    179,668    10,343    63,909    105,822    -    -    180,074    Quarterly    5.39    5.39 
0-E  GA Telessis LLC  U.S.A    US$    304    1,088    2,376    2,676    7,355    13,799    398    1,088    2,376    2,676    7,356    13,894    Monthly    14.72    14.72 
   Total            12,636    76,279    190,933    2,676    7,355    289,879    13,620    76,079    190,933    2,676    7,356    290,664                
   Total consolidated            12,636    76,279    190,933    2,676    7,355    289,879    13,620    76,079    190,933    2,676    7,356    290,664                

 

90

 

 

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    US$    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    US$    23,000    -    -    -    -    23,000    23,025    -    -    -    -    23,025   At Expiration   3.90    3.90 
97.003.000-K  BANCO DO BRASIL   Chile    US$    200,000    -    -    -    -    200,000    200,698    -    -    -    -    200,698   At Expiration   3.64    3.64 
97.951.000-4  HSBC   Chile    US$    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.    US$    -    15,000    -    -    -    15,000    -    14,964    -    -    -    14,964   Semiannual   6.74    6.74 
97.036.000-K  SANTANDER   Chile    US$    -    -    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.    US$    -    -    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    US$    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.    US$    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.    US$    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.    US$    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.    US$    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    US$    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.    US$    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    US$    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   -    US$    194    414    158    -    -    766    194    414    158    -    -    766   Quarterly   -    - 
                                                                                       
Other guaranteed obligations 
                                                                                       
0-E  CREDIT AGRICOLE   France    US$    -    -    253,692    -    -    253,692    2,646    -    252,207    -    -    254,853   At Expiration   4.11    4.11 
0-E  DVB BANK SE   Germany    US$    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.    US$    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    US$    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.    US$    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.    US$    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.    US$    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.    US$    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    US$    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    US$    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.    US$    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.    US$    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    US$    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    US$    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.    US$    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.    US$    -    -    55,727    -    -    55,727    -    1,229    55,727    -    -    56,956   At Expiration   4.01    4.01 
0-E  CITIBANK (*)   U.S.A.    US$    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.

 

91

 

 

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  US$   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  US$   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  US$   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  US$   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  US$   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                

  

92

 

 

(b)Lease Liability:

 

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

  

   Aircraft   Others   Lease Liability total 
   ThUS$   ThUS$   ThUS$ 
Opening balance as January 1, 2018            
Restated (Unaudited)  3,037,585  109,053   3,146,638 
                
New contracts   174,978    1,888    176,866 
Renegotiations   (121,450)   149    (121,301)
Payments   (397,895)   (22,293)   (420,188)
Accrued interest   132,984    6,437    139,421 
Exchange differences   -    (5,599)   (5,599)
Other increases (decreases)   8,397    -    8,397 
                
Total cambios   (202,986)   (19,418)   (222,404)
Closing balance as of September 30,2018               
Restated (Unaudited)   2,834,599    89,635    2,924,234 
                
Opening balance as October 1, 2018               
Restated (Unaudited)   2,834,599    89,635    2,924,234 
                
New contracts   108,642    34,303    142,945 
Renegotiations   (118,597)   1,248    (117,349)
Payments   (128,176)   (8,023)   (136,199)
Accrued interest   41,343    2,186    43,529 
Exchange differences   -    (68)   (68)
Other increases (decreases)   (2)   959    957 
                
Total cambios   (96,790)   30,605    (66,185)
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   629,170    12,123    641,293 
Renegotiations   (176,836)   4,059    (172,777)
Payments   (395,620)   (27,054)   (422,674)
Accrued interest   121,937    8,604    130,541 
Exchange differences   -    (103)   (103)
Cumulative translation adjustment   -    (414)   (414)
Other increases (decreases)   -    (2,182)   (2,182)
                
Total cambios   178,651    (4,967)   173,684 
Closing balance as of September 30,2019 (Unaudited)   2,916,460    115,273    3,031,733 

 

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

 

93

 

 

(c)Hedge derivatives

 

           Total hedge 
   Current liabilities   Non-current liabilities   derivatives 
   As of   As of   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31,   September 30,   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   4,668    2,321    659    340    5,327    2,661 
Fair value of interest rate derivatives   324    335    -    -    324    335 
Fair value of fuel derivatives   1,711    15,678    -    -    1,711    15,678 
Fair value of foreign currency derivatives   34,102    7,587    -    -    34,102    7,587 
Total hedge derivatives   40,805    25,921    659    340    41,464    26,261 

 

(d)Derivatives do not qualify for hedge accounting

  

   Current liabilities   Non-current liabilities   Total derivatives of no coverage 
   As of 30   As of 31   As of 30   As of 31   As of 30   As of 31 
   September of   December of   September of   December of   September 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   -    7,712    -    -    -    7,712 
Total derived not qualify as hedge accounting   -    7,712    -    -    -    7,712 

 

The foreign currency derivatives correspond to options, forwards and swaps.

 

Hedging operation

 

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

 

   As of   As of 
   September 31,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Cross currency swaps (CCS) (1)   7,437    15,099 
Interest rate swaps (2)   (1,258)   (2,194)
Fuel options (3)   21,459    (15,811)
Currency options  R$/US$  (4)   779    - 

 

(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.

 

94

 

   

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

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

(4)They cover the exposure to foreign exchange risk of operating cash flows, mainly caused by the fluctuation of the CLP/US$, R$/US$, US$/EUR and US$/GBP exchange rate. These contracts are registered as cash flow hedge contracts.

 

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 6 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 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Debit (credit) recognized in comprehensive income during the period   40,691    39,515    14,403    7,006 
Debit (credit) transferred from net equity to income during the period   (29,304)   26,302    (13,848)   7,470 

 

95

 

  

NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES

 

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

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Current        
(a) Trade and other accounts payables   1,474,663    1,279,976 
(b) Accrued liabilities at the reporting date   397,850    394,327 
Total trade and other accounts payables   1,872,513    1,674,303 

 

(a)Trade and other accounts payable:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
         
Trade creditors   1,242,574    1,048,033 
Other accounts payable   232,089    231,943 
Total   1,474,663    1,279,976 

 

96

 

  

 

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

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Aircraft Fuel   338,129    304,426 
Boarding Fee   263,211    210,621 
Suppliers technical purchases   167,344    75,402 
Air companies   101,203    59,524 
Handling and ground handling   84,028    84,213 
Other personnel expenses   78,799    92,047 
Airport charges and overflight   76,836    82,181 
Professional services and advisory   72,453    83,182 
Leases, maintenance and IT services   59,003    55,427 
Marketing   50,071    60,303 
Services on board   48,815    44,434 
Achievement of goals   22,522    21,943 
Crew   21,612    21,265 
Land services   20,569    26,014 
Maintenance   10,488    8,244 
Aviation insurance   9,018    11,943 
Jol Fleet   2,896    - 
Others   47,666    38,807 
Total trade and other accounts payables   1,474,663    1,279,976 

