As filed with the Securities and Exchange Commission on February 22, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
OR
For the fiscal year ended December 31 , 2023
OR
OR
Commission File Number: 1-14728
(Exact name of registrant as specified in its charter)
| LATAM Airlines Group S.A. | Republic of | |||||||
| (Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization) | |||||||
Santiago, Chile
(Address of principal executive offices)
Tel.: 56-2 -2565-3844 E-mail: InvestorRelations@latam.com
Santiago, Chile
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
| Title of each class: | Name of each exchange on which registered: | |||||||
| Over The Counter (OTC) Markets | ||||||||
| Santiago Stock Exchange | ||||||||
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 604,437,877,587 .
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Accelerated filer o | Non-Accelerated filer o | |||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o | Other o | |||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o
TABLE OF CONTENTS
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PRESENTATION OF INFORMATION
Throughout this annual report on Form 20-F, we make numerous references to “LATAM.” Unless the context otherwise requires, references to “LATAM Airlines Group” are to LATAM Airlines Group S.A., the unconsolidated operating entity, and references to “LATAM,” “we,” “us,” “our,” the “group” or the “Company” are to LATAM Airlines Group S.A. and its consolidated affiliates including: Transporte Aéreo S.A. (“LATAM Airlines Chile”), LATAM Airlines Perú S.A. (f/k/a LAN Perú S.A, “LATAM Airlines Peru”), LATAM-Airlines Ecuador S.A. (f/k/a Aerolane Líneas Aéreas Nacionales del Ecuador S.A., “LATAM Airlines Ecuador”), LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), Aerovías de Integración Regional S.A. (“LATAM Airlines Colombia”), TAM S.A. (“TAM”), TAM Linhas Aéreas S.A. (“LATAM Airlines Brazil”), Transporte Aéreos del Mercosur S.A. (“LATAM Paraguay”), LAN Cargo S.A. (“LATAM Cargo”) and its two regional affiliates: Linea Aerea Carguera de Colombia S.A. (“LANCO” or “LATAM Cargo Colombia”) in Colombia and Aerolinhas Brasileiras S.A. (“ABSA” or LATAM Cargo Brazil”) in Brazil. Other references to “LATAM”, as the context requires, are to the LATAM brand which was launched in 2016 and brings together, under one internationally recognized name, all of the affiliate brands such as LATAM Airlines Chile, LATAM Airlines Peru, LATAM Airlines Argentina, LATAM Airlines Colombia, LATAM Airlines Ecuador S.A. and LATAM Airlines Brazil.
LATAM Airlines Argentina continues to be a consolidated affiliate, however, on June 17, 2020, it announced the indefinite cessation of its passenger and cargo operations.
References to “LAN” are to LAN Airlines S.A., currently known as LATAM Airlines Group S.A., and its consolidated affiliates, in connection with circumstances and facts occurring prior to the completion date of the merger between LAN Airlines S.A. and TAM S.A. See “Item 4. Information on the Company-A. History and Development of the Company.”
In this annual report on Form 20-F, unless the context otherwise requires, references to “TAM” are to TAM S.A., and its consolidated affiliates, including TAM Linhas Aereas S.A. (“TLA”), which does business under the name “LATAM Airlines Brazil”, Fidelidade Viagens e Turismo Limited (“TAM Viagens”) and Transportes Aéreos Del Mercosur S.A. (“TAM Mercosur”).
LATAM Airlines Group and the majority of our affiliates maintain accounting records and prepare financial statements in U.S. dollars. Some of our affiliates, however, maintain their accounting records and prepare their financial statements in Chilean pesos, Argentinean pesos, Colombian pesos or Brazilian real. In particular, TAM maintains its accounting records and prepares its financial statements in Brazilian real. Our audited consolidated financial statements include the results of these affiliates translated into U.S. dollars. International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS Accounting Standards”), require assets and liabilities to be translated at period-end exchange rates, while revenue and expense accounts are translated at each transaction date, although a monthly rate may also be used if exchange rates do not vary widely.
In this annual report on Form 20-F, all references to “Chile” are references to the Republic of Chile. This annual report contains conversions of certain Chilean peso and Brazilian real amounts into U.S. dollars at specified rates solely for the convenience of the reader. These conversions should not be construed as representations that the Chilean peso and the Brazilian real amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we specify otherwise, all references to “$”, “US$,” “U.S. dollars” or “dollars” are to United States dollars, references to “pesos,” “Chilean pesos” or “Ch$” are to Chilean pesos. References to “real,” “Brazilian real” or “R$” are to Brazilian real, and references to “UF” are to Unidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate. Unless we indicate otherwise, the U.S. dollar equivalent for information in Chilean pesos used in this annual report and in our audited consolidated financial statements is based on the “dólar observado” or “observed” exchange rate published by Banco Central de Chile (the “Central Bank of Chile”) on December 31, 2023, which was Ch$877.12 = US$1.00. The observed exchange rate on January 31, 2024, was Ch$932.26 = US$1.00. Unless we indicate otherwise, the U.S. dollar equivalent for information in Brazilian real used in this annual report and in our audited consolidated financial statements is based on the average “bid and offer rate” published by Banco Central do Brasil (the “Central Bank of Brazil”) on December 31, 2023, which was R$4.8413 = US$1.00. The observed exchange rate on January 31, 2024, was R$4.9535 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos or Brazilian real. Unless we indicate otherwise, the Chilean peso equivalent for information in UF used in this annual report and in our audited consolidated financial statements is based on the UF rate published by Central Bank of Chile on December 31, 2023, which was Ch$36,789.36 = UF1.00 or US$41.94 = UF1.00 (based on an exchange rate of Ch$877.12 = US$1.00).
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LATAM has a single series of shares of Common Stock, without par value, listed on Chilean Stock Exchange and American Depositary Shares (evidenced by American Depositary Receipts), each representing one share of Common Stock, that were listed on the New York Stock Exchange until June 22, 2020, and currently trade in the over-the-counter market.
We have rounded percentages and certain U.S. dollar, Chilean peso and Brazilian real amounts contained in this annual report for ease of presentation. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
LATAM’s audited consolidated financial statements for the periods ended December 31, 2021, 2022 and 2023 were prepared in accordance with IFRS Accounting Standards.
This annual report contains certain terms that may be unfamiliar to some readers. You can find a glossary of these terms on page ix of this annual report.
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FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe”, “forecast” or other similar expressions. Forward-looking statements, including statements about our beliefs and expectations, are not statements of historical facts. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:
•conflicting interests among our major shareholders;
•the factors described in “Item 3. Key Information-Risk Factors”;
•our ability to service our debt and fund our working capital requirements;
•future demand for passenger and cargo air services in Chile, Brazil, other countries in Latin America and the rest of the world;
•maintenance of our customer relationships due to potential changes in customers’ perception of the company, our brands and services in the future;
•the state of the Chilean, Brazilian, other Latin American and world economies and their impact on the airline industry;
•the effects of competition in the airline industry;
•future terrorist incidents, cyberattacks or related activities affecting the airline industry;
•future outbreak of diseases, or the spread of already existing diseases, affecting travel behavior and/or exports;
•natural disasters affecting travel behavior and/or exports;
•the relative value of the Chilean peso and other Latin American currencies compared to other world currencies;
•the impact of geopolitical risk on the price of fuel, exchange rates, and demand for travel;
•inflation;
•competitive pressures on pricing;
•our capital expenditure plans;
•changes in labor costs, maintenance costs and insurance premiums;
•fluctuation of crude oil prices and its effect on fuel costs;
•cyclical and seasonal fluctuations in our operating results;
•defects or mechanical problems with our aircraft;
•problems with suppliers of aircraft, aircraft engines and engine parts;
•our ability to successfully implement our growth strategy;
•increases in interest rates; and
•changes in regulations, including regulations related to access to routes in which the group operates and environmental regulations.
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Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of them, whether in light of new information, future events or otherwise. You should also read carefully the risk factors described in “Item 3. Key Information-Risk Factors.”
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GLOSSARY OF TERMS
The following terms, as used in this annual report, have the meanings set forth below.
| Consolidated Affiliates of LATAM: | |||||
| “ABSA or LATAM Cargo Brazil” | Aerolinhas Brasileiras S.A., incorporated in Brazil. | ||||
| “LANCO” or "LATAM Cargo Colombia" | Línea Aérea Carguera de Colombia S.A., incorporated in Colombia. | ||||
| “LATAM Airlines Argentina” | LAN Argentina S.A., incorporated in Argentina. | ||||
| “LATAM Airlines Brazil” | TAM Linhas Aéreas S.A., incorporated in Brazil. | ||||
| “LATAM Airlines Chile” | Transporte Aéreo S.A., incorporated in Chile. | ||||
| “LATAM Airlines Paraguay” | Transporte Aéreos del Mercosur S.A., incorporated in Paraguay. | ||||
| “LATAM Airlines Colombia” | Aerovías de Integración Regional S.A., incorporated in Colombia. | ||||
| “LATAM Airlines Ecuador” | LATAM-Airlines Ecuador S.A. (f/k/a Aerolane Líneas Aéreas Nacionales del Ecuador S.A.), incorporated in Ecuador. | ||||
| “LATAM Airlines Peru” | LATAM Airlines Perú S.A. (f/k/a LAN Perú S.A.), incorporated in Perú. | ||||
| “LATAM Cargo” | LAN Cargo S.A., incorporated in Chile. | ||||
| “TAM” | TAM S.A., incorporated in Brazil. | ||||
| Capacity Measurements: | |||||
| “available seat kilometers” or “ASKs” | The sum, across our network, of the number of seats made available for sale on each flight multiplied by the kilometers flown by the respective flight. | ||||
| “available ton kilometers” or “ATKs” | The sum, across our network, of the number of tons available for the transportation of revenue load (cargo) on each flight multiplied by the kilometers flown by the respective flight. | ||||
| Traffic Measurements: | |||||
| “revenue passenger kilometers” or “RPKs” | The sum, across our network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight. | ||||
| “revenue ton kilometers” or “RTKs” | The sum, across our network, of the load (cargo) in tons on each flight multiplied by the kilometers flown by the respective flight. | ||||
| “traffic revenue” | Revenue from passenger and cargo operations. | ||||
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| Yield Measurements: | |||||
| “cargo yield” | Revenue from cargo operations divided by RTKs. | ||||
| “passenger yield” | Revenue from passenger operations divided by RPKs. | ||||
| Load Factors: | |||||
| “cargo load factor” | RTKs expressed as a percentage of ATKs. | ||||
| “passenger load factor” | RPKs expressed as a percentage of ASKs. | ||||
Other: | |||||
| “Airbus A320-Family Aircraft” | The Airbus A319, Airbus A320, and Airbus A321 models of aircraft, including both ceo and neo variants. | ||||
| “m²” | Square meters. | ||||
| “ton” | A metric ton, equivalent to 2,204.6 pounds. | ||||
| “utilization rates” | The actual number of service hours per aircraft per operating day. | ||||
| “operating expenses” | Operating expenses, which are calculated in accordance with IFRS Accounting Standards, comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include: wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses. | ||||
| “MiSchDynamicDT” | Market Intelligence Schedule Dynamic Table. | ||||
| “Diio Mi” | Data In Intelligence Out Market Intelligence. | ||||
| “CO2” | Carbon Dioxide Gas | ||||
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PART I
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 KEY INFORMATION
A.Reserved
B.Capitalization and Indebtedness
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
The following risk factors, and those important risk factors described in other reports we submit to or file with the Securities and Exchange Commission (“SEC”), could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
In order to assess the risks outlined in the risk factors, we have a comprehensive risk model that encompasses various aspects of our business and it is reviewed quarterly. This risk model serves as a framework to identify, assess, and mitigate potential risks that may impact our organization. We understand that risk landscapes evolve, and therefore, we conduct continuous reviews of our risk model to ensure its relevance and effectiveness in addressing emerging risks.
In particular, as we are a non-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including those described below.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
Risks Relating to our Business
•High levels of competition in the airline industry and the consolidation or mergers of competitors in the markets in which the group operates, may adversely affect the level of operations.
•Some of our competitors may receive external support, which could adversely impact our competitive position.
•The group’s business and results of operations may be adversely affected if we fail to obtain and maintain routes, suitable airport access, slots and other operating permits.
•It cannot be assured that in the future we will have access to adequate facilities and landing rights necessary to achieve our expansion plans.
•The group depends on strategic alliances or commercial relationships in many different countries, and the business may suffer if any of our strategic alliances or commercial relationships terminates.
•A failure to successfully implement the group’s strategy or a failure to adjust such strategy to the current economic situation would harm the group’s business and the market value of our ADSs and common shares.
•LATAM may experience difficulty finding, training and retaining employees, which can lead to increased costs and impair our ability to execute strategy and implement operational initiatives.
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•If we lose senior management and other key employees and they are not replaced by individuals with comparable skills, or we otherwise fail to maintain our company culture, our business and results of operations could be materially adversely affected.
•Our business may experience adverse consequences if we are unable to reach satisfactory collective bargaining agreements with unionized employees. Collective action by employees could cause operating disruptions and adversely impact our business.
•We rely on maintaining a high aircraft utilization rate to increase our revenues and absorb our fixed costs, which makes us especially vulnerable to delays.
•Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.
•We are exposed to increases in landing fees and other airport service charges that could adversely affect our margin and competitive position.
•A significant portion of our cargo revenue comes from relatively few product types and may be impacted by events affecting their production, trade or demand.
•An accumulation of ticket refunds could have an adverse effect on our financial results.
•If we are unable to incorporate leased aircraft into the fleet at acceptable rates and terms in the future, our business could be adversely affected.
•Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results of operations.
•Increases in our labor costs, which constitute a substantial portion of our total operating expenses, could directly impact our earnings.
•We face reputational risks related to the use of social media.
Safety & Operational Risks
•We depend on a limited number of suppliers for certain aircraft and engine parts. LATAM flies and depends on Airbus and Boeing aircraft, and our business could be adversely affected if we do not receive timely deliveries of aircraft, if aircraft from these suppliers become unavailable or if the public develops a negative perception of the aircraft we use in our operations.
•Problems with air traffic control systems or other technical failures could interrupt our operations and have a material adverse effect on our business.
•Losses and liabilities in the event of an accident involving one or more of our aircraft could materially affect our business.
•Prolonged technical and operational issues with the airport infrastructure in cities where we have a significant presence may have a material adverse effect on our operations.
•Our business may be adversely affected by a downturn in the airline industry caused by exogenous events that affect travel behavior or increase costs, such as outbreak of disease, weather conditions and natural disasters, war or terrorist attacks.
•The impacts of a pandemic and the efforts to mitigate the spread of a virus may adversely impact the group’s business, operations and financial results.
•Disruptions or security breaches of our information technology infrastructure or systems could interfere with the operations, compromise passenger or employee information, and expose us to liability, which may adversely affect our business and reputation.
Risks Relating to the Airline Industry and the Countries in Which We Operate
•Because our performance is heavily dependent on economic conditions in the countries in which the group does business, negative economic conditions in those countries could adversely impact the group’s business and results of operations and cause the market price of our common shares and ADSs to decrease.
•Latin American governments have exercised and continue to exercise significant influence over their economies.
•Political instability and social unrest in Latin America may adversely affect our business.
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•Because our business relies extensively on third-party service providers, failure of these parties to perform as expected, or interruptions in our relationships with these providers or in their provision of services to us, could have an adverse effect on our financial position and results of operations.
•Our financial results are exposed to foreign currency fluctuations.
Environmental and Regulatory Risks
•Our reputation and brand could be adversely impacted if we fail to make progress towards achieving our environmental sustainability and diversity, equity and inclusion goals.Our operations are subject to local, national and international environmental regulations; costs of compliance with applicable regulations, or the consequences of noncompliance, could adversely affect our results, our business or our reputation.
•Our business may be adversely affected by the consequences of climate change.
•The business is highly regulated and changes in the regulatory environment in the different countries may adversely affect our business and results of operations.
•We are subject to anti-corruption, anti-bribery, anti-money laundering and antitrust laws and regulations in Chile, Brazil, Peru, the United States and in the various other countries in which we operate. Violations of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial condition.
•We are subject to risks relating to litigation and administrative proceedings that could adversely affect the business and financial performance in the event of an unfavorable ruling.
•Rapid technological advancements and digitalization could generate risks in implementation and regulatory control.
•Our reputation and brand could be adversely impacted if we fail to make progress towards achieving our environmental sustainability and diversity, equity and inclusion goals.
Risks Related to our Indebtedness
•We have substantial liquidity needs and continue to pursue various financing options. Our business may be adversely affected if we are unable to service our debt or meet our future financing requirements.
•We have significant exposure to SOFR and other floating interest rates; increases in interest rates will increase our financing cost and may have adverse effects on our financial condition and results of operations.
•Our debt agreements contain various affirmative, negative and financial covenants, which could limit our ability to conduct our business. A breach of certain negative covenants could also trigger an event of default and acceleration of our indebtedness.
Risks Relating to our Common shares and ADRs
•Our major shareholders may have interests that differ from those of ADRs holders.
•Holders of ADRs may be adversely affected by the substantial dilution of the shares represented by ADRs.
•Trading of our ADSs and common shares in the securities markets is limited and could experience further illiquidity and price volatility.
•Holders of ADRs may be adversely affected by currency devaluations and foreign exchange fluctuations.
•Future changes in Chilean foreign investment controls and withholding taxes could negatively affect non-Chilean residents that invest in our shares.
•Our ADS holders may not be able to exercise preemptive rights in certain circumstances.
•We are not required to disclose as much information to investors as a U.S. issuer is required to disclose and, as a result, you may receive less information about us than you would receive from a comparable U.S. company.
Risks Relating to our Business
High levels of competition in the airline industry and the consolidation or mergers of competitors in the markets in which the group operates, may adversely affect the level of operations.
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Our business, financial condition and results of operations could be adversely affected by high levels of competition within the industry, particularly the entrance of new competitors into the markets in which the group operates, and the potential implementation of aggressive pricing strategies by competitors. Airlines compete primarily over fare levels, frequency and dependability of service, brand recognition, passenger amenities (such as frequent flyer programs) and the availability and convenience of other passenger or cargo services. New and existing airlines (and companies providing ground cargo or passenger transportation) could enter our markets and compete with us on any of these bases, including by offering lower prices, more attractive services or increasing their route offerings in an effort to gain greater market share. For more information regarding our main competitors, see “Item 4. Information of the Company—Business Overview—Passenger Operations-International Passenger Operations” and “Item 4. Information of the Company—Business Overview—Passenger Operations—Business Model for Domestic Operations”.
Low-cost carriers have an important impact on the industry’s revenues given their low unit costs. Lower costs allow low-cost carriers to offer inexpensive fares which, in turn, allow price sensitive customers to fly or to shift from legacy carriers to low cost carriers. In past years we have seen more interest in the development of the low-cost model throughout Latin America. For example, Sky Airline and JetSmart are main competitors in the Chilean and Peruvian markets and both have low-cost business models. Moreover, the COVID-19 pandemic has prompted changes in business models, with Avianca transitioning to a low-cost model. Additionally, some of these airlines have pursued strategies of consolidation through alliances or mergers with legacy carriers. Examples include the creation of Abra Group (Avianca and Gol) and the recent approval by relevant authorities for American Airlines to acquire a minority stake in JetSmart.
In the Cargo business, companies such as Maersk, CMA CGM and MSC have begun to compete in air transportation, in part due to the COVID-19 pandemic and the scarcity of containers; CMA CGM and Air France-KLM airlines agreed to share cargo space in their airplanes; and American Airlines Cargo and Web Cargo have partnered to increase their destinations. These consolidations, mergers or new alliances might continue to appear, increasing the concentration and levels of competition.
Moreover, as a result of the competitive environment, there may be further consolidation in the Latin American and global airline industry, whether by means of acquisitions, joint ventures, partnerships or strategic alliances. We cannot predict the effects of further consolidation on the industry. Furthermore, consolidation in the airline industry and changes in international alliances will continue to affect the competitive landscape in the industry and may result in the development of airlines and alliances with increased financial resources, more extensive global networks and reduced cost structures.
International strategic growth plans rely, in part, upon receipt of regulatory approvals of the countries in which we plan to expand our operations with joint business agreements. The group may not be able to obtain those approvals, while other competitors might be approved. Accordingly, we might not be able to compete for the same routes as our competitors, which could diminish our market share and adversely impact our financial results. No assurances can be given as to any benefits, if any, that we may derive from such agreements.
Some of our competitors may receive external support, which could adversely impact our competitive position.
Some of our competitors may receive support from external sources, such as their national governments, which may be unavailable to us. Support may include, among others, subsidies, financial aid or tax waivers. This support could place the group at a competitive disadvantage and adversely affect operations and financial performance. For example, Aerolineas Argentinas has historically been government subsidized. Additionally, during the COVID-19 pandemic, some competitors on long-haul routes (such as American Airlines, Delta Airlines, Southwest, United and Airfrance-KLM) received government support. This support could place us at a competitive disadvantage and adversely affect our business, financial condition and results of operations
The group’s business and results of operations may be adversely affected if we fail to obtain and maintain routes, suitable airport access, slots and other operating permits.
LATAM’s business depends upon our access to key routes and airports. Bilateral aviation agreements between countries, open skies laws and local aviation approvals frequently involve political and other considerations outside of our control. The group’s operations could be constrained by any delay or inability to gain access to key routes or airports, including:
•limitations on our ability to transport more passengers;
•the imposition of flight capacity restrictions;
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•the inability to secure or maintain route rights in local markets or under bilateral agreements; or
•the inability to maintain our existing slots and obtain additional slots.
The group operates numerous international routes subject to bilateral agreements, as well as domestic flights within Chile, Peru, Brazil, Ecuador and Colombia, subject to local route and airport access approvals. See “Item 4. Information on the Company—Business Overview—Regulation.”
There can be no assurance that existing bilateral agreements with the countries in which the group’s companies are based and permits from foreign governments will continue to be in effect. A modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permission to operate at certain airports, destinations or slots, or the imposition of other sanctions could also have a material adverse effect on our business. A change in the administration of current laws and regulations or the adoption of new laws and regulations in any of the countries in which the group operates that restrict our routes, airports or other access may have a material adverse effect on our business, financial condition and results of operations.
It cannot be assured that in the future we will have access to adequate facilities and landing rights necessary to achieve our expansion plans.
Certain airports that we currently serve or plan to serve in the future may have capacity constraints and impose various restrictions. These restrictions include limitations on takeoff and landing slots during specific periods of the day and restrictions on aircraft noise levels. We cannot guarantee that our group will be able to secure an adequate number of slots, gates, and other facilities at airports to expand our services in line with our growth strategy. Additionally, airports that are currently not subject to capacity constraints may face such constraints in the future.
Furthermore, airlines must use their slots regularly and promptly, or they risk losing them to other carriers. If slots or other airport resources are unavailable or restricted in any way, we may need to modify schedules, alter routes, or reduce aircraft utilization. It is also possible that aviation authorities in the countries where our group operates may change the rules for assigning takeoff and landing slots. An example of this is the São Paulo airport (Congonhas), where slots previously operated by Avianca Brazil were reassigned primarily to Azul in 2019, after the Agência Nacional de Aviação Civil in Brazil (ANAC) approved new rules for slot distribution. Likewise, on June 7, 2022, ANAC passed Resolution No. 682, by which the ANAC approved new regulation for airport coordination and defined the rules for allocating and monitoring the use of airport infrastructure through the use of slots (e.g., coordination of arrival and departure times) at coordinated airports. It also updated the parameters applicable to the airports of Congonhas, Guarulhos (Governador André Franco Montoro International Airport), Rio de Janeiro (Santos Dumont Airport), Recife (Gilberto Freyre International Airport) and Pampulha (Carlos Drummond de Andrade Airport). The occurrence of any of these scenarios involving LATAM operations could have a negative financial impact on our business.
Moreover, we cannot guarantee that airports without current restrictions will not implement restrictions in the future, or that existing restrictions will not become more burdensome. These restrictions may limit our ability to continue providing services or expanding our operations at these airports.
The group depends on strategic alliances or commercial relationships in many different countries, and the business may suffer if any of our strategic alliances or commercial relationships terminates.
We maintain a number of alliances and other commercial relationships in many of the jurisdictions in which LATAM and its affiliates operate. These alliances or commercial relationships allow us to enhance our network and, in some cases, to offer our customers services that we could not otherwise offer. If any of our strategic alliances or commercial relationships deteriorate, or any of these agreements are terminated, the group’s business, financial condition and results of operations could be adversely affected.
A failure to successfully implement the group’s strategy or a failure to adjust such strategy to the current economic situation would harm the group’s business and the market value of our ADSs and common shares.
We have developed a strategic plan with the goal of becoming one of the most admired airlines in the world and renewing our commitment to sustained profitability and superior returns to shareholders. Our strategy requires us to identify value propositions that are attractive to our clients, to find efficiencies in our daily operations, and to transform ourselves into a stronger and more risk-resilient company. A tenet of our strategic plan is the continuing adoption of a new
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travel model for domestic and international services to address the changing dynamics of customers and the industry, and to increase our competitiveness. The new travel model is based on passenger segmentation and fare unbundling, allowing air travel to be accessible to a wider audience and, with a special focus on those who wish to fly more frequently and those seeking a premium service. This model requires continued cost reduction efforts and increasing revenues from ancillary activities. In connection with these efforts, the group continues to implement a series of initiatives to reduce cost per ASK in all its operations as well as developing new ancillary revenue initiatives.
Difficulties in implementing our strategy may adversely affect the group’s business, results of operation and the market value of our ADSs and common shares.
LATAM may experience difficulty finding, training and retaining employees, which can lead to increased costs and impair our ability to execute strategy and implement operational initiatives.
The airline industry is labor intensive. We employ a large number of pilots, flight attendants, maintenance technicians and other operating and administrative personnel, such as specialized technology personnel. The airline industry has, from time to time, experienced a shortage of qualified personnel, especially pilots and maintenance technicians, which has somewhat intensified during the recovery phase of air traffic following the peak of the pandemic. Should turnover of employees, particularly pilots and maintenance technicians, sharply increase, our training costs will be significantly higher. LATAM cannot assure that it will be able to recruit, train and retain the managers, pilots, technicians and other qualified employees that are needed to continue the current operations or replace departing employees. An increase in turnover or failure to recruit, train and retain qualified employees at a reasonable cost could materially adversely affect the business, financial condition, and results of operations. A loss of key personnel or material erosion of employee morale could impair the ability to execute strategy and implement operational initiatives, thereby adversely affecting the group.
If we lose senior management and other key employees and they are not replaced by individuals with comparable skills, or we otherwise fail to maintain our company culture, our business and results of operations could be materially adversely affected.
We are dependent on the experience and industry knowledge of our officers and other key employees to design and execute our business plans. If we experience a substantial turnover in our leadership and other key employees and we are not able to replace these persons with individuals with comparable skills, or we otherwise fail to maintain our company culture, our performance could be materially adversely impacted. Furthermore, we may be unable to attract and retain additional qualified senior management and other key personnel as needed in the future.
Our business may experience adverse consequences if we are unable to reach satisfactory collective bargaining agreements with unionized employees. Collective action by employees could cause operating disruptions and adversely impact our business.
As of December 31, 2023, approximately 45% of the group’s employees, including administrative personnel, cabin crew, flight attendants, pilots and maintenance technicians are members of unions and have contracts and collective bargaining agreements which expire on a regular basis. The business, financial condition and results of operations could be materially adversely affected by a failure to reach agreement with any labor union representing such employees or by an agreement with a labor union that contains terms that are not in line with expectations or that prevent the group from competing effectively with other airlines. For further information regarding the unions representing employees in each country in which the group operates and where we have established collective bargaining agreements, see “Item 6. Directors, Senior Management and Employees—Employees—Labor Relations.”
Certain employee groups such as pilots, flight attendants, mechanics and our airport personnel have highly specialized skills. As a consequence, actions by these groups, such as strikes, walk-outs or stoppages, could severely disrupt operations and adversely impact our operating and financial performance, as well as our image.
A strike, work interruption or stoppage or any prolonged dispute with employees who are represented by any of these unions could have an adverse impact on operations. These risks are typically exacerbated during periods of renegotiation with the unions, which typically occurs every two to four years depending on the jurisdiction and the union. Any renegotiated collective bargaining agreement could feature significant wage increases and a consequent increase in our operating expenses. Any failure to reach an agreement during negotiations with unions may require us to enter into arbitration proceedings, use financial and management resources, and potentially agree to terms that are less favorable to us
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than our existing agreements. Employees who are not currently members of unions may also form new unions that may seek further wage increases or benefits.
On October 6, 2023, the unionized air traffic controllers affiliated with the Chilean College of Air Traffic Controllers (Colegio de Controladores de Tránsito Aéreo, ATC) held a partial nationwide strike to demand several concessions from national authorities. The strike lasted 2 days and affected only domestic flights at Arturo Merino Benitez Airport in Chile.
On October 3, 2023 airport employees at Governador André Franco Montoro International Airport, in Guarulhos, Brazil, protested against the ban on the use of cell phones in loading and unloading areas during working hours. This event caused delays in LATAM Airlines Brazil’s domestic flights which also impacted on the group’s international operations. However, this event lasted 2 days, after which we took mitigation actions (such as changes of date, flight, rerouting and destinations) to regularize our operations.
Although LATAM has established protocols to contain these type of situations, there is no guarantee that we will be able to reach a mutually beneficial agreement in the event of any future disagreements with our employees and unions.
We rely on maintaining a high aircraft utilization rate to increase our revenues and absorb our fixed costs, which makes us especially vulnerable to delays.
Generally, a key element of our strategy is to maintain a high daily aircraft utilization rate, which measures the number of hours we use our aircraft per day. High daily aircraft utilization allows us to maximize the amount of revenue we generate from our aircraft and absorb the fixed costs associated with our fleet and is achieved, in part, by reducing turnaround times at airports and developing schedules that enable us to increase the average hours flown per day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including air traffic and airport congestion, adverse weather conditions, unanticipated maintenance and delays by third-party service providers relating to matters such as fueling, catering and ground handling. If aircraft fall behind schedule, the resulting delays could cause a disruption in our operating performance and have a financial impact on our results.
Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.
Higher jet fuel prices could have a materially adverse effect on our business, financial condition and results of operations. Jet fuel costs have historically accounted for a significant amount of our operating expenses, and accounted for 37.2% of our total costs of sales in 2023. For additional information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Risk of Fluctuations in Fuel Prices.” Both the cost and availability of fuel are subject to many economic and political factors and events that we can neither control nor predict, including international political and economic circumstances such as the political instability in major oil-exporting countries. Any future fuel supply shortage (for example, as a result of production curtailments by the Organization of the Petroleum Exporting Countries, or “OPEC”), a disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, labor actions such as the 2018 trucking strike in Brazil, the continued unrest in the Middle East, the conflict in Ukraine or other events could result in higher fuel prices or reductions in scheduled airline services. We cannot ensure that we would be able to offset any increases in the price of fuel. In addition, lower fuel prices may result in lower fares through the reduction or elimination of fuel surcharges. We have entered into fuel hedging arrangements, but there can be no assurance that such arrangements will be adequate to protect us from an increase in fuel prices in the near future or in the long term. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Fluctuations in Fuel Prices.”
We are exposed to increases in landing fees and other airport service charges that could adversely affect our margins and competitive position.
The group must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges, including at Guarulhos International Airport in São Paulo, Jorge Chavez International Airport in Lima or Comodoro Arturo Merino Benitez International Airport in Santiago, could have a material adverse impact on our results of operations. Passenger taxes and airport charges have increased substantially in recent years. We cannot assure that the airports in which the group operates will not increase or maintain high passenger taxes and service charges in the future. Any such increases could have an adverse effect on our financial condition and results of operations.
A significant portion of our cargo revenue comes from relatively few product types and may be impacted by events affecting their production, trade or demand.
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The group’s cargo demand, especially from Latin American exporters, is concentrated in a small number of product categories, such as exports of fish, shell fish and fruit from Chile, asparagus from Peru and fresh flowers from Ecuador and Colombia. Events that adversely affect the production, trade or demand for these goods may adversely affect the volume of goods that are transported and may have a significant impact on the results of operations. Future trade protection measures by or against the countries for which we provide cargo services may have an impact on cargo traffic volumes and adversely affect our financial results. Some of the cargo products are sensitive to foreign exchange rates and, therefore, traffic volumes could be impacted by the appreciation or depreciation of local currencies.
An accumulation of ticket refunds could have an adverse effect on our financial results.
If the group is required to pay out a substantial amount of ticket refunds in cash, this could have an adverse effect on our financial results or liquidity position. Furthermore, LATAM has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of LATAM’s credit card processing agreements, the financial institutions in certain circumstances have the right to require that LATAM maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which LATAM has not yet provided the service (i.e., air transportation). Such financial institutions may require cash or other collateral reserves to be established or withholding of payments related to receivables to be collected, including if LATAM does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments. Refunds lower our liquidity and put us at risk of triggering liquidity covenants in these processing agreements and, in doing so, could force us to post cash collateral with the credit card companies for advance ticket sales.
If we are unable to incorporate leased aircraft into the fleet at acceptable rates and terms in the future, our business could be adversely affected.
A large portion of the aircraft fleet is subject to long-term leases. The leases typically run from 3 to 12 years from the date of execution. We may face more competition for, or a limited supply of, leased aircraft, making it difficult to negotiate on competitive terms upon expiration of the current leases or to lease additional capacity required for the targeted level of operations. If we are forced to pay higher lease rates in the future to maintain our capacity and the number of aircraft in the fleet, our profitability could be adversely affected.
Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results of operations.
Significant events affecting the aviation insurance industry (such as terrorist attacks, airline crashes or accidents and health epidemics and the related widespread government-imposed travel restrictions) may result in significant increases of airlines’ insurance premiums and/or relevant decreases of insurance coverage. Further increases in insurance costs and/or reductions in available insurance coverage could have a material impact on our financial results, change the insurance strategy, and also increase the risk of uncovered losses.
Increases in our labor costs, which constitute a substantial portion of our total operating expenses, could directly impact our earnings.
Labor costs constitute a significant percentage of our total cost of sales (14.9%% in 2023) and at times in our operating history we have experienced pressure to increase wages and benefits for our employees. A significant increase in our labor costs could result in a material reduction in our earnings.
We face reputational risks related to the use of social media.
LATAM frequently uses social media platforms as marketing tools. These platforms provide LATAM, as well as individuals, with access to a broad audience of consumers and other interested persons. Negative commentary regarding LATAM or the products it sells may be posted on social media platforms and similar devices at any time and may be adverse to LATAM’s reputation or business. Further, as laws, regulations, and different platforms’ terms of service rapidly evolve to govern the use of social media, the failure by LATAM, its employees or third parties acting on LATAM’s behalf to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact the LATAM’s business, financial condition, and results of operations or subject it to fines or other penalties.
Safety & Operational Risks
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We depend on a limited number of suppliers for certain aircraft and engine parts. LATAM flies and depends on Airbus and Boeing aircraft, and our business could be adversely affected if we do not receive timely deliveries of aircraft, if aircraft from these suppliers become unavailable or if the public develops a negative perception of the aircraft we use in our operations.
We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. As a result, we are vulnerable to problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result in unscheduled maintenance requirements, in customer avoidance or in actions by the aviation authorities resulting in an inability to operate our aircraft. During the year 2023, LATAM Airlines Group’s main suppliers were aircraft manufacturers Airbus and Boeing.
In addition to Airbus and Boeing, LATAM Airlines has a number of other suppliers, primarily related to aircraft accessories, spare parts, and components, including Pratt & Whitney Canada, MTU Maintenance, Rolls-Royce, General Electric Commercial Aviation Services Ltd., General Electric Celma, General Electric Engines Service, CMF International and Honeywell, among others.
As of December 31, 2023, LATAM Group had a total fleet of 256 Airbus and 77 Boeing aircraft (38 of these aircraft are non-current assets classified as held for sale). Risks relating to Airbus and Boeing include:
•our failure or inability to obtain Airbus or Boeing aircraft, parts or related support services on a timely basis because of high demand, aircraft delivery backlog or other factors;
•the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft;
•the issuance by the Chilean or other aviation authorities of directives restricting or prohibiting the use of our Airbus or Boeing aircraft, or requiring time-consuming inspections and maintenance;
•adverse public perception of a manufacturer as a result of safety concerns, negative publicity or other problems, whether real or perceived, in the event of an accident;
•delays between the time we realize the need for new aircraft and the time it takes us to arrange for Airbus and Boeing or for a third-party provider to deliver this aircraft; or
•the delay, for any reason, to conclude cabin upgrade projects that could result in aircraft unavailability for a certain period of time.
The COVID-19 pandemic and its impact on the aviation industry, along with the subsequent global supply chain challenges faced by manufacturers and distributors, resulted in a widespread shortage of aircraft and delays in scheduled deliveries. Consequently, the waiting period for obtaining new aircraft as well as the time between a new order and its delivery became longer, affecting both Airbus and Boeing, as well as LATAM.
On July 25, 2023, Pratt & Whitney disclosed a powder metal contamination issue affecting PW1100 GTF engines, which power Airbus Neo Family aircraft. Pratt & Whitney also disclosed that they had designed a plan to remove and inspect those engines. As of December 31, 2023, LATAM group reported 31 Airbus Neo family aircraft within its fleet (approximately 9% of the total fleet). The total number of AOG (Aircraft on Ground) affecting LATAM group’s operations is a fraction of this number and will depend on the turnaround time of the shop inspection and engine repair, and the level of cycles that the engines have. While we do not yet know the full impact of these operational disruptions resulting from engine shortages from Pratt & Whitney, potential reduction of air traffic could have an adverse effect on our business, result of operations and financial condition. Our business could also be materially adversely affected if the passengers avoid flying on our aircraft due to an adverse perception of aircraft manufacturing, whether because of safety concerns or other problems, real or perceived, or in the event of an accident involving such aircraft or its engines.
The occurrence of any one or more of the above mentioned factors could restrict our ability to use aircraft to generate profits, respond to increased demands, or could otherwise limit our operations and adversely affect our business
Problems with air traffic control systems or other technical failures could interrupt our operations and have a material adverse effect on our business.
The operations, including the ability to deliver customer service, are dependent on the effective operation of the equipment, including aircraft, maintenance systems and reservation systems. The operations are also dependent on the
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effective operation of domestic and international air traffic control systems and the air traffic control infrastructure by the corresponding authorities in the markets in which the group operates. Equipment failures, personnel shortages, air traffic control problems and other factors that could interrupt operations could adversely affect our financial results as well as our reputation.
Losses and liabilities in the event of an accident involving one or more of our aircraft could materially affect our business.
We are exposed to potential catastrophic losses in the event of an aircraft accident, terrorist incident or any other similar event. There can be no assurance that, as a result of an aircraft accident or significant incident:
•we will not need to increase our insurance coverage;
•our insurance premiums will not increase significantly;
•our insurance coverage will fully cover all of our liabilities; and
•we will not be forced to bear substantial losses.
Substantial claims resulting from an accident or significant incident in excess of our related insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Moreover, any aircraft accident, even when comprehensively insured, could cause the negative public perception that our operations or aircraft are less safe or reliable than those operated by other airlines, or by other flight operators, which could have a material adverse effect on our business, financial condition and results of operations.
On November 18, 2022, LATAM Airlines Peru reported that during the take-off of flight LA 2213 at Lima’s Jorge Chávez International Airport a fire truck entered the runway while performing an emergency drill and collided with its aircraft. Authorities subsequently confirmed fatalities of three firefighters who were in the fire truck that struck the aircraft. There were no fatalities among the 102 passengers and 6 crew members of the aircraft. According to the final report of the Aviation Accidents Investigation Commission (Comisión de Investigación de Accidentes de Aviación, “CIAA”) issued in September 2023, this chain of events was originated by the airport operator's inadequate planning and coordination, as well as the failure to use the communication and International Civil Aviation Organization (“ICAO”) standardized phraseology. The aircraft damage from this event was covered by LATAM’s insurance policies.
Prolonged technical and operational problems with the airport infrastructure in cities where we have a significant presence may have a material adverse effect on our operations.
Our operations and growth strategy are dependent on the facilities and infrastructure of key airports, including Santiago’s International Airport, São Paulo’s Guarulhos International and Congonhas Airports, Brasilia’s International Airport, Bogota's El Dorado International Airport, and Lima’s Jorge Chavez International Airport.
Santiago’s International Airport opened its new International Terminal, called Terminal 2, at the end of February 2022. The new terminal reduced assisted check-in counters by 50%, which poses a challenge to the airlines as it obligates them to implement self-service models. Additionally, Terminal 1 is currently undergoing a remodeling plan for the national terminal, which is being carried out in two phases (east and west). During the initial phase, LATAM has effectively maintained and concentrated operations in the east sector, utilizing the existing facilities. However, in August 2024, the concessionaire will start with the second phase of the remodeling, and the entire operation of the national terminal will be shifted to the west sector, resulting in significant impact on LATAM’s use of the facilities. The completion of this phase and the entire remodeling project is scheduled to be finalized by August 2025.
Furthermore, due to the previous airport concessions provided by the Chilean government in 2019, there are two airports currently under construction in Chile: Iquique’s Diego Aracena International Airport and Arica’s Chacalluta International Airport, which are both undergoing terminal and platform expansions. These works are expected to be completed by the first half 2024 and they imply a risk of adverse effects to the airports’ operations. In addition, there are three other new concessions in Chile planning to start terminal construction work during 2024 and 2026: Balmaceda Airport, Calama Airport, La Florida International Airport and Presidente Carlos Ibáñez del Campo International Airport.
In Peru, the Jorge Chávez International Airport in Lima has a limited growth capacity on the air side (including the runway and apron, as well as parking spaces), and faces challenges relating to the interior infrastructure of the airport, which is overly crowded. The airport concessionaire is currently in the process of building a second runway and a new
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terminal to be completed at the end of 2024. Any delay or limitation due to ongoing works could negatively affect our operations, limit our ability to grow and affect our competitiveness in the country and region.
On the other hand, Jaén Airport and Jauja Airport in Perú have experienced significant runway infrastructure issues, resulting in severe operational challenges and flight cancellations. Urgent intervention was requested to the Peruvian government in 2023 to address these needs and rectify these problems, in order to ensure the efficient and safe functioning of air operations.
Brazilian airports, such as the Brasília and São Paulo (Guarulhos) International Airports, have limited the number of takeoff and landing slots per day due to infrastructural limitations. Any condition that would prevent or delay our access to airports or routes that are vital to our strategy, or our ability to maintain our existing slots and obtain additional slots, could materially adversely affect our operations.
In 2022, under the state government airport concession program in Brazil (the “Concession Program”), 15 airports in Brazil were granted under new concessions, 8 of those airports are operated by LATAM, including the Congonhas Airport located at downtown São Paulo. The Concession Program allows for important investments in infrastructure, but it implies a high volume of work to be undertaken simultaneously. Over the next 5 years, 29 of the 55 Airports operated by LATAM in Brazil will undergo infrastructure improvement works, which may generate temporary restrictions and could affect our revenues.
In 2023, after two years of delay due to the COVID-19 pandemic, GRU Airport, the concessionaire of Guarulhos Airport, began the last phase of infrastructure expansion works, including the construction of a new fast exit on the main runway and a new taxiway. In addition, there are plans to build a new pier and expand of the apron, which are expected to be completed by 2025. These developments will facilitate an increase in operations at the country's busiest airport.
While LATAM is closely coordinating with and supporting the airport concessionaires, any delays on the completion of the ongoing remodeling or expansion works of any of the airports indicated above would materially adversely affect our operations.
Our business may be adversely affected by a downturn in the airline industry caused by exogenous events that affect travel behavior or increase costs, such as outbreak of disease, weather conditions and natural disasters, war or terrorist attacks.
Demand for air transportation may be adversely impacted by exogenous events, such as epidemics (such as Ebola and Zika) and pandemics (such as the COVID-19 pandemic), terrorist attacks, war or political and social instability. Increasing geopolitical tensions and hostilities in connection with the conflict in Ukraine, and in the Middle East, and the trade and monetary sanctions that have been imposed in connection with those developments, have affected, and could significantly affect, worldwide oil prices and demand, cause turmoil in the global financial system and negatively impact air travel. Situations such as these could have a material impact on the business, financial condition and results of operations.
Following a terrorist attack by Hamas in the Gaza strip on October 7, 2023, Israel declared war on Hamas and other terrorist organizations in Gaza. The military conflict is ongoing, and its length and outcome are highly unpredictable. The Israel conflict and any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations or otherwise and any related economic impact could result in decreased passenger traffic and materially and negatively affect the business, financial condition and results of operations.
Revenues for airlines depend on the number of passengers carried, the fare paid by each passenger and service factors, such as the timelines of flight departures and arrivals. During periods of fog, ice, low temperatures, storms or other adverse weather conditions or natural disasters outside of our control, some or all of our flights may be canceled or significantly delayed, affecting and disrupting our operations and reducing profitability. For example, in 2022, a LATAM aircraft was severely damaged after flying through stormy weather on approach to Asuncion Airport in Paraguay, and was required to make an emergency landing. Increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons, floods or other severe weather events, including from changes in the global climate and rising global temperatures, could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could result in loss of revenue and higher costs. For example, in October 2023, there were significant delays and cancellations due to strong weather conditions in Guarulhos airport, Brazil. Likewise, in
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February, 2024, forest fires in Chile affecting the Valparaiso Region and La Araucanía Region impacted LATAM’s operations at the Arturo Merino Benitez International Airport and at La Araucanía International Airport, respectively, delaying flights and increasing operational costs derived from certain commercial flexibility measures granted to passengers affected by the fires.
In addition, fuel prices and supplies, which constitute a significant cost for us, may increase as a result of any future terrorist attacks, a general increase in hostilities or a reduction in output of fuel, voluntary or otherwise, by oil-producing countries. Such increases may result in both higher airline ticket prices and decreased demand for air travel generally, which could have an adverse effect on revenues and results of operations.
The impacts of a pandemic and the efforts to mitigate the spread of a virus may adversely impact the group’s business, operations and financial results.
A pandemic, such as COVID-19, and its variants may negatively affect global economic conditions, disrupt supply chains and negatively affect aircraft manufacturing operations and reduce the availability of aircraft spare parts.
There is a possibility of changes in consumer behavior in the medium and long term as a result of a pandemic and its variants that may generate adverse financial impacts for LATAM. The COVID-19 pandemic and the accompanying fear of widespread outbreaks of communicable diseases materially reduced the demand for and availability of air travel around the world, materially affecting our business, operations and financial performance .
By the end of 2023, our operations in domestic markets were fully recovered, while the international segment is expected to recover during the first quarter of 2024. LATAM corporate segment is close to reaching pre-pandemic RPK levels. Nevertheless, we cannot assure that a new pandemic or any of its variants will not affect the business in the future.
Disruptions or security breaches of our information technology infrastructure or systems could interfere with the operations, compromise passenger or employee information, and expose us to liability, which may adversely affect our business and reputation.
A serious internal technology error, failure, or cybersecurity incident impacting systems hosted internally at our data centers, externally at third-party locations or cloud providers, or large-scale interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network with potential impact on our operations. Our technology systems and related data may also be vulnerable to a variety of sources of interruption, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyber-attacks, security breaches in the supply chain (suppliers) and other security issues. These systems include our computerized airline reservation system, flight operations system, telecommunications systems, website, customer, self-service applications (“apps”), maintenance systems, check-in kiosks, in-flight entertainment systems and data centers.
Furthermore, in light of the rise of generative Artificial Intelligence technology (AI), generative AI systems have the potential to create deceptive or harmful content, such as deep fakes or fake news, leading to misinformation and manipulation. The misuse or malicious intent of generative AI could pose a threat to our operations and reputation.
In addition, as a part of our ordinary business operations, we collect and store sensitive data, including personal information of our customers and employees and information of our business partners. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Unauthorized parties may attempt to gain access to our systems or information through fraud, deception, or cybersecurity incidents. Hardware or software we develop or acquire may contain defects that could unexpectedly compromise information security. The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business.
To date we have not experienced any major incidents related to cybersecurity or our information systems. Any such incident could cause damage to our reputation and may require us to expend substantial resources to remedy the situation, and could therefore have a material adverse effect on our business and results of operations. In addition, there can be no assurance that any efforts we make to prevent these incidents will be successful in avoiding harm to our business. See “Item 16K. Cybersecurity.”
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Risks Relating to the Airline Industry and the Countries in Which the Group Operates
Because our performance is heavily dependent on economic conditions in the countries in which the group does business, negative economic conditions in those countries could adversely impact the group’s business and results of operations and cause the market price of our common shares and ADSs to decrease.
Passenger and cargo demand is heavily cyclical and highly dependent on global and local economic growth, economic expectations and foreign exchange rate variations, among other things. The occurrence of similar events in the future could adversely affect our business. The group plans to continue to expand operations based in Latin America, which means that performance will continue to depend heavily on economic conditions in the region.
Latin American countries have historically experienced economic instability, including uneven periods of economic growth as well as significant downturns (e.g., periods of severe economic recession, currency devaluation, high inflation, and political instability). Our business has been adversely affected by these factors and global economic recessionary conditions, which include weak economic growth in Chile, recessions in Brazil and Argentina, and poor economic performance in certain emerging market countries in which the group operates.
High interest rates, inflation (in some cases substantial and prolonged), and unemployment rates generally characterize each economy. Because commodities such as agricultural products, minerals, and metals represent a significant percentage of exports of many Latin American countries, the economies of those countries are particularly sensitive to fluctuations in commodity prices. Investments in the region may also be subject to currency risks, such as restrictions on the flow of money in and out of the country, extreme volatility relative to the U.S. dollar, and devaluation.
Accordingly, our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations in Latin America, including such factors as exchange rates and exchange control policies, inflation control policies, price control policies, consumer protection policies, import duties and restrictions, liquidity of domestic capital and lending markets, electricity rationing, tax policies, including tax increases and retroactive tax claims, and other political, diplomatic, social and economic developments in or affecting the countries where the group operates.
According to S&P, as of January 31, 2024 long term local currency ratings of the countries where LATAM group operates in South America are as follow: Ecuador B-, Peru BBB+, Colombia BBB-, and Chile A+, all of them with a negative outlook, while Brazil is rated BB with a stable outlook. On the other hand, long term foreign currency ratings of these countries are: Ecuador B-, Peru BBB, Colombia BB+, and Chile A, all of them with a negative outlook, while Brazil is rated BB with a stable outlook.
LATAM cannot ensure that any country will not experience similar adverse developments in the future or that the current or any future administration will maintain business-friendly and open market economic policies or policies that stimulate economic growth and social stability.
Latin American governments have exercised and continue to exercise significant influence over their economies.
Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions have often involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee benefits, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations, including exchange rates and exchange control policies, inflation control policies, price control policies, consumer protection policies, import duties and restrictions, liquidity of domestic capital and lending markets, electricity rationing, tax policies (including tax increases and retroactive tax oversight). For example, the Brazilian government’s actions to control inflation and implement other policies have involved wage and price controls, depreciation of the real, restrictions on remittance, and intervention by the Central Bank to affect base interest rates.
In the future, the level of intervention by Latin American governments may continue or increase. We cannot assure that these or other measures will not have a material adverse effect on the economy of each respective country and, consequently, will not adversely affect our business, financial condition and results of operations.
Political instability and social unrest in Latin America may adversely affect the business.
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LATAM operates primarily within Latin America and is thus subject to a full range of risks associated with our operations in this region. These risks may include unstable political or social conditions, lack of well-established or reliable legal systems, exchange controls and other limits on our ability to repatriate earnings and changeable legal and regulatory requirements.
Although political and social conditions in one country may differ significantly from another country, events in any of our key markets could adversely affect the business, financial conditions or results of operations.
For example, in July 2017, Brazilian President Luiz Inácio Lula da Silva was convicted of corruption and money laundering by a lower federal court in the State of Paraná in connection with “Operation Car Wash”. However, the conviction was overturned and his political rights restored by the Brazilian Supreme Court. President Luiz Inácio Lula da Silva ran for office in the presidential election of October 2022 and narrowly defeated President Bolsonaro. Former President Bolsonaro questioned the results of the elections, resulting in protests across the country. Luiz Inácio Lula da Silva was sworn in as president in January 2023. We cannot predict which policies the president Luiz Inácio Lula da Silva may adopt or change during his term in office, or the effect that any such policies might have on our business and on the Brazilian economy.
In Peru, on December 7, 2022, President Pedro Castillo announced the dissolution of the congress and called for new elections to be held immediately, provoking an attempted coup d’état. Subsequently, he was removed from office and arrested. On the same day, Vice President Dina Boluarte assumed the presidency of Peru, to serve the remaining presidential term until 2026. Dina Boluarte is the sixth president Peru has had since 2018. None of her five predecessors in office managed to complete the five-year term established by the Constitution and several former presidents are in prison or prosecuted in judicial proceedings.
In October 2019, Chile saw significant protests associated with economic conditions which resulted in the declaration of a state of emergency in several major cities. The protests in Chile began over criticisms about social inequality, lack of quality education, weak pensions, increasing prices and low minimum wage. If social unrest in Chile were to intensify again, it could lead to operational delays or adversely impact our ability to operate in Chile.
Furthermore, current initiatives to address the concerns of the protesters are under discussion in the Chilean Congress. These initiatives include labor reforms, tax reforms and pension reforms, among others. On October 25, 2020, Chile widely approved a referendum to redraft the constitution via constitutional convention. The election for selecting the 155-member constitutional convention took place on May 15 and 16, 2021. On July 4, 2021, the constitutional convention was convened for a nine-month period, with the possibility of a one-time, three-month extension, to present a new constitution. The proposed constitution was finalized on July 4, 2022. On September 4, 2022, a referendum was held, in which the proposed constitution was rejected by a margin of 62% to 38% of voters. On December 12, 2022, Chilean lawmakers announced that they had agreed to a document entitled “Acuerdo por Chile” (Agreement for Chile). This document marked the establishment of a new consensus and served as foundation for redrafting the new proposed constitution. The second proposed constitution was finalized on October 30, 2023. On December 17, 2023, a referendum was held, in which the proposed constitution was rejected by a margin of 55% to 45% of voters.
Chile held presidential elections in December 2021, with left-wing Gabriel Boric winning by a wide margin. Gabriel Boric was sworn in as president in March 2022. There can be no assurance that the recent changes in the Chilean administration, its constitution or any future civil unrest will not adversely affect our business, operating results and financial condition in Chile.
In Ecuador, Guillermo Lasso was elected as President in 2021, for the 2021-2025 period. On May 16, 2023, following the media exposure of the “Encuentro Case”, which revealed the connections between the Lasso government and certain members of the Albanian mafia, the National Assembly initiated an impeachment process against President Lasso, for embezzlement. However, the next day, Guillermo Lasso issued an executive decree (Decreto Ejecutivo 741), which ordered the dissolution of the National Assembly and called for extraordinary presidential and legislative elections to complete the period. On October 15, 2023, Daniel Noboa was elected as an interim president of the Republic of Ecuador for a period of 18 months. He became the youngest president elected by popular vote in the history of the country at thirty-five years of age, and the second youngest president in the country's history.
On January 7, 2024, Adolfo Macias, the leader of a major drug cartel in Ecuador, escaped from prison. This event revealed strong connections between the gangs controlling the prisons in the country and governmental officers, and caused
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a series of riots and violent attacks across the country, including looting, burning vehicles, shootings, explosions and abductions of police officers and civilians. As a consequence, on January 8, 2024, President Daniel Noboa declared a 60-day state of emergency in an attempt to control gang violence, with the support of the army.
On August 7, 2022, Gustavo Petro, candidate for the left-wing “Pacto Histórico” party, was elected President of Colombia. Although throughout history elected governments (and the Colombian Congress) have pursued free market economic policies, with almost no economic interventions, we cannot predict whether the policies that could be adopted by the administration would have a negative impact on the Colombian economy or our business operations and financial performance. Further, regional elections were held on October 29, 2023, to elect governors for the 32 departments in Colombia as well as mayors and members of the local Administrative boards of the national territory.
On November 19, 2023, Javier Milei was elected president of the Republic of Argentina for a period of four years. Javier Milei is a right-wing politician and economist, who has proposed a comprehensive overhaul of the country’s fiscal and structural policies (among others, to dollarize the economy, privatize state public companies, remove subsidies on public utilities and close the Argentine Central Bank of Argentina). However, we cannot predict if and to what degree such policies will be implemented, nor if our operations or the legal framework under which we operate could be affected.
Although conditions throughout Latin America vary from country to country, our customers’ reactions to developments in Latin America generally may result in a reduction in passenger traffic, which could materially and negatively affect our financial condition and results of operations.
Because our business relies extensively on third-party service providers, failure of these parties to perform as expected, or interruptions in our relationships with these providers or in their provision of services to us, could have an adverse effect on our financial position and results of operations.
We have engaged a significant number of third-party service providers to perform a large number of functions that are integral to our business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of technology infrastructure and services, performance of business processes, including purchasing and cash management, provision of aircraft maintenance and repairs, catering, ground services, and provision of various utilities and performance of aircraft fueling operations, among other vital functions and services. We do not directly control these third-party service providers, although we do enter into agreements with many of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their service performance commitments, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and/or travel agencies via third-party GDSs (Global Distribution Systems) may be adversely affected by disruptions in our business relationships with GDS operators or by issues in the GDS’s operations. Such disruptions, including a failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the carriers’ flight information to be limited or unavailable for display, significantly increase fees for both us and GDS users, and impair our relationships with customers and travel agencies.
As of May 1, 2023, LATAM has launched a new distribution channel called “New Distribution Capability” (NDC) by LATAM, which follows the International Air Transport Association’s (IATA) modernized standard language (XML based) to transmit data. This distribution channel is an alternative for travel agencies across all regions where the group operates, to access our content, and be able to shop, book, and manage orders. While this distribution channel mitigates risks of interruption of our services and lowers our dependency on GDS's technology, we cannot assure that the NDC by LATAM will operate without disruptions that may affect our operations..
The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services including those of NDC by LATAM, may reduce our revenues and increase our expenses or prevent us from operating our flights and providing other services to our customers. In addition, our business, financial performance and reputation could be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
Our financial results are exposed to foreign currency fluctuations.
We prepare and present our consolidated financial statements in U.S. dollars. LATAM and its affiliates operate in numerous countries and face the risk of variation in foreign currency exchange rates against the U.S. dollar or between the currencies of these various countries. Changes in the exchange rate between the U.S. dollar and the currencies in the
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countries in which the group operates could adversely affect the business, financial condition and results of operations. If the value of the Brazilian real, Chilean peso or other currencies in which revenues are denominated declines against the U.S. dollar, our results of operations and financial condition will be affected. The exchange rate of the Chilean peso, Brazilian real and other currencies against the U.S. dollar may fluctuate significantly in the future.
Changes in Chilean, Brazilian and other governmental economic policies affecting foreign exchange rates could also adversely affect the business, financial condition, results of operations and the return to our shareholders on their common shares or ADSs. We actively manage the Brazilian real to U.S. dollar (R$/US$) exchange rate risk by entering into FX derivative contracts and carrying out internal operations for obtaining natural hedging. For further information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Variation in Foreign Exchange Rates.”
Environmental and Regulatory Risks
Our operations are subject to local, national and international environmental regulations; costs of compliance with applicable regulations, or the consequences of noncompliance, could adversely affect our results, our business or our reputation.
LATAM’s operations are affected by environmental regulations at local, national and international levels. These regulations cover, among other things, emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities incident to the business. Future operations and financial results may vary as a result of such regulations. Compliance with these regulations and new or existing regulations that may be applicable to us in the future could increase our cost base and adversely affect operations and financial results. In addition, failure to comply with these regulations could adversely affect us in a variety of ways, including adverse effects on the group’s reputation.
In 2016, the ICAO adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), providing a framework for a global market-based measure to stabilize carbon dioxide (“CO2”) emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). CORSIA will be implemented in phases, starting with the participation of ICAO member states on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027). Currently, CORSIA focuses on defining standards for monitoring, reporting and verification of emissions from air operators, as well as on defining steps to offset CO2 emissions after 2020. In order to comply with this strategy, we have developed sustainability strategies focused on climate change and we have taken different measures, such as the alliance with the Cataruben foundation in Colombia, with the objectives of offsetting CO2 through reducing deforestation and switching to sustainable agriculture practices, amongst others, thus contributing to improve the communities’ life quality and the protection of biodiversity. In addition, we have other initiatives in place such as the promotion of SAF (Sustainable Aviation Fuel) with local governments and the lean fuel program which seeks to improve fuel efficiency. In addition, frameworks such as the Emissions Trading System, both in the EU and UK (“EU-ETS” and “UK-ETS”), are regulations related to the European market, where airlines have a pre-established amount of CO2 emissions for each year, which are then reduced over time, similar to a “cap and trade” system. Airlines must report and verify emissions related to this scheme and surrender the allocated allowances in time in order to comply. Should operations exceed the maximum allocated emissions, airlines must either acquire more from the market or pay the corresponding fee to the authority.
The proliferation of national regulations and taxes on CO2 emissions in the countries that the group has domestic operations, including environmental regulations that the airline industry is facing in Colombia, where limits on offsetting programs were included in the new Tax Reform of 2022, may also affect the cost of operations and the margins.
Our business may be adversely affected by the consequences of climate change.
There are regulatory risks associated with the management of climate change in the short and medium term, due to the fact that, in an effort from different countries to contribute to the fight against climate change, there is a tendency to impose economic instruments such as carbon taxes or emissions trading systems that seek to regulate emissions from different industries, including the aviation industry. These mechanisms seek to discourage the consumption of fossil fuels, through imposing an additional cost. However, in the case of the airline industry, especially in the South American region, there is no viable substitute fuel that would allow the industry to migrate to other types of fuels. The related risks present an opportunity to work hand in hand with the relevant governments to implement public policies allowing for progress in the production of sustainable aviation fuels in the region, thus promoting the migration away from fossil fuels and creating policies and instruments relevant to industries such as aviation, which currently has no substitute fuel available in South
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America. In the long term, there are physical risks associated with climate change, including the risk for greater intensity of meteorological phenomena, such as storms, tornados, hurricanes, floods and others, which in turn may pose a risk to infrastructure (destinations, airports) and communities. As a consequence, it may be necessary to modify routes and destinations, which in turn may affect our business and results of operations.
The business is highly regulated and changes in the regulatory environment in the different countries may adversely affect our business and results of operations.
Our business is highly regulated and depends substantially upon the regulatory environment in the countries in which the group operates or intends to operate. For example, price controls on fares may limit our ability to effectively apply customer segmentation profit maximization techniques (“passenger revenue management”) and adjust prices to reflect cost pressures. High levels of government regulation may limit the scope of our operations and our growth plans. The possible failure of aviation authorities to maintain the required governmental authorizations, or our failure to comply with applicable regulations, may adversely affect our business and results of operations.
Our business, financial condition, results of operations and the price of common shares and ADSs may be adversely affected by changes in policy or regulations at the federal, state or municipal level in the countries in which the group operates, involving or affecting factors such as:
•interest rates;
•currency fluctuations;
•monetary policies;
•inflation;
•liquidity of capital and lending markets;
•tax and social security policies;
•labor regulations;
•energy and water shortages and rationing; and
•other political, social and economic developments in or affecting Brazil, Chile, Peru, and the United States, among others.
For example, the Brazilian federal government has frequently intervened in the domestic economy and made drastic changes in policy and regulations to control inflation and affect other policies and regulations. This has required the federal government to increase interest rates, change taxes and social security policies, implement price controls, currency exchange and remittance controls, devaluations, capital controls and limits on imports.
Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies. These and other developments in the Brazilian economy and governmental policies may adversely affect us and our business and results of operations and may adversely affect the trading price of our common shares and ADSs.
We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights between the countries where the group operates, and we must obtain permission from the applicable foreign governments to provide service to foreign destinations. There can be no assurance that such existing bilateral agreements will continue, or that we will be able to obtain more route rights under those agreements to accommodate our future expansion plans. Certain bilateral agreements also include provisions that require substantial ownership or effective control. Any modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permits to operate to certain airports or destinations, the inability for us to obtain favorable take-off and landing authorizations at certain high-density airports or the imposition of other sanctions could also have a negative impact on our business. We cannot be certain that a change in ownership or effective control or in a foreign government’s administration of current laws and regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and results of operations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and antitrust laws and regulations in Chile, Brazil, Peru, the United States and in the various other countries in which we operate. Violations of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial condition.
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We are subject to anti-corruption, anti-bribery, anti-money laundering, antitrust and other international laws and regulations and are required to comply with the applicable laws and regulations of all jurisdictions where the group operates. In addition, we are subject to economic sanctions regulations that restrict dealings with certain sanctioned countries, individuals and entities. There can be no assurance that internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by affiliates, employees, directors, officers, partners, agents and service providers or that any such persons will not take actions in violation of our policies and procedures. Any violations by us of laws or regulations could have a material adverse effect on the business, reputation, results of operations and financial condition.
We are subject to risks relating to litigation and administrative proceedings that could adversely affect our business and financial performance in the event of an unfavorable ruling.
The nature of the business exposes us to litigation relating to labor, insurance and safety matters, regulatory, tax and administrative proceedings, governmental investigations, tort claims and contract disputes. Litigation is inherently costly and unpredictable, making it difficult to accurately estimate the outcome among other matters. Currently, as in the past, we are subject to proceedings or investigations of actual or potential litigation. Although we establish accounting provisions as we deem necessary, the amounts that we reserve could vary significantly from any amounts we actually have to pay due to the inherent uncertainties in the estimation process. We cannot assure you that these or other legal proceedings will not materially affect the business. For further information, see “Item 8. Financial Information—Legal and Arbitration Proceedings” and Note 30 to our audited consolidated financial statements included in this report.
Rapid technological advancements and digitalization could generate risks in implementation and regulatory control.
Globally, there have been large advances in processes of digitization and technological innovation. These new technologies could generate new risks in their implementation that could impact us directly or indirectly. As an example, at the beginning of 2022, the implementation of 5G in the United States had a temporary impact on operations at certain airports and generated a review by the Federal Aviation Administration (“FAA”) on the specific requirements for its implementation. Additionally, during the course of 2023, while the widespread adoption and growth of Generative Artificial Intelligence systems demonstrated significant innovation and advancement in our operations, they could present certain risks that would likely require a regulatory framework to effectively address them. While LATAM is working on internal policies to regulate the use of these technologies, all processes of digitization and technological innovation may be exposed to risks, or may need to adjust to comply with future regulatory frameworks.
Similarly, the rapidly increasing technological transformation may advance faster than the review and control capacity of the authorities and the knowledge about the effects of their possible impacts, which could affect us directly or indirectly in ways we cannot foresee.
Our reputation and brand could be adversely impacted if we fail to make progress towards achieving our environmental sustainability and diversity, equity and inclusion goals.
Our reputation and brand could also be adversely impacted by, among other things, failure to make progress toward and achieve our environmental sustainability and diversity, equity and inclusion goals, as well as public pressure from investors or policy groups to change our policies or negative public perception of the environmental impact of air travel. For example, we have established ambitious goals to reduce our carbon emissions, with the long-term goal to be carbon neutral by 2050. Achieving these ambitious goals will require significant capital investment from manufacturers and other stakeholders, as we are unable to achieve these goals using our existing fleet, current technologies and available fuel sources. We are continuing to develop our climate strategy and transition plan; however, our ability to execute on such a plan is subject to substantial risks and uncertainties, as it is dependent on the actions of governments and third parties and will require, among other things, significant capital investment, including from third parties, research and development from manufacturers and other stakeholders, along with government policies and incentives to reduce the cost, and incent production of technologies that are not available at scale. Significant damage to our reputation and brand could have a material adverse effect on our business and financial results, including as a result of litigation related to any of these matters.
Risks Related to Our Indebtedness
We have substantial liquidity needs and continue to pursue various financing options. Our business may be adversely affected if we are unable to service our debt or meet our future financing requirements.
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We have a high degree of debt and payment obligations under our aircraft leases and financial debt arrangements. We require significant amounts of financing to meet our aircraft capital requirements and may require additional financing to fund our other business needs. We cannot guarantee that we will have access to or be able to arrange for financing in the future on favorable terms. Higher financing costs could affect our ability to expand or renew our fleet, which in turn could adversely affect our business.
In addition, a substantial portion of our property and equipment is subject to liens securing our indebtedness, including our secured bonds and loans. In the event that we fail to make payments on our bonds and loans, creditors’ enforcement of liens could limit or end our ability to use the affected property and equipment to fulfill our operational needs and thus generate revenue. For further information, related to current contractual obligations, see “Item 5. Operating and Financial Review and Prospects—Contractual Obligations—Long Term Indebtedness”.
Moreover, external conditions in the financial and credit markets may limit the availability of funding or increase its costs, which could adversely affect our profitability, our competitive position and result in lower net interest margins, earnings and cash flows, as well as lower returns on shareholders’ equity and invested capital. Factors that may affect the availability of funding or cause an increase in our funding costs include global macro-economic crises, reductions in our credit rating or in that of our issuances, and other potential market disruptions.
We have significant exposure to SOFR and other floating interest rates; increases in interest rates will increase our financing cost and may have adverse effects on our financial condition and results of operations.
On July 27, 2017, the head of the United Kingdom Financial Conduct Authority (“FCA”) (the authority that regulated LIBOR) announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021 the FCA announced in a public statement that LIBOR for certain tenors would cease to be published on June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee ("ARRC"), a group of private-market participants, to help ensure a successful transition from U.S. dollar LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate ("SOFR"). Although the adoption of SOFR was voluntary, the impending discontinuation of LIBOR made it essential that market participants considered moving to alternative rates such as SOFR and that they have appropriate fallback language in existing contracts referencing LIBOR.
Because the publication of LIBOR was discontinued on June 30, 2023, we have amended our derivative and debt contracts to replace the LIBOR rate for SOFR as an alternative rate as convened by the ARRC. SOFR will fluctuate with changing market conditions and, as SOFR increases, our interest expense will mechanically increase, which could have an adverse effect on our total financing costs. As of December 31, 2023, our variable interest rate debt amounted to US$2,027 million.
We may be unable to adequately adjust our prices to offset any increased financing costs, which would have an adverse effect on our results of operations. If we are unable to adequately adjust our prices, our revenue might not be sufficient to offset the increased payments due under our loans and this would adversely affect our financial condition and results of operations. In addition, there is no guarantee that SOFR or other replacement rates for LIBOR will maintain market acceptance. See also the discussion of interest rate risk in “Item 11. Quantitative and Qualitative Disclosures About Market Risks—Risk of Fluctuations in Interest Rates.”
