UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

March 2023

 

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: March 10, 2023 LATAM AIRLINES GROUP S.A.
     
  By: /s/ Ramiro Alfonsín
  Name:  

Ramiro Alfonsín

  Title:

CFO

 

 

2

 

 

Exhibit 99.1

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2022

 

CONTENTS

 

Report of Independent Auditors F-2
Consolidated Statements of Financial Position F-4
Consolidated Statements of Income by Function F-6
Consolidated Statements of Comprehensive Income F-7
Consolidated Statements of Changes in Equity F-8
Consolidated Statements of Cash Flows - Direct Method F-10
Notes to the Consolidated Financial Statements F-11 to F-155

 

CLP - CHILEAN PESO
UF - CHILEAN UNIDAD DE FOMENTO
ARS - ARGENTINE PESO
US$ - united states dollar
THUS$ - THOUSANDS OF UNITED STATES DOLLARS
mUS$ - millions of united states dollars
COP - COLOMBIAN PESO
brl/R$ - braZILIAN REAL
thr$ - Thousands of Brazilian reaL

 

F-1

 

 

Report of Independent Auditors

 

 

 

F-2

 

 

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

 

Notes   Page
1 - General information   F-11
2 - Summary of significant accounting policies   F-14
2.1. Basis of Preparation   F-14
2.2. Basis of Consolidation   F-24
2.3. Foreign currency transactions   F-25
2.4. Property, plant and equipment   F-26
2.5. Intangible assets other than goodwill   F-27
2.6. Borrowing costs   F-28
2.7. Losses for impairment of non-financial assets   F-28
2.8. Financial assets   F-28
2.9. Derivative financial instruments and embedded derivatives   F-29
2.10. Inventories   F-30
2.11. Trade and other accounts receivable   F-31
2.12. Cash and cash equivalents   F-31
2.13. Capital   F-31
2.14. Trade and other accounts payables   F-31
2.15. Interest-bearing loans   F-31
2.16. Current and deferred taxes   F-32
2.17. Employee benefits   F-33
2.18. Provisions   F-33
2.19. Revenue from contracts with customers   F-34
2.20. Leases   F-35
2.21. Non-current assets (or disposal groups) classified as held for sale   F-37
2.22. Maintenance   F-37
2.23. Environmental costs   F-37
3 - Financial risk management   F-38
3.1. Financial risk factors   F-38
3.2. Capital risk management   F-53
3.3. Estimates of fair value   F-53
4 - Accounting estimates and judgments   F-56
5 - Segment information   F-59
6 - Cash and cash equivalents   F-60
7 - Financial instruments   F-61
8 - Trade and other accounts receivable current, and non-current accounts receivable   F-62
9 - Accounts receivable from/payable to related entities   F-65
10 - Inventories   F-66
11 - Other financial assets   F-67
12 - Other non-financial assets   F-68
13 - Non-current assets and disposal group classified as held for sale   F-69
14 - Investments in subsidiaries   F-70
15 - Intangible assets other than goodwill   F-73
16 - Property, plant and equipment   F-75
17 - Current and deferred tax   F-85
18 - Other financial liabilities   F-89
19 - Trade and other accounts payables   F-99
20 - Other provisions   F-101
21 - Other non financial liabilities   F-103
22 - Employee benefits   F-104
23 - Accounts payable, non-current   F-106
24 - Equity   F-106
25 - Revenue   F-112
26 - Costs and expenses by nature   F-112
27 - Other income, by function   F-114
28 - Foreign currency and exchange rate differences   F-115
29 - Earning (Loss) per share   F-122
30 - Contingencies   F-123
31 - Commitments   F-144
32 - Transactions with related parties   F-146
33 - Share based payments   F-148
34 - Statement of cash flows   F-148
35 - The environment   F-153
36 - Events subsequent to the date of the financial statements   F-155

 

F-3

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

ASSETS

 

   Note   As of
December 31,
2022
   As of
December 31,
2021
 
       ThUS$   ThUS$ 
Cash and cash equivalents            
Cash and cash equivalents  6 - 7    1,216,675    1,046,835 
Other financial assets  7 - 11    503,515    101,138 
Other non-financial assets  12    191,364    108,368 
Trade and other accounts receivable  7 - 8    1,008,109    881,770 
Accounts receivable from related entities  7 - 9    19,523    724 
Inventories  10    477,789    287,337 
Current tax assets  17    33,033    41,264 
Total current assets other than non-current assets (or disposal groups) classified as held for sale       3,450,008    2,467,436 
Non-current assets (or disposal groups) classified as held for sale  13    86,416    146,792 
               
Total current assets       3,536,424    2,614,228 
               
Non-current assets              
Other financial assets  7 - 11    15,517    15,622 
Other non-financial assets  12    148,378    125,432 
Accounts receivable  7 - 8    12,743    12,201 
Intangible assets other than goodwill  15    1,080,386    1,018,892 
Property, plant and equipment  16    8,411,661    9,489,867 
Deferred tax assets  17    5,915    15,290 
Total non-current assets       9,674,600    10,677,304 
Total assets       13,211,024    13,291,532 

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-4

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY

 

   Note   As of
December 31,
2022
   As of
December 31,
2021
 
       ThUS$   ThUS$ 
LIABILITIES            
Current liabilities            
Other financial liabilities  7 - 18    802,841    4,453,451 
Trade and other accounts payables  7 - 19    1,627,992    4,839,251 
Accounts payable to related entities  7 - 9    12    661,602 
Other provisions  20    14,573    27,872 
Current tax liabilities  17    1,026    675 
Other non-financial liabilities  21    2,642,251    2,332,576 
Total current liabilities       5,088,695    12,315,427 
               
Non-current liabilities              
Other financial liabilities  7 - 18    5,979,039    5,948,702 
Accounts payable  7 - 23    326,284    472,426 
Other provisions  20    927,964    712,581 
Deferred tax liabilities  17    344,625    341,011 
Employee benefits  22    93,488    56,233 
Other non-financial liabilities  21    420,208    512,056 
Total non-current liabilities       8,091,608    8,043,009 
Total liabilities       13,180,303    20,358,436 
               
EQUITY              
Share capital  24    13,298,486    3,146,265 
Retained earnings/(losses)  24    (7,501,896)   (8,841,106)
Treasury Shares  24    (178)   (178)
Other equity  24    39    - 
Other reserves  24    (5,754,173)   (1,361,529)
Parent’s ownership interest       42,278    (7,056,548)
Non-controlling interest  14    (11,557)   (10,356)
Total equity       30,721    (7,066,904)
Total liabilities and equity       13,211,024    13,291,532 

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-5

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME BY FUNCTION

 

       For the year ended
December 31,
 
   Note   2022   2021 
       ThUS$   ThUS$ 
         
Revenue  5 - 25    9,362,521    4,884,015 
Cost of sales  26    (8,103,483)   (4,963,485)
Gross margin       1,259,038    (79,470)
               
Other income  27    154,286    227,331 
Distribution costs  26    (426,599)   (291,820)
Administrative expenses  26    (576,429)   (439,494)
Other expenses  26    (531,575)   (535,824)
Gain (losses) from restructuring activities  26    1,679,934    (2,337,182)
Other gains/(losses)  26    (347,077)   30,674 
Income (Loss) from operation activities       1,211,578    (3,425,785)
               
Financial income  26    1,052,295    21,107 
Financial costs  26    (942,403)   (805,544)
Foreign exchange        25,993    131,408 
Result of indexation units       (1,412)   (5,393)
Income (Loss) before taxes       1,346,051    (4,084,207)
Income tax (expense) / benefits  17    (8,914)   (568,935)
               
NET INCOME (LOSS)       1,337,137    (4,653,142)
               
Income (Loss) attributable to owners of the parent       1,339,210    (4,647,491)
Loss attributable to non-controlling interest  14    (2,073)   (5,651)
               
Net Income (Loss)       1,337,137    (4,653,142)
               
EARNING (LOSS) PER SHARE              
Basic earning (loss) per share (US$)  29    0.013861    (7.66397)
Diluted earning (loss) per share (US$)  29    0.013592    (7.66397)

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-6

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

       For the year ended
December 31,
 
   Note   2022   2021 
       ThUS$   ThUS$ 
         
NET INCOME/(LOSS)       1,337,137    (4,653,142)
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  24    (9,935)   10,018 
Total other comprehensive (loss) that will not be reclassified to income before taxes       (9,935)   10,018 
Components of other comprehensive income that will be reclassified to income before taxes              
Currency translation differences Gains (losses) on currency translation, before tax       (32,563)   20,008 
Other comprehensive loss, before taxes, currency translation differences       (32,563)   20,008 
Cash flow hedges              
Gains (losses) on cash flow hedges before taxes  24    52,017    38,870 
Reclassification adjustment on cash flow hedges before tax  24    31,293    (16,641)
Amounts removed from equity and included in the carrying amount of non-financial assets (liabilities) that were acquired or incurred through a highly probable hedged forecast transaction, before tax  24    (8,143)   - 
Other comprehensive income (losses), before taxes, cash flow hedges       75,167    22,229 
Change in value of time value of options              
Losses on change in value of time value  of options before tax  24    (24,005)   (23,692)
Reclassification adjustments on change in value of time value of options before tax  24    19,946    6,509 
Other comprehensive income (losses), before taxes, changes in the time value of the options       (4,059)   (17,183)
Total other comprehensive income (loss) that will be reclassified to income before taxes       38,545    25,054 
Other components of other comprehensive income (loss), before taxes        28,610    35,072 
Income tax relating to other comprehensive income that will not be reclassified to income              
Income (loss) tax relating to new measurements on defined benefit plans  17    567    (2,783)
Income tax relating to other comprehensive income (loss) that will not be reclassified to income       567    (2,783)
Income tax relating to other comprehensive income (loss) that will be reclassified to income              
Income tax related to cash flow hedges in other comprehensive income (loss)       (235)   (58)
Income taxes related to components of other comprehensive loss will be reclassified to income       (235)   (58)
Total Other comprehensive income (loss)       28,942    32,231 
Total comprehensive income (loss)       1,366,079    (4,620,911)
Comprehensive income (loss) attributable to owners of the parent       1,367,315    (4,616,914)
Comprehensive income (loss) attributable to non-controlling interests       (1,236)   (3,997)
TOTAL COMPREHENSIVE INCOME (LOSS)       1,366,079    (4,620,911)