 

(b)Liabilities accrued:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Accrued personnel expenses   155,257    116,242 
Aircraft and engine maintenance   161,060    170,731 
Accounts payable to personnel (*)   33,245    81,222 
Others accrued liabilities   48,288    26,132 
Total accrued liabilities   397,850    394,327 

 

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

  

97

 

NOTE 21 - OTHER PROVISIONS

 

   Current liabilities   Non-current liabilities   Total Liabilities 
   As of   As of   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
   2019   2018   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited       Unaudited     
Provision for contingencies (1)                        
Tax contingencies   3,017    2,982    177,195    197,038    180,212    200,020 
Civil contingencies   1,315    1,207    61,575    59,834    62,890    61,041 
Labor contingencies   684    605    27,491    23,244    28,175    23,849 
Other   -    -    13,148    13,976    13,148    13,976 
Provision for European Commission investigation (2)   -    -    8,961    9,403    8,961    9,403 
Total other provisions (3)   5,016    4,794    288,370    303,495    293,386    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 as of September 30, 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.

 

98

 

 

Movement of provisions:

 

   Legal
claims (1)
   European
Commission
Investigation (2)
   Total 
   ThUS$   ThUS$   ThUS$ 
Opening balance as of January 1, 2018   367,493    9,883    377,376 
Increase in provisions   80,650    -    80,650 
Provision used   (42,872)   -    (42,872)
Difference by subsidiaries conversion   (60,042)   -    (60,042)
Reversal of provision   (25,733)   -    (25,733)
Exchange difference   (1,003)   (334)   (1,337)
Closing balance as of September 30, 2018 (Unaudited)   318,493    9,549    328,042 
Opening balance as of October 1, 2018   318,493    9,549    328,042 
Increase in provisions   26,220    -    26,220 
Provision used   (16,160)   -    (16,160)
Difference by subsidiaries conversion   11,712    -    11,712 
Reversal of provision   (41,232)   -    (41,232)
Exchange difference   (147)   (146)   (293)
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   96,932    -    96,932 
Provision used   (57,353)   -    (57,353)
Difference by subsidiaries conversion   (19,353)   -    (19,353)
Reversal of provision   (34,231)   -    (34,231)
Exchange difference   (456)   (442)   (898)
Closing balance as of September 30, 2019 (Unaudited)   284,425    8,961    293,386 

 

(1) Cumulative balances include judicial deposit delivered as security, with respect to the “Aerovía Fundo” (FA), for US$ 84 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 September 30, 2019 is described in Note 31 in the Role of the case 2001.51.01.012530-0.

  

99

 

 

2) European Commission Provision:

 

Provision constituted on the occasion of the process initiated in December 2007 by the General Competition Directorate of the European Commission against more than 25 cargo airlines, among which is Lan Cargo SA, which forms part of the global investigation initiated in 2006 for possible infractions of free competition in the air cargo market, which was carried out jointly by the European and United States authorities.

 

With respect to Europe, the General Directorate of Competition imposed fines totaling € 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros) for infractions of European Union regulations on free competition against eleven (11) airlines, among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A .,For its part, LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these infractions, an amount that was provisioned in the financial statements of LATAM. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the Court of Justice of the European Union. On December 16, 2015, the European Court resolved the appeal and annulled the Commission’s Decision. The European Commission did not appeal the judgment, but on March 17, 2017, the European Commission again adopted its original decision to impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of 776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed the same fine of 8.2 million Euros. The procedural stage as of September 30, 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 
   September 30,   December 31,   September 30,   December 31,   September 30,   December 31, 
   2019   2018   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited       Unaudited    
Deferred revenues (*)   2,528,461    2,330,058    738,450    644,702    3,266,911    2,974,760 
Sales tax   4,258    12,726    -    -    4,258    12,726 
Retentions   32,245    34,434    -    -    32,245    34,434 
Others taxes   5,299    7,700    -    -    5,299    7,700 
Dividends payable   -    54,580    -    -    -    54,580 
Other sundry liabilities   13,519    15,248    -    -    13,519    15,248 
Total other non-financial liabilities   2,583,782    2,454,746    738,450    644,702    3,322,232    3,099,448 

 

100

 

 

Movement of Other non-financial liabilities

 

       Deferred income       Adjustment         
   Initial balance   Recognition   Use   Loyalty (accreditation and exchange)   Expiration of tickets   application IAS 29, Argentina hyperinflation   Others provisions   Final balance 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                                 
From January 1 to September 30, 2018 (Unaudited)   2,849,266    5,862,490    (6,312,982)   349,835    (213,041)   927    (9,691)   2,526,804 
                                         
From October 1 to December 31, 2018   2,526,804    1,828,482    (1,917,768)   594,411    (71,689)   -    14,520    2,974,760 
                                         
From January 1 to September 30, 2019 (Unaudited)   2,974,760    5,942,605    (5,831,769)   235,371    (70,529)   475    15,998    3,291,911 

 

(*) Note 2.20.

 

The balance includes, mainly, deferred income for services not provided as of September 30, 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.

 

After the merger of Multiplus S.A. described in Note1, the Latam Fidelidade programs and the Multiplus coalition and loyalty program become part of the Latam Pass Brazil Program.

 

During 2018 the Company signed a renewal of the agreement with Banco Santander-Chile, which one extends its alliance in Chile to continue developing travel benefits to its respective clients during the next 7 years, and during 2019 signed a renewal of the agreement with Banco Crédito del Perú.

 

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NOTE 23 - EMPLOYEE BENEFITS

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Retirements payments   65,093    56,126 
Resignation payments   10,302    8,802 
Other obligations   19,799   17,437 
Total liability for employee benefits   95,194   82,365 

 

The movement in retirements and resignation payments and other obligations:

 

      Opening   Increase (decrease) 
current service
   Benefits   Actuarial (gains)   Currency   Closing 
      balance   provision   paid   losses   translation   balance 
      ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                           
From January 1 to September 30, 2018 (Unaudited)     101,087    (12,756)   (4,796)   3,611    4,191    91,337 
From October 1 to December 31, 2018      91,337    5,372    (1,222)   2,209    (15,331)   82,365 
From January 1 to September 30, 2019 (Unaudited)     82,365    13,341    (3,553)   11,106    (8,066)   95,193 

 

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

 

   For the period ended 
   September 30, 
Assumptions  2019   2018 
   Unaudited 
Discount rate   2.72%   4.50%
Expected rate of salary increase   4.5%   4.50%
Rate of turnover   6.04%   6.60%
Mortality rate   RV-2014     RV-2014 
Inflation rate   2.68%   2.88%
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.

