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

 

For the month of February 2008

Commission File Number 1-14728

 

Lan Airlines S.A.

(Translation of registrant's name into English)

 

Presidente Riesco 5711, Piso 20

Las Condes

Santiago, Chile

(Address of principal executive office)

 

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

Form 20-F      X     Form 40-F            

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

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

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes             No      X    

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-  

 

 

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FOR IMMEDIATE RELEASE

 

 

 

LAN AIRLINES REPORTS NET INCOME OF US$100.8 MILLION FOR 4Q07 and US$308.3 MILLION FOR FULL YEAR 2007

 

Santiago, Chile, January 29, 2008 – LAN Airlines S.A. (NYSE: LFL), one of Latin America’s leading passenger and cargo airlines, announced today its consolidated financial results for the fourth quarter and full year ended December 31, 2007. “LAN” or “the Company” makes reference to the consolidated entity, which includes several passenger and cargo airlines in Latin America. All figures were prepared in accordance with generally accepted accounting principles in Chile and are expressed in U.S Dollars.

HIGHLIGHTS

 

 

 

 

 

 

CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

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Management Comments on Fourth Quarter 2007 Results

 

LAN reported net and operating income of US$100.8 million and US$131.9 million, respectively, in the fourth quarter of 2007. Total revenues increased 22.6% during the quarter, while LAN’s operating margin decreased from 16.2% to 12.6%, mainly as a result of higher fuel costs. Considering the fuel hedging gain obtained in the fourth quarter 2007 (which is accounted for as non operating income), operating income would have amounted to US$152.7 million, an 11.5% increase over fourth quarter 2006, demonstrating LAN’s ability to operate successfully in a high fuel price environment.

 

Passenger revenues grew 24.9% during the quarter, due to a 14.5% expansion in capacity, and a 9.1% increase in revenues per ASK. The latter was driven by an 8.1% increase in yields, together with a 0.7 point increase in load factors from 76.2% to 76.9%. During the quarter, the Company managed its capacity in order to respond to demand growth and market opportunities. As a consequence, capacity increased proportionately on all of LAN’s routes, including long haul and regional routes as well as domestic routes within Chile, Peru and Argentina. During the quarter, yields increased mainly as a result of nominal fare increases, better revenue management practices on regional and long-haul routes and the increase in fuel surcharges due to higher fuel costs.

 

LAN’s strategy in the cargo business seeks to rationalize capacity expansion by focusing on the most profitable routes, as well as optimizing its fleet by maintaining the optimal mix of ACMI leases and its own Boeing 767 freighters. The implementation of this strategy during the fourth quarter of 2007 continues to achieve important profitability improvements. During the fourth quarter of 2007, cargo revenues rose 15.5% as capacity rose 9.2% and unit cargo revenues increased 5.8%. Higher revenues per ATK resulted mainly from a 9.2% increase in yields, which offset a decline in load factors from 78.0% to 75.6%. Yields increased during the quarter mainly driven by the implementation of certain revenue management initiatives and by higher fuel surcharges.

 

Operating expenses rose 27.8% compared to the fourth quarter of 2006, while costs per ATK (including net financial expenses) increased 17.2%. Higher fuel prices generated US$81.5 million in higher fuel costs for the quarter. Excluding fuel, unit costs increased 7.3%, mainly due to the impact of the appreciation of local currencies and of inflation on wages & benefits, as well as due to higher fleet costs.

 

The Company recorded a US$10.3 million non-operating loss in the fourth quarter of 2007 compared to a US$24.3 million non-operating loss in the fourth quarter of 2006. In the fourth quarter of 2007, interest expenses increased due to higher debt, related to fleet financing, while interest income increased due to higher cash balances resulting from the proceeds of the equity offering completed in June 2007. The Company recorded a US$20.8 million fuel hedging gain in the fourth quarter of 2007, compared to a US$1.0 million fuel hedging loss in the fourth quarter of 2006. LAN has hedged approximately 30% of its fuel requirements for the first quarter of 2008, approximately 40% for the second quarter of 2008 and approximately 48% for the second half of 2008. In addition, in the fourth quarter 2007, LAN recorded a US$25.0 million reserve related to the ongoing investigation by the European Commission for allegations of anti-competitive behavior in the cargo business.