Our debt agreements contain various affirmative, negative and financial covenants, which could limit our ability to conduct our business. A breach of certain negative covenants could also trigger an event of default and acceleration of our indebtedness.
Certain of our debt instruments, including our five-year term loan facility (the “Term Loan B Facility”) and the indentures governing our 2027 Notes and 2029 Notes, contain an asset coverage ratio and certain limitations to the incurrence of additional indebtedness by us and our subsidiaries. A decline in this coverage ratio, including due to factors that are beyond our control, could require us to post additional collateral, trigger an increase in the annual interest rates stipulated under our various debt instruments, or an event of default.
Complying with certain of the covenants in our debt agreements and other restrictive covenants that may be contained in any future debt agreements could limit our ability to operate our business and to take advantage of business opportunities that are in our long-term interest. See Note 31 of our audited consolidated financial statements.
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While the covenants in our debt agreements are subject to important exceptions and qualifications, if we fail to comply with them and are unable to obtain a waiver or amendment, refinance the indebtedness subject to these covenants or take other mitigating actions, an event of default would result. These arrangements also contain other events of default customary for such financings. If an event of default were to occur, the lenders or noteholders could, among other things, declare outstanding amounts due and payable and where applicable and subject to the terms of relevant collateral agreements, repossess collateral, including aircraft or other valuable assets. In addition, an event of default or acceleration of indebtedness under one agreement could result in an event of default under other of our debt instruments. The acceleration of significant indebtedness could require us to seek to renegotiate, repay or refinance the obligations under our debt arrangements, and there is no assurance that such renegotiation or refinancing efforts would be successful.
Risks Relating to our Common shares and ADRs
Our major shareholders may have interests that differ from ADRs holders.
Under the terms of the deposit agreement governing the ADSs, if holders of ADSs do not provide JP Morgan Chase Bank, N.A., in its capacity as depositary for the ADSs, with timely instructions on the voting of the common shares underlying their ADRs, the depositary will be deemed to have been instructed to give a person designated by the board of directors the discretionary right to vote those common shares. The person designated by the board of directors to exercise this discretionary voting right may have interests that are aligned with our major shareholders, which may differ from those of our ADSs holders. Historically, our board of directors has designated its chairman to exercise this right, which is however no guarantee that it will do so in the future. The members of the board of directors elected by the shareholders in 2022 designated Ignacio Cueto, to serve in this role. For more information about LATAM beneficial ownership, see “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.
Holders of ADRs may be adversely affected by the substantial dilution of the shares represented by ADRs.
On June 18, 2022, the United States Bankruptcy Court for the Southern District of New York entered an order confirming the joint plan of reorganization (as amended, restated, modified, revised or supplemented from time to time, the “Plan”) filed by the Reorganized Debtors and dated as of May 25, 2022 [ECF No. 5753]. Pursuant to the Plan, on September 13, 2022, the Reorganized Debtors commenced the preemptive rights offerings for the New Convertible Notes Class A, New Convertible Notes Class B, New Convertible Notes Class C (collectively, “New Convertible Notes”) and ERO New Common Stock (each as defined in the Plan), which offerings concluded on October 12, 2022. On November 3, 2022, the Plan became effective pursuant to its terms and we emerged from bankruptcy. In connection with our emergence and the conversion of the New Convertible Notes into shares of the Company, the equity interests of existing shareholders were substantially diluted. The shares represented by ADRs currently amount to a small portion of our capital. The market prices of the shares represented by ADRs may be adversely affected by such dilution and may experience significant fluctuation and volatility.
Trading of our ADSs and common shares in the securities markets is limited and could experience further illiquidity and price volatility.
As a result of our Chapter 11 proceedings, on June 10, 2020, the NYSE notified the SEC of its intention to remove the ADSs from listing and registration on the NYSE, effective at the opening of business on June 22, 2020. As of the date of this annual report, the ADSs are traded in the over-the-counter market, which is a less liquid market, and our ADR program, with JP Morgan Chase Bank, N.A. as depositary, is not open for issuances. There is no defined timeline for re-opening the ADR program or for returning to the U.S. public markets. In addition, there can be no assurance that the ADSs will continue to trade in the over-the-counter market or that any public market for the ADSs will exist in the future, whether broker-dealers will continue to provide public quotes of the ADSs, whether the trading volume of the ADSs will be sufficient to provide for an efficient trading market, whether quotes for the ADSs may be blocked in the future or that we will be able to relist the ADSs on a securities exchange.
Our common shares are listed on the Santiago Stock Exchange. Chilean securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. In addition, Chilean securities markets may be materially affected by developments in other emerging markets, particularly other countries in Latin America. Accordingly, although holders are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, the ability to sell the common shares underlying ADSs in the amount and at the price and time of
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choice may be substantially limited. This limited trading market may also increase the price volatility of the ADSs or the common shares underlying the ADSs, which could also result in price disparity between the trading prices of the two.
Holders of ADRs may be adversely affected by currency devaluations and foreign exchange fluctuations.
If the Chilean peso exchange rate falls relative to the U.S. dollar, the value of the ADSs and any distributions made thereon from the depositary could be adversely affected. Cash distributions made in respect of the ADSs are received by the depositary (represented by the custodian bank in Chile) in pesos, converted by the custodian bank into U.S. dollars at the then-prevailing exchange rate and distributed by the depositary to the holders of the ADRs evidencing those ADSs. In addition, the depositary will incur foreign currency conversion costs (to be borne by the holders of the ADRs) in connection with the foreign currency conversion and subsequent distribution of dividends or other payments with respect to the ADSs.
Future changes in Chilean foreign investment controls and withholding taxes could negatively affect non-Chilean residents that invest in our shares.
Equity investments in Chile by non-Chilean residents have been subject in the past to various exchange control regulations that govern investment repatriation and earnings thereon. Although not currently in effect, regulations of the Central Bank of Chile have in the past imposed such exchange controls. Nevertheless, foreign investors still have to provide the Central Bank with information related to equity investments and must conduct such operations within the formal exchange market. Furthermore, any changes in withholding taxes could negatively affect non-Chilean residents that invest in our shares.
We cannot assure you that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the common shares underlying ADSs or the repatriation of the proceeds from an acquisition, a disposition or a dividend payment, will not be imposed or required in the future, nor could we make an assessment as to the duration or impact, were any such restrictions to be imposed or required. For further information, see “Item 10. Additional Information—Exchange Controls — Foreign Investment and Exchange Controls in Chile".
Our ADS holders may not be able to exercise preemptive rights in certain circumstances.
As described further in “Item 10. Additional Information—Preemptive Rights and Increases in Share Capital,” to the extent that a holder of our ADSs is unable to exercise its preemptive rights because a registration statement has not been filed, the depositary may attempt to sell the holder’s preemptive rights and distribute the net proceeds of the sale, net of the depositary’s fees and expenses, to the holder, provided that a secondary market for those rights exists and a premium can be recognized over the cost of the sale. A secondary market for the sale of preemptive rights can be expected to develop if the subscription price of the shares of our common stock upon exercise of the rights is below the prevailing market price of the shares of our common stock. However, we cannot assure you that a secondary market in preemptive rights will develop in connection with any future issuance of shares of our common stock or that if a market develops, a premium can be recognized on their sale. Amounts received in exchange for the sale or assignment of preemptive rights relating to shares of our common stock will be taxable in Chile and in the United States. See “Item 10. Additional Information—Taxation-Chilean Tax—Capital Gains.” As described further in this annual report, the inability of holders of ADSs to exercise preemptive rights in respect of common shares underlying their ADSs could result in a change in their percentage ownership of common shares following a preemptive rights offering. See “Item 10. Additional Information—Memorandum and Articles of Association—Preemptive Rights and Increases in Share Capital,” If a secondary market for the sale of preemptive rights does not develop and such rights cannot be sold, they will expire and a holder of our ADSs will not realize any value from the grant of the preemptive rights. In either case, the equity interest of a holder of our ADSs in us will be diluted proportionately. Pursuant to the registration rights agreement entered into on November 10, 2022 with certain of our creditors, which the group refers to as the “Creditor Backstop Agreement” and the “Backstop Creditors”, respectively (the “Registration Rights Agreement”), we have reached an agreement to amend the terms of the deposit agreement governing our ADSs, to provide for (a) full flexibility (subject to applicable fees and procedures contained in the deposit agreement) to deposit and withdraw, at the election of the respective holders of ADS, any ordinary shares from time to time held by the backstop parties or their transferees into or out of the ADS program; (b) participation in dividends and distributions subject to the procedures of the depositary as set forth in the deposit agreement and subject to compliance with applicable law (including, without limitation, Chilean law); (c) participation in voting at the instruction of the respective holders of ADS, subject to the procedures of the depositary as set forth in the deposit agreement and subject to compliance with applicable law (including, without limitation, Chilean law); and (d) participation in preemptive rights offerings in the form of additional ADS subject to compliance with applicable law (including, without limitation, Chilean
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law) and the procedures of the Depositary set forth in the deposit agreement; provided that such offerings are for ordinary shares constituting at least two percent (2%) of the outstanding ordinary shares (excluding any Ordinary Shares subject to lock-up).
We are not required to disclose as much information to investors as a U.S. issuer is required to disclose and, as a result, you may receive less information about us than you would receive from a comparable U.S. company.
The corporate disclosure requirements that apply to us may not be equivalent to the disclosure requirements that apply to a U.S. company and, as a result, you may receive less information about us than you would receive from a comparable U.S. company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The disclosure requirements applicable to foreign issuers under the Exchange Act are more limited than the disclosure requirements applicable to U.S. issuers. Publicly available information about issuers of securities listed on Chilean stock exchanges also provides less detail in certain respects than the information regularly published by listed companies in the United States or in certain other countries. Furthermore, there is a lower level of regulation of the Chilean securities market and of the activities of investors in such markets as compared with the level of regulation of the securities markets in the United States and in certain other developed countries. For further information, see “Item 16G. Corporate Governance."
ITEM 4 INFORMATION ON THE COMPANY
A.History and Development of the Company
General
LATAM Airlines Group is a Chilean-based airline and holding company that changed its name from LAN Airlines S.A. after its merger with TAM of Brazil in 2012. TAM S.A. continues to exist as a subsidiary of LATAM. The Company is primarily involved in the transportation of passengers and cargo and operates as one unified business enterprise. During 2016, we began the transition of unifying LAN and TAM into a single brand: LATAM.
LATAM’s airline holdings include LATAM and its affiliates in Chile, Peru, Argentina, Colombia and Ecuador, and LATAM Cargo and its affiliate LANCO (in Colombia), as well as TAM S.A. and its affiliates LATAM Airlines Brazil, LATAM Airlines Paraguay, ABSA and Multiplus S.A. (“Multiplus”). LATAM Airlines Group is a publicly traded corporation listed on the Santiago Stock Exchange (“SSE”), the Chilean Electronic Exchange, and its ADSs currently trade in the over-the-counter market. LATAM Airlines Group has a market capitalization of US$7,462.8 million as of January 31, 2024.
LATAM’s history goes back to 1929, when the Chilean government founded LAN. In 1989, the Chilean government sold 51.0% of LAN’s capital stock to Chilean investors and to the Scandinavian Airlines System. In 1994, the Cueto Group, one of LATAM’s current shareholders, acquired 98.7% of LAN’s stock, including the remaining shares then held by the Chilean government. In 1997, LAN became the first Latin American airline to list its shares (which trade in the form of ADSs) on the New York Stock Exchange.
Over the past decade, the LATAM group has significantly expanded its passenger operations in Latin America, initiating services in Peru in 1999, Ecuador in 2003, Argentina in 2005, and Colombia in 2010. Moreover, since June 2012 the Brazilian affiliate, TAM Linhas Aéreas S.A. (“TLA” or “LATAM Airlines Brazil”), has been a leading domestic and international airline offering flights throughout Brazil with a strong domestic market share, international passenger services and significant cargo operations.
As a result of the COVID-19 pandemic and its profound impact on worldwide travel and our operations, on May 26, 2020, LATAM Airlines Group and 28 affiliates (the “Initial Debtors”) filed their petitions for relief under Chapter 11 (“Chapter 11”) of title 11 of the United States Code, 11 U.S.C. §§ 101-1532, (as amended, the “Bankruptcy Code”), with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On July 7, 2020 and July 9, 2020 nine additional affiliates of LATAM Airlines Group (the “Subsequent Debtors,” and together with the Initial Debtors, the “Debtors”) filed their petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. Additional parallel and ancillary proceedings were filed in the Cayman Islands, Colombia, Perú and Chile. In June 2020, LATAM Airlines Argentina announced its indefinite cessation of passenger and cargo operations. Following a series of relevant milestones with respect to LATAM’s Chapter 11 proceedings, the Company emerged from its reorganization process on November 3, 2022. For more information on the Chapter 11 proceedings, see “Item 3. Key Information—Risk
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Factors—Risks Relating to Our Emergence from Chapter 11 Bankruptcy Proceedings” and “Item 4. Information on the Company - Business Overview—Chapter 11 Proceedings through 2022” in our annual report on Form 20-F for the fiscal year ended December 31, 2022, filed with the SEC on March 9, 2023 (the “2022 Annual Report”).
Our principal executive offices are located at Presidente Riesco 5711, 20th floor, Las Condes, Santiago, Chile and our general telephone number at this location is (56-2) 2565-3844. We have designated LATAM Airlines Group S.A. Inc. as our agent in the United States, located at 6500 NW 22nd Street, Miami, Florida 33122. Our Investor Relations website address is www.latamairlinesgroup.net. Information obtained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of this annual report. For more information, contact Andrés del Valle, Senior Vice President of Corporate Finance and Investor Relations, at InvestorRelations@latam.com.
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.
Capital Expenditures
For a description of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures.”
B.Business Overview
General
LATAM is the largest passenger airline group in South America as measured by ASKs and passenger transported for the year ended December 31, 2023. We are also one of the largest airline groups in the world in terms of network connections, as of December 31, 2023, providing passenger transport services to 148 destinations in 26 countries and cargo services to approximately 166 destinations in 33 countries, with an operating fleet of 333 aircraft and a set of bilateral alliances. In total, LATAM group has approximately 35,568 employees.
For the year 2023, LATAM transported approximately 74 million passengers. LATAM Airlines Group and its affiliates currently provide domestic services in Brazil, Chile, Peru, Colombia and Ecuador; and also provide intra-regional and long-haul operations. The cargo affiliate carriers of LATAM in Chile, Brazil, Ecuador and Colombia carry out cargo operations through the use of belly space on the passenger flights and dedicated cargo operations using freighter aircraft. The group also offers other services, such as ground handling, courier, logistics and maintenance.
As of December 31, 2023, the group provided scheduled passenger service to 16 destinations in Chile, 19 destinations in Peru, 7 destinations in Ecuador, 18 destinations in Colombia, 52 destinations in Brazil, 16 destinations in other Latin American countries and the Caribbean, 8 destinations in North America, 8 destinations in Europe, 3 destinations in Oceania and 1 destination in Africa, accompanied by strong levels of demand for air travel within the region and in the international markets where we operate.
In addition, as of December 31, 2023, through various code-sharing agreements, the group offers service to 112 destinations in North America, 62 destinations in South America, 94 destinations in Europe, 18 destinations in Australasia, 41 destinations in Asia and 19 destinations in Africa. Furthermore, during 2023 LATAM and Delta Air Lines celebrated the first anniversary of the implementation of its Joint Venture Agreement. As of December 31, 2023, Delta Air Lines and LATAM have implemented 6 new routes and increased their frequencies, improving connectivity between South America and North America.
Competitive Strengths
LATAM group's strategy is to remain the leading airline group in South America by leveraging our unique position in the airline industry. LATAM is the only airline group in the region with a domestic presence in five markets, as well as intra-regional and long-haul operations to four continents. As a result, the LATAM group has geographical diversity and operational flexibility, as well as a proven track record of acting quickly to adapt its business to economic challenges. Moreover, LATAM’s unique network and market share in a region with growth potential and the focus on our existing competitive strengths, will allow us to continue building our business model and fuel our future growth. We believe our most important competitive strengths are:
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•Leader in the South America Airlines Space, with a Unique Network and Market Share among Global Airlines
Through a successful regional expansion strategy, LATAM has become the leading international and domestic passenger airline group in South America as measured by ASKs in 2023 full year. LATAM and its affiliates have domestic passenger operations in Chile, Brazil, Peru, Colombia and Ecuador. We are also the largest group of operators of intra-regional routes as measured by ASKs in 2023, connecting the main cities and also some secondary cities in South America. Furthermore, through our significant presence in the largest hubs in South America-Santiago, Lima and São Paulo-we believe that we are able to offer the best connectivity options between South America and the rest of the world.
•Geographically Diversified Revenue Base, including both Passenger and Cargo Operations
LATAM group’s operations are highly geographically diversified, including domestic operations in five countries, as well as operations within South America and connecting South America with various international destinations. According to the 2023 annual ASKs, 49.2% of the group’s operations are international, 18.2% domestic Spanish speaking countries and 32.6% domestic Brazil. We believe this provides resilience to external shocks that may occur in any particular market. Furthermore, we believe that one of our distinct competitive advantages is the ability to profitably integrate scheduled passenger and cargo operations. We take into account potential cargo services when planning passenger routes, and also serve certain dedicated cargo routes using freighter aircraft when needed. By adding cargo revenues to existing passenger service, there is an increase in the productivity of assets and we are able to maximize revenue, reducing the break-even load factors and enhancing the per flight profitability. Additionally, we believe that this revenue diversification helps offset seasonal revenue fluctuations and reduces the volatility of the business over time. For the year ended December 31, 2023, passenger, cargo and other income accounted for 86.6%, 12.1% and 1.3% of total revenues, respectively.
•Modern Fleet and Optimized Fleet Strategy
The average age of our passenger fleet was approximately 11.1 years as of December 31, 2023. Additionally, LATAM has adopted an ambitious fleet renewal plan based entirely on new technology aircraft, which includes 100 new Airbus A320neo-family aircraft and 5 Boeing 787-9 to be delivered by 2030.
LATAM selects aircraft based on their ability to effectively and efficiently serve the short- and long-haul flight needs, while still striving to reduce operational complexity by minimizing the number of different aircraft types that the group operates.
The fleet plan as of December 31, 2023, includes a short-haul fleet formed exclusively by aircraft from the A320-family, with a focus on the A321 and A320neo (Neo: New Engine Option), a more efficient version of the A320; which we introduced into our fleet in 2016, becoming then the first airline in Latin America to fly this model. For long-haul passenger flights, we operate the Boeing 787-8, the Boeing 787-9, the Boeing 767-300ER, and the Boeing 777-300ER. The Boeing 787 model allows LATAM to achieve important savings in fuel consumption, while incorporating modern technology to deliver the best travel experience for LATAM’s passengers. For cargo flights, we operate Boeing 767-300F aircraft.
•Strong Brand Teamed with Key Global Strategic Alliances
In 2023, LATAM Airlines Group was recognized by the Skytrax World Airline Awards as the “Best Airline in South America” for the fourth year in a row, and was also awarded by such entity with the “Best Staff”, “Best Main Cabin” and “Best Business Class in South America” awards. In addition, LATAM was recognized as a Five Star Global Airline by the APEX Passengers Choice Awards, and was also awarded by such entity with the “Best Seat Comfort” award for the second year in a row and the “Best Onboard Service” award in South America. Additionally, as of January 31, 2024, LATAM was ranked second place as the most punctual airline during 2023 among the 20 largest airlines worldwide, by the Official Airline Guide ("OAG") Punctuality Index, which reflects LATAM group's commitment to its well-rounded value proposition and customer experience.
In 2022, despite the continued challenging global conditions, LATAM was recognized as South America’s Leading Airline Brand and South America’s Leading Airline by the World Travel Awards. Furthermore, in the 2022
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edition of the APEX Passenger Choice Awards, LATAM was recognized as the airline with the “Best Food & Beverage in South America.”
Our strategic global alliances and existing commercial agreements provide our customers with access to more destinations worldwide, a combined reservations system, itinerary flexibility and various other benefits, which substantially enhance our competitive position within the Latin American market. See “Item 4. Information on the Company—Business Overview—Passenger Alliances and Commercial Agreements".
•Recognized Loyalty Program
Our frequent flyer program, LATAM Pass, is the leading frequent flyer program in South America as measured by total number of members as of the end of 2023, with strong participation rates and brand recognition by our customers. Customers in the program earn miles and points based on the price paid for the ticket, class of ticket purchased, and elite level, as well as by using the services of outside partners in the program. We believe that our program is attractive to customers because it does not impose restrictions on those flights for which points can be redeemed, or limit the number of seats available on any particular flight to members using the loyalty program. LATAM Pass members can also accrue and redeem points for flights on other airlines with whom we have bilateral commercial agreements. See “Item 4. Information on the Company—Business Overview—Frequent Flyer Program".
In 2023, our loyalty program LATAM Pass was recognized as “The Best Program of the Year” by the Frequent Traveler Awards.
Business Strategy
Our mission is to connect people safely, with operational excellence and a personal touch, offering a wide network for passengers and cargo transportation, and striking the balance between economic growth, efficiency, protection of the environment and passenger well-being.
Our goal is to be the leading airline group, connecting Latin America with the world while fulfilling our social responsibility by being fair, empathetic, transparent and simple in our interactions with our customers, employees and other key stakeholders.
In order to achieve our mission and vision, the principal areas on which we plan to focus our efforts going forward are as follows:
•Continually Strengthen Our Network
LATAM intends to continue to strengthen its route network in South America, offering the best connectivity within the region at competitive prices and ensuring that LATAM is the most convenient option for passengers. LATAM is the only airline group in South America with a local presence in five home markets and an international and intra-regional operation. This is bolstered by LATAM’s enhanced infrastructure in several key hubs, allowing LATAM to further strengthen its network. LATAM intends to leverage its extensive network to create a profitable, leading portfolio of services and destinations, providing more options for its passengers and building a platform to support continued growth.
•Enhance Brand Leadership and Customer Experience
We seek to be the preferred choice of passengers in South America. Our efforts are supported by a differentiated passenger experience and leveraging mobile digital technologies. We continue working on the implementation of our single, unified brand, culture, product and value proposition for our passengers. Additionally, we are focused on the evolution of LATAM’s e-business strategy, including applications to achieve ancillary revenues and improving the management of contingencies, so that we are able to provide information and solutions to our customers in a timely and transparent manner. We continually assess opportunities to incorporate service improvements in order to respond effectively to our customers’ needs.
Our aim is to have a driven team, with inspiring leaders that make agile decisions, while addressing security policies to ensure the health of our employees and customers, and sustainability practices that reflect our responsibility towards the communities and countries where we operate. This will allow us to deliver a distinctive value proposition to our customers and operate sustainably over the long term. During 2023, LATAM was awarded with two new sustainability-related awards: “Best for Onboard Sustainability” by Onboard Hospitality Awards, for having the most sustainable onboard service, and the “Air Cargo Sustainability Award” by The International Air Cargo Association
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(TIACA), for having a solid sustainability strategy, encompassing Climate Change, Shared Value, Circular Economy, and LATAM’s commitment to protect the strategic ecosystems of South America.
Additionally, as of February 7, 2024, LATAM was ranked first place as the the top-performing airline group in terms of sustainability in Latin America, as well as the seventh globally, according to the Corporate Sustainability Assessment by Standard & Poor's.
•Improving Efficiency and Cost Competitiveness
We are continually working to maintain a competitive cost structure and further improve our efficiency, simplify our organization and increase flexibility and speed in decision-making. We look to continuously implement cost savings, including reductions in fuel and fees, procurement, operations, overhead and distribution costs, among others, as well as the implementation of a customized service offering in domestic and international markets. During 2020, 2021 and 2022, in the context of our Chapter 11 proceedings, we worked to reduce our fixed costs and to convert them to variable costs, specifically fleet costs and wages and benefits. In 2023, the group focused on maintaining this competitive cost structure and improving its efficiency.
Airline Operations and Route Network
The following tables set forth our operating revenues by activity and point of sale for the periods indicated:
| For the year ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in US$ millions) | ||||||||||||||||||||
| Total passenger revenues | 10,215 | 7,636.4 | 3,342.4 | |||||||||||||||||
| Total cargo revenues | 1,425 | 1,726.1 | 1,541.6 | |||||||||||||||||
| Total revenues | 11,640.5 | 9,362.5 | 4,884.0 | |||||||||||||||||
| For the year ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in US$ millions) | ||||||||||||||||||||
| Peru | 988.9 | 859.0 | 503.6 | |||||||||||||||||
| Argentina | 244.4 | 206.9 | 75.5 | |||||||||||||||||
| United States | 1,044.8 | 1,058.1 | 578.0 | |||||||||||||||||
| Europe | 800.9 | 769.0 | 376.9 | |||||||||||||||||
| Colombia | 662.3 | 540.2 | 368.5 | |||||||||||||||||
| Brazil | 5,006.4 | 3,724.5 | 1,664.5 | |||||||||||||||||
| Ecuador | 332.8 | 248.5 | 163.0 | |||||||||||||||||
| Chile | 1,898.2 | 1,514.6 | 794.1 | |||||||||||||||||
| Asia Pacific and rest of Latin America | 661.9 | 441.8 | 360.0 | |||||||||||||||||
| Total revenues | 11,640.5 | 9,362.5 | 4,884.0 | |||||||||||||||||
Passenger Operations
General
As of December 31, 2023, LATAM passenger operations were performed by airline affiliates in Chile, Brazil, Peru, Colombia and Ecuador, where the group operates both domestic and international services. LATAM collects and reports operating data for its passenger operations in three categories: international (connecting more than one country), Domestic operations in Spanish-speaking countries or “SSC” (including Chile, Peru, Colombia, and Ecuador), and Domestic Brazil (entirely within Brazil).
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The following table sets forth certain of our passenger operating data for international and domestic routes for the periods indicated:
| For the year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ASKs (million) (at period end) | |||||||||||||||||
| International | 67,514.3 | 49,575.7 | 20,461.0 | ||||||||||||||
| SSC | 24,970.3 | 23,384.7 | 17,847.8 | ||||||||||||||
| Domestic Brazil | 44,765.9 | 40,891.8 | 29,326.8 | ||||||||||||||
| Total | 137,250.5 | 113,852.2 | 67,635.7 | ||||||||||||||
| RPKs (million) | |||||||||||||||||
| International | 57,340.2 | 41,140.5 | 13,500.5 | ||||||||||||||
| SSC | 20,482.0 | 18,942.6 | 13,359.8 | ||||||||||||||
| Domestic Brazil | 36,184.5 | 32,504.8 | 23,456.3 | ||||||||||||||
| Total | 114,006.6 | 92,587.8 | 50,316.5 | ||||||||||||||
| Passengers (thousands) | |||||||||||||||||
| International | 12,914.9 | 8,607 | 2,852 | ||||||||||||||
| SSC | 27,999.1 | 25,288 | 17,513 | ||||||||||||||
| Domestic Brazil | 32,984.2 | 28,573 | 19,830 | ||||||||||||||
| Total | 73,898.2 | 62,467 | 40,195 | ||||||||||||||
| Passenger RASK (passenger revenues/ASK, in US cents) | |||||||||||||||||
International(1) | US¢7.0 | US¢6.5 | US¢4.6 | ||||||||||||||
SSC(1) | US¢8.0 | US¢7.7 | US¢5.8 | ||||||||||||||
Domestic Brazil(1) | US¢8.2 | US¢6.7 | US¢4.8 | ||||||||||||||
Combined Passenger RASK(2) | US¢7.6 | US¢6.8 | US¢4.9 | ||||||||||||||
| Passenger load factor (%) | |||||||||||||||||
| International | 84.9 | 83.0 | 66.0 | ||||||||||||||
| SSC | 82.0 | 81.0 | 74.9 | ||||||||||||||
| Domestic Brazil | 80.8 | 79.5 | 80.0 | ||||||||||||||
| Combined load factor | 83.1 | 81.3 | 74.4 | ||||||||||||||
______________________________________________________
(1)RASK information for each of our business units is provided because LATAM believes that it is useful information to understand trends in each of our operations. We use our revenues as defined under IFRS Accounting Standards to calculate this metric. The revenues per business unit include ticket revenue, breakage, excess baggage fee, frequent flyer program revenues and other income. These operating measures may differ from similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS Accounting Standards. This unaudited operating data is not included in or derived from LATAM’s financial statements.
(2)The combined Passenger RASK for LATAM is calculated by dividing passenger revenues by total passenger ASKs
International Passenger Operations
LATAM group’s international network includes the international operations of our Chilean, Peruvian, Ecuadorian, Colombian and Brazilian affiliates. LATAM Airlines Group and its affiliates have operated international services out of Chile since 1946 and have since greatly expanded international services, offering flights out of Peru, Ecuador, Colombia
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and Brazil. As of December 31, 2023, LATAM offers 52 international destinations in 26 countries, in addition to the domestic destinations and international flights and connections between the domestic destinations.
The general strategy to expand the international network is aimed at enhancing LATAM’s value proposition by offering customers more frequencies, destinations and routing alternatives. Sustained development of LATAM’s international network is a crucial factor in the long-term strategy. The group provides long-haul services out of Santiago, Lima, Bogota, São Paulo and Fortaleza. The group also provides regional services from Chile, Peru, Ecuador, Colombia and Brazil.
As part of our mission, LATAM seeks to promote tourism to South America. Due to our large network of services, visitors from around the world can experience world-renowned destinations such as Machu Picchu and Cusco in Peru, the Galapagos Islands, Iguazu Falls in Brazil, and the Atacama Desert and Patagonia in Chile, including the cities of Punta Arenas and Puerto Natales.
Market Share Information
The following table presents air passenger traffic information for international flights (including intra-regional flights) and LATAM’s market share in each geographic market in which the group operates:
| LATAM passenger figures % variation | LATAM’s Market Share | |||||||||||||||||||||||||
| Country | 2023-2022 | 2023 | 2022 | % variation | ||||||||||||||||||||||
Brazil(1) | 14.3 | % | 22.4 | % | 20.3 | % | 2.1 | p.p. | ||||||||||||||||||
Chile(2) | 6.3 | % | 41.6 | % | 38.9 | % | 2.7 | p.p. | ||||||||||||||||||
Peru(3) | 9.9 | % | 44.8 | % | 42.9 | % | 1.9 | p.p. | ||||||||||||||||||
Colombia(4) | 33.5 | % | 6.1 | % | 5.2 | % | 0.9 | p.p. | ||||||||||||||||||
Ecuador(5) | 78.4 | % | 8.6 | % | 8.5 | % | 0.1 | p.p. | ||||||||||||||||||
______________________________________________________
(1)Source: ANAC Brazil’s website. Passenger figures considers passengers carried, measured in RPKs, in 2023 vs 2022. Market share considers passengers carried, measured in RPKs, as of December 2023.
(2)Source: JAC Chile’s website. Passenger figures considers passengers carried, measured in RPKs, in 2023 vs 2022. Market share considers passenger carried, measured in RPKs, as of December 2023.
(3)Source: DGAC Peru’s website. Passenger figures considers passengers carried in 2023 vs 2022. Market share considers the number of passengers carried as of December 2023.
(4)Source: Diio.net. Passenger figures considers ASK changes in 2023 vs 2022. Market share considers ASKs as of December 2023.
(5)Source: Diio.net. Passenger figures considers ASK changes in 2023 vs 2022. Market share considers ASKs as of December 2023.
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Competitors in international routes
The following table shows LATAM’s main competitors during 2023 in each geographic market in which it operates:
| Country | Route | Competitors | ||||||||||||
| Brazil | North America | American Airlines, United Airlines, Azul Linhas Aereas, Air Canada, GOL and Aeromexico. | ||||||||||||
| Latin America | Copa, Avianca, GOL, Aerolineas Argentinas, Sky Airline, JetSmart, Flybondi, Ethiopian Airlines, Turkish Airlines and Azul Linhas Aereas. | |||||||||||||
| Europe | TAP Portugal, Air France-KLM, IAG Group (British Airways, Iberia and their affiliates), Azul Linhas Aereas, Lufthansa, Turkish Airlines, ITA Airways, Swiss and Air Europa. | |||||||||||||
| Africa | Ethiopian Airlines, TAAG and South African Airways. | |||||||||||||
| Chile | North America | American Airlines, United Airlines, Air Canada and Aeromexico. | ||||||||||||
| Latin America | Sky Airline, Copa, JetSmart, Avianca and Aerolineas Argentinas. | |||||||||||||
| Europe | IAG Group (British Airways, Iberia and their affiliates) and Air France-KLM. | |||||||||||||
| South Pacific | Qantas Airways. | |||||||||||||
| Argentina | Latin America | Aerolineas Argentinas, GOL, JetSmart, Flybondi, Sky Airline, Ethiopian Airlines, Turkish Airlines, Air Canada, Air France - KLM, and Emirates. | ||||||||||||
| Peru | North America | American Airlines, United Airlines, Sky Airline, Volaris, Aeromexico, JetBlue Airways and Spirit Airlines. | ||||||||||||
| Latin America | Sky Airline, Copa, JetSmart, Avianca and Aerolineas Argentinas. | |||||||||||||
| Europe | Air France-KLM, IAG Group (British Airways, Iberia and their affiliates), Air Europa and Plus Ultra. | |||||||||||||
| Colombia | North America | Avianca, American Airlines, Spirit Airlines, United Airlines, JetBlue Airways and Wamos. | ||||||||||||
| Latin America | Avianca, Copa, Jetsmart and Sky Airline. | |||||||||||||
| Ecuador | North America | JetBlue Airways, American Airlines, Avianca, Delta Air Lines, United Airlines and Spirit Airlines. | ||||||||||||
| Latin America | Copa and Avianca. | |||||||||||||
______________________________________________________
Source: Diio.net considering competitors with more than 1% of total ASK.
Domestic Passenger Operations
As of December 31, 2023, domestic passenger services within Chile, Brazil, Peru, Ecuador and Colombia were operated by LATAM Airlines Chile, LATAM Airlines Brazil, LATAM Airlines Peru, LATAM Airlines Ecuador and LATAM Airlines Colombia, respectively.
Business Model for Domestic Operations
LATAM group has operations in five domestic markets, with a business model that allows it to provide more competitive fares and contributes to the development of tourism and the growth of air travel per capita in the region. The domestic service model requires continuous cost reduction efforts, and the group continues to implement a series of initiatives to reduce cost per ASK in all domestic operations. These efforts are aimed at significantly reducing selling and distribution expenses, increasing fleet utilization and operational productivity and simplifying back-office and support functions, thereby allowing the LATAM group to expand operations while controlling fixed costs.
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Another key elements of this business model are the initiatives to increase ancillary revenues and others that allow passengers to customize their journey. Customers on domestic flights are now able to access a simpler sales platform, which allows them to choose their fare depending on the type of journey they want, and to purchase additional services such as extra luggage, a variety of food and beverage options on board, preferred seating options and the flexibility to change tickets.
In March 2020, LATAM group introduced its superior cabin class, Premium Economy, in all domestic and international flights within Latin America operated by the Airbus A320-family (A319, A320, A320neo, A321 and A321neo; “short-/medium-haul”) aircraft. This cabin class offers premium services both at the airport and in-flight, including priority check-in and boarding, VIP lounge access in airports where available, a differentiated onboard service including complimentary snacks and drinks, an exclusive overhead bin for carry-on luggage and a blocked middle seat, providing greater space and privacy.
In 2023, LATAM group incorporated seven A321neo into its fleet, which are the largest model of the A320 single-aisle aircraft family. These aircraft can accommodate up to 224 passengers, have compartments for carry-on luggage called Airspace XL bins, and stand out for being one of the most efficient aircraft on the market, according to Airbus.
During 2023, with a focus on the passenger experience, LATAM group finalized the retrofit project for its narrow-body fleet (excluding aircraft available for sale), reaching 100% of the fleet with a homologated and renovated cabin.
LATAM group continues to develop digital initiatives to empower passengers providing them with an enhanced digital experience with end-to-end control of their reservation. LATAM customers will increasingly be able to buy, check-in and manage the after sale service in a simpler and faster manner through their smartphones.
The following table shows LATAM’s number of destinations, passengers transported, market share and main competitors in each domestic market in which we operate:
| Brazil | Chile | Peru | Colombia | Ecuador | |||||||||||||||||||||||||
| Destinations | 52 | 16 | 19 | 18 | 7 | ||||||||||||||||||||||||
| Passengers Transported (million) | 33.0 | 8.4 | 8.5 | 9.6 | 1.5 | ||||||||||||||||||||||||
| Change (YoY) | 15.3 | % | 9.3 | % | 7.7 | % | 14.0 | % | 15.5 | % | |||||||||||||||||||
| Market share | 38.7%(1) | 61.0%(2) | 63.1%(3) | 31.5%(4) | 44.1%(4) | ||||||||||||||||||||||||
| Main competitors | Gol, Azul | Sky Airlines, JetSmart | Sky Airlines Peru, Star Peru, JetSmart Peru | Avianca, EasyFly,Satena, Copa Airlines Colombia (“Wingo”) | Avianca | ||||||||||||||||||||||||
______________________________________________________
(1)Source: ANAC Brazil’s website. Market share considers RPKs as of December 2023.
(2)Source: JAC Chile’s website. Market share considers RPK as of December 2023.
(3)Source: DGAC Peru’s website. Market share considers the number of passengers carried as of December 2023.
(4)Source: Diio.net. Market share considers ASKs as of December 2023.
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Passenger Alliances and Commercial Agreements
Strategic Alliance with Delta Air Lines
In 2020, LATAM entered into a Trans-American Joint Venture Agreement with Delta Air Lines (the “Joint Venture Agreement”), following the framework agreement previously signed by both parties in 2019 to combine the airlines’ complementary route networks between North and South America.
On September 30, 2022, LATAM and Delta Air Lines obtained the final regulatory approvals from the US Department of Transportation, allowing them to implement their Joint Venture Agreement. This partnership enables Delta Air Lines and LATAM to work together, coordinating capacity and pricing strategies and sharing corporate accounts in the United States/Canada and South America (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay) markets within the scope of the Joint Venture Agreement. This agreement has allowed the airlines to develop a network with expanded route offerings and to connect the Americas to the world with access to more than 300 destinations. Also, the airlines will deepen their level of cooperation in these markets strengthening their codeshare routes and the reciprocal loyalty benefits.
During 2023, the year marking the first anniversary of this partnership, we have successfully launched 6 new routes together; 4 of these routes are operated by LATAM group: São Paulo (Brazil) - Los Angeles (United States), Medellin (Colombia) - Miami (United States), Orlando (United States) - Bogota (Colombia) and Lima (Perú) - Atlanta (United States), which is the first LATAM operation to this destination. The routes operated by Delta Air Lines are New York (United States) - Rio de Janeiro (Brazil) and Atlanta (United States) - Cartagena (Colombia).
It is worth noting that in 2023, Skytrax awarded Delta Air Lines as the Best Airline in North America and LATAM Airlines as the Best Airline in South America. We believe that this Joint Venture Agreement allows LATAM and Delta Air Lines to offer the most extensive network between South and North America and will provide the best travel experience in those regions.
During 2023, Delta Air Lines and the LATAM group began the expansion of their Joint Venture that provides additional customer benefits and expanded connectivity for passengers and cargo customers in North and South America. The expansion includes the Ecuadorian affiliate, LATAM Airlines Ecuador, as well as the three cargo affiliates LATAM Cargo Chile, LATAM Cargo Brazil and LATAM Cargo Colombia, as part of the geographical scope of the Joint Venture between the U.S./Canada and Brazil, Chile, Colombia, Ecuador, Paraguay, Peru and Uruguay. Regulatory assessments for this expansion were conducted and concluded by U.S. Department of Transport (DOT), Conselho Administrativo de Defesa Econômica (CADE), Superintendencia de Competencia Económica (SCE), Aeronáutica Civil Colombia (Aerocivil), Dirección General de Aviación Civil Ecuador (DGAC Ecuador), Dirección General de Aeronáutica Civil Perú (DGAC Perú) and Dirección Nacional de Aviación Civil e Infraestructura Aeronáutica (Dinacia), with positive outcomes for the requested expansion.
Other alliances and material commercial agreements
As of December 31, 2023, LATAM had ongoing passenger commercial agreements with 57 airlines and codeshare agreements with 27 airlines worldwide. In addition to the Joint Venture Agreement with Delta Air Lines, LATAM and its affiliates have ongoing passenger commercial agreements with Qatar Airways, Qantas, Lufthansa, Airlink, Japan Airlines, among others. These commercial agreements allow us to provide additional benefits to our passengers,
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including access to a wider network, more flight options with better connection times, and increased potential for developing new routes and adding direct flights to new destinations and to destinations already served by LATAM.
Subscription of new codeshare agreements
On March 7, 2023, LATAM Airlines Brazil signed an extension of its codeshare agreement with Voepass Linhas Aéreas, adding more than 20 new destinations in the Brazilian market.
On September 15, 2023, LATAM Airlines Brazil signed and implemented a codeshare agreement with Turkish Airlines. This new agreement seeks to increase the offerings and connectivity of the networks of both airlines.
Passenger Marketing and Sales
LATAM group is focused on creating a culture focused on earning the loyalty, trust and recurrence of customers while inspiring the creativity of employees and ultimately accelerating profitable and sustainable organic growth. This system’s primary key performance indicator is the Net Promoter Score (“NPS”). To calculate NPS, we have a customer survey, where we ask how likely will passengers recommend us to a friend or colleague. Customers score answers on a zero-to-ten scale and we then calculate the NPS as the percentage of customers who are promoters (those who scored 9 or 10) minus the percentage of customers who are detractors (those who scored 0 to 6).
LATAM’s Net Promoter Score for 2023 showed an improvement of 2 points over the previous year (48 NPS points in 2023 versus 46 points in 2022). During 2023, we achieved the highest NPS for our high value customers (HVCs) since we started this measurement. We also increased 6 points versus the overall LATAM NPS, surpassing 2022 result. These results are explained by improvements in information, crew friendliness, airport teams and enhancements in the contingency experience.
We have kept working on the evolution of the customer’s digital experience as the main focus of the e-business area, with the objective to maintain and enhance LATAM customer’s online experience, increase digital services coverage, automate financial processes and boost LATAM.com as the marketplace that attends all travel needs. As a result, during 2023, 57% of LATAM passengers bought their tickets through our digital channel and our 2023 Digital Net Promoter Score increased by 11 percentage points in comparison to 2022, reaching 61 percentage points as of December 31, 2023.
A series of new features and developments have been added to the marketplace to improve our customer’s digital experience: a new payment pivot, a redesigned homepage that communicates clearly and in one place our offer of travel solutions, personalization tools to offer destinations based on each customer needs, new form of payments (such as a new option to process payments with debit card in Chile), and new anti-fraud tools (such as biometrics on the payment workflow in Brazil).
LATAM will continue working to be the preferred distribution channel for our clients, positioning our digital experience as a one-stop shop for the purchase and care of all travel needs, taking care of our clients in situations of disruption, guaranteeing operational excellence and generating loyalty towards our customers, through a personalized, data-driven experience, with an emphasis on our high value customers (HVC) and Frequent Flyer Program (FFP) members.
In 2023, LATAM group continued transforming the travel experience of its passengers through cabin retrofits. As of December 31, 2023, we have 10 Boeing 777, 9 Boeing 767, 9 Boeing 787-9, and 181 Airbus A319/A320/A321 aircraft with renovated interiors. In addition, 28 Boeing 787 are currently in development to be retrofitted with the new cabin interior between 2024 and 2026. Additionally, the group continued to equip aircraft with Wi-Fi connectivity in the Brazilian and Spanish-speaking domestic markets, reaching 147 aircraft in total with in-flight connectivity.
Branding
During 2023, LATAM achieved successful results in terms of brand awareness, closeness, reputation and first choice (i.e., when respondents chose LATAM Airlines as their first choice among the airlines they know). According to Ipsos, a global leading institute focused on brand measurement, as of December 31, 2023, LATAM ranked as the first choice airline in Chile, Brazil, Peru and Ecuador, and throughout 2023 it has significantly reduced the passenger preference gap compared to its competitors in Colombia.
Our brand image also continued to strengthen, based on pillars such as trust, by offering a fair, empathetic, transparent and simple experience to our costumers; network with relevant growth in sustainability; and localization. Some of the relevant initiatives throughout 2023 that helped the group to achieve these results were: LATAM’s participation in
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Brazil's Big Brothers Program, its participation in local festivals (such as “Cordillera”, “Rock in Rio”, “The town” and “Primavera”), its sponsorship of the PanAmerican Games in Santiago, Chile, in 2023, an alliance with the Chilean Teletón, a contract with the singer Carlos Vives for a set of diverse marketing campaigns, and a partnership with the Chilean and Ecuadorian National Soccer Teams.
Distribution Channels
We are committed to being the preferred choice of our customers. Therefore, we put our focus on our passengers in our decision-making process. Our distribution structure is divided into direct and indirect distribution channels, both focused on improving their respective platforms to allow for easy interaction for our client in sales and services alike. LATAM continues to be strongly committed to the digital transformation of its distribution channels.
Direct channels owned by LATAM are city ticket offices, contact-centers and e-business (including website, mobile and smart business), which accounted for approximately 49% of LATAM's total sales in 2023 (including award passengers). These direct channels support sales and service, both before and after the flight.
Our city ticket offices include additional services in order to complement the experience of our customers. Our contact centers are a multi-service channel providing support in 6 languages (Spanish, English, Portuguese, French, German and Italian).
Our digital strategy includes mobile applications that provide trip information to our passengers. These applications improve management of contingencies, enable us to provide information and solutions to our customers in a timely and transparent manner and serve as a new direct sales channel. LATAM intends to continue to improve its e-business platforms to support expected future growth and simplify our customers’ online experience.
Indirect channels currently include travel agencies, general sales agencies, direct channels from other airlines and online agencies, and accounted for 51% of LATAM's total sales in 2023. LATAM offers travel agencies different options to connect to our systems and provide their customers our best product offering. These options include Global Distribution Systems as well as our direct connection “eLATAM" in Brazil and “NDC by LATAM”, which we are continuously expanding and improving.
On May 1, 2023, LATAM achieved a relevant milestone through the implementation of the IATA’s New Distribution Capability (“NDC”) standard. This implementation allows LATAM to improve the inventory and products offered and to provide a wider variety and improved digital services to our final passengers who buy their products through our indirect sales channels, including the possibility to easily manage refunds, changes and cancellations.
Frequent Flyer Program
Our frequent flyer program, LATAM Pass, is a strategic asset and a core source of value that differentiates LATAM from other carriers, and also a key element of our marketing and loyalty strategy. The program rewards customer loyalty, and as a result, it generates incremental revenues and promotes customer retention.
LATAM Pass members can qualify to five elite categories: Gold, Gold Plus, Platinum, Black and Black Signature. These categories determine which benefits customers are eligible to receive, including LATAM miles earning bonuses, free upgrades, VIP lounge access and preferred boarding and check-in privileges. Members of LATAM Pass program accrue “LATAM miles” for ticket purchases, depending on the dollars they spent and also by reaching a goal of number of segments flown, to access to superior categories. This rule is aligned with a simpler methodology for mileage accrual, generating efficiency to our frequent flyer program and making it accessible to more customers, especially for those domestic passengers who fly many segments a year that generally have lower rates. Customers of the program can redeem LATAM miles or points for free tickets as well as for other products or services.
As of December 31, 2023, LATAM Pass had approximately 45 million members, representing an increase of 7.1% compared to 2022. In 2023, LATAM Pass announced the following new benefits: priority contact center for all elite members, eliminate redemption fee, qualifying points roll over for 2023 and 2024, simplification of courtesy upgrades with coupons, improved upgrade priority for elite members with the cobranded credit card and mileage and cash in air redemption.
Cargo Operations
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The Cargo business is operated internationally and domestically by affiliate airlines under the unified LATAM Cargo brand, which has acquired significant market recognition. The Cargo operations are made under four of the LATAM group affiliates: LATAM Cargo Colombia, LATAM Cargo and LATAM Cargo Brazil, dedicated exclusively to cargo transport, and LATAM Airlines Ecuador, which, in addition to its passenger operations, as of 2022 was certified as a cargo operator and incorporated dedicated cargo freighters to its operations.
The cargo business operates a similar route network used by the passenger airline business. It includes 166 destinations, of which 148 are served by passenger and/or freighter aircraft and 18 are served only by freighter aircraft.
The following table sets forth certain of our cargo-operating statistics for domestic and international routes for the periods indicated:
| For the year ended and as of December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ATKs (millions) | 7,171.0 | 6,255.7 | 4,788.1 | ||||||||||||||
| RTKs (millions) | 3,704.0 | 3,532.5 | 3,034.9 | ||||||||||||||
| Weight of cargo carried (thousands of tons) | 945.5 | 900.6 | 801.5 | ||||||||||||||
| Total cargo yield (cargo revenues/RTKs, in U.S. cents) | 38.5 | 48.9 | 50.8 | ||||||||||||||
| Total cargo load factor (%) | 51.6% | 56.5% | 63.4% | ||||||||||||||
We derive our revenues from the transport of cargo through our dedicated freighter fleet and in the bellies of our passenger aircraft.
LATAM considers its passenger network to be a key competitive advantage due to the synergies between passenger and cargo operations and, accordingly, we have developed a strategy aimed at increasing competitiveness by enhancing the belly offering. LATAM primarily uses the belly of the passenger aircraft for cargo operations.
The freighter fleet program has two main focus areas: first, to support the group’s belly business, improving its load factor by feeding cargo into passenger routes, and second, to enhance our product offering by providing our customers flexibility in scheduling, origins, destinations and types of cargo. As of December 31, 2023, LATAM cargo affiliates operated 9 Boeing 767-300Fs (factory freighters) and 11 Boeing 767-300BCFs (converted freighters). We intend to operate a combined fleet of 19 Boeing 767-300Fs/767-300BCFs. As a consequence, in the first half 2024 we plan to sell three Boeing 767-300Fs and incorporate two newer Boeing 767-300BCFs.
The United States is the main market for cargo traffic to and from Latin America. Besides being the main market for Latin American exports by air, cargo consolidated in the United States accounts for the majority of the goods transported by air to Latin American countries. Miami is the main gateway to and from Latin America and we operated the vast majority of our freighter operations from there. Accordingly, we have headquartered our international cargo operations in Miami. We also utilize passenger flights to and from New York, Los Angeles and Orlando and our seasonal dedicated freighter services to Chicago. Additionally, using different trucking companies LATAM offers a road-feeder network, connecting our hub in Miami and other online gateways in the United States (for example, Los Angeles, New York, Chicago, and Orlando) with key off-line origins and destinations. LATAM group also transports cargo to and from 10 destinations in Europe: Barcelona, Lisbon, London, Milan, Paris, Rome, Frankfurt, Madrid, Amsterdam and Zaragoza. The first six points are served only via passenger aircraft. Frankfurt and Madrid are served by both passenger and freighter aircraft, while Amsterdam and Zaragoza are only served through freighter operations. The group offers a road-feeder service within Europe to expand our footprint and balance traffic between our different origins.
The main destinations for southbound traffic are Brazil, Chile, Colombia and Peru. Southbound demand is mainly concentrated on a small number of product categories including high-tech equipment, mining equipment, electronics, auto parts and pharmaceuticals.
Chile, Colombia, Peru, Ecuador, and Brazil represent a large part of the northbound traffic. This demand is mainly concentrated on a small number of product categories, such as exports of fish, sea products and fruits from Chile, asparagus and fruits from Peru, and fresh flowers from Ecuador and Colombia.
The largest domestic cargo operations are in Brazil, where LATAM Cargo Brazil is the only wide body freighter operator, carrying cargo for a variety of customers, including freight-forwarding companies, logistics operators, e-commerce companies and individual consumers.
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During 2023, cargo revenues decreased by 17.4%. Total cargo capacity increased by 14.6%, in line with the increase in freighter capacity. Cargo traffic increased by 4.8%, resulting in a 4.8 percentage point decrease of the cargo load factor. This capacity increase is also explained by the recovery of passenger capacity levels, and the use of their belies for cargo. Cargo yield fell 21.3% year-over-year. As a result, revenues per ATK decreased 28.0% in comparison to the previous year.
The cargo business in the region is highly competitive, as international and regional carriers often have spare capacity in their cargo operations. In the region, LATAM group has been able to maintain solid market shares through efficient utilization of the fleet and network. The main competitors can be divided into three categories:
1.hybrid carriers, operating mixed fleets of belly and freighters, such as Air France-KLM-MartinAir, Lufthansa, Qatar, Ethiopian, Korean Airlines and Avianca,
2.pure freighter operators such as Atlas and Cargolux, and
3.belly-only operators such as IAG Group (British Airways, Iberia and their affiliates), American Airlines and United Airlines.
Carriers operating freighters have greater flexibility which allows them to serve a wider variety of markets, diversifying their portfolio while pure belly carriers tend to have more stable service and are usually limited to their countries of origin.
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Cargo-Related Investigations
See “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Legal and Arbitration Proceedings.”
Fleet
General
As of December 31, 2023, LATAM had a total fleet of 333 aircraft, comprised of 313 passenger aircraft and 20 cargo aircraft, this includes 38 aircraft as non-current assets classified as held for sale. Please see Note 13 of our audited consolidated financial statements..
| Number of aircraft in operation | ||||||||||||||||||||||||||||||||||||||
| Total | Aircraft classified as Property, plant and equipment | Aircraft classified as Rights of use assets | Average term of lease remaining (years) | Average age (years) | ||||||||||||||||||||||||||||||||||
Passenger aircraft(1) | ||||||||||||||||||||||||||||||||||||||
| Airbus A320-Family Aircraft | ||||||||||||||||||||||||||||||||||||||
| Airbus A319-100 | 40 | (3) | 39 | (3) | 1 | 1.78 | 15.50 | |||||||||||||||||||||||||||||||
| Airbus A320-200 | 136 | (4) | 90 | (4) | 46 | 6.81 | 12.91 | |||||||||||||||||||||||||||||||
| Airbus A321-200 | 49 | 19 | 30 | 5.53 | 9.61 | |||||||||||||||||||||||||||||||||
| Airbus A320-neo | 24 | 1 | 23 | 10.48 | 2.88 | |||||||||||||||||||||||||||||||||
| Airbus A321-neo | 7 | 0 | 7 | 11.59 | 0.13 | |||||||||||||||||||||||||||||||||
| Boeing Aircraft | ||||||||||||||||||||||||||||||||||||||
| Boeing 767-300ER | 11 | 11 | 0 | — | 14.86 | |||||||||||||||||||||||||||||||||
| Boeing 787-8 | 10 | 4 | 6 | 5.54 | 10.12 | |||||||||||||||||||||||||||||||||
| Boeing 787-9 | 26 | 2 | 24 | 8.48 | 6.48 | |||||||||||||||||||||||||||||||||
| Boeing 777-300ER | 10 | 4 | 6 | 3.57 | 12.68 | |||||||||||||||||||||||||||||||||
| Total passenger aircraft | 313 | 170 | 143 | 7.42 | 11.11 | |||||||||||||||||||||||||||||||||
| Cargo aircraft | ||||||||||||||||||||||||||||||||||||||
| Boeing 767-300 Freighter | 20 | (2) | 19 | (2) | 1 | 7.04 | 17.20 | |||||||||||||||||||||||||||||||
| Total cargo aircraft | 20 | 19 | 1 | 7.04 | 17.20 | |||||||||||||||||||||||||||||||||
| Total fleet | 333 | 189 | 144 | 7.42 | 11.48 | |||||||||||||||||||||||||||||||||
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(1)All passenger aircraft bellies are available for cargo.
(2)This includes 3 Boeing 767-300 Freighter aircraft as non-current assets classified as held for sale. For more information, see Note 13 of our audited consolidated financial statements.
(3)This includes 28 Airbus A319-100 aircraft as non-current assets classified as held for sale. For more information, see Note 13 of our audited consolidated financial statements.
(4)This includes 7 Airbus A320-200 aircraft as non-current assets classified as held for sale. For more information, see Note 13 of our audited consolidated financial statements.
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LATAM Airlines Group and its affiliates operate various different aircraft types that are suited for our different services, which include short-haul domestic and intracontinental trips as well as long-haul intercontinental flights. The aircraft have been selected based on their ability to effectively and efficiently serve all of these routes while trying to minimize the number of aircraft families that we operate.
For short-haul domestic and continental flights, LATAM Airlines Group and its affiliates operate Airbus A320-family aircraft. The Airbus A320-family has been incorporated into our fleet pursuant to leases and has been acquired directly from Airbus pursuant to various purchase agreements since 1999. For long-haul passengers LATAM Airlines Group and its affiliates operate Boeing 767-300ER, Boeing 787-8 and 787-9, Boeing 777-200ER and 777-300ER. For cargo flights, we operate Boeing 767-300F aircraft.
Utilization
The average utilization rates of LATAM’s aircraft for each of the periods indicated are set forth below, in hours per day(1).
| 2023 | 2022 | 2021 | |||||||||||||||
Passenger aircraft (2) | |||||||||||||||||
| Boeing 767-300ER | 8.4 | 5.9 | 3.8 | ||||||||||||||
| Boeing 787-8/9 | 12.2 | 9.0 | 4.2 | ||||||||||||||
| Airbus A320-Family | 10.3 | 8.9 | 6.0 | ||||||||||||||
| Boeing 777-300ER | 12.7 | 9.8 | 3.3 | ||||||||||||||
Airbus A350-900 (3) | — | — | 0.1 | ||||||||||||||
| Total passenger aircraft | 10.5 | 8.7 | 5.4 | ||||||||||||||
| Cargo aircraft | |||||||||||||||||
| Boeing 767-300 Freighter | 11.7 | 12.5 | 13.3 | ||||||||||||||
| Total cargo aircraft | 11.7 | 12.5 | 13.3 | ||||||||||||||
| Total passenger and cargo | 10.5 | 8.9 | 5.7 | ||||||||||||||
______________________________________________________
(1)Utilization rates are calculated by dividing total block hours by total aircraft, excluding subleased aircraft.
(2)Passenger Utilization excluded Flights in passenger aircraft with only cargo.
(3)LATAM retired its A350s in 2021 and they are no longer currently part of the fleet.
Fleet Leasing and Financing Arrangements
LATAM’s fleet financing and leasing structures include borrowing from financial institutions and leasing under financial leases, tax leases, sale-leaseback transactions and operating leases. As of December 31, 2023, LATAM had a total fleet of 333 aircraft, of which 3 Boeing 767-300 freighter aircraft, 28 Airbus A319-100 aircraft, and 7 Airbus A320-200 aircraft are non-current assets classified as held for sale, resulting in 295 aircraft in operation.
As of December 31, 2023, LATAM’s fleet comprised 53 financial leases, 3 tax leases, 160 operational leases, 30 aircraft provided as loan collateral, and 87 unencumbered aircraft (27 aircraft reserved as collateral for the RCF). Most of LATAM’s financial and tax leases are structured with a 12-year initial term. LATAM has 19 financial aircraft leases supported by the U.S. Export-Import Bank (“EXIM Bank”) and 23 supported by the European Export Credit Agencies (the “ECAs”). LATAM’s lease maturities initially range from 7 to 12 years. Moreover, as of December 31, 2023, LATAM had a total of 139 spare engines, comprising 21 operational leases, 47 engines provided as loan collateral and 71 unencumbered engines (19 engines reserved for RCF).
LATAM’s aircraft debt, which consists of financial and tax leases, is denominated in U.S. dollars and typically has quarterly amortization payments. Both, the financial leases and tax leases have a bank (or a group of banks) as counterparty; however, the tax leases also include third parties. As of December 31, 2023, 51% of our aircraft debt has a fixed interest rate and the remaining portion has a floating rate based on USD Term SOFR.
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In order to reduce LATAM Airlines Brazil’s balance sheet currency exchange exposure to the Brazilian real, as part of the integration plan following the merger with TAM, LATAM Airlines Brazil sought to transfer the majority of its aircraft under financial leases to LATAM Airlines Group SA. As of December 31, 2023, only 1 aircraft is subject to financial lease by LATAM Airlines Brazil. See “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Sources of financing” and “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Capital Expenditures” for a description of expected sources of financing and expected expenditures on aircraft.
The leases provide us with flexibility to adjust our fleet to any demand volatility that may affect the airline industry and therefore we consider such arrangements to be of great value to our strategy and financial performance. The aircraft financial debt as of December 31, 2023 for all remaining periods through maturity (the latest of which expires in December 2033) was US$1,369 million. See “Item 5. Operating and Financial Review and Prospects—Contractual Obligations—Long Term Indebtedness.”
Under the aforementioned leases, LATAM is responsible for all maintenance, insurance and other costs associated with operating these aircraft. The Company has not made any residual value or similar guarantees to our lessors. There are certain guarantees and indemnities to other unrelated parties that are not reflected on the Company’s balance sheet, but we believe that these will not have a significant impact on our results of operations or financial condition.
See Note 31 to our audited consolidated financial statements for a more detailed discussion of these commitments.
Maintenance
LATAM Maintenance
LATAM Maintenance possesses a diverse range of facilities and capabilities, reaching major inspections and overhauls, as well as routine or corrective maintenance tasks that are conducted between each flight.
The heavy maintenance, line maintenance and component shops are equipped and certified to service the group’s fleet of Airbus and Boeing aircraft. LATAM’s maintenance capabilities allow the group flexibility in scheduling airframe maintenance, offering an alternative to third-party maintenance providers. More than 4,100 LATAM Maintenance professionals ensure the fleet operates safely and in compliance with all local and international regulations. LATAM group strives to provide the best experience to its passengers through the highest standards of safety, on-time performance and cabin image and functionality.
The heavy maintenance and component repair shop facilities are located in São Carlos (Brazil) and Santiago (Chile), adding up to a total of twelve heavy maintenance production lines, including painting capabilities, and component repair shops, including landing gear, hydraulics, pneumatics, avionics, electroplating, composites, wheels and brakes, emergency equipment, galleys and structures.
LATAM Maintenance’s continuous improvement efforts are focused on reducing costs and enhancing reliability. In addition to our LEAN-Six Sigma project, aimed to raise technician productivity, optimize inventory, diminish repair TATs and develop new internal repair capabilities, we have initiated a full digital transformation in collaboration with McKinsey and Thoughtworks. In 2023, we started projects focused on long-term planning, inventory optimization and preventive maintenance, which have been developed using the AGILE methodology, with a focus on exploring and incorporating new technologies that are most suitable for each specific case, such as data analytics and artificial intelligence.
LATAM Line Maintenance
The Line Maintenance Network serves over 170 locations and carried out over 2.3 million man-hours of preventive and corrective maintenance tasks on the LATAM fleet during 2023. We also rely on certified third party services in many of our international destinations where it is economically convenient, such as in Lisbon, (where we are served by Nayak), and London (served by KLM) among others.
LATAM group’s Line Maintenance Network has hangar facilities in Santiago, São Paulo (Conhongas "CGH"and Guarulhos "GRU"), Lima, Miami and Bogota, among others. These multiple locations improve the flexibility of the Line Maintenance Network by allowing the execution of tasks that might be restricted because of adverse weather conditions and environmental authority restrictions.
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In 2023, Line Maintenance continued performing heavy maintenance in its hangar located at GRU and Lima. These facilities have the ability to replace landing gear for both the Boeing 777 and Airbus 320 fleets, as well as conduct C Checks for the Boeing 777 and special Checks for the Airbus A320-family, such as the 24MO and other projects.
In order to strictly comply with applicable regulations, all of our maintenance operations are supervised and audited by the local authorities and international entities around the Network, such as Dirección General de Aeronáutica Civil in Chile (“DGAC”), Agência Nacional de Aviação Civil in Brazil (“ANAC”), the Federal Aviation Administration in the United States (“FAA”), the International Air Transport Association Operational Safety Audit (“IOSA”) (by the International Air Transport Association or “IATA”) and the International Civil Aviation Organization (“ICAO”), among others. The audits are conducted in connection with each country’s certification procedures and enable us to perform maintenance for the aircraft types registered in the certificating jurisdictions. Our repair stations hold FAA Part-145 certifications under these approvals.
To ensure our technical personnel is properly qualified, we have developed extensive training programs at our Technical Training Centers in Chile and Brazil. Our focus is to constantly improve the skills of our technicians in order to maintain our prime safety and reliability standards.
LATAM MRO
The two main MRO (“Maintenance, Repair and Overhaul”) facilities, one in São Carlos (Brazil) and one in Santiago (Chile), are equipped and certified to service our fleet of Airbus and Boeing aircraft and provided 94.5% of all heavy maintenance services that LATAM demanded in 2023, effectively executed 1.57 million man-hours. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries. The services not executed internally are contracted to our extensive network of MRO partners around the globe. LATAM occasionally performs certain heavy maintenance and component services for other airlines or OEMs.
The MRO São Carlos (LATAM Airlines Brazil MRO), is prepared to service up to nine aircraft (narrow and wide body) simultaneously with a dedicated hangar for stripping and painting. In this facility we also have 23 technical component shops, including a full landing gear repair & overhaul shop, hydraulics, pneumatics, electronics, electrical components, electroplating, composites, wheels & brakes, interiors and emergency equipment shops. MRO São Carlos is certified and audited by major international aeronautical authorities such as the FAA, the European Aviation Safety Agency (“EASA”), ANAC Brazil, the Chilean DGAC, the Argentinean Administración Nacional de Aviación Civil (“ANAC Argentina”), the Ecuadorian Dirección General de Aviación Civil (“DGAC”), the Paraguayan Dirección Nacional de Aeronautica Civil (“DINAC”), and Transport Canada (“TC”), among others, for Heavy Maintenance and Components Repair and Overhaul for the Airbus A320-family and Boeing 767. The MRO also has some minor capabilities for the repair and overhaul of Boeing 777 and 787 components. MRO São Carlos includes its own support engineering capabilities and a full technical training center.
In MRO Santiago, located near Comodoro Arturo Merino Benítez International Airport in Santiago, we have two hangars capable of servicing two wide body aircraft and two narrow body aircraft simultaneously. MRO Santiago is certified and audited by FAA, ANAC Brazil, DGAC, ANAC Argentina and DGAC Ecuador, among others, for Heavy Maintenance for the Airbus A320-family (A318, A319, A320 and A321) and Boeing 767-787. MRO Santiago has 11 shops prepared to support hangar activities such as cabin shops, galleys, structures, composite materials, avionic, wheels & brakes.
We also have the capability to service mid-term checks at the maintenance base in Lima for the Airbus A320-family and at the Guarulhos maintenance base for the Airbus A320-family and Boeing 777, including C-Checks for the Boeing 777.
During 2023, LATAM MRO's executed 433 services, including C checks (197) and Special Checks (236) for the LATAM fleet.
LATAM Corporate Safety and Security Management
LATAM Corporate Safety and Security Management is formed by four areas: Safety, Security, Health Safety Environmental Management (HSE) and Emergency Response Management (ERM), which continually interact with
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operational and support areas in order to guarantee acceptable levels of safety, provide an excellent service without compromising our mission and vision and always keeping in mind our clients’ well-being.
The year 2023 was marked by operational recovery of the market, which has reached high levels, requiring maximum flexibility of service providers to adapt to new conditions and have the ability to meet the increasing demand. Effectively addressing climate change and global instability while maintaining sustainability and efficient technological support poses significant challenges in terms of safety and security.
One of the main goals of 2023 was the improvement of oversight and control practices of third-party providers and the unification of management systems that allow us a harmonious, efficient and robust performance. In this regard, one of our priorities is to continue enhancing our capacity in data analysis and report systems to aim for predictive safety and security.
Organizational Structure of LATAM Safety and Security Vice-Presidency
Safety Management
The Safety Management Departments ensure that providing safe and reliable air service remains LATAM’s highest priority. Given the operational complexity, as well as the multicultural challenges that we face, LATAM group concentrates its safety management activities under the umbrella of a coordinated structure, which is responsible for the implementation and oversight of unified policies and procedures throughout the group.
The core foundation of this department lies within its robust Safety Management System (“SMS”), which is built upon four main components (Policies and Objectives, Risk Management, Safety Assurance, and Safety Promotion). These components give the SMS a proper structure and provide management with the necessary tools to oversee the safety of our operations. For example, through Flight Data Monitoring (“FDM”), also known as Flight Operations Quality Assurance (“FOQA”), we are able to capture, analyze and even visualize the data recorded during revenue flights and compare it with the company’s Standard Operating Procedures (“SOPs”). In parallel, the Line Operations Monitoring Program ("LOMP") permits us to monitor Flight Crew performance and detect errors ahead of time. As a result of these proactive activities, we intend to improve overall safety, increase maintenance effectiveness, and reduce operational costs. The company’s SMS is documented, available internally to all employees, and it provides the guidelines and responsibilities that each employee must meet, regardless of function or hierarchy, which in turn assures our commitment towards safety as a whole. Furthermore, IOSA certification ensures the proper qualification of our employees, including the provision of a Senior Safety Manager responsible for each system implementation within the Safety Department, as well as defining standardized procedures for measuring the quality of services provided by third party companies and contractors.
In 2023, LATAM focused on enhancing its performance indicators through a continuous improvement process and adjusting the Safety Performance Index ("SPI") target post-pandemic. This resulted in LATAM achieving its record levels of operational safety, effectively reducing risks associated with Runway Safety, including Runway excursion, Mid-air collision, Controlled Flight into Terrain ("CFIT"), Loss of Control In-Flight, and others.
To further enhance operational safety, LATAM has implemented FDM tools, empowering our gatekeepers to mentor pilots in developing skills, competencies, and knowledge. Additionally, LATAM has introduced Micro Learnings, short online training courses aimed at complementing gatekeeper feedback and enhancing specific skills related to observed safety events. By February 2024, a total of 10 courses will be developed, with 5 already completed in 2023.
The Safety II project in 2023 focused on the development of an SPI for the normal operations and it is providing valuable insights and correlations between collected data, enabling more robust analysis of normal operations. This analysis will facilitate the generation of recommendations and hypotheses regarding pilot behavior and various factors such as flight experience, weather conditions, aircraft dispatch conditions, planned alertness levels, and more.
In 2023, LATAM implemented new risk controls for infrastructure, adopting a risk-based approach to classify airports where we operate. Through the use of an internal tool called Infrastructure Risk Monitoring, we effectively identified and monitored key risks, assessed the impact of planned works, and ensured the effectiveness of mitigation actions in maintaining an acceptable level of safety performance.