 

102

 

 

The sensitivity analysis for these variables is presented below:

 

   Effect on the liability 
   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Discount rate        
Change in the accrued liability an closing for increase in 100 p.b.   (7,646)   (6,538)
Change in the accrued liability an closing for decrease of 100 p.b.   5,789    4,918 
           
Rate of wage growth          
Change in the accrued liability an closing for increase in 100 p.b.   5,314    4,750 
Change in the accrued liability an closing for decrease of 100 p.b.   (7,506)   (6,547)

 

(b)The liability for short-term:

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
    Unaudited      
Profit-sharing and bonuses (*)   33,245    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 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Salaries and wages   1,147,942    1,113,235    357,573    325,251 
Short-term employee benefits   72,338    84,999    47,099    47,169 
Termination benefits   47,831    42,671    15,916    16,403 
Other personnel expenses   86,913    112,727    26,184    14,522 
                     
Total   1,355,024    1,353,632    446,772    403,345 

 

103

 

 

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

 

   As of   As of 
   September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
         
Aircraft and engine maintenance   543,039    513,544 
Fleet financing (JOL)   41,888    - 
Provision for vacations and bonuses   15,327    15,357 
Other sundry liabilities   315    376 
           
Total accounts payable, non-current   600,569    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 September 30, 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 September 30, 2019, the number of subscribed and paid shares of the Company reached 606,407,693.

 

104

 

 

Consequently, as of September 30, 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     
      intended for    
Nro. Of shares  Opening balance   compensation plans   Closing balance 
             
From January 1 to September 30, 2018 (Unaudited)   608,374,525    (1,500,000)(*)   606,874,525 
From July 1 to December 31, 2018   606,874,525    -    606,874,525 
From January 1 to September 30, 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 September 30, 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 September 30, 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 September 30, 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.

 

105

 

 

(d)Reserve of share- based payments

 

Movement of Reserves of share- based payments:

 

   Opening   option   Closing 
Periods  balance   plan   balance 
   ThUS$   ThUS$   ThUS$ 
             
From January 1 to September 30, 2018 (Unaudited)   39,481    (1,576)   37,905 
From July 1 to December 31, 2018   37,905    (31)   37,874 
From January 1 to September 30, 2019 (Unaudited)   37,874    (1,450)   36,424 

   

These reserves are related to the “Share-based payments” explained in Note 34.

 

(e)Other sundry reserves

 

Movement of Other sundry reserves:

  

      Transactions with       
Periods  Opening balance   minority shareholders   Legal reserves   Closing balance 
   ThUS$   ThUS$   ThUS$   ThUS$ 
                 
From January 1 to September 30, 2018 (Unaudited)   2,639,780    -    (1,072)   2,638,708 
From July 1 to December 31, 2018   2,638,708    -    208    2,638,916 
From January 1 to September 30, 2019 (Unaudited)   2,638,916    (184,135)   (1,683)   2,453,098 

 

Balance of Other sundry reserves comprises the following:

  

   As of   As of 
   September 30,   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)   (210,048)   (25,913)
Others   (5,166)   (3,483)
Total   2,453,098    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.

 

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(3)The balance as of September 30, 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. The loss due to the acquisition of the minority interest of Multiplus S.A. for ThUS $ (184.135) (see Note 1).

 

(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)   -    40,582    -    40,582 
Deferred tax   -    (211)   -    (211)
Actuarial reserves by employee benefit plans   -    -    (3,611)   (3,611)
Deferred tax actuarial IAS             960    960 
by employee benefit plans   -    -    -    - 
Difference by subsidiaries conversion   (597,721)   -    -    (597,721)
Closing balance as of September 30, 2018 Restated (Unaudited)   (2,523,435)   58,511    (13,577)   (2,478,501)
                     
Opening balance as of October 1, 2018   (2,523,435)   58,511    (13,577)   (2,478,501)
Derivatives valuation gains (losses)   -    (67,481)   -    (67,481)
Deferred tax   -    (363)   -    (363)
Actuarial reserves by employee benefit plans   -    -    (2,207)   (2,207)
Deferred tax actuarial IAS by employee benefit plans   -    -    606    606 
Difference by subsidiaries conversion   (133,209)   -    -    (133,209)
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)   -    47,383    -    47,383 
Deferred tax   -    534    -    534 
Actuarial reserves by employee benefit plans   -    -    (11,106)   (11,106)
Deferred tax actuarial IAS by employee benefit plans   -    -    2,993    2,993 
Difference by subsidiaries conversion   (330,680)   -    -    (330,680)
Closing balance as of September 30, 2019 (Unaudited)   (2,987,324)   38,584    (23,291)   (2,972,031)

 

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(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 (1)   period   Dividends   (2)   balance 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
From January 1 to September 30, 2018 restated (Unaudited)   475,118    (516,130)   (80,368)   (9,983)   4,752    (126,611)
From July 1 to December 31, 2018 restated (Unaudited)   (126,611)   -    390,179    (44,597)   -    218,971 
From January 1 to September 30, 2019 (Unaudited)   218,971    -    (36,626)   -    -    182,345 

 

(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:

 

108

 

 

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 

 

(h)Dividends per share

 

   Minimum mandatory   Minimum mandatory 
   dividend   dividend 
Description of dividend  2019   2018 
         
Date of dividend   09/30/2019    12/31/2018 
Amount of the dividend (ThUS$)   -    54,580 
Number of shares among which the dividend is distributed   -    606,407,693 
Dividend per share (US$)   -    0.0900 

 

NOTE 26 - REVENUE

 

The detail of revenues is as follows:

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Passengers   6,527,954    6,381,738    2,340,297    2,107,168 
Cargo   784,448    874,406    251,691    278,883 
Total   7,312,402    7,256,144    2,591,988    2,386,051 

 

109

 

 

NOTE 27 - COSTS AND EXPENSES BY NATURE

 

(a)Costs and operating expenses

 

The main operating costs and administrative expenses are detailed below: 

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
                 
Aircraft fuel   2,185,227    2,150,673    717,320    747,263 
Other rentals and landing fees (*)   936,644    897,586    310,419    290,586 
Aircraft maintenance   316,562    290,025    104,551    83,235 
Comissions   166,573    163,189    59,800    48,954 
Passenger services   191,309    224,810    62,734    69,050 
Other operating expenses   938,567    925,694    318,774    284,705 
Total   4,734,882    4,651,977    1,573,598    1,523,793 

 

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

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Payments for leases of low-value assets   24,871    21,843    7,690    5,863 
Total   24,871    21,843    7,690    5,863 

  

(b)Depreciation and amortization

 

Depreciation and amortization are detailed below:

  

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited   Restated       Restated 
       Unaudited       Unaudited 
Depreciation (*)   1,020,195    981,731    355,044    327,026 
Amortization   59,019    48,671    20,797    17,054 
Total   1,079,214    1,030,402    375,841    344,080 

  

(*)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 September 30, 2019 is ThUS $ 320,458 and ThUS $ 261,265 for the same period 2018.