 

LAN continues to maintain a solid financial position, with ample liquidity and a sound financing structure. At the end of the fourth quarter 2007 LAN had US$540 million in cash, cash equivalents

 

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and available credit lines. Additionally, the Company’s long-term debt only finances aircraft, has 12 to 18-year repayment profiles and features competitive interest rates.

 

During the quarter, LAN continued with its retrofit program to reconfigure all of its Boeing 767 passenger aircraft with the new Premium Business Class and upgraded Economy Class. As of December 31, 2007, fifteen of LAN’s 22 Boeing 767 passenger aircraft had this new configuration.

 

Consistent positive results and a solid balance sheet have enabled LAN to continue advancing on a number of long-term initiatives. These plans, which encompass all levels and business units, are aimed at improving LAN’s long-term strategic position by enabling the Company to address opportunities, strengthen its market position and increase competitiveness.

 

EBITDAR Calculation (1)

 

The following is a calculation of LAN’s EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rentals), which the Company considers useful indicators of operating performance.

 

EBITDAR (in US$ millions)

 

(1) EBITDA and EBITDAR are non-GAAP measures and should not be considered in isolation nor as a substitute for net income prepared in accordance with generally accepted accounting principles in Chile as a measure of operating performance. Furthermore, these calculations may not be comparable to similarly titled measures used by other companies.

 

Recent Events

 

New Business Model for Domestic/Regional Operations

During the fourth quarter, LAN continued to see the excellent results from the launch of its new business model for short-haul operations on domestic routes within Chile and Peru. Domestic traffic in Chile grew 26.1% during the quarter, while domestic load factors increased from 70.0% to 77.5%, largely driven by fare reductions of up to 35% on the lowest fare classes. At the same time, CASK in the domestic business continues to be reduced via a larger Airbus fleet, increased fleet utilization rates, longer flight legs, and lower distribution costs as a result of the reduction in commissions to agents and higher Internet sales. Internet sales in the Chilean domestic operations increased from 18% in December 2006 to 45% in December 2007.

 

Fleet Plan

During the quarter, LAN continued the expansion of its fleet. In the fourth quarter 2007, the Company received three Airbus A318 and two Airbus A320 aircraft destined for domestic and regional short haul operations. In addition, LAN took delivery of two Boeing 767-300 passenger aircraft for long-haul routes.

 

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LAN’s complete fleet plan and associated capital expenditures are shown in the table below.

 

Fleet Plan

 

* As of December 2007 only eight of these B737-200 were in operation.

 

Cargo Investigation

As previously reported, in February 2006 the European Commission, in conjunction with the Department of Justice of the United States, initiated a global investigation including a large number of international cargo airlines -- among them LAN Cargo S.A., LAN’s cargo subsidiary – for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets.

 

On December 26, 2007, the Directorate-General for Competition of the European Commission notified LAN Cargo S.A. and LAN of the initiation of proceedings against 25 cargo airlines, among them LAN Cargo S.A., for allegations of anti-competitive behavior in the air freight business. LAN is currently reviewing the terms of the notification. Given the current stage of the proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy judicial process. Notwithstanding the above, in the fourth quarter of 2007, LAN recorded a US$25.0 million reserve in Other Non-Operating Expenses in relation with this investigation.

 

Dividend Information

On December 21, 2007, LAN’s Board of Directors approved the payment of a second interim dividend corresponding to net income for fiscal year 2007, in the amount of US$0.35389 per share. This dividend was paid on January 17, 2008 to all shareholders of record as of January 11, 2008.

 

Outlook

 

The actions mentioned under “Recent Events” above are part of a broad set of initiatives aimed at strengthening LAN’s future performance. The Company’s strong full-year 2007 performance provides a solid base for long-term growth and profitability. As a consequence, LAN is in a position to plan for capacity expansion in response to growth opportunities, while leveraging opportunities to improve its cost performance. Combined, LAN believes that these elements will enable the Company to consolidate its position as Latin America’s leading international carrier.