Furthermore, LATAM has developed new methodologies to assess runway braking action conditions. Through in-house development, LATAM can now classify runways that are prone to be slippery when wet and apply specific mitigations for each operation.
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In 2023, we were also one of the first airlines in the world to adopt the IOSA risk-based assessment model, that focuses on safety risks, specific to the auditor, rather than applying a “one-size-fits-all” approach. The new approach introduces a maturity assessment of the airline's safety-critical systems and programs.
Security Management
The Security Management Departments are responsible for coordinating the security of LATAM’s passengers, employees, aircraft, equipment and facilities. This department secures LATAM’s infrastructure and patrimony while protecting people against any threat or unlawful action.
Corporate Security Policies and a Security Management System have been implemented to enhance LATAM’s security culture, resource utilization as well as regulatory collaboration and compliance, in order to detect any vulnerabilities within the operation and to prevent unlawful acts. These policies, as well as all the critical aspects of the Management System, are constantly reviewed and analyzed by qualified Corporate Security Managers, who are responsible for risk assessment and the creation of new security protocols or modification of current ones, which are controlled through security personnel, field audits, inspections, technological development (camera circuits, access control, among others) and key performance indicators.
During 2023, initiatives were promoted to mitigate the occurrence and impact of disruptive passengers that affect our operation, crew and other passengers. Preventive measures were also taken related to unadmitted passengers and refugees, which negatively impact the airports in which LATAM operates. To address the global context of political, economic and social instability, procedures related to transportation of valued cargo in aircraft, weapons and ammunition were updated, along with the creation of an airport risk map that allows us to view the status of each station.
Finally, in order to mitigate commercial and operational impacts derived from internal threat, investments have been made in technology to unify access control and remote monitoring systems, along with establishing an investigations area with dedicated and adequately trained personnel.
Health Safety Environmental Management (HSE)
Occupational health, safety and environmental management is responsible for defining guidelines to assess and mitigate labor, environmental and employees health risks. It is responsible for setting HSE standards, supporting and implementing procedures defined, and monitoring effective compliance. It also ensures compliance with applicable HSE regulations and promotes the well-being and safety of employees through training and awareness programs, as well as always seeking initiatives focused on mitigating critical risks and new proactive monitoring and control methodologies. Moreover the area supports the implementation of LATAM’s sustainability strategy through a technical expert team.
In the field of Occupational Health and Safety, the conventional measurement of injury rates has shown stability. In our continuous pursue of risk management, complementary indicators have been developed that focus on analyzing risk exposure, potential impact of serious and fatal injuries, and predict conditions that may lead to an accident.
In terms of Environment, in 2023 IENvA (IATA Environmental Assessment) Stage 2 certification was achieved and new local regulations regarding extended producer responsibility and energy management were addressed.
Emergency Response Management (ERM)
LATAM Emergency Response Management is responsible for overall corporate Emergency Response Plan (“ERP”) implementation. It has been designed to comply with airline responsibilities (as defined by ICAO) and for overall management, command and control of the crisis response. LATAM ERP sets procedures to deal with different scenarios, such as aircraft accidents, serious incidents, natural disasters, union strikes and pandemics. ERP establishes specific teams, procedures, and resources to mitigate the impact of these emergencies on our passengers, their families and for caring about others affected, besides ensuring the continuity of our operations. The ERP is an essential tool to meet the needs for those who need most, and we have different levels of teams prepared to be activated (but is not limited to): Emergency Process and Procedures, Emergency Control Centers, a Relatives & Passengers Assistance Team, a Notification Team, Aircraft Recovery, and a dedicated “Go Team” that can be activated and address an emergency situation.
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Fuel Supplies
Fuel costs comprise one of the single largest categories of our operating expenses. In 2023, total fuel costs represented 37.2% of our total operating expenses. As of December 31, 2023, crude oil prices decreased slightly compared to December 31, 2022. Our average into-wing price for 2023 (fuel price plus taxes and transportation costs, including hedging and gains/losses) was US$3.3 per gallon, representing a decrease of 13.7% from the 2022 into-wing average fuel price. We can neither control nor accurately predict the volatility of fuel prices. Despite the foregoing, we believe it is possible to partially offset the price volatility risk through our hedging and fuel surcharge programs, which is in place in both our passenger and cargo business. For more information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Fluctuations in Fuel Prices.”
The following table details our consolidated fuel consumption and operating expenses, after related hedging gains and losses (which exclude fuel costs related to charter operations because fuel expenses are covered by the entity that charters the flight) for the last three years.
For the year ended December 31, 2023 (1) | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Fuel consumption (thousands of gallons) | 1,195,029.7 | 1,017,158.6 | 677,110.0 | ||||||||||||||
| ASK (millions) | 137,250.5 | 113,851.9 | 67,635.7 | ||||||||||||||
| Fuel gallons consumed per 1,000 ASK | 8.7 | 8.9 | 10.0 | ||||||||||||||
| Total fuel costs (US$ thousands) | 3,947,220 | 3,882,505 | 1,487,776 | ||||||||||||||
| Cost per gallon (US$) | 3.3 | 3.8 | 2.2 | ||||||||||||||
| Total fuel costs as a percentage of total operating expenses | 37.2% | 40.3% | 23.9% | ||||||||||||||
In our fuel supply agreements, we manage different price structures and price update calculations. The main price structure is Jet Fuel plus fixed fees and taxes, and the main fuel price updates are on a weekly, bi-weekly and monthly basis. Brazil, our largest market, bases its price on a refinery posting updated every month, which is set in Brazilian real per liter, plus fees and taxes. Refinery prices in Brazil have stabilized and matched a more transparent import parity model, creating a more competitive and predictable market for the region.
The fuel supply agreements vary by airport and are distributed among 25 suppliers. Our fuel consumption volume is mainly concentrated in Brazil (42%), Chile (15%), the United States (10%), Peru (12%) and Colombia (7%). In 2021, as part of the Chapter 11 proceedings and due to the expiration of some Fuel Supply contracts, we negotiated fuel supply in Chile, Perú, USA, Brazil, Argentina and certain major European airports. This negotiation strengthened our relations with global fuel suppliers with long term agreements and LATAM obtained generally favorable commercial conditions. In 2023, the fuel supply contracts that were part of long term agreements negotiated in Chapter 11 continued to be in effect, some of them without inflation escalation, putting LATAM in a favorable competitive position. In addition, during 2023 LATAM re-negotiated fuel supply contracts in Brazil, which improved the credit terms of such contracts, reaching better conditions than pre-pandemic, Chile, Peru, Argentina and major European airports, continuing to strengthen its commercial relationship with suppliers.
In Chile and Peru, a fuel import model is used in addition to the traditional local refinery supply, creating a more competitive market and ensuring our supply with different sources. During 2018 we implemented the fuel import model in Brazil, by creating a jet fuel import project that will allow imported jet fuel to reach the Terminal of San Sebastian in São Paulo and move from there to Guarulhos, São Paulo’s International Airport. LATAM was awarded pipeline capacity to move product from the Terminal into Guarulhos and became the first airline to do so. In 2019, refinery prices in Brazil stabilized as a result of the fuel import project from LATAM. During 2019 LATAM also worked along with the Latin American and Caribbean Air Transport Association (“ALTA”) to ensure a more competitive refinery price in Uruguay and reached an agreement that lowered its price by approximately 50 cents per gallon and which achieved competitive parity with the rest of the region. During 2020, LATAM worked along with IATA and ALTA in initiatives and financial incentives to help the industry during the crisis, and managed to accomplish a significant price reduction for international prices in Bolivia and a VAT reduction for domestic flights in Colombia. During 2022 and 2023, the political environment in Europe resulted in a decrease of jet fuel refining and lack of product, and although the region did not suffer any disruption, it saw an increase in international freight prices and therefore resulted in higher import parity costs for the countries that have that pricing model (Chile, Peru, Brazil, for example).
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As part of a comprehensive energy efficiency initiative, LATAM group worked with a team of stakeholders to generate a streamlined fuel efficiency program (the “LATAM Fuel Efficiency Program”), which encompasses a wide range of different innovations and technologies for fuel efficiency:
•Investments in more modern and efficient aircraft, such as the Boeing 787, the Airbus A320neo and the Airbus A321neo. An investment has been carried out to perform retrofits to a portion of our Airbus A320 fleet, allowing more efficient standard operational procedures. As of December 31, 2023, 88 Airbus aircraft of the A320-family remain to be received with deliveries scheduled between 2024 and 2030 and 5 Boeing aircraft of the 787 Dreamliner remain to be received with deliveries scheduled between 2027 and 2028.
•Weight reduction measures, such as minimizing unnecessary onboard water, using ultra-light service carts, optimizing fuel according to destination, improving the distribution of weight to have an optimal center of gravity and the improvement of freight factor (the combination of passenger and cargo services). During late 2019 and early 2020, the in-flight magazine was removed from all aircraft, reducing nearly 50 kg from each flight. In addition, work with local authorities in Brazil have allowed for changes in fuel policy regulations, reducing unnecessary route reserve fuel. During 2023, LATAM fuel policy was standardized in the whole region, due to some changes in fuel policy regulations in the Spanish speaking countries where the group operates, reducing the unnecessary route reserve fuel in these countries, as well as in Brazil, where it had already been applied.
•As of 2019, LATAM deployed LATAM Pilot Tools, an in-house developed mobile app. This app allows personalized feedback to flight crews, focusing on captain fuel requests and usage, and ground fuel consumption, among other efficiency and safety indicators. As of December 2019, fuel efficiency initiatives were added to the pilot app, giving more visibility to their KPIs and adding significant savings. During 2023, new capabilities have been developed in order to improve the user experience for pilots, allowing them to explore in more detail their indicators, and motivating them in matters of fuel efficiency and sustainability.
•Standardized operational procedures on every stage of the flight (taxiing, climb, cruise, approach and landing); for example, changes in climb profiles that generate savings with minimum changes in the workload of the flight crew, or minimizing the use of the auxiliary power unit when aircraft is on the ground.
•Monitoring maintenance and performance of the fleet, including frequent engine washes, which allow more efficient combustion of fuel and reduce emissions in airport areas.
•Various aircraft retrofits have taken place, among them, engine wiring that allows the reduction of fuel consumption during taxi operations, Auxiliary Power Units replacements for more efficient models, and software updates on them that improve fuel consumption.
•Improvements of the flight plan management, including continuous feedback using a post flight analysis tool called Full Tracks developed by the Fuel Team with the support and collaboration of Operations and Safety. This tool allows us to better program and optimize our flight plans. During 2019, we implemented policy changes, optimizing fuel planning according to destination, standardizing policies for all dispatch centers, allowing for centralized performance tracking and unified criteria. During 2023, operational parameters were reviewed with the objective of maximizing tankering. Finally, due to the arrival of a large number of A320neo and A321neo aircraft during 2023, the Tail Assignment tool further optimized the use of our fleet.
•During 2020, in the context of the COVID-19 pandemic, operational parameters flight speed/fuel cost relations (Cost Index) were revised to take into account the new variable cost structure, thus generating optimal Cost Indices for each aircraft to assure the most efficient operation. Regarding flight planning, route optimization was introduced, given the overflight cost reduction presented by some governments, hence allowing for shorter trajectories to be flown between long haul city pairs.
•Since 2020, we work together with the Advanced Analytics department in order to generate machine learning models, allowing more accurate weight and extra fuel forecasts, as well as the flight route optimization. The department will continue working in this line in order to generate more tools for flight dispatch planning and even for pilots that give them critical recommendations both in flight plan and during flight that directly influence fuel consumption.
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•During 2022 LATAM implemented the new software from Airbus DPO (Descent Profile Optimization), optimizing the landing trajectory in 200 A320 airplanes. For each year, each airplane is expected to reduce 300 tons of CO2 emissions and 100 tons of fuel consumption.
•As a consequence of the COVID-19 pandemic, governments established some operational restrictions related to the efficient Auxiliary Power Unit (also known as “APU”) and air packs usage during on ground, taxiing and in flight operations. Between 2020 and the first months of 2022, the fuel consumption of these units increased considerably, and LATAM began conversations with the governments to remove the restrictions, getting back to the pre-pandemic conditions.
•During 2023, LATAM incorporated new air conditioning units (“ACU”) and ground power units (“GPU”), and worked closely with ground handling, airports and operations team in order to significantly surpass the pre-pandemic performance level.
•In 2023, we implemented the IATA Service Level 2 procedure which allowed a more efficient and punctual operation of our aircraft.
As a result of LATAM’s continuous commitment with sustainability, LATAM Airlines Group was recognized between 2014 and 2019 by the Dow Jones Sustainability Index as one of the world’s leading companies in eco-efficiency (due to LATAM Airlines Group and several of its affiliates filing for Chapter 11 and the LATAM ADRs delisting from the New York Stock Exchange, the group was not eligible to be considered for the Dow Jones Sustainability Index between 2020, 2022 and 2023). The magnitude of this program has allowed us to reduce operational costs along with the improvement of environmental performance, and to enhance environmental awareness both within the Company and externally.
Ground Facilities and Services
The main operations are based at the Guarulhos Airport in São Paulo, Brazil. The Brazilian affiliate also operates significant ground facilities and services at its headquarters located at Congonhas International Airport in São Paulo, Brazil.
LATAM also has significant operations at the Comodoro Arturo Merino Benítez International Airport in Santiago, Chile, where we operate hangars, aircraft parking and other airport service facilities pursuant to concessions granted by the DGAC and other outsourced concessions. We also maintain a customs warehouse at the Comodoro Arturo Merino Benítez International Airport, additional customs warehouses in Chile and operate cargo warehouses at the Miami International Airport to service our cargo customers. Our facilities at Miami International Airport include corporate offices for our cargo and passenger operations and temperature-controlled and freezer space for imports and exports. We also operate from various other airports in Chile and abroad.
We incur certain airport usage fees and other charges for services performed by the various airports where we operate, such as air traffic control charges, take-off and landing fees, aircraft parking fees and fees payable in connection with the use of passenger waiting rooms and check-in counter space.
Ancillary Airline Activities
In recent years, LATAM group has been developing different initiatives to increase its ancillary revenues generated by its airline operations. The implementation of these initiatives aims to offer a better on-board experience, while allowing passengers to customize their journey. LATAM’s customers are able to purchase additional services such as extra luggage, preferred seating options, upgrades to our Premium cabins, among others.
In addition to airline operations, LATAM generates revenues from a variety of other activities, including aircraft leases (including subleases, dry-leases, wet-leases and capacity sales to certain alliance partners) and charter flights, tours, maintenance services for third parties, handling, storage, customs services, income from other non-airline products (LATAM Pass) and other miscellaneous income. In 2023, LATAM generated other income of US$148.6 million from these activities.
Insurance
LATAM maintains aviation insurance policies as required by law, aircraft financing, and leasing agreements, for its entire fleet (aircraft that LATAM and its affiliates own, operate, and are responsible for).
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These policies provide coverage for aircraft hulls (including war risks and spares), third-party legal liability, cargo, baggage, injuries, property damage, and loss of cargo. LATAM’s policies are in full force and are renewed annually along with IAG Group (British Airways, Iberia and their affiliates), which allows LATAM to obtain better premiums and improved coverage at the best level of the aviation industry.
LATAM also insures its physical properties and equipment from theft, fire, flood, earthquake, hurricane, and other damages. In general, LATAM’s vehicles are insured against the risk of robbery, damages, fire, and civil and general liabilities. Additionally, LATAM maintains a casualty insurance policy that provides coverage worldwide.
Information and Digital Technologies
During 2021 and 2022, LATAM successfully launched a new website and mobile app to help customers complete their purchases in less time than it took before, and manage payments, refunds and compensations through a digital wallet, all while seeking to strengthen its ancillary offering. As a result, in 2023, 9 out of 10 passengers who had an involuntary change to their itineraries (cancellations, delays, among others) used a digital channel to manage those changes, while 8 out of 10 passengers who made a voluntary change in their itineraries used a digital channel to manage them. As of December 31, 2023, 80% of the refunds were managed through the website and 96% of them were paid within the promised SLA ("Service Level Agreement").
On the other hand, improvements in customer experience and service led to an increase in our Digital Net Promoter Score (NPS) of 11 percentage points compared to 2022, reaching 61 percentage points as of December 31, 2023.
During 2023, LATAM continued to work on positioning latam.com as a single marketplace for all travel needs and increasing the sale of air ancillaries and packages. In this regard, during 2023 LATAM reached an annual market penetration of 57%, and successfully launched the IATA’s New Distribution Capability (“NDC”) standard.
During 2022, our focus was on expanding airport digitization with several projects that positively impacted our customers’ experience, such as automatic check-in (used by more than 91% of our customers), self-bag tag (used by more than 78% of our customers) and advancing with self-bag drop implementation (used by more than 54% of our customers in 26 airports).
LATAM has also incorporated a dedicated analytics and AI taskforce, focused on network optimization and flight offer personalization, fuel consumption and predictive maintenance.
In addition, LATAM has periodic reviews by internal and external advisors in cybersecurity and data protection. LATAM believes that is in alignment with best international practices and approved industry standards such as SOx (Sarbanes-Oxley Law), ISO/IEC 27001, CSF NIST and PCI-DSS (Payment Card Industry Data Security Standard, GDPR (General Data Protection Regulation - Europe) and LGPD (General Data Protection Law - Brazil), Data Protection - Colombia (Law No. 1581, 2012, and Decree No. 1377, 2013), and other local data privacy laws of each country where LATAM group operates. Also, LATAM carries out continuous self-assessments in matter of protection and privacy data that enhances effectivity of the company’s internal controls.
LATAM has been preparing itself for cybersecurity challenges, committing resources to tools and capabilities. We have also made progress on improving our systems reliability, by adopting industry practices. Finally, we have reduced our technology vendor footprint, and re-negotiated key contracts to ensure flexibility and cost efficiency. For more information see “Item 16.K Cybersecurity Management and Strategy.”
Regulation
Below is a brief reference to the material effects of aeronautical and other regulations in force in the relevant jurisdictions in which we operate. We are subject to the jurisdiction of various regulatory and enforcement agencies in each of the countries where we operate. We believe we have obtained and maintained the necessary authority, including authorizations and operative certificates where required, which are subject to ongoing compliance with statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
The countries where we carry out most of our operations are contracting states and permanent members of the ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transportation. The ICAO establishes technical standards for the international aviation industry. In the absence of an applicable local regulation concerning safety or maintenance, the countries where we operate have incorporated by
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reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.
Environmental and Noise Regulation
There are no material environmental regulations or controls in the jurisdictions in which we operate imposed upon airlines, applicable to aircraft, or that otherwise affect us, except for environmental laws and regulations of general applicability.
In Chile, Brazil, Colombia, Ecuador, Peru, among others, aircraft must comply with certain noise restrictions. LATAM’s aircraft substantially comply with all such restrictions, having implemented at least the standard known as “Stage 3 Requirements” across its fleet.
In 2016, the ICAO adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), providing a framework for a global market-based measure to stabilize CO2 emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). With the adoption of this framework, the aviation industry became the first industry to achieve an agreement with respect to its CO2 emissions. The scheme, which defines a unified standard to regulate CO2 emissions in international flights, is being implemented in various phases by ICAO member states starting in 2021 (with the voluntary member states).
Safety and Security
Our operations are subject to the jurisdiction of various agencies in each of the countries where we operate, which set standards and requirements for the operation of aircraft and its maintenance.
In the United States, the Aviation and Transportation Security Act requires, among other things, the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security required under the Aviation Security Act is provided in part by a US$5.60 per segment passenger security fee, subject to a US$11.20 per round-trip cap; however, airlines are responsible for costs in excess of this fee. Implementation of the requirements of the Aviation Security Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, the United States Congress has mandated, and the TSA has implemented, numerous security procedures and requirements that have imposed and will continue to impose burdens on airlines, passengers and shippers.
Below are some specific aeronautical regulations related to route rights and pricing policy in the countries where we operate.
Chile
Aeronautical Regulation
Both the DGAC and the Junta de Aeronáutica Civil (“JAC”) oversee and regulate the Chilean aviation industry. The DGAC reports directly to the Chilean Air Force and is responsible for supervising compliance with Chilean laws and regulations relating to air navigation. The JAC is the Chilean civil aviation authority. Primarily on the basis of Decree Law No. 2,564, which regulates commercial aviation, the JAC establishes the main commercial policies for the aviation industry in Chile and regulates the assignment of international routes and the compliance with certain insurance requirements, while the DGAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authority from the Chilean government to conduct flight operations, including authorization certificates from the JAC and technical operative certificates from the DGAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
Chile is a contracting state, as well as a permanent member, of the ICAO. Chilean authorities have incorporated ICAO’s technical standards for the international aviation industry into Chilean laws and regulations. In the absence of an applicable Chilean regulation concerning safety or maintenance, the DGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.
Route Rights
Domestic Routes: Chilean airlines are not required to obtain permits in order to carry passengers or cargo on any domestic routes, but only to comply with the technical and insurance requirements established respectively by the DGAC
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and the JAC. There are no regulatory barriers that would prevent a foreign airline from creating a Chilean subsidiary and entering the Chilean domestic market using that subsidiary. On January 18, 2012, the Secretary of Transportation and the Secretary of Economics of Chile announced a unilateral opening of the Chilean domestic skies. This was confirmed in November 2013, and has been in force since that date.
International Routes: As an airline providing services on international routes, LATAM is also subject to a variety of bilateral civil air transportation agreements that provide for the exchange of air traffic rights between Chile and various other countries. There can be no assurance that existing bilateral agreements between Chile and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.
International route rights, as well as the corresponding landing rights, are derived from a variety of air transportation agreements negotiated between Chile and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Chile, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the JAC awards it through a public auction for a period of five years. The JAC grants route frequencies subject to the condition that the recipient airline operates them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the JAC may terminate its rights to that route. International route frequencies are freely transferable. In October 2023, a public auction was held by JAC for 13 international frequencies for the Santiago – Lima route where three Chilean airlines participated, LATAM won ten of thirteen, for which we paid US$ 315.000.
Airfare Pricing Policy
Chilean airlines are permitted to establish their own domestic and international fares without government regulation. For more information, see “-Antitrust Regulation” below. In 1997, the Antitrust Commission approved and imposed a specific self-regulatory fare plan for our domestic operations in Chile consistent with the Antitrust Commission’s directive to maintain a competitive environment. According to this plan, we must file notice with the JAC of any increase or decrease in standard fares on routes deemed “non-competitive” by the JAC and any decrease in fares on “competitive” routes at least 20 days in advance. We must file notice with the JAC of any increase in fares on “competitive” routes at least 10 days in advance. In addition, the Chilean authorities now require that we justify any modification that we make to our fares on non-competitive routes. We must also ensure that our average yields on a non-competitive route are not higher than those on competitive routes of similar distance.
Peru
Aeronautical Regulation
The Peruvian Dirección General de Aeronáutica Civil (the “PDGAC”) oversees and regulates the Peruvian aviation industry. The PDGAC reports directly to the Ministry of Transportation and Communications and is responsible for supervising compliance with Peruvian laws and regulations relating to air navigation. In addition, the PDGAC regulates the assignment of national and international routes, and the compliance with certain insurance requirements, and it regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authorizations from the Peruvian government to conduct flight operations, including authorization and technical operative certificates, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
Peru is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Peruvian authorities have incorporated into Peruvian laws and regulations. In the absence of an applicable Peruvian regulation concerning safety or maintenance, the PDGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all relevant technical standards.
Route Rights
Domestic Routes: Peruvian airlines are required to obtain permits in connection with carrying passengers or cargo on any domestic routes and to comply with the technical and legal requirements established by the PDGAC. Non-Peruvian airlines are not permitted to provide domestic air service between destinations in Peru.
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International Routes: As an airline providing services on international routes, LATAM Airlines Peru is also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Peru and various other countries. There can be no assurance that existing bilateral agreements between Peru and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.
International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Peru and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Peru, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the PDGAC awards it in compliance with different designation rules for a period of four years. The PDGAC grants route frequencies subject to the condition that the recipient airline operates them on a permanent basis. If an airline fails to operate a route for a period of 90 days or more, the PDGAC may terminate its rights to that route. In recent years the PDGAC has revoked the unused route frequencies of several Peruvian operators.
Ecuador
Aeronautical Regulation
There are two institutions that control commercial aviation on behalf of the State: (i) The Consejo Nacional de Aviación Civil (“CNAC”), which directs aviation policy; and (ii) the Dirección General de Aviación Civil (“DGAC”), which is a technical regulatory and control agency. The CNAC issues operating permits and grants operating concessions to national and international airlines. It also issues opinions on bilateral and multilateral air transportation treaties, allocates routes and traffic rights, and approves joint operating agreements such as wet leases and shared codes.
Fundamentally, the DGAC is responsible for:
•ensuring that the national standards and technical regulations and international ICAO standards and regulations are observed;
•keeping records on insurance, airworthiness and licenses of Ecuadorian civil aircraft;
•maintaining the National Aircraft Registry;
•issuing licenses to crews;
•controlling air traffic control inside domestic air space;
•approving shared codes; and
•modifying operations permits.
The DGAC also must comply with the standards and recommended methods of ICAO since Ecuador is a signatory of the 1944 Chicago Convention.
Route Rights
Domestic Routes: Airlines must obtain authorization from CNAC (an operating permit or concession) to provide air transportation. For domestic operations, only companies incorporated in Ecuador can operate locally, and only Ecuadorian-licensed aircraft and dry leases are authorized to operate domestically.
International Routes: Permits for international operations are based on air transportation treaties signed by Ecuador or, otherwise, the principle of reciprocity is applied. All airlines doing business in Latin America that are incorporated in countries that are members of the Comunidad Andina de Naciones (the Andean Community, or “CAN”) obtain their traffic rights on the basis of decisions currently in force under that regime, in particular decision N°582 of 2004, which guarantee free access to markets, with no type of restriction except technical considerations.
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Airfare Pricing Policy
On October 13, 2011, The Statutory Law of Regulation and Control of the Market Power was passed with a purpose to avoid, prevent, correct, eliminate and sanction the abuse of economic operators with market power, as well as to sanction restrictive, disloyal and agreements involving collusive practices. This Law creates a new public entity as the maximum authority of application and establishes the procedures of investigation and the applicable sanctions, which are severe. Rates are not regulated and are subject only to registration. In general, bilateral treaties regarding air transportation allow for airfares to be regulated by the regulation of the country of origin.
Brazil
Aeronautical Regulation
The Brazilian aviation industry is regulated and overseen by the ANAC. The ANAC reports directly to the Civil Aviation Secretary, which is subordinated by the Federal Executive Power of this country. Primarily on the basis of Law No. 11.182/2005, the ANAC was created to regulate commercial aviation, air navigation, the assignment of domestic and international routes, compliance with certain insurance requirements, flight operations, including personnel, aircraft and security standards, air traffic control, in this case sharing its activities and responsibilities with the Departamento de Controle do Espaço Aéreo (Department of Airspace Control or “DECEA”), which is a public secretary also subordinated to the Brazilian Defense Ministry, and airport management, in this last case sharing responsibilities with the Empresa Brasileira de Infra-Estrutura Aeroportuária (the Brazilian Airport Infrastructure Company, or “INFRAERO”), a public company that was created by Law No. 5862/72, and is responsible for administrating, operating and exploring Brazilian airports industrially and commercially (with the exception of airports granted to private initiative).
LATAM Airlines Brazil has obtained and maintains the necessary authority from the Brazilian government to conduct flight operations, including authorization and technical operative certificates from ANAC, the continuation of which is subject to ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
ANAC is the Brazilian civil aviation authority and it is responsible for supervising compliance with Brazilian laws and regulations relating to air navigation. Brazil is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Brazilian authorities, represented by the Brazilian Defense Ministry, have incorporated into Brazilian laws and regulations. In the absence of an applicable Brazilian regulation concerning safety or maintenance, ANAC has incorporated by reference the majority of the ICAO’s technical standards.
Route Rights
Domestic Routes: Brazilian airlines operate under a public services concession, and for that reason Brazilian airlines are required to obtain a concession to provide passenger and cargo air transportation services from the Brazilian authorities. In addition, an Air Operator Certificate (“AOC”) is also required for Brazilian Airlines to provide regular domestic passenger or cargo transportation services. Brazilian Airlines also need to comply with all technical requirements established by the Brazilian Aviation Authority (ANAC). Based on the Brazilian Aeronautical Code (“CBA”) established by Brazilian Federal Law No. 7,565/86, there are no limitations to ownership of Brazilian airlines by foreign investors. The CBA also states that non-Brazilian airlines are not authorized to provide domestic air transportation services in Brazil
International Routes: Brazilian and non-Brazilian airlines providing services on international routes are also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Brazil and various other countries. International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Brazil and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Brazil, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency ANAC must carry out a public bid and award it to the elected airline. ANAC grants route frequencies subject to the condition that the recipient airline operates them on a permanent basis. ANAC’s resolution 491/18 indicates the requirements to establish the underuse of a frequency, and how it could be revoked and reassigned. This provision of the resolution came into force in September 2019.
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Airfare Pricing Policy
Brazilian and non-Brazilian airlines are permitted to establish their own international and domestic fares, in this last case only for Brazilian airlines, without government regulation, as long as they do not abuse any dominant market position they may enjoy. Airlines may file complaints before the Antitrust Court with respect to monopolistic or other pricing practices by other airlines that violate Brazil’s antitrust laws.
Colombia
Aeronautical Regulation
The governmental entity in charge of regulating, directing and supervising civil aviation in Colombia is the Aeronáutica Civil (the “AC”), a technical agency ascribed to the Ministry of Transportation. The AC is the aeronautical authority for the entire domestic territory, in charge of regulating and supervising the Colombian air space. The AC may interpret, apply and complement all civil aviation and air transportation regulation to ensure compliance with the Colombian Aeronautical Regulations (“RAC”). The AC also grants the necessary permits for air transportation.
Route Rights
The AC grants operation permits to domestic and foreign carriers that intend to operate in, from and to Colombia. In the case of Colombian airlines, in order to obtain the operational permit, the company must comply with the RAC and fulfill legal, economic and technical requirements, in order to later be subject to public hearings where the public convenience and necessity of the service is considered. The same process must be followed to add national or international routes; whose concession is subject to the bilateral instruments entered into by Colombia. The only exception for not complying with the public hearing procedure is that the application comes from a country member of the CAN, or that the route or permit being applied for is part of a deregulated regime. Even if it does not go through the public hearing process, the airline must submit a complete study to the AC and the request is made public on the website of the authority. Routes cannot be transferred under any circumstance and there is no limit to foreign investment in domestic airlines.
Airfare Pricing Policy
Since July 2007, as stated in resolution 3299 of the Aeronautical Civil entity, bottom level airfares for both international and domestic transportation were eliminated. Under resolution 904 issued in February 2012, the Aeronautical Civil authority ceased to impose the obligation of charging a fuel surcharge for both domestic and international transportation of passengers and cargo. As of April 1, 2012, air carriers may now freely decide whether to charge a fuel surcharge. In the case that a fuel surcharge is charged, it must be part of the fare, but shall be informed separately on the tickets, advertising or other methods of marketing used by the company.
In the same line, as of April 1, 2012, there is no longer any restriction on maximum fares published by the airlines or with respect to the obligations for air carriers to report to the Aeronautical civil authority the fares and conditions the day after being published.
Administrative fares are not subject to any changes, and its charge is mandatory for the transport of passengers under Aeronautical Civil Regulations. Differential administrative fares apply to ticket sales made through Internet channels.
Antitrust Regulation
Chile
The Chilean antitrust authority, which we refer to as the National Economic Prosecutor Office (“FNE” by its Spanish name), oversees and investigates antitrust matters, which are governed by Decree Law No. 211 of 1973, as amended, or the “Antitrust Law.” The Antitrust Law considers as anticompetitive, any conduct that prevents, restricts or hinders competition, or sets out to produce said effects.
The Antitrust Law continues by giving examples of the following anticompetitive conducts: (i) cartels; (ii) abuse of dominance; and (iii) interlocking. The Antitrust Law defines abusive practices as (i) the abusive exploitation by an economic agent, or a group thereof, of a dominant position in the market, fixing sale or purchase prices, the imposition to acquire a specific product within a sale, allocating territories or market quotas or imposing similar abuses on other
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competitors; and (ii) predatory practices, or unfair competition, carried out with the purpose of reaching, maintaining or increasing a dominant position in the market.
An aggrieved person may sue for damages arising from a breach of Antitrust Law by suing in the Chilean Antitrust Court (the “TDLC” by its Spanish name). The TDLC has the authority to impose a variety of sanctions for violations of the Antitrust Law, including: (i) the amendment or termination of acts and contracts; (ii) the amendment or dissolution of legal entities involved in the infringement; and/or (iii) the imposition of a fine up to 30% of the sales of the infringing entity corresponding to the line of products and/or services associated to the infraction, during the entire term for which the infringement lasted; alternatively, a fine equal to the double of the economic benefit obtained by the infringing company; or when none of these alternatives can be applied, a fine up to approximately US$50 million (60,000 UTA).
On August 17, 2023 Chilean Law No. 21,595 (the Economic Crimes Act, or “ECA”) was published in the Official Gazette. The ECA became effective on such same date with respect to individuals and will come into effect with respect to legal entities (e.g., such as LATAM Airlines Group) on September 1, 2024.
Among other things, the ECA considerably modifies the current regulation of criminal liability applicable to legal entities, including the following:
1.The ECA expands the list of criminal offenses that can trigger the legal entity’s criminal liability from 20 to around 230 offenses.
2.The ECA expands the individuals capable of triggering criminal liability of a legal entity, which as amended, consist of:
a.Those who hold an office, position or perform duties within the corresponding legal entity.
b.Those who provide services managing the legal entity’s affairs with third parties, with or without representation.
c.Those individuals captured by (a) and (b) above that (i) provide services to another legal entity or (ii) have ownership or stake in such another legal entity in a way that the other legal entity lacks operational autonomy (i.e., an employee of a controlled subsidiary may trigger the criminal liability of the holding company).
3.The ECA adds the appointment by the courts of a supervisor of the legal entity as a potential sanction or protective order that may be adopted during the investigation stage of the criminal procedure. The instructions provided by the supervisor are binding to the company.
4.The ECA will no longer require that the crime be committed in the benefit of the legal entity for the entity to be criminally responsible. The legal entity will only be exempt from this responsibility when the crime is committed exclusively against such legal entity.
5.There will be a special day-rate system of fines for legal entities. In this case, the potentially applicable fines will range from approximately US$725 to US$145 million.
As described above under “—Route Rights—Airfare Pricing Policy,” pursuant to Resolution No. 445 of August 1995, the TDLC approved a merger between LAN Chile and LADECO, but imposed a specific self-regulatory fare plan for domestic air passenger market consistent with the TDLC’s directive to maintain a competitive environment within the domestic market. This Airfare Pricing Policy Plan was updated by the TDLC particularly to maintain its objective which consists of a tariff regulation, through which maximum rates are established on non-competitive routes under a monthly compliance scheme.
Since October 1997, LATAM and LATAM Chile follow a self-regulatory plan, which was modified and approved by the TDLC in July 2005, and further in September 2011. In February 2010, the FNE closed the investigation initiated in 2007 regarding our compliance with this self-regulatory plan and no further observations were made.
In June 2012, the antitrust authorities in Chile and Brazil each imposed certain mitigation measures as part of their approval of the LAN/TAM merger. Furthermore, the association was also submitted to the antitrust authorities in Germany, Italy, Spain and Argentina. All these jurisdictions granted unconditional clearances for this transaction. For more information regarding these mitigation measures please see below.
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On September 21, 2011, the TDLC issued a decision (the “Decision”) with respect to the consultation procedure initiated on January 28, 2011, in connection with the merger between LAN and TAM. The TDLC approved the proposed merger between LAN and TAM, subject to 14 conditions as generally described below:
1.swap certain slots in the Guarulhos Airport at São Paulo, Brazil, to be used by an occasional third party interested in offering direct non-stop flights between São Paulo and Santiago;
2.extension of the frequent flyer program to airlines operating or willing to operate the Santiago-São Paulo, Santiago-Río de Janeiro, Santiago-Montevideo and Santiago-Asunción routes during the five-year period from the effective time of the merger;
3.execution of interline agreements with airlines operating the Santiago-São Paulo, Santiago-Río de Janeiro and Santiago-Asunción routes;
4.certain capacity and other transitory restrictions applicable to the Santiago-São Paulo route;
5.certain amendments to LAN’s self-regulatory fare plan approved by the TDLC with respect to LAN’s domestic passenger business;
6.the obligation of LATAM to resign to one global airline alliance within 24 months from the date in which the merger becomes effective, except in the case that the TDLC approves otherwise, or to elect not to participate in any global airline alliance;
7.certain restrictions on code-sharing agreements outside the global airline alliance to which LATAM belongs for routes with origin or destination in Chile or that connect to North America and Europe, or with Avianca/TACA or Gol for international routes in South America, including the obligation to consult with, and obtain approval from, the TDLC prior to its execution of certain of those codeshare agreements (the “Seventh Condition”);
8.the abandonment of four air traffic frequencies with freedom rights between Chile and Peru, limitations to acquire more than 75% of the air traffic frequencies in that route, and the periods in which air traffic frequencies may be granted to LATAM by the Chilean authorities;
9.issuance of a statement by LATAM supporting the unilateral opening of the Chilean domestic skies (cabotage) and abstention from any actions that would prevent such opening;
10.promotion by LATAM of the growth and normal operation of the Guarulhos (Brazil) and Arturo Merino Benítez (Chile) airports, to facilitate access thereto to other airlines;
11.certain restrictions regarding incentives to travel agencies;
12.to maintain temporarily 12 round trip flights per week between Chile and the United States and at least seven round trip non-stop flights per week between Chile and Europe;
13.certain transitory restrictions on increasing fares in the Santiago-São Paulo and Santiago-Río de Janeiro routes for the passenger business and for the Chile-Brazil routes for the cargo business; and
14.engaging an independent consultant, expert in airline operations to, in coordination with the FNE, monitor and audit compliance with the conditions imposed by the Decision for 36 months.
Around June 2015, the FNE initiated a legal claim against LATAM before the TDLC alleging that LATAM was not complying with certain mitigation conditions related to the code share agreements with airlines outside LATAM’s global alliance as referenced above in the seventh condition. Although LATAM opposed to this allegation and responded to the claim accordingly, a settlement agreement was reached between the FNE and LATAM (the “Settlement Agreement”). The Settlement Agreement approved by the TDLC on December 22, 2015, terminated the legal proceeding initiated by the FNE and did not establish any violation by LATAM of the TDLC resolutions or any applicable antitrust regulations by LATAM. The Settlement Agreement did establish the obligation of LATAM to amend and terminate certain code share agreements and contract an independent third party consultant, which would act as an advisor to the FNE to monitor the compliance by LATAM of the Seventh Condition and the Settlement Agreement.
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On October 31, 2018, the TDLC approved the joint business agreements between LATAM and American Airlines, and between LATAM and International Airlines Group (“IAG”), subject to nine mitigation measures. On May 23, 2019 the Supreme Court of Chile revoked the TDLC decision to approve these agreements, and by the end of 2019 LATAM decided to terminate both agreements.
On October 15, 2019, LATAM Airlines Group was notified that the Chilean Economic Prosecution (Fiscalía Nacional Económica, “FNE”) had commenced an investigation regarding a joint venture agreement entered into between LATAM Airlines Group and Delta Airlines Inc. (“Delta”). On August 13, 2021, Delta and LATAM reached an out-of-court-agreement with FNE to close the investigation and allow the implementation of their joint venture agreement, subject to certain mitigation measures. On October 28, 2021 the settlement was approved by the TDLC. The mitigation measures included, among others, obligations for LATAM to restrict and isolate information exchanges and databases related to joint venture markets, as well as updating the company’s compliance program. The settlement also imposes certain obligations on Delta and on directors to LATAM’s board nominated with Delta’s votes, such as affidavits attesting the independence of LATAM’s directors nominated with Delta’s votes, compliance measures to restrict the exchange of commercially sensitive information, and periodic antitrust training regarding their obligations under the settlement.
Relatedly, on August 12, 2021, LATAM was notified of a resolution issued by the FNE alleging non-compliance of restrictions imposed with respect to certain codeshare agreements. On November 6, 2023, LATAM, Delta Air Lines and FNE reached an out-of-court agreement to amend part of the codeshare agreements, which was approved by the TDLC on December 7, 2023.
Brazil
The CADE approved the LAN/TAM merger by unanimous decision during its hearing on December 14, 2011, subject to the following conditions: (1) the new combined group (LATAM) should leave one of the two global alliances to which it was a part of (Star Alliance or oneworld); and (2) the new combined group (LATAM) should offer to swap two pairs of slots in Guarulhos International Airport, to be used by an occasional third party interested in offering direct non-stop flights between São Paulo and Santiago, Chile. These impositions are in line with the mitigation measures adopted by the TDLC, in Chile.
On February 24, 2021, the CADE approved without remedies the Joint Venture Agreement between Delta Air Lines and LATAM Airlines Group. Previously, in a separate case, the CADE approved without remedies the acquisition by Delta Air Lines of up to 20% of LATAM common shares on March 18, 2020.
Uruguay
On December 14, 2020 the antitrust authority of Uruguay (Comisión de Promoción y Defensa de la Competencia) approved the Joint Venture Agreement between LATAM and Delta Air Lines. The same agreement was filed before the aeronautical authority of Uruguay (the Dirección Nacional de Aviación Civil e Infraestructura Aeronáutica) on September 21, 2020 and approved by default on December 20, 2020, as the timeframe provided by the Aeronautical Code Law to the authority in order to resolve on the matter expired (90 days after filing).
United States
On July 8, 2020 LATAM and Delta Air Lines applied for approval and antitrust clearance of all the agreements related to their Joint Venture Agreement before the U.S. Department of Transportation (“DOT”). On September 30, 2022, the DOT approved the Joint Venture Agreement between Delta Air Lines and LATAM group.
Colombia
On September 4, 2020 LATAM and Delta Air Lines applied for an approval of the Joint Venture Agreement before Aerocivil, which was finally received on May 10, 2021.
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C.Organizational Structure
LATAM Airlines Group and LATAM Airlines Brazil ownership structure as of December 31, 2023 is as follows:
Sixth Street Partners (27.91%) | Strategic Value Partners (16.02%) | Delta Air Lines (10.05%) | Qatar Airways (10.03%) | Cueto Group (5.03%) | Others (30.97%) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TEP Chile S.A. | LATAM Airlines Group Chile | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
100% non voting shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
48.96% voting share | 51.04% voting share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
HoldCo S.A. Chile | 100% non voting share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
100% voting share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TAM S.A. Brazil | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
100% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TLA Brazil | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2023, LATAM group is composed of LATAM Airlines Group, incorporated in Chile, and 9 main operating subsidiaries as follow:
| Legal Name | Place of Incorporation | Doing Business as | Ownership (%)1 | ||||||||||||||||||||
| Transporte Aéreo S.A | Chile | LATAM Airlines Chile | 100.00% | ||||||||||||||||||||
| LATAM Airlines Perú S.A. | Peru | LATAM Airlines Peru | 99.81% | ||||||||||||||||||||
| LATAM-Airlines Ecuador S.A. | Ecuador | LATAM Airlines Ecuador | Voting | 60.00% | |||||||||||||||||||
| No Voting | 100.00% | ||||||||||||||||||||||
| Aerovías de Integración Regional, Aires S.A | Colombia | LATAM Airlines Colombia | 99.23% | ||||||||||||||||||||
| TAM S.A | Brazil | LATAM Airlines Brazil2 | Voting | 51.04% | |||||||||||||||||||
| No Voting | 100.00% | ||||||||||||||||||||||
| Transporte Aéreos del Mercosur S.A. | Paraguay | LATAM Paraguay | 94.98% | ||||||||||||||||||||
| Lan Cargo S.A | Chile | LATAM Airlines Cargo | 99.90% | ||||||||||||||||||||
| Linea Aérea Carguera de Colombia S.A. | Colombia | LATAM Cargo Colombia | 90.46% | ||||||||||||||||||||
| Aerolinhas Brasileiras S.A. | Brazil | LATAM Cargo Brazil | 100.00% | ||||||||||||||||||||
(1) Percentage of equity owned by LATAM Airlines Group directly or indirectly through subsidiaries or affiliates.
(2) TAM S.A. include its affiliate TAM Linhas Aereas S.A (“TLA”), which does business under the name “LATAM Airlines Brazil”.
For more information, see Notes 1 and 14 to our audited consolidated financial statements.
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D.Property, Plant and Equipment
Chile
Headquarters
Our main corporate facility is located in Las Condes, where we rent 6,750 m2 for our executive offices in a central location of Santiago, Chile. This space is distributed in seven floors along one building.
Maintenance Base
Our 160,000 m2 maintenance base is located on a site that we own inside Comodoro Arturo Merino Benítez International Airport. This facility contains our aircraft hangar (12,000 m2), warehouses (10,000 m2), workshops (5,300 m2) and offices (11,000 m2), other spaces (20,000 m2), as well as a 98,000 m2 aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We also lease from the Sociedad Concesionaria Nuevo Pudahuel S.A. approximately 6,220 m2 of space inside the Comodoro Arturo Merino Benítez International Airport for operational and service purposes.
Other Facilities
We own sixteen acres of land and a building on the west side of the Comodoro Arturo Merino Benítez International Airport that houses a flight-training center. This facility features three full-flight simulators (which are not property of LATAM), one for Boeing 787 and two for Airbus A320 aircraft.
Fast Air Almacenes de Carga S.A., one of our affiliates that operates import customs warehouses, utilizes a 10.500 m² warehouse located at Comodoro Arturo Merino Benítez International Airport.
Brazil
Headquarters
LATAM Airlines Brazil’s main facilities are located in São Paulo, in hangars within the Congonhas Airport and nearby. At Congonhas Airport, LATAM Airlines Brazil leases office facilities in converted hangars belonging to INFRAERO (the Local Airport Administrator). These facilities comprise an area of approximately 38,807 m².
Headquarters of the Presidency
The Headquarters of the Presidency and Service Academy is located at Rua Atica, about 2.5 km from Congonhas Airport. This property, which LATAM Airlines Brazil owns, is used for human resources selection, medical services, training, mock-ups and offices- The Service Academy comprises 15,342 m² of land area and 9,032 m² of building area.
Maintenance Base
At Hangars II and V in Congonhas Airport, which LATAM Airlines Brazil leases from INFRAERO, LATAM Airlines Brazil has 23,886 m² of offices and hangars with about 1,300 workstations. This site also houses the aircraft maintenance, procurement, aeronautical materials logistics and retrofitting departments.
Other Facilities
In São Paulo, LATAM Airlines Brazil has other facilities, including a call center building with 3,199 m2, distributed over five floors (plus a ground floor and a basement) that currently holds about 272 workstations and support rooms (meetings / training / dining room / coordination) of the operations of call center reservations, and other ABSA back office services.
In Guarulhos, LATAM has a total area of approximately 12,649 m2 distributed within the passenger terminal, including areas such as check-in, ticket sales, check-out, operations areas, a VIP Lounge and aircraft maintenance spaces. The Hangar Complex adds an area of 65,080 m². The cargo terminal has 252 m² of office and 17,215 m² of open area. Our distribution center supplies area occupies 3,030 m².
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New Facilities
LATAM Airlines Brazil completed several infrastructure projects in Brazil during 2023, including:
1.Delivery of a new Board Room in Hangar II, at Guarulhos airport.
2.Optimization and adaptation to the new quality standards of the São Carlos MRO.
3.Initiation of the project to build a new hangar at MRO in São Carlos with 5,000 m².
4.Obtaining the “Building Accessibility Certificate of the Service Academy”, in compliance with Brazilian regulations.
5.Update of the visual communication at Cargo Terminals.
6.Development of the required infrastructure at Passo Fundo Airport, to enable Passo Fundo as one of LATAM's destinations.
7.Closing of the Juiz de Fora (IZA) and Presidente Prudente (PPB) bases.
Other locations
We occupy a 36.3-acre site at the Miami International Airport that has been leased to us under a concession agreement by the Miami Dade Aviation Department. Our facilities include a 13,609 m² corporate building, a 115,824 m² cargo warehouse (including 35,561 m² refrigerated area) and a 238,658 m² aircraft-parking platform. These facilities were constructed and are now leased to us under a long-term contract by Aeroterm, a division of Realterm. For the year ended 2023, we paid US$10.8 million in rent under the foregoing leases.
In February 2014, the Company entered into a lease agreement with Miami-Dade County covering approximately 1.81 acres of land located on the grounds of the Miami International Airport. The lease has a term of 30 years with a total annual land cost of US$172,080.
Under the lease, we retained the right to construct a hangar facility on the leased premises. The Company completed construction in November 2015 and the hangar has been operational since June 2016. The property has a 15,479 m² aircraft maintenance space, sufficient to house a Boeing 777 aircraft, in addition to a 9,888 m² area designated for office space. Total investment in this hangar in construction and related expenditures by LATAM was US$16.5 million.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.Operating Results
You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and the accompanying notes beginning on page F-1 of this annual report.
The summary consolidated annual financial information as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021, has been prepared in accordance with IFRS Accounting Standards and has been derived from our audited consolidated annual financial statements included in this annual report. The items included in the financial statements of each of the entities of LATAM Airlines Group 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 is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group and Subsidiaries.
Overview
We derive our revenues primarily from transporting passengers on our passenger aircraft, as well as from transporting cargo in the belly of our passenger aircraft and in our dedicated freighter aircraft. In 2023, 86.6% of our total revenues (including in the total for this purpose other income from operating activities) came from passenger revenues and
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12.1% came from our cargo business. The remaining 1.3% was classified as other operating income, which consists primarily of subleases of aircraft to third parties and other miscellaneous income.
Passenger Operations
In general, LATAM’s passenger revenues are driven by international and country-specific political and economic conditions, competitive activity, and the attractiveness of the destinations that are served. Passenger revenues are also affected by our capacity, traffic, load factors, yield and unit revenue. The capacity is measured in terms of available seat kilometers (“ASKs”), which represents the sum, across the network, of the number of seats made available for sale on each flight, multiplied by the kilometers flown by the respective flight. Traffic in RPKs is measured, as the sum, across the network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight. Load factors represent RPKs (traffic) as a percentage of ASKs (capacity), or the percentage of our capacity that is actually used by paying customers. Yield, revenue from passenger operations divided by RPKs, is used to measure the average amount that one passenger pays to fly one kilometer and unit revenue, or revenue per ASK, to measure the effect of capacity on revenues.
| For the year ended December 31, | |||||||||||||||||
| 2023 | 2022 | Var. % | |||||||||||||||
| ASKs (million) (at period end) | |||||||||||||||||
| International | 67,514.3 | 49,575.7 | 36.2 | % | |||||||||||||
| SSC | 24,970.3 | 23,384.7 | 6.8 | % | |||||||||||||
| Domestic Brazil | 44,765.9 | 40,891.8 | 9.5 | % | |||||||||||||
| Total | 137,250.5 | 113,852.2 | 20.6 | % | |||||||||||||
| RPKs (million) | |||||||||||||||||
| International | 57,340.2 | 41,140.5 | 39.4 | % | |||||||||||||
| SSC | 20,482.0 | 18,942.6 | 8.1 | % | |||||||||||||
| Domestic Brazil | 36,184.5 | 32,504.8 | 11.3 | % | |||||||||||||
| Total | 114,006.6 | 92,587.8 | 23.1 | % | |||||||||||||
| Passenger load factor (%) | |||||||||||||||||
| International | 84.9 | 83.0 | 1.9 | p.p. | |||||||||||||
| SSC | 82.0 | 81.0 | 1.0 | p.p. | |||||||||||||
| Domestic Brazil | 80.8 | 79.5 | 1.3 | p.p. | |||||||||||||
| Combined load factor | 83.1 | 81.3 | 1.8 | p.p. | |||||||||||||
In terms of passengers transported by LATAM, during 2023 we carried 11.4 million more passengers than in 2022, totaling 73.9 million passengers. As of December 31, 2023, passenger traffic increased 23.1% and total passenger capacity increased 20.6%.
As of December 31, 2023, ASKs for domestic operations in Brazil increased by 9.5% compared to the previous year. Passenger traffic as measured by RPKs increased by 11.3% in 2023 with regard to 2022, resulting in a stable passenger load factor, remaining at 80.8%
The domestic operations of our affiliate carriers based in Chile, Colombia, Ecuador and Peru, which accounted for 18.2% of total passenger capacity (measured by ASKs), showed an increase of 8.1% in passenger traffic (measured by RPKs) in 2023 while capacity increased 6.8% as compared to 2022. As a result, the passenger load factor increased by 1.0 percentage points to 82.0%.
The group’s international operations continued to recover notably during 2023. Compared to 2022, capacity in international operations increased by 36.2% and traffic by 39.4% in 2023, resulting in a solid increase of 1.9 percentage points in passenger load factors, which reached 84.9%.
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Cargo Operations
Cargo operations depend on exports from South America to North America and Europe, and imports from North America and Europe to South America, where Brazil is the main import market. Cargo markets are affected by economic conditions, foreign exchange rates, changes in international trade, the health of particular industries and competition and fuel prices (which we usually pass on to our customers through a cargo fuel surcharge). Cargo revenues are affected by the capacity, traffic, cargo load factors and yield. The capacity is measured in terms of available ton kilometers (“ATKs”) which represents the number of tons available across the network for the transportation of cargo on each flight, multiplied by the kilometers flown by the respective flights. Traffic in revenue ton kilometers (“RTKs”) is measured as the amount of cargo loads (measured in tons) on each flight multiplied by the number of kilometers flown by the respective flights. Load factors represent RTKs (traffic) as a percentage of ATKs (capacity), or the percentage of the cargo capacity that is actually used to transport cargo for the customers. Finally, cargo yield, or revenue from cargo operations divided by RTKs, is used to measure the average amount that the customers pay to transport one ton of cargo per kilometer.
As of December 31, 2023, cargo traffic increased by 4.8% relative to the same period in 2022, while cargo capacity increased 14.6% year-over-year, which led to a drop of 4.8 percentage points in cargo load factors to 51.6%. Cargo yield decreased 21.3% year-over-year. As a result, revenues per ATK decreased 28.0% in 2023 compared to 2022.
Cost Structure
LATAM’s costs are largely driven by the size of its operations, fuel prices, fleet costs and exchange rates. Operating expenses are calculated in accordance with IFRS Accounting Standards and comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other gains/(losses)” plus “restructuring activities” plus “other expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses. Restructuring activities expenses are those costs related to the Initial and Subsequent Debtors’ filing for Chapter 11 voluntary protection and associated restructuring. The following is a discussion of the drivers of the most important costs.
As an airline group, we are subject to fluctuations in costs that are outside of our control, particularly fuel prices. During 2023, average jet fuel prices decreased by 13.7% compared to 2022. LATAM has a hedging policy to protect medium term liquidity risk from fuel price increases, while participating in the benefits of fuel price reductions. Cost of fuel is also affected by the amount of gallons we consume, which depends on the size of our operation, the efficiency of our fleet and the impact of our efficiency programs.
Personnel expenses are another significant component of our overall costs. Because a significant portion of our labor costs are denominated in Chilean pesos and in Brazilian Reals, appreciation of these currencies against the U.S. dollar as well as increases in local inflation rates can result in increased costs in U.S. dollar terms and can negatively affect our results. Depreciation of local currencies results in decreases in costs in dollars. Other important drivers of personnel expenses are average headcount and average wages.
Commissions paid to travel and cargo agents are also a significant cost to LATAM. LATAM group competes with other airlines over the amount of commission paid per sale, particularly in connection with special programs and marketing efforts, and to maintain competitive incentives with travel agents.
Fleet related expenses, namely aircraft rentals, aircraft maintenance and depreciation, are another significant cost, and mainly depend on the number and type of aircraft that are owned and that are under leases. Generally, these costs are largely fixed and can be reduced on a per unit basis by achieving higher aircraft utilization rates. In 2024, only a small fraction of LATAM’s wide-body fleet will continue to operate on a payment-by-use basis (known as Power-by-the-Hour, “PBH”), as a result of the company’s negotiations with creditors and lessors during its Chapter 11 proceedings.
The Aircraft Rentals expense line is used to account for the expenses associated with the group’s variable payments related to aircraft with operating leases whose long-term agreements have been signed and approved by the US Court. Starting in 2021, the Company amended its Aircraft Lease Contracts which included lease payment based on Power by the Hour (PBH) at the beginning of the contract and then switches to fixed-rent payments. A right of use asset and a lease liability was recognized as result of those amendments at the date of modification of the contract, even if they initially had a variable payment period. As a result of the application of the lease accounting policy, the right of use assets continues to be amortized on a straight-line basis over the term of the lease from the contract modification date. The expenses for the year include both: the lease expense for variable payments (Aircraft Rentals) as well as the expenses resulting from the
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amortization of the right of use assets from the beginning of the contract (included in the Depreciation line) and interest from the lease liability (included in Lease Liabilities).
Restructuring activities refer to the gains/losses in connection with the Chapter 11 proceedings, including costs related with the rejection of aircraft lease contracts, rejection of IT contracts, renegotiation of fleet contracts and legal advice fees, among others; as well as gains on the settlement of Chapter 11 claims for accounts payable. For more information on the restructuring activities gains/losses, please see Note 2, 16 and 26 of our audited consolidated financial statements.
Results of Operations
LATAM Financial Results Discussion: For the year ended December 31, 2023 compared to the year ended December 31, 2022.
The following table sets forth certain income statement data for LATAM, for the year ended December 31, 2023, and December 31, 2022.
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| For the year ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| (in US$ millions, except per share data) | As a percentage of total operating revenues | 2023/2022 % change | |||||||||||||||||||||||||||
| Consolidated Results of Income by Function | |||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||
| Passenger | 10,215.1 | 7,636.4 | 87.8 | % | 81.6 | % | 33.8 | % | |||||||||||||||||||||
| Cargo | 1,425.4 | 1,726.1 | 12.2 | % | 18.4 | % | (17.4 | %) | |||||||||||||||||||||
| Total revenues | 11,640.5 | 9,362.5 | 100.0 | % | 100.0 | % | 24.3 | % | |||||||||||||||||||||
| Cost of sales | (8,816.6) | (8,103.5) | (75.7) | % | (86.6) | % | 8.8 | % | |||||||||||||||||||||
| Gross margin | 2,824.0 | 1,259.0 | 24.3 | % | 13.4 | % | 124.3 | % | |||||||||||||||||||||
| Other income | 148.6 | 154.3 | 1.3 | % | 1.6 | % | (3.7) | % | |||||||||||||||||||||
| Distribution costs | (587.3) | (426.6) | (5.0) | % | (4.6) | % | 37.7 | % | |||||||||||||||||||||
| Administrative expenses | (683.3) | (576.4) | (5.9) | % | (6.2) | % | 18.5 | % | |||||||||||||||||||||
| Other expenses | (532.8) | (531.6) | (4.6) | % | (5.7) | % | 0.2 | % | |||||||||||||||||||||
| Gains/(losses) from restructuring activities | — | 1,679.9 | — | % | 17.9 | % | (100.0) | % | |||||||||||||||||||||
| Financial income | 125.4 | 1,052.3 | 1.1 | % | 11.2 | % | (88.1 | %) | |||||||||||||||||||||
| Financial costs | (698.2) | (942.4) | (6.0) | % | (10.1) | % | (25.9 | %) | |||||||||||||||||||||
| Foreign exchange gains/(losses) | 85.9 | 26.0 | 0.7 | % | 0.3 | % | 230.4 | % | |||||||||||||||||||||
| Result of indexation units | 5.3 | (1.4) | 0.0 | % | — | % | (479.4 | %) | |||||||||||||||||||||
| Other gains/(losses) | (91.0) | (347.1) | (0.8) | % | (3.7 | %) | (73.8 | %) | |||||||||||||||||||||
| Income (loss) before taxes | 596.5 | 1,346.0 | 5.1 | % | 14.4 | % | (55.7) | % | |||||||||||||||||||||
| Income tax (expense) / benefits | (14.9) | (8.9) | (0.1) | % | (0.1) | % | 67.9 | % | |||||||||||||||||||||
| Net income (loss) for the year | 581.6 | 1,337.1 | 5.0 | % | (95.2) | % | (56.5) | % | |||||||||||||||||||||
| Income (loss) attributable to the parent company’s equity holders | 581.8 | 1,339.2 | 5.0 | % | 14.3 | % | (56.6) | % | |||||||||||||||||||||
| Income (loss) attributable to non-controlling interests | (0.3) | (2.1) | 0.0 | % | — | % | (86.6) | % | |||||||||||||||||||||
| Net income (loss) for the period | 581.6 | 1,337.1 | 5.0 | % | (95.2) | % | (56.5) | % | |||||||||||||||||||||
| Earning (loss) per share | |||||||||||||||||||||||||||||
| Basic earning (loss) per share (US$) | 0.00096 | 0.01386 | n.a | n.a | (93.1) | % | |||||||||||||||||||||||
| Diluted earning (loss) per share (US$) | 0.00096 | 0.01359 | n.a | n.a | (92.9) | % | |||||||||||||||||||||||
______________________________________________________
*The abbreviation “n.a.” means not available.
Operating Revenues
Our total revenues increased by 24.3% to US$11,640.5 million for the year ended December 31, 2023 from US$9,362.5 million as of December 31, 2022. The increase in revenues in 2023 was mainly attributable to the 33.8% increase in passenger revenues to US$10,215.1 million in 2023 from US$7,636.4 million in 2022, driven by the increase in
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passenger traffic by 23.1% (measured in RPKs) with respect to 2022, caused by the continued recovery of the international travel demand.
Cargo revenues decreased by 17.4%, to US$1,425.4 million in 2023 from US$1,726.1 million in 2022. Total cargo capacity increased by 14.6%, in line with the increase in freighter capacity. Cargo traffic increased 4.8%, resulting in a 4.8 percentage point decrease of the cargo load factor. This capacity increase is also explained by the recovery of passenger capacity levels, and the use of their belies for cargo. Cargo yield fell 21.3% year-over-year, as a result, revenues per ATK decreased 28.0% in comparison to the previous year.
Passenger and cargo revenues accounted for 86.6% and 12.1% of total revenues in 2023, respectively.
Cost of Sales
Cost of sales increased by 8.8% to US$8,816.6 million for the year ended December 31, 2023 (from US$8,103.5 million in 2022), mainly due to the 20.6% increase in passenger operations.
The table below presents cost of sales information for the fiscal year ended December 31, 2023 and 2022.
| For the year ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| In US$ millions | As a percentage of total operating revenues | 2023/2022 % change | |||||||||||||||||||||||||||
| Revenues | 11,640.5 | 9,362.5 | 100.0 | % | 100.0 | % | 24.3 | % | |||||||||||||||||||||
| Cost of sales | (8,816.6) | (8,103.5) | (75.7) | % | (86.6) | % | 8.8 | % | |||||||||||||||||||||
| Aircraft Fuel | (3,947.2) | (3,882.5) | (33.9) | % | (41.5) | % | 1.7 | % | |||||||||||||||||||||
| Wages and Benefits | (1,225.2) | (973.7) | (10.5) | % | (10.4) | % | 25.8 | % | |||||||||||||||||||||
| Other Rental and Landing Fees | (1,317.2) | (1,031.5) | (11.3) | % | (11.0) | % | 27.7 | % | |||||||||||||||||||||
| Depreciation and Amortization | (1,102.8) | (1,083.0) | (9.5) | % | (11.6) | % | 1.8 | % | |||||||||||||||||||||
| Aircraft Maintenance | (601.8) | (582.7) | (5.2) | % | (6.2) | % | 3.3 | % | |||||||||||||||||||||
| Passenger Services | (271.8) | (184.4) | (2.3) | % | (2.0) | % | 47.4 | % | |||||||||||||||||||||
| Aircraft Rentals | (91.9) | (202.8) | (0.8) | % | (2.2) | % | (54.7 | %) | |||||||||||||||||||||
| Other Costs of Sales | (258.6) | (162.9) | (2.2) | % | (1.7) | % | 58.8 | % | |||||||||||||||||||||
Fuel costs increased by 1.7%, mainly as a result of a 17.5% increase in fuel consumption compared to 2022 attributed to the 20.6% increase in passenger operations during 2023, offset by a 13.7% decrease in average fuel price. During the period ended December 31, 2023, LATAM recognized a gain of US$15.7 million for fuel hedging net of premiums in the costs of sales for the year, compared to a gain of US$18.8 million as of December 31, 2022.
Wages and benefits increased by 25.8%, mainly explained by higher crew and airport staff costs, along with an 10.7% increase in the average number of employees during 2023.
Other rental and landing fees increased 27.7%, mainly due to the increase in the level of passenger operations.
Depreciation and amortization increased by 1.8%, explained by 19 additional aircraft in the operating fleet compared to the end of 2022, offset by the renegotiation of fleet operating lease contracts after the exit from Chapter 11.
Aircraft maintenance increased by 3.3% mainly attributed to a bigger average fleet and the increase in the level of passenger operations.
Passenger services costs increased by 47.4% mainly explained by an increase in the costs of catering and on-board services as a result of the cessation of food delivery restrictions presented until the first months of 2022 due to the COVID-19 pandemic. In addition, the growth in demand caused an increase of 18.3% in the number of passengers transported, mainly in the international segment.
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Aircraft rental expenses decreased by US$54.7% to US$91.9 million in 2023, due to a decrease in the number of aircraft under PBH mode. PBH contracts continued to be in place in 2023, as certain wide-body fleet contracts will remain in effect for part of 2024.
As a result of the above, gross margin (defined as revenues minus cost of sales) totaled a profit of US$2,824 million, compared to a profit of US$1,259 million in 2022.
Other Consolidated Results
Other operating income decreased in 2023 by 3.7%, from US$154.3 million in 2022 to US$148.6 million in 2023, mainly due to the cessation of compensation from Delta Air Lines in 2023, associated with the implementation of the Joint Venture Agreement signed in 2019, and partially offset by higher income from sales of spare and rotatable engines of the Airbus A350 and Airbus A320 fleet during 2023.
Distribution costs increased by 37.7%, totaling US$587.3 million, due to an increase in sales commissions plus an increase in fixed costs related with the commercial areas.
Administrative expenses increased by 18.5% from US$576.4 million in 2022 to US$683.3 million in 2023, due to the increase in headcount, plus an increase in marketing expenses. In 2022, LATAM group had an average of 30,872 employees, while in 2023 this was increased to an average of 34,174employees.
Other expenses increased slightly by 0.2% from US$531.6 million in 2022 to US$532.8 million in 2023.
Gain from Restructuring activities had no movements in 2023 given the exit of the Company from Chapter 11 in November 2022.
Financial income decreased by 88.1% from US$1,052.3 million in 2022 to US$125.4 million in 2023, mainly due to the gains on the settlement of certain financial claims in 2022, as well as a reversal of previously recognized accrued interest for financial liabilities that were restructured during 2022, both attributable to the exit from Chapter 11. For more information, please see Note 26 of our audited consolidated financial statements.
Financial costs decreased by 25.9% from US$942.4 million in 2022 to US$698.2 million in 2023, mainly explained by interests recognized during 2022 associated with the DIP financing.
The foreign exchange gain of US$85.9 million in 2023, compared to a gain of US$26.0 million in 2022, was driven mainly by the appreciation of the Brazilian Real during 2023.
Other gains (losses) registered a loss of US$91.0 million in 2023, compared to a loss of US$347.1 million in 2022, principally due to the recognition at net realizable value of A319 family aircraft classified as held for sale during 2023.
The income tax expense for 2023 amounted to US$(14.9) million as compared to an income tax expense of US$(8.9) million in 2022. This difference is mainly explained by a reduction of US$23.4 million in the deferred tax assets and the partial offset of tax losses by US$17.4 million in taxes owed by certain affiliates of the group. For more information, see Note 17 to our audited consolidated financial statements.
Net profit
Net profit for the year ended December 31, 2023 totaled US$581.6 million, compared to a net profit of US$1,337.1 million recorded in 2022. Net profit attributable to the parent company’s shareholders was US$581.8 million in 2023. As a result, LATAM’s accumulated profit as of the year end, LATAM group could distribute dividends in accordance with Chilean law, subject to shareholder approval.
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Results of Operations
LATAM Financial Results Discussion: For the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table sets forth certain income statement data for LATAM, for the year ended December 31, 2022, and December 31, 2021.
| For the year ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| In US$ millions | As a percentage of total operating revenues | 2022/2021 % change | |||||||||||||||||||||||||||
| Consolidated Results of Income by Function | |||||||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||
| Passenger | 7,636.4 | 3,342.4 | 81.6 | % | 68.4 | % | 23.3 | % | |||||||||||||||||||||
| Cargo | 1,726.1 | 1,541.6 | 18.4 | % | 31.6 | % | 12.0 | % | |||||||||||||||||||||
| Total revenues | 9,362.5 | 4,884.0 | 100.0 | % | 100.0 | % | 91.7 | % | |||||||||||||||||||||
| Cost of sales | (8,103.5) | (4,963.5) | (86.6) | % | (101.6) | % | 63.3 | % | |||||||||||||||||||||
| Gross margin | 1,259.0 | (79.5) | 13.4 | % | (1.6) | % | (1683.6) | % | |||||||||||||||||||||
| Other income | 154.3 | 227.3 | 1.6 | % | 4.7 | % | (32.1) | % | |||||||||||||||||||||
| Distribution costs | (426.6) | (291.8) | (4.6) | % | (6.0) | % | 46.2 | % | |||||||||||||||||||||
| Administrative expenses | (576.4) | (439.5) | (6.2) | % | (9.0) | % | 31.1 | % | |||||||||||||||||||||
| Other expenses | (531.6) | (535.8) | (5.7) | % | (11.0) | % | (0.8) | % | |||||||||||||||||||||
| Gains/(losses) from restructuring activities | 1,679.9 | (2,337.2) | 17.9 | % | (47.9) | % | (171.9 | %) | |||||||||||||||||||||
| Financial income | 1,052.3 | 21.1 | 11.2 | % | 0.4 | % | 4887.2 | % | |||||||||||||||||||||
| Financial costs | (942.4) | (805.5) | (10.1) | % | (16.5) | % | 17.0 | % | |||||||||||||||||||||
| Foreign exchange gains/(losses) | 26.0 | 131.4 | 0.3 | % | 2.7 | % | (80.2) | % | |||||||||||||||||||||
| Result of indexation units | (1.4) | (5.4) | — | % | (0.1 | %) | (157.7) | % | |||||||||||||||||||||
| Other gains/(losses) | (347.1) | 30.7 | (3.7 | %) | 0.6 | % | (1230.6) | % | |||||||||||||||||||||
| Income (loss) before taxes | 1,346.0 | (4,084.2) | 14.4 | % | (83.6) | % | (133.0) | % | |||||||||||||||||||||
| Income tax (expense) / benefits | (8.9) | (568.9) | (0.1) | % | (11.6 | %) | (98.4) | % | |||||||||||||||||||||
| Net income (loss) for the year | 1,337.1 | (4,653.1) | (95.2) | % | (95.3) | % | 2.0 | % | |||||||||||||||||||||
| Income (loss) attributable to the parent company’s equity holders | 1,339.2 | (4,647.5) | 14.3 | % | (95.2) | % | (128.8 | %) | |||||||||||||||||||||
| Income (loss) attributable to non-controlling interests | (2.1) | (5.7) | — | % | (0.1) | % | (41.4) | % | |||||||||||||||||||||
| Net income (loss) for the period | 1,337.1 | (4,653.1) | (95.2) | % | (95.3) | % | 2.0 | % | |||||||||||||||||||||
| Earning (loss) per share | |||||||||||||||||||||||||||||
| Basic earning (loss) per share (US$) | 0.01386 | (7.66397) | n.a | n.a | 2.1 | % | |||||||||||||||||||||||
| Diluted earning (loss) per share (US$) | 0.01359 | (7.66397) | n.a | n.a | 2.1 | % | |||||||||||||||||||||||
The abbreviation “n.a.” means not available.