 

110

 

 

(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 9 months ended   For the 3 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
Bank loan interest   233,136    211,211    82,598    70,632 
Financial leases   45,842    49,786    15,184    15,960 
Lease liability   136,657    139,574    45,782    44,517 
Other financial instruments   10,423    7,782    2,249    4,718 
Total   426,058    408,353    145,813    135,827 

 

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 9 month ended   For the 3 month ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
Coalition and loyalty program Multiplus   36,172    85,425    -    24,657 
Tours   77,519    86,072    25,395    26,677 
Aircraft leasing   68,392    46,603    24,948    13,875 
Customs and warehousing   20,006    19,766    6,336    6,588 
Duty free   283    2,277    -    817 
Maintenance   7,406    15,153    3,244    10,905 
Other miscellaneous income   38,145    68,431    13,189    22,411 
Total   247,923    323,727    73,112    105,930 

 

111

 

 

NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

 

The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the chilean peso, argentine peso, colombian peso, brazilian real and guaraní.

 

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

 

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

 

(a)Foreign currency

 

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

 

   As of   As of
2011
 
   September 30,   December 31, 
Current assets  2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Cash and cash equivalents   302,286    606,673 
Argentine peso   4,677    4,236 
Brazilian real   21,377    34,360 
Chilean peso   62,292    415,399 
Colombian peso   10,745    2,732 
Euro   45,675    20,339 
U.S. dollar   96,731    51,382 
Other currency   60,789    78,225 
           
Other financial assets, current   63,748    57,132 
Argentine peso   5    11 
Brazilian real   32,752    25,829 
Chilean peso   26,026    25,904 
Colombian peso   130    139 
U.S. dollar   3,868    4,923 
Other currency   967    326 

  

112

 

 

   As of   As of  
   September 30,   December 31, 
Current assets  2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
Other non - financial assets, current   75,977    106,952 
Argentine peso   11,921    13,077 
Brazilian real   18,709    37,794 
Chilean peso   24,586    30,916 
Colombian peso   108    434 
Euro   3,482    3,935 
U.S. dollar   3,377    8,949 
Other currency   13,794    11,847 
           
Trade and other accounts receivable, current   443,449    518,006 
Argentine peso   13,790    54,053 
Brazilian real   13,964    6,037 
Chilean peso   108,936    112,133 
Colombian peso   152    5,065 
Euro   28,251    49,044 
U.S. dollar   34,007    2,938 
Other currency   244,349    288,736 
           
Accounts receivable from related entities, current   404    593 
Chilean peso   54    200 
U.S. dollar   350    393 
           
Tax current assets   6,899    20,774 
Argentine peso   1,531    812 
Brazilian real   18    1,106 
Chilean peso   1,126    4,860 
Colombian peso   1,531    5 
Euro   229    - 
U.S. dollar   660    429 
Peruvian sun   244    13,306 
Other currency   1,560    256 
           
Total current assets   892,763    1,310,130 
Argentine peso   31,924    72,189 
Brazilian real   86,820    105,126 
Chilean peso   223,020    589,412 
Colombian peso   12,666    8,375 
Euro   77,637    73,318 
U.S. Dollar   138,993    69,014 
Other currency   321,703    392,696 

 

113

 

  

   As of   As of 
   September 30,   December 31, 
Non-current assets  2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
         
Other financial assets, non-current   21,534    21,850 
Argentine peso   2    - 
Brazilian real   4,202    4,941 
Chilean peso   66    68 
Colombian peso   282    145 
Euro   7,000    7,438 
U.S. dollar   8,288    7,441 
Other currency   1,694    1,817 
           
Other non - financial assets, non-current   28,361    31,126 
Argentine peso   56    86 
Brazilian real   7,604    7,465 
U.S. dollar   3    3 
Other currency   20,698    23,572 
           
Accounts receivable, non-current   4,469    5,378 
Chilean peso   4,469    5,378 
           
Deferred tax assets   2,977    2,102 
Colombian peso   73    78 
U.S. dollar   909    29 
Other currency   1,995    1,995 
           
Total  non-current assets   57,341    60,456 
Argentine peso   58    86 
Brazilian real   11,806    12,406 
Chilean peso   4,535    5,446 
Colombian peso   355    223 
Euro   7,000    7,438 
U.S. dollar   9,200    7,473 
Other currency   24,387    27,384 

  

114

 

 

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

 

   Up to 90 days   91 days to 1 year 
   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31, 
Current liabilities  2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited     
Other financial liabilities, current   125,735    63,920    120,346    107,815 
Argentine peso   -    3    -    - 
Brazilian real   56    261    181    - 
Chilean peso   100,458    41,694    16,123    68,901 
Euro   89    704    80    - 
U.S. dollar   25,035    16,773    103,795    38,914 
Other currency   97    4,485    167    - 
                     
Trade and other accounts payables, current   266,390    970,872    2,139    37,809 
Argentine peso   7,349    229,907    -    6,142 
Brazilian real   598    30,974    3    1,152 
Chilean peso   11,995    198,766    -    26,113 
Colombian peso   802    7,915    -    752 
Euro   6,513    84,903    -    1,375 
U.S. dollar   221,072    325,385    2,136    55 
Peruvian sol   2,678    37,285    -    1,124 
Mexican peso   1,276    5,975    -    167 
Pound sterling   4,593    13,395    -    305 
Uruguayan peso   2,117    847    -    - 
Other currency   7,397    35,520    -    624 
                     
Accounts payable to related entities, current   71    365    -    - 
Chilean peso   71    253    -    - 
U.S. dollar   -    112    -    - 
                     
Other provisions, current   1,902    1,434    -    - 
Chilean peso   27    28    -    - 
Other currency   1,875    1,406    -    - 
                     
Tax liabilities, current   611    13    -    - 
Argentine peso   -    4    -    - 
Brazilian real   611    -    -    - 
Chilean peso   -    9    -    - 

 

115

 

  

   Up to 90 days   91 days to 1 year 
   As of
September 30,
   As of
December 31,
   As of
September 30,
   As of
December 31,
 
Current liabilities  2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited       Unaudited     
Other non-financial liabilities, current   20,597    38,120    -    - 
Argentine peso   122    1,089    -    - 
Brazilian real   1,247    1,455    -    - 
Chilean peso   600    14,130    -    - 
Colombian peso   1,230    1,009    -    - 
Euro   4,873    4,411    -    - 
U.S. dollar   9,585    10,468    -    - 
Other currency   2,940    5,558    -    - 
                     