 

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LAN has embarked on a very significant fleet expansion program, which included the delivery of a total of 11 passenger aircraft in 2007 and of 22 passenger aircraft in 2008, partially to replace the Boeing 737-200 aircraft which will be phased out during the first half of 2008. In addition to more aircraft, ASK growth will be enhanced as a result of increased aircraft utilization and, to a lesser extent, the densification of the current fleet. Overall, LAN expects passenger ASK growth to be between 20-22% in 2008. LAN expects growth in the cargo business in 2008 to be largely driven by capacity in the belly space of passenger aircraft, as well as from possible additional ACMI leases in 2008. As a result, the Company estimates cargo ATK growth of 8-10% in 2008.

 

Consolidated Fourth Quarter Results

Net income for the fourth quarter of 2007 amounted to US$100.8 million compared to net income of US$93.6 million in the same period of 2006, an increase of 7.7%. Net margin for the quarter decreased from 11.0% in 2006 to 9.6% in 2007.

Operating income amounted to US$131.9 million in the fourth quarter of 2007 as compared to operating income of US$138.0 million in the fourth quarter of 2006. Operating margin for the quarter decreased from 16.2% to 12.6%, mainly as a result of higher fuel costs.

 

Total operating revenues grew 22.6% compared to the fourth quarter of 2006, reaching US$1,046.1 million. This reflected a:

 

 

Passenger and cargo revenues accounted for 61% and 33% of total revenues for the quarter, respectively.

 

Passenger revenues were higher driven by a 15.5% increase in traffic, coupled with an 8.1% increase in yields. Load factors increased from 76.2% to 76.9%, as traffic outpaced the 14.5% increase in capacity. Overall, revenues per ASK increased 9.1%. Traffic grew as a result of a 26.1% increase in Chilean domestic traffic, and a 13.8% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 85% of total passenger traffic during the quarter. Yields increased 8.1% mainly as a result of nominal fare increases, better revenue management practices on regional and long-haul routes, and the increase in fuel surcharges due to higher fuel costs.

 

Cargo revenues increased 15.5% driven by a 5.8% increase in traffic and a 9.2% increase in yields. Yields increased primarily due to the implementation during the quarter of certain revenue management initiatives and to higher fuel surcharges. Capacity during the quarter increased 9.2%. As a consequence, load factors decreased from 78.0% to 75.6%, due to the effect of stronger currencies and higher fuel prices on some northbound export markets. Revenues per ATK increased by 5.8% compared to the fourth quarter of 2006.

 

Other revenues increased 47.9%, mainly driven by increased revenues from on board sales and aircraft rentals, maintenance and storage and custom brokerage services to third parties. In addition, the Company received US$11.3 million from Airbus related to a change in the delivery schedule for certain Airbus A318 aircraft. These effects were partly offset by the sale of the subsidiaries of LAN Logistics Corp, including the Miami-based companies LAN Box Inc. and courier company SkyNet SA, during the second quarter of 2007, which were not part of the Company’s core airline business.

 

Total operating expenses increased 27.8% during the quarter, while unit (ATK) costs increased 17.2% as compared to the fourth quarter 2006. Higher jet fuel prices during the quarter led to

 

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approximately US$81.5 million in higher fuel costs. Excluding fuel, unit costs increased 7.3%. Changes in operating expenses were driven by:

 

 

Non-operating results for the fourth quarter of 2007 amounted to a US$10.3 million loss compared to a US$24.3 million loss in the fourth quarter of 2006.

 

Consolidated Full Year 2007 Results

Net income for the full-year 2007 amounted to US$308.3 million compared to net income of US$241.3 million in the same period of 2006, an increase of 27.8%. Excluding extraordinary items that amounted to US$28.3 million during the first half of 2006, net income rose 44.8% and net margin increased from 7.0% in 2006 to 8.7% in 2007.

Operating income amounted to US$413.4 million in 2007 compared to US$302.6 million in 2006. Operating margin for the year increased from 10.0% to 11.7%.