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-7

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

       Attributable to owners of the parent         
                Change in other reserves                 
  Note   Share
capital
    Treasury
shares
   Currency
translation
reserve
   Cash flow
hedging
reserve
   Gains
(Losses)
from changes
in the time
value of the
options
   Actuarial
gains
or losses on
defined
benefit
plans
reserve
   Shares
based
payments
reserve
   Other
sundry
reserve
   Total
other
reserve
   Retained
earnings/(losses)
   Parent’s
ownership
interest
   Non-
controlling
interest
   Total
equity
 
      ThUS$     ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$ 
Equity as of January 1, 2022      3,146,265     (178)   (3,772,159)   (38,390)   (17,563)   (18,750)   37,235    2,448,098    (1,361,529)   (8,841,106)   (7,056,548)   (10,356)   (7,066,904)
Total increase (decrease) in equity                                                                     
Net income/(loss) for the period  24   -     -    -    -    -    -    -    -    -    -    -    -   - 
Other comprehensive income      -     -    -   -    -   -   -    -    -    -    -    -    - 
Total comprehensive income      -     -    -   -    -   -   -    -    -    -    -    -   - 
Transactions with shareholders                                                                     
Increase (decrease) through transfers and other changes, equity  24-33   -     -    -    -    -    -    -    -    -    -    -    -    - 
Total transactions with shareholders      -     -    -    -    -    -    -    -    -    -    -    -    - 
Closing balance as of december 31, 2022 (Unaudited)     

3,146,265

     (178) 

(3,772,159

)   (38,390)   (17,563)   (18,750)   37,235    2,448,098   (1,361,529)   (8,841,106)   (7,056,548)   (10,356)   (7,066,904)

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-8

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

      Attributable to owners of the parent         
              Change in other reserves                 
                      Gains (Losses)   Actuarial gains                             
                      from changes   or losses on                             
              Currency   Cash flow   in the time   defined benefit   Shares based   Other   Total       Parent’s   Non-     
      Share   Treasury   translation   hedging   value of the   plans   payments   sundry   other   Retained   ownership   controlling   Total 
   Note  capital   shares   reserve   reserve   options   reserve   reserve   reserve   reserve   earnings/(losses)   interest   interest   equity 
      ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Equity as of January 1, 2021      3,146,265    (178)   (3,790,513)   (60,941)   -    (25,985)   37,235    2,452,019    (1,388,185)   (4,193,615)   (2,435,713)   (6,672)   (2,442,385)
Increase (decrease) by application of new accounting standards  2-25   -    -    -    380    (380)   -    -    -    -    -    -    -    - 
Initial balance restated      3,146,265    (178)   (3,790,513)   (60,561)   (380)   (25,985)   37,235    2,452,019    (1,388,185)   (4,193,615)   (2,435,713)   (6,672)   (2,442,385)
Total increase (decrease) in equity                                                                    
Net income/(loss) for the year  25   -    -    -    -    -    -    -    -    -    (4,647,491)   (4,647,491)   (5,651)   (4,653,142)
Other comprehensive income      -    -    18,354    22,171    (17,183)   7,235    -    -    30,577    -    30,577    1,654    32,231 
Total comprehensive income      -    -    18,354    22,171    (17,183)   7,235    -    -    30,577    (4,647,491)   (4,616,914)   (3,997)   (4,620,911)
Transactions with shareholders                                                                    
Increase (decrease) through transfers and other changes, equity  25-34   -    -    -    -    -    -    -    (3,921)   (3,921)   -    (3,921)   313    (3,608)
Total transactions with shareholders      -    -    -    -    -    -    -    (3,921)   (3,921)   -    (3,921)   313    (3,608)
Closing balance as of December 31, 2021      3,146,265    (178)   (3,772,159)   (38,390)   (17,563)   (18,750)   37,235    2,448,098    (1,361,529)   (8,841,106)   (7,056,548)   (10,356)   (7,066,904)

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-9

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS - DIRECT METHOD

 

       For the year ended
December 31,
 
   Note   2022   2021 
       ThUS$   ThUS$ 
Cash flows from operating activities            
Cash collection from operating activities            
Proceeds from sales of goods and services        10,549,542    5,359,778 
Other cash receipts from operating activities        117,118    52,084 
Payments for operating activities               
Payments to suppliers for the supply goods and services   34    (9,113,130)   (4,391,627)
Payments to and on behalf of employees        (1,039,336)   (941,068)
Other payments for operating activities        (272,823)   (156,395)
Income taxes (paid)        (14,314)   (9,437)
Other cash inflows (outflows)   34    (130,260)   (87,576)
                
Net cash (outflow) inflow from operating activities        96,797    (174,241)
Cash flows from investing activities               
Cash flows from losses of control of subsidiaries or other businesses        -    752 
Other cash receipts from sales of equity or debt instruments of other entities        417    35 
Other payments to acquire equity or debt instruments of other entities        (331)   (208)
Amounts raised from sale of property, plant and equipment        56,377    105,000 
Purchases of property, plant and equipment        (780,538)   (597,103)
Purchases of intangible assets        (50,116)   (88,518)
Interest received        18,934    9,056 
Other cash inflows (outflows)   34    6,300    18,475 
                
Net cash (outflow) inflow from investing activities        (748,957)   (552,511)
                
Proceeds from the issuance of shares   34    549,038    - 
Amounts from the issuance of other equity instruments   34    3,202,790    - 
Amounts raised from long-term loans   34    2,361,875    - 
Amounts raised from short-term loans   34    4,856,025    661,609 
Loans from Related Entities   32    770,522    130,102 
Loans repayments   34    (8,759,413)   (463,048)
Payments of lease liabilities   34    (131,917)   (103,366)
Payments of loans to related entities   34    (1,008,483)   - 
Dividends paid        -    - 
Interest paid        (521,716)   (104,621)
Other cash (outflows) inflows   34    (463,766)   (11,034)
Net cash inflow (outflow) from financing activities        854,955    109,642 
Net (decrease) increase in cash and cash equivalents before effect of exchanges rate change        202,795    (617,110)
Effects of variation in the exchange rate on cash and cash equivalents        (32,955)   (31,896)
Net (decrease) increase in cash and cash equivalents        169,840    (649,006)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR   6    1,046,835    1,695,841 
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR   6    1,216,675    1,046,835 

 

The accompanying Notes 1 to 36 form an integral part of these consolidated financial statements.

 

F-10

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2022

 

NOTE 1 - GENERAL INFORMATION

 

LATAM Airlines Group S.A. (“LATAM” or the “Company”) is an open stock company which holds the values inscribed in the Registro de Valores of 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. Latam’s ADR are currently trading in the United States of America on the OTC (Over-The-Counter) markets. LATAM Airlines Group S.A. and certain of its direct and indirect affiliates announced their emergence on November 3, 2022, from their reorganization proceedings in the United States of America under Chapter 11 of Title 11 of the United States Code at the United States Bankruptcy Court for the Southern District of New York (the Chapter 11 Proceedings”)

 

Its main business is the air transport of passengers and cargo, both in the domestic markets of Chile, Peru, 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, Argentine 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 Presidente Riesco No. 5711, Las Condes commune.

 

As of December 31, 2022, the Company’s statutory capital is represented by 606,407,693,000 ordinary shares without nominal value. Of such amount, as of said date, 605,231,854,725 shares were subscribed and paid. The foregoing, considering the capital increase approved by the shareholders of the company at an extraordinary meeting held on July 5, 2022, in the context of the implementation of its reorganization plan approved and confirmed in the Chapter 11 Proceedings.

 

The major shareholders of the Company considering the total amount of subscribed and paid shares are Banco de Chile on behalf of State Street which owns 46,96%, Banco de Chile on behalf of Non-Resident Third Parties with 12.68%, Delta Air Lines with 10.03% and Qatar Airways with 10,02% ownership (9.999999992% considering the total amount of authorized shares).

 

As of December 31, 2022, the Company had a total of 2,092 shareholders in its registry. At that date, approximately 0.01% of the Company’s capital stock was in the form of ADRs.

 

During 2022, the Company had an average of 30,877 employees, ending this year with a total number of 32,507 people, distributed in 4,627 Administration employees, 16,803 in Operations, 7,423 Cabin Crew and 3,654 Command crew.

 

F-11

 

 

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

 

a)Percentage ownership

 

      Country  Functional   As December 31, 2022   As December 31, 2021 
Tax No.  Company  of origin  Currency   Direct   Indirect   Total   Direct   Indirect   Total 
             %   %   %   %   %   % 
                                   
96.969.680-0  Lan Pax Group S.A. and Subsidiaries  Chile   US$    99.9959    0.0041    100.0000    99.8361    0.1639    100.0000 
Foreign  Latam Airlines Perú S.A.  Peru   US$    23.6200    76.1900    99.8100    23.6200    76.1900    99.8100 
93.383.000-4  Lan Cargo S.A.  Chile   US$    99.8940    0.0041    99.8981    99.8940    0.0041    99.8981 
Foreign  Connecta Corporation  U.S.A.   US$    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
Foreign  Prime Airport Services Inc. and Subsidiary  U.S.A.   US$    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
96.951.280-7  Transporte Aéreo S.A.  Chile   US$    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
96.631.520-2  Fast Air Almacenes de Carga S.A.  Chile   CLP    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
Foreign  Laser Cargo S.R.L.  Argentina   ARS    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
Foreign  Lan Cargo Overseas Limited and Subsidiaries  Bahamas   US$    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidiary  Chile   US$    0.0000    100.0000    100.0000    0.0000    100.0000    100.0000 
96.575.810-0  Inversiones Lan S.A.  Chile   US$    99.9000    0.1000    100.0000    99.9000    0.1000    100.0000 
96.847.880-K  Technical Trainning LATAM S.A.  Chile   CLP    99.8300    0.1700    100.0000    99.8300    0.1700    100.0000 
Foreign  Latam Finance Limited  Cayman Island   US$    100.0000    0.0000    100.0000    100.0000    0.0000    100.0000 
Foreign  Peuco Finance Limited  Cayman Island   US$    100.0000    0.0000    100.0000    100.0000    0.0000    100.0000 
Foreign  Profesional Airline Services INC.  U.S.A.   US$    100.0000    0.0000    100.0000    100.0000    0.0000    100.0000 
Foreign  Jarletul S.A.  Uruguay   US$    0.0000    100.0000    100.0000    99.0000    1.0000    100.0000 
Foreign  LatamTravel S.R.L.  Bolivia   US$    99.0000    1.0000    100.0000    99.0000    1.0000    100.0000 
76.262.894-5  Latam Travel Chile II S.A.  Chile   US$    99.9900    0.0100    100.0000    99.9900    0.0100    100.0000 
Foreign  Latam Travel S.A.  Argentina   ARS    94.0100    5.9900    100.0000    0.0000    100.0000    100.0000 
Foreign  TAM S.A. and Subsidiaries (*)  Brazil   BRL    63.0901    36.9099    100.0000    63.0901    36.9099    100.0000 

 

(*)As of December 31, 2022, the indirect participation percentage on TAM S.A. and Subsidiaries is 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 arises 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.