Total current liabilities   415,306    1,074,724    122,485    145,624 
Argentine peso   7,471    231,003    -    6,142 
Brazilian real   2,512    32,690    184    1,152 
Chilean peso   113,151    254,880    16,123    95,014 
Colombian peso   2,032    8,924    -    752 
Euro   11,475    90,018    80    1,375 
U.S. dollar   255,692    352,738    105,931    38,969 
Other currency   22,973    104,471    167    2,220 

 

116

 

 

   More than 1 to 3 years   More than 3 to 5 years   More than 5 years 
   As of   As of   As of   As of   As of   As of 
   September 30,   December 31,   September 30,   December 31,   September 30,   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   470,559    299,735    17,581    281,785    381,461    179,406 
Chilean peso   233,780    16,259    -    237,377    374,106    172,530 
Brazillian real   599    948    119    -    -    - 
Euro   124    296    -    -    -    - 
U.S. dollar   235,839    280,197    17,424    44,408    7,355    6,876 
Other currency   217    2,035    38    -    -    - 
                               
Accounts payable, non-current   274,154    294,704    -    -    -    - 
Chilean peso   13,915    14,027    -    -    -    - 
U.S. dollar   258,984    279,437    -    -    -    - 
Other currency   1,255    1,240    -    -    -    - 
                               
Other provisions, non-current   36,082    36,120    -    -    -    - 
Argentine peso   343    542    -    -    -    - 
Brazillian real   20,437    19,815    -    -    -    - 
Colombian peso   276    295    -    -    -    - 
Euro   8,961    9,403    -    -    -    - 
U.S. dollar   6,065    6,065    -    -    -    - 
                               
Provisions for employees benefits, non-current   82,118    72,674    -    -    -    - 
Chilean peso   82,118    72,187    -    -    -    - 
U.S. dollar   -    487    -    -    -    - 
                              
Total non-current liabilities   862,913    703,233    17,581    281,785    381,461    179,406 
Argentine peso   343    542    -    -    -    - 
Brazilian real   21,036    20,763    119    -    -    - 
Chilean peso   329,813    102,473    -    237,377    374,106    172,530 
Colombian peso   276    295    -    -    -    - 
Euro   9,085    9,699    -    -    -    - 
U.S. dollar   500,888    566,186    17,424    44,408    7,355    6,876 
Other currency   1,472    3,275    38    -    -    - 

 

117

 

 

 

   As of   As of 
General summary of foreign currency:  September 30,   December 31, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited     
         
Total assets   950,104    1,370,586 
Argentine peso   31,982    72,275 
Brazilian real   98,626    117,532 
Chilean peso   227,555    594,858 
Colombian peso   13,021    8,598 
Euro   84,637    80,756 
U.S. dollar   148,193    76,487 
Other currency   346,090    420,080 
           
Total liabilities   1,799,746    2,446,785 
Argentine peso   7,814    237,687 
Brazilian real   23,851    54,605 
Chilean peso   833,193    862,274 
Colombian peso   2,308    9,971 
Euro   20,640    101,092 
U.S. dollar   887,290    1,071,190 
Other currency   24,650    109,966 
           
Net position          
Argentine peso   24,168    (165,412)
Brazilian real   74,775    62,927 
Chilean peso   (605,638)   (267,416)
Colombian peso   10,713    (1,373)
Euro   63,997    (20,336)
U.S. dollar   (739,097)   (994,703)
Other currency   321,440    310,114 

 

118

 

 

(b)Exchange differences

 

The exchange differences recognized in profit or loss, except for financial instruments measured at fair value through profit or loss, for the period ended September 30, 2019 and 2018, means a payment of ThUS $ 41,834 and a charge of ThUS $ 269,310, respectively. In the third quarter 2019 and 2018 means a payment of ThUS $ 74,788 and a charge of ThUS $ 92,357, respectively.

 

The exchange differences recognized in the statement of comprehensive income as reserves for exchange differences for conversion, for the period ended September 30, 2019 and 2018, significant charges for ThUS $ 293,807 and ThUS $ 408,979, respectively. In the third quarter 2019 and 2018 meant a charge of ThUS $ 260,399 and ThUS $ 110,008, respectively.

 

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

 

   As of September 30,   As of
December 31,
 
   2019   2018   2017   2016 
   Unaudited             
                 
Argentine peso   57.59    37.74    18.57    15.84 
Brazilian real   4.16    3.87    3.31    3.25 
Chilean peso   728.21    694.77    614.75    669.47 
Colombian peso   3,484.41    3,239.45    2,984.77    3,000.25 
Euro   0.92    0.87    0.83    0.95 
Strong bolivar   -    -    3,345.00    673.76 
Sovereign bolivar (*)   20,746.39    638.18    -    - 
Australian dollar   1.48    1.42    1.28    1.38 
Boliviano   6.86    6.86    6.86    6.86 
Mexican peso   19.73    19.68    19.66    20.63 
New Zealand dollar   1.60    1.49    1.41    1.44 
Peruvian Sol   3.38    3.37    3.24    3.35 
Uruguayan peso   36.95    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.

 

119

 

 

NOTE 30 - EARNINGS / (LOSS) PER SHARE

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
Basic earnings / (loss) per share  2019   2018   2019   2018 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
Earnings / (loss) attributable to owners of the parent (ThUS$)   (36,626)   (80,368)   86,265    35,213 
                     
Weighted average number of shares, basic   606,407,693    606,407,693    606,407,693    606,407,693 
                     
Basic earnings / (loss) per share (US$)   (0.06040)   (0.13253)   0.14226    0.05807 

 

   For the 9 months ended   For the 3 months ended 
   September 30,   September 30, 
Diluted earnings / (loss) per share  2019   2018   2019   2018 
   Unaudited   Restated   Unaudited   Restated 
       Unaudited       Unaudited 
Earnings / (loss) attributable to  owners of the parent (ThUS$)   (36,626)   (80,368)   86,265    35,213 
                     
Weighted average number of shares, basic   606,407,693    606,407,693    606,407,693    606,407,693 
                     
Weighted average number of shares, diluted   606,407,693    606,407,693    606,407,693    606,407,693 
                     
Diluted earnings / (loss) per share (US$)   (0.06040)   (0.13253)   0.14226    0.05807 

  

120

 

 

NOTE 31 – CONTINGENCIES

 

I.Lawsuits

 

1)Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
 
               ThUS$ 
                 
Tam Viagens S.A.  Fazenda Pública do Município de São Paulo.  1004194-37.2018.8.26.0053  This is a voidance action appealing the charges for violations and fines (67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965).  We are arguing that numbers are missing from the ISS calculation base since the company supposedly made improper deductions.  The lawsuit was assigned on January 31, 2018.  That same day, a decision was rendered suspending the charges without any bond.  We are waiting for the deadline for the municipality to appeal to expire. The municipality filed an appeal against this decision on April 30, 2018, that is pending a decision.  The voidance action is now in the evidentiary period.   91,123 

121

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
LATAM Airlines Group S.A. y Lan Cargo S.A.  European Commission.     Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate  for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight.. 