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Operating Revenues
Our total revenues increased by 91.7% to US$9,362.5 million for the year ended December 31, 2022 compared to revenues of US$4,884.0 million in 2021. The 2022 increase in revenues was mainly attributable to the recovery in air travel and its direct impact on passenger revenues. Passenger and cargo revenues accounted for 81.6% and 18.4% of total revenues in 2022, respectively.
Our consolidated passenger revenues increased by 128.5% to US$7,636.4 million in 2022 from US$3,342.4 million in 2021, as a result of the easing of travel restrictions both in the region and worldwide, and its subsequent impact on passenger operations. This was driven by the increase in passenger traffic, which increased 84% (measured in RPKs) with respect to 2021.
Cargo revenues increased by 12.0%, to US$1,726.1 million in 2022 from US$1,541.6 million in 2021, mainly driven by the increase in cargo dedicated capacity also accompanied by the healthy trend in yields as compared with the pre-pandemic context. Cargo capacity increased by 30.7% and traffic increased by 16.4%, resulting in a 6.9 p.p. load factor decrease. Cargo yields fell 3.8% year over year and as a result, revenues per ATK decreased by 14.3%.
Cost of Sales
Cost of sales increased by 63.3% to US$8,103.5 million for the year ended December 31, 2022 (from US$4,963.5 million in 2021), mainly due to the increase in fuel price during the year in addition to overall increasing costs due to the annual recovery in passenger operations.
The table below presents cost of sales information for the fiscal year ended December 31, 2022 and 2021.
| For the year ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| In US$ millions | As a percentage of total operating revenues | 2022/2021 % change | |||||||||||||||||||||||||||
| Revenues | 9,362.5 | 4,884.0 | 100.0 | % | 100.0 | % | 91.7 | % | |||||||||||||||||||||
| Cost of sales | (8,103.5) | (4,963.5) | (86.6) | % | (101.6) | % | 63.3 | % | |||||||||||||||||||||
| Aircraft Fuel | (3,882.5) | (1,487.8) | (41.5) | % | (30.5) | % | 161.0 | % | |||||||||||||||||||||
| Wages and Benefits | (973.7) | (766.2) | (10.4) | % | (15.7) | % | 27.1 | % | |||||||||||||||||||||
| Other Rental and Landing Fees | (1,031.5) | (749.8) | (11.0) | % | (15.4) | % | 37.6 | % | |||||||||||||||||||||
| Depreciation and Amortization | (1,083.0) | (1,073.0) | (11.6) | % | (22.0) | % | 0.9 | % | |||||||||||||||||||||
| Aircraft Maintenance | (582.7) | (533.9) | (6.2) | % | (10.9) | % | 9.1 | % | |||||||||||||||||||||
| Passenger Services | (184.4) | (77.4) | (2.0) | % | (1.6) | % | 138.2 | % | |||||||||||||||||||||
| Aircraft Rentals | (202.8) | (120.6) | (2.2) | % | n.a. | n.a. | |||||||||||||||||||||||
| Other Costs of Sales | (162.8) | (154.9) | (1.7) | % | (3.2) | % | 5.1 | % | |||||||||||||||||||||
Fuel costs increased by 161%, mainly as a result of a 73.4% increase in average fuel price during the year plus a 50.2% increase in fuel consumption compared to 2021 attributed to the recovery of passenger operations throughout the year.
Wages and benefits increased by 27.1%, explained by an 8% increase in the average number of employees, driven by the incorporation in areas directly linked with the operations such as crew members and airport staff, in addition to the inflationary pressures in the region.
Other rental and landing fees increased 37.6%, mainly due to the increase in the level of passenger operations.
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Depreciation and amortization slightly increased by 0.9%, as the total operating fleet did not vary significantly between 2022 and 2021.
Aircraft maintenance increased by 9.1% mainly attributed to higher unit costs in maintenance tasks due to global inflationary pressures, plus a catch up on task deferrals associated with the return of aircraft into service after extended downtime and following the increase in projected future operations.
Passenger services increased by 138.2% mainly explained by the increased level of passenger operations in addition to the recovery in international flights, which normally offer more intensive catering and onboard services.
The Aircraft Rentals line includes costs associated with lease payments based on power by the hour (PBH) for contracts that were modified to that structure. The Aircraft Rentals expense line is used to account for the expenses associated with the group’s variable payments related to aircraft with operating leases whose long-term agreements have been signed and approved by the US Court. During 2021, the Company amended its Aircraft Lease Contracts which included lease payment based on Power by the Hour (PBH) at the beginning of the contract that then switches back to fixed-rent payments. A right of use asset and a lease liability was recognized as result of those amendments at the date of modification of the contract, even if they initially had a variable payment period. As a result of the application of the lease accounting policy, the right of use assets continues to be amortized on a straight-line basis over the term of the lease from the contract modification date. The expenses for the year include both: the lease expense for variable payments (Aircraft Rentals) as well as the expenses resulting from the amortization of the right of use assets from the beginning of the contract (included in the Depreciation line) and interest from the lease liability (included in Lease Liabilities). In 2022, aircraft rental expenses totaled US$202.8 million.
As a result of the above, gross margin (defined as revenues minus cost of sales) totaled a gain of US$1,259 million, compared to a loss of US$79.5 million in 2021.
Other Consolidated Results
Other operating income decreased in 2022 by 32.1%, from US$227.3 million in 2021 to US$154.3 million in 2022, mainly due to the cessation of certain compensation payments from Delta Air Lines as agreed upon in the signing of the Joint Venture Agreement in 2019.
Distribution costs increased 46.2%, totaling US$426.6 million, due to an increase in sales commissions plus an increase in fixed costs related with the commercial areas.
Administrative expenses increased 31.2% from US$439.5 million in 2021 to US$576.4 million in 2022, due to the increase in headcount, plus an increase in marketing expenses and administration expenses related to commissions of payment methods. In 2021, LATAM group had an average of 28,429 employees, while in 2022 this was increased to an average of 30,877 employees.
Other expenses decreased slightly by 0.8% from US$535.8 million in 2021 to US$531.6 million.
Gain from Restructuring activities totaled US$1,679.9 million in 2022, in connection with our Chapter 11 proceedings, and included an earnings effect attributable to the exit from Chapter 11, partially offset by costs related with the renegotiation of fleet contracts and legal advice fees. For more information on gain (losses) restructuring expenses, please see Note 2, 24 and 26 of our audited consolidated financial statements.
Financial income increased from US$21.1 million in 2021 to US$1,052.3 million in 2022, mainly explained by gains on the settlement of certain financial claims as well as a reversal of previously recognized accrued interest for financial liabilities that were restructured, both attributable to the exit from Chapter 11. For more information, please see Note 26 of our audited consolidated financial statements.
Financial costs increased by 17.0% to US$942.4 million in 2022 from US$805.5 million in 2021, mainly explained by the DIP financing and DIP-to-Exit financing that were in place until the Company’s emergence from Chapter 11, in addition to a progressive increase throughout the year in base interest rates.
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The foreign exchange gain of US$26.0 million in 2022, compared to a gain of US$131.4 million in 2021, was driven mainly by the appreciation of the Brazilian Real during 2022.
Other gains (losses) registered a loss of US$347.1 million, compared to a gain of US$30.7 million in 2021, principally due to the recognition at net realizable value of A319 family aircraft classified as held for sale during 2022.
The income tax expense for 2022 amounted to US$(8.9) million as compared to an income tax expense of US$(568.9) million in 2021. This difference is mainly explained by a derecognition of deferred tax assets registered in 2021. In 2022, the annual result was mainly attributed to current tax owed by LATAM and certain affiliates of the group. For more information, see Note 17 to our audited consolidated financial statements.
Net profit
Net profit for the year ended December 31, 2022 totaled US$1,337.1 million, which compares with a net loss of US$4,653.1 million in 2021. Net profit attributable to the parent company’s shareholders was US$1,339.2 million in 2022. As a result of the Company’s accumulated losses as of the year end, this net profit will not be eligible for a profit distribution through dividends.
U.S. Dollar Presentation and Price-Level Adjustments
General
Foreign currency transactions
(a)Presentation and functional currencies
The items included in the financial statements of LATAM Airlines Group and each of the 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 is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group 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 Accounting Standards, hyperinflationary. The financial statements of the subsidiaries whose functional currency is the Argentine Peso have been restated.
The non-monetary items of the statement of financial position as well as the income statement, comprehensive incomes and cash flows of the group’s Argentina entities, whose functional currency corresponds to a hyperinflationary economy, adjusted for inflation and re-expressed in accordance with the variation of the consumer price index (“CPI”), at each presentation date of its financial statements. The re-expression of non-monetary items is made from the date of initial recognition in the statements of financial position and considering that, the financial statements are prepared under the historical cost criterion.
Net losses or gains arising from the re-expression of non-monetary items and income and costs, recognized in the consolidated income statement under “Result of indexation units.”
Net gains and losses on the re-expression of opening balances due to the initial application of IAS 29 are recognized in the consolidated retained earnings.
Re-expression due to hyperinflation will be recorded until the period 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.
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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, 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) on currency translation, 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.
Effects of Exchange Rate Fluctuations
Our functional currency is the U.S. dollar for the pricing of our products, composition of our balance sheet and effects on our results of operations. In 2023, approximately 42% of our revenues were in U.S. dollars or in currencies pegged to the U.S. dollar and approximately 70% of our expenses were denominated in dollars or pegged to the U.S. dollar, particularly fuel costs, landing and over-flight fees, aircraft rentals, insurance and aircraft components and supplies.
A substantial majority of our liabilities are denominated in U.S. dollars (70.3% as of December 31, 2023), including bank loans, certain air traffic liabilities, and certain amounts payable to our suppliers. As of December 31, 2023, 73.4% of our assets were denominated in U.S. dollars, principally aircraft, cash and cash equivalents, accounts receivable and other fixed assets. Substantially all of our commitments, including operating lease and purchase commitments for aircraft, are denominated in U.S. dollars.
Balance sheet imbalance denominated in currencies other than the functional currency of each specific entity creates a foreign exchange rate exposure that impacts our foreign exchange losses and gains due to exchange rate fluctuations. We recorded a net foreign exchange gain of US$85.9 million in 2023, compared to a net foreign exchange gain of US$26.0 million in 2022, which are set forth in our consolidated statement of income under “Foreign Exchange gains/(losses)”. For more information, see Notes 2.3 and 28 to our audited consolidated financial statements.
Critical Accounting Policies
The Company has used estimates to value and record some of the assets, liabilities, income, expenses and commitments. Basically, these estimates refer to:
(a)Impairment of Intangible asset with indefinite useful life.
(b)Depreciation expense and impairment of Properties, Plant and Equipment.
(c)Recoverability of deferred tax assets.
(d)Air tickets sold that will not be finally used.
(e)Valuation of the LATAM miles and points awarded to the holders of the loyalty programs, pending use.
(f)Legal Contingencies.
(g)Leases
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See Note 4 (Accounting estimates and judgments) to our audited consolidated financial statements for a full description of our critical accounting policies.
IFRS Accounting Standars / Non-IFRS Accounting Standars Reconciliation
We use “Cost per ASK” and “Cost per ASK excluding fuel price variations” in analyzing operating expenses on a per unit basis. “ASKs” (available seat kilometers) measures the number of seats of capacity available for the transportation of passengers multiplied by the kilometers flown across our network. To obtain our unit costs, which are used by our management in the analysis of our results, we divide our total Operating Expenses by our total ASKs. The cost component is further adjusted to obtain “costs per ASK excluding fuel price variations,” in order to remove the impact of changes in fuel prices for the year. “Cost per ASK” and “Cost per ASK excluding fuel price variations” do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. These metrics should not be considered in isolation or as a substitute for operating expenses or as indicators of performance or cash flows or as a measure of liquidity.
| 2023 | 2022 | 2021 | |||||||||||||||
| Cost per ASK | |||||||||||||||||
| Operating expenses (US$ thousands) | 10,619,974 | 9,638,086 | 6,230,623 | ||||||||||||||
| Divided by ASK (million) | 137,250.5 | 113,851.9 | 67,635.7 | ||||||||||||||
| = Cost per ASK (US$ cents) | 7.74 | 8.47 | 9.21 | ||||||||||||||
| Cost per ASK excluding fuel price variations | |||||||||||||||||
| Operating expenses (US$ thousands) | 10,619,974 | 9,638,086 | 6,230,623 | ||||||||||||||
| - Aircraft fuel (US$ thousands) | 3,947,220 | 3,882,505 | 1,487,776 | ||||||||||||||
| Divided by ASK (million) | 137,250.5 | 113,851.9 | 67,635.7 | ||||||||||||||
| = Cost per ASK excluding fuel price variations (US$ cents) | 4.86 | 5.06 | 7.01 | ||||||||||||||
Other Operating Measures
LATAM uses revenues per ASK or ATK, as applicable, in analyzing revenues on a per unit basis. To obtain unit revenues, we divide our passenger revenues by our total ASKs and our cargo revenues by our total ATKs. We use our revenues as defined under IFRS Accounting Standards for purposes of the calculation of this metric. Revenues per ASK or ATK, as the case may be, do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. This metric is not an IFRS Accounting Standards measure of performance or liquidity. It should not be considered in isolation or as a substitute for revenues or as indicators of performance or cash flows as a measure of liquidity.
The table below shows the calculation of our revenues per ASK or ATK, as applicable, in each of the periods indicated.
| 2023 | 2022 | 2021 | |||||||||||||||
| Passenger Revenues (US$ thousands) | 10,215,148 | 7,636,429 | 3,342,381 | ||||||||||||||
| ASK (million) | 137,250.5 | 113,851.9 | 67,635.7 | ||||||||||||||
| Passenger Revenues/ASK (US$ cents) | 7.44 | 6.71 | 4.94 | ||||||||||||||
| Cargo Revenues (US$ thousands) | 1,425,393 | 1,726,092 | 1,541,634 | ||||||||||||||
| ATK (million) | 7,171.0 | 6,255.7 | 4,788.1 | ||||||||||||||
| Cargo Revenues/ATK (US$ cents) | 19.88 | 27.59 | 32.20 | ||||||||||||||
Seasonality
Operating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns. Passenger revenues are generally higher in the first and fourth quarters of each year, during the southern hemisphere’s spring and summer. In the Brazilian passenger air transportation market, there is generally higher demand for air transportation services in the second half of the year, making the second quarter the weakest for the Company. However, seasonality is partially mitigated by LATAM’s focus on business passengers (which
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are less sensitive to seasonality). Additionally, the expansion of the LATAM group into other countries and the cargo segment with different seasonal patterns has also moderated the overall seasonality of the passenger business.
Operating Data
The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2021, December 31, 2022 and December 31, 2023. LATAM believes this operating data is useful in reporting the operating performance of its business and may be used by certain investors in evaluating companies operating in the global air transportation sector. However, these measures may differ from similarly titled measures reported by other companies, and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS Accounting Standards. This unaudited operating data is not included in or derived from LATAM’s financial statements.
| For the year ended and as of December 31, | ||||||||||||||||||||
| Operating Data | 2023 | 2022 | 2021 | |||||||||||||||||
| ASKs (million) | 137,250.5 | 113,851.9 | 67,635.7 | |||||||||||||||||
| RPKs (million) | 114,006.6 | 92,587.8 | 50,316.5 | |||||||||||||||||
| ATKs (million) | 7,171.0 | 6,255.7 | 4,788.1 | |||||||||||||||||
| RTKs (million) | 3,704.0 | 3,532.5 | 3,034.9 | |||||||||||||||||
B.Liquidity and Capital Resources
LATAM’s cash and cash equivalents amounted to US$1,714.8 million as of December 31, 2023, US$1,216.7 million as of December 31, 2022, and US$1,046.8 million as of December 31, 2021. The company did not have short-term marketable securities as of December 31, 2023, whereas it had US$0.3 million as of December 31, 2022 and US$0.3 million as of December 31, 2021. LATAM’s cash and cash equivalents and marketable securities totaled US$1,714.8 million as of December 31, 2023, US$1,217.0 million as of December 31, 2022 and US$1,047.2 million as of December 31, 2021.
The US$497.8 million increase in cash and cash equivalents and marketable securities from 2022 to 2023 can be explained by an increase in the cash flow from operations, which amounted to US$2,263.6 million.
The US$169.8 million increase in cash and cash equivalents and marketable securities from 2021 to 2022 can be explained mainly by the successful exit from Chapter 11 with a solid financial position and the recovery in air travel demand after the COVID-19 pandemic, offset by the increase of capital expenditures in the operation given to the recovery of passenger traffic.
Cash position and liquidity
The following table provides a summary of our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2023, 2022 and 2021 and our total cash position as of December 31, 2023, 2022 and 2021.
| 2023 | 2022 | 2021 | |||||||||||||||
| (in US$ million) | |||||||||||||||||
| Net cash flow from operating activities | 2,263.6 | 96.8 | (174.2) | ||||||||||||||
| Net cash flow from (used in) investing activities | (659.5) | (749.0) | (552.5) | ||||||||||||||
| Net cash flow from (used in) financing activities | (1,150.2) | 855.0 | 109.6 | ||||||||||||||
| Effects of variation in the exchange rate on cash and cash equivalents | 44.2 | (33.0) | (31.9) | ||||||||||||||
| Cash and cash equivalents at the beginning of the year | 1,216.7 | 1,046.8 | 1,695.8 | ||||||||||||||
| Cash and cash equivalents at the end of the year | 1,714.8 | 1,216.7 | 1,046.8 | ||||||||||||||
As of December 31, 2023 in addition to cash and cash equivalent, LATAM has US$1,100 million related to two undrawn Revolving Credit Facilities.
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Net cash flows from operating activities
Cash flow from operations derives primarily from providing air passenger and cargo transportation to customers. Operating cash outflows are primarily related to expenses of airline operations, including fuel consumption. Net cash inflows from operating activities in 2023 increased by US$2,166.8 million, from US$96.8 million in 2022 to US$2,263.6 million in 2023, mainly explained by a better operating margin, which was driven by the economic recovery in the domestic and international markets and LATAM’s ongoing cost efficiency initiatives.
Net cash inflows from operating activities in 2022 increased by US$271.0 million, from US$(174.2) million to US$96.8 million, mainly due to an increase in operations (a 68% increase in ASKs operated compared to 2021) thanks to the recovery of the operation and the lifting of the most severe travel restrictions across the region.
Net cash flow used in investing activities
Net cash used in investing activities in 2023 decreased to US$659.5 million from US749.0 million in 2022. The decrease is mainly due to an increase in the interest income explained by higher interest rates, which offset the cash outflow in investment activities during that period.
Net cash used in investing activities in 2022 increased to US$749.0 million from US$552.5 million in 2021. The increase is mainly due to improvements in operations following the recovery of passenger traffic after a significant decrease in the number of travelers due to the COVID-19 pandemic, which implied an increase in investing activities including maintenance activities and purchase of spare components.
Net cash flows used in financing activities
In 2023, net cash in financing activities amounted to US$(1,150.2) million, a decrease of US$2,005.2 million from the US$855.0 million in cash used in financing activities in 2022.
During 2023, the company paid US$342.0 million in loan repayments, a decrease of US$9,425.9 million compared to US$9,767.9 paid in 2022, explained mainly by the emergence from Chapter 11 and certain increased payments related to the debtor-in-possession ("DIP") financing. In 2023, we did not issue new debt, whereas in 2022 we issued US$7,988.4 million principal amount of new debt.
In 2022, net cash in financing activities amounted to US$855.0 million, an increase of US$745.3 million from the US$109.6 million in cash used in financing activities in 2021. The company paid US$9,767.9 million in loan repayments, an increase of US$9,304.8 million explained mainly by the emergence from Chapter 11 and certain increased payments related to the DIP financing. Total debt issuances in 2022 amounted to US$7,988.4 million, an increase of US$7,196.7 million compared to US$791.1 million issued in 2021. In 2022, LATAM acquired equity instruments totaling US$3,751.8 million as part of its successful emergence from Chapter 11 bankruptcy proceedings.
Sources of financing
Fleet Financing
LATAM typically finances the fleet with long-term loans covering between 80% and 100% of the net purchase price. It also finances our aircraft under sale and leaseback arrangements and operational leases in order to add flexibility to the fleet. For more information regarding fleet financing, please refer to the information below and to “—Contractual Obligations—Long Term Indebtedness.”
From time to time in the past, we have considered, and may consider in the future, other forms of financing such as equity or debt, either secured or unsecured, securitization of cargo or ticket receivables or the securitization of fleet and engines.
Revolving Credit Facilities
As of December 31, 2023, the Company has US$ 1,100 million fully committed and available from the undrawn Revolving Credit Facility. The available revolver capacity consists of two lines of credit: one for US$ 600 million and another for US$ 500 million.
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Capital expenditures
Capital expenditures are related to the acquisition of aircraft, maintenance CAPEX, restocking of parts, IT-related CAPEX, fleet projects such as cabin retrofits, cargo freighter conversions, and certain other strategic projects. LATAM’s capital expenditures are recorded in the cash flow statement through the following lines: Purchase of Property, Plant and Equipment, Purchases of Intangible Assets, and partially in Payments to Suppliers for the Supply of Goods and Services (Payments of Leased Maintenance). See “-Sources of financing” above.
| Capital expenditures, as of December 31 of each year | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| (in US$ millions) | |||||||||||||||||||||||||||||
Purchase of Property, Plant and Equipment | (795.8) | (780.5) | (597.1) | ||||||||||||||||||||||||||
| Purchases of Intangible Assets | (68.1) | (50.1) | (88.5) | ||||||||||||||||||||||||||
Payments of Leased Maintenance | (294.5) | (149.1) | (163.7) | ||||||||||||||||||||||||||
The following chart sets forth LATAM’s estimated capital expenditures for the calendar years 2024 to 2026, which are subject to change and may differ from the actual capital expenditures. Pre-delivery-payments ("PDPs") and Non-fleet CAPEX, as shown in the table below, represent estimated cash out flows for the Company that will be recorded in the Net cash flow from (used in) investing activities under the Property Plant and Equipment and Purchases of Intangible Assets and in the Net cash flow from operating activities in the case of the maintenance related to the operating leases.
| Estimated capital expenditures by year, as of December 31, 2023 | |||||||||||||||||
| 2024 | 2025 | 2026 | |||||||||||||||
| (in US$ millions) | |||||||||||||||||
PDPs (1) | (91) | (20) | (322) | ||||||||||||||
Non-fleet CAPEX (2) | (1,402) | (1,182) | (1,196) | ||||||||||||||
(1)Represents pre-delivery payments made by LATAM, or inflows received by LATAM after the delivery of the aircraft is made.
(2)Non-fleet CAPEX includes estimates of capital expenditures on spare engines and parts, maintenance of fleet, projects and others, plus purchases of intangible assets.
Fleet commitments are presented in the table below as the purchase price from manufacturers and the present value of the fleet commitments from lessors to be received under operating lease agreements, as per IFRS 16.
| Estimates by year, as of December 31, 2023 | |||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | |||||||||||||||||||||||||||
| (in US$ millions) | |||||||||||||||||||||||||||||
Fleet Commitments (1) | (511) | (1,209) | (757) | ||||||||||||||||||||||||||
______________________________________________________
(1)The number of aircraft included in Fleet Commitments calculation includes all the committed deliveries (from manufacturers and lessors) with estimates regarding current scheduled delivery dates.
In general, LATAM evaluates financing alternatives to meet its fleet commitments and therefore the amounts presented are not necessarily indicative of a cash outflow and depending on the type of lease agreement (operating or financial lease), the Cash Flow Statement will record fleet delivery differently: for financial leases, cash out will be recorded in the Net cash flow from (used in) investing activities based on the purchase price of the aircraft. However, aircraft arriving under an operating lease do not represent a cash outflow upon their arrival, but rather represent the
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recognition of a right-of-use asset and a lease liability, and therefore, will not be recorded in the Cash Flow Statement as per IFRS Accounting Standards rules.
Long Term Indebtedness
As of December 31, 2023, the average interest rate of our total financial debt was 10.7%. Out of the total financial debt, approximately 50% accrues interest at a fixed rate (through a stated fixed interest rate) or is subject to interest rate caps.
As of December 31, 2023, LATAM had US$4.0 billion in nominal financial debt liabilities. Of this amount, there are no remaining disputed claims.
Secured Debt
Aircraft Debt
1.ECA/EX-IM: Bank loans & bonds guaranteed by Export-Import Bank of the United States (“EX-IM Bank”) and Export Credit Agency (“ECA”) guaranteed loan debt. As of December 31, 2023, the total outstanding amount under these facilities was US$497 million.
2.Commercial Bank Loans: As of December 31, 2023, secured commercial bank loans debt totaled US$585 million.
3.Tax Leases: LATAM has secured debt through Tax Structures with a call option. As of December 31, 2023, the outstanding obligations under these tax leases were US$188 million.
Non Aircraft Debt
1.Term Loan B Facility: On October 18, 2022, LATAM Airlines Group, together with Professional Airline Services, Inc., a Florida corporation and a wholly owned subsidiary of LATAM, issued a five-year term loan facility of US$ 1,100 million with an interest rate, at LATAM’s election, of either (i) Adjusted Term SOFR plus an applicable margin of 9.5%, or (ii) ABR, plus an applicable margin of 8.5%. As of December 31, 2023, the outstanding amount under the Term Loan B Facility was US$ 1,089 million.
2.Senior Secured Notes: On October 18, 2022, LATAM Airlines Group, together with Professional Airline Services, Inc., a Florida corporation and a wholly owned subsidiary of LATAM, issued (i) senior secured notes due 2027 for an aggregate principal amount of US$450 million with a coupon of 13.375% and (ii) senior secured notes due 2029 for and aggregate principal amount of US$ 700 million with a coupon of 13.375%. As of December 31, 2023, the outstanding amount under the Senior Secured Notes was US$1,150 million.
3.Spare Engine Facility: On November 3, 2023, LATAM Airlines Group, acting through its Florida branch, issued a five-year credit facility guaranteed by spare engines for a principal amount of US$275 million. As of December 31, 2023, the outstanding amount under the Spare Engine Facility was US$267 million. The Spare Engine Facility matures in November 2027.
4.Other Guaranteed Obligations: As of December 31, 2023, LATAM's outstanding debt with the EXIM Bank was US$99 million. This debt is derived from the sale of old aircraft, where the sale price was less than the debt outstanding, which left a shortfall financed by EXIM Bank and now guaranteed indirectly by other EXIM aircraft. This facility matures in November 2029.
For a detailed description of the non-aircraft debt, please see Note 31 (Commitments) in our audited consolidated financial statements.
Unsecured Debt
1.Local Bonds: On September 5, 2022, LATAM Airlines Group registered with the Comisión para el Mercado Financiero, the Chilean local regulator, local bonds in the aggregate amount of UF 3,818,042 comprised of the Series F Bonds (BLATM-F), with a maturity in 2042 and a coupon of 2%. As of December 31, 2023, the outstanding amount of Local Bonds was US$160 million.
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As of December 31, 2023, we had purchase obligations with Airbus and Boeing totaling US$15.7 billion (according to manufacturer’s list price), with deliveries scheduled between 2024 and 2030, as set forth below:
•Narrow-body passenger aircraft deliveries (Airbus A320-family): 88 aircraft.
•Wide-body passenger aircraft deliveries (Boeing 787-9): 5 aircraft.
Leases
2023 Fleet Additions
During 2023, LATAM completed the addition of the following wide-body aircraft:
•Five Boeing 787-9 through operating leases.
During 2023, LATAM completed the addition of the following narrow-body aircraft:
•Seven Airbus A321neo through operating leases, eight Airbus A320neo through operating leases and ten Airbus A320 through operating leases.
2022 Fleet Additions
During 2022, LATAM completed the addition of the following wide-body aircraft:
•Four Boeing 787-9 through operating leases.
During 2022, LATAM completed the addition of the following narrow-body aircraft:
•Four Airbus A320neo through operating leases and one Airbus A320 through a short term lease.
In connection with our outstanding secured and unsecured debt, we may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
C.Research and Development, Patents and Licenses, etc.
LATAM has been registered and/or renewed in Argentina, Australia, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, European Union, Guatemala, Honduras, Hong Kong, India, Japan, Mexico, Nicaragua, New Zealand, Panama, Paraguay, Peru, South Korea, , Uruguay, the United States, United Kingdom and Venezuela; LATAM AIRLINES has been registered and/or renewed in Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, European Union, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Panama, Paraguay, Peru, South Korea, Spain, Taiwan, United Kingdom, Uruguay and Venezuela.
LATAM AIRLINES ARGENTINA has been registered and/or renewed in Argentina; LATAM AIRLINES COLOMBIA has been registered and/or renewed in Colombia; LATAM AIRLINES ECUADOR has been registered and/or renewed in Ecuador; LATAM AIRLINES PARAGUAY has been registered and/or renewed in Paraguay and LATAM AIRLINES PERU has been registered and/or renewed in Peru.
LAN has been registered and/or renewed in Chile, Mexico, United Kingdom and the European Union; LAN AMERICA has been registered and/or renewed in Bolivia; LAN BOLIVIA has been registered and/or renewed in Bolivia; LAN CHILE has been registered and/or renewed in Chile; LANPERU has been registered and/or renewed in Costa Rica; LAN PERU has been registered and/or renewed in Brazil; TAM has been registered and/or renewed in Mexico and Peru; LANTAM GRUPO LATAM AIRLINES has been registered and/or renewed in Ecuador.
LATAM CORPORATE has been registered and/or renewed in Argentina, Bolivia, Colombia, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, European Union, United Kingdom and Uruguay. LATAM LINEAS AEREAS has been registered and/or renewed in Argentina,
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Chile, Colombia, Ecuador and Peru; LATAM MRO has been registered and/or renewed in Argentina; Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States and Venezuela.
LATAM CARGO has been registered and/or renewed and/or renewed in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States and Venezuela; LATAM CARGO BRASIL has been registered and/or renewed in Brazil; LATAM CARGO COLOMBIA has been registered and/or renewed in Colombia; LINEA AEREA CARGUERA DE COLOMBIA has been registered and/or renewed in Colombia; LATAM CARGO MEXICO has been registered and/or renewed in Mexico; LAN CARGO MEXICO has been registered and/or renewed in Mexico; ABSA has been registered and/or renewed in Chile; LAN CARGO COLOMBIA has been registered and/or renewed in Colombia; LAN ECUADOR has been registered and/or renewed in United Kingdom and the European Union; TAM CARGO been renewed in Brazil; TAM CARGO CONVENCIONAL has been registered and/or renewed in Brazil.
LATAM FIDELIDADE has been registered and/or renewed in Argentina, Australia, Brazil, Chile, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, United Kingdom, Uruguay and the United States; FIDELIDAD has been registered and/or renewed in Argentina; FIDELIDADE has been registered and/or renewed in Argentina; FIDELIDAD TAM has been registered and/or renewed in Paraguay; FIDELIDADE TAM has been registered and/or renewed in Paraguay.
LATAM PASS has been registered and/or renewed in Argentina, Australia, Bolivia, Brazil, Chile, Canada, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States and Venezuela; LATAM PASS MILES has been registered and/or renewed in New Zealand and Australia; LAN PASS has been registered and/or renewed in Chile.
LATAM TOURS has been registered and/or renewed in Argentina, Chile, Colombia, Ecuador and Peru; LATAM TRADE has been registered and/or renewed in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, European Union, United Kingdom and Uruguay; LATAM TRAVEL has been registered and/or renewed in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States and Venezuela; LATAM TRAVEL SOLUTIONS has been registered and/or renewed in Panama; LATAM VIAGENS has been registered and/or renewed in Brazil; TAM VIAGENS been renewed in Brazil. TAM VACATIONS been renewed in Argentina and Brazil; DESTINOS LANTOURS has been registered and/or renewed in Peru.
LATAM, JUNTOS MÁS LEJOS has been registered and/or renewed in Argentina, Chile, and Ecuador; LATAM, TOGETHER, FURTHER has been registered and/or renewed in Australia, New Zealand, United Kingdom and the European Union.
LATAMPLAY has been registered and/or renewed in Argentina, Brazil, Chile, Colombia and Ecuador; LATIN AIRLINE NETWORK has been registered and/or renewed in Chile; LIBREVOLADOR has been registered and/or renewed in Bolivia, Chile, Ecuador, Paraguay and Peru; LIBREVOLADORES has been registered and/or renewed in Bolivia, Chile, Ecuador, Paraguay and Peru; LIDERES DEL SERVICIO has been registered and/or renewed in Argentina.
LATAM AIRLINES, SANS FRONTIÈRES has been registered and/or renewed in France; LATAM AIRLINES, GRENZENLOS has been registered and/or renewed in Germany; LATAM AIRLINES, SIN FRONTERAS has been registered and/or renewed in Spain; LATAM, SIN FRONTERAS has been registered and/or renewed in Honduras; LATAM AIRLINES, SENZA FRONTIERE has been registered and/or renewed in Italy.
LATAM, SOSTENIBILIDAD: UN DESTINO NECESARIO has been registered and/or renewed in the European Union; LATAM UN DESTINO NECESARIO has been registered and/or renewed in Chile, Colombia, Ecuador, Mexico and Peru; LATAM A NECESSARY DESTINATION has been registered and/or renewed in United Kingdom; LATAM DESTINADAS A ESTAR JUNTAS has been registered and/or renewed in Peru.
LATAM VUELA NEUTRAL has been registered and/or renewed in Bolivia and Uruguay; SOSELVA has been registered and/or renewed in Peru; POSITIVE FS POSITIVE FLIGHT SPECIFIC has been registered and/or renewed in Canada.
LATAM RECICLE SUA VIAGEM has been registered and/or renewed in Brazil; LATAM RECICLA TU VIAJE has been registered and/or renewed in Bolivia, Chile, Paraguay and Uruguay.
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LATAM 1+1 COMPENSAR PARA CONSERVAR has been registered and/or renewed in Chile, Peru and Mexico; LATAM 1+1 OFFSET TO CONSERVE has been registered and/or renewed in Australia, United Kingdom and New Zealand.
LATAM SEGUNDO VUELO has been registered and/or renewed in Bolivia, Chile, Ecuador, Mexico, Peru, the European Union and Uruguay; LATAM SECOND FLIGHT has been registered and/or renewed in Australia, United Kingdom and New Zealand.
LATAM AVIÓN SOLIDARIO has been registered and/or renewed in Bolivia, Chile, Paraguay and Uruguay; LATAM AVIÃO SOLIDÁRIO has been registered and/or renewed in Brazil.
TAM has filed for trademark registration, registered or renewed the following trademarks in Brazil, LATAM; LATAM AIRLINES; LATAM AIRLINES BRASIL; LATAM CARGO, LATAM CARGO BRASIL; LATAM FIDELIDADE; LATAM MRO, LATAM PASS; LATAM TRADE; LATAM LINHAS AÉREAS; LATAM TRAVEL; LATAM VIAGENS; LATAM TRADE; LATAMPLAY; MERCADO LATAM; VAMOS LATAM. AJATO, BUSINESS CLASSIC, BUSINESS PLUS, CLASSIC, FIDELIDADE, FIRST, LAN. LAN CARGO, LAN COLOMBIA, LAN PERU, LAN.COM, LATAM AVIÃO SOLIDÁRIO, LATAM RECICLE SUA VIAGEM, LATAM SEM FRONTEIRAS, LATAM WALLET, MAX, MEGA PROMO, MUSEU TAM, PAIXÃO PELO RIO TAM, PREFERRED PARTNERS LAN, PROMO, RED REPORT, RELAX, TAM, TAM AIRLINES, TAM BUSCA PREÇO, TAM CARGO, TAM CARGO , ONVENCIONAL, TAM CARGO PRÓXIMO DIA, TAM CARGO PRÓXIMO VÔO, TAM ESPAÇO +, TAM ESPAÇO MAIS, , TAM EXPRESS, TAM MILOR, TAM PREMIUM BUSINESS, TAM PREMIUM ECONOMY, TAM SEARCH BY , RICE, TAM TARIFA LIGHT, TAM TARIFA MAX, TAM TARIFA PROMO, TAM TARIFA TOP, TAM VACATIONS, TAM VIAGENS.
D.Trend Information
For 2024, LATAM expects total passenger ASK growth to be between 12% and 14% versus 2023. International passenger growth for the full year 2024 is expected to be between 16% and 18%. LATAM Airlines Brazil’s domestic passenger ASKs in the Brazilian market are expected to increase between 7% and 9%. LATAM group’s domestic ASKs in Spanish-speaking countries (SSC) are expected to increase by approximately 12% to 14%.
Regarding cargo operations, LATAM expects cargo ATKs to increase between 10% and 12% for full year 2024, driven by the increases in LATAM’s international passenger capacity which result in additional capacity related to the space in the belly of those aircrafts.
LATAM’s goal is to continue to increase the efficiency of its operations with a leaner and more efficient cost structure, allowing LATAM to keep strengthening its network by launching new routes and destinations while keeping a strong focus on profitability and cash generation.
LATAM will continue to use fuel hedging programs and fuel surcharge in our operation to help minimize the impact of short-term movements in crude oil prices. As of December 31, 2023, LATAM had hedged approximately 35%, 32%, 30% and 22% of its estimated fuel consumption for the first, second, third and fourth quarters of 2024 respectively.
E.Critical Accounting Estimates
For information on the Company’s accounting estimated, see Note 4 of our audited consolidated financial statements below.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Directors and Senior Management
The LATAM Airlines Group's board of directors consists of nine directors who are elected every two years for two-year terms at annual regular shareholders’ meetings or, if necessary, at an extraordinary shareholders’ meeting, and may be re-elected. Pursuant to LATAM Airlines Group’s by-laws, the current board of directors elected at the extraordinary shareholders’ meeting held on November 15, 2022, shall remain in office for two years from its election. Upon expiration of such period, the board of directors shall summon a new extraordinary shareholders’ meeting to proceed with the election of the new board of directors. The board of directors elected at such new extraordinary shareholders’
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meeting shall exceptionally remain in office for a period longer than the two-year period established in the by-laws and shall remain in office until the first ordinary shareholders’ meeting held after the second anniversary of its appointment, at which time the board of directors shall be completely renewed in accordance with the applicable legal and regulatory provisions.
The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Scheduled meetings of the board of directors are held once a month and extraordinary board of directors’ meetings are called by the Chairman of the board of directors. Extraordinary meetings can be called by the Chairman, or when requested by one or more directors if the need for such a meeting is previously approved by the Chairman, unless the meeting is requested by a majority of the directors or the vice-chairman, in which case the meeting must be held without the previous approval of the Chairman.
On April 20, 2023, the ordinary shareholders’ meeting approved the new annual remuneration structure of the Board, for the fiscal year 2023 and until the next ordinary shareholders’ meeting scheduled to take place within the first quarter of 2024. On such meeting, the shareholders agreed on a fixed annual compensation of US$80,000 for each board member (US$160,000 in the case of the chairman). The aforementioned remuneration is payable monthly at the rate of one-twelfth of the amount, regardless of the number of board meetings directors attend, without limit of sessions.
In addition to the base remuneration, an additional remuneration was approved for each Board member within the shareholders’ meeting held on April 20, 2023, to be determined based on the following criteria:
a.From November 15, 2022 through November 15, 2023, each Board member was entitled to receive an additional remuneration equivalent to 9,226,234 units of remuneration or “URAs”, provided that the director served continuously as a member of the Board until the end of such period.
b.From November 16, 2023 through November 15, 2024, each Board member will be entitled to receive another additional amount equivalent to 9,226,234 URAs, provided that the director serves continuously as a member of the Board until the end of such period.
c.Additionally, members of the Board that are also members of the Board of Directors’ Committee and Audit Committee are entitled to certain fixed and variable compensation (see “Board of Directors’ Committee and Audit Committee” below).
If a member of the Board of Directors ceases to be in his/her position after November 15, 2023 but before November 15, 2024 (other than due to a legal inability to perform as a director of the company, or due to a supervening conflict of interest or other cause that doesn’t allow him/her to continue exercising his/her fiduciary duties as a director) such member would be entitled to receive the URAs referred to in letter a. above, as well as to a pro rata portion of the URAs referred to in letter b. above. In the event of a change of control of the Company, the director who maintains his/her status on the date the change of control occurs is entitled to receive the URAs referred to in letters a. and b. above. In the event the composition of the Board of Directors changes, each new director will be entitled to the variable compensation described above on a pro rata basis based on the months in which such director would held office, and each exiting director will be paid such compensation on a pro rata basis for the time that such director held his/her position in the respective period.
Each URA will be measured against the value of a share of LATAM Airlines Group, and will be payable considering the weighted average price of the shares of the Company during the 10 stock-exchange-business-days prior to their respective accrual date (i.e., November 15, 2023, November 15, 2024, or the date in which the member of the Board of Directors’ Committee ceased to be in its position, as applicable). The transactions in the Chilean stock exchanges and non-Chilean stock exchanges will be taken into consideration for purposes of determining such weighted average price (in the latter case, if and when our ADRs are relisted).
The amounts paid during 2023 as variable compensation as per letters (a), (b) and (c) above are:
| US$ | |||||
| URAs Directors | 481,000 | ||||
| URAs Board Committee | 53,000 | ||||
| Total | 534,000 | ||||
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Directors Michael Neruda, Bouk van Geloven, and Bornah Moghbel have waived their compensations as board members, members of the Audit Committee and members of the sub committees.
The following are LATAM Airlines Group’s current directors elected on November 15, 2022:
| Directors | Position | |||||||
Ignacio Cueto Plaza(1) | Director / Chairman | |||||||
| Bornah Moghbel | Director / Vice-Chairman | |||||||
Enrique Cueto Plaza(1) | Director | |||||||
| Frederico P. Fleury Curado | Independent Director | |||||||
| Antonio Gil Nievas | Director | |||||||
| Michael Neruda | Director | |||||||
| Bouk van Geloven | Director | |||||||
| Sonia J.S. Villalobos | Director | |||||||
| Alexander D. Wilcox | Director | |||||||
| Senior Management | Position | |||||||
| Roberto Alvo | Chief Executive Officer LATAM | |||||||
| Ramiro Alfonsín | Chief Financial Officer LATAM | |||||||
| Emilio del Real | Chief People Officer LATAM | |||||||
| Juan Carlos Menció | Chief Legal Officer | |||||||
| Paulo Miranda | Chief Customer Officer LATAM | |||||||
| Hernán Pasman | Chief Operations Officer LATAM | |||||||
| Juliana Rios | Chief Digital and IT Officer | |||||||
Martin St. George(2) | Chief Commercial Officer LATAM | |||||||
| Andrés Bianchi | Chief Cargo Officer LATAM | |||||||
| Juan José Tohá | Director of Corporate Affairs and Sustainability | |||||||
______________________________________________________
(1)Ignacio and Enrique Cueto are brothers. Both are members of the Cueto Group, which is defined in “Item 7” as a “Major Shareholder.”
(2)Martin St. George submitted his voluntary resignation effective February 23, 2024.
Biographical Information
Set forth below are brief biographical descriptions of LATAM Airlines Group’s directors and senior management. All of LATAM’s directors are Chilean citizens, with the exception of three members.
Directors
Ignacio Cueto has served as a member of LATAM Airlines Group’s board of directors and as Chairman since April 2017 and was re-elected to the board of directors of LATAM in April 2019, April 2020 and November 2022. Ignacio Cueto’s career in the airline industry extends over 30 years. In 1985, Ignacio Cueto assumed the position of Vice President of Sales at Fast Air Carrier, a national cargo company of that time. In 1985, Ignacio Cueto became Service Manager and Commercial Manager for the Miami sales office. Ignacio Cueto later served on the board of directors of Ladeco (from 1994 to 1997) and LAN (from 1995 to 1997). Ignacio Cueto served as President of LAN Cargo from 1995 to 1998, as Chief Executive Officer-Passenger Business from 1999 to 2005, and as President and Chief Operating Officer of LAN since 2005 until the merger with TAM in 2012. Ignacio Cueto later served as LAN’s CEO until April 2017. Ignacio Cueto also led the establishment of the different affiliates that the Company has in South America, as well as the implementation of key alliances with other airlines. Ignacio Cueto is a member of the Cueto Group. As of December 31, 2023, Ignacio Cueto shared in the beneficial owner of 30,389,446,225 common shares of LATAM Airlines Group (5.03% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
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Bornah Moghbel has been the Vice-Chairman of the Board at LATAM Airlines Group since November 2022. He is a Co-Founder and Partner of Sixth Street, a leading global investment firm that offers capital solutions to companies across all stages of growth. Based in New York, Bornah Moghbel leads Sixth Street’s corporate investing in public markets as well as its global asset investing business. After co-founding Sixth Street in 2009, Bornah Moghbel established the firm’s presence in Europe before returning to the United States in 2016. Prior to joining Sixth Street, Bornah Moghbel was an investor at Silver Point Capital and he began his career in the Financial Sponsors Group at UBS Investment Bank. He earned a B.A. in Economics, with high honors, and a minor in Business Administration from the University of California, Berkeley.
Enrique Cueto has served as a member of LATAM Airlines Group’s board of directors since April 2020. Formerly, he held the position of LATAM Airlines Group’s Chief Executive Officer (“CEO”), since the merger between LAN and TAM in June 2012. From 1983 to 1993, Enrique Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. From 1993 to 1994, Enrique Cueto was a member of the board of LAN Airlines. Thereafter, Enrique Cueto held the position of CEO of LAN until June 2012. Enrique Cueto is a member of the Board of the Endeavor foundation, an organization dedicated to the promotion of entrepreneurship in Chile. Enrique Cueto holds a degree in Economic Sciences from the Catholic University of Chile and is the brother of Ignacio Cueto, Chairman of the board. Enrique Cueto is also a member of the Cueto Group. As of December 31, 2023, Enrique Cueto is the beneficial owner of 30,389,446,225 common shares of LATAM Airlines Group (5.03% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
Frederico P. Fleury Curado has been on the Board of LATAM Airlines Group since November 2022, as an independent director. He has also been an independent director of Transocean since 2013, is Chair of its HSE and Sustainability Committee and a member of the Corporate Governance Committee. Frederico Curado is also an independent director at ABB since 2016 and is Chair of its Compensation Committee. He was CEO of Embraer from 2007 to 2016 and CEO of Ultrapar from 2017 to 2021. Frederico Curado holds a B.Sc in Mechanical-Aeronautical Engineering from the Aeronautics Institute of Technology (ITA) and an Executive MBA from the University of São Paulo, Brazil.
Antonio Gil Nievas joined LATAM Airlines Group’s Board of Directors in November 2022. He is also a board member at Sociedad Química y Minera de Chile S.A., a Chilean and NYSE publicly listed company. Antonio Gil Nievas has over 25 years of experience in strategic, management, financial and investment leadership roles at global, European and Latin American levels. He was CEO of Moneda Asset Management and worked at JP Morgan, serving as Managing Director, Global CFO and member of the global executive committees of several businesses, among other positions. Antonio Gil Nievas holds a MSc. and BSc. in industrial engineering with a major in electronics from ICAI (Universidad Pontificia Comillas, Spain). He obtained his MBA from Harvard Business School and also completed the Stanford Executive Program.
Michael Neruda has been a member of the Board at LATAM Airlines Group since November 2022. He is a Partner of Sixth Street, a leading global investment firm that offers capital solutions to companies across all stages of growth. Michael Neruda is Head of Restructuring and Distressed Investing and leads Sixth Street’s cross-platform investing in businesses where a combination of public markets expertise and private capital financing may be utilized to improve a company’s balance sheet. Prior to joining Sixth Street in 2015, he was a Director at Watershed Asset Management, where he led that firm’s investments in the consumer and energy sectors. Michael Neruda was previously an investment analyst at MHR Fund Management, Silver Point Capital and Merrill Lynch. He received a B.S. in Management Science and Engineering from Stanford University, and is a CFA Charterholder. Michael Neruda has served as a board member and investor representative on numerous corporate boards including with LATAM Airlines, Neiman Marcus, and Stallion Infrastructure Services, as well as serving on the Board of Governors of the Boys & Girls Clubs of San Francisco.
Bouk Van Geloven joined the Board of LATAM Airlines Group in November 2022. He is the Managing Director of the North American investment team at Strategic Value Partners LLC, which he joined in 2014, with a focus on sectors such as airlines, infrastructure, packaging and industrials. From 2011 to 2014, Bouk Van Geloven was at J.P. Morgan Cazenove in their Strategic M&A Advisory team. Bouk Van Geloven has two Master of Science degrees in Econometrics and Quantitative Finance from the Vrije Universiteit Amsterdam. He has served on multiple boards whilst at SVP and he is currently a member of the Boards of Klöckner Pentaplast and Southern Graphics Systems, and is part of the Advisory Committee of Mattress Firm.
Sonia J.S. Villalobos joined the Board of LATAM Airlines in August 2018. Sonia Villalobos is a Brazilian citizen and a regular member of the board of directors of Petrobras and Telefónica Vivo. She is a founding partner of the company Villalobos Consultoria since 2009 and a professor of post-graduate courses in finance at Insper since 2016. Between 2005 and 2009, she was the Manager of Funds in Latin America, in Chile, managing mutual and institutional funds of Larrain
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Vial AGF. From 1996 to 2002, Sonia Villalobos was responsible for Private Equity investments in Brazil, Argentina and Chile for Bassini, Playfair & Associates, LLC. As of 1989 she was Head of Research of Banco de Investimentos Garantia. She graduated in Public Administration from Escola de Administração de Empresas de São Paulo in 1984 and obtained a Master in Finance from the same institution in 2004. She was the first person to receive the CFA certification in Latin America, in 1994.
Alexander Wilcox has served on LATAM Airlines Group's board of directors since October 2020. Alexander Wilcox resides in the United States and has broad experience in the aviation industry where he has held executive positions in several airlines between 1996 and 2005. Alexander Wilcox is a cofounder and the CEO of JSX, a public charter commuter air carrier in the U.S. Alexander Wilcox holds a BA degree in Political Science and English from the University of Vermont.
Roberto Alvo has been the Chief Executive Officer (“CEO”) of LATAM since March 31, 2020. Prior to this, he worked as Chief Commercial Officer (“CCO”) of LATAM, in charge of managing the group’s passenger and cargo revenue. Previously, he was Vice-President of International and Alliances at LATAM Airlines, and Vice-President of Strategic Planning and Development. Roberto Alvo joined LAN Airlines in November 2001, where he served as Chief Financial Officer of LAN Argentina, as Manager of Development and Financial Planning at LAN Airlines, and as Deputy Chief Financial Officer of LAN Airlines. Before working for the group, Roberto Alvo held various positions at Sociedad Química y Minera de Chile S.A. He is a civil engineer, and holds an MBA from IMD Business School in Lausanne, Switzerland.
Ramiro Alfonsín is LATAM’s Chief Financial Officer (“CFO”), a position he has held since July 2016. Formerly, he worked 16 years for Endesa, a leading utilities company, in Spain, Italy and Chile, where he served as Deputy Chief Executive Officer and Chief Financial Officer for their Latin American operations. Before joining the utilities sector, he worked for five years in Corporate and Investment Banking for several European banks. Ramiro Alfonsin holds a degree in Business Administration from Pontificia Catholic University of Argentina.
Emilio del Real is the LATAM Chief People Officer, a position he took over in August 2005. Between 2003 and 2005, he was Human Resources Manager at D&S, a Chilean retail company. Between 1997 and 2003, he served in various positions at Unilever, including Human Resources Manager of Unilever Chile, and Manager of Training and Recruitment and Management Development for Latin America. Emilio del Real has a degree in Psychology from the Gabriela Mistral University.
Juan Carlos Menció has been the Chief Legal Officer at LATAM Airlines Group since September 1, 2014. Previously, he held the position of General Counsel for North America for LATAM Airlines Group and its affiliates, as well as General Counsel for its worldwide Cargo Operations, both since 1998. Prior to joining LATAM, he was in private practice in New York and Florida, representing various international airlines. Juan Carlos Menció obtained his Bachelor’s Degree in International Finance and Marketing from the School of Business at the University of Miami and his Juris Doctor Degree from Loyola University.
Paulo Miranda has been LATAM’s Chief Customer Officer since May 2019. Miranda has over 20 years of experience in the aviation industry, having held different positions, first at Delta Air Lines in the United States, and then at Gol Linhas Aéreas in Brazil. In his last role, Paulo Miranda was responsible for the Client Experience department, having previously worked in finance and alliances, as well as in the negotiation and implementation of joint ventures. Paulo Miranda holds a Bachelor of Business Administration degree from the Carlson School of Management, University of Minnesota, USA.
Hernán Pasman has been the Chief Operations Officer of LATAM Airlines Group since October 2015. He joined LAN Airlines in 2005 as a head of strategic planning and financial analysis of the technical areas. Between 2007 and 2010, Hernán Pasman was the Chief operating officer of LAN Argentina, then, in 2011 he served as Chief Executive Officer for LAN Colombia. Prior to joining the company, between 2001 and 2005, Hernán Pasman was a consultant at McKinsey & Company in Chicago. Between 1995 and 2001, Hernan held positions at Citicorp Equity Investments, Telefonica de Argentina and Argentina Motorola. Hernán Pasman holds a Civil Engineering degree from Instituto Tecnológico de Buenos Aires and an MBA from Kellogg Graduate School of Management (2001).
Juliana Rios been the Chief Digital and IT Officer of LATAM Airlines since January 2021. Juliana Rios has over 20 years of experience in services and technology in the financial and airline industries. Her career spans business transformation, mergers & acquisitions, digitization, IT, and large-scale project management, such as PSS migration. As Chief IT & Digital Officer, she leads LATAM Airlines’ digital transformation efforts. Prior to joining LATAM, Juliana Rios was a senior executive at Banco Santander, Brazil, spearheading the retail business and customer experience strategy.
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She headed integration programs in Brazil, Italy and the Netherlands. Juliana Rios holds a Bachelor degree in Business Administration and an MBA in Corporate Management from IBMEC, Brazil.
Martin St. George joined LATAM Airlines Group in 2020 as Chief Commercial Officer after a 30+ year career in the airline industry in both North America and Europe. Prior to joining LATAM, he ran a strategy-consulting firm for airlines and travel industry clients in the United States, the Caribbean and Europe, and served as acting CCO at Norwegian Air Shuttle ASA. From 2006 to 2019, he worked for JetBlue Airways in several positions in marketing and as COO. Martin St. George holds a degree in civil engineering from the Massachusetts Institute of Technology.
Juan José Tohá is a journalist with a specialty in Sustainability from Oxford University, as well as a Master’s and PhD in Communication from the Autonomous University of Barcelona. Juan José Tohá has vast experience in the design and implementation of communication strategies and the interaction of organizations with their environment. Juan José Tohá has served in FAO’s Latin America and Caribbean regional office in Santiago, Chile, and as Communications Manager for Codelco and BHP South America, among others. In 2019, he joined LATAM group as Director of Corporate Affairs and Sustainability, reporting directly to the CEO of LATAM group, and he coordinates the corporate strategy of Public Affairs, External Communications, and Sustainability.
Andrés Bianchi has been LATAM Cargo’s Chief Executive Officer since 2017. In this role he manages and coordinates the air freight activities of the Group’s affiliates. Andrés Bianchi joined LATAM Cargo in 2010 and has held various leadership roles prior to his current position, including VP Commercial North America, Europe & Asia, VP Cargo Network and VP of Finance. Prior to joining LATAM Cargo, he worked as a consultant at McKinsey and Company. Additionally, from 2002 to 2006 he served as LAN Airlines’ Head of Investor Relations. Andrés Bianchi holds a Business Administration degree from Pontificia Universidad Catolica de Chile and an MBA from The Wharton School of the University of Pennsylvania.
B.Compensation
For information on executive compensation, see “—Employees” below.
C.Board Practices
Our board of directors has nine members. The terms of each of our current directors will expire in 2 years from November 15, 2022, unless previously renewed in accordance to applicable law. See “—Directors and Senior Management” above.
Committees
Board of Directors’ Committee and Audit Committee
Pursuant to the Ley sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation Act”) and the Reglamento de Sociedades Anónimas (the “Regulation to the Chilean Corporate Law”, and together with the Chilean Corporation Act, the “Chilean Corporate Law”), LATAM Airlines Group must have a board of directors’ committee composed of no less than three board members. LATAM Airlines Group has established a three-person Board of Directors’ Committee, which, among other duties, is responsible for:
•examining the reports of LATAM’s external auditors, the balance sheets and other financial statements submitted by LATAM’s administrators to the shareholders, and issuing an opinion with respect thereto prior to their presentation to the shareholders for their approval;
•evaluating and proposing external auditors and rating agencies;
•proposing a general policy for managing conflicts of interest and pronouncing on the company’s general policies;
•reviewing internal control reports pertaining to related-party transactions;
•examining and reporting on all related-party transactions; and
•reviewing the salary scale of LATAM’s senior management.
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Under Chilean Corporate Law we are required, to the extent possible, to appoint a majority of independent board members to the board of directors committee. Pursuant to the Chilean Corporation Act, no person shall be considered independent who, at any time during the previous eighteen months: (1) maintained any relationship, interest or economic, professional, credit or commercial dependence, of a nature and relevant volume, with the company, other companies of the financial conglomerate to which the company belongs, its controller, or principal executive officer of any one of them, or was a director, manager, administrator, principal executive officer or advisor of such companies; (2) was a close relative (i.e., parents, father/mother in law, siblings, sisters/brothers in law), to any one of the persons referred to in 1 above; (3) was a director, manager, administrator or principal executive officer of non-profit organizations that received contributions or large donations from any individual referred to in clause 1 above; (4) was a partner or shareholder that possessed or controlled, directly or indirectly, 10% or more of the company’s capital; a director; manager; administrator or principal executive officer of entities who had provided consulting or legal services, for relevant amounts, or of external audit, to the persons referred to in 1 above; or (5) was a partner or shareholder who possessed or controlled, directly or indirectly, 10% or more of the company’s capital; a director; manager; administrator or principal executive officer of principal competitors, suppliers or clients of the company. Should there be more than three directors entitled to participate in the directors committee, the board of directors shall elect the members of the directors committee by unanimous vote.
Should the board of directors fail to reach an agreement, preference to be appointed to the committee shall be given to directors elected with the highest percentage of votes cast by shareholders that individually control or possess less than 10% of the company’s shares. If there is only one independent director, such director shall appoint the other members of the committee among non-independent directors. Such directors shall be entitled to exercise full powers as members of the committee. The Chairman of the Board of directors shall not be entitled to be appointed as a member of the committee nor any of its subcommittees, unless he is an independent director.
To be elected as independent director, the candidates must be proposed by shareholders that represent 1% or more of the shares of the company, at least 10 days prior to the date of the shareholders’ meeting called to that end. The candidate who obtains the highest number of votes shall be elected as independent director.
Pursuant to U.S. regulations, we are required to have an audit committee of at least three board members, which complies with the independence requirements set forth in Rule 10A-3 under the Exchange Act. Given the similarity in the functions that must be performed by our board of directors’ committee and the audit committee, our Board of Directors’ Committee serves as our Audit Committee for purposes of Rule 10A-3 under the Exchange Act.
As of December 31, 2023, all of the members of our Board of Directors’ Committee, which also serves as our Audit Committee, were independent under Rule 10A-3 of the Exchange Act. As of December 31, 2023, the committee members were Frederico P. Fleury Curado, Michael Neruda and Sonia J.S. Villalobos. We pay each member of the committee (other than to its Chairman) a fixed annual compensation of US$50,000. In turn, we pay to the Chairman of the Board of Directors’ Committee a fixed annual compensation of US$85,417. In each case, such compensation is payable monthly, regardless of the number of board meetings they attend, without limit of sessions.
Additionally, each member of the Board of Directors’ Committee, in his/her capacity as such, is entitled to a variable compensation of (i) 3,075,411 URAs for the period between November 15, 2022 and November 15, 2023; and (ii) 3,075,411 URAs for the period between November 16, 2023 and November 15, 2024; in each case, provided the committee member remains in its position during such period.
If a member of the Board of Directors’ Committee ceases to be in his/her position after November 15, 2023 but before November 15, 2024 (other than due to a legal inability to perform as a director of the company, or due to a supervening conflict of interest or other cause that doesn’t allow him/her to continue exercising his/her fiduciary duties as a director) such member would be entitled to receive the URAs referred to in clause (i) above, as well as to a pro rata portion of the URAs referred to in clause (ii) above. In the event of a change of control of the Company, the director who maintains his/her status as member of the Board of Directors’ Committee on the date the change of control occurs is entitled to receive the URAs referred to in clauses (i) and (ii) above. In the event the composition of the Board of Directors’ Committee changes, each new member will be entitled to the variable compensation described above on a pro rata basis based on the months in which such member would held office, and each exiting member will be paid such compensation on a pro rata basis for the time that such director held his/her position in the respective period.
LATAM Board Subcommittees
LATAM’s board of directors has also established four subcommittees to review, discuss and make recommendations to our board of directors. These include a Strategy & Sustainability Committee, a Leadership Committee, a Finance Committee and a Customers and Businesses Committee. The Strategy & Sustainability Committee focuses on
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the corporate strategy, current strategic issues and the three-year plans and budgets for the main business units and functional areas and high-level competitive strategy reviews. The Leadership Committee focuses on, among other things, group culture, high-level organizational structure, appointment of the LATAM CEO and his or her other reports, corporate compensation philosophy, compensation structures and levels for the LATAM CEO and other key executives, succession or contingency planning for the LATAM CEO and performance assessment of the LATAM CEO. The Finance Committee is responsible for financial policies and strategy, capital structure, monitoring policy compliance, taxation strategy and the quality and reliability of financial information. Finally, the Customers and Businesses Committee is responsible for setting the competitive strategies of the Customers and Commercial Vice Presidencies with a focus on sales, marketing, network and fleet initiatives, customer experience and revenue management. We pay each member of such subcommittees a fixed annual compensation of US$20,000 for each of the subcommittees of which the Director is a member, capped at US$40,000 per year for all the subcommittees of which the Director may be a member. Additionally, the Chairman of each committee is entitled to an additional fixed annual compensation of US$14,167, capped at US$28,334. These annual compensations are paid monthly at the rate of one-twelfth of the corresponding amount, regardless of the number of subcommittee sessions they attend to, without limit of sessions.
Corporate Governance Practices
The company follows strict procedures in order to comply with current legislation in the United States and in Chile on corporate governance. In this context, the Company has published a Manual for Corporate Practices which can be found on the LATAM investor relations website and incorporates the applicable legislation in its policies and decisions. Information obtained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of this annual report.
D.Employees
The following table sets forth the number of employees in various positions at the Company.
| As of December 31, | ||||||||||||||||||||
| Employees ending the period | 2023 | 2022 | 2021 | |||||||||||||||||
| Administrative | 5,149 | 4,628 | 4,372 | |||||||||||||||||
| Sales | 794 | 815 | 891 | |||||||||||||||||
| Maintenance | 5,459 | 5,083 | 4,541 | |||||||||||||||||
| Operations | 11,402 | 10,904 | 9,352 | |||||||||||||||||
| Cabin crew | 8,688 | 7,423 | 6,708 | |||||||||||||||||
| Cockpit crew | 4,076 | 3,654 | 3,250 | |||||||||||||||||
| Total | 35,568 | 32,507 | 29,114 | |||||||||||||||||
(1)As of December 31, 2023, approximately 52,5% of our employees worked in Brazil, 24,5% in Chile, 9,4% in Peru, 0,6% in Argentina, 6,4% in Colombia, 1,4% in Ecuador and 5,2% in the rest of the world.
Our salary structure is comprised of: (a) fixed payments (base salary and other fixed payments such as legal gratifications, local bonus, company seniority and others, depending on each country’s law and market practice); (b) short term incentives (associated with corporate, area and individual performance), applicable to our ground staff; (c) long term incentives (applicable to our senior executives (Directors and above).
According to the local law requirements, we make pension and social security contributions on behalf of our employees. Additionally, for our air staff and specialized professionals such as mechanics, we have fixed and variable payments, subject to the local collective agreements.
Regarding benefits, we usually provide life insurance and medical insurance, complementary to the coverage provided by the legal system. We also grant other benefits, according to local market practice (meal, transportation, maternal and paternal leave, etc.). In addition, we have a global staff travel program, which grants free and discounted tickets to our permanent employees.
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Long Term Incentive Compensation Program
(a) LP3 compensation plans (2020-2023)
The Company implemented a program for a group of executives, which existed until March 2023, and granted a benefit to executives which was vested provided a specific price (defined each year) of LATAM’s shares was met. However, benefits were never awarded to executives under this Compensation Plan because the share price required for the benefit to vest was below the initial target.
(b) CIP (Corporate Incentive Plan)
With the aim of incentivizing the retention of talent among the executives of the Company and in response to the exit of the Chapter 11 Procedure, our Board of Directors approved on April 25, 2023, to extend the grant of an extraordinary and exceptional incentive called Corporate Incentive Plan (“CIP”). The CIP contemplates incentives divided in three categories tailored to three different groups or categories of employees, depending on whether employees were hired by the Company directly or by other companies of the LATAM Airlines Group. These categories are as follows: Non-Executive Employees; Executives Not part of the Global Executive Meeting o “GEM”; and GEM Executives. Employees in each of these groups are only eligible for the CIP that corresponds to their respective category. The terms of each of these CIP categories were communicated to the respective employees between the months of January to December 2023. In all cases, the respective employees must have remained as such in the Company at the corresponding accrual date to qualify for these benefits.
During 2023, the amount accrued related to the CIP was US$66.8 million, which is recorded in the "Administrative expenses" line of the Interim Consolidated Statement of Income by Function. As of December 31, 2023, the amount of the CIP recorded in the consolidated statement of financial position is US$118.9 million.
For a detailed description, please see Note 22 (Employee Benefits) in our audited consolidated financial statements.
Compensation Recovery Policy
In October 2022, the SEC adopted rules, pursuant to Section 10D-1 of the Securities Exchange Act of 1934, as amended, requiring national securities exchanges and national securities associations, such as NYSE, to request listed companies to adopt a written compensation recovery (clawback) policy providing for the recovery, in the event of a required accounting restatement, of incentive-based compensation received by the Chief Executive Officer and certain other “executive officers” as defined in Rule 10D-1(d) under the Exchange Act. The amendment to NYSE’s listing rules became effective on October 2, 2023, and issuers listed on NYSE were required to adopt SEC-compliant clawback policies by December 1, 2023. Because we are currently delisted from NYSE, LATAM Airlines is not subject to this requirement. However, in anticipation of a potential relisting in the future, on December 14, 2023, our Board of Directors adopted LATAM Airlines’ compensation recovery policy, a copy of which is attached as Exhibit 97 to this annual report.
Labor Relations
LATAM has intensified its efforts to ensure that labor relations between the group, its employees and their legal representatives are carried out through dialogue and result in agreements that benefit both parties, while maintaining sound criteria for the operation, efficiency, sustainability and care for people. During 2023, the company renegotiated certain of its collective agreements in order to meet this criterion, and agreed to amend some of them to adapt them to new operational conditions and costs. The company continues to constantly evaluate possible labor conflicts and prepare respective contingency plans.
Below are the main milestones of our relationship with LATAM unions:
Chile
In 2023, 6 collective bargaining processes were carried out with unions, all of which were initiated voluntarily. The aforementioned collective bargaining processes involved: 3 collective bargaining processes with the Cabin Crew, 1 with the Pilot Union and 2 with the Administrative Unions, having a total of 1,603 employees involved in such negotiations. Of the 6 collective bargaining processes carried out, all were concluded within the ordinary term for such
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processes and approved by a large majority of their respective assemblies, which limit the possibility of contingencies for the operation.
Ecuador
In July 2019, the Company renewed its voluntary agreement with the pilot’s association in Ecuador, valid until July 2023. Then, this agreement was modified on June 26, 2020, with its term being extended until December 31, 2023.
Colombia
During 2023, we initiated 3 voluntary negotiations with the following unions: the Industrial Union of Aviation Workers (SINTRATAC), the Technicians Union (ACMA) and the Cabin Crew Union (ACAV), reaching successful agreements which will be in effect until December 2025. These agreements provided for additional well-being and improved economic conditions for our cabin crew, maintenance personnel and airport personnel.
The collective agreement reached in 2022 with the Pilots’ LATAM Colombia Union (ADALAC) remained in effect throughout 2023, and will be in effect until December 2024. Similarly, individual agreements signed in 2021 with the Command Crew, framed within post-pandemic savings initiatives, remained in effect until December 2023.
On February 8, 2023, the Arbitration Tribunal of Aerovías de Integración Regional S.A and the pilot's union (ACDAC) rendered an award resolving all of the outstanding negotiation points that were pending to be resolved between LATAM and the ACDAC since 2019, thereby settling the dispute. However, on June 13, 2023, the ACDAC re-opened negotiations and presented a new list of demands to LATAM related to the well-being, economic and operational aspects for ACDAC members. Negotiations concluded in October 2023 and the parties did not reach an agreement. Consequently, the dispute is expected to be resolved by an Arbitration Tribunal.
Peru
In Peru, there are seven unions that represent workers from different functional areas: pilots, cabin crew, aircraft technicians, flight dispatchers and airport workers. Our current collective agreements were signed for a duration of four years.