 

F-12

 

 

b)Financial Information

 

      Statement of financial position   Net Income 
              For the period ended 
              December 31, 
      As of December 31, 2022   As of December 31, 2021   2022   2021 
Tax No.  Company  Assets   Liabilities   Equity   Assets   Liabilities   Equity   Gain /(loss ) 
      ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                                    
96.969.680-0  Lan Pax Group S.A. and Subsidiaries (*)   392,232    1,727,968    (1,342,687)   432,271    1,648,715    (1,236,243)   (120,717)   (7,289)
Foreign  Latam Airlines Perú S.A.   335,773    281,178    54,595    484,388    417,067    67,321    (12,726)   (109,392)
93.383.000-4  Lan Cargo S.A.   394,378    212,094    182,284    721,484    537,180    184,304    (1,230)   1,590 
Foreign  Connecta Corporation   78,905    22,334    56,571    61,068    19,312    41,756    14,814    1,169 
Foreign  Prime Airport Services Inc. and Subsidiary (*)   25,118    24,325    813    24,654    25,680    (1,026)   1,838    190 
96.951.280-7  Transporte Aéreo S.A.   283,166    177,109    106,057    471,094    327,955    143,139    (36,190)   (56,135)
96.631.520-2  Fast Air Almacenes de Carga S.A.   16,150    12,623    3,527    18,303    10,948    7,355    1,154    48 
Foreign  Laser Cargo S.R.L.   (3)   -    (3)   (5)   -    (5)   -    - 
Foreign  Lan Cargo Overseas Limited and Subsidiaries (*)   35,991    15,334    20,656    36,617    14,669    21,940    (1,287)   (806)
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidiary (*)   220,144    148,489    11,661    202,402    113,930    23,563    (11,901)   (54,961)
96.575.810-0  Inversiones Lan S.A.    1,281    56    1,225    1,284    45    1,239    (14)   (90)
96.847.880-K  Technical Trainning LATAM S.A.   1,417    1,110    307    2,004    467    1,537    77    181 
Foreign  Latam Finance Limited   3,011    211,517    (208,506)   1,310,733    1,688,821    (378,088)   169,582    (104,512)
Foreign  Peuco Finance Limited   -    -    -    1,307,721    1,307,721    -    -    - 
Foreign  Profesional Airline Services INC.   56,895    53,786    3,109    61,659    58,808    2,851    258    278 
Foreign  Jarletul S.A.   16    1,109    (1,093)   24    1,116    (1,092)   (2)   (50)
Foreign  LatamTravel S.R.L.   92    5    87    64    132    (68)   154    (23)
76.262.894-5  Latam Travel Chile II S.A.   368    1,234    (866)   588    1,457    (869)   2    29 
Foreign  Latam Travel S.A.   7,303    2,715    4,588    3,778    6,135    2,357    (6,187)   (2,804)
Foreign  TAM S.A. and
Subsidiaries (*)
   3,497,848    4,231,547    (733,699)   2,608,859    3,257,148    (648,289)   (69,932)   (756,633)

 

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

 

In addition, special purpose entities have been consolidated: 1. Chercán Leasing Limited, intended to finance advance payments of aircraft; 2. Guanay Finance Limited, intended for the issue of a securitized bond with future credit card payments; 3. Private investment funds; 4. Vari Leasing Limited, Yamasa Sangyo Aircraft LA1 Kumiai, Yamasa Sangyo Aircraft LA2 Kumiai, earmarked for aircraft financing. These companies have been consolidated as required by IFRS 10.

 

All entities over which Latam has control have been included in the consolidation. The Company has analyzed the control criteria in accordance with the requirements of IFRS 10.

 

Changes occurred in the consolidation perimeter between January 1, 2021 and December 31, 2022, are detailed below:

 

(1)Incorporation or acquisition of companies

 

-On December 22, 2022, LATAM Airlines Group S.A. made the purchase of 1,390,468,967 preferred shares of Latam Travel S.A. Consequently, the shareholding composition of Latam Travel S.A. is as follows: Lan Pax Group S.A. with 5.69%, Inversora Cordillera S.A. with 0.30% and LATAM Airlines Group S.A. with 94.01%. These transactions were between LATAM Airlines Group entities and therefore did not generate any effects within the consolidated financial statements.

 

-On January 21, 2021, Transporte Aéreos del Mercosur S.A. puchased 2,392,166 preferred shares of Inversora Cordillera S.A. from a non-controlling shareholder. Consequently the shareholding composition of Inversora Cordillera S.A. is as follows: Lan Pax Group S.A. with 90.5% and Transporte Aéreos del Mercosur S.A. with 9.5%.

 

-On January 21, 2021, Transporte Aéreos del Mercosur S.A. purchased 53,376 preferred shares of Lan Argentina S.A. from a non-controlling shareholder. Consequently the shareholding composition of Lan Argentina S.A. is as follows: Inversora Cordillera S.A. with 95%, Lan Pax Group S.A. with 4% and Transporte Aéreos del Mercosur S.A. with 1%.

 

F-13

 

 

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

 

These consolidated financial statements of LATAM Airlines Group S.A. as of December 31, 2022 and 2021, for the three years ended December 31, 2022 and have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) and with the interpretations issued by the interpretations committee of the International Financial Reporting Standards (IFRIC).

 

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

 

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

 

The consolidated financial statements have been prepared in accordance with the accounting policies used by the Company for the 2021 consolidated financial statements, except for the standards and interpretations adopted as of January 1, 2022.

 

(a)Application of new standards for the year 2022:

 

(a.1.)Accounting pronouncements with implementation effective from January 1, 2022:

 

   Date of issue  Effective Date:
(i) Standards and amendments      
       
Amendment to IFRS 3: Business combinations.  May 2020  01/01/2022
       
Amendment to IAS 37: Provisions, contingent liabilities and contingent assets.  May 2020  01/01/2022
       
Amendment to IAS 16: Property, plant and equipment.  May 2020  01/01/2022
       
Improvements to International Financial Reporting Standards Financial (2018-2020 cycle) IFRS 1: First-time adoption of international financial reporting standards, IFRS 9: Financial Instruments, illustrative examples accompanying IFRS 16: Leases, IAS 41: Agriculture  May 2020  01/01/2022

 

The application of these accounting pronouncements as of January 1, 2022, had no significant effect on the Company’s consolidated financial statements.

 

F-14

 

 

(b) Accounting pronouncements not in force for the financial year beginning on January 1, 2022:

 

  Date of issue   Effective Date:  
(i) Standards and amendments        
         
Amendment to IAS 12: Income taxes.   May 2021   01/01/2023
         
Amendment to IAS 8: Accounting policies, changes in accounting estimates and error.   February 2021   01/01/2023
         
Amendment to IAS 1: Presentation of financial statements.   January 2020   01/01/2024
         
IFRS 17: Insurance contracts, replaces IFRS 4.   May 2017   01/01/2023
         
Amendment to IAS 1: Non-current liabilities with covenants   October 2022   01/01/2024
         
Amendment to IFRS 16: Leases   September 2022   01/01/2024
         
Initial Application of IFRS 17 and IFRS 9 — Comparative Information (Amendment to IFRS 17)   December 2021   An entity that elects to apply the amendment applies it when it first applies IFRS 17
         
Amendment to IFRS 10: Consolidated financial statements and IAS 28: Investments in associates and joint ventures.   September 2014   Not determined

 

The Company’s management estimates that the adoption of the standards, amendments and interpretations described above will not have a significant impact on the Company’s consolidated financial statements in the exercise of their first application.

 

(c)Chapter 11 Filing and Going Concern

 

i)Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business.

 

The Company previously disclosed that as of December 31, 2021, as a result of the Chapter 11 proceedings, the fulfillment of the Company’s obligations and the financing of ongoing operations were subject to material uncertainty due to the COVID-19 pandemic and the impossibility of knowing as of that date, their duration and, consequently, those events or conditions indicated that a material uncertainty existed that created significant doubt or raised substantial doubt about the Company’s ability to continue as a going concern.

 

On November 3, 2022, LATAM Parent and certain of its affiliates emerged from the Chapter 11 Proceedings. The emergence from the Chapter 11 proceedings and consummation of the Plan addressed liquidity concerns as it provided for new funds originated by the new financing and the capital restructuring. As a result, the Company expects that sufficient cash flows will be generated to finance the debts and the working capital requirements working capital for the next twelve months. Therefore, there is no longer a material uncertainty that may cast significant doubt or cast substantial doubt to continue as a going concern during the twelve months after the date of issuance of the financial statements.