On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011.

 
On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction).
 
On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of THUS$ 9,345 (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. On July 12, 2019, we attended a hearing before the European Court of Justice to confirm our petition for vacation of judgment or otherwise, a reduction in the amount of the fine. LATAM AIRLINES GROUP, S.A. expects that the ruling by the General Court of the European Union may reduce the amount of this fine.

   8,961 

 

122

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
Lan Cargo S.A. y LATAM Airlines Group S.A.  In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway)  y Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands) , Cologne Regional Court (Landgerich Köln Germany).     Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany.  Cases are in the uncovering evidence stage. In the case in England, mediation was held with nearly all the airlines involved in the aim of attempting to reach an agreement. It began in September, and LATAM Airlines Group S.A. reached an agreement for approximately GBP 636,000.  A settlement was signed in December 2018 and payment was made in January 2019.  This concluded the claim for all class-action plaintiffs except one, with whom negotiations continue.  The amount is undetermined, but small.   -0- 
                  
Aerolinhas Brasileiras S.A.  Federal Justice.  0008285-53.2015.403.6105  An action seeking to quash a decision and petioning for early protection in order to obgain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge.  This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines: (i) ABSA:ThUS$10,438; (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   10,048 
                  
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 new insurance policy was submitted on March 30, 2016 with the change to the guarantee requested by PGFN. On 05/20/2016 the process was sent to PGFN, which was manifested on 06/03/2016. A decision is pending   13,505 

 

123

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
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.   57,079 
                  
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.
   84,206 
                  
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. The amount has been reduced after some set-offs were approved by the Department of Federal Revenue of Brazil.   25,261 

 

124

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
Aerovías de Integración Regional,                AIRES S.A.  United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.
 
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 process has been in the judge’s chambers since March 11, 2019 to decide on replacing the damage estimation expert as requested by LATAM AIRLINES COLOMBIA.  The one previously appointed did not take office.  A petition has also been made by VAS objecting to the translation of the documents in English into Spanish due to serious mistakes, which was served to the parties in October 2018.  On June 4, 2019, the State Court of Florida allowed REGIONAL ONE to add a new claim against LATAM AIRLINES COLOMBIA for default on a verbal contract.  Given the new claim, LATAM AIRLINES COLOMBIA petitioned that the Court postpone the trial to August 2019 to have the time to investigate the facts alleged by REGIONAL ONE to prove a verbal contract.  The State Court granted the postponement of a jury trial to June 2020.  In the meantime, the discovery stage continues, including verbal statements by experts on behalf of both parties.  There may be some change in the committed amount, which will be reported in due course.   12,443 

 

125

 

 

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).   63,273 
                  
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.   17,030 
                  
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. On May 18, 2019, Inversiones Ranco Tres S.A. filed a remedy of vacation of judgment based on technicalities and on substance against the Appellate Court decision.  The Appellate Court admitted both appeals on May 29, 2019 and the appeals are pending a hearing by the Supreme Court.   18,204 

 

126

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
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. We are waiting for the evidentiary period to begin.   37,944 
                  
TAM Linhas Aéreas S.A.  Department of Federal Revenue of Brazil  5002912.29.2019.4.03.6100  A lawsuit disputing the debit in the administrative proceeding 16643.000085/2009-47, reported in previous notes, consisting of a notice demanding recovery of the Income and Social Assessment Tax on the net profit (SCL) resulting from the itemization of royalties and use of the TAM trademark  The lawsuit was assigned on February 28, 2019.  A decision was rendered on March 1, 2019 stating that no guarantee was required.  A final decision is now pending.   10,658 
                  
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.   22,397 
                  
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. The Court dismissed the Company’s appeal in August 2019.  Then on September 17, 2019, Company filed a special appeal (CRSF (Higher Tax Appeals Chamber)) that is pending a decision.   19,548 
                  
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.   14,023 
                  
TAM Linhas     Aéreas S.A  Delegacía de Receita Federal
  16692.721.933/2017-80  The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport.  We are awaiting the presentation of an administrative defense.  An administrative defense was presented on May 29, 2018.   30,048 
                  
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.   56,051 

 

127

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
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   -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.   16,470 
                  
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. The Court dismissed the Company’s appeal in August 2019.  Then on September 17, 2019, Company filed a voluntary appeal (CRSF (Administrative Tax Appeals Board)) that is pending a decision.   115,363 
                  
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.   15,412 
                  
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.   11,268 
                  
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.   15,101 

 

128

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
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.   10,420 
                  
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   14,501 
                  
LATAM Airlines 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 
                  
TAM Linhas Aéreas S.A  Department of Federal Revenue of Brazil  10.880.938842/2013-54  The decision denied the petition for reassignment and did not equate the CONFINS credit statements for the third quarter of 2012 that had been determined to be in the non-accumulative system.  We will argue our administrative    defense.   11,022 

 

129

 

 

Company  Court  Case Number  Origin  Stage of trial  Amounts
Committed (*)
ThUS$
 
                 
TAM Linhas Aéreas S.A  Department of Federal Revenue of Brazil  10.880.93844/2013-43
  The decision denied the petition for reassignment and did not equate the CONFINS credit statements for the third quarter of 2012 that had been determined to be in the non-accumulative system.  We will argue our administrative defense.   10,405 
                  
TAM Linhas Aéreas S.A  Department of Federal Revenue of Brazil  10880.938841/2013-18  The decision denied the petition for reassignment and did not equate the CONFINS credit statements for the second quarter of 2012 that had been determined to be in the non-accumulative system.  We will argue our administrative defense.   9,847 
                  
LATAM Airlines Group S.A.  Southern District of Florida, Miami Division. United States District Court  1:19-cv-22260-FAM  This claim is by a visually impaired individual seeking a declaration and court order to ensure that LATAM’s policies and procedures applicable to the Group’s website in the USA meet the requirements for accommodating visually impaired individuals according to the Americans with Disabilities Act.  The intention is to ensure that the site allows for a direct communication and access to services by visually impaired individuals.  On June 12, 2019, we received service of process and LATAM submitted a petition for an extension to answer the claim through August 2, 2019, which was approved by the other party and by the Court. The parties signed a confidential agreement and the plaintiff withdrew its claim to the detriment of filing it again.   0 
                  