During 2023, LATAM Airlines Peru concluded successfully 5 collective bargaining processes with the following unions: 2 collective bargaining processes with the aircraft technicians, 1 collective bargaining process with the airport workers, 1 collective bargaining process with the flight dispatchers and 1 collective bargaining process with the pilots.
Brazil
Under Brazilian law, the term of collective bargaining agreements is limited to two years. LATAM Airlines Brazil’s collective bargaining agreements are valid for one year. LATAM Airlines Brazil has historically negotiated collective bargaining agreements with eleven unions in Brazil- one crew flight union, which represents pilots, copilots and flight attendants, and ten ground staff unions. In December 2023, LATAM Airlines Brazil successfully renegotiated collective bargaining agreements with all unions.
E.Share Ownership
As of December 31, 2023, the members of our board of directors and our executive officers as a group owned 5.03% of our shares. None of our directors or executive officers has voting rights that are different from any of our other shareholders. See “Item 7. Major Shareholders and Related Party Transactions.”
For a description of stock options granted to our executive officers, see “—D. Employees—Long Term Incentive Compensation Program.”
F.Disclosure of a registrant’s action to recover erroneously awarded compensation
Not applicable.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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A.Major Shareholders
As of December 31, 2023, Sixth Street Partners Management Company beneficially owned 27.91% of our common shares; Strategic Value Partners beneficially owned 16.02% of our common shares, Delta Air Lines owned 10.05% of our common shares; Qatar Airways Investments (UK) Ltd. owned 10.03% of our common shares and Cueto Group owned 5.03% of our common shares. This information and the information in the table below is based upon information from Schedules 13D and 13G filed with the SEC.
Ignacio Cueto (Chairman of the Board of LATAM), Enrique Cueto (LATAM board member) and certain other Cueto family members and entities controlled by them, comprise the Cueto Group. As of December 31, 2023, the Cueto Group beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act) 5.03% of LATAM Airlines Group’s common shares. Pursuant to a shareholders’ agreement entered into by the Backstop Creditors and the Backstop Shareholders in connection with LATAM’s emergence from bankruptcy proceedings, Delta Air Lines, Inc., Qatar Airways Investments (UK) Ltd. and the Cueto Group are entitled to elect four of the nine members of our board of directors. See “-Shareholders’ Agreements.”
The table below sets forth additional information regarding the beneficial ownership of our common shares, as of December 31, 2023, by our major shareholders or shareholder groups, and minority shareholders.
| Beneficial ownership (as of December 31, 2023) | |||||||||||
| Number of shares of common stock beneficially owned | Percentage of common stock beneficially owned | ||||||||||
| Shareholder | |||||||||||
| Sixth Street Partners Management Company | 168,669,825,995 | 27.91 | % | ||||||||
| Strategic Value Partners | 96,815,692,279 | 16.02 | % | ||||||||
| Delta Air Lines, Inc. | 60,722,284,826 | 10.05 | % | ||||||||
| Qatar Airways Investments (UK) LTD | 60,640,769,249 | 10.03 | % | ||||||||
| Cueto Group | 30,389,446,225 | 5.03 | % | ||||||||
| Others | 187,199,859,013 | 30.97 | % | ||||||||
| Total | 604,437,877,587 | 100.00 | % | ||||||||
As of December 31, 2023, other minority investors held 30.97% of our stock, with 0.01% of our capital stock held in the form of ADSs. It is not practicable for us to determine the number of ADSs or common shares beneficially owned in the United States. As of December 31, 2023, we had 2,100 record holders of our common shares. It is not practicable for us to determine the portion of shares held in Chile or the number of record holders in Chile. All of our shareholders have identical voting rights.
In the past three years, the only significant changes in the percentage of ownership held by any of LATAM’s current major shareholders (with more than 5% stake) have been represented by (i) a decrease in the Cueto group's ownership from 16.39% as of February 28, 2022 to 5.03% as of December 31, 2023, (ii) a decrease in Delta Airlines’ ownership from 20.00% as of February 28, 2022 to 10.05% as of December 31, 2023, and (iii) a decrease in Sculptor Capital's ownership from 6.52% as of January 31, 2023 to 2.48% as of December 31, 2023.
Shareholders’ Agreements
On or around the date of LATAM’s emergence from bankruptcy proceedings (the “Effective Date”) in accordance with the terms and conditions of the Chapter 11 plan confirmed by the Bankruptcy Court on June 18, 2022, the Backstop Creditors and the Backstop Shareholders entered into a Shareholders’ Agreement (the “Shareholders’ Agreement”) that provides, among other things, that: (A) for a two year term following the Effective Date, the parties to the Shareholders’ Agreement shall vote their shares so that the LATAM Airlines Group Board of Directors will comprise, both initially and in the filling of any vacancies thereon, nine directors, who in accordance with Chilean law, shall be appointed as follows:
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(i) five directors, including the vice-chair of the LATAM Airlines Group Board of Directors, nominated by the Backstop Creditors; and (ii) four directors, including the chair of the LATAM Airlines Group Board of Directors (who shall be a Chilean national), nominated by the Backstop Shareholders; and (B) for the first five years after the Effective Date, in the event of a wind-down liquidation or dissolution of LATAM Airlines Group, recoveries on the shares delivered in exchange for the New Convertible Notes Class B to the extent the conversion option thereunder is exercised, shall be subordinated to any right of recovery for any shares delivered or to be delivered upon conversion of the New Convertible Notes Class A or New Convertible Notes Class C, in each case held by the Backstop Creditors on the Effective Date.
Composition of the LATAM Airlines Group Board
On November 15, 2022, Ignacio Cueto Plaza was elected as President of the Board.
On November 15, 2022 the board of directors of LATAM Airlines Group was renewed, with Ignacio Cueto Plaza, Bornah Moghbel, Enrique Cueto Plaza, Frederico P. Fleury Curado, Antonio Gil Nievas, Michael Neruda, Bouk Van Geloven, Sonia J.S. Villalobos, and Alexander Wilcox elected.
Management of the LATAM Airlines Group
The CEO of LATAM Airlines Group is the highest ranked officer of LATAM and reports directly to the LATAM Airlines Group's board of directors. The CEO LATAM is tasked with the general supervision, direction and control of the business of LATAM. In the case of a departure of the current CEO LATAM, our board of directors will select the successor after receiving the recommendation of the Leadership Committee.
The head office of LATAM continues to be located in Santiago, Chile.
Voting Agreements, Transfers and Other Arrangements
Voting Agreements
The parties to the Holdco I shareholder’s agreement and TAM shareholders agreement have agreed to vote their voting shares of Holdco I and shares of TAM so as to give effect to the agreements with respect to representation on the TAM board of directors discussed above.
Transfer Restrictions
As provided in the aforementioned shareholders’ agreements, TEP Chile S.A. (“TEP Chile”) may sell all voting shares of Holdco I beneficially owned by it as a block, subject to satisfaction of the block sale provisions, if a release event (as described below) occurs. A “release event” will occur if (i) a capital increase of LATAM Airlines Group occurs, (ii) TEP Chile does not fully exercise the preemptive rights granted to it under applicable law in Chile with respect to such capital increase in respect of all of its restricted LATAM Airlines Group common shares, and (iii) after such capital increase is completed, the individual designated by TEP Chile for election to the board of directors of LATAM Airlines Group with the assistance of the Cueto Group is not elected to the board of directors of LATAM Airlines Group. As a result of the implementation of the restructuring set forth in our Plan of Reorganization, a “release event” occurred. However, no sale of the voting shares of Holdco I beneficially owned by TEP Chile has been implemented.
Restriction on transfer of TAM shares
LATAM agreed in the Holdco I shareholders’ agreement not to sell or transfer any shares of TAM stock to any person (other than our affiliates) at any time when TEP Chile owns any voting shares of Holdco I. However, LATAM will have the right to effect such a sale or transfer if, at the same time as such sale or transfer, LATAM (or its assignee) acquires all the voting shares of Holdco I beneficially owned by TEP Chile for an amount equal to TEP Chile’s then current tax basis in such shares and any costs TEP Chile is required to incur to effect such sale or transfer. TEP Chile has irrevocably granted us the assignable right to purchase all of the voting shares of Holdco I beneficially owned by TEP Chile in connection with any such sale.
Conversion Option
Pursuant to the Holdco I shareholders’ agreement, we have the unilateral right to convert our shares of non-voting stock of Holdco I into shares of voting stock of Holdco I to the maximum extent allowed under law and to increase our representation on the TAM and Holdco I boards of directors if and when permitted in accordance with foreign ownership control laws in Brazil and other applicable laws if the conversion would not have an adverse effect (as defined above under
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the “-Transfer Restrictions” section). In February 2019, we completed the procedures for the exchange of shares of Holdco I S.A., through which LATAM Airlines Group SA increased its indirect participation in TAM S.A., from 48.99% to 51.04%. This transaction was undertaken pursuant to the Provisional Measure No. 863/2018 issued by CADE on December 13, 2018, through which the participation of up to 100% of foreign capital in airlines in Brazil is permitted.
If we can purchase and/or convert our shares and we do not timely exercise our right to do so, then the controlling shareholders of TAM will have the right to put their shares of voting stock of Holdco I to us for an amount equal to the sale consideration.
Acquisitions of TAM Stock
The parties have agreed that all acquisitions of TAM common shares by LATAM Airlines Group, Holdco I, TAM or any of their respective subsidiaries from and after the effective time of the merger will be made by Holdco I.
B.Related Party Transactions
General
We have engaged in a variety of transactions with our affiliates, including entities owned or controlled by certain of our major shareholders. In the ordinary course of business, we render to and receive from related companies’ services of various types, including aircraft leases, aircraft interchanges, freight transportation and reservation services. Such transactions, none of which is individually material, are summarized in Note 32 to our audited consolidated financial statements for the fiscal year ended December 31, 2023.
On August 2, 2016, the board of directors approved the Policy on Control of Related-Party Transactions of LATAM Airlines Group and its subsidiaries, which provides that:
•Related-party means, among others, subsidiaries, affiliates, natural persons or legal entities with control of 10% or more of LATAM’s voting stock, vice presidents, directors or senior executives as well as their respective spouses, relatives, and companies in which said persons are either direct or indirect owners of 10% or more of LATAM’s voting stock, or in which they have held a position over the last 18 months.
•Related-Party Transactions can only be executed if said transactions are in LATAM’s interest and adjust to price, terms and conditions prevalent in the market for similar transactions with other third parties at the time of its approval.
Any and all negotiations, acts, contracts or operations between LATAM Airlines Group and a LATAM related-party or among 2 or more LATAM related-parties will be subject to the Policy.
On January 8, 2024, the CMF published General Rule 501, which establishes the minimum conditions that must be met by the policies typically adopted by boards of directors of stock corporations to facilitate the approval of transactions with related parties,. The rule will become effective in September 2024 and LATAM is already working on the corresponding updates.
C.Interests of experts and counsel
Not applicable.
ITEM 8 FINANCIAL INFORMATION
A.Consolidated Financial Statements and Other Financial Information
See “Item 18. Financial Statements” and pages F-1 through F-156.
Legal and Arbitration Proceedings
We are involved in routine litigation and other proceedings relating to the ordinary course of business. The following is a description of all the material legal and arbitration proceedings.
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International Cargo Airlines Investigations
In February 2006 the European Commission (“EC”), the Department of Justice of the United States (“DOJ”), the Canadian Competition Bureau (“CCB”), and the Brazilian Administrative Counsel for Economic Defense (“Conselho Administrativo de Defesa Econômica” or “CADE”), among others, initiated a global investigation of a large number of international cargo airlines (among them LAN Cargo) for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets. As previously announced, LAN Cargo reached plea agreements with the DOJ and the CCB, which included the payment of fines, in relation to such investigation.
On November 9, 2010, the EC imposed fines on 11 air carriers for a total amount of Th€799,400 (equivalent to approximately ThUS$1,100,000). The fine imposed against LAN Cargo and its parent company, LATAM Airlines Group, totaled Th€8,220 (equivalent to approximately ThUS$9,133). LATAM Airlines Group provisioned ThUS$25,000 during the fourth quarter of 2007 for such fines, and maintained this provision until the fine was imposed in 2010. In 2010, LATAM Airlines Group recorded a ThUS$14,100 gain (pre-tax) from the reversal of a portion of this provision. This was the lowest fine applied by the EC, which includes a significant reduction due to LATAM Airlines Group’s cooperation with the Commission during the course of the investigation. In accordance with European Union law, on January 24, 2011 this administrative decision was appealed by LAN Cargo and LATAM Airlines Group to the General Court in Luxembourg. Any judgment by the General Court may also be appealed to the Court of Justice of the European Union. The European Court of Justice overturned the Commission’s decision on December 16, 2015. On May 20, 2016, the EC confirmed that they had decided not to appeal the case and to issue a new decision with the aim of correcting the faults identified in the judgment by the European Court of Justice.
On March 17, 2017, the EC re-adopted its decision and imposed on LAN Cargo and its parent company, LATAM Airlines Group, a fine in the same amount, Th€8,200, as the original fine. On May 31, 2017 LAN Cargo and LATAM Airlines Group requested the annulment of this EC decision to the General Court of the European Union. In December 2017 LAN Cargo and LATAM Airlines Group presented their arguments for this annulment and in July 2019 LAN CARGO and LATAM participated in a hearing in the Court of Justice of the European Union in which we confirmed our request for annulment of the decision or instead a reduction of the amount of the fine. On March 30, 2022, the European Court issued its ruling and reduced the amount of our fine from ThUS$9,133 (Th€8,220) to ThUS$2,477 (Th€2,240). This ruling was appealed by LAN Cargo, S.A. and LATAM Airlines Group on June 9, 2022. All the other eleven airlines also appealed the ruling affecting them. The European Commission responded to our appeal on September 7, 2022. LAN Cargo, S.A. and LATAM Airlines Group responded to the Commission’s arguments on November 11, 2022. On December 17, 2020, the European Commission submitted proof of claim for the total amount of the fine ThUS$9,133 million or Th€8,220 to the Bankruptcy Court. The amount of this claim has been modified to ThUS$2,477. In January 2023, the European Commission replied to our defense, and on February 13, 2023, LAN Cargo, S.A. and LATAM Airlines Group requested the European Court to hold a hearing. The European Court set the hearing date as April 10, 2024.
Civil actions have also been initiated against many airlines, including LAN Cargo and LATAM Airlines Group, in various European countries (Great Britain, Norway, Holland and Germany). The two only judicial processes still pending in Norway and the Netherlands are in the evidentiary stages. There has been no activity in the Norway proceeding since January 2014. In the Netherlands proceeding, most of the airlines involved in this case have been forced to withdraw their claim against LATAM Airlines Group and LAN Cargo after their previous claim was annulled in Bankruptcy Court during Chapter 11. In this sense, Lufthansa, Lufthansa Cargo, British Airways, Air France, KLM, Martinair and Singapore have withdrawn their claim. The only claim pending against LATAM Airlines Group and LAN CARGO is by Thai Airways. The amounts are indeterminate.
On September 3, 2013, CADE published its decision to impose a fine of ThUS$51,000 against ABSA, after an investigation, commenced in 2008, against several cargo airlines and airlines officers over allegations of anticompetitive practices regarding fuel surcharges in the air cargo business. CADE also imposed fines upon a former Director and two former employees in the amounts of ThUS$1,000 and ThUS$510 respectively. On December 5, 2013 ABSA filed its application for Administrative Reconsideration before CADE. On December 19, 2014, CADE issued a new decision which reduced the fine against ABSA to ThUS$11,106 (R$53,868,685.82) (based on an exchange rate of US$1 = R$4.85). CADE also reduced the fines against ABSA’s Director and employees to US$169,080 and US$83,920, respectively (also based on an exchange rate of US$1 = R$4.85). ABSA has initiated a judicial appeal against the Union Federal seeking an additional reduction of the fine amount. In December 2018, a Federal Court Judge ruled against ABSA, indicating that it will not apply an additional reduction to the fine imposed. The court’s decision was published on March 12, 2019. On March 13, 2019, ABSA filed a motion seeking clarification of the federal court’s decision. On April 1, 2019, a response to the motions for clarification filed by ABSA was presented. On May 24, 2019, the motions for clarification of ABSA were not accepted.
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On June 18, 2019, an appeal was filed by ABSA. On August 14, 2019, CADE’s deadline for filing counter arguments was certified. On August 25, 2019, records were sent to the court. On the same date, the records were distributed to Desa Marli Marques Ferreira. On April 27, 2020, a petition was presented by ABSA attaching the renewal of the insurance-judicial policy. On April 19, 2021, a petition was presented by ABSA attaching the renewal of the insurance-judicial policy. On July 19, 2021, CADE filed a statement challenging the policy presented. On August 11, 2021, ABSA filed a petition with evidence of the regular status of the policy presented. On October 26, 2021, a decision was rendered determining the regularization of the policy by ABSA. On October 27, 2021, ABSA filed a petition reiterating the terms of its last petition, demonstrating the regularity of the policy presented. On February 8, 2022, ABSA was summoned to regularize the policy presented, by proving the existence of a reinsurance contract. On February 16, 2022, ABSA presented proof of reinsurance by Ezze Seguros. At the moment, the judgment of ABSA’s appeal is awaited.
Jose Marti Airport Complaint
On September 27, 2019 a lawsuit was filed against LATAM Airlines Group and American Airlines Inc. (“American”) in the U.S. District Court for the Southern District of Florida under the Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. Section 6021 et seq., (the “Helms-Burton Act”). Plaintiff Jose Ramon Lopez Regueiro alleged in the complaint that he holds an interest in the Jose Marti Airport which was confiscated by the Cuban government in 1959, and that LATAM Airlines Group unlawfully “trafficked” in the said property. The plaintiff sought all available statutory remedies, including the award of damages for the alleged trafficking in the expropriated property, plus reasonable attorney’s fees and costs incurred, treble damages, post-judgment interest, and any other relief deemed appropriate by the court. On April 6, 2020, the Court issued an Order of Temporary Suspension given the inability to proceed with the case on a regular basis as a result of the indefinite duration and restrictions of the global pandemic and required the parties to notify on a monthly basis of the possibility of proceeding.
The stay with respect to the claims against American was lifted and consequently American successfully obtained a dismissal from the Southern District court on the grounds that: (1) the property at issue in an Helms-Burton Act lawsuit must have been confiscated from a U.S. national, and (2) an Helms-Burton Act plaintiff must have been a U.S. national when he acquired his claim to the property or at least before the Helms-Burton Act’s enactment date, March 12, 1996.
The stay with respect to the claims against LATAM Airlines Group remained in place until the conclusion of the Chapter 11 proceedings. Plaintiff’s failure to file a proof of claim against LATAM Airlines Group under the Chapter 11 proceedings barred plaintiff from any claims against LATAM Airlines Group. As a result, the plaintiff agreed to dismiss his complaint with prejudice against LATAM Airlines Group. A status report was submitted to the Court confirming the same. The Court entered an order to dismiss the case on August 2, 2023.
Chapter 11 Proceedings
On May 26, 2020, the Initial Debtors individually filed a voluntary reorganization petition with Bankruptcy Court according to Chapter 11 of the Bankruptcy Code. On July 7 and 9, 2020, 9 additional affiliated debtors Subsequent Debtors, including TAM Linhas Aereas S.A., also filed a voluntary reorganization petition with the Court. On November 26, 2021, the Debtors submitted a joint reorganization plan, which was confirmed by the Court on June 18, 2022 (the “Confirmation Order”). The Debtors exited the Chapter 11 proceedings on November 3, 2022 (the “Effective Date”), and the proceedings were closed on June 29, 2023. Additional information regarding recent developments in the Chapter 11 proceedings can be found in “Item 4. Information on the Company —Business Overview— Recent Developments in 2022 involving our Chapter 11 Proceedings” and “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Chapter 11 Proceedings” in our 2022 Annual Report.
LATAM filed additional parallel and ancillary proceedings (including the recognition of the U.S. Chapter 11 proceedings) in the Cayman Islands, Colombia, Perú and Chile. As described further below, ancillary proceedings in Cayman Islands remain outstanding.
On May 26, 2020, LATAM Finance Limited and Peuco Finance Limited submitted separate requests for provisional liquidation in the Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which were accepted on May 27, 2020 by the Grand Court of the Cayman Islands. LATAM Finance Limited and Peuco Finance Limited filed several petitions to suspend the liquidation in 2020, 2021 and 2022, all of which were accepted by the court. Currently both proceedings remain open.
On July 7, 2020, Piquero Leasing Limited submitted a request for a provisional liquidation in Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of
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America, which was accepted on May 27, 2020 by the Grand Court of the Cayman Islands. Piquero Leasing Limited filed several petitions to suspend the liquidation in 2020, 2021 and 2022, all of which were accepted by the court. Currently the proceeding remains open.
Class Actions
Class Action filed by the National Corporation of Consumers and Users (“CONADECUS”)
On June 25, 2020, the National Corporation of Consumers and Users (“CONADECUS”) filed a class action against LATAM Airlines Group in the 23° Juzgado Civil de Santiago, for alleged breaches of the Law on Protection of Consumer Rights due to flight cancellations caused by the COVID-19 pandemic, requesting the nullity of alleged abusive clauses in consumer contracts, the imposition of fines and compensation for damages in defense of the interest of consumers. On July 4, 2020 we filed a motion to reverse the court’s ruling declaring the admissibility of the action filed by CONADECUS. On July 11, 2020 we requested the Court to comply with the Chilean Insolvency Court’s ruling to suspend the case in connection with the foreign reorganization procedure pursuant to the Chilean Insolvency Act, a request that was accepted by the Court. CONADECUS filed a motion for reconsideration and an appeal against this resolution should the motion for reconsideration be dismissed. The Court dismissed the reconsideration motion on August 3, 2020, but admitted the appeal. On December 22, 2022, LATAM Airlines Group filed a motion requesting the stay of the proceedings to be lifted, given the current state of the reorganization procedure. On December 30, 2022, CONADECUS agreed to LATAM Airlines Group’s request. On January 23, 2023, the Santiago Court of Appeals granted LATAM’s motion and lifted the stay. On November 24, 2023, the Court dismissed LATAM’s motion for reversal against the ruling that declared the action filed by CONADECUS admissible. On December 4, 2023, LATAM filed a statement of defense against said decision. The amount at the moment is undetermined.
Parallel to the lawsuit in Chile, on August 31, 2020, CONADECUS filed on appeal with the U.S. Bankruptcy Court because of the automatic suspension imposed by Section 362 of the U.S. Bankruptcy Code that, among other things, prohibits the parties from filing or continuing with claims that involve a preliminary petition against the Debtors. CONADECUS filed a petition to (i) stay the automatic suspension to the extent necessary to continue with the class action against LATAM Airlines Group in Chile, and (ii) request a joint hearing by the Bankruptcy Court in the U.S. and the Chilean Insolvency Court to hear the matters relating to the claims of CONADECUS in Chile. On September 16, 2020, the Debtors filed their objection against CONADECUS’ appeal and the Official Unsecured Creditors Committee presented a statement in support of the Debtors’ position. On December 18, 2020, the Bankruptcy Court partially granted CONADECUS’s request, only for purposes of allowing them to continue with their appeal and so that the Court of Appeals determine whether or not the suspension is appropriate under the Chilean Insolvency Act. On February 9, 2021, the Bankruptcy Court entered an order to lift the automatic stay to permit the continuation of CONADECUS’ appeal in Chile against the judicial approval of a class action settlement with the Chilean Association of Consumers and Users (“AGRECU”).
Class Action filed by the Chilean Association of Consumers and Users (“AGRECU”)
On July 7, 2020 we were notified of a lawsuit filed by AGRECU against LATAM Airlines Group for alleged breaches of the Law on Protection of Consumer Rights due to flight cancellations caused by the COVID-19 pandemic, requesting the nullity of alleged abusive clauses in consumer contracts, the imposition of fines and compensation for damages in defense of the interest of consumers. We filed our statement of defense on August 21, 2020. The 25° Juzgado Civil de Santiago admitted the statement of defense and convened the parties to a settlement hearing on October 1, 2020. A settlement was reached with AGRECU at that hearing that was approved by the Court on October 5, 2020. On October 7, 2020, the 25th Civil Court confirmed that the decision approving the settlement was final and binding. CONADECUS filed a brief on October 4, 2020 to become a party and oppose the agreement, which was dismissed on October 5, 2020. CONADECUS further petitioned for an official correction on October 8, 2020 and the annulment of all proceedings on October 22, 2020, which were dismissed, costs payable by CONADECUS, on November 16, 2020 and November 20, 2020, respectively. LATAM Airlines Group presented reports on the implementation of the agreement on May 19, 2021, November 19, 2021 and May 19, 2022, which concluded its obligation to report on that implementation. On December 28, 2022 the Civil Court ordered to dismiss the file. CONADECUS filed appeals against these decisions with the appellate court of Santiago, and arguments were made on March 8, 2023. In a decision dated August 8, 2023, the appellate court dismissed the appeals by CONADECUS, costs included. On August 26, 2023, CONADECUS appealed against the appellate court ruling, and on November 30, 2023, the Supreme Court declared CONADECUS’ petition inadmissible. On December 7, 2023, LATAM Airlines Group requested the appellate court to determine that the costs of the proceedings be borne by CONADECUS. CONADECUS currently has no petitions against the settlement reached between LATAM Airlines Group and AGRECU. The amount at the moment is undetermined.
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Class Action filed by the National Corporation of Consumers and Users (“CONADECUS”)
On September 21, 2023, LATAM Airlines Group was notified of a class action lawsuit filed by CONADECUS in a Chilean Court (23° Juzgado Civil de Santiago), for alleged breaches of the Law on Protection of Consumer Rights because of the cancellation of tickets for international flights purchased through travel agencies. CONADECUS petitioned for fines and damages in defense of the collective and/or diffuse interest of consumers. On September 30, 2023, LATAM Airlines Group filed a motion for reversal against the ruling that declared the action filed by CONADECUS admissible, which was dismissed by the Court on November 11, 2023. A decision on that appeal is pending at this time. The amount at the moment is undetermined.
Legal proceedings with the Antitrust Court in Chile (“TDLC”)
A preliminary injunction was filed by the Tourism Companies Trade Association of Chile seeking that LATAM’s New Distribution Capability (NDC) system cease to be implemented or, alternatively, that collection of the distribution cost recovery fee be suspended and that LATAM be forbidden to limit the inventory of tickets available through the indirect distribution channel. On May 24, 2023 the preliminary injunction was initially rejected. However, said resolution was overturned by the TDLC on June 8, 2023, and instead ordered a partial injunction only in terms of suspending the distribution cost recovery fee and prohibiting any unjustified limitation of the inventory of tickets available for the indirect distribution channel. On July 27, 2023, the TDLC issued a ruling favorable to LATAM, reversing the injunction.
On August 11, 2012, the Civil Aviation Administration (“JAC”) filed a petition for clarification with the TDLC regarding certain capacity and other transitory restrictions applicable to the Santiago-São Paulo under the Seventh Condition. The petition seeks to impose a temporary 5-year limitation on 23 frequencies assigned by the JAC to LATAM after the decision was issued.
LATAM filed a brief with the TDLC on August 27, 2023, petitioning that the JAC petition for clarification be dismissed because it was an improper request to change the Seventh Condition. The TDLC dismissed the JAC’s petition for clarification on September 13, 2023. The JAC filed an appeal against the TDLC’s ruling dismissing its petition for clarification on September 23, 2023. LATAM petitioned that said appeal by the JAC be declared inadmissible on September 30, 2023. The TDLC declared the appeal admissible on October 2, 2023, and LATAM filed a motion for reconsideration against that decision on October 7, 2023. The TDLC accepted LATAM’s motion for reconsideration on October 17, 2023, amended its previous ruling and dismissed the JAC’s petition for clarification. On October 23, 2023, the JAC presented an appeal to the Supreme Court requesting that the TDLC resolution be overturned and petitioned that its appeal be declared admissible. On November 3, 2023, LATAM became part of the de facto appeal and requested its rejection. On December 20, 2023, the TDLC sent a report to the Supreme Court with a summary of its decision on this matter. On January 6, 2024, the JAC presented a note in relation to the TDLC report. On January 9, 2024, LATAM presented a document in response to the JAC documentation before the same Court. The amount at the moment is undetermined.
In a separate but related process, JetSmart filed a non-contentious inquiry on September 26, 2023, in relation to the terms of the future public tender of aviation frequencies on the Santiago-Lima route. JetSmart requested an injunction to suspend the tender and maintain the aviation frequency assignments as currently held until the inquiry has been finalized. The TDLC declared the inquiry admissible on October 2, 2023, but only to begin a procedure to determine whether the rules in the terms of the public aviation frequency tender violate Chilean Decree Law 211, and dismissed the request for provisional measures. On October 4, 2023, JetSmart filed two motions for reconsideration against the TDLC’s decision. The JAC became a party to such motions on October 6, 2023 and LATAM became a party to the process on October 10, 2023, and it requested that the motions filed by JetSmart be dismissed. On October 16, 2023, the TDLC took into account the considerations presented by LATAM and rejected the two motions for reconsideration filed by JetSmart. On October 20, 2023 CONADECUS requested to become part of this process and requested the same injunction previously rejected twice by the TDLC. On October 23, 2023 LATAM submitted a brief to the TDLC requesting the rejection of said injunction now requested by CONADECUS. On October 23, 2023, a public auction was held by JAC for thirteen international frequencies for the Santiago - Lima route, LATAM won ten of thirteen of these routes. On October 24, 2023, JetSmart once again requested that an injunction be issued regarding the public tender of aviation frequencies on the Santiago-Lima route. On October 30, 2023, LATAM filed a brief requesting the dismissal of JetSmart’s new request for injunction. On November 2, 2023, the TDLC rejected the request for injunctions submitted by JetSmart and CONADECUS. On December 5, 2023, JetSmart complied with TDLC procedural order and published in the Chilean official newspaper a notice calling interested parties and stakeholders to submit information and opinions regarding
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JetSmart’s inquiry. On December 21, 2023, the FNE requested to be an intervening party in the process and requested to extend the deadline to provide background information. The TDLC accepted the postponement, leaving the deadline for providing information as February 5, 2024. On February 1, 2024, LATAM submitted a brief to TDLC advocating for its position and providing background information regarding JetSmart’s inquiry. The amount at the moment is undetermined.
Legal proceedings involving LATAM Airlines Peru
On January 26, 2023, LATAM Airlines Peru filed an appeal against the determination and fine resolutions issued by SUNAT for indirect disposal of income during the fiscal year 2015, for an aggregate amount of ThUS$185,987. Through Resolution of the National Taxpayer Intendency (Intendencia de Principales Contribuyentes Nacionales) N°. 4070340000928 dated December 19, 2023, SUNAT granted the appeal filed by the Company and, consequently, the previous resolutions were declared void. Currently, SUNAT is pending to issue the inspection requirements necessary to correct the invalidity defects declared by its agency.
Legal proceedings involving LATAM Airlines Brazil
TAM Linhas Aéreas S.A. is party to one action filed by relatives of victims of an accident that occurred in October 1996 involving one of its Fokker 100 aircraft, in addition to 22 actions filed by residents of the region where the accident occurred, who claimed pain and suffering, and a class action related to this accident. All suits have now been concluded except one suit brought by the association of residents of a local street in respect of which TAM has been found liable by the second instance court of São Paulo for damages to be assessed, subject to an appeal to the Superior Court. Most residents of the relevant street appear to have already been compensated through individual claims, which have been satisfied and thus should not be entitled to further compensation. No steps have been taken by any residents to try to obtain further compensation through the decision in favor of the residents’ association. Any further damages resulting from the aforementioned legal claim are covered by the civil liability guarantee provided for in TAM’s insurance policy with Itaú Unibanco Seguros S.A. (now Chubb Seguros).
In relation to the Airbus A320 aircraft (PR-MBK) accident of TAM Linhas Aéreas S.A. (TAM) at CGH on July 17, 2007, settlements were concluded directly between the insurers/reinsurers and the victims’ families, third parties and ex-employees. Almost all claims and suits have now been concluded and there is ongoing litigation against TAM relating to only one fatal victim and one third party land owner. The administrative action regarding the extent of the primary insurance coverage payable regarding victims on board the aircraft remains on appeal by TAM and the other defendants to the Superior Court in Brasília. No steps have been taken by any party to attempt preliminary execution of the second instance court decision and there should be sufficient grounds to defend any such action based on the releases signed by all claimants upon receiving final compensation. The insurance coverage with Itaú Unibanco Seguros S.A. (now Chubb Seguros) adequately covers all liabilities arising out of the accident, and therefore LATAM Airlines Brazil does not expect to incur in any additional expenses.
Tax related proceedings
In July, 2011, the Brazilian National Institute of Social Security ("INSS") issued a tax assessment notice requesting LATAM to pay certain charging amounts as a result of TAM Linhas Aereas’ lack of payment of the Airline Workers Fund, a tax charged monthly at the rate of 2.5% of an airline’s total payroll, between 2004 and 2012. TAM Linhas Aereas and other plaintiffs filed an ordinary claim with a request for injunctive relief against the INSS decision. The company made cash deposits to the Court of total amounts required to guarantee the debts allegedly owed. The administrative proceedings have been suspended until the conclusion of the judicial claim, which is still pending. The approximate adjusted value of amounts potentially due in such proceeding as of December 31, 2012 was ThUS$43,300. In the opinion of our legal advisors, the possibility for the court to rule against TAM Linhas Aereas is high. Therefore, we have established a provision for this litigation which amounts to ThUS$84,078 (R$407,778,562.13) as of December 31, 2023.
Since 1993, TAM Linhas Aereas S.A. is a plaintiff in a judicial claim against the Brazilian government seeking indemnity for damages arising out of the termination of an air transportation concession agreement that resulted in the freezing of TAM’s prices from 1988 to September 1993 in order to maintain operations with the prices set by the Brazilian government during that period. The process is currently being heard before the Federal Regional Court and judgment is pending an appeal by TAM. The amount of potential recovery is indeterminate at this time. The original amount is estimated at ThUS$44,100 (R$246,086,745.00). This sum is subject to delinquent interest since September 1993 and inflation adjustment since November 1994. Based on the opinion of TAM’s legal advisors, and recent rulings issued by the
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Brazilian Supreme Court of Justice in favor of airlines in similar cases (specifically, actions filed by Transbrasil and Varig), we believe that TAM’s likelihood of success is high, even if the court of second instance issued decision denying the claim. The Company is planning to appeal the court’s decision before the higher courts in Brazil (STJ and STF).We have not recognized these credits in our financial statements and will only do so if and when a positive decision is rendered final by the Court.
TAM Linhas Aereas S.A. filed an ordinary claim, with a request for early judgment, to discuss the legality of charging the Adicional das Tarifas Aeroportuárias (“Additional Airport Tariffs,” or “ATAERO”), which are charged at a rate of 50% on the value of tariffs and airport tariffs. A decision by the superior court is pending. The amount of potential recovery is indeterminate at this time. The decision by the superior court (STJ) is pending since May 2020.
A tax assessment was issued by the Brazilian IRS for the collection of Income Tax (“IRPJ”) and Social Contribution on Net Income (“CSLL”), and a fine of 150% and interest was imposed on TAM. In summary, the Brazilian Federal Revenue Service intends to levy IRPJ and CSLL on the alleged capital gain earned by TAM S.A. as a result of the reduction of the capital stock of the controlled company Multiplus S.A. As of December 31, 2023, the updated amount of the assessment and related fees was approximately ThUS$131,864 (R$639,541,367.35). The Administrative Court issued a second level decision overruling the tax assessment. This decision was challenged by the Brazilian Federal Revenue Service before the third level Administrative Superior Court, and was dismissed on November 7, 2023.
On October 29, 2018, the Brazilian Federal Revenue Service issued a tax assessment notice against TAM Linhas Aereas S.A. in the amount of ThUS$124,507 (R$603,862,080.72), due to alleged irregularities of the Company on social security contribution related to work accidents (“GILRAT,” former “SAT”) from November 2013 until December 2017. TAM Linhas Aereas S.A. has presented their defense to the Administrative Court, but on February 7, 2019 the court denied the defense and kept the tax assessment. The proceedings are now pending the judgment on the appeal filed before the second level Court (the “CARF”). On December 30, 2022, the Brazilian Federal Revenue Service issued a tax assessment notice against TAM Linhas Aereas S.A. in the amount of ThUS$18,974 (R$87,659,289.63), due to alleged irregularities of the Company on social security contribution related to GILRAT between January and December, 2018. TAM Linhas Aereas S.A. filed the administrative defense on January 27, 2023. In the opinion of our legal advisors, the possibility for the court to rule against TAM Linhas Aereas is high. However, the Company had won a similar case where the Brazilian Federal Revenue Service made the same assessment for irregularities on social security contributions between 2011 and 2012, and this assessment was overruled by the Administrative Court.
On December 12, 2019, the Brazilian Federal Revenue Service Brazilian issued a tax assessment on the amount of ThUS$43,256 (R$209,794,178.29) related to certain tax credits on about “PIS COFINS” (Federal Social Contributions Levied on Gross Revenue) during 2014. The company filed its defense, which was denied in September 2020. The appeal filed by the Company is pending judgment.
On February 26, 2016, SNEA (Sindicato Nacional das Empresas Aéreas) on behalf of their members: Tam Linhas Aereas S/A, Absa Aerolinhas Brasileiras S/A, Gol Linhas Aéreas S/A and Azul Linhas Aéreas Brasileiras S/A filed an ordinary claim in the Federal Court of the Federal District to discuss the 72% increase in the values of TAT-ADR (Aerodrome Control Fee) and TAT-APP (Approach Control Fee) imposed by the Department of Airspace Control (“DECEA”). Regarding this increase in tariffs, the companies (Tam Linhas Aéreas S/A and Absa Aerolinhas Brasileiras S/A) are currently making judicial deposits monthly and attemp to replace these deposited amounts with guarantee insurances. On October 13, 2017, the Federal District Court of first instance ruled against SNEA’s claim maintaining the legality of the 72% increase in the values of the fees. On January 30, 2024, SNEA obtained a favorable court decision from the 2nd Instance (TRF1), regarding its appeal. The SNEA awaits the publication of the decision to assess the viability of possible appeals.
For additional relevant legal proceedings relating to the ordinary course of the business, please see Note 30 (Contingencies) in our audited consolidated financial statements.
On February 7, 2024, the Brazilian Federal Revenue Service issued a tax assessment against TAM Linhas Aéreas on the amount of ThUS$52,281 (R$253,564,994.72) related to certain tax credits on about “PIS COFINS” (Federal Social Contributions Levied on Gross Revenue) during the period of 2019/2020. The company will be filing an administrative response disputing the total amount of the tax assessment. Please see Note 35 in our audited consolidated financial statements.
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Dividend Policy
In accordance with the Chilean Corporate Law, LATAM must distribute cash dividends equal to at least 30% of its annual consolidated net profits calculated in accordance with IFRS Accounting Standards, provided no financial losses are carried over and subject to limited exceptions. If there is no net income in a given year, LATAM can elect but is not legally obligated to distribute dividends out of retained earnings. The board of directors may declare interim dividends out of profits earned during such interim period to the extent the economic situation of the Company allows for such distribution. Pursuant to LATAM’s by-laws, the annual cash dividend is approved by the shareholders at the annual ordinary shareholders’ meeting held during the first four months of the following year during which the dividend is proposed. All outstanding common shares are entitled to share equally in all dividends declared by LATAM, except for the shares that have not been fully paid by the shareholder after being subscribed.
We declare cash dividends in U.S. dollars, but make dividend payments in Chilean pesos, converted from U.S. dollars at the observed exchange rate five business days prior to the day we first make payment to shareholders. Holders of ADSs will be entitled to receive dividends on the underlying common shares to the same extent as holders of common shares. Holders of ADRs on the applicable record dates will be entitled to receive dividends paid on the common shares represented by the ADSs evidenced by such ADRs. Dividends payable to holders of ADSs will be paid by us to the depositary in Chilean pesos and remitted by the depositary to such holders net of foreign currency conversion fees and expenses of the depositary and will be subject to Chilean withholding tax currently imposed at a rate of 35% (subject to credits in certain cases as described under “Item 10. Additional Information—Taxation-Cash Dividends and Other Distributions”). The amount of U.S. dollars distributed to holders of ADSs may be adversely affected by a devaluation of the Chilean currency that may occur before such dividends are converted and remitted. Owners of the ADSs will not be charged any dividend remittance fee by the depositary with respect to cash dividends.
Chilean law requires that holders of shares of Chilean companies that are not residents of Chile register as foreign investors under one of the foreign investment regimes established by Chilean law in order to have dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market (Mercado Cambiario Formal).
The table below sets forth the cash dividends per common share and per ADS paid by LATAM, as well as the number of common shares entitled to such dividends, for the years indicated. Dividends per common share amounts reflect common share amounts outstanding immediately prior to the distribution of such dividend.
| Dividend for year: | Payment Date(s) | Total dividend payment | Number of common shares entitled to dividend | Cash dividend per common share | Cash dividend per ADS | |||||||||||||||||||||||||||
| (U.S. dollars) | (in millions) | (U.S. dollars) | (U.S. dollars) | |||||||||||||||||||||||||||||
| 2020 | n.a. | $ | 0.0 | 606.41 | $ | 0.0 | $ | 0.0 | ||||||||||||||||||||||||
| 2021 | n.a. | $ | 0.0 | 606.41 | $ | 0.0 | $ | 0.0 | ||||||||||||||||||||||||
| 2022 | n.a. | $ | 0.0 | 606,407.69 | $ | 0.0 | $ | 0.0 | ||||||||||||||||||||||||
B.Significant Changes
Except as otherwise disclosed in our audited consolidated financial statements and in this annual report, there have been no significant changes in our business, financial conditions or results of operations since December 31, 2023.
ITEM 9 THE OFFER AND LISTING
A.Offer and Listing Details
The principal trading market for our common shares is the Santiago Stock Exchange (“SSE”). The common shares have been listed on the SSE under the symbol “LAN” since 1989, and the ADSs were listed on the NYSE under the symbol “LFL” on November 7, 1997. LATAM was delisted from the NYSE on June 22, 2020, following its filing for voluntary protection under Chapter 11 of the Bankruptcy Code. As of the date of this annual report, the ADSs are traded in the over-the-counter market, which is a less liquid market, and our ADR program, with JP Morgan Chase Bank, N.A. as depositary,
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is not open for issuances. There is no defined timeline for re-opening the ADR program or for returning to the U.S. public markets.
In August 2022, LATAM filed a registration statement on Form F-1 for the proposed resale of its common shares in the form of ADSs pursuant to the Registration Rights Agreement entered into by and among LATAM, the Backstop Creditors and the Backstop Shareholders. LATAM then filed an amendment to its registration statement on Form F-1 in October 2022. On August 30, 2023, LATAM filed a request for withdrawal of the registration statement. There is no defined timeline for the effectiveness of the registration statement.
As of December 31, 2022, the Company’s statutory capital was represented by 606,407,693,000 shares, all issued, ordinary and without nominal value. On September 6, 2023, the Company's statutory capital was reduced as of right, effective as of the same date.
As of December 31, 2023, the Company’s statutory capital is represented by 604,441,789,335 shares, all issued, ordinary and without nominal value. The Company's statutory capital is the sum of US$6,539,758,049.96, divided into 604,441,789,335 shares, of the same series, with no par value, of which: (i) US$6,539,715,726.81 represented by 604,437,877,587 shares, are fully subscribed and paid, including common shares represented by ADSs; and (ii) US$42,323.16, represented by 3,911,748 shares, to be subscribed and paid in full and exclusively for the conversion of 42,398 Series H Convertible Bonds (ex class B) pending conversion.
B.Plan of Distribution
Not applicable.
C.Markets
Trading
Chile
The Chilean stock market, which is regulated by the CMF under Law 18,045 of October 22, 1981, as amended, which we refer to as the “Securities Market Act”, is one of the most developed among emerging markets, reflecting the particular economic history and development of Chile. The Chilean government’s policy of privatizing state-owned companies, implemented during the 1980s, led to an expansion of private ownership of shares, resulting in an increase in the importance of stock markets. Privatization extended to the social security system, which was converted into a privately managed pension fund system. These pension funds have been allowed, subject to certain limitations, to invest in stocks and are currently major investors in the stock market. Some market participants, including pension fund administrators, are highly regulated with respect to investment and remuneration criteria, but the general market is less regulated than the U.S. market with respect to disclosure requirements and information usage.
Equities, closed-end funds, fixed-income securities, short-term and money market securities, gold and U.S. dollars are traded on the SSE. In 1991, the SSE initiated a futures market with two instruments: U.S. dollar futures and Selective Shares Price Index, or IPSA, futures. Securities are traded primarily through an open voice auction system; a firm offers system or daily auctions. Trading through the open voice system occurs on each business day from 9:30 a.m. to 4:00 p.m. The SSE has an electronic system of trade, called Telepregón HT, which operates continuously for stocks trading in high volumes from 9:30 a.m. to 4:00 p.m. The Chilean Electronic Stock Exchange operates continuously from 9:30 a.m. to 4:00 p.m. each business day. In February 2000, the SSE Off-Shore Market began operations. In the Off-Shore Market, publicly offered foreign securities are traded and quoted in U.S. dollars.
D.Selling Shareholders
Not applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
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ITEM 10 ADDITIONAL INFORMATION
This Item reflects legal amendments affected by Chilean Law No. 20,382 on Corporate Governance, which was enacted on October 13, 2009, and came into effect on October 20, 2009, and Chilean Law No. 20,552, which modernized and encouraged competition in the financial system, which was enacted on November 6, 2011 and came into effect on December 17, 2011.
A.Share Capital
Not applicable.
B.Memorandum and Articles of Association
Set forth below is information concerning our share capital and a brief summary of certain significant provisions of our by-laws and Chilean law. This description contains all material information concerning the common shares but does not purport to be complete and is qualified in its entirety by reference to our by-laws, the Chilean Corporate Law and the Securities Market Law, each referred to below. For additional information regarding the common shares, reference is made to our by-laws, a copy of which is included as Exhibit 1.1 to this annual report on Form 20-F.
Organization and Register
LATAM Airlines Group is a publicly held stock corporation (Sociedad Anónima Abierta) incorporated under the laws of Chile. LATAM Airlines Group was incorporated by a public deed dated December 30, 1983, an abstract of which was published in the Chilean Official Gazette (Diario Oficial de la República de Chile) No. 31,759 on December 31, 1983, and registered on page 20,341, No. 11,248 of the Santiago, Chile, Commerce Registry (Registro de Comercio de Santiago, Chile) for the year 1983. Our corporate purpose, as stated in our by-laws, is to provide a broad range of transportation and related services, as more fully set forth in Article Four thereof.
General
Shareholders’ rights in a Chilean corporation are generally governed by the company’s by-laws and the Chilean Corporate Law. Article 22 of the Chilean Corporation Act states that the purchaser of shares of a corporation implicitly accepts its by-laws and any prior agreements adopted at shareholders’ meetings. Additionally, the Chilean Corporate Law regulates the government and operation of corporations (“sociedades anónimas,” or S.A.) and provides for certain shareholder rights. Article 137 of the Chilean Corporation Act provides that the provisions of the Chilean Corporation Act take precedence over any contrary provision in a corporation’s by-laws. The Chilean Corporate Law and our by-laws also provide that all disputes arising among shareholders in their capacity as such or between us or our administrators and the shareholders may either be submitted to arbitration in Chile or to the courts of Chile at the election of the plaintiff initiating the action. Despite the foregoing, it is forbidden for certain individuals (directors, senior managers, administrators and main executives of the corporation, and any shareholder that directly or indirectly holds shares whose book or market value exceed 5,000 UF at the moment of filing of the action) from submitting such action before the ordinary courts, thus obligating them to proceed with arbitration in all situations. Finally, Decree-Law No. 3,500 on Pension Fund Administrators, which allows pension funds to invest in the stock of qualified corporations, indirectly affects corporate governance and prescribes certain rights of shareholders. The Chilean Corporation Act sets forth the rules and requirements under which a corporation is deemed to be “publicly held.” Article 2 of the Chilean Corporation Act defines publicly held corporations as corporations that register their shares with the Registro de Valores (Securities Registry) of the CMF. Article 2 also indicates that corporations must register their shares with the Securities Registry in the event that they have had more than 2,000 shareholders (or such higher number established by the CMF through a general rule, provided that such number does not compromise public faith, taking into account the type of shareholder, nature of the company or similar circumstances) registered in the shareholders registry for twelve consecutive months.
The framework of the Chilean securities market is regulated by the CMF under the Securities Market Act and the Chilean Corporate Law, which imposes certain disclosure requirements, restricts insider trading, prohibits price manipulation and protects minority investors. In particular, the Securities Market Act establishes requirements for public offerings, stock exchanges and brokers and outlines disclosure requirements for corporations that issue publicly offered securities.
Ownership Restrictions
Under Articles 12 and 20 of the Securities Market Act and General Rule 269 issued by the CMF in 2009, certain information regarding transactions in shares of publicly held corporations must be reported to the CMF and the Chilean
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stock exchanges on which the shares are listed. Since the ADRs are deemed to represent the shares underlying the ADSs, transactions in ADRs will be subject to those reporting requirements. Among other matters, the beneficial owners of ADSs that directly or indirectly hold 10% or more of the subscribed capital of LATAM Airlines Group, or that reach or exceed such percentage through an acquisition, are required to report to the CMF and the Chilean stock exchanges, the day following the event:
•any acquisition or disposition of shares; and
•any acquisition or disposition of contracts or securities, which price or performance depends on the price variation of the LATAM Airlines Group’s shares.
These obligations are extended (i) to certain individuals (immediate family, next of kin and others) if the ADS holder is a natural person; (ii) to any entity controlled by the holder, if the ADS is a legal entity; and (iii) to groups, if a holder has any joint action agreement with other holders and the group reaches or exceeds the cited threshold.
In addition, majority shareholders must state in their report whether their purpose is to acquire control of the company or if they are making a financial investment.
Under Article 54 of the Securities Market Act and under CMF regulations, persons or entities that intend to acquire control, whether directly or indirectly, of a publicly held corporation, must follow certain notice requirements, regardless of the acquisition vehicle or procedure or whether the acquisition will be made through direct subscriptions or private transactions. In the first place, the potential acquirer must send a written communication to the target corporation, any companies controlling or controlled by the target corporation, the CMF and the Chilean stock exchanges on which the target’s securities are listed, stating, among other things, the person or entity purchasing or selling and the price and material conditions of any negotiations. Subsequently, the potential acquirer must also inform the public of its planned acquisition by means of a publication in two Chilean newspapers with national distribution and by uploading such notice to the acquirer’s website, if available. Both requirements shall be met at least ten business days prior to the date on which the acquisition transaction is to close, and in any event, as soon as negotiations regarding the change of control have been formalized or when confidential information or documents concerning the target are delivered to the potential acquirer. The notices must state, among other things, the person or entity purchasing or selling and the price and conditions of any negotiations.
In addition to the foregoing, Article 54A of the Securities Market Act requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a publicly traded company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
Consequently, a beneficial owner of ADSs intending to acquire control of LATAM Airlines Group will be subject to the foregoing reporting requirements.
The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.
Title XXV of the Securities Market Act on tender offers and CMF regulations provide that certain transactions entailing the acquisition on control of a publicly held corporation must be carried out through a tender offer. In addition, Article 199 bis of the Chilean Securities Market Act extends the obligation to make a tender offer for the remaining outstanding shares to any person, or group of persons with a joint action agreement, that, as a consequence of the acquisition of shares, becomes the owner of two-thirds or more of the issued shares with voting rights of a publicly held corporation. Such tender offer must be effected within 30 days from the date of such acquisition.
Article 200 of the Securities Market Act prohibits any shareholder that has taken control of a publicly traded company from acquiring, for a period of 12 months from the date of the transaction that granted it control of the publicly traded company, a number of shares equal to or higher than 3.0% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on the floor of a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.
Title XV of the Securities Market Act sets forth the basis for determining what constitutes a controlling power, a direct holding and a related party.
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Capitalization
Under Chilean law, the shareholders of a corporation, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in the corporation’s share capital. When an investor subscribes issued shares, the shares are registered in that investor’s name even without payment, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and returns of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends or distributions of capital despite not having paid for the subscribed shares. The investor becomes eligible to receive dividends once it has paid for the shares, or, if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro rata portion of the dividends declared with respect to such shares, unless the company’s by-laws provide otherwise. If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the company is entitled under Chilean law to auction the shares on the appropriate stock exchange, and it has a cause of action against the investor to recover the difference between the subscription price and the price received for the sale of those shares at auction. However, until such shares are sold at auction, the investor continues to exercise all the rights of a shareholder (except the right to receive dividends and returns of capital, as noted above). Regarding shares issued but not paid for within the period determined by the extraordinary shareholders’ meeting for their payment (which period cannot exceed three years from the date of such shareholders’ meeting), until January 1, 2010 they were canceled and no longer available for subscription and payment. As of January 1, 2010, the board of directors of LATAM Airlines Group has a legal obligation to initiate the necessary legal actions to collect the unpaid amounts, unless the shareholders’ meeting which authorized the capital increase allowed the board to abstain from taking such action by a vote of two thirds of the issued shares, in which case the former rule still applies. Once the foregoing legal actions are exhausted, the board of directors shall propose to the shareholders’ meeting the appropriate capital adjustment measures, to be decided by simple majority. Fully paid shares are not subject to further calls or assessments or to liabilities of LATAM Airlines Group.
As of December 31, 2023, the Company’s statutory capital is represented by 604,441,789,335 ordinary shares without nominal value. As of the same date, LATAM had a total of 604,437,877,587 shares subscribed and paid; and the balance, corresponding to 3,911,748 shares underlying convertible bonds issued (still unconverted as of such date) as part of LATAM’s capital increase approved in July 5, 2022, is pending subscription and payment.
Chilean law recognizes the right of corporations to issue shares of common and preferred stock. To date, we have issued and are authorized by our shareholders to issue only shares of common stock. Each share of common stock is entitled to one vote.
Preemptive Rights and Increases in Share Capital
Chilean Corporate Law requires Chilean corporations to offer existing shareholders the right to subscribe a sufficient number of shares to maintain their existing percentage of ownership in a company whenever that corporation issues new shares for cash, except for up to 10% of the subscribed shares arising from the capital increase which may be designated to employee compensation pursuant to article 24 of the Chilean Corporation Act. Under this requirement, any preemptive rights will be offered by us to the depositary as the registered owner of the common shares underlying the ADSs, but holders of ADSs and shareholders located in the United States will not be allowed to exercise preemptive rights with respect to new issuances of shares by us unless a registration statement under the Securities Market Act is effective with respect to those common shares or an exemption from the registration requirements thereunder is available.
On September 13, 2022, we commenced preemptive rights offerings in Chile for New Convertible Notes and ERO New Common Stock (each as defined in the Plan), which offerings concluded on October 12, 2022. In the case of potential subsequent preemptive rights, we intend to evaluate the costs and potential liabilities associated with the preparation and filing of a registration statement with the SEC, as well as the indirect benefits of enabling the exercise by the holders of ADSs and shareholders located in the United States of preemptive rights.
When preemptive rights are not made available to ADS holders, the depositary may sell those holders’ preemptive rights and distribute the proceeds thereof if a secondary market for such rights exists and a premium can be recognized over the cost of such sale. In the event that the depositary does not sell such rights at a premium over the cost of any such sale, all or certain holders of ADRs may receive no value for the preemptive rights. Amounts received in exchange for the sale or assignment of preemptive rights relating to shares of our common stock will be taxable in Chile and in the United States. See “Item 10. Additional Information—E. Taxation-Chilean Tax—Capital Gains.” If the rights cannot be sold, they will expire and a holder of our ADSs will not realize any value from the grant of the preemptive rights. In either case, the equity interest of a holder of our ADSs in us will be diluted proportionately. Thus, the inability of holders of ADSs to exercise preemptive rights in respect of common shares underlying their ADSs could result in a change in their percentage ownership of common shares following a preemptive rights offering.
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Under Chilean law, preemptive rights are freely exercisable, transferable or waived by shareholders during a 30-day period commencing upon publication of the official notice announcing the start of the preemptive rights period in the newspaper designated by the shareholders’ meeting. The preemptive right of the shareholders is the pro rata amount of the shares registered in their name in the shareholders’ registry of LATAM Airlines Group as of the fifth business day prior to the date of publication of the notice announcing the start of the preemptive rights period. During such 30-day period (except for shares as to which preemptive rights have been waived), Chilean companies are not permitted to offer any newly issued common shares for sale to third parties. For that 30-day period and an additional 30-day period, Chilean publicly held corporations are not permitted to offer any unsubscribed common shares for sale to third parties on terms that are more favorable to the purchaser than those offered to shareholders. At the end of such additional 30-day period, Chilean publicly held corporations are authorized to sell non-subscribed shares to third parties on any terms, provided they are sold on a Chilean stock exchange.
Directors
Our by-laws provide for a board of nine directors. Compensation to be paid to directors must be approved by vote at the annual shareholders’ meeting. We hold elections for all positions on the board of directors every two years. Under our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion his or her votes among any number of nominees. These voting provisions currently ensure that a shareholder owning more than 10% of our outstanding shares is able to elect at least one representative to our board of directors.
Under the Chilean Corporate Law, transactions of a publicly-held corporation with a “related” party must be conducted on an arm’s-length basis and must satisfy certain approval and disclosure requirements which are different from the ones that apply to a privately-held company. The conditions apply to the publicly-held corporation and to all of its subsidiaries.
These transactions include any negotiation, act, contract or operation in which the publicly-held corporation intervenes together with either (i) parties which are legally deemed related pursuant to article 100 of the Chilean Securities Market Act, (ii) a director, senior manager, administrator, main executive or liquidator of the company, either on their own behalf or on behalf of a third party, including those individuals’ spouses or close relatives, (iii) companies in which the foregoing individuals own at least 10% (directly or indirectly), or in which they serve as directors, senior managers, administrators or main executives, (iv) parties indicated as such in the publicly-traded company’s by-laws, or identified by the board of directors’ committee or (v) those who have served as directors, senior managers, administrators, main executives or liquidators of the counterparty in the last 18 months and are now serving in one of those positions at the publicly-traded company.
Pursuant to Article 147 of Chapter XVI of the Chilean Corporation Act, a publicly held corporation shall only be entitled to enter into a related-party transaction when it is in the interest of the company, the price, terms and conditions are similar to those prevailing in the market at the time of its approval and the transaction complies with the requirements and procedures stated below:
1.The directors, managers, administrators, principal executive officers or liquidators that have an interest or that take part in negotiations conducive to the execution of an arrangement with a related party of the open stock corporation, shall report it immediately to the board of directors or whomever the board designates. Those who breach this obligation will be jointly liable for damages caused to the company and its shareholders.
2.Prior to the company’s consent to a related party transaction, it must be approved by the absolute majority of the members of the board of directors, with exclusion of the interested directors or liquidators, who nevertheless shall make public his/her/their opinion with respect to the transaction if it is so requested by the board of directors, which opinion shall be set forth in the minutes of the meeting. Likewise, the grounds of the decision and the reasons for excluding such directors from its adoption must also be recorded in the minutes.
3.The resolutions of the board of directors approving a related party transaction shall be reported at the next following shareholders’ meeting, including a reference to the directors who approved such transaction. A reference to the transaction is to be included in the notice of the respective shareholders’ meeting.
4.In the event that an absolute majority of the members of the board of directors should abstain from voting, the related-party transaction shall only be executed if it is approved by the unanimous vote of the members of the board of directors not involved in such transaction, or if it is approved in a shareholders’ extraordinary meeting by two-thirds of the voting shares of the company.
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5.If a shareholders’ extraordinary meeting is called to approve the transaction, the board of directors shall appoint at least one independent advisor who shall report to the shareholders the terms of the transaction, its effects and the potential impact for the company. In the report, the independent advisor shall include all the matters or issues the directors committee may have expressly requested to be evaluated. The directors committee of the company or, in the absence of such committee, directors not involved in the transaction, shall be entitled to appoint an additional independent advisor, in the event they disagree with the appointment made by the board. The reports of the independent advisors shall be made available to the shareholders by the board on the business day immediately following their receipt by the company, at the company’s business offices and on its internet site, for a period of at least 15 business days from the date the last report was received from the independent advisor, and such arrangement shall be communicated to the shareholders by means of a “Relevant Fact” (Communication sent to the CMF and the stock exchanges in Chile). The directors shall express their view on whether the transaction is in the best interest of the corporation, within five business days from the date the last report was received from the independent advisors.
6.When the directors of the company must express their view on a related party-transaction, they must expressly state the relationship with the transaction counterparty or the interest involved. They shall also express their opinion on whether the transaction is in the best interest of the corporation, their objection or objections that the directors committee may have expressed, as well as the conclusions of the reports of the advisors. The opinions of the directors shall be made available to the shareholders the day after they were received by the company, at the business offices of the company as well as on its internet site, and such arrangement shall be reported by the company as a “Relevant Fact.”
7.Notwithstanding the applicable sanctions, any infringement of the above provisions will not affect the validity of the transaction, but will grant the company or the shareholders the right to sue the related party involved in the transaction for reimbursement to the company of a sum equivalent to the benefits that the operation reported to the counterpart involved in the transaction, as well as indemnity for damages incurred. In this case, the defendant bears the burden of proof that the transaction complies with the requirements and procedures referred to above.
Notwithstanding the above, the following related party transactions may be executed, pursuant to letters a), b) and c) of Article 147 of the Chilean Corporation Act, without complying with the requirements and procedures stated above, with prior authorization by the board:
1.Transactions that do not involve a “material amount.” For this purpose, any transaction that is both greater than UF 2,000 (as of December, 31, 2023, approximately Ch$73.6 million) and in excess of 1% of the corporation’s equity, or involving an amount in excess of UF 20,000 (as of December 31, 2023, approximately Ch$735.8 million) shall be deemed to involve a material amount. All transactions executed within a 12-month period that are similar or complementary to each other, with identical parties, including related parties, or objects, shall be deemed to be a single transaction.
2.Transactions that pursuant to the company’s policy of habitual practice as determined by its board of directors, are in the ordinary course of business of the company. Any agreement or resolution establishing or amending such policies shall have the approval of the board of directors’ committee and shall be communicated as a “Relevant Fact” and made available to shareholders at the company’s business offices and on its internet site, and the transaction shall be reported as a “Relevant Fact,” if applicable. Such policy shall not authorize the subscription of acts or contracts that compromise more than the 10% of the assets of the company.
3.Transactions between legal entities in which the company possesses, directly or indirectly, at least 95% of the equity of the counterpart.
The habitual practice policy adopted by the board of directors in the meeting held on December 29, 2009 established policies setting forth the transactions that fall within the ordinary course of business. That determination was publicly disclosed on the same day and is currently available on LATAM Airlines Group’s website under the “Corporate Governance” section.
Shareholders’ Meetings and Voting Rights
Chilean Corporate Law requires that an ordinary annual meeting of shareholders be held within the first four months of each year after being called by the board of directors (generally they are held in April, but in any case following the preparation of our financial statements, including the report of our auditors, for the previous fiscal year). The shareholders at the ordinary annual meeting approve the annual financial statements, including the report of our auditors, the annual report, the dividend policy and the final dividend on the prior year’s profits, elect the board of directors (when applicable) and approve any other matter that does not require an extraordinary shareholders’ meeting. The most recent
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extraordinary meeting of our shareholders was held on April 20, 2023, and the most recent ordinary annual meeting of our shareholders was held on April 20, 2023.
Extraordinary shareholders’ meetings may be called by the board of directors, if deemed appropriate, and ordinary or extraordinary shareholders’ meetings must be called by the board of directors when requested by shareholders representing at least 10.0% of the issued voting shares or by the CMF. In addition, as from January 1, 2010 there are two new rules in this regard: (i) the CMF may directly call for an extraordinary shareholders’ meeting in case of a publicly-traded company, and (ii) any kind of shareholders’ meeting may be self-convened and take place if all voting shares attend, regardless of the fulfillment of the notice and other type of procedural requirements.
Notice to convene the ordinary annual meeting or an extraordinary meeting is given by means of three notices which must be published in a newspaper of our corporate domicile (currently Santiago, Chile) designated by the shareholders at their annual meeting and, if the shareholders fail to make such designation, the notice must be published in the Chilean Official Gazette pursuant to legal requirements. The first notice must be published no less than 10 days and no more than 20 days in advance of the scheduled meeting. Notice also must be sent to the CMF and the Chilean stock exchanges no less than 10 days in advance of the meeting. Currently, we publish our official notices in the newspaper La Tercera (available online at www.latercera.com).
The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing a majority of our issued common shares. If that quorum is not reached, the meeting can be reconvened within 45 days, and at the second meeting the shareholders present are deemed to constitute a quorum regardless of the percentage of the common shares that they represent.
Only shareholders registered with us at midnight of the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his or her proxy to attend and vote on his or her behalf. The proxies must fulfill the requirements set forth by the Chilean Corporate Law and its regulatory norms. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed.
The following matters can only be considered at an extraordinary shareholders’ meeting:
•our dissolution;
•a merger, transformation, division or other change in our corporate form or the amendment of our by-laws;
•the issuance of bonds or debentures convertible into shares;
•the conveyance of 50% or more of our assets (whether or not it includes our liabilities);
•the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;
•the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;
•the conveyance of shares of a subsidiary which entails the transfer of control;
•granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless to secure or guarantee the obligations of a subsidiary, in which case only the approval of the board of directors will suffice; and
•other matters that require shareholder approval according to Chilean law or the by-laws.
The matters referred to in the first seven items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting.
The by-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting. However, pursuant to the second paragraph of article 67 of the Chilean Corporation Act, the vote of a two-thirds majority of the outstanding voting shares is required to approve any of the following actions:
•a change in our corporate form, division or merger with another entity;
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•amendment to our term of existence, if any;
•our early dissolution;
•change in our corporate domicile;
•decrease of our capital stock;
•approval of contributions and the assessment thereof whenever consisting of assets other than money;
•any modification of the authority reserved for the shareholders’ meetings or limitations on the powers of the board of directors;
•decrease in the number of members of the board of directors;
•the conveyance of 50% or more of our assets (whether or not it includes our liabilities);
•the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;
•the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;
•the conveyance of shares of a subsidiary which entails the transfer of control;
•the form that dividends are paid in;
•granting a security interest or a personal guarantee in each case to secure obligations of third parties that exceeds 50% of our assets, unless to secure or guarantee the obligations of a subsidiary, in which case only approval of the board of directors will suffice;
•the acquisition of our own shares, when, and on the terms and conditions, permitted by law;
•all other matters provided for in the by-laws;
•the correction of any formal defect in our incorporation or any amendment to our by-laws that refers to any of the matters indicated in the first 16 items listed above;
•the institution of the right of the controlling shareholder who has purchased at least 95% of the shares to purchase shares of the outstanding minority shareholders pursuant to the procedure set forth in article 71 bis of the Chilean Corporation Act; and
•the approval or ratification of transactions with related parties, as per article 147 of the Chilean Corporation Act (described above).
Pursuant to the third transitory article of LATAM’s by-laws, during a period of two years ending on November 3, 2024, all items referred to in the second paragraph of article 67 of the Chilean Corporation Act shall require the affirmative vote of at least 73% of the outstanding voting shares. Upon expiration of said term, this restriction shall automatically cease and the two-thirds majority contemplated in the second paragraph of said article 67 shall apply thereafter. Amendments to the by-laws that have the effect of establishing, modifying or eliminating any special rights pertaining to any series of shares require the consenting vote of holders of two-thirds of the shares of the affected series. As noted above, LATAM Airlines Group does not have a special series of shares.
In general, Chilean law does not require a publicly held corporation to provide the level and type of information that the U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company and its subsidiaries within the 15-day period before a scheduled meeting. No later than 10 days ahead of the scheduled shareholder’s meeting, the board of directors of a publicly held corporation is required to publish on its website certain information, including that related to the matters to be discussed in such a meeting together with instructions to obtain copies of the relevant supporting documents. The board is also required to make available to the shareholders the annual report and the financial statements of the company, and to publish such information in the company’s webpage at least 10 days in advance of the scheduled shareholders meeting. In addition to these requirements, we regularly have provided, and currently intend to continue to
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provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend for shareholder approval. See “-Dividend and Liquidation Rights,” below.
Chilean Corporate Law provides that, whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include such shareholders’ comments and proposals in relation to the company’s affairs, together with the comments and proposals set forth by the board of directors’ committee. Similarly, Chilean Corporate Law provides that whenever the board of directors of a publicly held corporation convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions or other similar material, it is obligated to include as an annex to its annual report any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be included, together with the comments and proposals set forth by the board of directors’ committee.
Dividend and Liquidation Rights
In accordance with Chilean Corporate Law, LATAM Airlines Group must distribute an annual cash dividend equal to at least 30% of its annual net profits calculated in accordance with IFRS Accounting Standards, unless otherwise decided by a unanimous vote of the holders of all issued shares, and unless and except to the extent it has accumulated losses. If there are no net profits in a given year, LATAM Airlines Group can elect but is not legally obligated to distribute dividends out of retained earnings. All outstanding common shares are entitled to share equally in all dividends declared by LATAM Airlines Group, except for the shares that have not been fully paid by the shareholder after being subscribed.
For all dividend distributions agreed by the board of directors in excess of the mandatory minimum of 30% noted in the preceding paragraph, LATAM Airlines Group may grant an option to its shareholders to receive those dividends in cash, or in shares issued by either LATAM Airlines Group or other public corporations. Shareholders who do not expressly elect to receive a dividend other than in cash are legally presumed to have decided to receive the dividend in cash. A U.S. holder of ADSs may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash. See “-Preemptive Rights and Increases in Share Capital,” above.
Dividends that are declared but not paid within the appropriate time period set forth in the Chilean Corporate Law (as to minimum dividends, 30 days after declaration; as to additional dividends, the date set for payment thereof at the time of declaration, provided, however, payment of additional dividends shall take place within the fiscal year in which they are declared) are adjusted to reflect the change in the value of the UF. The UF is a daily indexed, Chilean peso-denominated accounting unit designed to discount the effect of Chilean inflation and it is based on the previous month’s inflation rate as officially determined. Such dividends also accrue interest at the then-prevailing rate for UF-denominated deposits during such period. The right to receive a dividend lapses if it is not claimed within five years from the date such dividend is payable. After that period, the amount not claimed is given to a non-profit organization, the National Corporation of Firefighters (Cuerpos de Bomberos de Chile).