 

F-15

 

 

ii)Chapter 11 Filing

 

Due to the effects on the operation of the restrictions established in the countries to control the effects of the COVID-19 pandemic, on May 25, 2020 the Board resolved unanimously that LATAM Parent and some subsidiaries of the group should initiate a reorganization process in the United States of America according to the rules established in the Bankruptcy Code title 11 by filing a voluntary petition for relief in accordance with the same, which was carried out on May 26, 2020. Subsequently, Piquero Leasing Limited (July 7, 2020) and TAM S.A. joined this process and its subsidiaries in Brazil (July 9, 2020) (the voluntary petitions, collectively, the “Bankruptcy Filing” and each LATAM entity that filed a petition, a “Debtor” and jointly, the “Debtors”).

 

The Bankruptcy Filing for each of the Debtors (each one, respectively, a “Petition Date”) was jointly administered under the caption “In re LATAM Airlines Group S.A. et al.” Case Number 20-11254. Prior to November 3, 2022, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Bankruptcy Filing permitted the Company to reorganize and improve liquidity, wind down unprofitable contracts and amend its capacity purchase agreements to enable sustainable profitability. As of November 3, 2022 (the “Effective Date”), the Plan (as defined below) was substantially consummated and the Debtors have each emerged from the Chapter 11 proceedings as the “Reorganized Debtors”. However, according to the rules of the Bankruptcy Code, the Chapter 11 proceedings of the Reorganized Debtors continued to be ongoing after the Effective Date to resolve certain remaining matters. Later, on December 14, 2022, the Bankruptcy Court entered an order consolidating the administration of all remaining matters in the lead Chapter 11 case of LATAM Parent and closing the cases of its debtor-related person. Therefore, as of the date hereof the Chapter 11 proceeding has been closed with respect to LATAM Parent’s subsidiaries that were part thereof, and continue ongoing solely with respect to LATAM Parent to resolve certain remaining matters. The Bankruptcy Court continues to administer the Chapter 11 proceedings for LATAM Parent in order to resolve the few remaining matters therein, including resolving remaining claims.

 

As part of their overall reorganization process, the Debtors also sought and received relief in certain non-U.S. jurisdictions. On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of certain of the Debtors for the appointment of provisional liquidators (“JPLs”) pursuant to section 104(3) of the Companies Law (2020 Revision). On June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11 proceedings with respect to LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. All remedies filed against the order have been rejected and the decision has become final. Finally, on June 12, 2020, the Superintendence of Companies of Colombia granted recognition to the Chapter 11 proceedings. On July 10, 2020, the Grand Court of the Cayman Islands granted the Debtors’ application for the appointment of JPLs to Piquero Leasing Limited. Bearing in mind that on November 3, 2022, the Effective Date of the Reorganization Plan approved and confirmed in the main proceedings occurred, on November 10, 2022, the representative of the foreign proceeding filed with the court his last monthly report under the Protocol on Cross-Border Communications.

 

F-16

 

 

Operation and Implication of the Bankruptcy Filing

 

As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Reorganized Debtors are permitted to operate their businesses and manage their properties without supervision of the Bankruptcy Court and free of the restrictions of the Bankruptcy Code.

 

Plan of Reorganization

 

On November 26, 2021, the Debtors filed a joint plan of reorganization (as amended or revised, the “Plan” or “Plan of Reorganization”) and the related disclosure statement (as amended or revised, the “Disclosure Statement”) with the Bankruptcy Court. As detailed in the Disclosure Statement, the Plan was supported by a restructuring support agreement executed among the Debtors, creditors holding more than 70% of the general unsecured claims asserted against LATAM Airlines Group S.A., and holders of more than 50% of LATAM Airlines Group S.A.’s existing equity (the “Restructuring Support Agreement” or “RSA”). From time to time in the Chapter 11 Cases, the Debtors filed revised versions of the Plan and associated Disclosure Statement. On February 10, 2022 the Debtors executed a joinder Agreement to the RSA (each joinder agreement a “W&C Creditor Group Joinder Agreement”), effective as of February 10, 2022 under which certain creditors agreed to commitments made by the Commitment Parties under the RSA.

 

On March 21, 2022, the Bankruptcy Court entered an order approving the adequacy of the Disclosure Statement and procedures for the solicitation with respect to the Plan (the “Disclosure Statement Order”). Pursuant to the Disclosure Statement Order, the Debtors distributed the solicitation version of the Plan, the Disclosure Statement (as approved), voting ballots and certain other solicitation materials to creditors.

 

In accordance with the Restructuring Support Agreement, on January 12, 2022 the Debtors filed a motion seeking approval to enter into a backstop commitment agreement with certain shareholders, and a backstop commitment agreement with certain creditors (the “Backstop Agreements”). On March 15, 2022, the Bankruptcy Court issued a memorandum decision approving the Debtors’ entry into the Backstop Agreements and issued a corresponding order (the “Backstop Order”) on March 22, 2022.

 

The Debtors received objections to the Plan from certain parties, including the United States Trustee, the Official Committee of Unsecured Creditors (the “Committee”), Banco del Estado de Chile in its capacity as indenture trustee under certain Chilean local bonds issued by LATAM Parent (“BancoEstado”), an ad hoc group of unsecured claimants and a group of holders of claims against LATAM affiliate TAM Linhas Aéreas S.A. Following the Plan objection deadline, the Debtors participated in a mediation with BancoEstado, the Committee and the parties to the RSA in an effort to resolve their objections to the Plan and related disputes, which proved successful. On May 11, 2022, the Debtors filed a revised version of the Plan reflecting the terms of a settlement with the parties.

 

At a hearing held on May 17, 18 and 20, 2022, the Bankruptcy Court considered the remaining objections that had not been resolved pursuant to the settlement. On June 18, 2022, the Bankruptcy Court issued a memorandum decision approving the Plan and overruling all remaining objections (the “Memorandum Decision”) and entered an order confirming the Plan (the “Confirmation Order”).

 

F-17

 

 

Certain parties in interest appealed the Bankruptcy Court’s decisions. On June 21, 2022, the Ad Hoc Group of Unsecured Claimants filed a notice of appeal of the memorandum decision and order approving entry into the Backstop Agreements, as well as the Memorandum Decision approving the Plan and the Confirmation Order.

 

On June 27, 2022, the Ad Hoc Group of Unsecured Claimants filed a motion seeking to stay the Confirmation Order pending appeal. On July 16, 2022, the motion to stay was denied by the Bankruptcy Court. On June 23, 2022, the TLA Claimholders Group also filed a motion seeking to stay the Confirmation Order pending appeal or, in the alternative, an affirmative injunction requiring the Debtors to fund an escrow account in the amount of the outstanding post-petition interest. On July 8, 2022, the Bankruptcy Court issued a bench memorandum and order denying the TLA Claimholders Group’s motion to stay. On June 28, 2022, Columbus Hill Capital Management (“Columbus Hill”) filed a notice of appeal of the Memorandum Decision and the Confirmation Order, which it later withdrew on July 5, 2022. On July 13, 2022, the Debtors filed a motion to approve a settlement agreement with Columbus Hill, which was granted by the Bankruptcy Court on July 21, 2022, bringing full and final resolution to the Columbus Hill appeal and any other potential objections from this claimant.

 

On August 31, 2022, after briefing and oral argument by the parties, the District Court issued an opinion denying the appeals of both the Ad Hoc Group of Unsecured Claimants and the TLA Claimholders Group. The District Court rejected the Ad Hoc Group of Unsecured Claimants’ arguments that the Plan and Backstop Agreement violated the Bankruptcy Code and held that the Backstop Agreement did not constitute impermissible vote buying. The Ad Hoc Group of Unsecured Claimants did not further appeal the District Court’s decision.

 

With respect to the TLA Claimholders Group’s appeal, the District Court denied its request for payment of post-petition interest on its claims and found that the Bankruptcy Court was not mistaken with respect to its factual finding that TLA was insolvent. The District Court also denied the TLA Claimholders Group’s motion to stay the Confirmation Order.

 

On September 2, 2022 the TLA Claimholders Group filed a notice of appeal in the District Court (the “Second Circuit Appeal”) further appealing the Confirmation Order to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). Both parties filed briefs regarding the merits of the Second Circuit Appeal, oral argument occurred on October 12, 2022, and on December 14, 2022, the Second Circuit unanimously affirmed the District Court’s decision rejecting the Second Circuit Appeal. No further appeals have been filed to date.

 

As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Company received an infusion of approximately US$ 8.19 billion through a mix of new equity, convertible notes and debt, which enabled the Company to exit Chapter 11 with appropriate capitalization to effectuate its business plan. Upon emergence, the Company had total debt of approximately US$ 6.8 billion, cash and cash equivalents of approximately US$1.1 billion and revolving undrawn facilities in the amount of US$1.1 billion. Specifically, the Plan provided that:

 

The Company conducted a US$ 800 million common equity rights offering, open to all shareholders in accordance with their preemptive rights under applicable Chilean law, and fully backstopped by the parties participating in the RSA;

 

F-18

 

 

Three distinct classes of convertible notes were issued by the Company, all of which were preemptively offered to shareholders. The preemptive rights offering period closed on October 12, 2022. For those securities not subscribed by the Company’s shareholders during the respective preemptive rights period:

 

oNew Convertible Notes Class A, hereinafter Class G Convertible notes (by the denomination with which they were registered in the Registro de Valores of the CMF), were delivered to certain general unsecured creditors of the Company in settlement of their allowed claims under the Plan.

 

The Issuance conditions:

 

Nominal Value : Approximately Th US$1,257,003

 

Conversion Ratio: 15,9046155045956. The Convertible Notes Class G Conversion Ratio shall step down by 50% on the day that is sixty (60) days after the Effective Date.

 

Backup Actions: 19,992,142,087

 

Maturity: 31 Dec. 2121

 

Interest rate: 0%

 

Conversion Conditions: They may be converted into shares of the Company within twelve months from the Effective Date of the Plan. As soon as 50% of the holders of New Class G Convertible Notes have opted to convert, the remaining Class G Convertible Notes will be automatically converted.

 

oNew Convertible Notes Class B, hereinafter Class H Convertible notes (by the denomination with which they were registered in the Registro de Valores of the CMF), were subscribed and purchased by the shareholder that are part of the RSA.