Latam-Airlines Ecuador S.A.  Tribunal Distrital de lo Fiscal  17509-2014-0088  An audit of the 2006 Income Tax Return that disallowed fuel expenses, fees and other items because the necessary support was not provided, according to Management.  On August 6, 2018, the District Tax Claims Court rendered a decision denying the request for a refund of a mistaken payment.  An appeal seeking vacation of this judgment by the Court was filed on September 5th and we are awaiting a decision by the Appellate judges. As of December 31, 2018, the lawyers believe that the probability of recovering this amount has fallen by 30% to 40%, so the provision was increased to $8.7 million.   12,505 
                  
Latam Airlines Group S.A.  Southern District of Florida. United States District Court  19cv23965  A lawsuit filed by Jose Ramon Lopez Regueiro against American Airlines Inc. and Latam Airlines Group S.A. seeking an indemnity for damages caused by the commercial use of the Jose Marti International Airport in Cuba that he says were repaired and reconditioned by his family before the change in government in 1959..  Latam Airlines Group S.A. was served this claim on September 27, 2019. The company has until November, 2019 to file an answer to the claim. The provision is undetermined.   0 

  

130

 

 

-In order to deal with any financial obligations arising from legal proceedings in effect at June 30, 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 LATAM 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 LATAM’s internal controls in 2006-2007 were weak, so LATAM 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.

 

131

 

 

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

 

On May 15, 2019, the external consultant certified that the Anticorruption program of LATAM Airlines Group S.A. It is reasonably designed and implemented to prevent and detect violations within LATAM to anti-corruption laws.

 

On July 23, 2019, the DOJ approved the certification made by the consultant on May 15, 2019 regarding the Anticorruption program of LATAM Airlines Group S.A.

 

2) On April 6, 2019, LATAM Airlines Group S.A. received notification of the resolution issued by the National Economic Prosecutor’s Office (FNE), which begins an investigation into the LATAM Pass frequent passenger program. Currently, the Company is cooperating with this process.

 

3) On July 9, 2019, LATAM Airlines Group S.A. received the resolution issued by the National Economic Prosecutor’s Office (FNE), which begins an investigation into the Alliance Agreement between LATAM Airlines Group S.A. and American Airlines INC. Cause Role No. 2565-19. The Company is currently cooperating with this process.

 

4) On July 26th, the National Consumer Service of Chile (SERNAC) issued the Ordinary Resolution No. 12,711 which proposed to initiate a collective voluntary mediation procedure on effectively informing passengers of their rights in cases of cancellation of flights or no show to boarding, as well as the obligation to return the respective boarding fees as provided by art. 133 C of the Aeronautical Code. The Company has voluntarily decided to participate in this procedure, the terms and conditions of which are being agreed to this date, not yet having a definitive agreement.

 

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.

 

132

 

 

The revolving credit facility (“Revolving Credit Facility”) with aircraft, engines, parts and supplies guaranteed for a total available amount of US$ 600 million, contemplates minimum liquidity restrictions, measured at the level of the Consolidated Company and measured at the for companies LATAM Airlines Group SA and TAM Linhas Aéreas S.A., which remain standby while the credit line is not used. As of September 30, 2019 this line of credit established with a consortium of eleven banks led by Citibank, is not used.

 

As of September 30, 2019, the Company is in compliance with all the indicators detailed above.

 

Other commitments

 

At September 30, 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
              
Corporación Peruana de Aeropuertos y Aviación Comercial  Latam Airlines Perú S.A.  Twenty eight letter of credit   3,499    Dec-24-19
Lima Airport Partners S.R.L.  Latam Airlines Perú S.A.  Twenty three letter of credit   2,895   Dec-31-19
Superintendencia Nacional de Aduanas y de Administración Tributaria  Latam Airlines Perú S.A.  Twenty three letter of credit   184,000   Oct-19-19
Instituto Nacional de Defensa de la Compentencia y de la Protección  Latam Airlines Perú S.A.  Forty four letter of credit   1,365   Oct-02-19
Aena Aeropuertos S.A.  LATAM Airlines Group S.A.  Four letter of credit   2,735   Nov-13-19
American Alternative Insurance Corporation  LATAM Airlines Group S.A.  Seven letter of credit   3,790   Abr-05-20
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   9,346   Jun-18-20
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 eight letter of credit   19,446   Dec-30-19
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador  LATAM Airlines Group S.A.  One letter of credit   5,500   Jun-18-20
Metropolitan Dade County  LATAM Airlines Group S.A.  Eight letter of credit   2,298   March-13-20
Numinous LLC  LATAM Airlines Group S.A.  One letter of credit   2,200   Oct-15-19
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-23-21
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
          314,411    

 

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NOTE 33 - TRANSACTIONS WITH RELATED PARTIES

 

(a)Details of transactions with related parties as follows:

 

                  For the 9 month period 
      Nature of     Nature of     then ended a september 30, 
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   12    6 
                          
78.591.370-1  Bethia S.A and subsidiaries  Related  director  Chile  Services received of cargo transport  CLP   556    1,220 
            Services received from National and International             
            Courier  CLP   (3)   (85)
            Sales commissions  CLP   (218)   (570)
            Services received advertising  CLP   (799)   (831)
                          
            Revenue from services provided  CLP   -    - 
                          
87.752.000-5  Granja Marina Tornagaleones S.A.  Common shareholder  Chile  Services provided  CLP   48    41 
                          
96.782.530-1  Inmobiliaria e Inversiones Asturias S.A.  Related  director  Chile  Revenue from services rendered selling tickets  CLP   -    25 
                          
76.335.600-0  Parque de Chile S.A.  Related  director  Chile  Revenue from services rendered selling tickets  CLP   9    13 
                          
96.989.370-3  Rio Dulce S.A.  Related  director  Chile  Revenue from services rendered selling tickets  CLP   3    18 
                          
Foreign  Inversora Aeronáutica Argentina  Related  director  Argentina  Property leases received  ARS$   -    (173)
                          
Foreign  TAM Aviação Executiva e Taxi Aéreo S/A  Common shareholder  Brazil  Services provided passenger transport  BRL   45    47 
            Services received of cargo transport  BRL   2    5 
            Services provided passenger transport  BRL   (10)   - 
            Services received  airport  BRL   -    (2)
                          
Foreign  Qatar Airways  Indirect shareholder  Qatar  Services provided by aircraft lease  US$   24,480    16,005 
            Interlineal received service  US$   (2,034)   (5,538)
            Interlineal provided  service  US$   3,451    6,539 
            Services provided of handling  US$   952    1,020 
            Services provided / received others  US$   1,200    1,563 

 

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.

 

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(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 9 months ended   For the 9 months ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
   ThUS$   ThUS$   ThUS$   ThUS$ 
   Unaudited 
                     
Remuneration   10,478    11,154    3,329    3,399 
Management fees   305    209    119    114 
Non-monetary benefits   1,228    577    454    163 
Short-term benefits   26,739    36,552    4,229    5,500 
Large-term benefits   8,577    -    -    - 
Share-based payments   3,296    (8,864)   -    (23,334)
Termination benefits   834    568    516    568 
Total   51,457    40,196    8,647    (13,590)

 

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.