In the event of LATAM Airlines Group’s liquidation, the holders of fully paid common shares would participate pro rata in the distribution of assets remaining after payment of all creditors. Holders of shares not fully paid will participate in such distribution in proportion to the amount paid.
Approval of Financial Statements
The board of directors is required to submit our consolidated financial statements to the shareholders for their approval at the annual ordinary shareholders’ meeting. If the shareholders reject the financial statements, the board of directors must submit new financial statements no later than 60 days from the date of that meeting. If the shareholders reject the new financial statements, the entire board of directors is deemed removed from office and a new board is to be elected at the same meeting. Directors who approved such financial statements are disqualified for re-election for the ensuing period.
Right of Dissenting Shareholders to Tender Their Shares
Chilean Corporate Law provides that, upon the adoption at an extraordinary meeting of shareholders of any of the resolutions or if any of the situations enumerated below takes place, dissenting shareholders acquire the right to withdraw and to compel the company to repurchase their shares, subject to the fulfillment of certain terms and conditions. However, such right shall be suspended if we are a debtor in a bankruptcy liquidation proceeding, or if we are subject to a reorganization agreement approved in accordance with the Chilean Insolvency Act, unless such agreement allows the right
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to withdraw, or unless it is terminated by the issuance of a liquidation resolution. In the case of holders of ADRs, however, in order to exercise such rights, holders of ADRs would be required to first withdraw the common shares represented by the ADRs pursuant to the terms of the deposit agreement. Such holders of ADRs would need to perfect the withdrawal of the common shares on or before the fifth business day prior to the date of the meeting.
“Dissenting shareholders” are defined as those who attend a shareholders’ meeting and vote against a resolution which results in the withdrawal right, or, if absent at such a meeting, those who state in writing to the company their opposition to such resolution within the following 30 days. Dissenting shareholders must perfect their withdrawal rights by tendering their stock to the company within thirty days after adoption of the resolution.
The price to be paid to a dissenting shareholder of a publicly held corporation is its market value. In the case of corporations which shares are actively traded on a stock exchange (acciones con presencia bursátil) pursuant to a General Rule issued by the CMF, the weighted average of the sales prices for the shares as reported on the Chilean stock exchanges on which the shares are quoted during the 60 stock-exchange-business-day period elapsed between the 30th and the 90th stock-exchange-business-days-preceding the shareholder resolution giving rise to the withdrawal right. If the shares of the corporation do not qualify as “actively traded” pursuant to the General Rules dictated by the CMF, the market price corresponds to the book value of the shares. Book value for this purpose equals paid capital plus reserves and profits, less losses, divided by the total number of subscribed and paid shares. For the purpose of making this calculation, the last balance sheet submitted to the CMF is used and adjusted to reflect inflation up to the date of the shareholders’ meeting that gave rise to the withdrawal right.
The resolutions and situations that result in a shareholder’s right to withdraw are the following:
•the transformation of the company;
•the merger of the company with or into another company;
•the conveyance of 50% or more of the assets of the company, whether or not such sale includes the company’s liabilities;
•the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage;
•the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets;
•the conveyance of shares of a subsidiary which entails the transfer of control, if the subsidiary represents at least 20% of our assets;
•the creation of preferential rights for a class of shares or an extension, amendment or reduction to those already existing, in which case the right to withdraw only accrues to the dissenting shareholders of the class or classes of shares adversely affected;
•the correction of any formal defect in the incorporation of the company or any amendment to the company’s by-laws that grants the right to withdraw;
•the granting of security interests or personal guarantees to secure or guarantee third parties’ obligations exceeding 50% of the company’s assets, except with regard to subsidiaries;
•if the CMF approves de-registering the shares of a publicly held corporation in the Securities Registry of the CMF, as resolved by the extraordinary shareholders’ meeting;
•if the extraordinary shareholders’ meeting resolves to close a publicly held corporation, in the event that the CMF had previously de-registered its shares in the Securities Registry of the CMF as a consequence of a sanctioning administrative process;
•if the controlling shareholder of a publicly-traded company reaches over 95% of the shares (in such case, the right must be exercised within 30 days of the date in which the threshold is reached, circumstance that must be communicated by means of a publication); and
•such other causes as may be established by the company’s by-laws (no such additional resolutions currently are specified in our by-laws).
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In addition, shareholders of publicly held corporations have the right to withdraw if a person acquires two-thirds or more of the outstanding shares of such corporation with the right to vote (except as a result of other shareholders not having subscribed and paid a capital increase) and does not make a tender offer for the remaining shares within 30 days after acquisition.
Under article 69 bis of the Chilean Corporation Act, the right to withdraw also is granted to shareholders (other than pension funds that administer private pension plans under the national pension law), under certain terms and conditions, if a company were to become controlled by the Chilean government, directly or through any of its agencies, and if two independent rating agencies downgrade the rating of its stock from first class because of certain actions specified in Article 69 bis undertaken by the company or the Chilean government that affect negatively and substantially the earnings of the company. Shareholders must perfect their withdrawal rights by tendering their shares to the company within 30 days of the date of the publication of the new rating by two independent rating agencies. If the withdrawal right is exercised by a shareholder invoking Article 69 bis, the price paid to the dissenting shareholder shall be the weighted average of the sales price for the shares as reported on the stock exchanges on which the company’s shares are quoted for the six-month period preceding the publication of the new rating by two independent rating agencies. If, as previously described, the CMF determines that the shares are not actively traded on a stock exchange, the price shall be the book value calculated as described above.
There is no legal precedent as to whether a shareholder that has voted both for and against a proposal (such as the depositary) may exercise withdrawal rights with respect to the shares voted against the proposal. As such, there is doubt as to whether holders of ADRs who have not surrendered their ADRs and withdrawn common shares on or before the fifth business day prior to the shareholder meeting will be able to exercise withdrawal rights either directly or through the depositary with respect to the shares represented by ADRs. Under the provisions of the deposit agreement the depositary will not exercise these withdrawal rights.
The circumstance indicated above regarding ownership in excess of 95% by the controlling shareholder creates not only a withdrawal right for the remaining minority shareholders, but as of January 1, 2010, it could also potentially create a “squeeze out” right by the controlling shareholder with respect to those same shareholders (granting a call option by means of which the controlling shareholder may buy-out the existing ownership participations) pursuant to the provisions of article 71 bis of the Corporation Act. However, the “squeeze out” right would apply to the extent expressly contemplated in the by-laws of the corporation, and only with respect to the shares acquired by a shareholder during the effectiveness of such provision in the by-laws of the corporation. LATAM’s by-laws currently do not contemplate a “squeeze out”.
Registration and Transfers
DCV Registros S.A. (“DCV”), a local depository corporation, acts as LATAM Airlines Group’s registration agent. In the case of jointly owned common shares, an attorney-in-fact must be appointed to represent the joint owners in dealings with us.
C.Material Contracts
Table of Material Contracts for the Purchase of Aircraft
| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Boeing 787-8/9 Fleet | ||||||||||||||||||||
| Purchase Agreement No. 3256 with the Boeing Company | October 29, 2007 | ⮚ Boeing 787-8 aircrafts (18) | US$ | 3,200,000,000 | ||||||||||||||||
| ⮚ Boeing 787-9 aircrafts (8) | ||||||||||||||||||||
| ⮚ Option of purchasing fifteen additional aircraft to be delivered in 2017 and 2018 | ||||||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Supplemental Agreement No. 1 to the Purchase Agreement No. 3256 | March 22, 2010 | ⮚ Advance scheduled delivery date of ten Boeing 787-8 aircraft and substitute four Boeing 787-9 aircraft into four Boeing 787-8 aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 3 to the Purchase Agreement No. 3256 | August 24, 2012 | ⮚ Replace two Boeing 787-8 aircraft with two Boeing 787-8 aircraft with a later delivery. | ||||||||||||||||||
| Delay Settlement Agreement to the Purchase Agreement No. 3256 | September 16, 2013 | ⮚ Agreed to update delivery dates, settle consequences of delays and convert several future deliveries of B787-8 aircraft to B787-9 aircraft. This agreement was amended on April 22, 2015 to update delivery dates of certain aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 4 to the Purchase Agreement No. 3256 | April 22, 2015 | ⮚ Reschedule the delivery dates of four Boeing 787-8 aircraft and replace four Boeing 787-8 aircraft with four Boeing 787-9 aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 6 to the Purchase Agreement No. 3256 | May 27, 2016 | ⮚ Convert four Model 787-8 Aircraft to four Model 787-9 Aircraft, and Defer of two Model 787-9 Aircraft from 1Q 2018 and 2Q 2018 to 3Q 2018 and 4Q 2018 respectively. | ||||||||||||||||||
| Supplemental Agreement No. 13 to the Purchase Agreement No. 3256 | July 3, 2019 | ⮚ To include certain letter agreements | ||||||||||||||||||
| Supplemental Agreement No. 14 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ Reschedule the delivery dates of four Boeing 787-8 aircraft | ||||||||||||||||||
| Supplemental Agreement No. 15 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ To incorporate Exhibit A1 | ||||||||||||||||||
| Supplemental Agreement No. 16 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ Deferral of PDPs. | ||||||||||||||||||
| Supplemental Agreement No. 17 to the Purchase Agreement No. 3256 | February 17, 2020 | ⮚ To include certain letter agreements. | ||||||||||||||||||
| Supplemental Agreement No. 18 to the Purchase Agreement No. 3256 | April 29, 2021 | ⮚ Covering the cancellation of the delivery of four Boeing 787-9 aircraft. | ||||||||||||||||||
| 787 Settlement Agreement | June 17, 2022 | ⮚ Agreed to update delivery dates and settle certain consequences. | ||||||||||||||||||
| Supplemental Agreement No. 19 to the Purchase Agreement No. 3256 | August 30, 2023 | ⮚ Incremental order of 5 additional Boeing 787 Aircraft. | ||||||||||||||||||
| Airbus A320-Family Fleet | ||||||||||||||||||||
| Second A320-Family Purchase Agreement with Airbus S.A.S. | March 20, 1998 | ⮚ Airbus A320-Family aircrafts (5) | US$ | 230,000,000 | ||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Amendment No. 1 to the Second A320-Family Purchase Agreement | November 14, 2003 | ⮚ Exercise three purchase rights for Airbus 319 aircraft, among other things. | ||||||||||||||||||
| Amendment No. 2 to the Second A320-Family Purchase Agreement | October 4, 2005 | ⮚ Acquire 25 additional Airbus 320 family aircraft and 15 purchase rights for Airbus A320-Family aircraft. | ||||||||||||||||||
| Amendment No. 3 to the Second A320-Family Purchase Agreement | March 6, 2007 | ⮚ Exercise 15 purchase rights for 15 Airbus A320-Family Aircraft. | ||||||||||||||||||
| ⮚ According to clause 12.2 of the Second A320-Family Purchase Agreement, applicable to all subsequent amendments, in case of a failure, as defined in such agreement, a service life policy for a period of 12 years after delivery of any given aircraft shall apply. | ||||||||||||||||||||
| Amendment No. 5 to the Second A320-Family Purchase Agreement | December 23, 2009 | ⮚ Airbus A320-Family aircrafts (30) | US$ | 2,000,000,000 | ||||||||||||||||
| Amendment No. 6 to the Second A320-Family Purchase Agreement | May 10, 2010 | ⮚ Convert the aircraft type of three aircraft and advance the scheduled delivery date of 13 aircraft. | ||||||||||||||||||
| Amendment No. 8 to the Second A320-Family Purchase Agreement | September 23, 2010 | ⮚ Convert the aircraft type of one aircraft and advance the scheduled delivery date of four aircraft. | ||||||||||||||||||
| Amendment No. 9 to the Second A320-Family Purchase Agreement | December 21, 2010 | ⮚ Airbus A320-Family aircrafts (50) | US$ | 2,600,000,000 | ||||||||||||||||
| Amendment No. 10 to the Second A320-Family Purchase Agreement | June 10, 2011 | ⮚ Convert the aircraft type of three aircraft, to select sharklets for some aircraft and to notify delivery dates for some aircraft. | ||||||||||||||||||
| Amendment No. 11 to the Second A320-Family Purchase Agreement | November 3, 2011 | ⮚ Convert the aircraft type of three aircraft and defer the scheduled delivery date of four aircraft. | ||||||||||||||||||
| Amendment No. 12 to the Second A320-Family Purchase Agreement | November 19, 2012 | ⮚ Convert the aircraft type of three aircraft, identify certain aircraft as Sharklet Installed Aircraft and others as Sharklet Capable Aircraft, as those are defined in such Purchase Agreement, and notify the scheduled delivery month for certain aircraft. | ||||||||||||||||||
| Amendment No. 13 to the Second A320-Family Purchase Agreement | August 19, 2013 | ⮚ Convert several A320 aircraft to A321 aircraft and to postpone the scheduled delivery dates of several aircraft. | ||||||||||||||||||
| Amendment No. 16 to the Second A320-Family Purchase Agreement | July 15, 2014 | ⮚ Covering cancellation and substitution of certain Aircraft. | ||||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Novation Agreement to the Second A320-Family Purchase Agreement | October 30, 2014 | ⮚ Novation of the original TAM A320/A330 Family Purchase Agreement from TAM to LATAM. | ||||||||||||||||||
| Amendment No. 17 to the Second A320-Family Purchase Agreement | December 11, 2014 | ⮚ Covering the substitution of certain Aircraft. | ||||||||||||||||||
| Amendment No. 18 to the Second A320-Family Purchase Agreement | August 4, 2021 | ⮚ Covering the postponement of certain relevant deadlines. | ||||||||||||||||||
| Airbus A320 NEO-Family Fleet | ||||||||||||||||||||
| A320 NEO Purchase Agreement | June 22, 2011 | ⮚ Airbus 320 NEO Family aircraft (20) | US$ | 1,700,000,000 | ||||||||||||||||
| ⮚ Delivery scheduled to take place in 2017 and 2018 | ||||||||||||||||||||
| Amendment No. 1 to the A320 NEO Purchase Agreement | February 27, 2014 | ⮚ Covering the advancement of the date by which LATAM selects the propulsion systems. | ||||||||||||||||||
| Amendment No. 2 to the A320 NEO Purchase Agreement | July 15, 2014 | ⮚ Covering the order of incremental A320 NEO Aircraft. | ||||||||||||||||||
| Amendment No. 3 to the A320 NEO Purchase Agreement | December 11, 2014 | ⮚ Covering the order of incremental A320 NEO Aircraft and A321 NEO Aircraft. | ||||||||||||||||||
| Amendment No. 4 to the A320 NEO Purchase Agreement | April 15, 2016 | ⮚ Covering the reschedule of the delivery of eight Original NEO Aircraft and the conversion of four Original NEO Aircraft into A321 NEO Aircraft | ||||||||||||||||||
| Amendment No. 5 to the A320 NEO Purchase Agreement | April 15, 2016 | ⮚ Changes in the technical specifications of the aircraft to be received under this agreement. | ||||||||||||||||||
| Amendment No. 6 to the A320 NEO Purchase Agreement | August 8, 2016 | ⮚ Covering the cancellation of the delivery of four A320 NEO Aircraft. | ||||||||||||||||||
| Amendment No. 7 to the A320 NEO Purchase Agreement | September 22, 2017 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||
| Amendment No. 8 to the A320 NEO Purchase Agreement | December 21, 2018 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||
| Amendment No. 9 to the A320 NEO Purchase Agreement | August 4, 2021 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||
| Amendment No. 10 to the A320 NEO Purchase Agreement | August 17, 2023 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||
| TAM Material Contracts – A320/A330 Family Purchase Agreement | ||||||||||||||||||||
| Purchase Agreement with Airbus S.A.S. | November 2006 | ⮚ Airbus A320-Family aircrafts (31) | US$ | 3,300,000,000 | ||||||||||||||||
| ⮚ Airbus A330-200 aircrafts (6) | ||||||||||||||||||||
| ⮚ Delivery was scheduled to take place between 2007 and 2010 | ||||||||||||||||||||
| New Purchase Agreement with Airbus S.A.S. | January 2008 | ⮚ Airbus A320-Family aircrafts (20) | US$ | 2,140,000,000 | ||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| ⮚ Airbus A330-200 aircrafts (4) | ||||||||||||||||||||
| ⮚ Delivery was scheduled to take place between 2007 and 2014 | ||||||||||||||||||||
| New Purchase Agreement with Airbus S.A.S. | July 2010 | ⮚ Airbus A320-Family aircrafts (20) | US$ | 1,450,000,000 | ||||||||||||||||
| ⮚ Delivery was scheduled to take place between 2014 and 2015 | ||||||||||||||||||||
| New Purchase Agreement with Airbus S.A.S. | October 2011 | ⮚ Airbus A320-Family aircrafts (10) | US$ | 1,730,000,000 | ||||||||||||||||
| ⮚ Airbus A320 NEO Family aircrafts (22) | ||||||||||||||||||||
| ⮚ Delivery scheduled to take place between 2016 and 2018 | ||||||||||||||||||||
| ⮚ Ten option rights for Airbus A320 NEO Family aircraft | ||||||||||||||||||||
| Amendment No. 13 to the A320/A330 Purchase Agreement | November 2012 | ⮚ Convert the aircraft type of A320 family aircraft. | ||||||||||||||||||
| Amendment No. 14 to the A320/A330 Purchase Agreement | December 2012 | ⮚ Convert the aircraft type of an A320 family aircraft and reschedule the delivery date of such aircraft. | ||||||||||||||||||
| Amendment No. 15 to the A320/A330 Purchase Agreement | February 2013 | ⮚ Changes to the scheduled delivery month of certain A320 Family Aircraft. | ||||||||||||||||||
| Amendment No. 16 to the A320/A330 Purchase Agreement | February 2013 | ⮚ Change to the aircraft type of certain A320 Family Aircraft, to the scheduled delivery month/quarter of certain A320 Family Aircraft and make certain changes to the dates by which TAM will select the propulsion systems and NEO propulsion systems for certain Aircraft. | ||||||||||||||||||
| Amendment No. 17 to the A320/A330 Purchase Agreement | August 2013 | ⮚ Change to the scheduled delivery month of a certain A320 Family Aircraft and to make the selection of the propulsion systems and NEO propulsion systems for certain Aircraft. | ||||||||||||||||||
| Amendment No. 20 to the A320/A330 Purchase Agreement | June 2015 | ⮚ Change to the schedule delivery month of one A321 Aircraft. | ||||||||||||||||||
| Amendment No. 21 to the A320/A330 Purchase Agreement | December 2015 | ⮚ Change to the schedule delivery month of two A320 NEO Aircraft. | ||||||||||||||||||
| Amendment No. 23 to the A320/A330 Purchase Agreement | April 15, 2016 | ⮚ Reflect the changes in the technical specifications of the aircraft to be received under this agreement. | ||||||||||||||||||
| Amendment No. 24 to the A320/A330 Purchase Agreement | August 8, 2016 | ⮚ Cancel the delivery of eight A320 NEO Aircraft. | ||||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Amendment No. 26 to the A320/A330 Purchase Agreement | December 21, 2018 | ⮚ Rescheduled delivery of five A320 NEO Aircraft and eleven A321 NEO Aircraft. | ||||||||||||||||||
| ⮚ Cancel the delivery of one A321 Aircraft. | ||||||||||||||||||||
| Amendment No. 27 to the A320/A330 Purchase Agreement | August 4, 2021 | ⮚ Incremental order of 28 additional A320 NEO Family Aircraft. | ||||||||||||||||||
| ⮚ Rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||||
| Amendment No. 28 to the A320/A330 Purchase Agreement | July 20, 2022 | ⮚ Incremental order of 17 additional A320 NEO Family Aircraft. | ||||||||||||||||||
| ⮚ Rescheduling and type conversion of certain A320 NEO Family Aircraft. | ||||||||||||||||||||
| Amendment No. 29 to the A320/A330 Purchase Agreement | August 2023 | ⮚ Incremental order of 13 additional A320 NEO Family Aircraft. | ||||||||||||||||||
| ⮚ Rescheduling of certain A320 NEO Family Aircraft. | ||||||||||||||||||||
| TAM Material Contracts - A350 Family Purchase Agreement | ||||||||||||||||||||
| Purchase Agreement with Airbus S.A.S. | January 2008 | ⮚ Airbus A350 aircrafts (22) | US$ | 6,480,000,000 | ||||||||||||||||
| ⮚ Ten option rights for Airbus A350 aircraft. | ||||||||||||||||||||
| Amendment No. 1 to the A350 Purchase Agreement | July 2010 | ⮚ Exercise its option of five A350 XWB options. | ||||||||||||||||||
| Amendment No. 2 to the A350 Purchase Agreement | July 2014 | ⮚ Reschedule the delivery of certain A350-900XWB and to amend certain provisions to reflect the latest aircraft specification. | ||||||||||||||||||
| Novation Agreement to the A350 Purchase Agreement | July 2014 | ⮚ Novating the A350 purchase agreement from TAM to LATAM. | ||||||||||||||||||
| Amendment No. 4 to the A350 Purchase Agreement | September 2015 | ⮚ Modify certain terms and conditions of such agreement and to convert a number of A350-900 XWB Aircraft into A350-1000 XWB Aircraft. | ||||||||||||||||||
| Amendment No. 5 to the A350 Purchase Agreement | November 2015 | ⮚ Convert a number of A350-900 XWB aircraft into six A350-1000 XWB aircraft and to reschedule the delivery of certain A350-900 XWB. | ||||||||||||||||||
| Amendment No. 7 to the A350 Purchase Agreement | August 8, 2016 | ⮚ Change aircraft type, from two A350-900 XWB Aircraft to two A350 - 1000 XWB Aircraft. | ||||||||||||||||||
| Amendment No. 9 to the A350 Purchase Agreement | September 22, 2017 | ⮚ Convert two A350-1000 XWB Aircraft into A350-900 XWB Aircraft | ||||||||||||||||||
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| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Amendment No. 10 to the A350 Purchase Agreement | December 21, 2018 | ⮚ Convert four A350-1000 XWB Aircraft into A350-900 XWB Aircraft. | ||||||||||||||||||
| ⮚ Reschedule of six A350-900 XWB Aircraft and eight A350-1000 XWB. | ||||||||||||||||||||
| Amendment No. 11 to the A350 Purchase Agreement | April 29, 2019 | ⮚ Reschedule of two A350-900 XWB Aircraft | ||||||||||||||||||
| Amendment No. 12 to the A350 Purchase Agreement | August 5, 2019 | ⮚ Reschedule of one A350-900 XWB Aircraft | ||||||||||||||||||
| Termination Agreement in respect of the A350 Purchase Agreement | August 4, 2021 | ⮚ Cancellation of 2 remaining deliveries of A350-1000 XWB Aircraft | ||||||||||||||||||
TAM Material Contracts - Boeing 777 Purchase Agreement
| Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||||||||||||||
| Purchase Agreement with Boeing | February 2007 | ⮚ Boeing 777-32WER aircrafts (4) | US$ | 1,070,000 | ||||||||||||||||
| Supplemental Agreement No. 1 to the Purchase Agreement | August 2007 | ⮚ Exercise four option aircraft and to define certain aircraft configuration. | ||||||||||||||||||
| Supplemental Agreement No. 2 to the Purchase Agreement | March 2008 | ⮚ Document its agreement on the descriptions and pricing of some options and master changes related to certain aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 3 to the Purchase Agreement | December 2008 | ⮚ Purchase of two incremental 777 aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 5 to the Purchase Agreement | July 2010 | ⮚ Reschedule the delivery of certain aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 6 to the Purchase Agreement | February 2011 | ⮚ Purchase of two incremental 777 aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 7 to the Purchase Agreement | May 2014 | ⮚ Substitute two 777-300ER aircraft originally scheduled for delivery in 2014 for two 777-F aircraft for scheduled delivery in 2017. | ||||||||||||||||||
| Supplemental Agreement No. 8 to the Purchase Agreement | April 2015 | ⮚ Reschedule the delivery of certain aircraft. | ||||||||||||||||||
| Supplemental Agreement No. 11 to the Purchase Agreement | October 11, 2019 | ⮚ Option to cancel two Aircraft | ||||||||||||||||||
| Supplemental Agreement No. 12 to the Purchase Agreement | February 3, 2020 | ⮚ Cancellation of one Aircraft | ||||||||||||||||||
| Supplemental Agreement No. 13 to the Purchase Agreement | April 29, 2021 | ⮚ Cancellation of one Aircraft | ||||||||||||||||||
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Other Material Contracts
Boeing
On May 9, 1997, we entered into the Aircraft General Terms Agreement with The Boeing Company (“AGTA”), applicable to all Boeing aircraft contracted for purchase from The Boeing Company.
Boeing Aircraft Holding Company
On May 8, 2018, we also entered into an Aircraft Lease Common Terms Agreement with The Boeing Aircraft Holding Company for the lease of two Boeing 777-200ER aircraft. The average term of the lease is 12 months.
Airbus A320-Family Fleet
Between April and August 2011, we entered into Buyback Agreements No. 3001, 3030, 3062, 3214 and 3216 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$107 million.
Between August 2012 and January 2013, we entered into Buyback Agreements No. 3371, 3390, 3438, 3469 and 3509 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$102 million.
Aercap Holdings N.V.
On May 28, 2013, we entered into a framework deed with Aercap Holdings N.V. for the sale and leaseback of several used A330-200 aircraft, which were returned to the lessor, and several new aircraft to be received from the manufacturer including Airbus 350-900, Boeing 787-8 and Boeing 787-9 aircraft. The estimated gross value (at list prices) of these aircraft is US$3.0 billion.
On February 25, 2022, we entered into lease agreements with Bank of Utah, not in its individual capacity but solely in its capacity as owner trustee (all having AerCap Group acting as a servicer) for the lease of six A321neo to be delivered in 2023 and 2024. Also, on March 31, 2022, we entered into lease agreements with Bank of Utah, not in its individual capacity but solely in its capacity as owner trustee (all having AerCap Group acting as a servicer) for the lease of two additional A321neo to be delivered in 2024. These lease agreements are for a duration of twelve years.
On March 02, 2023, we entered into lease agreements with Bank of Utah, not in its individual capacity but solely in its capacity as owner trustee (all having AerCap Group acting as a servicer) for the lease of four B787-9 to be delivered in 2025. These lease agreements are for a duration of twelve years.
Aircastle Holding Corporation Limited
On February 21, 2014, we entered into a framework deed with Aircastle Holding Corporation Limited for the lease of four Boeing 777-300ER already in the fleet. The four aircraft were manufactured in 2012 and the estimated market value (at list prices) of these aircraft is US$580 million. The average term of the original leases were 60 months, and the agreement was extended for another 84 months.
One of the four aircraft has been sold in July 2019 and is no longer part of such framework deed with Aircastle, but the aircraft remains in our fleet with a different lessor.
On January 11, 2019, we entered into lease agreements with Aircastle for the lease of 10 A320 aircraft. The lease agreements are for a duration of approximately seven to eight years.
GE Commercial Aviation
On April 30, 2007, we also entered into an Aircraft Lease Common Terms Agreement with GE Commercial Aviation Services Limited and two Aircraft Lease Agreements with Wells Fargo Bank Northwest N.A., as owner trustee, for the lease of two Boeing Boeing 777-200LRF aircraft. These aircraft were delivered in 2009 and the leases shall remain in place for a term of 96 months.
112
GE Engine Services LLC
On June 12, 2014, we (and TAM Linhas Aereas S.A.) entered into engine services agreement with GE Engine Services, LLC and GE Celma Ltda. for the provision of maintenance services of CF6-80C2B6F engines (which powers our Boeing 767 fleet) during 200 shop visits or 10 years, whichever occurs first.
On June 18, 2021, we entered into an engine services agreement with GE Engine Services, LLC for the provision of maintenance services of GE90-115BL engines, which power 10 Boeing 777 passenger fleet and 3 spare engines, for a period of 6 years.
CFM International
On December 17, 2010, we entered into General Terms Agreement No. CFM-1-2377460475 (the “GTA”) and Letter Agreement No. 1 to GTA with CFM International, Inc. (“CFM”) for the sale and support by CFM of CFM56-5B engines to power 70 A320-family aircraft and up to 14 CFM56-5B spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with CFM for the provision by CFM of maintenance services for the above-mentioned installed and spare engines.
On December 31, 2014, we entered Letter Agreement No. 2 to GTA with CFM for the sale and support by CFM of CFM56-5B engines to power 20 A320-family aircraft and one spare engine.
On March 15, 2006, TAM Linhas Aereas S.A. entered into an engine services agreement with GE Celma Ltda. for the provision of maintenance services for CFM56-5B engines, which power 47 A320-family passenger fleet and 6 spare engines, for a period of 15 years per engine.
PW1100G-JM Engine Maintenance Agreement
In February 2014, we entered into an engine support and maintenance agreement with United Technologies International Corporation, Pratt & Whitney Division (“PW”) for the sale, support and maintenance by PW of PW1100G-JM engines to power 42 A320neo-family aircraft and nine spare engines. It is also a rate per engine flight hour contract agreement, which includes cost control mechanisms for LATAM.
On April 30, 2015, PW assigned the agreement described above to International Aero Engines, LLC.
On November 22, 2022, we entered into Amendment 7 to the above-mentioned services agreement with International Aero Engines, LLC, for the sale and support by IAE of PW1100 engines to power additional A320neo-family aircraft and additional option aircraft, and additional PW1100 spare engines.
Rolls-Royce PLC & Rolls-Royce TotalCare Services Limited
On September 30, 2009, we entered into General Terms Agreement No. DEG5307 (the “GTA”) with Rolls-Royce PLC for the sale and support by Rolls-Royce of Trent 1000 engines to power 32 Boeing 787 family aircraft and up to 10 Trent 1000 spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with Rolls-Royce TotalCare Services Limited for the provision by Rolls-Royce of maintenance services for the above-mentioned installed and spare engines, for a period of 15 years per engine.
On December 1, 2021, we entered into Amendment 7 to the above-mentioned services agreement with Rolls-Royce PLC, for the sale and support by Rolls-Royce of Trent 1000 engines to power 28 Boeing 787 family aircraft and additional option aircraft, and up to 13 Trent 1000 spare engines.
International Aero Engines AG
On October 12, 2006, we entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services of V2500-A5 engines, which power 53 A320-family passenger fleet and 9 spare engines, for a period of 12 years per engine.
On October 21, 2010, TAM Linhas Aereas S.A. entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services of V2500-A5 engines, which power 26 A320-family passenger fleet and 7 spare engines, for a period of 12 years per engine.
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CFM International
On June 29, 2016, we entered into a Rate Per Flight Hour Agreement for Engine Shop Maintenance Services with CFM International, Inc., covering the maintenance, repair and overhaul of certain CFM56-5B engines.
On December 22 2023, LATAM and TAM entered into a seventh amendment to the above-mentioned services agreement with CFM International, Inc. and GE Celma Ltda., incorporating all engines out of their original contract for an additional period of coverage.
Avolon Aerospace
On September 8, 2017, we entered into a lease agreement with Avolon Aerospace for the Sale and Leaseback of five A320neo aircraft. The estimated market value of these aircraft is US$ 241,000,000. The average term of the leases is 144 months.
On January 16, 2018, we entered into a lease agreement with Avolon Aerospace of two A321-200 aircraft. The estimated market value of these aircraft is US$ 88,600,000. The average term of the lease is 124 months.
On September 9, 2021, we entered into lease agreements with Avolon for the lease of three 787-9. The lease agreements are for a duration of approximately thirteen years.
Vermillion Aviation
On September 3, 2019, we entered into lease agreements with Vermillion Aviation (Two) Limited (all having Vermillion Aviation Holdings Ireland Limited as servicer) for the lease of four A320 aircraft. The lease agreements are for a duration of approximately seven and eight years.
On February 1, 2021, we entered into additional lease agreements for the lease of two additional A320 aircraft with Vermillion Aviation (Nine) Limited (all having AMCK Aviation Holdings Ireland Limited acting as a servicer) for a duration of approximately nine years.
Sky Aero Management/ Dubai Aerospace Entreprise (DAE) Ltd.
On February 16, 2022, we entered into lease agreements with SFV Aircraft Holdings IRE 7 DAC, SFV Aircraft Holdings IRE 8 DAC and SFI Aircraft Holdings IX Designated Activity Company (all having Sky Aero Management acting as a servicer) for the lease of ten A320neo aircraft to be delivered on 2022, 2023 and 2024. The lease agreements are for a duration of twelve years.
In December 2022, four of the ten aircraft changed the servicer for Dubai Aerospace Entreprise (DAE) Ltd.
VMO Aircraft Leasing Ireland Service Co
On March 5, 2021, we entered into lease agreements with Wilmington Trust Company, not in its individual capacity but solely in its capacity as owner trustee, (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for the lease of eleven A321 aircraft. On April 23, 2021, we entered into lease agreements with UMB Bank N.A. not in its individual capacity but solely in its capacity as owner trustee (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for the lease of four 787-9 aircraft. The lease agreements are for a duration of approximately nine to ten years.
In July 2022, we entered into lease agreements for the lease of two Airbus A321-271NX aircraft with UMB Bank N.A. not in its individual capacity but solely in its capacity as owner trustee (all having Avolon Aerospace Leasing Limited acting as a servicer) for a duration of approximately 12 years.
In October 2022, we entered into lease agreements for the lease of two additional Boeing 787 aircraft with UMB Bank N.A. not in its individual capacity but solely in its capacity as owner trustee (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for a duration of approximately twelve years.
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SABRE Contract
On May 4, 2015, we entered into a Master Services License Agreement with SABRE Inc. Pursuant to this agreement SABRE Inc., will grant LATAM access and use of certain reservation systems. This agreement will be effective for an initial period of 10 years.
In addition, LATAM has distribution agreements in place with SABRE as well as with other distribution providers. On May 1, 2020 we entered into a new Sabre Participant Carrier Distribution and Services Agreement. This agreement will be effective for successive 1-year periods until terminated anytime by either party upon at least 180 days’ notice.
AMADEUS Contract
On May 1, 2020, we entered into the Amended and Restated Addendum to the Global Distribution Agreement for Full Content and Channel Parity with Amadeus, an agreement effective for an initial period of two years. On January 14, 2021, LATAM rejected this contract, as part of its Chapter 11 proceedings, which took effect on March 1, 2021. Notwithstanding the foregoing, on March 12, 2021 LATAM and Amadeus entered into a new Amended and Restated Addendum to the Global Distribution Agreement for Full Content and Channel Parity. This Addendum will be automatically renewed for periods of one year, until terminated anytime upon at least 90 days’ notice.
TRAVELPORT Contract
On June 1, 2021, we entered into the Content Amendment to the Travelport International Global Airline Distribution Agreements. This Addendum will be automatically renewed for periods of one year, until terminated anytime upon at least 90 days’ notice before the end of any Additional Term.
V2500-A5 Engine Maintenance Service Agreement
In 2020, LATAM together with TAM entered into an Engine Maintenance Services Agreement with MTU Maintenance Hannover GmBH, for the maintenance of certain V2500 engines.
CFM56-5B Engine Maintenance Contract
In March 2006, TAM entered into a services agreement with GE Celma, a Brazilian subsidiary of General Electric Engine Services division, for the maintenance by GE Celma of CFM56-5B engines to power 25 A320-family aircraft and four spare engines.
In March 2007 TAM entered into the Amendment 1 to the above-mentioned services agreement with GE Celma, extending the maintenance services to the engines powering additional 16 A320-family aircraft and two spare engines.
Petrobras
In July 2021, we entered into an Aviation Fuel Supply Agreement with Petrobras Distribuidora S.A. and a local agreement for services in Brazil. These Agreements will be effective until June 30, 2024.
World Fuel Services
In October 2006, we entered into an Aviation Fuel Supply Agreement with World Fuel Services INC. Later we entered into local agreements for services in Chile, México, Colombia and USA. These Agreements will be effective until December 31, 2023.
Air BP-Copec
In December 2021, we entered into an Aviation Fuel Supply Agreement with Air BP Copec S.A. for services in Chile. These Agreements will be effective until January 31, 2023. An extension until April 30, 2023 has been agreed until new conditions are negotiated.
Repsol
In January 2023, we entered into an Aviation Fuel Supply Agreement with Repsol Marketing SAC and related companies. The agreement includes a local agreement for services in Peru valid until December 31, 2023.
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General Electric Company, GE Engine Services Distribution LLC & GE Engine Services LLC
On December 1, 2023, we entered into a General Terms Agreement No. 1-1057041 with General Electric Company and GE Engine Services Distribution, LLC (jointly referred as “GE”) for the sale and support by GE of GEnx engines to power 9 Boeing 787-9 aircraft, additional option aircraft and spare engines. On the same date, we entered into a TrueChoiceTM Engine Service Agreement with GE Engine Services, LLC for the provision by GE Engine Services, LLC of maintenance services for the above-mentioned installed and spare engines.
D.Exchange Controls
Foreign Investment and Exchange Controls in Chile
The Central Bank of Chile is responsible, among other things, for monetary policies and exchange controls in Chile. Equity investments, including investments in shares of stock by persons who are non-Chilean residents, have been generally subject in the past to various exchange control regulations restricting the repatriation of their investments and the earnings thereon.
Article 47 of the Central Bank Act and former Chapter XXVI of the Central Bank Foreign Exchange Regulations regulated the foreign exchange aspects of the issuance of ADSs by a Chilean company until April 2001. According to former Chapter XXVI, the Central Bank of Chile and the depositary had to enter into an agreement in order to gain access to the formal exchange market. The issuers of the shares underlying the ADSs and the custodian could also be parties to these agreements.
On April 16, 2001, the Central Bank of Chile agreed that, effective April 19, 2001:
•prior foreign exchange restrictions would be eliminated; and
•a new Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) would be applied
The main objective of these amendments, as declared by the Central Bank of Chile, is to facilitate movement of capital in and out of Chile and to encourage foreign investment.
In connection with the change in policy, the Central Bank of Chile eliminated the following restrictions:
•a reserve requirement with the Central Bank of Chile for a period of one year (this mandatory reserve was imposed on foreign loans and funds brought into Chile to purchase shares other than those acquired in the establishment of a new company or in the capital increase of the issuing company; the reserve requirement was gradually decreased from 30% of the proposed investment to 0%);
•the requirement of prior approval by the Central Bank of Chile for certain operations;
•mandatory return of foreign currency to Chile;
•mandatory conversion of foreign currency into Chilean pesos;
•Under the new regulations, only the following limitations apply to these operations:
•the Central Bank of Chile must be provided with information related to certain operations; and
•certain operations must be conducted with the Formal Exchange Market.
The Central Bank of Chile also eliminated Chapter XXVI of the Compendium of Foreign Exchange Regulations, which regulated the establishment of an ADR facility by a Chilean company. Pursuant to the new rules, it is no longer necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADR facility or to enter into a foreign investment contract with the Central Bank of Chile.
However, all contracts executed under the provisions of former Chapter XXVI (including the foreign investment contract among LATAM Airlines Group, the Central Bank of Chile and the ADS depositary, or the “Foreign Investment Contract”), remained in full force and effect and continued to be governed by the provisions, and continued to be subject to the restrictions, set forth in former Chapter XXVI at the time of its abrogation. Our Foreign Investment Contract
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guaranteed ADS investors access to the Formal Exchange Market to convert amounts from Chilean pesos into U.S. dollars and repatriate amounts received with respect to deposited common shares or common shares withdrawn from deposit or surrender of ADRs (including amounts received as cash dividends and proceeds from the sale in Chile of the underlying common shares and any rights arising from them).
On May 10, 2007, the Board of the Central Bank of Chile resolved to interpret the regulations regarding the former Chapter XXVI in connection with the access granted to the Formal Exchange Market. These regulations allowed entities that carry out capital increases by means of the issuance of cash shares before August 31, 2007 to apply the aforementioned regulation to their capital increases, but only once and only if those shares can be fully subscribed and paid by August 31, 2008, among other conditions. Consequently, capital increases carried out after August 31, 2007 will have no guaranteed access to the Formal Exchange Market.
On October 17, 2012, the Central Bank of Chile, the depositary and LATAM Airlines Group entered into a termination agreement in respect of LATAM’s existing foreign investment contract. ADR holders were notified about this termination in accordance with Section 16 of the Deposit Agreement. Upon termination of the foreign investment contract, holders of ADSs and the depositary no longer have guaranteed access to the Formal Exchange Market. Currently, the ADS facility is governed by Chapter XIV of the Compendium on “Regulations applicable to Credits, Deposits, Investments and Capital Contributions from Abroad.” According to Chapter XIV, the establishment or maintenance of an ADS facility is regarded as an ordinary foreign investment, and it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADS facility. The establishment or maintenance of an ADS facility only requires that the Central Bank of Chile be informed of the transaction, and that the foreign currency transactions related thereby be conducted through the Formal Exchange Market.
Investment in Our Shares and ADRs
Currently, investments made by foreign investors in shares of our common stock are subject to the following requirements:
•any foreign investor acquiring shares of our common stock who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;
•any foreign investor acquiring shares of our common stock to be converted into ADSs or deposited into an ADR program who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;
•in both cases, the entity of the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile;
•all remittances of funds from Chile to the foreign investor upon the sale of the acquired shares of our common stock or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market;
•all remittances of funds from Chile to the foreign investor upon the sale of shares underlying ADSs or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and
•all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile by the intervening entity of the Formal Exchange Market.
When funds are brought into Chile for a purpose other than to acquire shares to convert them into ADSs or deposit them into an ADR program and subsequently such funds are used to acquire shares to be converted into ADSs or deposited into an ADR program such investment must be reported to the Central Bank of Chile by the custodian within 10 days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.
When funds to acquire shares of our common stock or to acquire shares to convert them into ADSs or deposit them into an ADR program are received by us abroad (i.e., outside of Chile), such investment must be reported to the Central Bank of Chile directly by the foreign investor or by an entity participating in the Formal Exchange Market within ten days following the end of the month in which the investment was made.
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All payments in foreign currency in connection with our shares of common stock or ADSs made from Chile through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.
There can be no assurance that additional Chilean restrictions applicable to the holders of ADSs, the disposition of shares of our common shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.
This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank of Chile’s Foreign Exchange Regulations, a copy of which is available in Spanish and English versions at the Central Bank’s website at www.bcentral.cl.
Voting Rights
Holders of our ADSs, which represent common shares, may instruct the depositary to vote the shares underlying their ADRs. If we ask holders for instructions, the depositary will notify such holders of the upcoming vote and arrange to deliver our voting materials to such holders. The materials will describe the matters to be voted on and explain how holders may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as they direct by a specified date. For instructions to be valid, the depositary must receive them on or before the date specified as “Vote Cut-Off Date.” The depositary will try, as far as practical, subject to Chilean law and the provisions of our by-laws, to vote or to have its agents vote the shares or other deposited securities as holders instruct. Otherwise, holders will not be able to exercise their right to vote unless they withdraw the shares. However, holders may not know about the meeting far enough in advance to withdraw the shares. We will use our best efforts to request that the depositary notify holders of upcoming votes and ask for their instructions.
If the depositary does not receive voting instructions from a holder by the specified date, it will consider such holder to have authorized and directed it to give a discretionary proxy to a person designated by our board of directors to vote the number of deposited securities represented by such holder’s ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions to be voted upon unless we notify the depositary that:
•we do not wish to receive a discretionary proxy;
•we think there is substantial opposition to the particular question; or
•we think the particular question would have an adverse impact on our shareholders.
The depositary will only vote or attempt to vote as such holder instructs or as described above.
We cannot assure holders that they receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. This means that holders may not be able to exercise their right to vote and there may be nothing they can do if their shares are not voted as they requested.
Exchange Rates
Prior to 1989, Chilean law permitted the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile. The Central Bank Act liberalized the rules that govern the ability to buy and sell foreign currency. The Central Bank Act empowers the Central Bank of Chile to determine that certain purchases and sales of foreign currency specified by law must be carried out exclusively in the Formal Exchange Market, which is made up of the banks and other entities authorized by the Central Bank of Chile. All payments and distributions with respect to the ADSs must be conducted exclusively in the Formal Exchange Market.
For purposes of the operation of the Formal Exchange Market, the Central Bank of Chile sets a reference exchange rate (dólar acuerdo). The Central Bank of Chile resets the reference exchange rate monthly, taking internal and external inflation into account, and adjusts the reference exchange rate daily to reflect variations in parities between the Chilean peso, the U.S. dollar, the Japanese yen and the European euro.
The observed exchange rate (dólar observado) is the average exchange rate at which transactions were actually carried out in the Formal Exchange Market on a particular day, as certified by the Central Bank of Chile on the next banking day.
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In order to keep fluctuations in the average exchange rate within certain limits, the Central Bank of Chile has in the past intervened by buying or selling foreign currency on the formal exchange market. In September 1999, the Central Bank of Chile decided to limit its formal commitment to intervene and decided to exercise it only under extraordinary circumstances, which are to be announced in advance. The Central Bank of Chile also committed to provide periodic information about the levels of its international reserves.
Purchases and sales of foreign exchange effectuated outside the Formal Exchange Market are made through the Informal Exchange Market (Mercado Cambiario Informal). There are no limits on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate.
Although our results of operations have not been significantly affected by fluctuations in the exchange rates between the peso and the U.S. dollar because our functional currency is the U.S. dollar, we are exposed to foreign exchange losses and gains due to exchange rate fluctuations. Even though the majority of our revenues are denominated in or pegged to the U.S. dollar, the Chilean government’s economic policies affecting foreign exchange and future fluctuations in the value of the peso against the U.S. dollar could adversely affect our results of operations and an investor’s return on an investment in ADSs.
E.Taxation
Chilean Tax
The following discussion relates to Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean Servicio de Impuestos Internos (“Chilean IRS”) and other applicable regulations and rulings, all of which are subject to change. The discussion summarizes the principal Chilean income tax consequences of an investment in the ADSs or common shares by a person who is neither domiciled in, nor a resident of, Chile or by a legal entity that is incorporated abroad not organized under the laws of Chile and does not have a branch or a permanent establishment located in Chile (such an individual or entity is referred to herein as a Foreign Holder). For purposes of Chilean tax law, an individual holder is (i) a resident of Chile if such person remains in Chile, whether continuously or not, for a period or periods exceeding a total of 183 days, within any twelve-month period; and/or (ii) domiciled in Chile if such person’s main place of business is located in the country. The discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.
Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities enact rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations, and interpretations, but Chilean tax authorities may change these rulings, regulations, and interpretations prospectively.
On December 19, 2023, an income tax treaty between the United States and Chile (Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion or “Convention”) entered into force. With respect to taxes withheld at the source of income, the Convention will have effect for amounts paid or credited on or after February 1, 2024. For all other taxes, the Convention will have effect for taxable periods beginning on or after January 1, 2024. Some of the main implications of the Convention are:
•Generally reduces rates of withholding taxes.
•Generally eliminates withholding tax in the source country on service payments.
•Withholding tax rates on royalties will be limited to 2% or 10%.
•As a general rule, capital gains of a resident may be taxed in both countries, although reduced rates or exemptions from one country’s tax may apply to gains derived by a resident of the other country, depending on the type of asset disposed of. In the case of shares or other rights or interests representing the capital of a company resident in a country, 16% is the maximum rate allowed to be imposed by that country on a resident of the other country who alienates the shares or other rights or interests, if the seller previously owned shares representing no more than 50% of the capital of the company (and in the case of alienators of other rights, rights previously owned by the seller represented less than 20% of the capital). Exemptions for pension funds and institutional investors are
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applicable. Likewise, tax exemptions apply to the sale of shares with stock market presence, being taxed only in the taxpayer's country of residence when certain requirements are met.
•It does not preclude the United States from taking payments from Chilean residents into account in computing the “Base Erosion Anti-abuse Tax” (known as the “BEAT”) of a U.S. taxpayer.
Law No. 21,420, published on February 4, 2022, aims to reduce or eliminate certain tax exemptions. The new law limits the non-taxable income benefit on capital gain on the disposal of public traded instruments, incorporating a 10% single tax on capital gains obtained by non-institutional investors on the sale of those instruments, tax effective for operations as of September 2, 2022. If all the requirements stated in the Convention for exemption from tax of capital gains on this type of assets are met, then this single tax will generally not be applicable after the relevant effective date in the Convention.
Additionally, on July 7, 2022, the Chilean government submitted to Congress a tax reform bill that includes amendments to the Income Tax Law, the Tax Code, the VAT Law, the introduction of a new wealth tax, among others however, this bill was not passed in Congress. A new tax reform bill is likely to be presented to Congress for discussion and eventual Congress and Senate approval during 2024. So far, the final content and details of the tax measures is unknown.
Finally, on December 19, 2023, the government presented before the Congress a bill that creates a Register of Beneficial Ownership. Such registry will contain information of final beneficiaries of legal persons, investment funds, and other entities without legal personality, incorporated or domiciled in Chile, or with any type of permanent establishment in Chile.
Cash Dividends and Other Distributions
Under the Partially Integrated Regime, cash dividends we pay with respect to the ADSs or common shares held by a Foreign Holder will be subject to a 35% Chilean withholding tax, which we withhold and pay over to the Chilean tax authorities (the “Withholding Tax”). A credit against the Withholding Tax is available based on the corporate income tax rate of the year of distribution and provided a sufficient balance of accumulated corporate income tax credits is available. These credits correspond to corporate income tax we actually paid on the accumulated income (referred to herein as the “First Category Tax” or “FCIT”). However, this credit does not reduce the Withholding Tax on a one-for-one basis because it also increases the base on which the Withholding Tax is imposed. In addition, if we distribute less than all of our distributable income, the credit for First Category Tax we pay is proportionately reduced. If we register net income and a tax loss, no credit against the Withholding Tax may be available.
The Partially Integrated Regime reduces the amount of First Category Tax creditable against the Withholding Tax for certain Foreign Holders. As a general rule, only 65% of the First Category Income Tax credit will actually offset the Withholding Tax. However, if a tax treaty is in place between Chile and the country of domicile of a Foreign Holder and such Foreign Holder is entitled to treaty benefits in relation to the income, as it the case, the full First Category Tax credit will continue to be available to be offset against the Withholding Tax.
In general, the example below illustrates the effective Withholding Tax burden on a cash dividend received by a Foreign Holder assuming a Withholding Tax rate of 35%, a First Category Tax rate of 27% and a distribution of 30% of the consolidated net income of the Company after payment of the First Category Tax:
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| Foreign Holder in Treaty Country | Foreign Holder in Non-Treaty Country | ||||||||||
| The Company’s taxable income | 100.00 | 100.00 | |||||||||
| First Category Tax (27% of Ch$100). | (27.00) | (27.00) | |||||||||
| Net distributable income | 73.00 | 73.00 | |||||||||
| Dividend distributed (*) | 21.90 | 21.90 | |||||||||
| First category increase | 8.10 | 8.10 | |||||||||
| Amount subject to Withholding Tax (**) | 30.00 | 30.00 | |||||||||
| Withholding Tax | (10.50) | (10.50) | |||||||||
| Credit for First Category Tax | 8.10 | 8.10 | |||||||||
| Add back 35% of the First Category Tax | N/A | (2.84) | |||||||||
| Net tax withheld | (2.40) | (5.27) | |||||||||
| Net dividend received | 19.5 | 16.64 | |||||||||
| Effective dividend withholding rate | 11% | 24% | |||||||||
______________________________________________________
(*)30% of net distributable income.
(**)The dividend of Ch$21.90 grossed up with the First Category Tax credit of Ch$8.10.
The effective rate of Withholding Tax to be imposed on dividends we pay will depend on the First Category Tax rate applicable in the year of distribution and on the balance of First Category Income Tax credits accumulated by the Company. The First Category Tax rate is 27% for 2018 and following years. The First Category Tax credits generated as of 2017, will be allocated first. Once the balance of First Category Tax credits generated as of 2017 are exhausted, the First Category Tax credits accumulated until December 31, 2016 will be used. In that event the First Category Tax credit available against the Withholding Tax will not correspond to the First Category Tax rate of the year of distribution but to the average rate of First Category Tax credits accumulated until December 31, 2016. This average rate will be determined by dividing the aggregate First Category Tax Credits accumulated until December 31, 2016 by the aggregate retained taxable profits accumulated at the same date. The First Category Tax credits accumulated until December 31, 2016 are not subject to the First Category Tax Credit Restitution irrespective of whether a tax treaty is in place with the country of the Foreign Holder or not.
The First Category Tax credits accumulated until December 31, 2016 correspond to the First Category Tax we actually paid on the income generated in a given year. For earnings generated from 1991 until 2001, the First Category Tax rate was 15%. The rate was 16.0% in 2002, 16.5% in 2003, 17% from 2004 until 2010, 20% from 2011 until 2013, 21% in 2014, 22.5% in 2015, 24% in 2016 and 25.5% in 2017 for companies subject to the Partially Integrated Regime.
In the event that the accumulated First Category Tax credits are not sufficient to cover any particular dividend, we will generally withhold tax from the dividend at the full 35% rate.
Dividend distributions made in kind would be subject to the same Chilean tax rules as cash dividends based on the fair market value of the relevant assets. Stock dividends and the distribution of preemptive rights are not subject to Chilean taxation.
Capital Gains
Gains from the sale or other disposition by a Foreign Holder of ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.
Gains realized on a sale or disposition of common shares by a Foreign Holder (as distinguished from sales or exchanges of ADRs evidencing ADSs representing such common shares) may be subject to a 35% Tax. However, a gain not exceeding 10 Annual Tax Units (app US $8,759.22 as of December 13, 2023) recognized by a Foreign Holder without
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taxable presence in Chile in a sale to a non-related buyer will not be taxable. The proceeds of the sale or disposition are subject to a withholding of 35% applicable on the gain. If the gain subject to taxation cannot be determined, the Foreign Holder is subject to a provisional withholding of 10% of the total proceeds, without any deduction, when the amounts are paid to, credited to, accounted for, put at the disposal of, or corresponding to, the Foreign Holder. The Foreign Holder would be entitled to request a tax refund for any amounts withheld in excess of the taxes actually due in April of the following year upon filing its corresponding tax return.
Notwithstanding the above, Article 107 of the Chilean Income Tax Law provides for a 10% sole tax on capital gains arising from the sale of shares of listed companies traded in the stock markets (except for capital gains obtained by “institutional investors” –as defined in Article 4 bis (d) of the Chilean Securities Market Act–, whether domiciled or resident in Chile or abroad, which will be tax exempt if the legal requirements are met). In general terms, the referred provision mandates that in order to qualify for this special tax treatment: (i) the shares must be of a publicly held stock corporation with a “high trading presence” status in the Chilean Stock Exchanges; (ii) the sale must be carried out in a Chilean Stock Exchange authorized by the CMF, or in a tender offer subject to Chapter XXV of the Chilean Securities Market Act or as the consequence of a contribution to a fund as regulated in Article 109 of the Chilean Income Tax Law; (iii) the shares which are being sold must have been acquired on a Chilean Stock Exchange, or in a tender offer subject to Chapter XXV of the Chilean Securities Market Act, or in an initial public offering (due to the creation of a company or to a capital increase), or due to the exchange of convertible publicly offered securities, or due to the redemption of a fund’s quota as regulated in Article 109 of the Chilean Income Tax Law; and (iv) the shares must have been acquired after April 19, 2001.
The buyer or stockbroker or securities agent acting on behalf of the Foreign Holder shall withhold the amount of the sole tax at the time the sales price is paid, remitted, credited into account or placed at the disposal of the Foreign Holder. The withholding shall be made at 10% rate on the taxable gain, unless the buyer or stockbroker or securities agent acting on behalf of the Foreign Holder does not have sufficient information to determine such capital gain, in which case the withholding shall be made at a provisional rate of 1% on the total price, without any deduction. In this last case, the Foreign Holder must file an annual tax return to pay any differences between the withheld amounts and the final applicable tax, or to request a refund if the first were made in excess of the final tax.
According to Ruling No. 1,480 (issued on August 22, 2014), the Chilean IRS confirmed that capital gains stemming from the sale of shares with high stock market presence acquired through the exchange of American Depositary Receipts (ADRs) for shares is subject to the same tax regime as the gain on the sale of any stock with high stock market presence, which according to the rules enforce as of such date, were not subject to taxes in Chile. Thus, according to the recent modifications, such ruling should imply that they would be subject to the sole tax at a rate of 10%. Such reduced rate is applicable provided that the ADRs comply with the requirements established by the CMF for the public offering of securities in Chile (i.e. if the ADRs are registered in the Foreign Securities Registry of the CMF, or their registration has been exempted by the CMF under a cooperation agreement signed with regulators of foreign markets), and the underlying shares have been registered in the Securities Registry of the CMF and on a Chilean Stock Exchange. According to General Ruling No. 327, issued by the CMF on January 17, 2012, shares are considered to have a high presence in the stock exchange when they:
| ● | are registered in the Securities Registry; | |||||||
| ● | are registered in a Chilean Stock Exchange; and | |||||||
| ● | meet at least one of the following requirements: | |||||||
| ● | have an adjusted presence equal to or above 25%; | |||||||
| ● | have a Market Maker (this requirement is limited under Law No. 21,420). | |||||||
To calculate the adjusted presence of a particular share, the aforementioned regulation first requires a determination of the number of days in which the operations regarding the stock exceeded, in Chilean pesos, the equivalent of 1,000 UF (app US$ 41,648.93 as of December 13, 2023) within the previous 180 business days of the stock market. That number must then be divided by 180, multiplied by 100, and expressed in a percentage value.
To meet the “Market Maker” requirement the issuer of the shares must execute a written contract with a stockbroker incorporated in Chile that fulfills some additional requirements. Law No. 21,210 modified this provision in
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those cases where the high stock market presence is given exclusively by virtue of a Market Maker. In such cases, the capital gain tax exemption would apply only for the term of one year from the first public offering of the securities.
The tax basis of common shares received in exchange for ADRs will be the acquisition value of the common shares on the date of exchange duly adjusted for local inflation. For purposes of Ruling No. 324, dated January 29, 1990, issued by the Chilean IRS, the valuation procedure set forth in the deposit agreement, which values the shares that are being exchanged at the highest reported sales price at which they trade on the stock exchange on the day on which the transfer of such shares is recorded on the books of the company’s share registrar, will determine the Foreign Holder’s acquisition value for this purpose. In the case where the sale of the shares is made on a day that is different from the date on which the exchange is recorded, capital gains subject to taxation in Chile may be generated. Notwithstanding the foregoing, following the criteria of Ruling No. 3708, dated October 1, 1999, issued by the Chilean IRS, the deposit agreement provides that in the event that the exchanged shares are sold by the Foreign Holder on a Chilean stock exchange on the same day on which the transfer is recorded on the company’s share registrar or within two Chilean business days prior to the date on which the sale is recorded on those books, the acquisition value of such exchanged shares shall be the price registered in the invoice issued by the stock broker that participated in the sale transaction.
Notwithstanding the above mentioned tax exemption under article 107 of the Chilean Income Tax Law in benefit of institutional investors which is still applicable, a previous specific capital gain tax exemption for “foreign institutional investors” such as mutual funds and pension funds was repealed as from May 1, 2014, by Law 20,712. However, the law includes a grandfathering provision for shares acquired before May 1, 2014. This provision establishes an exemption on the capital gain obtained in the sale of shares that are publicly traded and have a high presence in a stock exchange when the sale is made by a foreign institutional investor, provided that the sale is made in a local stock exchange or in a public tender in accordance with the provisions of the Securities Market Act, or in the redemption of fund quotas, and the shares were acquired before May 1, 2014.
Pursuant to the regulations of the grandfathering rule, to qualify for the exemption, the taxpayer must be incorporated or formed outside of Chile, not have a domicile in Chile, and must qualify as a foreign institutional investor according to the requirements set forth in the law. In addition, the foreign institutional investor must not directly or indirectly participate in the control of the corporations issuing the shares it invests in, nor possess or participate directly or indirectly in 10% or more of the capital or the profits of such corporations. Furthermore, the foreign institutional investor must execute a written contract with a bank, or a stockbroker incorporated in Chile. In this contract, the bank or stockbroker must undertake to execute purchase and sale orders, verify the applicability of the tax exemption or tax withholding, and inform the Chilean IRS of the investors it works with and the transactions it performs. Finally, the foreign institutional investor must register with the Chilean IRS by means of a sworn statement issued by such bank or stockbroker.
The date of acquisition of the ADSs is considered to be the date of acquisition of the shares for which the ADSs are exchanged.
The exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Any gain obtained by a Foreign Holder without taxable presence in Chile on the sale of preemptive rights relating to the common shares will be subject to Withholding Tax (the former being creditable against the latter).
It should be noted that the single 10% tax indicated above with respect to the disposal of shares with stock market presence would not be applicable for capital gains obtained by taxpayers domiciled in the U.S. eligible for the benefits of the Convention who meet all the requirements for exemption. In this regard, the Convention sets out that earnings obtained by a resident of a state that has ratified the Convention (a “Contracting State”) and the disposal of shares in a company resident in the other Contracting State with a stock market presence on a recognized stock exchange located in in that other Contracting State, may be taxed only in the country where the transferor resides if the following requirements are met: (a) the shares are sold on a stock exchange recognized in the another Contracting State or in a takeover bid process of shares in accordance with applicable law, and (b) such shares have been previously acquired in (i) a stock exchange recognized in that other Contracting State, (ii) in a legally regulated takeover bid process, (iii) in a primary placement of shares, (iv) upon the incorporation of the company or of a subsequent capital increase, or (v) in an exchange of bonds convertible into shares.
Other Chilean Taxes
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Please note that there should not be Chilean inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of ADSs by a Foreign Holder, but such taxes generally will apply to the transfer at death or by gift of the common shares by a Foreign Holder. However, in the inheritance of a Foreign Holder, assets located abroad may only be subject to inheritance, gift or succession taxes when they have been acquired with resources originating in Chile. There are no Chilean stamp, issue, registration or similar taxes or duties payable by Foreign Holders of ADSs or common shares.
Withholding Tax Certificates
Upon request, we will provide to Foreign Holders appropriate documentation evidencing the payment of the Withholding Tax (net of the applicable First Category Tax credit).
Material United States Federal Income Tax Considerations
This section describes the material U.S. federal income tax consequences to a U.S. holder (as defined below) of owning common shares or ADSs. It applies to you only if you hold your common shares or ADSs as capital assets for tax purposes. This section does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may be relevant to U.S holders with respect to their ownership and disposition of ADSs or common shares. Accordingly, it is not intended to be, and should not be construed as, tax advice. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
| ● | a dealer in securities, | |||||||
| ● | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, | |||||||
| ● | a tax-exempt organization, | |||||||
| ● | a financial institution, | |||||||
| ● | a regulated investment company, | |||||||
| ● | a real estate investment trust, | |||||||
| ● | a life insurance company, | |||||||
| ● | a person liable for alternative minimum tax, | |||||||
| ● | a person that directly, indirectly or constructively owns 10% or more of the vote or value of our stock, | |||||||
| ● | a person that holds common shares or ADSs as part of a straddle or a hedging or conversion transaction, | |||||||
| ● | a person that purchases or sells common shares or ADSs as part of a wash sale for tax purposes, | |||||||
| ● | a U.S. holder (as defined below) whose functional currency is not the U.S. dollar, | |||||||
| ● | a U.S. expatriate, | |||||||
| ● | a person who acquired our ADSs or common shares pursuant to the exercise of any employee share option or otherwise as compensation, or | |||||||
| ● | a partnership or other pass-through entity or arrangement treated as such (or a person holding our ADSs or common shares through a partnership or other pass-through entity or arrangement treated as such). | |||||||
If you are a member of a special class of holders subject to special rules, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or ADSs. Moreover, this summary does not address the U.S. federal estate, gift, or the Medicare contribution tax applicable to net investment income of certain non-corporate U.S. holders or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the acquisition, ownership and disposition of common shares and ADSs.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed Treasury regulations, published rulings and court decisions, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. In addition, obligations of the United States under the Convention may affect the tax liability imposed by the Code. With respect to taxes withheld at source, the Convention has effect for
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amounts paid or credited on or after February 1, 2024. For all other taxes, the Convention has effect for taxable periods beginning on or after January 1, 2024.
The laws on which this section is based are subject to differing interpretations. No ruling has been sought from the U.S. Internal Revenue Service (the “U.S. IRS”) with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the U.S. IRS or a court will not take a contrary position.
In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
If an entity that is treated as a partnership for U.S. federal income tax purposes holds the common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the common shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or ADSs.
For purposes of this summary, a “U.S. holder” is a beneficial owner of common shares or ADSs that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise is subject to U.S. federal income taxation on a net income basis in respect of such common shares or ADSs.
ADSs
As a result of our Chapter 11 proceedings, LATAM was delisted from the NYSE on June 22, 2020. Our ADSs continue to trade in the over-the-counter market under the ticker “LTMAY.” In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the beneficial owner of the common shares represented by those ADRs. Exchanges of common shares for ADRs, and ADRs for common shares, generally will not be subject to U.S. federal income tax.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly, the creditability of any foreign taxes paid and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders (as discussed below), could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and us if as a result of actions the holders of ADSs are not properly treated as beneficial owners of the underlying common shares.
Taxation of Dividends
Under the U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your adjusted tax basis in the common shares or ADSs, as the case may be, and thereafter as capital gain from the sale or exchange of the common shares or ADSs, as the case may be. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to generally treat any distributions we make as dividend income for U.S. federal income tax purposes.
If you are a U.S. holder who is an individual, trust, or estate, then dividends paid on the ADSs or common shares that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains. Dividends paid on the ADSs or common shares will be treated as qualified dividend income if:
| ● | (a) the ADSs or common shares, as applicable, are readily tradable on an established securities market in the United States; or (b) we are eligible for benefits of a comprehensive tax treaty with the United States, which the U.S. Treasury determines is satisfactory for this purpose, which includes an exchange of information program; | |||||||
| ● | we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC; and | |||||||
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| ● | you hold the ADSs or common shares, as applicable, for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements; and you are not under an obligation to make related payments with respect to positions in substantially similar or related property. | |||||||
We believe that our common shares and ADSs should not be treated as stock of a PFIC for 2023. See additional discussion under the “PFIC Rules,” below.
U.S. IRS guidance provides that shares and ADSs are considered as readily tradable on an established securities market in the United States if they are listed on certain national U.S. securities exchanges, including the NYSE. In the case of stock that is not listed in a manner that meets this definition (such as stock listed on the OTC Bulletin Board or on the electronic pink sheets), the U.S. IRS indicated in 2003 that it was considering whether, or to what extent, treatment as “readily tradable on an established securities market in the United States” should be conditioned on the satisfaction of parameters regarding minimum trading volume, minimum number of market makers, maintenance and publication of historical trade or quotation data, issuer reporting requirements under SEC or exchange rules, or issuer disclosure or determinations regarding PFIC or similar status. To date the U.S. IRS has not issued further guidance on this topic.
Accordingly, because our ADSs were delisted from the NYSE on June 22, 2020 and currently trade only on the over-the-counter market, the U.S. IRS may take the position that dividends we pay with respect to the common shares are not paid with respect to stock that is readily tradable on an established securities market in the United States.
We may, however, be eligible for benefits of the Convention and the U.S. Secretary of the Treasury has determined that the Convention is satisfactory for purposes of the qualified dividend income, definition. If we are so eligible and the U.S. Secretary of the Treasury determines that the Convention is satisfactory for purposes of the qualified dividend income definition, dividends received by an individual, trust, or estate U.S. holder may be subject to taxation at the preferential rates applicable to long-term capital gains if our common shares and ADSs are not treated as stock of a PFIC for the year in which the dividend is paid or the preceding year. Corporate U.S. holders are taxed on dividend income at the U.S. federal corporate income tax rate whether or not the dividend income is qualified dividend income.
The dividend is taxable to you when you receive, in the case of common shares, or the Depositary receives, in the case of ADSs, the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. domestic corporations in respect of dividends received from other U.S. domestic corporations or certain foreign corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean pesos payments made, determined at the spot Chilean pesos/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
The amount of dividend income includes the amount of any Chilean tax withheld from the dividend payment even though you do not in fact receive such amount. Subject to generally applicable limitations and conditions under the Code, Chilean Withholding Tax withheld and paid over to the Chilean tax authorities (after taking into account the credit for the First Category Tax, when it is available) may be creditable or deductible against your U.S. federal income tax liability. These generally applicable limitations and conditions include new requirements adopted by the U.S. IRS in December 2021 and any Chilean withholding tax will need to satisfy these requirements in order to be eligible to be a creditable tax for a U.S. holder. If you either (i) are eligible for, and properly elect, the benefits of the Convention, or (ii) consistently elect to apply a modified version of these rules under recently issued temporary guidance and comply with specific requirements set forth in such guidance, the Chilean withholding tax on dividends will be treated as meeting the new requirements and therefore as a creditable tax. In the case of all other U.S. holders, The application of the requirements to the Chilean Withholding Tax on dividends is uncertain, and we have not determined whether these requirements have been met. If the Chilean withholding tax on dividends is not creditable for you or if you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year, you may be able to deduct the Chilean withholding tax in computing your taxable income for U.S. federal income tax purposes.
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Dividends will generally be income from sources outside the United States and, for U.S. holders that elect to claim foreign tax credits, will, depending on your circumstances, generally be “passive category income” for foreign tax credit purposes. The availability and calculation of foreign tax credits and deductions for foreign taxes depend on your particular circumstances and involve the application of complex rules to those circumstances. The temporary guidance discussed above also indicates that the Treasury and the U.S. IRS are considering proposing amendments to the December 2021 regulations and that the temporary guidance can be relied upon until additional guidance is issued that withdraws or modifies the temporary guidance. U.S. holders should consult their tax advisors concerning the application of these rules in their particular circumstances.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your common shares or ADSs, you will generally recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your adjusted tax basis, in your common shares or ADSs, as determined in U.S. dollars. Capital gain of a U.S. holder who is an individual, trust, or estate, is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to significant limitations. You will generally not be entitled to credit any Chilean tax imposed on the sale or other disposition of the common shares or ADSs against your U.S. federal income tax liability, except in the case you either (i) are eligible for, and properly elect to claim, the benefits of the Convention, or (ii) consistently elect to apply a modified version of the U.S. foreign tax credit rules that is permitted under recently issued temporary guidance and comply with the specific requirements set forth in such guidance. Additionally, the gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Consequently, even if the Chilean tax qualifies as a creditable tax, you may not be able to credit the tax against your U.S. federal income tax liability unless such credit can be applied (subject to generally applicable conditions and limitations) against tax due on other income treated as derived from foreign sources. However, if you are eligible for the benefits of the Convention, you may elect to treat such gain as Chilean-source gain under the Convention. If the Chilean tax is not a creditable tax or you do not claim it as a credit pursuant to the Convention, the tax would reduce the amount realized on the sale or other disposition of the common shares or ADSs even if you have elected to claim a foreign tax credit for other taxes in the same year. The temporary guidance discussed above also indicates that the Treasury and the U.S. IRS are considering proposed amendments to the December 2021 regulations and that the temporary guidance can be relied upon until additional guidance is issued that withdraws or modifies the temporary guidance. U.S holders should consult their own tax advisors regarding the application of the foreign tax credit rules to a sale or other disposition of the common shares or ADSs and any Chilean tax imposed on such sale or disposition.