 

The Issuance conditions:

 

Nominal Value: Approximately ThUS$1,372,840

 

Conversion Ratio: 92.2623446840237. The conversion ratio of Class H Convertible Notes will be reduced by 50% sixty (60) days after the fifth anniversary counted from the Effective Date.

 

Backup Actions: 126,661,409,136

 

Maturity: 31 Dec. 2121

 

Interest rate: 1% interest rate payable in cash annually with no interest in the first 60 days.

 

Conversion Conditions:

 

(a)First Convertible Notes Class H Conversion Period: Each holder of Convertible Notes Class H will have the ability to convert its Convertible Notes Class H into shares of the Company within sixty (60) days from the Effective Date.
   
(b)Second Convertible Notes Class H Conversion Period: Each holder of Convertible Notes Class H will have the subsequent ability to convert their Convertible Notes Class H into shares of the Company beginning on the fifth (5th) anniversary of the Effective Date.

 

F-19

 

 

oNew Convertible Notes Class C, hereinafter Class I Convertible notes (by the denomination with which they were registered in the Registro de Valores of the CMF), were provided to certain general unsecured creditors in exchange for a combination of new money to the Company and the settlement of their allowed claims under the Plan, subject to certain limitations and holdbacks by the backstopping parties.

 

The Issuance conditions:

 

Nominal Value: Approximately ThUS$6,863,427

 

Conversion Ratio: 56.143649821654. The Convertible Notes Class C Conversion Ratio shall step down by 50% on the day that is sixty (60) days after the Effective Date.

 

Backup Actions: 385,337,858,290

 

Maturity: 31 Dec. 2121

 

Interest rate: 0%

 

Conversion Conditions: They may be converted into shares within twelve months from the Effective Date of the Plan. As soon as 50% of the holders of Class I Convertible Notes have opted to convert, then the remaining Class I Convertible Notes will be automatically converted. The allocated amounts of the unused Class I Convertible Notes were distributed to the supporting parties of the Class I Convertible Notes in accordance with the respective Support Agreement.

 

The election period for the Convertible Notes Class G and Convertible Notes Class I by creditors ended on October 6, 2022.

 

General unsecured creditors that elected to receive Convertible Notes Class G or Convertible Notes Class I were entitled to receive a one-time cash distribution in an aggregate amount of approximately US$ 175 million, distributed among the general unsecured creditors that opted to receive Convertible Notes Class G and I. (see Note 36).

 

The Convertible Notes Classes H and I were issued, totally or partially, in consideration of a new money contribution for the aggregate amount of approximately US$ 4.64 billion fully backstopped by the parties to the RSA.

 

In lieu of receiving Convertible Notes Class G or Convertible Notes Class I (and the aforementioned one-time cash distribution), general unsecured creditors were provided with the alternative of opting to receive New Local Notes issued by LATAM. As set forth in the Plan and based on the elections made by general unsecured creditors, such notes were issued in the amount of UF 3,818,042 (equal to approximately US$ 130 million as of the date of their issuance).

 

F-20

 

 

Pursuant to the Plan and Backstop Agreements, LATAM raised up to US$ 500 million through a new revolving credit facility and approximately US$ 2.25 billion in total new money debt financing through exit financing (new term loan and new notes).

 

On September 2, 2022, the Convertible Notes Classes G, H and I together with the shares contemplated in the Plan were registered with the Chilean Registro de Valores of the Financial Market Commission (the “CMF”). The CMF approved the New Local Notes on September 5, 2022. The Debtors established September 12, 2022 as the record date with respect to creditors entitled to participate in the Convertible Notes Class G and Convertible Notes Class I, and commenced the offering of the Convertible Notes to claimholders on the same day.

 

As of December 31, 2022, 94,14% of the Convertible Notes Class G, 99.997% of the Convertible Notes Class H and 99.999% of the Convertible Notes Class I had been converted to equity, respectively.

 

On November 17, 2022 the Reorganized Debtors filed a motion to consolidate the administration of certain remaining matters, including the reconciliation of claims that have not yet been allowed or disallowed, in the lead Chapter 11 case of LATAM Parent and for entry of a final decree closing the Chapter 11 cases of LATAM Parent’s debtor-affiliates. The Bankruptcy Court entered an Order on December 14, 2022 granting the motion to consolidate the administration of remaining matters in the lead Chapter 11 case of LATAM Parent. As a result, the dockets for all 37 debtor-affiliates of LATAM Parent were marked “closed” on December 23, 2022.

 

Chapter 11 Milestones during the period covered by these consolidated financial statements

 

Assumption, Amendment & Rejection of Executory Contracts & Leases

 

Prior to the Effective Date, pursuant to the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), the Debtors were authorized to assume, assign or reject certain executory contracts and unexpired leases. Absent certain exceptions, the Debtors’ rejection of an executory contract or an unexpired lease is generally treated as prepetition breach, which entitles the contract counterparty to file a general unsecured claim against the Debtors and simultaneously relieves the Debtors from their future obligations under the contract or lease. Further, the Debtors’ assumption of an executory contract or unexpired lease would generally require the Debtors to cure outstanding defaults under such contract or lease.

 

Other Key Filings

 

On June 16, 2021, the Committee filed two motions seeking standing to prosecute certain claims on behalf of the Debtors against Delta Airlines, Inc. (the “Delta Motion”) and Qatar Airways O.C.S.C. (the “Qatar Motion”, and together with the Delta Motion, (the “Standing Motions”)), which were opposed by certain parties. In connection with the negotiation of the RSA, the Plan provided for the full settlement and release for Qatar and Delta of all potential claims described in the Standing Motions upon the effective date of the Plan. As the Plan became effective on November 3, 2022, such claims have been released.

 

F-21

 

 

Statements and Schedules

 

On September 8, 2020, each of the Debtors filed Schedules of Assets and Liabilities (“Schedules”) and Statements of Financial Affairs (“Statements”) that described the Debtors’ financial circumstances as of their respective Petition Date. On August 13, 2021 and December 3, 2021, certain Debtors filed amended Schedules that supplemented and amended the initial Schedules.

 

From the Petition Date through the Plan Effective Date (as defined in the Plan), the Company was also required to file “Monthly Operating Reports” (MORs) to disclose the receipt, administration and disposition of property by the Debtors during the pendency of the Chapter 11 Cases. After the Effective Date, the Company will be required to file a more streamlined “Post-confirmation Report” (PCR) each calendar quarter until the Chapter 11 Cases of LATAM Parent are closed.

 

While the Reorganized Debtors believe that these materials provide the information required by the Bankruptcy Code and Bankruptcy Court, they are nonetheless unaudited documents that are prepared in a format different from the consolidated financial reports historically prepared by LATAM in accordance with IFRS (International Financial Reporting Standards). For example, certain of the debtor-specific information contained in the Statements and Schedules may normally be prepared on an unconsolidated basis in the ordinary course. Accordingly, the Reorganized Debtors believe that the substance and format of these materials may not allow meaningful comparison with their regularly publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to the Reorganized Debtors’ securities, or claims against the Reorganized Debtors, or for comparison with other financial information required to be reported under applicable securities law.

 

Bearing in mind that November 3, 2022 was the Effective Date of the reorganization plan approved and confirmed in the main proceeding, on November 10, 2022, the representative of the foreign proceeding submitted to the court his last monthly report in accordance with the Protocol of Cross Border Communications.

 

Intercompany and Affiliate Transactions

 

On January 10, 2022, the Committee filed an objection with respect to an intercompany claim asserted by LATAM Finance Ltd. against Peuco Finance Ltd. The Bankruptcy Court held a hearing on the objection on March 10, 2022. Post-hearing briefs were submitted by the parties on March 17, 2022, and closing arguments were held on March 18, 2022. On April 29, 2022, the Court entered a decision and order overruling the objection (the “Intercompany Claim Decision”). On May 13, 2022, the Committee appealed the Intercompany Claim Decision to the District Court. On May 26, 2022 the District Court granted a joint motion of the Debtors and the Committee to stay such appeal until the effective date of the Plan. Following the Effective Date, the Committee sought to dismiss the appeal, and the District Court entered an order dismissing the appeal on November 7, 2022.

 

F-22

 

 

Debtor-in-Possession Financing and Exit Financing

 

As previously reported, on June 10, 2022 the Debtors entered into debt commitment letters (the “Exit Financing Commitment Letters”) providing commitments from various lenders for (i) an approximately US$1.170 billion of junior debtor-in-possession term loan facility (the “Junior DIP Facility”); (ii) a US$500 million debtor-in-possession and exit revolving credit facility (the “Revolving Facility”), (iii) a US$750 million debtor-in-possession and exit term loan B credit facility (the “Term Loan B Facility”; together with the Revolving Facility, the “Credit Facilities”), (iv) a US$750 million debtor-in-possession and exit bridge loan facility (the “Bridge to 5Y Notes Facility”) and (v) US$750 million debtor-in-possession and exit bridge loan facility (the “Bridge to 7Y Notes Facility” and together with the Bridge to 5Y Notes Facility, and the Credit Facilities, the “Debt Facilities”). According to the terms of the Exit Financing Commitment Letters, the committed amounts under the Term Loan B Facility and the Bridge Facilities could be reallocated amount such facilities. The Debt Facilities were structured to remain in place after the emergence of the Reorganized Debtors from the Chapter 11, subject to the satisfaction of certain conditions at emergence (the “Conversion Date”).

 

In the context of the Company’s exit from Chapter 11, on October 12, the Consolidated and Amended DIP Financing Agreement was paid in full. The repayment has been made entirely with funds from (i) a Junior DIP Financing of approximately US$1,146 million; (ii) a US$500 million Revolving Credit Line; (iii) a Term B Loan of US$750 million; (iv) a 5-year Bond Bridge Loan of US$750 million (v) a 7-year Bond Bridge Loan of US$750 million.

 

On October 18, 2022, the Bridge Loans were partially repaid by: i) a bond issue exempt from registration under U.S. Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 144A and Regulation S, both under the Securities Act, due 2027 (the “5-Year Bonds”), by a total principal amount of US$450 million and ii) a bond issue exempt from registration under the Securities Law pursuant to Rule 144A and Regulation S, both under the Securities Law, due 2029 (the “Bonds to 7 Years”), for a total principal amount of US$700 million.