 

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(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 September 30, 2018 (Unaudited)   2,932,896    -    -    -    2,932,896 
From July 1 to December 31, 2018   2,932,896    -    (171,419)   (1,168,700)   1,592,777 
From January 1 to September 30, 2019 (Unaudited)   1,592,777    93,481    -    (1,686,258)   - 

 

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 September 30, 2019 and as of December 31, 2018, the amount recorded is ThUS $ 652 and ThUS$ 7,735, respectively, classified under the line “Administrative expenses” of the Consolidated Income Statement by function.

 

(c)Subsidiaries compensation plans

 

(c.1)Stock Options

 

As indicated in Note 1, and the consequent resignation of the executives of Multiplus S.A. the option plans granted were canceled. (As of December 31, 2018, the options for current shares amounted to 247,500 shares 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 September 30, 2019 (Unaudited)   -    -    -    - 

 

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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 
   September 30,   December 31,   September 30,   December 31, 
Company  2019   2018   2019   2018 
   Unaudited       Unaudited     
Multiplus S.A.   -    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 there is no value recorded in liabilities and results.

 

(c.2) Payments based on restricted stock

 

As of September 30, 2019, payment contracts based on restricted shares signed with the executives of Multiplus S.A. were canceled, as described in Note 1.

 

       Not acquired due     
   Opening       to breach of employment   Closing 
   balance   Exercised   retention conditions   balance 
From January 1 to December 31, 2018   309,710    (83,958)   (8,916)   216,836 
From January 1 to September 30, 2019 (Unaudited)   216,836    (91,595)   (125,241)   - 

 

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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 
   September 30, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited 
         
Delta Airlines Inc. compensation   150,000    - 
Fuel hedge   2,165    45,838 
Hedging margin guarantees   -    1,573 
Currency derivatives   -    (1,149)
Taxes on financial transactions   (1,700)   (1,000)
Fuel derivatives premiums   (11,286)   (8,431)
Bank commissions, taxes paid and other   (4,519)   (6,473)
Guarantees   1,006    (14,655)
Court deposits   (18,243)   (25,457)
Total Other inflows (outflows) Operation flow   117,423    (9,754)
           
Tax paid on bank transaction   (1,921)   (1,866)
Others   -    2,282 
Total Other inflows (outflows) Investment flow   (1,921)   416 
           
Settlement of derivative contracts   (2,613)   (7,969)
Aircraft advance financing   (55,728)   - 
Total Other inflows (outflows) Financing flow   (58,341)   (7,969)

 

(c)Dividends:

 

   For the period ended 
   September 30, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited 
         
Latam Airlines Group S.A.   (54,580)   (46,591)
Multiplus S.A. (*)   -    (21,615)
Latam Airlines Perú S.A. (*)   (536)   - 
Total dividends paid   (55,116)   (68,206)

 

(*)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       September 30, 
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    64,000    (87,000)   (10,461)   8,278          -    375,538 
Bank loans   222,741    158,850    (106,139)   (7,903)   5,900    -    273,449 
Guaranteed obligations   2,534,021    180,390    (197,190)   (70,244)   (629,481)   -    1,817,496 
Other guaranteed obligations   673,452    -    (69,317)   (22,215)   21,938    -    603,858 
Obligation with the public   1,553,079    1,010,730    (231,490)   (94,484)   103,759    -    2,341,594 
Financial leases   1,624,854    -    (376,857)   (53,605)   752,283    -    1,946,675 
Other loans   252,858    27,864    (153,446)   (7,752)   7,127    -    126,651 
Lease liability   2,858,049    -    (292,082)   (130,542)   596,308    -    3,031,733 
Total Obligations with                                   
 financial institutions   10,119,775    1,441,834    (1,513,521)   (397,206)   866,112    -    10,516,994 

 

   As of   Cash flows   Non-Flow Movements   As of 
Obligations with  December 31,   Obtainment   Payment   Interest accrued       September 30, 
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    243,001    (95,000)   (7,530)   4,788    -    459,878 
Bank loans   321,633    74,663    (96,745)   (10,236)   9,376    -    298,691 
Guaranteed obligations   4,036,843    -    (238,217)   (90,724)   92,372    (1,163,805)   2,636,469 
Other guaranteed obligations   242,175    694,498    (251,715)   (9,819)   10,884    -    686,023 
Obligation with the public   1,584,066    -    -    (54,041)   63,515    -    1,593,540 
Financial leases   1,109,504    -    (574,080)   (55,448)   60,962    1,163,805    1,704,743 
Other loans   282,800    -    (65,011)   (12,786)   14,593    -    219,596 
Lease liability   3,155,081    -    (280,768)   (139,420)   189,339    -    2,924,232 
Total Obligations with                                   
 financial institutions   11,046,721    1,012,162    (1,601,536)   (380,004)   445,829    -    10,523,172 

 

(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 
   September 30, 
   2019   2018 
   ThUS$   ThUS$ 
   Unaudited 
         
Increases (payments)   (53,027)   (156,435)
Recoveries   206,568    52,057 
Total cash flows   153,541    (104,378)

 

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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   71,609 
Net cash flows from (used in) investment activities   53,888 
Net cash flows from (used in) financing activities   (45,680)
Effects of variation in the exchange rate on cash and cash equivalents   (79,817)
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 Assestment (IEnvA) whose scope is the international flights operated from Chile, the most advanced level of this certification; being the first in the continent and one of the four airlines in the world that have this certification.

 

140

 

 

-Maintenance of the Stage 1 Certification of IEnvA of our operation in Colombian, achieved in 2018
-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.
-Implementation of the Recycle Your Trip program, which seeks to manage the waste generated on board domestic flights in Chile. This program aims to incorporate a hub every 6 months.

 

It is highlighted that in 2019, LATAM Airlines Group maintained its inclusion for the sixth 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 October 15, 2019, LATAM Airlines Group S.A. received the resolution issued by the National Economic Prosecutor’s Office (FNE), which begins an investigation into the agreement between LATAM Airlines Group S.A. and Delta Airlines Inc, Cause Role No. 2085-19. The Company is currently cooperating with this process.

 

On November 12, 2019, LATAM gave notice to the trustee of the LATAM 2020 unsecured notes that LATAM will redeem the remaining US$262 million principal amount of outstanding notes. The terms of the redemption are described in the notice of redemption to be sent to registered holders on or about November 15, 2019. The redemption is subject to the receipt by the Company prior to the redemption date of sufficient funds from other funding sources.

 

After September 30, 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 consolidated interim financial statements of LATAM Airlines Group S.A. and Subsidiaries as of September 30, 2019, have been approved in the Extraordinary Board Session on November 12, 2019.

 

 

141