If the consideration received for our common shares or ADSs is paid in foreign currency, the amount realized will generally be the U.S. dollar value of the payment received translated at the spot rate of exchange on the date of disposition (or, if the common shares or ADSs are traded on an established securities market at such time, in the case of cash-basis and electing accrual-basis U.S. holders, the settlement date). An accrual basis U.S. holder that does not elect to determine the amount realized using the spot exchange rate on the settlement date will recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the amount received based on the spot exchange rates in effect on the date of the sale or other disposition and the settlement date. Our ADSs were delisted from the NYSE on June 22, 2020 and currently trade only on the over-the-counter market. It is unclear whether an over-the-counter market is treated as an established securities market for purposes of these rules. A U.S. holder’s initial tax basis in our common shares or ADSs will equal the cost of such ADSs or common shares. If a U.S. holder used foreign currency to purchase our common shares or ADSs, the cost of our common shares or ADSs will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. If our common shares or ADSs are treated as traded on an established securities market and the relevant U.S. holder is either a cash basis taxpayer or an accrual basis taxpayer who has made the special election described above, such holder will determine the U.S. dollar value of the cost of such common shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
PFIC Rules
We believe that our common shares and ADSs should not be treated as stock of a PFIC for 2022 and we do not anticipate becoming a PFIC in future taxable years, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your common shares or ADSs would in general not be treated as capital gain. Instead, if you are a U.S. holder, unless you make a timely “mark-to-market” election electing to be taxed annually on a mark-to-market basis with respect to your common shares or ADSs, or you make a timely “qualified electing fund” election to be taxed annually on the earnings and gains of the PFIC attributable to your shares or ADSs (irrespective of distributions), you would be treated as if you had realized
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such gain ratably over your holding period in the common shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year except for the current year. In addition, distributions that you receive from us will not be eligible for the preferential tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at the tax rates applicable to ordinary income, and to the extent they are treated as “excess distributions” under the PFIC rules, they will also be subject to the PFIC interest charge described above. A U.S. holder will be required to make an annual filing with the U.S. IRS if such holder holds ADSs or common shares in any year in which we are classified as a PFIC. With certain exceptions, your common shares or ADSs will continue to be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your common shares or ADSs even if we no longer meet the PFIC tests in a later year.
The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. holders are urged to consult their own tax advisers with respect to the application of the PFIC rules to their investment in the common shares or ADSs.
Information Reporting and Backup Withholding
Dividends paid on, and proceeds from the sale or other disposition of, the shares or ADSs to a U.S. holder generally are subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is furnished to the U.S. IRS in a timely manner.
A holder that is not a U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.
Foreign Asset Reporting
Certain U.S. holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include the common shares or ADSs) with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year, are required to report information relating to such assets, currently on Form 8938, subject to certain exceptions (including an exception for stock held in accounts maintained by certain financial institutions). Penalties can apply if U.S. holders fail to satisfy such reporting requirements. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of common shares and ADSs.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. Filings we make electronically with the SEC are available to the public on the Internet at the SEC’s website at www.sec.gov and at our website at http://www.latamairlinesgroup.net/financial-information/sec-filings. (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report.)
I.Subsidiary Information
Not applicable.
J.Annual Report to Security Holders
Not applicable.
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ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
General
Given the nature of its business, LATAM is exposed mainly to three types of market risk:
•Fuel price fluctuations;
•Foreign exchange fluctuations; and
•Interest rate fluctuations.
Management assesses the level of our exposure to these risks periodically to determine which one should be hedged and the most effective mechanisms to be implemented. LATAM purchases derivative instruments in foreign markets to offset market risk exposure, typically utilizing a mix of financial and commodity derivatives. LATAM does not enter into or hold derivative contracts for trading purposes.
For more information on Market Risk, see Note 3 “Financial Risk Management” to our audited consolidated financial statements.
Risk of Fluctuations in Fuel Prices
Jet fuel price fluctuations are largely dependent on supply and demand for crude oil, OPEC decisions, refinery capacities, stock levels of crude oil, natural disasters, climatic risk and geopolitical factors.
LATAM fuel consumption for 2023 was 1,195 million gallons. To manage its exposure to the cost of fuel, LATAM has a hedging program based on our Fuel Hedging Policy, which is annually updated and approved by the board of directors. LATAM’s Fuel Hedging Policy aims to mitigate the liquidity risk in the short/medium term, avoiding cash and financial distress. LATAM has established four hedging zones based on advance purchase behavior, pass-through and fuel invoicing process.
Jet Fuel is not the only underlying asset that LATAM may use for hedging purposes. It may also consider derivative instruments in other underlying commodity assets such as ICE Brent, West Texas Intermediate (WTI) or NYMEX Heating Oil (HO).
LATAM has decided to use protective and non-speculative instruments to reduce the operating margin exposure. Also, LATAM will not use financial derivatives to speculate on financial markets and consequently obtain gains from these types of transactions, and will not receive premiums as cash from sold options (nevertheless LATAM could buy and sell options as a structured product).
LATAM periodically reviews its exposure with each counterparty in order to monitor its credit concentration. For more information, see “Item 3. Key Information—Risk Factors—Risks Relating to our Company—Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.”
During 2023, 2022, and 2021 we entered into a mix of swaps and option contracts on JET FUEL 54 USGC with investment grade banks and other financial entities for notional fuel purchases (non-delivery). Details of the fuel hedging program are shown below:
| LATAM Fuel Hedging Year ended December 31, | |||||||||||||||||
| 2023 LATAM | 2022 LATAM | 2021 LATAM | |||||||||||||||
| Gallons Purchased (million) | 499.6 | 249.4 | 117.4 | ||||||||||||||
| % Total Annual Fuel Consumption | 41.6 | % | 24.6 | % | 16.1 | % | |||||||||||
| Combined Result of Hedges (in millions of US$) | 15.7 | 18.8 | 10.1 | ||||||||||||||
______________________________________________________
As of December 31, 2023, the fair value of our outstanding fuel related derivative contracts was US$22.1 million (positive).
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Gains and losses on the hedging contracts outlined above are recognized as a cost of sales in the income statement when the fuel subject to the hedge is consumed. Premiums paid related to fuel derivative contracts are recorded as prepaid expenses (current assets) and recorded as an expense at the time the contract expires.
Under IFRS Accounting Standards, the fair value of the hedging derivatives is booked as a non-current asset or liability if the remaining maturity of the item is hedged for more than 12 months, and as a current asset or liability if the remaining term of the item is hedged for less than 12 months. The fair value of the derivative contracts is deferred within an equity reserve account. [Please see Note 2.9 to our audited consolidated financial statements]. As the current positions do not represent changes in cash flows but a variation in the exposure to the market value, the Company’s current hedge positions have no impact on income; they are booked as cash flow hedge contracts, so a variation in fuel prices has an impact on the Company’s net equity.
The following table shows the sensitivity analysis of our hedging contracts to reasonable changes in fuel prices and their effect on equity. The term used for the projection was December 31, 2024, the last maturity date of our current fuel hedge contracts. The calculations were made considering a parallel movement of US$5 per barrel in the curve of the JET futures benchmark price at the end of December 2023, 2022, 2021.
| LATAM fuel price sensitivity Position as of December 31 | |||||||||||||||||
| 2023 LATAM (effect on equity) | 2022 LATAM (effect on equity) | 2021 LATAM (effect on equity) | |||||||||||||||
| (millions of US$ per barrel) | |||||||||||||||||
| HO or JET benchmark price | |||||||||||||||||
| +5 | +10.8 | +2.2 | +2.7 | ||||||||||||||
| -5 | -10.7 | -2.3 | -3.3 | ||||||||||||||
During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement pursuant to IFRS Accounting Standards principles for recognizing and measuring financial instruments.
Given the fuel hedge structure during the year 2023, which considers a portion free of hedge, a vertical drop of US$5 in the JET reference price (considered as the monthly daily average), would have had an approximate impact of US$131.6 million lower fuel cost. For the same period, a vertical increase of US$5 dollars in the JET reference price (considered as the monthly daily average), would have had an approximate impact of US$131.3 million higher fuel costs.
Risk of Variation in Foreign Exchange Rates
The functional currency of the LATAM holding company is the U.S. dollar. Since LATAM conducts its business in local currencies in several countries, it faces the risk of variations in multiple foreign currency exchange rates. Depreciation of these currencies against the U.S. dollar could have adverse effects both transactional and translational, because part of our revenues and expenses are denominated in those currencies.
At the same time, LATAM’s affiliates are exposed to foreign exchange risk, which could in turn impact the consolidated results of the Company.
The greatest exposure to future cash flows is mainly presented by the subsidiary LATAM Airlines Brazil and volatility in the R$/US$ exchange rate. LATAM Airlines Brazil’s earnings are generated largely in R$. We actively manage the R$/US$ exchange rate risk by entering into FX derivative contracts and carrying out internal operations for obtaining natural hedging.
To a lesser extent, the company also faces foreign exchange risk relating to additional currencies such as: Great Britain Pound, Euro, Chilean Peso, Australian Dollars, Argentine Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Nuevo Sol, Colombian Peso and New Zealand Dollars. Those currencies could be hedged as long as they turn relevant (higher exposure and volatility) to the LATAM’s market risk management. As of December 31, 2023, LATAM has US$414 million in notional for FX Hedges.
Because of changes in the values of existing FX derivative positions do not represent changes in cash flows, but a variation in the exposure of market value, the outstanding hedging positions do not impact results (they are registered as
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cash flow hedges under IFRS Accounting Standards, therefore, a change in the foreign exchange rate has an impact on the equity of the Company).
Balance sheet exposure of LATAM to the Brazilian Real is related to the functional currency of LATAM Airlines Brazil and its balance sheet currency mismatch, as LATAM Airlines Brazil has a net US$ liability position. When the balance sheet denominated in U.S. dollars is translated to Brazilian Real, the financial results of LATAM Airlines Brazil may fluctuate and therefore could impact LATAM’s financial results.
The exposure to the Brazilian real on LATAM Airlines Brazil balance sheet has been reduced from over US$ 4 billion since the merger between LAN and TAM in June 2012 to around US$ 66 million as of December 31, 2023. The Company continues working to mitigate this exposure through financial and operational mechanisms.
The following table shows the sensitivity of LATAM Airlines Brazil’s financial results to changes in the R$/US$ exchange rate:
| LATAM Airlines Brazil exchange rate sensitivity Position effect on pre-tax earnings as of December 31, | |||||||||||||||||
| 2023 LATAM | 2022 LATAM | 2021 LATAM | |||||||||||||||
| (millions of US$) | |||||||||||||||||
| Appreciation (depreciation) of R$/US$ | |||||||||||||||||
| -10% | +6.6 | +70.7 | +51.9 | ||||||||||||||
| +10% | -6.6 | -70.7 | -51.9 | ||||||||||||||
Our foreign currency exchange exposure as of December 31, 2023 was as follows:
| LATAM foreign currency exchange exposure | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Dollars MUS$ | % of total | Brazilian real MUS$ | % of total | Chilean pesos MUS$ | % of total | Other currencies MUS$ | % of total | Total MUS$ | |||||||||||||||||||||||||||||||||||||||||||||
| Current assets | 2,053,133 | 48.8 | % | 1,431,319 | 34.1 | % | 283,999 | 6.8 | % | 434,911 | 10.3 | % | 4,203,362 | ||||||||||||||||||||||||||||||||||||||||
| Other assets | 8,716,043 | 83.3 | % | 1,625,725 | 15.5 | % | 65,215 | 0.6 | % | 56,970 | 0.5 | % | 10,463,953 | ||||||||||||||||||||||||||||||||||||||||
| Total assets | 10,769,176 | 73.4 | % | 3,057,044 | 20.8 | % | 349,214 | 2.4 | % | 491,881 | 3.4 | % | 14,667,315 | ||||||||||||||||||||||||||||||||||||||||
| Current liabilities | 2,742,397 | 48.2 | % | 103,808 | 1.8 | % | 916,034 | 16.1 | % | 1,925,896 | 33.9 | % | 5,688,135 | ||||||||||||||||||||||||||||||||||||||||
| Long-term liabilities | 7,267,532 | 85.1 | % | 926,289 | 10.8 | % | 278,265 | 3.3 | % | 68,819 | 0.8 | % | 8,540,905 | ||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 10,009,929 | 70.3 | % | 1,030,097 | 7.2 | % | 1,194,299 | 8.4 | % | 1,994,715 | 14.0 | % | 14,229,040 | ||||||||||||||||||||||||||||||||||||||||
| Total equity | 438,275 | 100.0 | % | — | — | — | — | — | — | 438,275 | |||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and equity | 10,448,204 | 71.2 | % | 1,030,097 | 7.0 | % | 1,194,299 | 8.1 | % | 1,994,715 | 13.6 | % | 14,667,315 | ||||||||||||||||||||||||||||||||||||||||
Risk of Fluctuations in Interest Rates
As of December 31, 2023, LATAM had US$4.0 billion in outstanding interest-bearing loans. LATAM usually uses interest rate derivatives to reduce the impact of an increase of interest rates, although at this moment, given the Chapter 11 proceedings, LATAM has no derivatives ongoing. Given this situation, approximately 50% of LATAM outstanding debt as of December 31, 2023, was effectively at a fixed rate.
LATAM’s interest-bearing loans can be classified by: variable interest rate debt and fixed interest rate. LATAM’s variable interest rate debt amounts to US$2,027 million, from which 46% is assigned to aircraft financing and 54% to non-aircraft financing. The fixed interest rate debt amounts are US$2,007 million of which 35% is assigned to aircraft financing and 65% to non-aircraft financing.
As of December 31, 2023, the Company did not maintain interest rate derivative positions in force. As of December 31, 2022, the value of interest rate derivative positions amounted to US$8.8 million (positive) corresponding to operating lease hedges in order to fix the rents upon delivery of the aircraft.
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During the period ended December 31, 2023, the Company recognized losses of US$1.8 million (negative) corresponding to the recognition for premiums paid.
As of December 31, 2023, the Company recognized a decrease in the right-of-use asset due to the expiration of derivatives for US$14.9 million associated with aircraft leases. As of December 31, 2023, a lower depreciation expense of the right-of-use asset for US$1.1 million (positive) was recognized. As of December 31, 2022, the Company recognized US$0.1 million (positive) for this same concept.
As of December 31, 2023, the average interest rate of our outstanding interest-bearing long-term debt rate was 10.7%.
The following table summarizes our principal payment obligations on all of our interest-bearing debt as of December 31, 2023, and the related average interest rate for such debt. The average interest rate has been calculated based on the prevailing interest rate on December 31, 2023 for each loan.
LATAM’s principal payment obligations by year of expected maturity(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate(2) | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 and thereafter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions of US$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | 10.7 | % | 207 | 257 | 211 | 1,903 | 176 | 1,296 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
______________________________________________________
(1)At cost.
(2)Average interest rate means the average prevailing interest rate on our debt on December 31, 2023.
The following table shows the sensitivity of changes in our long-term interest-bearing liabilities and capital leases that are not hedged against interest-rate variations. These changes are considered reasonably possible based on current market conditions.
| LATAM’s interest rate sensitivity (effect on pre-tax earnings) Position as of December 31, | |||||||||||||||||
| 2023 LATAM | 2022 LATAM | 2021 LATAM | |||||||||||||||
| (millions of US$) | |||||||||||||||||
| Increase (decrease) of future curve SOFR rate | |||||||||||||||||
| +100 | -20.27 | -22.64 | -46.31 | ||||||||||||||
| -100 basis points | +20.27 | +22.64 | +46.31 | ||||||||||||||
Changes in market conditions produce a change in the valuation of current financial instruments hedging against fluctuations in interest rates, causing an effect on the Company’s equity (because they are booked as cash-flow hedges). These changes are considered reasonably possible based on current market conditions. The calculations were made by increasing (decreasing) 100 basis points of the interest rate curve.
| LATAM’s interest rate sensitivity (effect on equity) Position as of December 31, | |||||||||||||||||
| 2023 LATAM | 2022 LATAM | 2021 LATAM | |||||||||||||||
| (millions of US$) | |||||||||||||||||
| Increase (decrease) interest rate curve | |||||||||||||||||
| Future Rates | |||||||||||||||||
| +100 basis points | — | +6.9 | — | ||||||||||||||
| -100 basis points | — | -8.2 | — | ||||||||||||||
During the periods presented, the Company has recorded $0.1 million (negative) for ineffectiveness in the consolidated income statement for this type of coverage.
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There are market-related limitations in the method used for the sensitivity analysis. These limitations derive from the fact that the levels indicated by the futures curves may not be necessarily met and may change in each period.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.Debt Securities
Not applicable.
B.Warrants and Rights
Not applicable.
C.Other Securities
Not applicable.
D.American Depositary Shares
In the United States, our common shares trade in the form of ADS. Since August 2007, each ADS represents one common share, issued by The Bank of New York Mellon, as Depositary pursuant to a Deposit Agreement. ADSs commenced trading on the NYSE in 1997. In October 2011, our Depositary bank changed from The Bank of New York Mellon to JP Morgan Chase Bank, N.A. (“JP Morgan”).
Fees and Charges for ADR Holders
JP Morgan, as depositary, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees. The depositary may also collect its annual fee for depositary services by deductions from cash distributions, by directly billing investors or by charging the book-entry system accounts of
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participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
| Persons depositing or withdrawing shares must pay: | For: | |||||||
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | •Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property •Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |||||||
| US$0.05 (or less) per ADS | •Any cash distribution to ADS registered holders | |||||||
| A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs | •Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | |||||||
| US$0.05 (or less) per ADSs per calendar year | •Depositary services | |||||||
| Registration or transfer fees | •Transfer and registration of shares on the depositary’s share register to or from the name of the depositary or its agent when investors deposit or withdraw shares | |||||||
| Expenses of the depositary | •Cable, telex and facsimile transmissions •Conversion of foreign currencies into U.S. dollars | |||||||
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADS or share underlying an ADS, such as stock transfer taxes, stamp duty or withholding taxes | •As necessary | |||||||
| Any charges incurred by the depositary or its agents for servicing the deposited securities | •As necessary | |||||||
Fees and Direct and Indirect Payments Made by the Depositary to the Foreign Issuer
Past Fees and Payments
During 2023, the Company did not received any payment from the depositary for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), payments related to applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.
Future Fees and Payments
JP Morgan, as the depositary bank, has agreed to reimburse the Company for certain of our reasonable expenses related to our ADS program and incurred by us in connection with the program. The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived).
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PART II
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15 CONTROLS AND PROCEDURES
A.Disclosure Controls and Procedures
Management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon such evaluation, management, with the participation of the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures, as of December 31, 2023, were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
B.Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate. LATAM Airlines Group S.A.’s management, including the Chief Executive Officer and the Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 based on the criteria established in Internal Control - “Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and, based on such criteria, LATAM Airlines Group S.A.’s management has concluded that, as of December 31, 2023, the Company’s internal control over financial reporting is effective. The company’s internal control over financial reporting effectiveness as of December 31, 2023 has been audited by PricewaterhouseCoopers Consultores Auditores y Compañía Limitada, an independent registered public accounting firm, as stated in their report included herein.
C.Attestation report of the registered public accounting firm.
See page F-2 of our audited consolidated financial statements.
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D.Changes in internal controls over financial reporting.
There have been no changes that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.
ITEM 16 RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has appointed on February 22, 2024, Fred Curado, Sonia Villalobos and Michael Neruda as “audit committee financial experts” as defined in the instructions to Item 16A of the SEC’s Form 20-F. These individuals meet the applicable independence requirements of the SEC and Section 303A.02 of the New York Stock Exchange’s Listed Company Manual. For a discussion of the role of our audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees— Board of Directors’ Committee and Audit Committee.”
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics and conduct, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our senior management, including our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, as well as to other employees. Our code is freely available online at our website, www.latamairlinesgroup.net, under the heading “Corporate Governance” on the Investor Relations page. In addition, upon written request, by regular mail, to the following address: LATAM Airlines Group S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, 20th Floor, Las Condes, Santiago, Chile or by e-mail at InvestorRelations@latam.com we will provide any person with a copy of it without charge. If we amend the provisions of our code of ethics that apply to our senior management or to other persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Non-Audit Fees
The following table sets forth the fees paid to our independent registered public accounting firm, PricewaterhouseCoopers Consultores Auditores y Compañía Limitada, during the fiscal years ended December 31, 2023 and 2022:
| 2023 | 2022 | ||||||||||
| USD (in thousands) | |||||||||||
| Audit fees | 1,637 | 3,026 | |||||||||
| Audit-related fees | - | - | |||||||||
| Tax fees | - | - | |||||||||
| All Other fees | 2 | 45 | |||||||||
| Total fees | 1,639 | 3,071 | |||||||||
Audit-related fees in the above table are the aggregate fees billed by PricewaterhouseCoopers Consultores Auditores y Compañía Limitada for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, including due diligence and other audit related services.
Board of Directors’ Committee Pre-Approval Policies and Procedures
Since January 2004, LATAM has complied with SEC regulations regarding the type of additional services our independent auditors are authorized to offer to us. In addition, our board of directors’ Committee (which serves as our Audit Committee) has decided to automatically authorize any such accepted services, individually or jointly considered during one calendar year, for an amount of up to 20% of the fees charged by the auditing firm. If the amount of any services, individually or jointly considered during one calendar year, is larger than these thresholds, approval by the board of directors’ Committee will be required.
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ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
As a result of our Chapter 11 proceedings, the New York Stock Exchange (the “NYSE”) filed with the SEC a notice on June 10, 2020 in order to delist our American Depositary Shares (ADSs). The delisting became effective on June 22, 2020. Our ADSs continue to trade in the over-the-counter market under the ticker “LTMAY.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. RESERVED
ITEM 16K. CYBERSECURITY MANAGEMENT AND STRATEGY
It is a priority for LATAM to ensure adequate levels of protection and cybersecurity for its operations and business processes, as well as for the security of customer, investor and employee information. In light of this priority, LATAM has designed a robust risk management process, which is under continuous improvement seeking to adapt to the latest standards and technology. This process includes the creation of a cybersecurity risk assessment program that allows the identification and timely management of current group's risks, including financial fraud, confidential data loss, regulatory noncompliance, unavailable technologies and reputational damage, by performing the necessary reviews on the technological assets that support the business. The program is governed by three layers of control: the first one is led by risk managers and those responsible for IT controls, the second one is led by the compliance and legal department, as well as the Technological and CyberSecurity risk area, and the third one is led by our internal audit team.
The cybersecurity risk management process is based on the best practices provided by ISO/IEC 27000, ISO/IEC ISO/IEC 3100 and international standards such as the National Institute of Standards and Technology (“NIST”), mainly to delimit the phases of identification and contextualization, evaluation, treatment, monitoring, communication and awareness of cybersecurity risks. In addition, LATAM Airlines Group is certified in the Payment Card Industry Data Security Standard (“PCI DSS”) and complies with applicable local data privacy legislation, the Sarbanes-Oxley Act and IATA safety standards.
LATAM has a team (the “Cybersecurity Team”) duly trained to provide transversal support on issues of cybersecurity governance, risk and compliance, vulnerability management, awareness & training, data protection, cybersecurity architecture, red team, identities and logical access, cyber defense and threat intelligence, all of which are interconnected and strongly involved throughout the risk management process and are under the leadership of the Chief Information Security Officer (CISO). Similarly, the cybersecurity operating model adopted by the company is based on the NIST Cybersecurity Framework (“CSF”).
During the last five years, the business strategy, results of operations and financial situation have not been materially affected by cybersecurity threat risks and, although it cannot be guaranteed that they will not be materially affected in the future by such risks or any material incident, it is understood that the threat environment is dynamic and therefore, it requires the combination of emerging strategies that are at the forefront of new attack trends, without leaving aside the traditional or core strategies that give life to the management of cybersecurity in the company.
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In relation to cybersecurity risk management processes, the Cybersecurity Team is involved from the beginning in the development of technological projects that support the business, as a strategy to ensure the operations and business of LATAM group, generating a positive impact on key areas of the company and contributing to the satisfaction of customers, shareholders, investors, among other stakeholder groups.
In addition, cyber risk management extends to the monitoring and identification of threats associated with the use of outsourced service providers, which is why a third-party risk management program has been designed and implemented on an ongoing basis, based on a framework that collects the best international practices such as ISO/IEC 27000 and 31000 to manage these risks in a timely manner, also NIST SP 800-161 for the evaluation of the maturity level. Through this program, LATAM manages to classify suppliers according to their critical risk levels and implementing appropriate strategies for the verification of their internal controls, which, in turn, allow strengthening the control of our cybersecurity. The company's external service critical vendors are continuously monitored using the BitSight automated tool and are contractually obliged to report to LATAM the occurrence of incidents that affect its services, business and data.
Between 2022 and 2023, the vulnerability management process has been strengthened, and we created a Technical Vulnerability Management Program which is part of the cybersecurity risk management program and allows us to address all the company’s processes in a transversal manner. This program is based on the early detection of vulnerabilities in technological and information assets, prioritizing those that are critical for the business. It is fed back to the processes of active threat hunting and threat intelligence, which has allowed directing efforts towards prevention.
As a key complement to risk management in this area, LATAM has defined tactics and strategies for the defense of cybersecurity, which are executed by a multidisciplinary team dedicated exclusively to the chain of protection, detection, response and recovery of the company's operations in the event of any cybersecurity event or incident. The company has a Security Operations Center (SOC) for the detection of cybersecurity incidents through the System Information and Event Management (SIEM) tool, as well as a group of expert IT and Cybersecurity engineers performs containment and the CSIRT team prepares the response. There is also an external service specialized in forensic analysis if required.
The technical controls implemented are periodically tested through simulated attack exercises and independent evaluations, in order to verify the degree of effectiveness and efficiency and thus, be the kick-off of the continuous improvement program of cybersecurity. In addition, these strategies keep the company permanently alert to advanced threats and possible attack vectors that could compromise the availability of commercial services or threaten the privacy and integrity of information. In the last three fiscal years, we have not faced any significant incident of information security violation, and the costs associated with possible incidents of this type were insignificant.
As a reinforcement of tactical and operational strategies to maintain cybersecurity standards, LATAM develops an annual training and awareness plan under the Information Security Awareness and Training Standard. The activities of this plan include the updating of e-learning based on awareness, training and education adapted to all roles in the company. This translates into the creation of a culture based on the constant development of knowledge for internal personnel, suppliers and customers.
Governance
With regard to cybersecurity governance, LATAM has defined an organizational structure with specialized and dedicated personnel and formal instances of high hierarchical level, with powers and competencies required to manage information security and cybersecurity. As part of this organizational structure, the Chief Information Security Officer (CISO) performs a risk function and is responsible for the design and maintenance of an adequate system of identification, monitoring, control and mitigation of data protection and cybersecurity risks. The CISO reports hierarchically to the IT Vice President (CIO) and the CIO, in turn, to the CEO of the company.
During the second half of 2023, the CISO role began to be occupied by André Pires Magalhaes, who has academic training in Electronics Engineering at the University of Sao Paulo (Brazil, 2000) and MBA in Corporate Management at the Getulio Vargas Foundation (Rio de Janeiro, Brazil, 2004). Likewise, André has international level certificates in the Information Security and Governance areas, among which ITIL Foundation V3 (2012), CRISC (2010), ISO/IEC 27001 Audit Leader (2010), CGEIT 2009), CISM (2008), CISA (2007) and has a professional career of 21 years of experience in Risk Management & Information Security, developing management, strategy and project management activities. André successfully lead cybersecurity and information security teams in companies from various economic sectors in the South America Region, including FALABELLA Corporated, Santander Chile Bank, PRODUBAN Chile (ISBAN), General
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Motors (Chile, Perú and Brazil), CPM Brazis Technology (Brazil), Natura Cosmetics (Brazil), Alcoa Aluminio S.A (Brazil).
LATAM group also has an Executive Committee responsible for assessing the company’s tolerance to cybersecurity risks, as well as ensuring the allocation of necessary resources, infrastructure personnel and tools for the proper management of these risks. The CISO provides monthly reports to the Executive Committee on the results of the monitoring of the strategies defined for the adequate management of risks in this area, including the results of the periodic evaluation carried out by independent experts on the company’s cybersecurity management program, such as MANDIANT and GM Sectec, among others.
The primary role of the Board and Executive Committee is to oversee the company’s security management program, recognizing that management is responsible for designing, implementing and maintaining an effective program to protect and mitigate data privacy and cybersecurity risks. The full Board receives annual information security and privacy training provided by the CISO. During quarterly meetings, the CIO presents to the Board the status of cyber threats and the effectiveness of measures taken to mitigate them. The independent third party-providers, through its periodic internal control report, also report on cybersecurity issues.
LATAM’s Audit Committee is responsible for, among other things, independently supervising the company’s risk management, including data privacy and cybersecurity risks, which is managed by the Internal Audit department, incorporating strategic metrics, reviewing status of ongoing initiatives, significant incidents and their impact, emerging threats in the sector as well as the results of internal audits.
Finally, the Cybersecurity team annually reviews and updates its governance documents, including the Information Security Policy, the internal regulations that dictate the general guidelines for securing the company’s information and technological assets, and the Information Security Program Plan. Compliance with the information security and cybersecurity documentary framework is reviewed annually by the Internal Audit team and by independent third parties who carry out compliance reviews associated with regulatory standards and laws such as PCI DSS, SOx, IOSA, among others.
ITEM 17 FINANCIAL STATEMENTS
See “Item 18. Financial Statements.”
ITEM 18 FINANCIAL STATEMENTS
See our consolidated Financial Statements beginning on page F-1.
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ITEM 19 EXHIBITS
Documents filed as exhibits to this annual report
| Exhibit No. | Description | ||||||||||
| 1.1 | |||||||||||
| 2.1 | |||||||||||
| 2.2 | |||||||||||
| 2(d)* | |||||||||||
| 2.3 | We hereby agree to furnish to the SEC, upon its request, copies of any instruments defining the rights of holders of our long-term debt (or any long-term debt of our subsidiaries for which we are required to file consolidated or unconsolidated financial statements), where such indebtedness does not exceed 10% of our total consolidated assets. | ||||||||||
| 2.4 | |||||||||||
| 2.5 | |||||||||||
| 4.1.1 | |||||||||||
| 4.1.2 | |||||||||||
| 4.1.3 | |||||||||||
| 4.1.4 | |||||||||||
| 4.1.5 | |||||||||||
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| Exhibit No. | Description | ||||||||||
| 4.1.6 | |||||||||||
| 4.1.7 | |||||||||||
| 4.1.8 | |||||||||||
| 4.1.9 | |||||||||||
| 4.1.10 | |||||||||||
| 4.2 | |||||||||||
| 4.3 | |||||||||||
| 4.3.1 | |||||||||||
| 4.3.2 | |||||||||||
| 4.3.3 | |||||||||||
| 4.3.4 | |||||||||||
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| Exhibit No. | Description | ||||||||||
| 4.12 | |||||||||||
| 4.13 | |||||||||||
| 4.13.1 | |||||||||||
| 4.13.2 | |||||||||||
| 4.13.3 | |||||||||||
4.13.4 | |||||||||||
4.13.5*## | |||||||||||
| 4.14 | |||||||||||
| 4.15 | |||||||||||
| 4.16 | |||||||||||
| 4.17 | |||||||||||
| 4.18 | |||||||||||
| 4.19 | |||||||||||
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| Exhibit No. | Description | ||||||||||
| 4.20 | |||||||||||
| 4.21 | |||||||||||
| 4.22 | |||||||||||
| 4.23 | |||||||||||
| 4.24 | |||||||||||
| 4.25 | |||||||||||
| 4.25.1 | |||||||||||
| 4.25.2 | |||||||||||
| 4.25.3 | |||||||||||
| 4.26 | |||||||||||
| 4.26.1 | |||||||||||
| 4.26.2 | |||||||||||
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| Exhibit No. | Description | ||||||||||
| 4.26.3 | |||||||||||
| 4.26.4 | |||||||||||
| 4.26.5 | |||||||||||
| 4.26.6 | |||||||||||
| 4.27 | |||||||||||
| 4.27.1 | |||||||||||
4.27.2## | |||||||||||
| 4.28 | |||||||||||
| 4.29 | |||||||||||
4.29.1 | |||||||||||
4.29.2 | |||||||||||
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| Exhibit No. | Description | ||||||||||
4.29.3 | |||||||||||
4.29.4 | |||||||||||
4.29.5*## | |||||||||||
4.29.6*## | |||||||||||
| 4.30 | |||||||||||
4.30.1 | |||||||||||
4.30.2 | |||||||||||
| 4.31 | |||||||||||
| 4.32 | |||||||||||
| 4.33 | |||||||||||
| 4.34 | |||||||||||
| 4.35 | |||||||||||
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________________________________________________________
*Filed herewith.
##Certain portions of this exhibit have been redacted pursuant to 4(a) of the Instructions as to Exhibits of Form 20-F. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon its request.
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LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
CONTENTS
| 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 Registered Public Accounting Firm
To the Board of Directors and Shareholders of Latam Airlines Group S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Latam Airlines Group S.A. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income by function, comprehensive income, changes in equity and cash flows–direct method for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
| PwC Chile, Av. Andrés Bello 2711 - piso 5, Las Condes - Santiago, Chile | ||||||||
| RUT: 81.513.400-1 | Teléfono (56 2) 2940 0000 | www.pwc.cl | ||||||||
F-2
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Loyalty Programs Breakage
As described in Notes 2.19, 4(e) and 21 to the consolidated financial statements, the Company has recorded deferred income of US$3,394 million as of December 31, 2023, of which US$1,279 million was related to deferred income associated with the loyalty programs. The deferred income of loyalty programs is determined based on the estimated stand-alone selling price of unused miles and points awarded to the members of the loyalty programs reduced for breakage. Management used statistical models to estimate the breakage which involved significant judgments and assumptions relating to the historical redemption and expiration activity and forecasted redemption and expiration patterns.
F-3
The principal considerations for our determination that performing procedures relating to the valuation of loyalty programs breakage is a critical audit matter are (i) the significant judgment by management when developing the breakage estimate; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimating the historical redemption and expiration activity and forecasted redemption and expiration patterns; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of loyalty programs breakage, including controls over management’s review of the statistical models and resulting breakage estimates. These procedures also included, among others (i) testing management’s process for developing the breakage estimate; (ii) evaluating the appropriateness of the statistical models; and (iii) testing the completeness, accuracy, and relevance of underlying data used in the models. Evaluating management’s assumptions used to develop the breakage estimate involved evaluating whether the assumptions used by management were reasonable considering (i) the available information regarding the miles and points redemption and expiration patterns; (ii) management’s actions to incentive holders of the loyalty programs to redeem their miles and points; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s methodology and assumptions used to develop the breakage estimate.
/s/ PricewaterhouseCoopers | ||
PricewaterhouseCoopers Consultores Auditores y Compañia Limitada | ||
February 22, 2024
We have served as the Company’s auditor since 1991.
F-4
Contents of the Notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.
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F-5
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
| Note | As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||
| ThUS$ | ThUS$ | ||||||||||||||||
| Current Assets | |||||||||||||||||
| Cash and cash equivalents | 6 - 7 | ||||||||||||||||
| Other financial assets | 7 - 11 | ||||||||||||||||
| Other non-financial assets | 12 | ||||||||||||||||
| Trade and other accounts receivable | 7 - 8 | ||||||||||||||||
| Accounts receivable from related entities | 7 - 9 | ||||||||||||||||
| Inventories | 10 | ||||||||||||||||
| Current tax assets | 17 | ||||||||||||||||
| Total current assets other than non-current assets (or disposal groups) classified as held for sale | |||||||||||||||||
| Non-current assets (or disposal groups) classified as held for sale | 13 | ||||||||||||||||
| Total current assets | |||||||||||||||||
| Non-current assets | |||||||||||||||||
| Other financial assets | 7 - 11 | ||||||||||||||||
| Other non-financial assets | 12 | ||||||||||||||||
| Accounts receivable | 7 - 8 | ||||||||||||||||
| Intangible assets other than goodwill | 15 | ||||||||||||||||
| Property, plant and equipment | 16 | ||||||||||||||||
| Deferred tax assets | 17 | ||||||||||||||||
| Total non-current assets | |||||||||||||||||
| Total assets | |||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-6
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND EQUITY
| Note | As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||
| ThUS$ | ThUS$ | ||||||||||||||||
| LIABILITIES | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Other financial liabilities | 7 - 18 | ||||||||||||||||
| Trade and other accounts payables | 7 - 19 | ||||||||||||||||
| Accounts payable to related entities | 7 - 9 | ||||||||||||||||
| Other provisions | 20 | ||||||||||||||||
| Current tax liabilities | 17 | ||||||||||||||||
| Other non-financial liabilities | 21 | ||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Non-current liabilities | |||||||||||||||||
| Other financial liabilities | 7 - 18 | ||||||||||||||||
| Accounts payable | 7 - 23 | ||||||||||||||||
| Other provisions | 20 | ||||||||||||||||
| Deferred tax liabilities | 17 | ||||||||||||||||
| Employee benefits | 22 | ||||||||||||||||
| Other non-financial liabilities | 21 | ||||||||||||||||
| Total non-current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| EQUITY | |||||||||||||||||
| Share capital | 24 | ||||||||||||||||
| Retained earnings/(losses) | 24 | ( | |||||||||||||||
| Treasury Shares | 24 | ( | |||||||||||||||
| Other equity | 24 | ||||||||||||||||
| Other reserves | 24 | ( | ( | ||||||||||||||
| Parent’s ownership interest | |||||||||||||||||
| Non-controlling interest | 14 | ( | ( | ||||||||||||||
| Total equity | |||||||||||||||||
| Total liabilities and equity | |||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-7
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME BY FUNCTION
| For the year ended December 31, | |||||||||||||||||||||||
| Note | 2023 | 2022 | 2021 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
| Revenue | 5 - 25 | ||||||||||||||||||||||
| Cost of sales | 26 | ( | ( | ( | |||||||||||||||||||
| Gross margin | ( | ||||||||||||||||||||||
| Other income | 27 | ||||||||||||||||||||||
| Distribution costs | 26 | ( | ( | ( | |||||||||||||||||||
| Administrative expenses | 26 | ( | ( | ( | |||||||||||||||||||
| Other expenses | 26 | ( | ( | ( | |||||||||||||||||||
| Gains/(losses) from restructuring activities | 26 | ( | |||||||||||||||||||||
| Other gains/(losses) | 26 | ( | ( | ||||||||||||||||||||
| Income (loss) from operation activities | ( | ||||||||||||||||||||||
| Financial income | 26 | ||||||||||||||||||||||
| Financial costs | 26 | ( | ( | ( | |||||||||||||||||||
| Foreign exchange gains/(losses) | |||||||||||||||||||||||
| Result of indexation units | ( | ( | |||||||||||||||||||||
| Income (loss) before taxes | ( | ||||||||||||||||||||||
| Income tax (expense)/benefits | 17 | ( | ( | ( | |||||||||||||||||||
| NET INCOME (LOSS) FOR THE YEAR | ( | ||||||||||||||||||||||
| Income (loss) attributable to owners of the parent | ( | ||||||||||||||||||||||
| Income (loss) attributable to non-controlling interest | 14 | ( | ( | ( | |||||||||||||||||||
| Net Income (loss) for the year | ( | ||||||||||||||||||||||
| EARNING (LOSS) PER SHARE | |||||||||||||||||||||||
| Basic earnings (loss) per share (US$) | 29 | ( | |||||||||||||||||||||
| Diluted earnings (loss) per share (US$) | 29 | ( | |||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-8
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| For the year ended at December 31, | |||||||||||||||||||||||
| Note | 2023 | 2022 | 2021 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
| NET INCOME/(LOSS) | ( | ||||||||||||||||||||||
| Components of other comprehensive income (loss) that will not be reclassified to income before taxes | |||||||||||||||||||||||
| Other comprehensive income (loss), before taxes, gains (losses) by new measurements on defined benefit plans | 24 | ( | ( | ||||||||||||||||||||
| Total other comprehensive (loss) that will not be reclassified to income before taxes | ( | ( | |||||||||||||||||||||
| Components of other comprehensive income that will be reclassified to income before taxes | |||||||||||||||||||||||
| Currency translation differences Gains (losses) on currency translation, before tax | ( | ( | |||||||||||||||||||||
| Other comprehensive loss, before taxes, currency translation differences | ( | ( | |||||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||
| Gains (losses) on cash flow hedges before taxes | 24 | ( | |||||||||||||||||||||
| Reclassification adjustment on cash flow hedges before tax | 24 | ( | ( | ||||||||||||||||||||
| 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 | ( | ( | ||||||||||||||||||||
| Other comprehensive income (losses), before taxes, cash flow hedges | ( | ||||||||||||||||||||||
| Change in value of time value of options | |||||||||||||||||||||||
| Gains/(Losses) on change in value of time value of options before tax | 24 | ( | ( | ||||||||||||||||||||
| Reclassification adjustments on change in value of time value of options before tax | 24 | ||||||||||||||||||||||
| Other comprehensive income, before taxes, changes in the time value of the options | ( | ( | |||||||||||||||||||||
| Total other comprehensive income that will be reclassified to income before taxes | ( | ||||||||||||||||||||||
| Other components of other comprehensive income (loss), before taxes | ( | ||||||||||||||||||||||
| Income tax relating to new measurements on defined benefit plans | 17 | ( | |||||||||||||||||||||
| Income tax relating to other comprehensive income that will not be reclassified to income | ( | ||||||||||||||||||||||
| 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) | ( | ( | |||||||||||||||||||||
| Income taxes related to components of other comprehensive loss will be reclassified to income | ( | ( | |||||||||||||||||||||
| Total Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to owners of the parent | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to non-controlling interests | ( | ( | |||||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | ( | ||||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-9
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 | Other equity | 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$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity as of January 1, 2023 | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total increase (decrease) in equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) for the period | 24 | — | — | — | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | ( | ( | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ( | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transactions with shareholders | 24-34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | 25 | — | — | — | — | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase for other contributions from the owners | 24 | — | — | — | — | — | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) through transfers and other changes, equity | 24-34 | ( | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | ( | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2023 | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-10
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 | Other equity | 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$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity as of January 1, 2022 | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total increase (decrease) in equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) for the period | 24 | — | — | — | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | ( | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ( | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transactions with shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity issue | 24 -33 | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase for other contributions from the owners | 24 | — | — | — | — | — | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) through transfers and other changes, equity | 24 -33 | ( | — | — | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | — | — | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2022 | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-11
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, 2021 | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) by application of new accounting standards | 2-25 | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial balance restated | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total increase (decrease) in equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) for the year | 25 | — | — | — | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | ( | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transactions with shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) through transfers and other changes, equity | 25-34 | — | — | — | — | — | — | — | ( | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | — | — | — | — | — | — | — | ( | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2021 | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-12
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - DIRECT METHOD
| For the year ended December 31, | |||||||||||||||||||||||
| Note | 2023 | 2022 | 2021 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||||||||
| Cash collection from operating activities | |||||||||||||||||||||||
| Proceeds from sales of goods and services | |||||||||||||||||||||||
| Other cash receipts from operating activities | |||||||||||||||||||||||
| Payments for operating activities | |||||||||||||||||||||||
| Payments to suppliers for the supply goods and services | 34 | ( | ( | ( | |||||||||||||||||||
| Payments to and on behalf of employees | ( | ( | ( | ||||||||||||||||||||
| Other payments for operating activities | ( | ( | ( | ||||||||||||||||||||
| Income taxes (paid) | ( | ( | ( | ||||||||||||||||||||
| Other cash inflows (outflows) | 34 | ( | ( | ( | |||||||||||||||||||
| Net cash (outflow) inflow from operating activities | ( | ||||||||||||||||||||||
| Cash flows from investing activities | |||||||||||||||||||||||
| Cash flows from losses of control of subsidiaries or other businesses | |||||||||||||||||||||||
| Other cash receipts from sales of equity or debt instruments of other entities | |||||||||||||||||||||||
| Other payments to acquire equity or debt instruments of other entities | ( | ( | |||||||||||||||||||||
| Amounts raised from sale of property, plant and equipment | |||||||||||||||||||||||
| Purchases of property, plant and equipment | ( | ( | ( | ||||||||||||||||||||
| Purchases of intangible assets | ( | ( | ( | ||||||||||||||||||||
| Interest received | |||||||||||||||||||||||
| Other cash inflows (outflows) | 34 | ||||||||||||||||||||||
| Net cash (outflow) inflow from investing activities | ( | ( | ( | ||||||||||||||||||||
| Proceeds from the issuance of shares | 34 | ||||||||||||||||||||||
| Payments for changes in ownership interests in subsidiaries that do not result in loss of control | ( | ||||||||||||||||||||||
| Amounts from the issuance of other equity instruments | 34 | ||||||||||||||||||||||
| Amounts raised from long-term loans | 34 | ||||||||||||||||||||||
| Amounts raised from short-term loans | 34 | ||||||||||||||||||||||
| Loans from related entities | 32 | ||||||||||||||||||||||
| Loans repayments | 34 | ( | ( | ( | |||||||||||||||||||
| Payments of lease liabilities | 34 | ( | ( | ( | |||||||||||||||||||
| Payments of loans to related entities | 34 | ( | |||||||||||||||||||||
| Interest paid | ( | ( | ( | ||||||||||||||||||||
| Other cash (outflows) inflows | 34 | ( | ( | ||||||||||||||||||||
| Net cash inflow (outflow) from financing activities | ( | ||||||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents before effect of exchanges rate change | ( | ||||||||||||||||||||||
| Effects of variation in the exchange rate on cash and cash equivalents | ( | ( | |||||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||||||||||||||
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 6 | ||||||||||||||||||||||
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 6 | ||||||||||||||||||||||
The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.
F-13
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
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, whose shares are listed in Chile on the Electronic Stock Exchange of Chile - Stock Exchange and the Santiago Stock Exchange. LATAM’s ADRs are currently trading in the United States of America on the OTC (Over-The-Counter) markets.
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 Chile, Ecuador, Peru, Brazil, Colombia 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, 2023, the Company’s statutory capital is represented by 604,441,789,335 ordinary shares without nominal value. Of such amount, as of said date, 604,437,877,587 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, as well as the Capital decrease required for the Chilean Capital Markets law that appears in a public deed dated September 6, 2023, granted at the Notaría of Santiago of Mr. Eduardo Javier Diez Morello.
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 45.81 %, Banco de Chile on behalf of Non-Resident Third Parties with 11.94 % Delta Air Lines with 10.05 % and Qatar Airways with 10.03 % ownership.
As of December 31, 2023, the Company had a total of 2,100 shareholders in its registry. At that date, approximately 0.01 % of the Company’s capital stock was in the form of ADRs.
During 2023, the LATAM Group had an average of 34,174 employees, ending this year with a total number of 35,568 collaborator, distributed in 5,149 Administration employees, 17,655 in Operations, 8,688 Cabin Crew and 4,076 Command crew.
F-14
The main subsidiaries included in these consolidated financial statements are as follows:
a)Percentage ownership
| Tax No. | Company | Country of origin | Functional Currency | As December 31, 2023 | As December 31, 2022 | As December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct | Indirect | Total | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.969.680-0 | Lan Pax Group S.A. and Subsidiaries | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Airlines Perú S.A. | Peru | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 93.383.000-4 | Lan Cargo S.A. | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 76.717.244-3 | Prime Cargo SpA. | Chile | CLP | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Connecta Corporation | U.S.A. | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Prime Airport Services Inc. and Subsidiary | U.S.A. | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Laser Cargo S.R.L. | Argentina | ARS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Lan Cargo Overseas Limited and Subsidiaries | Bahamas | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.575.810-0 | Inversiones Lan S.A. | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.847.880-K | Technical Training LATAM S.A. | Chile | CLP | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Finance Limited | Cayman Island | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Peuco Finance Limited | Cayman Island | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Professional Airline Services INC. | U.S.A. | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Jarletul S.A. | Uruguay | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Travel S.R.L. | Bolivia | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 76.262.894-5 | Latam Travel Chile II S.A. | Chile | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Travel S.A. | Argentina | ARS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | TAM S.A. and Subsidiaries (*) | Brazil | BRL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*)As of December 31, 2023, 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 100 % share on economic rights and 51.04 % of political rights. Its percentage arose 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 share ownership of a Brazilian Airline.
F-15
b)Financial Information
| Statement of financial position | Net Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the year ended At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax No. | Company | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Gain /(loss) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (*) | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Airlines Perú S.A. | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 93.383.000-4 | Lan Cargo S.A. | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 76.717.244-3 | Prime Cargo SpA. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Connecta Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Prime Airport Services Inc. and Subsidiary (*) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.951.280-7 | Transporte Aéreo S.A. | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.631.520-2 | Fast Air Almacenes de Carga S.A. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Laser Cargo S.R.L. | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Lan Cargo Overseas Limited and Subsidiaries (*) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary (*) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.575.810-0 | Inversiones Lan S.A. (*) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.847.880-K | Technical Training LATAM S.A. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Finance Limited | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Peuco Finance Limited | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Professional Airline Services INC. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Jarletul S.A. | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Travel S.R.L. | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 76.262.894-5 | Latam Travel Chile II S.A. | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Latam Travel S.A. | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | TAM S.A. and Subsidiaries (*) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*)The Equity reported corresponds to Equity attributable to owners of the parent, it does not include Non-controlling participation.
F-16
In addition, the following 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 (Liquidated in May 2023); and (3) 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, 2022 and December 31, 2023, are detailed below:
(1)Incorporation or acquisition of companies
-On December 22, 2022, LATAM Airlines Group S.A. purchased 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 March 29, 2023, a capital increase was made in TAM S.A. carried out a capital increase, through the contribution of LATAM Airlines Group S.A. of accounts receivable for ThUS$785,865 ; consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On March 29, 2023, a capital increase was made in TAM Linheas Aéreas S.A carried out a capital increase, through the contribution of TAM S.A. of accounts receivable for ThUS$785,865 ; consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On March 29, 2023, a capital increase was made in Aerovías de Integración Regional S.A. Aires S.A. through the contribution of made a capital increase where Holdco Colombia I SpA made a contribution through accounts receivable for ThUS$120,410 , consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On April 14, 2023, a capital reduction was carried out in Lan Argentina S.A. through the absorption of losses in the sum of ThUS$160,170 . Consequently, there were no significant changes in the shareholding composition and therefore it did not generate any effect within the Consolidated Financial Statements.
-On June 7, 2023, a capital increase was made in TAM S.A. carried out a capital increase, through the contribution of LATAM Airlines Group S.A. of accounts receivable for ThUS$308,031 , consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On June 7, 2023, a capital increase was made in TAM Linheas Aéreas S.A carried out a capital increase, through the contribution of TAM S.A. of accounts receivable for ThUS$308,031 , consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On June 13 and 14, 2023, Inversiones Lan S.A. made a purchase of 923 shares from third parties, for an a total amount of ThUS$23 , of the subsidiary Aerovías de Integración Regional S.A. Aires S.A., consequently, these transactions generated a decrease in the non-controlling interest, without generating significant effects on the Consolidated Financial Statements.
-On July 21, 2023, a capital increase was carried out in Latam Airlines Ecuador S.A through the contribution of accounts receivable held by Holdco Ecuador S.A for ThUS$3,100 , consequently, there were no significant changes in the shareholding composition and Therefore, it did not generate any effect within the Consolidated Financial Statements.
F-17
-On July 28, 2023, Lan Cargo S.A purchased 1 share of Lan Cargo Overseas Limited from Inversiones Lan S.A. Consequently, there were no significant changes in the shareholding composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On August 1, 2023, Inversiones Lan S.A. purchased 1 share of Americonsult SA de CV from Lan Cargo Overseas Limited. Consequently, there were no significant changes in the shareholding composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On August 4, 2023, the merger of Holdco Colombia II SpA into Lan Pax Group S.A takes place, acquiring the latter all of its assets, liabilities, rights and obligations. As a result of the above, Holdco Colombia II SpA was dissolved. On the same date Lan Pax Group S.A carries out a capital increase of ThUS$347 in Holdco Colombia I SpA through the contribution of 47,010 shares of Aerovías de Integración Regional S.A. These transactions were carried out between entities under common control of LATAM Airlines Group S.A. Group. and, therefore, did not generate any effect within the Consolidated Financial Statements.
-On September 11, 2023, the company Mas Investment Limited was liquidated and its shareholder Lan Cargo Overseas Limited acquired all its assets, liabilities, rights and obligations, as a result of the liquidation, including the investments that Mas Investment Limited held in the following companies: (i) Consultoría Administrativa Profesional S.A. de C.V., equivalent to 49,500 shares; (ii) Americonsult, S.A. de C.V., equivalent to 499 shares; (iii) Transporte Aéreo S.A. equivalent to 109,662 shares; and (iv) Inversiones Aereas S.A., equivalent to 15,216 shares. These transactions were carried out between entities under common control of LATAM Airlines Group S.A. and, therefore, did not generate any effect within the Consolidated Financial Statements.
-On September 11, 2023, the company Lan Cargo Overseas Limited was liquidated and its shareholder Lan Cargo S.A acquired all its all its assets, liabilities, rights and obligations, as a result of the liquidation, including the investments that Lan Cargo Overseas Limited held in the following companies: (i) Prime Airport Services Inc., equivalent to 105 shares; (ii) Americonsult de Costa Rica S.A, equivalent to 66 shares; (iii) Americonsult de Guatemala, Sociedad Anónima, equivalent to 50 shares; (iv) Consultoría Administrativa Profesional S.A. de C.V., equivalent to 49,500 shares; (v) Americonsult, S.A. de C.V., equivalent to 499 shares; (vi) Transporte Aéreo S.A. equivalent to 109,662 shares; and (vii) Inversiones Aereas S.A., equivalent to 15,216 shares. These transactions were carried out between entities under common control of LATAM Airlines Group S.A. and, therefore, did not generate any effect within the Consolidated Financial Statements.
-On September 15, 2023, a capital increase was made in TAM S.A. through the contribution of ThUS$106,104 on accounts receivable from LATAM Airlines Group S.A.; consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On September 15, 2023, a capital increase was made in TAM Linheas Aéreas S.A through the contribution of ThUS$106,104 on accounts receivable from TAM S.A., consequently, there were no significant changes in the shareholder composition and therefore did not generate any effect within the Consolidated Financial Statements.
-On October 23 and 30, 2023, Inversiones Lan S.A. purchased a total 183 shares from Non- controlling interest, for an a total amount of ThUS$2 , of the subsidiary Aerovías de Integración Regional S.A. Aires S.A., consequently, these transactions generated a decrease in non-controlling interest, with no generating significant effects on the Consolidated Financial Statements.
-On December 6, 2023, the company Prime Cargo SpA was incorporated, which is 100 % owned by Lan Cargo S.A., whose exclusive purpose is to carry out storage activities for all types of products and/or merchandise. This transaction was between entities of LATAM Airlines Group S.A. and therefore did not generate any effect within the Consolidated Financial Statements.
-On December 29, 2023, LATAM Airlines Group S.A. purchased of 2,392,166 preferred shares of Inversora Cordillera S.A. a Transportes Aéreos del Mercosur S.A.;consequently, the shareholding composition of Inversora Cordillera S.A. is as follows: Lan Pax Group S.A. with 99.95 % and LATAM Airlines Group S.A. with 0.05 %. These transactions were between subsidiaries of LATAM Airlines Group not generating any effects within the consolidated financial statements.
F-18
-On December 29, 2023, LATAM Airlines Group S.A. purchased of 53,376 preferred shares of LAN Argentina S.A. a Transportes Aéreos del Mercosur S.A.;consequently, the shareholding composition of LAN Argentina S.A. is as follows: Lan Pax Group S.A. with 4.99 %, Inversora Cordillera S.A. with 94.96 % and LATAM Airlines Group S.A. with 0.05 %. These transactions were between subsidiaries of LATAM Airlines Group not generating any effects within the consolidated financial statements.
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. and Subsidiaries as of December 31, 2023 and 2022, have been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards) and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC IC).
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 Accounting Standards 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 describe 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.
These consolidated financial statements have been prepared in accordance with the accounting policies used by the Company in the preparation of the 2022 consolidated financial statements, except for the standards and interpretations adopted as of January 1, 2023.
(a)Application of new standards for the year 2023 :
Accounting pronouncements with implementation effective from January 1, 2023:
| Issuance Date | Effective Date: | ||||||||||
| (i) Standards and amendments | |||||||||||
| IFRS 17: Insurance contracts, replaces IFRS 4. | May 2017 | 01/01/2023 | |||||||||
| 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 IAS 1: Presentation of financial statements, on materiality accounting policies. | February 2021 | 01/01/2023 | |||||||||
| Amendment to IAS 8: Accounting policies, changes in accounting estimates and error, on separating between changes in accounting estimates and changes in accounting policies. | February 2021 | 01/01/2023 | |||||||||
| Amendment to IAS 12: Income taxes, on international tax reform – rules of the two pillar model. | May 2023 | 01/01/2023 | |||||||||
| Amendment to IAS 12: Income taxes, Deferred taxes related to assets and liabilities that arise from a single transaction. | May 2021 | 01/01/2023 | |||||||||
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The application of these accounting standards as of January 1, 2023, had no significant effect on the Company’s consolidated financial statements.
(b)Accounting pronouncements not in force for the financial year beginning on January 1, 2023:
| Issuance Date | Effective Date: | ||||||||||
| (i) Standards and amendments | |||||||||||
| Amendment to IAS 1: Presentation of financial statements, on classification of liabilities. | January 2020 | 01/01/2024 | |||||||||
| Amendment to IAS 1: Presentation of financial statements, on non-current liabilities with covenants. | October 2022 | 01/01/2024 | |||||||||
| Amendment to IFRS 16: Leases, on sales with leaseback. | September 2022 | 01/01/2024 | |||||||||
| Amendment to IFRS 10: Consolidated financial statements and IAS 28: Investments in associates and joint ventures. | September 2014 | Not determined | |||||||||
| Amendments to IAS 7 "Statement of cash flows" and IFRS 7 "Financial Instruments: Information to be Disclosed" | May 2023 | 01/01/2024 | |||||||||
| Amendments to IAS 21: Lack of Exchangeability | August 2023 | 01/01/2025 | |||||||||
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 Exit
Chapter 11 Filing and Procedure: 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 of LATAM Airlines Group S.A. (“LATAM Parent”) resolved unanimously that LATAM Parent and some its subsidiaries should initiate a reorganization process in the United States of America according to the rules established in the Bankruptcy Code by filing a voluntary petition for relief in accordance with the same, which petition was submitted on May 26, 2020 and was jointly administered under Case Number 20-11254. Subsequently, Piquero Leasing Limited (July 7, 2020) and TAM S.A. and its subsidiaries in Brazil (July 9, 2020) joined the process (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. On June 18, 2022, the Bankruptcy Court issued a memorandum decision approving the Debtors’ joint plan of reorganization (the “Plan”) and rejecting all remaining objections and entered an order confirming the Plan (the “Confirmation Order”). On November 3, 2022 (the “Effective Date”), the Plan was substantially consummated and each of the Debtors emerged from the Chapter 11 proceedings as “Reorganized Debtors”. 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:
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•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 Restructuring Support Agreement (RSA);
•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:
•New 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 ThUS$1,257,003
Conversion Ratio: 15.9046155045956 . The Convertible Notes Class G Conversion Ratio shall step down by 50 % after the days (60 ) counted from the Effective Date.
Backup Shares: 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.
•New 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 % after the days (60 ) counted from the fifth (5th) anniversary counted from the Effective Date .
Backup Shares: 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 (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 and until the sixth (6th) anniversary of the Effective Date.
•New 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 a contribution 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 I Conversion Ratio shall step down 50 % after the days (60 ) counted from the Effective Date.
Backup Shares: 385,337,858,290
Maturity: 31 Dec. 2121
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Interest rate: 0 %
Conversion Conditions: They may be converted into shares within 12 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 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.
•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).
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, 2023, 100.000 % of the Convertible Notes Class G was placed, 99.997 % of the Convertible Notes Class H was placed and 100.000 % of the Convertible Notes Class I was placed had been converted into equity, respectively (See Note 24).
As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Reorganized Debtors were permitted to operate their businesses and manage their properties without supervision of the Bankruptcy Court and free of the restrictions of the Bankruptcy Code.
As customary in this type of restructurings, the docket of the Chapter 11 proceedings remained open after the Effective Date to finalize the reconciliation process of certain claims that were still outstanding as of the Effective Date, as well as to resolve certain administrative matters.
On June 29, 2023, the Bankruptcy Court entered a final decree in the Chapter 11 proceedings ordering that Case Number 20-11254 and its docket be closed (the “Final Decree”). The foregoing, as a result of the resolution of substantially all remaining matters in the Chapter 11 proceedings and all appeals of the Confirmation Order.
As part of their overall reorganization process, while the Chapter 11 proceedings were outstanding the Debtors sought and received relief in certain non-U.S. jurisdictions (i.e., Cayman Islands, Chile and Colombia).
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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.
(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 its 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
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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 Accounting Standards, 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.
Net losses or gains arising from the re-expression of non-monetary ítems 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 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 its Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Property, plant and equipment are recorded, both at their initial recognition and their subsequent measurement, at their historical cost, restated for inflation when appropriate, less the corresponding depreciation and any loss due to impairment.
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The amounts of advances paid to the aircraft manufacturers are capitalized by the Company under Construction in progress until they are received.
Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or are recognized as a separate asset, only when it is probable that the future economic benefits associated with the elements of property, plant and equipment, 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 Property, plant 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 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.
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.
2.6. Borrowing costs
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2.7. Losses for impairment of non-financial assets
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.
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.
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.
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.
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.
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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.
(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 matures, is sold, or fails to meet the requirements to be accounted for as a hedge, 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.
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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.
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.
Convertible Notes
The component parts of the convertible notes issued by LATAM Airlines Group S.A. 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
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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 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.
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 realize 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.
LATAM Airlines Group S.A has evaluated the potential impact from the implementation of the “GloBE or Pillar Two rules”, which seeks to ensure that multinational groups pay a minimum effective tax rate of 15%. As of December 31, 2023, this regulation has not been adopted in Chile (where LATAM has its headquarters) or in other jurisdictions where LATAM Airlines Group S.A has operating companies. Therefore, it has not been necessary to estimate a potential impact of its application from its entry into force (January 1, 2023). At the close of this Financial Statements, the group does not present expenses or income for current taxes related to the Pillar Two income tax.
LATAM Airlines Group S.A. and its Subsidiaries have adopted the exception of paragraph 4A of IAS 12, incorporated in the amendment published on May 23, 2023.
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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 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
2.18. Provisions
Provisions are recognized when:
(i) The Company has a present legal or constructive obligation as a result of a past event;
(ii) It is probable that payment is going to be required to settle an obligation; and
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.
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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: LATAMPASS’s and LATAMPASS’s Brazil, 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.
(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.
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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.
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 Airlines Group S.A. 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 Airlines Group S.A. 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.
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.
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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).
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.
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 manuals 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.
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(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, 2023, the Company recognized gains of $15.7 million for fuel hedging net of premiums in the costs of sales for the year. 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.
As of December 31, 2023, the market value of the fuel positions amounted to US$22.1 million (positive). At the end of December 31, 2022, this market value was US$12.6 million (positive).
The following tables show the level of hedge for different periods:
| Positions as of December 31, 2023 (*) | Maturities | |||||||||||||||||||||||||||||||
| Q124 | Q224 | Q324 | Q424 | Total | ||||||||||||||||||||||||||||
| Percentage of coverage over the expected volume of consumption | % | % | % | % | % | |||||||||||||||||||||||||||
| Positions as of December 31, 2022 (*) | Maturities | |||||||||||||||||||||||||||||||
| Q123 | Q223 | Q323 | Q423 | Total | ||||||||||||||||||||||||||||
| Percentage of coverage over the expected volume of consumption | % | % | % | % | % | |||||||||||||||||||||||||||
(*) The percentage 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$5 per barrel in the underlying reference price curve at the end of December 2023 and the end of December of 2022 . The projection period was defined until the end of the last fuel hedging contract in force, being the last business day of the second half of 2024.
| Benchmark price (US$ per barrel) | Positions as of December 31, 2023 effect on Equity (MUS$) | Positions as of December 31, 2022 effect on Equity (MUS$) | ||||||||||||
| + | + | + | ||||||||||||
| - | - | - | ||||||||||||
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Given the fuel hedging structure for the year 2023, 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$131.6 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$131.3 million in higher fuel costs.
(ii) Foreign exchange rate risk:
Exposure:
The functional currency of the financial statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.
The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.
The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian real (R$), 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, 2023, the Company recognized losses of US$10.1 million for FX hedging derivatives net of premiums reflected in cost of sales. At the end of December of 2022, the Company recognize gains for US$5.2 million for FX hedging derivatives reflected in cost of sales.
As of December 31, 2023, the market value of hedging FX derivative positions is US$1.5 million (negative). As of December 31, 2022, the market value of the hedging FX derivative positions was US$0.2 million (positive). As of December 31, 2023, the Company has current hedging FX derivatives for US$414 million. As of December 31, 2022, the Company holds current hedging FX derivatives of US$108 million.
As of December 31, 2023, the Company does not maintain current non-hedged FX derivatives. At the end of December of 2022, the Company recognize losses of US$1.8 million in non-hedging FX derivatives net of premiums reflected in Other gains/(losses).
Sensitivity analysis:
A depreciation of the R$/US$ exchange rate, negatively affects the Company's operating cash flows, however, also positively affects the value of the positions of derivatives contracted.
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) of R$/US$ | Effect on equity as of December 31, 2023 (MUS$) | Effect on equity as of December 31, 2022 (MUS$) | ||||||||||||
| - | - | - | ||||||||||||
| + | + | + | ||||||||||||
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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 %:
| Appreciation (depreciation) of R$/US$ | Effect on Income Statement for the year ended December 31, 2023 (MUS$) | Effect on Income Statement for the year ended December 31, 2022 (MUS$) | ||||||||||||
| - | + | + | ||||||||||||
| + | - | - | ||||||||||||
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.
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) of R$/US$ | Effect at December 31, 2023 MUS$ | Effect at December 31, 2022 MUS$ | ||||||||||||
| - | + | + | ||||||||||||
| + | - | - | ||||||||||||
(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”) and other less relevant interest rates such as Brazilian Interbank Certificates of Deposit (“CDI”) . Due to the fact that the publication of LIBOR ceased by June 30th 2023, the company has effectively migrated to SOFR as an alternative rate, which was fully materialized on September 30th 2023.
Of the company's financial debt subject to variable rates, all of the contracts maintain exposure to the SOFR reference rate.
Mitigation:
Currently, 50 % (52 % as of December 31, 2022) of the debt is fixed against fluctuations in interest rates. The variable debt, is indexed to the reference rate based on SOFR.
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Likewise, most of the company's liquidity is denominated in dollars and indexed to a return rate similar and with alike fluctuation to the SOFR rate, which helps reduce exposure.
Rate Hedging Results:
During the period ended December 31, 2023, the Company recognized losses of US$1.8 million (negative) corresponding to the recognition for premiums paid.
As of December 31, 2023, there are no interest rate derivatives outstanding, at the end of December 2022, this market value was US$8.8 million (positive).
As of December 31, 2023, the Company recognized a decrease in the right-of-use asset due to the expiration of derivatives for US$14.9 million associated with the aircraft lease. On this same date, a lower depreciation expense of the right-of-use asset for US$1.1 million (positive) is recognized. At the end of December 2022, the Company recognized US$0.1 million for this same concept.
As of December 31, 2023, the Company settled a derivative for US$ US$14.8 million associated with hedges of leased aircraft.
Sensitivity analysis:
The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible, based on current market conditions each date.
| Increase (decrease) of future curve SOFR rate | Positions as of December 31, 2023 effect on Income (Loss) before taxes (MUS$) | Positions as of December 31, 2022 effect on Income (Loss) before tax (MUS$) | ||||||||||||
| + | - | - | ||||||||||||
| - | + | + | ||||||||||||
A large part of the derivatives of current rates are recorded as cash flow hedge contracts, therefore, a variation in interest rates has an impact on the market value of the derivatives, whose changes affect the equity of the entity.
The calculations were made by vertically increasing (decreasing) 100 base points of the interest rate curve, both scenarios being reasonably possible according to historical market conditions.
| Increase (decrease) interest rate curve | Positions as of December 31, 2023 effect on equity (MUS$) | Positions as of December 31, 2022 effect on equity (MUS$) | ||||||||||||
| + | + | |||||||||||||
| - | - | |||||||||||||
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 recorded US$0.1 million (negative) for ineffectiveness in the consolidated income statement for this type of coverage.
(b)Credit risk
Credit risk occurs when the counterparty does not comply with 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 customer portfolio as of December 31, 2023 has experienced an increased by 24 %compared to the balance as of
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December 31, 2022, mainly due to an increase in passenger transportation operations (travel agencies and corporate) that increased by 22 % in its sales, mainly affecting the payment methods credit card 29 %%, and cash sales 9 %. In relation to the cargo business, it presented a decrease in its operations of 5 % compared to December 2022. There was especial consideration for the Expected Credit Loss calculation for the clients with balance at the year end that management considered risky. The Expect Credit Loss at the end of December 2023 had a decreased 4 % compared to the end of December 2022, as a result of the decrease in the portfolio due to collection, and due to the application of write-offs.
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 credit limits to limit 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 and short-term mutual funds. 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, and (ii) investment limits according to the Company’s level of liquidity. According to these two parameters, the Company chooses the most restrictive parameter of the previous two 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.
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.
The sales invoicing of TAM Linhas Aéreas S.A. related with cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.
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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, 2023, the balance of liquid funds is US$1,715 million (US$1,217 million as of December 31, 2022), which are invested in short-term instruments through financial entities with a high credit rating classification.