 

Additionally, on November 3, the repayment of the Bridge Loans and the junior DIP was completed with the proceeds from the Exit Financing, which was made up of: US$450 million in senior guaranteed bonds maturing in 2027, US$700 million in senior secured notes due 2029 and an incremental “Term Loan B” loan for US$350 million

 

Establishment of Bar Dates and Claims Reconciliation

 

On September 24, 2020, the Bankruptcy Court entered an order (the “Bar Date Order”) establishing December 18, 2020, as the general deadline (the “General Bar Date”) by which persons or entities (other than governmental units) who believe they hold any claims (other than certain damages claims arising out of the rejection of executory contracts or unexpired leases) against any Debtor that arose prior to the Petition Date, as applicable to each Debtor, must have submitted written documentation of such claims (a “Proof of Claim”). On December 17, 2020, the Court entered an order (the “Supplemental Bar Date Order”) establishing a supplemental bar date of February 5, 2021 (the “Supplemental Bar Date”), for certain non-U.S. claimants not otherwise subject to the General Bar Date. Any person or entity that failed to timely file its Proof of Claim by the applicable Bar Date will be forever barred from asserting their claim and will not receive any distributions made as part of the ultimate plan of reorganization. On the Effective Date, the Reorganized Debtors established December 3, 2022 as the deadline (the “Administrative Expense Bar Date”) by which persons or entities (other than those exempted under the Plan) must submit a Proof of Claim establishing their claim against the Reorganized Debtors for costs and expenses of administration of the Chapter 11 proceedings.

 

F-23

 

 

Following the close of the General Bar Date, the Supplemental Bar Date, and the Administrative Expense Bar Date, the Reorganized Debtors have continued the process of reconciling approximately 6,575 submitted claims. As of December 31, 2022, the Reorganized Debtors have objected to or have resolved through claims withdrawals, stipulations and court orders approximately 5,030 claims with a total value of approximately US$ 163.5 billion. As the Reorganized Debtors continue to reconcile claims against the Company’s books and records, they will object to and contest such claims that they determine are not valid or are not asserted in the proper amount or classification and will resolve other claims disputes in and outside of the Bankruptcy Court.

 

A Claim is recorded as a liability when it has a present obligation, whether legal or constructive, as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation amount can be made. Under the Plan, a further 1,352 litigation claims will ride through. As of December 31, 2022, approximately 64 of the Claims filed against the Debtors are still being reconciled with an estimated total value of approximately US$ 354.7 million.

 

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 cash are incorporated from the date of acquisition.

 

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

 

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

 

(b) Transactions with non-controlling interests

 

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

 

F-24

 

 

(c) Sales of subsidiaries

 

When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes the assets and liabilities of the subsidiary, the non-controlling interest 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 by function within Other gains (losses).

 

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

 

(d) Investees or associates

 

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

 

2.3. Foreign currency transactions

 

(a) Presentation and functional currencies

 

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

 

(b) Transactions and balances

 

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

 

(c) Adjustment due to hyperinflation

 

After July 1, 2018, the Argentine economy was considered, for purposes of IFRS, hyperinflationary. The consolidated 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 income 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.

 

F-25

 

 

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 consolidated retained earnings.

 

Re-expression due to hyperinflation will be recorded until the period or exercise 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, within “Gain (losses) from exchange rate difference, before tax”.

 

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.

 

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 impairment.

 

The amounts of advances paid to the aircraft manufacturers are capitalized by the Company under Construction in progress until they are received.

 

F-26

 

 

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, 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 income when 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. This charge is recognized in the captions “Cost of sale” and “Administrative expenses”.

 

The residual value and the useful life of the assets are reviewed and adjusted, if necessary, once a year. Useful lives are detailed in Note 16 (d).

 

When the value of an asset exceeds its estimated recoverable amount, its value is immediately reduced to its recoverable amount.

 

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 Loyalty program correspond to intangible assets with indefinite useful lives and are annually tested for impairment as an integral part of the CGU Air Transport.

 

Airport Slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft, at a specific airport, within a certain period of time.

 

The Loyalty program corresponds to the system of accumulation and exchange of points that is part of TAM Linhas Aereas S.A.

 

The airport slots and Loyalty program were recognized at fair value under IFRS 3, as a consequence of the business combination with TAM S.A. 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 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 other costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets other than Goodwill when they have met all the criteria for capitalization.

 

F-27

 

 

(c) Brands

 

The Brands were acquired in the business combination with TAM S.A. and Subsidiaries and, recognized at fair value under IFRS 3. The Company has defined a useful life of five years, period in which the value of the brands will be amortized (see note 15).

 

2.6. Borrowing costs

 

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

 

2.7. Losses for impairment of non-financial assets

 

Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Assets subject to amortization are tested for impairment losses whenever any event or change in circumstances indicates that the carrying amount may not be recoverable. An impairment loss is recognized for the excess of the carrying amount of the asset over its recoverable amount. The recoverable amount is the fair value of an asset less the costs of sale or the value in use, whichever is greater. For the purpose of evaluating impairment losses, assets are grouped at the lowest level for which there are largely independent cash inflows (cash generating unit. Non-financial assets, other than goodwill, that would have suffered an impairment loss are reviewed if there are indicators of reversal of losses. Impairment losses are recognized in the consolidated statement of income by function under “Other gains (losses)”.

 

2.8. Financial assets

 

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 consolidated statement of income by function.

 

(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.

 

F-28

 

 

Fair value through profit or loss: assets that do not meet the criteria of amortized cost or fair value through other comprehensive income 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 consolidated statement of income by function within other gains / (losses) in the period or exercise 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 consolidated statement of income by function 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.

 

2.9. Derivative financial instruments and embedded derivatives

 

Derivative financial instruments and hedging activities

 

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 designated as a hedging instrument and, if so, the nature of the item being hedged.

 

The Company designates certain derivatives as:

 

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

 

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

 

At the beginning of the transaction, the Company documents the economic relationship between the hedged items existing between the hedging instruments and the hedged items, as well as its objectives for risk management and the strategy to carry out various hedging operations. 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.

 

F-29

 

 

(a) 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 by function under other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods or exercise when the hedged item affects profit or loss. When these amounts correspond to hedging derivatives of highly probable items that give rise to non-financial assets or liabilities, in which case, they are recorded as part of the non-financial assets or liabilities.

 

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.

 

Gains or losses related to the effective part of the change in the intrinsic value of the options are recognized in the cash flow hedge reserve within equity. Changes in the time value of the options related to the part are recognized within Other Consolidated Comprehensive Income in the costs of the hedge reserve within equity.

 

When a hedging instrument mature, is sold or fails to meet the requirements to be accounted for as a 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 by function as “Other gains (losses)”.

 

(b) 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)”.

 

Embedded derivatives

 

The Company assesses the existence of embedded derivatives in financial instrument contracts. Derivatives embedded in non-derivative  host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL as a whole. LATAM Airlines Group S.A. has determined that no embedded derivatives currently exist.

 

2.10. Inventories

 

Inventories, 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.

 

F-30

 

 

2.11. 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.

 

In the event that the Company transfers its rights to any financial asset (generally accounts receivable) to a third party in exchange for a cash payment, the Company evaluates whether all risks and rewards have been transferred, in which case the account receivable is derecognized.

 

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.

 

2.12. 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 and a low risk of loss of value.

 

2.13. 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.

 

2.14. Trade and other accounts payables

 

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

 

2.15. 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.

 

F-31

 

 

Convertible Notes

 

The component parts of the convertible notes issued by LATAM are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

 

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The conversion option classified as equity is determined by the deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in other equity, net of income tax effects. and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in other equity until the conversion option is exercised, in which case, the balance recognized in other equity will be transferred to share capital. Where the conversion option remains unexercised at maturity date of the convertible bond, the balance recognized in other equity will be transferred to retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.

 

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity.

 

2.16. Current and deferred taxes

 

The tax expense for the period or exercise comprises income and deferred taxes.

 

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

 

Deferred taxes are recognized on the temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transaction does not affect the accounting or the taxable profit or loss. Deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the date of the consolidated statements of financial position and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.

 

Deferred tax assets are recognized only to the extent it is probable that the future taxable profit will be available against which the temporary differences can be utilized.

 

The tax (current and deferred) is recognized in the statement of income by function, unless it relates to an item recognized in other comprehensive income, directly in equity. In this case the tax is also recognized in other comprehensive income or, directly in the statement of income by function, respectively.

 

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Deferred tax assets and liabilities are offset if, and only if:

 

(a) there is a legally enforceable right to set off current tax assets and liabilities, and

 

(b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either: (i) the same taxable entity, or (ii) different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

 

2.17. 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 value of the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based payments. For equity settled plans the fair value is recorded in equity with a charge to remuneration in a linear manner between the grant of said options and the date on which they become vested. For cash settled awards the fair value, updated as of the closing date of each reporting period or exercise, is recorded as a liability with charge to remuneration.

 

(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 considering 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.

 

(e) Termination benefits

 

The group recognizes termination benefits at the earlier of the following dates: (a) when the group terminates the employee relationship; and (b) when the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of terminations benefits.

 

2.18. Provisions

 

Provisions are recognized when:

 

(i) The Company has a present legal or constructive obligation as a result of a past event;

 

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

 

(iii) A reliable estimate of the obligation amount can be made.

 

2.19. 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 provided 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 on a monthly basis the probability of expiration of air tickets, with refund clauses, based on their history of use. Air tickets without a refund clause expire 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 capitalized and deferred until the moment of providing the corresponding service. These assets are included under the heading “Other current non-financial assets” in the Consolidated Classified Statement of Financial Position.

 

(d) Frequent passenger program

 

The Company maintains the following loyalty programs: LATAM Pass and LATAM Pass Brasil, whose objective is building customer loyalty through the delivery of miles or points.