 

Total operating revenues grew 16.2% compared to 2006, reaching US$3.5 billion. This reflected a:

 

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Passenger and cargo revenues accounted for 62% and 33% of total revenues for the period, respectively.

 

Passenger revenues grew 21.2% driven by a 23.1% increase in traffic, partly offset by a 1.6% decrease in yields. Load factors increased from 73.9% to 76.1%, as traffic outpaced the 19.5% increase in capacity. Overall, revenues per ASK increased 1.4%. Traffic grew as a result of a 23.5% increase in Chilean domestic traffic and a 23.1% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 87% of total passenger traffic during the period. Yields decreased 1.6% due to fare decreases on regional and domestic routes related to the new business model for short-haul operations, partly offset by nominal fare increases, improved revenue management and higher fuel surcharges in the fourth quarter of 2007.

 

Cargo revenues increased 7.6% mainly due to a 4.8% increase in traffic, coupled with a 2.7% increase in yields. Yields increased due to strong demand on southbound routes and to the implementation of certain revenue management initiatives as well as higher fuel surcharges. Traffic growth was exceeded by a 6.9% capacity increase. As a consequence, load factors decreased from 75.9% to 74.4%. Revenues per ATK marginally increased 0.7% compared to full-year 2006.

 

Other revenues increased 17.3% driven by increased revenues from on-board sales and aircraft rentals, maintenance and storage, custom brokerage and handling services to third parties, partially offset by the sale in the second quarter of 2007 of the subsidiaries of Lan Logistics Corp, which were not part of the Company’s core airline business. In addition, the Company received US$18.6 million from Airbus related to a change in the delivery schedule of certain Airbus A318 aircraft.

 

Total operating expenses increased 13.9% during the period, while unit (ATK) costs increased 2.8%. Higher jet fuel prices during the period led to approximately US$78.5 million in higher fuel costs. Excluding fuel, unit costs were stable during the year, decreasing 0.2%. Changes in operating expenses were driven by:

 

 

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Non-operating results for 2007 amounted to a US$45.6 million loss compared to a US$15.7 million loss in 2006.

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About LAN

LAN Airlines is one of the leading airlines in Latin America. “LAN” makes reference to the consolidated entity that includes LAN Airlines, LAN Express, LAN Peru, LAN Ecuador, and LAN Argentina, as well as LAN Cargo and its affiliates. The LAN Alliance serves 15 destinations in Chile, 12 destinations in Peru, ten destinations in Argentina, two destinations in Ecuador, 15 destinations in other Latin American countries and the Caribbean, three destinations in the United States, two destinations in Europe and four destinations in the South Pacific, as well as 52 additional international destinations through its various code-share agreements. Currently, the LAN Alliance operates 73 passenger aircraft and 10 dedicated freighters.

 

LAN Airlines is a member of oneworld (TM), the world’s leading global airline alliance. It has bilateral commercial agreements with oneworld partners American Airlines, British Airways, Iberia and Qantas, as well as with Alaska Airlines, AeroMexico, Mexicana, TAM, Korean Air and JAL. For more information visit www.lan.com or www.oneworldalliance.com.

 

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Note on Forward-Looking Statements

This report contains forward-looking statements. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other similar expressions. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors and uncertainties include in particular those described in the documents we have filed with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them, whether in light of new information, future events or otherwise.

 

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CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

 

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Page 10

 

 

 

 

 

CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

 

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Page 11

 

 

 

 

CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

 

 

 

 

 

 

 

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Page 12

 

CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

 

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Page 13

CONTACTS IN CHILE	CONTACTS IN NEW YORK
Gisela Escobar – Head of Investor Relations	Maria Barona/Melanie Carpenter
gisela.escobar@lan.com	lan@i-advize.com
Juan José Irarrázaval – Investor Relations Analyst	i-advize Corporate Communications, Inc.
juanjose.irarrazavalg@lan.com	Tel: (212) 406-3690
Tel: (56-2) 565-3944/8775

 

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SIGNATURE

 

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: February 1, 2008