 

These programs give their frequent passengers the possibility of earning LATAMPASS’s miles or points, which grant the right to a selection of both air and non-air awards. Additionally, the Company sells the LATAMPASS miles or points to financial and non-financial partners through commercial alliances to award miles or points to their customers.

 

To reflect the miles and points earned, the loyalty program mainly includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) Passenger Ticket Sales Earning miles or points (2) miles or points sold to financial and non-financial partner

 

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(1) Passenger Ticket Sales Earning Miles or Points.

 

In this case, the miles or points are awarded to customers at the time that the company performs the flight.

 

To value the miles or points earned with travel, we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as Equivalent Ticket Value (“ETV”). Our estimate of ETV is adjusted for miles and points that are not likely to be redeemed (“breakage”).

 

The balance of miles and points that are pending to redeem are included within deferred revenue.

 

(2) Miles sold to financial and non-financial partners

 

To value the miles or points earned through financial and non-financial partners,the performance obligations with the client are estimated separately. To calculate these performance obligations, different components that add value in the commercial contract must be considered, such as marketing, advertising and other benefits, and finally the value of the points awarded to customers based on our ETV. The value of each of these components is finally allocated in proportion to their relative prices. The performance obligations associated with the valuation of the points or miles earned become part of the Deferred Revenue, and the remaining performance obligations are recorded as revenue when the miles or points are delivered to the client.

 

When the miles and points are exchanged for products and services other than the services provided by the Company, the income is recognized immediately; when the exchange is made for air tickets of any airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the air transport service is provided.

 

The miles and points that the Company estimates will not be exchanged are recognized in the results based on the consumption pattern of the miles or points effectively exchanged by customers. The Company uses statistical models to estimate the probability of exchange, which is based on historical patterns and projections.

 

(e) Dividend income

 

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

 

2.20. 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.

 

Right of use assets 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 right of use assets are recognized in the statement of financial position in Property, plant and equipment.

 

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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 option, if it is reasonably certain that the option will be exercised.

 

The discount rate that LATAM uses is the interest rate implicit in the lease, if that rate can be readily determined. This is the rate of interest that causes the present value of (a) lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and (ii) any initial direct costs of the lessor.

 

LATAM uses its incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined.

 

Lease liabilities are recognized in the statement of financial position under Other financial liabilities, current or non-current.

 

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

 

Principal and interest are present in the consolidated cash flow as “Payments of lease liability” and “Interest paid”, respectively, within financing cash flows.

 

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 within operating cash flows.

 

The Company analyzes the financing agreements of aircraft, 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 continues to be presented within the “Other financial liabilities” described in Note 18. On the other hand, the aircraft are presented in Property, Plant and Equipment, as described in Note 16, as “own aircraft”.

 

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

 

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

 

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

 

The Company has applied the practical solution allowed by IFRS 16 for those contracts that meet the established requirements and that allows a lessee to choose not to evaluate if the concessions that it obtains derived from COVID-19 are a modification of the lease.

 

2.21. Non-current assets or disposal groups classified as held for sale

 

Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.

 

2.22. Maintenance

 

The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are capitalized and depreciated until the next maintenance. The depreciation rate is determined on technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.

 

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

 

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

 

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

 

2.23. Environmental costs

 

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

 

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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 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 has exposure to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk (FX), and (iii) interest -rate risk.

 

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

 

For the foregoing, Management monitors the evolution of fuel price levels, exchange rates and interest rates, quantifies their exposures and their risk, and develops and executes hedging strategies.

 

(i) Fuel-price risk

 

Exposure:

 

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

 

Fuel Hedging Results:

 

During the period ended December 31, 2022, the Company recognized gains of US$ 18.8 million for fuel hedging net of premiums in the costs of sales for the year. During the period ended December 31, 2021, the Company recognized gains of US$ 10.1 million for fuel hedging net of premiums in the costs of sales for the year.

 

As of December 31, 2022, the market value of the fuel positions amounted to US$12.6 million (positive). At the end of December 2021, this market value was US$ 17.6 million (positive).

 

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

 

Positions as of  December 31, 2022 (*)  Maturities 
   Q123   Q223   Q323   Q423   Total 
Percentage of coverage over the expected volume of consumption    24%   24%   15%   5%   17%

 

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

 

Positions as of  December 31, 2021 (*)  Maturities 
   Q122   Q222   Q322   Q422   Total 
Percentage of coverage over the expected volume of consumption   25%   30%   17%   14%   21%

 

(*)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. Therefore, the policy is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.

 

The current hedge positions 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 of financial instruments according to reasonable changes in the price of fuel and their effect on equity.

 

The calculations were made considering a parallel movement of US$ 5 per barrel in the underlying reference price curve at the end of December 2022 and the end of December 2021. The projection period was defined until the end date of the last contract in force, corresponding to the last business day of the fourth quarter 2023.

 

    Positions as of December 31, 2022   Positions as of December 31, 2021
Benchmark price   effect on Equity   effect on Equity
(US$ per barrel)   (MUS$)   (MUS$)
+5   +2.2   +2.7
-5   -2.3   -3.3

 

Given the fuel coverage structure for the year 2022, which considers a portion free of hedges, a vertical drop of 5 dollars in the JET reference price (considered as the monthly daily average), would have meant an impact of approximately US$ 123 million lower fuel cost. For the same period, a vertical rise of 5 dollars in the JET reference price (considered as the monthly daily average), would have meant an approximate impact of US$ 122.1 million in higher fuel costs.

 

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(ii)Foreign exchange rate risk:

 

Exposure:

 

The functional 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 hedging or non-hedging derivative instruments or through natural hedges or execution of internal operations.

 

Exchange Rate Hedging Results (FX):

 

As of December 31, 2022, the Company recognized gains of US$ 5,2 million for FX hedging derivatives net of premiums in sales revenue for the year. At the end of December 2021, the Company did not recognize gains or losses for FX hedging derivatives.

 

As of December 31, 2022, the market value of hedging FX derivative positions is US$ 0,2 million (positive). As of December 31, 2022, the Company has current hedging FX derivatives for MUS$ 108. As of December 31, 2021, the Company has no current hedging FX derivatives.

 

During the period ended December 31, 2022, the Company recognized losses of US$ 1,8 million for FX non-hedging derivatives, net of premiums in the costs of sales for the year. As of December 31, 2022, the Company does not maintain current non-hedged FX derivatives. At the end of December 2021, the Company did not recognize gains or losses for FX non-hedging derivatives.

 

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.

 

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The following table shows the sensitivity of current hedging FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity.

 

Appreciation (depreciation)   Effect on equity as of
December 31, 2022
  Effect on equity as of
December 31, 2021
of R$/US$   (MUS$)   (MUS$)
-10%   -2.9   -
+10%   +3.0   -

 

As of December 31, 2022, the Company does not have currency Swap derivatives. At the end of December 2021, the Company did not have currency Swap derivatives.

 

Impact of Exchange rate variation in the Consolidated Income Statements (Foreign exchange gains/losses)

 

In the case of TAM S.A., whose functional currency is the Brazilian real, a large part of its liabilities is 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.

 

In order to reduce the impact on the Company’s result caused by appreciations or depreciations of R$/US$, the Company carries out internal operations to reduce the net exposure in US$ for TAM S.A.

 

The following table shows the impact of the Exchange Rate variation on the Consolidated Income Statement when the R$/US$ exchange rate appreciates or depreciates by 10%:

 

    Effect on Income Statement   Effect on Income Statement
Appreciation (depreciation)   for the period ended December 31, 2022   for the period ended December 31, 2021
of R$/US$   (MUS$)   (MUS$)
-10%   +70.7   +51.9
+10%   -70.7   -51.9

 

Impact of the exchange rate variation in the Equity, from translate the subsidiaries financial statements into US Dollars (Cumulative Translate Adjustment)

 

Since 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 (Cumulative Translation Adjustment) 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.

 

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The following table shows the impact on the Cumulative Translation Adjustment included in Other comprehensive income recognized in Total equity in the case of an appreciation or depreciation 10% the exchange rate R$/US$:

 

Appreciation (depreciation)   Effect at December 31, 2022   Effect at December 31, 2021
of R$/US$   MUS$   MUS$
-10%   +98.11   +96.66
+10%   -80.28   -79.09

 

(iii)Interest -rate risk:

 

Exposure:

 

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

 

The Company is mainly exposed to the Secured Overnight Financing Rate (“SOFR”), also to the London InterBank Offered Rate (“LIBOR”) and other less relevant interest rates such as Brazilian Interbank Certificates of Deposit (“CDI”). As the publication of LIBOR will cease by June 2023, the company has begun to migrate to the adoption of SOFR as an alternative rate, which will fully materialize with the cessation of LIBOR.

 

Regarding rate exposure, a portion of the company’s variable financial debt maintains exposure to the LIBOR rate. However, all these contracts will have definitive migration to the SOFR rate. This migration has been redacted within each of the existing financial debt contracts benchmarked to the LIBOR rate.

 

Currently, 31% of the financial debt contracts subject to variable rates maintain exposure to the LIBOR rate, and 69% of them have exposure to the SOFR rate. All of these contracts will migrate to SOFR rate since mid 2023.

 

Mitigation:

 

Currently, 52% (40% as of December 31, 2021) of the debt is fixed against fluctuations in interest rates. Of the variable debt, most of it is indexed to the reference rate based on SOFR.

 

To mitigate the effect of those derivatives that will be affected by the transition from LIBOR to SOFR, the Company is following the recommendations of the relevant authorities, including the Alternative Reference Rates Committee (“ARRC”) and the International Standard Derivatives Association in line with the measures generally adopted by the market for the replacement of LIBOR in debt and derivative contracts.

 

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Rate Hedging Results:

 

During the period ended December 31, 2022, the Company recognized losses of US$ 7 million (negative) corresponding to the recognition for premiums paid.

 

As of December 31, 2022, the value of interest rate derivative positions amounted to MUS$ 8.8 (positive) corresponding to operating lease hedges in order to fix the rents upon delivery of the aircraft. As of December 31, 2021, the Company did not maintain interest rate derivative positions in force.

 

As of December 31, 2022, the Company recognized a decrease in the right-of-use asset upon settlement of a derivative of US$ 8.1 million associated with leased aircraft. On this same date, a lower expense for depreciation of the right-of-use asset for US$ 0,1 million (positive) is recognized. At the end of December 2021, the Company did not earn profits or losses for this same concept.

 

Sensitivity analysis:

 

The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible, based on current market conditions each date.

 

Increase (decrease)   Positions as of December 31, 2022   Positions as of December 31, 2021
futures curve   effect on profit or loss before tax   effect on profit or loss before tax
in libor 3 months   (MUS$)   (MUS$)
         
+ 100 basis points   -22.64   -46.31
- 100 basis points   +22.64   +46.31

 

A large part of the derivatives of current rates are recorded as cash flow hedge contracts, therefore, a variation in interest rates has an impact on the market value of the derivatives, whose changes affect the equity of the entity. Society.

 

The calculations were made by vertically increasing (decreasing) 100 base points of the interest rate curve, both scenarios being reasonably possible according to historical market conditions.

 

    Positions as of December 31, 2022   Positions as of December 31, 2021
Increase (decrease)   effect on equity   effect on equity
interest rate curve   (MUS$)   (MUS$)
         
+100 basis points   +6.9   -
- 100 basis points   -8.2   -

 

The sensitivity calculation hypothesis must assume that the forward curves of interest rates will not necessarily reflect the real value of the compensation of the flows. In addition, the interest rate structure is dynamic over time.

 

During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement for this type of coverage.

 

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(b)Credit risk

 

Credit risk occurs when the counterparty does not meet its obligations to the Company under a specific contract or financial instrument, resulting in a loss in the market value of a financial instrument (only financial assets, not liabilities). The client portfolio as of December 31, 2022 increased by 25% when compared to the balance as of December 31, 2021, mainly due to an increase in passenger transport operations (travel agencies and corporate) that increased by 53% in its sales, mainly affecting the forms of payment credit card 58%, and cash sales 54%. In relation to the cargo business, it presented an increase in its operations of 1% compared to December 2021. In the case of clients with debt that management considered risky, the corresponding measures were taken to consider their expected credit loss. The provision at the end of December 2022 had a decrease of 17 % compared to the end of December 2021, as a result of the decrease in the portfolio due to recoveries, application of write-offs and updates of the risk matrix factors.

 

The Company is exposed to credit risk due to its operational activities and its financial activities, including deposits with banks and financial institutions, investments in other types of instruments, exchange rate transactions and derivatives contracts.

 

To reduce the credit risk related to operational activities, the Company has implemented limits to the exposure of its debtors, which are permanently monitored for the LATAM network, when deemed necessary, agencies have been blocked for cargo and passenger businesses.

 

(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) its 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 (“IATA”), international 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, it is excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.

 

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Under certain of the Company’s credit card processing agreements, the financial institutions have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation. Additionally, the financial institutions have the ability to require additional collateral reserves or withhold payments related to receivables to be collected if increased risk is perceived related to liquidity covenants in these agreements or negative balances occur.

 

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

 

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

 

Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.

 

Credit quality of financial assets

 

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

 

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

 

(c)Liquidity risk

 

Liquidity risk represents the risk that the Company does not have sufficient funds to pay its obligations.

 

Due to the cyclical nature of its business, the operation and investment needs, along with the need for financing, the Company requires liquid funds, defined as Cash and cash equivalents plus other short-term financial assets, to meet its payment obligations.

 

The balance of liquid funds, future cash generation and the ability to obtain financing, provide the Company with alternatives to meet future investment and financing commitments.

 

As of December 31, 2022, the balance of liquid funds is US$ 1,216 million (US $ 1,047 million as of December 31, 2021), which are invested in short-term instruments through financial entities with a high credit rating classification.

 

F-45

 

 

As of December 31, 2022, LATAM maintains two engaged Revolving Credit Facility for a total of US$ 1,100 million, one for an amount of US$600 million and another for an amount of US$500 million, which are fully available. These lines are secured by and subject to the availability of collateral (i.e. aircraft, engines and spare parts).

 

After voluntary petition for amparo of Chapter 11 Proceedings, the Company received authorization from the Bankruptcy Court for the “debtors in possession” (DIP) financing, in the form of a multi-draw term loan facility in an aggregate principal amount of up to US$ 3.2 billion divided in Tranche A, B and C (hereinafter the contract that documented such financing, the Original DIP Credit Agreement”). Initially, Tranches A and C were committed for a total of US$2.450 billion. To date, these three tranches are fully committed after the approval on October 18, 2021, of a proposal to grant financing under Tranche B of the DIP for a total of US$750 million, thus allowing LATAM to access lower financing costs in the next disbursements of the DIP financing.

 

On April 8, 2022, a consolidated and modified text (the “Reconsolidated and Modified DIP Credit Agreement”) of the Existing Original DIP Credit Agreement was signed, which modifies and recasts said agreement and repays the pending payment obligations under it. (that is, under its Tranches A, B and C). The total amount of the Consolidated and Modified DIP Credit Agreement was US$3.7 billion. The Revised and Amended DIP Credit Agreement included certain reductions in fees and interest compared to the DIP Credit Agreement; and contemplated an expiration date in accordance with the calendar that LATAM anticipated to emerge from the Chapter 11 Procedure.

 

In the context of the Company’s exit from Chapter 11, on October 12, 2022, the Amended and Restated DIP Financing Contract was repaid in full. The repayment was fully made with funds from (i) a Junior DIP Financing of approximately US$1,146Mn; (ii) a Revolving Credit Facility of US$500 million; (iii) a Term Loan B of US$ 750 million; (iv) a Bridge Loan of 5Y Notes of US$750 million; (v) a Bridge Loan of 7Y Notes of US$750million.

 

On October 18, 2022, the Bridge Loans were partially repaid by; (i) a Note issued from registration under U.S. Securities Act of 1933, as amended (“the “Securities Act”), pursuant to Rule 144A and Regulation S, both under the Securities Act, due in 2027 (the “5 Year Note”), with a total principal amount of US$ 450 million, and (ii) a Note issued from registration under the Securities Act pursuant to Rule 144A and Regulation A, both under the Securities Act, due in 2029 (the “7 Year Note”), with a total principal amount of US$ 700 million.

 

Additionally, on November 3, 2022, the repayments of outstanding balances of the Bridge Loan and the Junior DIP were finished with the funds obtained under from the Exit Financing. Starting in November 2022, the exit financing was composed of: (i) a Revolving Credit Line for an amount of US$500 million; (ii) a tranche B term loan for an amount of US$1,100 million (this is the original US$750 million, plus an incremental loan under it obtained on November 3, 2022 for an amount of US$350 million), US$450 million in senior secured notes due in 2027 and US$700 million in senior secured notes due in 2029.

 

F-46

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2022

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              Annual 
      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  GOLDMAN SACHS   U.S.A.    US$    32,071    122,278    323,125    1,361,595    -    1,839,069    1,100,000   Quarterly   18.46    13.38 
0-E  SANTANDER   Spain    US$    19,164    55,288    -    -    -    74,452    70,951   Quarterly   7.26    7.26 
                                                              
Obligations with the public                                                         
97.036.000-K  SANTANDER   Chile    UF    -    3,136    6,271    6,271    178,736    194,414    156,783   To the expiration   2.00    2.00 
0-E  WILMINGTON TRUST COMPANY   U.S.A.    US$    -    152,531    307,625    757,625    887,250    2,105,031    1,150,000   To the expiration   15.00    13.38 
97.036.000-K  SANTANDER   Chile    US$    -    -    -    -    6    6    3   To the expiration   1.00    1.00 
                                                              
Guaranteed obligations                                                         
0-E  BNP PARIBAS   U.S.A.    US$    6,692    14,705    39,215    39,215    138,345    238,172    184,198   Quarterly   5.76    5.76 
0-E  WILMINGTON TRUST COMPANY   U.S.A.    US$    3,839    13,465    45,564    43,444    75,505    181,817    141,605   Quartely/Monthly   8.20    8.20 
                                                              
Other guaranteed obligation                                                         
0-E  EXIM BANK   U.S.A.    US$    394    1,171    12,119    21,111    60,857    95,652    86,612   Quarterly   2.01    1.78 
0-E  MUFG   U.S.A.    US$    13,091    38,914    69,916    -    -    121,921    112,388   Quarterly   6.23    6.23 
0-E  CREDIT AGRICOLE   France    US$    5,769    31,478    70,890    267,615    -    375,752    275,000   To the expiration   8.24    8.24 
                                                              
Financial lease                                                         
0-E  CITIBANK   U.S.A.    US$    6,995    5,844    -    -    -    12,839    12,514   Quarterly   6.19    5.47 
0-E  BNP PARIBAS   U.S.A.    US$    6,978    20,662    1,543    -    -    29,183    28,165   Quarterly   5.99    5.39 
0-E  NATIXIS   France    US$    9,864    29,468    75,525    70,787    129,582    315,226    239,138   Quarterly   6.44    6.44 
0-E  US BANK   U.S.A.    US$    18,072    54,088    86,076    -    -    158,236    152,693   Quarterly   4.06    2.85 
0-E  PK AIRFINANCE   U.S.A.    US$    1,749    5,165    6,665    -    -    13,579    12,590   Quarterly   5.97    5.97 
0-E  EXIM BANK   U.S.A.    US$    3,176    9,681    137,930    193,551    157,978    502,316    446,509   Quarterly   3.58    2.79 
0-E  BANK OF UTAH   U.S.A.    US$    5,878    17,651    47,306    50,649    145,184    266,668    182,237   Monthly   10.45    10.45 
                                                              
Others loans                                                         
0-E  OTHERS (*)        US$    2,028    -    -    -    -    2,028    2,028   To the expiration   -    - 
  TOTAL             135,760    575,525    1,229,770    2,811,863    1,773,443    6,526,361    4,353,414              

 

(*)Obligation with creditors for executed letters of credit.

 

F-47

 

 

1Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2022
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

                  More than   More than   More than                         
              Up to   90 days   one to   three to   More than               Annual 
      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$      %   % 
Financial leases