As of December 31, 2023, LATAM maintains engaged two Revolving Credit Facility for a total of US$1,100 millon, one for an amount of US$600 million and another for an amount of US$500 million, which are fully available. The first of these lines is secured by and subject to the availability of certain collateral (i.e. aircraft, engines and spare parts). The second one, is secured by certain intangibles assets of the Company, which are shared with other Chapter 11 exit financing.
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Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2023
Debtor: LATAM Airlines Group S.A., Tax No. 89.862.200-2 Chile
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | GOLDMAN SACHS | U.S.A. | US$ | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | UF | — | To the expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | — | To the expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | — | — | — | — | To the expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | Quarterly/Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | MUFG | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | — | To the expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial lease | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF UTAH | U.S.A. | US$ | Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Others loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | OTHERS (*) | Chile | US$ | — | — | — | — | To the expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*)Obligation with creditors for executed letters of credit.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2023
Debtor: TAM S.A., Tax No. 02.012.862/0001-60, Brazil.
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2023
Debtor: LATAM Airlines Group S.A., Tax No. 89.862.200-2, Chile.
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AIRCRAFT | OTHERS | US$ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER ASSETS | OTHERS | US$ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CLP | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UF | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COP | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EUR | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MXN | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - | OTHERS | OTHERS | US$ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CLP | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other currency | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Qatar Airways | Qatar | US$ | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Delta Air Lines, Inc. | U.S.A | US$ | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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., Tax No. 89.862.200-2 Chile.
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.023.000-9 | GOLDMAN SACHS | U.S.A. | US$ | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | SANTANDER | Spain | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.030.000-7 | SANTANDER | Chile | UF | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | Quarterly / Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | MUFG | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial lease | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | - | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | PK AIRFINANCE | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF UTAH | U.S.A. | US$ | Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Others loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | OTHERS (*) | Chile | US$ | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*)Obligation with creditors for executed letters of credit.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2022
Debtor: TAM S.A., Tax No. 02.012.862/0001-60, Brazil.
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Semiannual/Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | MERRILL LYNCH CREDIT PRODUCTS, LLC | Brazil | BRL | — | — | — | — | Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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., Tax No. 89.862.200-2, Chile.
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AIRCRAFT | OTHERS | US$ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER ASSETS | OTHERS | US$ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CLP | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UF | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COP | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EUR | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHERS | OTHERS | US$ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CLP | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BRL | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other currency | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Inversora Aeronáutica Argentina S.A. | Argentina | US$ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Patagonia Seafarms | U.S.A | US$ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F-40
The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions.
As of December 31, 2023, the Company maintains guarantees for US$11.0 million corresponding to derivative transactions. The increase is due to: i) Increase in the number of hedging contracts and ii) changes in fuel prices, exchange rates and interest rates. At the end of 2022, the Company had guarantees for US$7.5 million corresponding to derivative transactions.
3.2. Capital risk management
The objectives of the Company, in relation to capital management are: (i) to meet the minimum equity requirements and (ii) to maintain an optimal capital structure.
The Company monitors contractual obligations and regulatory requirements in the different countries where the group’s companies are domiciled to ensure faithful compliance with the minimum equity requirement, the most restrictive limit of which is to maintain positive liquid equity.
Additionally, the Company periodically monitors the short and long term cash flow projections to ensure that it has sufficient cash generation alternatives to meet future investment and financing commitments.
The international credit rating of the Company is the result of the ability to meet long-term financial commitments. As of December 31, 2023, The Company has a national rating of BBB by Fitch, a rating of B in a positive outlook by Standard & Poor’s, and a rating of B1 by Moody's with stable outlook, either way as international scale.
3.3. Estimates of fair value.
At December 31, 2023, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:
1.Derivative financial instruments:
This category includes the following instruments:
-Interest rate derivative contracts,
-Fuel derivative contracts,
-Currency derivative contracts.
2.Financial Investments:
This category includes the following instruments:
-Investments in short-term Mutual Funds (cash equivalent)
The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.
The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.
F-41
The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value measurements using values considered as | Fair value measurements using values considered as | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value | Level I | Level II | Level III | Fair value | Level I | Level II | Level III | ||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||||||||||||||||||||||||||
| Short-term mutual funds | |||||||||||||||||||||||||||||||||||||||||||||||
| Other financial assets, current | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair value interest rate derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of fuel derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of foreign currency derivative | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Other financial liabilities, current | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of foreign currency derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
F-42
Additionally, at December 31, 2023, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Book value | Fair value | Book value | Fair value | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Cash on hand | |||||||||||||||||||||||
| Bank balance | |||||||||||||||||||||||
| Overnight | |||||||||||||||||||||||
| Time deposits | |||||||||||||||||||||||
| Other financial assets, current | |||||||||||||||||||||||
| Other financial assets | |||||||||||||||||||||||
| Trade debtors, other accounts receivable and Current accounts receivable | |||||||||||||||||||||||
| Accounts receivable from entities related, current | |||||||||||||||||||||||
| Other financial assets, non-current | |||||||||||||||||||||||
| Accounts receivable, non-current | |||||||||||||||||||||||
| Other current financial liabilities | |||||||||||||||||||||||
| Accounts payable for trade and other accounts payable, current | |||||||||||||||||||||||
| Accounts payable to entities related, current | |||||||||||||||||||||||
| Other financial liabilities, non current | |||||||||||||||||||||||
| Accounts payable, non current | |||||||||||||||||||||||
The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.
The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end. The book value of Other financial liabilities, current or non-current, do not include lease liabilities.
F-43
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
The Company has used estimates to value and record some of the assets, liabilities, revenue, expenses and commitments. Basically, these estimates refer to:
(a) Impairment of Intangible asset with indefinite useful life
Management conducts an impairment test annually or more frequently if events or changes in circumstances indicate potential impairment. An impairment loss is recognized for the amount by which the carrying amount of the cash generating unit (CGU) exceeds its recoverable amount.
Management’s value-in-use calculations included significant judgments and assumptions relating to revenue growth rates, exchange rates, discount rates, inflation rates, fuel price. The estimation of these assumptions requires significant judgment by management as these variables are inherently uncertain; however, the assumptions used are consistent with the Company’s forecasts approved by management. Therefore, management evaluates and updates the estimates as necessary in light of conditions that affect these variables. The main assumptions used as well as the corresponding sensitivity analyses are shown in Note 15.
(b) Depreciation expense and impairment of Properties, Plant and Equipment
The depreciation of assets is calculated based on a straight-line basis, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according to the Company’s future economic benefits associated with them.
Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may result in a useful life different from what has been estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.
The residual values are estimated according to the market value that the assets will have at the end of their life. The residual value and useful life of the assets are reviewed, and adjusted if necessary, once a year. When the value of an asset is greater than its estimated recoverable amount, its value is immediately reduced to its recoverable amount.
The Company has concluded that the Properties, Plant and Equipment cannot generate cash inflows to a large extent independent of other assets, therefore the impairment assessment is made as an integral part of the only Cash Generating Unit maintained by the Company, Air Transport. The Company checks when there are signs of impairment, whether the assets have suffered any impairment losses at the Cash Generated Unit level.
(c) Recoverability of deferred tax assets
Management records deferred taxes on the temporary differences that arise between the tax bases of assets and liabilities and their amounts in the financial statements. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available to offset temporary differences.
The Company applies significant judgment in evaluating the recoverability of deferred tax assets. In determining the amounts of the deferred tax asset to be accounted for, management considers tax planning strategies, historical profitability, projected future taxable income (considering assumptions such as: growth rate, exchange rate, discount rate and fuel price consistent with those used in the impairment analysis of the group's cash-generating unit) and the expected timing of reversals of existing temporary differences.
F-44
(d) Air tickets sold that will not be finally used.
The Company records the sale of air tickets as deferred revenue. Ordinary revenue from the sale of tickets is recognized in the statement of income when the passenger transportation service is provided or expires due to non-use. The Company evaluates the probability of expiration of air tickets on a monthly basis, based on the history of use. A change in this probability could impact revenue in the year in which the change occurs and in future years.
As of December 31, 2023, deferred revenue associated with air tickets sold amounts to ThUS$2,009,242 (ThUS$1,574,145 as of December 31, 2022). An hypothetical change of one percentage point in the behavior of the passenger regarding the use would impact of up to ThUS$10,150 per month (ThUS$7,453 as of December 31, 2022).
(e)Valuation of miles and points awarded to holders of loyalty programs, pending use.
As of December 31, 2023, deferred income associated with the LATAM Pass loyalty program from Spanish-speaking countries increased to ThUS$1,099,580 (ThUS$1,120,565 as of December 31, 2022). An hypothetical change of one percentage point in the probability of redemption would translate into a cumulative impact of ThUS$31,510 on the results of 2023 (ThUS$29,571 as of December 31, 2022). Deferred income associated with the LATAM Pass Brazil loyalty program increased to ThUS$179,151 as of December 31, 2023 (ThUS$140,486 as of December 31, 2022). An hypothetical change of one percentage point in the exchange probability would result in an accumulated impact of ThUS$5,125 on the results of 2023 (ThUS$3,772 as of December 31, 2022).
Management used statistical models to estimate the miles and points awarded that will not be redeemed by the
program’s members (breakage) which involved significant judgments and assumptions relating to the historical
redemption and expiration activity and forecasted redemption and expiration patterns.
The Management in conjunction with an external specialist developed a predictive model of non -use miles or
points, which allows to generate non-use rates on the basis of historical information, based on behavior of the
accumulation, use and expiration of the miles or points.
(f) Legal Contingencies
In the case of known contingencies, the Company records a provision 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. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events, the likelihood of loss being incurred and when determining whether a reliable estimate of the loss can be made. The Company assesses its liabilities and contingencies based upon the best information available, uses the knowledge, experience and professional judgment to the specific characteristics of the known risks. This process facilitates the early assessment and quantification of potential risks in individual cases or in the development of contingent matters. If we are unable to reliably estimate the obligation or conclude no loss is probable but it is reasonably possible that a loss may be incurred, no provision is recorded but the contingency is disclosed in the notes to the consolidated financial statements.
Company recognized as the present obligation under an onerous contract as a provision when a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
(g)Leases
During 2022, as a result of the arrival of new aircraft and the significant change in the flows of many current contracts, the Company evaluated the relevance in the current scenario of continuing to use the implicit rate, a methodology used in recent years, or whether it should in instead use a different approximation for calculating the rate. It was concluded that the implicit rate was not being able to reflect the economic environment in which the company operates, therefore it was not
F-45
accurately representing the Company's indebtedness conditions. Because of this, all new contracts entered into from 2022 and all contracts that were modified from 2022 used the incremental rate. Existing contracts that remained unchanged continued using the original implicit discount rate.
(i)Discount rate
The discount rates used to calculate the aircraft lease debt correspond to: (i) For aircraft that did not have contractual changes associated with the exit from Chapter 11, the rate used was the implicit rate of the contract, this is the discount rate that results from the aggregate present value of the minimum lease payments and the unguaranteed residual value, and (ii) For aircraft that had contractual changes associated with exit from Chapter 11, the rate used was the incremental rate, this discount rate was calculated considering our recent aircraft debt negotiations, as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
For assets other than aircraft, the estimated lessee’s incremental borrowing rate, which is derived from information available at the lease inception date, was used to determine the present value of the lease payments. We consider our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing ratios.
A decrease of one percentage point in our estimate of the rates used to determine the lease liabilities current registered fleet as of December 31, 2023 would increase the lease liability by approximately US$111 million.
(ii)Lease term
In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option are considered. Extension options (or periods after termination options) are only included in the lease term if it is reasonably certain that the lease will be extended (or not terminated). This is reviewed if a significant event or significant change in circumstances occurs that affects this assessment and is within the lessee's control.
In any case, it is possible that events that may take place in the future make it necessary to modify them in future periods, which would be done prospectively.
NOTE 5 - SEGMENT INFORMATION
As of December 31, 2023, the Company considers that it has a single operating segment, Air Transport. This segment corresponds to the route network for air transport and is based on the way in which the business is managed, according to the centralized nature of its operations, the ability to open and close routes, as well as reassignment (airplanes, crew, personnel, etc.) within the network, which implies a functional interrelation between all of them, making them inseparable. This segment definition is one of the most common in the worldwide airline industry.
F-46
The Company’s revenues by geographic area are as follows:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Peru | |||||||||||||||||
| Argentina | |||||||||||||||||
| U.S.A. | |||||||||||||||||
| Europe | |||||||||||||||||
| Colombia | |||||||||||||||||
| Brazil | |||||||||||||||||
| Ecuador | |||||||||||||||||
| Chile | |||||||||||||||||
| Asia Pacific and rest of Latin America | |||||||||||||||||
| Income from ordinary activities | |||||||||||||||||
| Other operating income | |||||||||||||||||
The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area.
The Company has no customers that individually represent more than 10% of sales.
NOTE 6 - CASH AND CASH EQUIVALENTS
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Cash on hand | |||||||||||
| Bank balances (1) | |||||||||||
| Overnight | |||||||||||
| Total Cash | |||||||||||
| Cash equivalents | |||||||||||
| Time deposits | |||||||||||
| Mutual funds | |||||||||||
| Total cash equivalents | |||||||||||
| Total cash and cash equivalents | |||||||||||
(1) As of December 31, 2023, This balances includes ThUS$391,966 related to banks accounts that pay interest to the Company for the daily or monthly balances (ThUS$274,235 as of December 31, 2022)
F-47
Cash and cash equivalents are denominated in the following currencies:
| Currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||
| ThUS$ | ThUS$ | |||||||||||||
| Argentine peso | ||||||||||||||
| Brazilian real | ||||||||||||||
| Chilean peso | ||||||||||||||
| Colombian peso | ||||||||||||||
| Euro | ||||||||||||||
| US Dollar | ||||||||||||||
| Mexican peso | ||||||||||||||
| R.P. Chinese Yuan | ||||||||||||||
| Other currencies | ||||||||||||||
| Total | ||||||||||||||
NOTE 7 - FINANCIAL INSTRUMENTS
Financial instruments by category
As of December 31, 2023
| Assets | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Other financial assets, current | ||||||||||||||||||||||||||
| Trade and others accounts receivable, current | ||||||||||||||||||||||||||
| Accounts receivable from related entities, current | ||||||||||||||||||||||||||
| Other financial assets, non current | ||||||||||||||||||||||||||
| Accounts receivable, non current | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
F-48
| Liabilities | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Other financial liabilities, current | ||||||||||||||||||||||||||
| Trade and others accounts payable, current | ||||||||||||||||||||||||||
| Accounts payable to related entities, current | ||||||||||||||||||||||||||
| Other financial liabilities, non-current | ||||||||||||||||||||||||||
| Accounts payable, non-current | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
As of December 31, 2022
| Assets | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Other financial assets, current (*) | ||||||||||||||||||||||||||
| Trade and others accounts receivable, current | ||||||||||||||||||||||||||
| Accounts receivable from related entities, current | ||||||||||||||||||||||||||
| Other financial assets, non current | ||||||||||||||||||||||||||
| Accounts receivable, non current | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Liabilities | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Other financial liabilities, current | ||||||||||||||||||||||||||
| Trade and others accounts payable, current | ||||||||||||||||||||||||||
| Accounts payable to related entities, current | ||||||||||||||||||||||||||
| Other financial liabilities, non-current | ||||||||||||||||||||||||||
| Accounts payable, non-current | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
(*) The value presented as measured at amortized cost, mainly correspond to ThUS$340,008 of funds delivered as restricted advances (as described in Note 11) and guarantees delivered.
F-49
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON- CURRENT ACCOUNTS RECEIVABLE
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Trade accounts receivable | |||||||||||
| Other accounts receivable | |||||||||||
| Total trade and other accounts receivable | |||||||||||
| Less: Expected credit loss | ( | ( | |||||||||
| Total net trade and accounts receivable | |||||||||||
| Less: non-current portion – accounts receivable | ( | ( | |||||||||
| Trade and other accounts receivable, current | |||||||||||
The fair value of trade and other accounts receivable does not differ significantly from the book value.
To determine the expected credit losses, the Company groups accounts receivable for passenger and cargo transportation depending on the characteristics of shared credit risk and maturity.
| As of December 31, 2023 | As December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Portfolio maturity | Expected loss rate (1) | Gross book value (2) | Impairment loss Provision | Expected loss rate (1) | Gross book value (2) | Impairment loss Provision | ||||||||||||||||||||||||||||||||
| % | ThUS$ | ThUS$ | % | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||
| Up to date | % | ( | % | ( | ||||||||||||||||||||||||||||||||||
| From 1 to 90 days | % | ( | % | ( | ||||||||||||||||||||||||||||||||||
| From 91 to 180 days | % | ( | % | ( | ||||||||||||||||||||||||||||||||||
| From 181 to 360 days | % | ( | % | ( | ||||||||||||||||||||||||||||||||||
| Over 360 days | % | ( | % | ( | ||||||||||||||||||||||||||||||||||
| Total | ( | ( | ||||||||||||||||||||||||||||||||||||
(1)Corresponds to the consolidated expected rate of accounts receivable.
Currency balances composition of Trade and other accounts receivable and non-current accounts receivable are as follow:
F-50
| Currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||
| ThUS$ | ThUS$ | |||||||||||||
| Argentine Peso | ||||||||||||||
| Brazilian Real | ||||||||||||||
| Chilean Peso | ||||||||||||||
| Colombian Peso | ||||||||||||||
| Euro | ||||||||||||||
| US Dollar | ||||||||||||||
| Australian Dollar | ||||||||||||||
| Japanese Yen | ||||||||||||||
| Pound Sterling | ||||||||||||||
| Korean Won | ||||||||||||||
| Other Currencies | ||||||||||||||
| Total | ||||||||||||||
The movements of the expected credit losses of the trade accounts receivables are as follows:
| Opening balance | Write-offs | (Increase) Decrease | Closing balance | ||||||||||||||||||||
| Periods | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | |||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | |||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ( | ( | ||||||||||||||||||||
Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.
The historical and current renegotiations are not significant, and the policy is to analyze case by case to classify them according to the existence of risk, determining they need to be reclassified to pre-judicial collection accounts.
The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross exposure according to balance | Gross impaired exposure | Exposure net of risk concentrations | Gross exposure according to balance | Gross Impaired exposure | Exposure net of risk concentrations | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Trade accounts receivable | ( | ( | |||||||||||||||||||||||||||||||||
| Other accounts receivable | |||||||||||||||||||||||||||||||||||
There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.
F-51
NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
(a)Accounts receivable
| Tax No. | Related party | Relationship | Country of origin | Currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||
| Foreign | Qatar Airways | Indirect shareholder | Qatar | US$ | ||||||||||||||||||||||||||||||||||
| Foreign | Delta Air Lines, Inc. | Shareholder | U.S.A. | US$ | ||||||||||||||||||||||||||||||||||
| 76.335.600-0 | Parque de Chile S.A. | Related director | Chile | CLP | ||||||||||||||||||||||||||||||||||
| 96.989.370-3 | Rio Dulce S.A. (*) | Related director | Chile | CLP | ||||||||||||||||||||||||||||||||||
| 96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Related director | Chile | CLP | ||||||||||||||||||||||||||||||||||
| Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | ARS | ||||||||||||||||||||||||||||||||||
| Total current assets | ||||||||||||||||||||||||||||||||||||||
(b)Current accounts payable
| Current liabilities | ||||||||||||||||||||||||||||||||||||||
| Tax No. | Related party | Relationship | Country of origin | Currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||
| Foreign | Qatar Airways | Indirect shareholder | Qatar | US$ | ||||||||||||||||||||||||||||||||||
| Foreign | Delta Air Lines, Inc. | Shareholder | U.S.A. | US$ | ||||||||||||||||||||||||||||||||||
| Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | US$ | ||||||||||||||||||||||||||||||||||
| Foreign | Patagonia Seafarms INC (*) | Related director | U.S.A. | US$ | ||||||||||||||||||||||||||||||||||
| Total current and non current liabilities | ||||||||||||||||||||||||||||||||||||||
(*)Related until November 2022.
Transactions between related parties have been carried out on arm’s length conditions between interested and duly-informed parties. The transaction terms for the Liabilities of the period 2023 correspond from 30 days to 1 year of maturity, and the nature of the settlement of transactions are monetary.
F-52
NOTE 10 - INVENTORIES
The composition of Inventories is as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Technical stock (*) | |||||||||||
| Non-technical stock (**) | |||||||||||
| Total | |||||||||||
(*) Correspond to spare parts and materials that will be used in both own and third-party maintenance services.
(**) Consumption of on-board services, uniforms and other indirect materials
These are valued at their average acquisition cost net of their obsolescence provision according to the following detail:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Provision for obsolescence Technical stock | |||||||||||
| Provision for obsolescence Non-technical stock | |||||||||||
| Total | |||||||||||
The resulting amounts do not exceed the respective net realization values.
As of December 31, 2023, the Company registered ThUS$296,423 (ThUS$148,790 for the year ended, December 31, 2022 and ThUS$47,362 for the year ended December 31, 2021) the income statements, mainly related to on-board consumption and maintenance, which is part of the Cost of sales.
F-53
NOTE 11 - OTHER FINANCIAL ASSETS
(a)The composition of other financial assets is as follows:
| Current Assets | Non-current assets | Total Assets | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
(1) Other financial assets | |||||||||||||||||||||||||||||||||||
| Deposits in guarantee (aircraft) | |||||||||||||||||||||||||||||||||||
| Guarantees for margins of derivatives | |||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||
| Guaranteed debt advances Chapter 11 (*) | |||||||||||||||||||||||||||||||||||
| Other guarantees given | |||||||||||||||||||||||||||||||||||
| Subtotal of other financial assets | |||||||||||||||||||||||||||||||||||
(2) Hedging derivative asset | |||||||||||||||||||||||||||||||||||
| Fair value of interest rate derivatives | |||||||||||||||||||||||||||||||||||
| Fair value of foreign currency derivatives | |||||||||||||||||||||||||||||||||||
| Fair value of fuel price derivatives | |||||||||||||||||||||||||||||||||||
| Subtotal of derivative assets | |||||||||||||||||||||||||||||||||||
| Total Other Financial Assets | |||||||||||||||||||||||||||||||||||
(*)As of December 31, 2022, there are ThUS$340,008 of funds delivered to an agent as restricted advances, the purpose of which is to settle the claims pending resolution existing at the exit of the Chapter 11 process.
The different derivative hedging contracts maintained by the Company are described in Note 18.
(b) The balances composition by currencies of the Other financial assets are as follows:
| Type of currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||
| ThUS$ | ThUS$ | |||||||||||||
| Brazilian real | ||||||||||||||
| Chilean peso | ||||||||||||||
| Colombian peso | ||||||||||||||
| Euro | ||||||||||||||
| U.S.A dollar | ||||||||||||||
| Other currencies | ||||||||||||||
| Total | ||||||||||||||
F-54
NOTE 12 - OTHER NON-FINANCIAL ASSETS
The composition of other non-financial assets is as follows:
| Current assets | Non-current assets | Total Assets | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| (a) Advance payments | |||||||||||||||||||||||||||||||||||
| Aircraft insurance and other | |||||||||||||||||||||||||||||||||||
| Others | |||||||||||||||||||||||||||||||||||
| Subtotal advance payments | |||||||||||||||||||||||||||||||||||
| (b) Contract assets (1) | |||||||||||||||||||||||||||||||||||
| GDS costs | |||||||||||||||||||||||||||||||||||
| Credit card commissions | |||||||||||||||||||||||||||||||||||
| Travel agencies commissions | |||||||||||||||||||||||||||||||||||
| Subtotal advance payments | |||||||||||||||||||||||||||||||||||
| (c) Other assets | |||||||||||||||||||||||||||||||||||
| Sales tax | |||||||||||||||||||||||||||||||||||
| Other taxes | |||||||||||||||||||||||||||||||||||
| Contributions to the International Aeronautical Telecommunications Society (“SITA”) | |||||||||||||||||||||||||||||||||||
| Contributions to Aeronautical Service Companies | |||||||||||||||||||||||||||||||||||
| Judicial deposits | |||||||||||||||||||||||||||||||||||
| Subtotal other assets | |||||||||||||||||||||||||||||||||||
| Total Other Non - Financial Assets | |||||||||||||||||||||||||||||||||||
(1)Movement of Contracts assets:
| Initial balance | Activation | Cumulative translation adjustment | Amortization | Final balance | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | |||||||||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | |||||||||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ||||||||||||||||||||||||||||
F-55
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE
Non-current assets and disposal group classified as held for sale at December 31, 2023 and December 31, 2022, are detailed below:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current assets | |||||||||||
| Aircraft | |||||||||||
| Engines and rotables | |||||||||||
| Other assets | |||||||||||
| Total | |||||||||||
The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in Note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the exercise.
Assets reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale.
During 2020, 11 Boeing 767 aircraft were transferred from the Property, plant and equipment, to Non-current assets item or groups of assets for disposal classified as held for sale. During 2021, the sale of 5 aircraft was completed. During the year 2022 the sale of 3 aircraft was finalized and during the year 2023 the sale of 1 aircraft was finalized.
During 2021, associated with the fleet restructuring plan, 3 engines of the Airbus A350 fleet were transferred from the Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale, of which during the same year the sale of 1 engine was finalized. Additionally, during the year 2022, the sale of 1 engine was finalized and some materials and spare parts of this same fleet were transferred to Non-current assets or groups of assets for disposal classified as held for sale. During the year 2023, the sale of 1 engine, some spare parts, and materials was finalized.
During 2022, 28 A319 family aircraft were transferred from Property, plant and equipment to Non-current assets or asset groups for disposal classified as held for sale. Additionally, adjustments for US$345 million of expenses were recognized within results as part of Other gains (losses) to record these assets at their net realizable value. During 2023, the engines associated with these aircraft were added, generating additional adjustments of US$39 million, which were recorded in the result as part of Other gains (losses), in order to register these assets at their net realizable value.
During the year 2022, 6 aircraft and 8 engines of the Airbus A320 family were transferred from Property, plant and equipment to Non-current assets or asset groups for disposal classified as held for sale, and as December 31, 2022 the sale of 3 aircraft was finalized. As of December 31, 2023, the sale of 2 aircraft and 8 engines were finalized. Additionally, for the year ended December 31, 2022, adjustments for US$25 million of expenses were recognized to record these assets at their net realizable value, and since the fleet restructuring process had already been completed, these adjustments were recorded in results as part of Other expenses by function. During the year 2023, 6 Airbus A320 aircraft were transferred from the Property, Plant, and Equipment category to the Non-current Assets or Asset Groups held for sale category. Additionally, during the year 2023, adjustments of US$9 million in expenses were recognized to record these assets at their net realizable value. These adjustments were recorded in the results as part of Other expenses by function.
F-56
During 2023, 1 Boeing 767 family aircraft was transferred from Property, plant and equipment to Non-current assets or asset groups for disposal classified as held for sale. Additionally, adjustments for US$3 million of expenses were recognized within results as part of Other expenses by function to record these assets at their net realizable value.
The detail of the fleet classified as non-current assets and disposal group classified as held for sale is as follows:
| Aircraft | Model | As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||
| Boeing 767 | 300F | |||||||||||||||||||
| Airbus A320 | 200 | |||||||||||||||||||
| Airbus A319 | 100 | |||||||||||||||||||
| Total | ||||||||||||||||||||
NOTE 14 - INVESTMENTS IN SUBSIDIARIES
(a) Investments in subsidiaries
The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.
Detail of significant subsidiaries:
| Ownership | ||||||||||||||||||||||||||
| Name of significant subsidiary | Country of incorporation | Functional currency | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| % | % | |||||||||||||||||||||||||
| Latam Airlines Perú S.A. | Peru | US$ | ||||||||||||||||||||||||
| Lan Cargo S.A. | Chile | US$ | ||||||||||||||||||||||||
| Línea Aérea Carguera de Colombia S.A. | Colombia | US$ | ||||||||||||||||||||||||
| Transporte Aéreo S.A. | Chile | US$ | ||||||||||||||||||||||||
| Latam Airlines Ecuador S.A. | Ecuador | US$ | ||||||||||||||||||||||||
| Aerovías de Integración Regional S.A. Aires S.A. | Colombia | COP | ||||||||||||||||||||||||
| TAM Linhas aéreas S.A. | Brazil | BRL | ||||||||||||||||||||||||
| ABSA Aerolimhas Brasileiras S.A. | Brazil | US$ | ||||||||||||||||||||||||
| Transportes Aéreos del Mercosur S.A. | Paraguay | PYG | ||||||||||||||||||||||||
The consolidated subsidiaries do not have significant restrictions for transferring funds to the parent company.
F-57
Summary financial information of significant subsidiaries
| Statement of financial position as of December 31, 2023 | Income for the year ended December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income/(loss) | ||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||
| Latam Airlines Perú S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Lan Cargo S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Línea Aérea Carguera de Colombia S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Transporte Aéreo S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Latam Airlines Ecuador S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Aerovías de Integración Regional S.A. Aires S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ABSA Aerolinhas Brasileiras S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Transportes Aéreos del Mercosur S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Statement of financial position as of December 31, 2022 | Income for the year ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income/(loss) | ||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||
| Latam Airlines Perú S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Lan Cargo S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Línea Aérea Carguera de Colombia S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Transporte Aéreo S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Latam Airlines Ecuador S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Aerovías de Integración Regional S.A. Aires S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| ABSA Aerolinhas Brasileiras S.A. | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Transportes Aéreos del Mercosur S.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||
F-58
(a)Non-controlling interests
| Equity | Tax No. | Country of origin | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||
| % | % | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||
| Latam Airlines Perú S.A. | Foreign | Peru | ( | |||||||||||||||||||||||||||||||||||
| Aerovías de Integración Regional S.A. Aires S.A. | Foreign | Colombia | ( | ( | ||||||||||||||||||||||||||||||||||
| Linea Aérea Carguera de Colombia S.A. | Foreign | Colombia | ( | ( | ||||||||||||||||||||||||||||||||||
| Transportes Aéreos del Mercosur S.A. | Foreign | Paraguay | ||||||||||||||||||||||||||||||||||||
| Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | ||||||||||||||||||||||||||||||||||||
| Other companies | ( | |||||||||||||||||||||||||||||||||||||
| Total | ( | ( | ||||||||||||||||||||||||||||||||||||
| For the year ended At December 31, | For the year ended At December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||
| Incomes | Tax No. | Country of origin | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| % | % | % | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||
| Latam Airlines Perú S.A | Foreign | Peru | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Aerovías de Integración Regional S.A. Aires S.A. | Foreign | Colombia | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Linea Aérea Carguera de Colombia S.A. | Foreign | Colombia | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Transportes Aéreos del Mercosur S.A. | Foreign | Paraguay | ||||||||||||||||||||||||||||||||||||||||||||||||
| Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Other companies | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
F-59
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
| Classes of intangible assets (net) | Classes of intangible assets (gross) | ||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Airport slots | |||||||||||||||||||||||
| Loyalty program | |||||||||||||||||||||||
| Computer software | |||||||||||||||||||||||
| Developing software | |||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
a)Movement in Intangible assets other than goodwill:
| Computer software and others Net | Developing software | Airport slots | Loyalty program (1) | Total | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Opening balance as of January 1, 2021 | |||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||
| Withdrawals | ( | ( | ( | ||||||||||||||||||||||||||
| Transfer software and others | ( | ( | |||||||||||||||||||||||||||
| Foreign exchange | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Amortization | ( | ( | ( | ||||||||||||||||||||||||||
| Closing balance as of December 31, 2021 | |||||||||||||||||||||||||||||
| Opening balance as of January 1, 2022 | |||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||
| Withdrawals | ( | ( | ( | ||||||||||||||||||||||||||
| Transfer software and others | ( | ( | |||||||||||||||||||||||||||
| Foreign exchange | ( | ||||||||||||||||||||||||||||
| Amortization | ( | ( | |||||||||||||||||||||||||||
| Closing balance as of December 31, 2022 | |||||||||||||||||||||||||||||
| Opening balance as of January 1, 2023 | |||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||
| Transfer software and others | ( | ( | |||||||||||||||||||||||||||
| Foreign exchange | |||||||||||||||||||||||||||||
| Amortization | ( | ( | |||||||||||||||||||||||||||
| Closing balance as of December 31, 2023 | |||||||||||||||||||||||||||||
F-60
The amortization of each period is recognized in the consolidated income statement within administrative expenses.
The cumulative amortization of computer software and others as of December 31, 2023 amounts to ThUS$442,142 (ThUS$414,614 as of December 31, 2022).
The cumulative amortization of computer software and others as of December 31, 2023 amounts to ThUS$
b)Impairment Test Intangible Assets with an indefinite useful life
As of December 31, 2023, the Company maintains only the CGU “Air Transport”.
The CGU “Air transport” considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe, Africa and Oceania.
The CGU “Air transport” considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe, Africa and Oceania.
As of December 31, 2023, in accordance with the accounting policy, the Company performed the annual impairment test.
The recoverable amount of the CGU was determined based on calculations of the value in use. These calculations use projections of 5 years of cash flows after taxes from the financial budgets approved by management. Cash flows beyond the budgeted period are extrapolated using growth rates and estimated average volumes, which do not exceed long-term average growth rates.
Management’s cash flow projections included significant judgements and assumptions related to annual revenue growth rates, discount rate, inflation rates, the exchange rate and the price of fuel. The annual revenue growth rate is based on past performance and management’s expectations of market development in each of the countries in which it operates. The discount rates used for the CGU "Air transport" are determined in US dollars, after taxes, and reflect specific risks related to the relevant countries of each of the operations. Inflation rates and exchange rates are based on the data available from the countries and the information provided by the Central Banks of the various countries where it operates, and the price of fuel is determined based on estimated levels of production, the competitive environment of the market in which they operate and their commercial strategy.
The recoverable values were determined using the following assumptions:
| CGU Air transport | ||||||||
| Annual growth rate (Terminal) | % | |||||||
| Exchange rate | R$/US$ | |||||||
| Discount rate based on the Weighted Average Cost of Capital (WACC) | % | |||||||
| Fuel Price | US$/barrel | |||||||
The result of the impairment test, which includes a sensitivity analysis of its main variables, showed that the recoverable amount exceeded the book value of the cash-generating unit, and therefore no impairment was identified.
The CGU is sensitive to annual growth rates, discounts and exchange rates and fuel price. The sensitivity analysis included the individual impact of changes in critical estimates in determining recoverable amounts, namely:
| Increase WACC Maximum | Decrease rate Terminal growth Minimal | Increase fuel price Maximum US$/barrel | |||||||||||||||
| % | % | ||||||||||||||||
| Air Transportation CGU | |||||||||||||||||
In none of the above scenarios an impairment of the cash-generating unit was identified.
F-61
NOTE 16 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and equipment is as follows:
| Gross Book Value | Accumulated depreciation | Net Book Value | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| a) Property, plant and equipment | |||||||||||||||||||||||||||||||||||
| Construction in progress (1) | |||||||||||||||||||||||||||||||||||
| Land | |||||||||||||||||||||||||||||||||||
| Buildings | ( | ( | |||||||||||||||||||||||||||||||||
| Plant and equipment | ( | ( | |||||||||||||||||||||||||||||||||
| Own aircraft (3) | ( | ( | |||||||||||||||||||||||||||||||||
| Other (2) | ( | ( | |||||||||||||||||||||||||||||||||
| Machinery | ( | ( | |||||||||||||||||||||||||||||||||
| Information technology equipment | ( | ( | |||||||||||||||||||||||||||||||||
| Fixed installations and accessories | ( | ( | |||||||||||||||||||||||||||||||||
| Motor vehicles | ( | ( | |||||||||||||||||||||||||||||||||
| Leasehold improvements | ( | ( | |||||||||||||||||||||||||||||||||
| Subtotal Properties, plant and equipment | ( | ( | |||||||||||||||||||||||||||||||||
| b) Right of use | |||||||||||||||||||||||||||||||||||
| Aircraft (3) | ( | ( | |||||||||||||||||||||||||||||||||
| Other assets | ( | ( | |||||||||||||||||||||||||||||||||
| Subtotal Right of use | ( | ( | |||||||||||||||||||||||||||||||||
| Total | ( | ( | |||||||||||||||||||||||||||||||||
(1)As of December 31, 2023, includes advances paid to aircraft manufacturers for ThUS$242,069 (ThUS$357,979 as of December 31, 2022).
(2)Consider mainly rotables and tools.
(3)There were reclassified to Non-current assets or groups of assets for disposal as held for sale the following aircrafts: As of December 31, 2023, one Boeing B767 and six Airbus A320, as of December 31, 2022, six Airbus A320 and twenty-eight Airbus A319 (see Note 13).
F-62
(a)Movement in the different categories of Property, plant and equipment:
| Construction in progress | Land | Buildings net | Plant and equipment net | Information technology equipment net | Fixed installations & accessories net | Motor vehicles net | Leasehold improvements net | Property, Plant and equipment net | |||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||
| Opening balance as of January 1, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Rejection fleet | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirements | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation expenses | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other increases (decreases) (*) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes, total | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Opening balance as of January 1, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Retirements | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation expenses | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other increases (decreases) (*) | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Changes, total | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Opening balance as of January 1, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Retirements | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation expenses | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other increases (decreases) (*) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Changes, total | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Closing balance as of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(*) This Amount included the following aircrafts reclassified to Non-current assets or groups of assets for disposal as held for sale: As of December 31, 2023, one Boeing B767 ThUS$(21,578 ) and six Airbus A320 ThUS$(36,326 ). As of December 31, 2022, six Airbus A320 ThUS$(29,328 ) and twenty-eight Airbus A319 ThUS$(373,410 ). As of December 31, 2021, includes advances paid to aircraft manufacturers for ThUS$ 377,590 .
F-63
(b)Right of use assets:
| Aircraft | Others | Net right of use assets | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Opening balance as of January 1, 2021 | |||||||||||||||||
| Additions | |||||||||||||||||
| Fleet rejection (*) | ( | ( | ( | ||||||||||||||
| Depreciation expense | ( | ( | ( | ||||||||||||||
| Cumulative translate adjustment | ( | ( | ( | ||||||||||||||
| Other increases (decreases) (**) | |||||||||||||||||
| Total changes | ( | ( | ( | ||||||||||||||
| Closing balance as of December 31, 2021 | |||||||||||||||||
| Opening balance as of January 1, 2022 | |||||||||||||||||
| Additions | |||||||||||||||||
| Depreciation expense | ( | ( | ( | ||||||||||||||
| Cumulative translate adjustment | |||||||||||||||||
| Other increases (decreases) (***) | ( | ( | |||||||||||||||
| Total changes | ( | ( | |||||||||||||||
| Closing balance as of December 31, 2022 | |||||||||||||||||
| Opening balance as of January 1, 2023 | |||||||||||||||||
| Additions | |||||||||||||||||
| Depreciation expense | ( | ( | ( | ||||||||||||||
| Cumulative translate adjustment | |||||||||||||||||
| Other increases (decreases) | ( | ( | ( | ||||||||||||||
| Total changes | ( | ||||||||||||||||
| Closing balance as of December 31, 2023 | |||||||||||||||||
(*) Include aircraft lease rejection due to Chapter 11.
(**) Includes the renegotiations of 92 aircraft (1 A319, 37 A320, 12 A320N, 19 A321, 1 B767, 6 B777 and 16 B787).
(***) Include the renegotiations of 115 aircraft (1 A319, 39 A320, 14 A320N, 30 A321, 1 B767, 6 B777 and 24 B787).
F-64
(c)Fleet composition
| Aircraft included in Property, plant and equipment | Aircraft included as Rights of use assets | Total fleet | |||||||||||||||||||||||||||||||||||||||||||||
| Aircraft | Model | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Boeing 767 | 300ER | (3) | |||||||||||||||||||||||||||||||||||||||||||||
| Boeing 767 | 300F | (2) (3) | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Boeing 777 | 300ER | ||||||||||||||||||||||||||||||||||||||||||||||
| Boeing 787 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Boeing 787 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Airbus A319 | 100 | (2) | |||||||||||||||||||||||||||||||||||||||||||||
| Airbus A320 | 200 | (2) | (2) | (1) | |||||||||||||||||||||||||||||||||||||||||||
| Airbus A320 | NEO | ||||||||||||||||||||||||||||||||||||||||||||||
| Airbus A321 | 200 | ||||||||||||||||||||||||||||||||||||||||||||||
| Airbus A321 | NEO | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Include one aircraft with a short-term lease, which was excluded from the right of use.
(2) Some aircraft of these fleets were reclassified to non-current assets or groups of assets for disposal as held for sale, (see Note 13).
(3) Considers the conversions from Boeing 767-300ER to Boeing 767-300F Aircraft.
(d)Method used for the depreciation of Property, plant and equipment:
| Useful life (years) | |||||||||||||||||
| Depreciation method | minimum | maximum | |||||||||||||||
| Buildings | Straight line without residual value | ||||||||||||||||
| Plant and equipment | Straight line with residual value of | ||||||||||||||||
| Information technology equipment | Straight line without residual value | ||||||||||||||||
| Fixed installations and accessories | Straight line without residual value | ||||||||||||||||
| Motor vehicle | Straight line without residual value | ||||||||||||||||
| Leasehold improvements | Straight line without residual value | ||||||||||||||||
| Assets for rights of use | Straight line without residual value | ||||||||||||||||
(*)Except in the case of the Boeing 767 300ER, Airbus 320 Family and Boeing 767 300F fleets that consider a lower residual value, due to the extension of their useful life to 22 , 25 and 30 years respectively. Additionally, certain technical components are depreciated based on cycles and hours flown.
F-65
(e)Additional information regarding Property, plant and equipment:
(i)Property, plant and equipment pledged as guarantee:
Description of Property, plant and equipment pledged as guarantee:
| As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||
| Guarantee agent (1) | Creditor company | Committed Assets | Fleet | Existing Debt | Book Value | Existing Debt | Book Value | |||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||
| Wilmington Trust Company | MUFG | Aircraft and engines | Airbus A319 | |||||||||||||||||||||||||||||||||||||||||
| Airbus A320 | ||||||||||||||||||||||||||||||||||||||||||||
| Boeing 767 | ||||||||||||||||||||||||||||||||||||||||||||
| Boeing 777 | ||||||||||||||||||||||||||||||||||||||||||||
| Credit Agricole | Credit Agricole | Aircraft and engines | Airbus A319 | |||||||||||||||||||||||||||||||||||||||||
| Airbus A320 | ||||||||||||||||||||||||||||||||||||||||||||
| Airbus A321 | ||||||||||||||||||||||||||||||||||||||||||||
| Boeing 767 | ||||||||||||||||||||||||||||||||||||||||||||
| Boeing 787 | ||||||||||||||||||||||||||||||||||||||||||||
| Bank Of Utah | BNP Paribas | Aircraft and engines | Boeing 787 | |||||||||||||||||||||||||||||||||||||||||
| Total direct guarantee | ||||||||||||||||||||||||||||||||||||||||||||
(1) For syndicated loans, given their own characteristics, the guarantee agent is the representative of the creditors.
The amounts of the current debts are presented at their nominal value. The net book values correspond to the assets granted as collateral.
Additionally, there are indirect guarantees associated with assets booked within Property, Plant and Equipment whose total debt as of December 31, 2023, amounts to ThUS$898,166 (ThUS$1,037,122 as of December 31, 2022). The book value of the assets with indirect guarantees as of December 31, 2023, amounts to ThUS$1,925,069 (ThUS$2,306,233 as of December 31, 2022).
As of December 31, 2023, the Company keeps valid letters of credit related to right of use assets according to the following detail:
| Creditor Guarantee | Debtor | Type | Value ThUS$ | Release date | ||||||||||||||||||||||
| GE Capital Aviation Services Ltd. | LATAM Airlines Group S.A. | Dec 6, 2024 | ||||||||||||||||||||||||
| Merlin Aviation Leasing (Ireland) 18 Limited RB Comercial Properties 49 | Tam Linhas Aéreas S.A. | Mar 11, 2024 | ||||||||||||||||||||||||
| Empreendimentos Imobiliarios LTDA | Tam Linhas Aéreas S.A. | Apr 29, 2024 | ||||||||||||||||||||||||
F-66
(ii)Commitments and others
Fully depreciated assets and commitments for future purchases are as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Gross book value of fully depreciated property, plant and equipment still in use | |||||||||||
| Commitments for the acquisition of aircraft (*) | |||||||||||
(*) According to the manufacturer’s price list.
Aircraft purchase commitments:
| Year of delivery | ||||||||||||||||||||||||||||||||
| Manufacturer | 2024 | 2025 | 2026 | 2027-2030 | Total | |||||||||||||||||||||||||||
| Airbus S.A.S. | ||||||||||||||||||||||||||||||||
| A320neo Family | ||||||||||||||||||||||||||||||||
| The Boeing Company | ||||||||||||||||||||||||||||||||
| Boeing 787-9 | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
As of December 31, 2023, as a result of the different aircraft purchase contracts signed with Airbus S.A.S., 88 Airbus aircraft of the A320 family remain to be received with deliveries between 2024 and 2030. The approximate amount, according to manufacturer list prices, is ThUS$13,800,000 .
As of December 31, 2023, as a result of the different aircraft purchase contracts signed with The Boeing Company, 5 Boeing aircraft of the 787 Dreamliner remain to be received with deliveries between 2027 and 2028. The approximate amount, according to manufacturer list prices, is ThUS$1,900,000 .
Aircraft operational lease commitments:
As of December 31, 2023, as a result of the different aircraft operating lease contracts signed with AerCap Holdings N.V., 4 Airbus aircraft of the Airbus A320neo family with delivery between 2024 and 4 Boeing 787 Dreamliner aircraft with delivery dates within 2025 remain to be received.
As of December 31, 2023, as a result of the different aircraft operating lease contracts signed with Aergo, 1 Boeing 787 Dreamliner aircraft, with delivery dates within 2024, remain to be received.
As of December 31, 2023, as a result of the different aircraft operating lease contracts signed with Air Lease Corporative , 1 Airbus aircraft of the A320neo family with delivery dates within 2024 remain to be received.
As of December 31, 2023, as a result of the different aircraft operating lease contracts signed with Avolon Aerospace Leasing Limited, 2 Airbus aircraft of the A320neo family with delivery date within 2024 remain to be received.
As of December 31, 2023, as a result of the different aircraft operating lease contracts signed with Air Lease Corporation, 5 Airbus A321XLR family aircraft with delivery dates between 2025 and 2026 remain to be received.
F-67
(iii)Capitalized interest costs with respect to Property, plant and equipment.
| For the year ended At December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Average rate of capitalization of capitalized interest costs | % | ||||||||||||||||||||||
| Costs of capitalized interest | ThUS$ | ||||||||||||||||||||||
(f) Assumption, Amendment & Rejection of Executory Contracts & Leases
On June 28, 2020, the Bankruptcy Court authorized the Debtors to establish procedures for the rejection of certain executory contracts and unexpired leases and on September 24, 2020, the Bankruptcy Court authorized the Debtors to establish procedures for the rejection of certain unexpired aircraft lease agreements, aircraft engine agreements and the abandonment of certain related assets. In accordance with these rejection procedures, the Bankruptcy Code and the Bankruptcy Rules the Debtors have or will reject certain contracts and leases (see notes 18 and 26). Relatedly, the Bankruptcy Court approved the Debtors’ request to extend the date by which the Debtors may assume or reject unexpired non-residential, real property leases until December 22, 2020. Pursuant to the Disclosure Statement Order, the Debtors have until the Effective Date of the Plan (as defined in the Plan) to assume or reject executory contracts and unexpired leases.
Further, the Debtors have filed motions to reject certain aircraft and engine leases and related agreements:
Bankruptcy Court approval date: Asset rejected:
January 29, 2021 (i) 2 Airbus A320-family aircraft
April 23, 2021 (i) 1 Airbus A350-941 aircraft
May 14, 2021 (i) 6 Airbus A350 aircraft
June 17, 2021 (i) 1 Airbus A350-941 aircraft
June 24, 2021 (i) 3 Airbus A350-941 aircraft
November 3, 2021 (i) 1 Rolls-Royce Trent XWB-84K engine;
(ii) 1 Rolls-Royce International Aero Engine AG V2527M-A5;
January 5, 2022 (i) General Terms Agreement between Rolls-Royce PLC and Rolls-
Royce Totalcare Services Limited and TAM Linhas Aereas S.A.;
March 22, 2022 (i) 1 International Aero Engines AG V2527-A5 engine; and
May 18, 2022 (i) Framework Deed Relating to the purchase and leaseback of ten
used Airbus A330-200 aircraft, nine new Airbus A350-900 aircraft,
As of December 31, 2021, and as a result of these contract rejections, performance obligations with the lenders and lessors
were extinguished and the Company lost control over the related assets resulting in the derecognition of the assets and the liabilities associated with these aircraft. See Note 18 and 26.
Contracts rejected during 2022 in the previous table do not result in changes in the asset or liabilities structure of the Company, since these were general terms of agreement for purchases, engine maintenance contracts and short term leases which according to the accounting policies (see Note 2) should not be registered as right of use assets.
F-68
The Debtors also have filed motions to enter into certain new aircraft lease agreements, including:
Bankruptcy Court Approval Date: Counterparty / Aircraft
March 8, 2021 Vermillion Aviation (nine) Limited, Aircraft MSNs 4860 and 4827
April 12, 2021 Wilmington Trust Company, Solely in its Capacity as Trustee,
Aircraft MSNs 6698, 6780, 6797, 6798, 6894, 6895, 6899, 6949,
7005, 7036, 7081
May 30, 2021 UMB Bank N.A., Solely in its Capacity as Trustee, Aircraft MSNs
38459, 38478, 38479, 38461
August 31, 2021 (i) Avolon Aerospace Leasing Limited or its Affiliates, Aircraft
MSNs 38891, 38893, 38895
(ii) Sky Aero Management Ltd. ten Airbus A320neo
February 23, 2022 Vmo Aircraft Leasing, Two Boeing 787-9
March 17, 2022 Avolon Aerospace Leasing Limited, two Airbus A321neo
March 17, 2022 Air Lease Corporation, three Airbus A321NX
March 17, 2022 AerCap Ireland, two Airbus A321-200NEO
March 18, 2022 CDB Aviation Lease Finance DAC, two Airbus A321NX
April 14, 2022 Macquarie Aircraft Leasing Services (Ireland) Ltd., one Airbus
A320-233
June 29, 2022 UK Export Finance, four Boeing 787-9
August 12, 2022 Air Lease Corporation, three Airbus A321XLR
September 8, 2022 Air Lease Corporation, two Airbus A321XLR
In addition, the Debtors also have filed motions to enter into certain aircraft lease amendment agreements which have the effect of, among other things, reducing the Debtors’ rental payment obligations and extension on the lease term. Certain amendments also involved updates to related financing arrangements. These amendments include:
Bankruptcy Court Approval Date: Amended Lease Agreement/Counterparty
April 14, 2021 (1) Bank of Utah
(2) AWAS 5234 Trust
(3) Sapucaia Leasing Limited, PK Airfinance US, LLC and PK Air 1
LP
April 15, 2021 Aviator IV 3058, Limited
April 27, 2021 Bank of America Leasing Ireland Co.,
May 4, 2021 (1) NBB Grosbeak Co., Ltd , NBB Cuckoo Co., Ltd., NBB-6658
Lease Partnership, NBB-6670 Lease Partnership and NBB Redstart
Co. Ltd.
(2) Sky High XXIV Leasing Company Limited and Sky High XXV
Leasing Company Limited
(3) SMBC Aviation Capital Limited
F-69
May 5, 2021 (1) JSA International US Holdings LLC and Wells Fargo Trust
Company N.A.
(2) Orix Aviation Systems Limited
May 27, 2021 (1) Shenton Aircraft Leasing 3 (Ireland) Limited.
(2) Chishima Real Estate Company, Limited and PAAL Aquila Company Limited
May 28, 2021 MAF Aviation 1 Designated Activity Company
May 30, 2021 (1) IC Airlease One Limited
(2) UMB Bank, National Association, Macquarie Aerospace
Finance 5125-2 Trust and Macquarie Aerospace Finance 5178
Limited
(3) Wilmington Trust SP Services (Dublin) Limited
(4) Aercap Holdings N.V.
(5) Banc of America Leasing Ireland Co.
(6) Castlelake L.P.
July 1, 2021 EX-IM Fleet
July 8, 2021 Greylag Goose Leasing 38887 Designated Activity Company
July 15, 2021 (1) ECAF I 40589 DAC
(2) Wells Fargo Company, National Associates, as Owner Trustee
(3) Orix Aviation Systems Limited
(4) Wells Fargo Trust Company, N.A.
July 20, 2021 (1) Avolon AOE 62 Limited
(2) Avolon Aerospace (Ireland) AOE 99 Limited, Avolon Aerospace (Ireland) AOE 100 Limited, Avolon Aerospace (Ireland) AOE 101 Limited, Avolon Aerospace (Ireland) AOE 102 Limited, Avolon Aerospace (Ireland) AOE 103 Limited, Avolon Aerospace AOE 130 Limited, Avolon Aerospace AOE 134 Limited
July 27, 2021 (1) Merlin Aviation Leasing (Ireland) 18 Limited
(2) JSA International U.S. Holdings, LLC
August 30, 2021 (1) Yamasa Sangyo Aircraft LA 1 Kumiai and Yamasa Sangyo
Aircraft LA2 Kumiai
(2) Dia Patagonia Ltd. and DIa Iguazu Ltd. Condor Leasing Co.,
Ltd., FC Initial Leasing Ltd., Alma Leasing Co., Ltd., and FI
Timothy Leasing Ltd.
(3) Platero Fleet
(4) SL Alcyone Ltd.
(5) NBB Crow Co., Ltd.
(6) NBB Sao Paulo Lease Co., Ltd., NBB Rio Janeiro Lease Co., Ltd. And NBB Brasilia Lease LLC
(7) Gallo Finance Limited
(8) Orix Aviation Systems Limited
The lease amendment agreements were accounted for as lease modifications (see Note 18).
In relation to several of these lease amendment agreements, the Debtors entered into claims settlement stipulations for
prepetition amounts due upon assumption of those agreements
F-70
NOTE 17 - CURRENT AND DEFERRED TAXES
In the year ended December 31, 2023 the income tax provision was calculated and recorded, applying the semi-integrated tax system and a rate of 27 %, based on the provisions of the Law. No. 21,210, published in the Official Gazette of the Republic of Chile, dated February 24, 2020, which updates the Tax Legislation.
The net result for deferred tax corresponds to the variation of the period, of the assets and liabilities for deferred taxes generated by temporary differences and tax losses.
For the permanent differences that give rise to a book value of assets and liabilities other than their tax value, no deferred tax has been recorded since they are caused by transactions that are recorded in the financial statements and that will have no effect on income tax expense.
(a.1)Current taxes
(a.1) The composition of the current tax assets is the following:
| Current assets | Non-current assets | Total assets | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Provisional monthly payments (advances) | |||||||||||||||||||||||||||||||||||
| Other recoverable credits | |||||||||||||||||||||||||||||||||||
| Total current tax assets | |||||||||||||||||||||||||||||||||||
(a.2) The composition of the current tax liabilities are as follows:
| Current liabilities | Non-current liabilities | Total liabilities | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||||||||||||||
| Total current tax liabilities | |||||||||||||||||||||||||||||||||||
F-71
(b) Deferred taxes
The balances of deferred tax are the following:
| Assets | Liabilities | ||||||||||||||||||||||
| Concept | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Properties, Plants and equipment | ( | ( | |||||||||||||||||||||
| Assets by right of use | ( | ( | |||||||||||||||||||||
| Lease Liabilities | ( | ( | |||||||||||||||||||||
| Amortization | ( | ( | |||||||||||||||||||||
| Provisions | |||||||||||||||||||||||
| Revaluation of financial instruments | ( | ||||||||||||||||||||||
| Tax losses | ( | ( | |||||||||||||||||||||
| Intangibles | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
The balance of deferred tax assets and liabilities are composed primarily of temporary differences to be reversed in the long term.
Movements of Deferred tax assets and liabilities
(b.1)From January 1 to December 31, 2021
| Opening balance Assets/(liabilities) | Recognized in consolidated income | Recognized in comprehensive income | Exchange rate variation | Ending balance Asset (liability) | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Property, plant and equipment | ( | ( | |||||||||||||||||||||||||||
| Assets for right of use | ( | ( | |||||||||||||||||||||||||||
| Lease Liabilities | ( | ||||||||||||||||||||||||||||
| Amortization | ( | ( | |||||||||||||||||||||||||||
| Provisions | ( | ||||||||||||||||||||||||||||
| Revaluation of financial instruments | ( | ( | ( | ||||||||||||||||||||||||||
| Tax losses (*) | ( | ||||||||||||||||||||||||||||
| Intangibles | ( | ( | ( | ||||||||||||||||||||||||||
| Others | ( | ( | ( | ||||||||||||||||||||||||||
| Total | ( | ( | ( | ||||||||||||||||||||||||||
F-72
(b.2)From January 1 to December 31, 2022
| Opening balance Assets/(liabilities) | Recognized in consolidated income | Recognized in comprehensive income | Exchange rate variation | Ending balance Asset (liability) | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Property, plant and equipment | ( | ( | |||||||||||||||||||||||||||
| Assets for right of use | ( | ( | |||||||||||||||||||||||||||
| Lease Liabilities | ( | ||||||||||||||||||||||||||||
| Amortization | ( | ( | ( | ||||||||||||||||||||||||||
| Provisions | ( | ( | |||||||||||||||||||||||||||
| Revaluation of financial instruments | ( | ( | |||||||||||||||||||||||||||
| Tax losses (*) | |||||||||||||||||||||||||||||
| Intangibles | ( | ( | ( | ||||||||||||||||||||||||||
| Others | ( | ( | ( | ||||||||||||||||||||||||||
| Total | ( | ( | ( | ||||||||||||||||||||||||||
(b.3)From January 1 to December 31, 2023
| Opening balance Assets/(liabilities) | Recognized in consolidated income | Recognized in comprehensive income | Exchange rate variation | Ending balance Asset (liability) | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Property, plant and equipment | ( | ( | |||||||||||||||||||||||||||
| Assets for right of use | ( | ( | ( | ||||||||||||||||||||||||||
| Lease Liabilities | |||||||||||||||||||||||||||||
| Amortization | ( | ( | ( | ||||||||||||||||||||||||||
| Provisions | ( | ||||||||||||||||||||||||||||
| Revaluation of financial instruments | ( | ( | |||||||||||||||||||||||||||
| Tax losses (*) | ( | ||||||||||||||||||||||||||||
| Intangibles | ( | ( | ( | ( | |||||||||||||||||||||||||
| Others | ( | ( | |||||||||||||||||||||||||||
| Total | ( | ( | ( | ( | |||||||||||||||||||||||||
(*) Unrecognized deferred tax assets:
Deferred tax assets are recognized to the extent that it is probable that sufficient taxable profits will be generated in the future. In total the Company has not recognized deferred tax assets for ThUS$3,572,528 at December 31, 2023 (ThUS$3,651,023 as of December 31, 2022) which include deferred tax assets related to negative tax results of ThUS$12,206,634 at December 31, 2023 (ThUS$14,930,487 at December 31, 2022).
As stated in note 2c) the Company filed a Reorganization Plan and Disclosure Statement in which, among other items, financial forecasts were included together with the proposed issuance of new shares and convertible notes. With that information the Company´s management updated its analysis on the recoverability of deferred tax assets and determined that during the time covered by the financial forecast it will not be probable that part of such deferred tax assets may be offset by future taxable profits. Therefore, the Company during the fourth quarter of 2021 derecognized deferred tax assets not considered recoverable in the amount of ThUS$1,251,912.
As of December 31, 2022, the Management of the subsidiary Lan Cargo S.A., taking into account financial projections for future years, company derecognized DTA in the amount of Th US$6,173 because it is not probable that future taxable profits would be generated in the future.
F-73
(Expenses)/income from deferred taxes and income tax:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Income tax (expense)/benefit | |||||||||||||||||
| Current tax (expense) benefit | ( | ( | ( | ||||||||||||||
| Adjustments to the current tax of the previous year | ( | ( | |||||||||||||||
| Total current tax (expense) benefit | ( | ( | ( | ||||||||||||||
| Deferred income taxes | |||||||||||||||||
| (Expense)/benefit for deferred tax recognition for tax losses (*) | |||||||||||||||||
| Deferred income for relative taxes to the creation and reversal of temporary differences | ( | ( | |||||||||||||||
| Total deferred income tax | ( | ( | |||||||||||||||
| Income tax (expense)/benefit | ( | ( | ( | ||||||||||||||
Income tax (expense)benefit
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Current tax (expense) benefit, foreign | ( | ( | |||||||||||||||
| Current tax (expense) benefit, domestic | ( | ( | ( | ||||||||||||||
| Total current tax (expense) benefit | ( | ( | ( | ||||||||||||||
| Foreign Deferred tax (expense) benefit, for tax losses compensation (*) | |||||||||||||||||
| Deferred tax (expense) benefit, foreign | ( | ( | |||||||||||||||
| Deferred tax (expense) benefit, domestic | ( | ( | |||||||||||||||
| Total deferred tax (expense)benefit | ( | ( | |||||||||||||||
| Income tax (expense)/benefit | ( | ( | ( | ||||||||||||||
(*) As a result of an agreement reached with the Brazilian tax authority TAM Linhas Aereas S.A. was authorized to use part of its available tax losses to pay some tax contingencies. As the company does not have recognized deferred tax asset for those tax losses, it was recognized as income to write off those tax contingencies.
F-74
Income before tax from the Chilean legal tax rate (27
| For the year ended At December 31, | For the year ended At December 31, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | % | % | % | ||||||||||||||||||||||||||||||
| Income tax benefit/(expense) using the legal tax rate | ( | ( | - | - | - | ||||||||||||||||||||||||||||||
| Tax effect by change in tax rate | |||||||||||||||||||||||||||||||||||
| Tax effect of rates in other jurisdictions | ( | - | - | ||||||||||||||||||||||||||||||||
| Tax effect of non-taxable income | - | ||||||||||||||||||||||||||||||||||
| Tax effect of disallowable expenses | ( | ( | ( | - | - | ||||||||||||||||||||||||||||||
| Other increases (decreases): | |||||||||||||||||||||||||||||||||||
| Derecognition of deferred tax liabilities for early termination of aircraft financing | - | ||||||||||||||||||||||||||||||||||
| Tax effect for goodwill impairment losses | |||||||||||||||||||||||||||||||||||
| Derecognition of deferred tax assets not recoverable | ( | ( | - | ||||||||||||||||||||||||||||||||
| Deferred tax asset not recognized | ( | ( | - | ||||||||||||||||||||||||||||||||
| Other increases (decreases) | ( | - | - | ||||||||||||||||||||||||||||||||
| Total adjustments to tax expense using the legal rate | ( | ||||||||||||||||||||||||||||||||||
| Income tax benefit/(expense) using the effective rate | ( | ( | ( | - | - | ||||||||||||||||||||||||||||||
Deferred taxes related to items charged to equity:
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Aggregate deferred taxation of components of other comprehensive income | ( | ||||||||||||||||
F-75
NOTE 18 - OTHER FINANCIAL LIABILITIES
The composition of other financial liabilities is as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current | |||||||||||
| (a) Interest bearing loans | |||||||||||
| (b) Lease Liability | |||||||||||
| (c) Hedge derivatives | |||||||||||
| Total current | |||||||||||
| Non-current | |||||||||||
| (a) Interest bearing loans | |||||||||||
| (b) Lease Liability | |||||||||||
| Total non-current | |||||||||||
(a) Interest bearing loans
Obligations with credit institutions and debt instruments:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current | |||||||||||
| Bank loans (2) | |||||||||||
| Guaranteed obligations | |||||||||||
| Other guaranteed obligations (1)(2) | |||||||||||
| Subtotal bank loans | |||||||||||
| Obligation with the public (2) | |||||||||||
| Financial leases | |||||||||||
| Other loans | |||||||||||
| Total current | |||||||||||
| Non-current | |||||||||||
| Bank loans (2) | |||||||||||
| Guaranteed obligations | |||||||||||
| Other guaranteed obligations (1) | |||||||||||
| Subtotal bank loans | |||||||||||
| Obligation with the public (2) | |||||||||||
| Financial leases | |||||||||||
| Total non-current | |||||||||||
| Total obligations with financial institutions | |||||||||||
F-76
(1)The committed "Revolving Credit Facility (RCF)" is guaranteed by collateral composed of aircraft, engines and spare parts, which was fully drawn until November 3, 2022. Once emerged from Chapter 11, the line was fully paid and of December 31, 2023 and December 31, 2022, it is available to be used.
(2)On March 14, 2022, a new consolidated and modified text of the Existing DIP Credit Agreement (the “New Consolidated and Modified DIP Credit Agreement”) was submitted to the Court for its approval. The New Consolidated and Amended DIP Credit Agreement (i) fully refinanced and replaced the existing Tranches A, B and C in the Existing DIP Credit Agreement; (ii) contemplated a maturity date in accordance with the calendar that the Debtors anticipated to emerge from the Chapter 11 Procedure; and (iii) included certain reductions in fees and interest compared to the Existing DIP Credit Agreement and the Recast and Amended DIP Initial Financing Proposal. The obligations under the DIP were secured by assets owned by LATAM and certain of its affiliates, including, but not limited to, shares, certain engines and spare parts.
On April 8, 2022, a consolidated and modified text was signed(the "Recast and Modified DIP Credit Agreement”) of the Original DIP Credit Agreement, which modified and consolidated said agreement and repaid the obligations pending payment under it. (that is, under its Tranches A, B and C). The total amount of the Consolidated and Modified DIP Credit Agreement was US$3.700 million. The Consolidated and Amended DIP Credit Agreement (i) included certain reductions in fees and interest compared to the Existing DIP Credit Agreement; and (ii) contemplated an expiration date in accordance with the calendar that LATAM anticipated to emerge from the Chapter 11 Procedure. Regarding the latter, the scheduled expiration date of the Consolidated and Modified DIP Credit Agreement was August 8, 2022, subject to to possible extensions that, in certain cases, had a deadline of November 30, 2022.
Likewise, on April 8, 2022, the initial disbursement took place under the Consolidated and Modified DIP Credit Agreement for the amount of MUS$2,750 . On April 28, 2022, an amendment to said contract was signed, extending the expiration date from August 8, 2022 to October 14, 2022.
On October 12, 2022, said Consolidated and Modified DIP Credit Agreement was repaid in its entirety with the DIP-to-Exit financing, which contemplated bridge financing for senior secured bonds maturing in 2027 for MUS$750 , MUS$750 in other bridge financing for senior secured notes due 2029, a MUS$750 Term Financing, a financing called Junior DIP, for a total of MUS$1,146 , and, lastly, a US Revolving Credit Facility MUS$500 , which is not drawn. The DIP-to-exit financing was collateralized by assets owned by LATAM and certain of its affiliates. Of these, the Junior DIP contemplated a subordinate priority to the rest of the credits.
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 MUS$450 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 MUS$700 .
In the context of the exit of the Company from the Chapter 11 Procedure on November 3, 2022, the Bridge Loans were repaid with additional: MUS$350 corresponding to an incremental loan of Term Loan B.
On November 3, 2022, the company and all of its subsidiaries successfully emerged from Chapter 11.
Balances by currency of interest bearing loans are as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| Currency | ThUS$ | ThUS$ | |||||||||
| Brazilian real | |||||||||||
| Chilean peso (U.F.) | |||||||||||
| US Dollar | |||||||||||
| Total | |||||||||||
F-77
Interest-bearing loans due in installments to December 31, 2023
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
| Nominal values | Accounting values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | Annual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | GOLDMAN SACHS | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | UF | — | — | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | — | — | — | — | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | — | — | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | Quarterly/Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | — | — | — | — | — | — | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | JP MORGAN CHASE | U.S.A. | US$ | — | — | — | — | — | — | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | MUFG | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | PK AIRFINANCE | U.S.A. | US$ | — | — | — | — | — | — | — | — | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF UTAH | U.S.A. | US$ | Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Others loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | Various (*) | US$ | — | — | — | — | — | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*) Obligation to creditors for executed letters of credit.
F-78
Interest-bearing loans due in installments to December 31, 2023
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil
| Nominal values | Accounting values | Annual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor Country | Currency | Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial lease | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F-79
Interest-bearing loans due in installments to December 31, 2022
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
| Nominal values | Accounting values | Amortization | Annual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | SANTANDER | Spain | US$ | — | — | — | — | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | GOLDMANSACHS | U.S.A. | US$ | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000- K | SANTANDER | Chile | UF | — | — | — | — | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.036.000- K | SANTANDER | Chile | US$ | — | — | — | — | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | — | — | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | Quarterly/Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | MUFG | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | — | — | — | — | — | — | — | — | — | — | At Expiration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | — | — | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | PK AIRFINANCE | U.S.A. | US$ | — | — | — | — | Quarterly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | EXIM BANK | U.S.A. | US$ | — | — | — | Quarterly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF UTAH | U.S.A. | US$ | Monthly | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other loan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | Various (*) | US$ | — | — | — | — | — | — | — | — | At Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*) Obligation to creditors for executed letters of credit.
F-80
Interest-bearing loans due in installments to December 31, 2022
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil
| Tax No. | Creditor Country | Currency | Nominal values | Accounting values | Amortization | Annual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Effective rate | Nominal rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | Merril Lynch Credit Products LLC | Brazil | BRL | — | — | — | — | — | — | — | — | Monthly | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial lease | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | Semiannual/Quarterly | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(*) Obligation to creditors for executed letters of credit.
F-81
(b) Lease Liability:
The movement of the lease liabilities corresponding to the period reported are as follow:
| Aircraft | Others | Lease Liability Total | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Opening balance as of January 1, 2021 | |||||||||||||||||
| New contracts | |||||||||||||||||
| Lease termination | ( | ( | ( | ||||||||||||||
| Renegotiations | |||||||||||||||||
| Payments | ( | ( | ( | ||||||||||||||
| Accrued interest | |||||||||||||||||
| Exchange differences | |||||||||||||||||
| Cumulative translation adjustment | ( | ( | |||||||||||||||
| Other increases (decreases) | ( | ( | ( | ||||||||||||||
| Changes | ( | ( | ( | ||||||||||||||
| Closing balance as of December 31, 2021 | |||||||||||||||||
| Opening balance as of January 1, 2022 | |||||||||||||||||
| New contracts | |||||||||||||||||
| Lease termination | ( | ( | |||||||||||||||
| Renegotiations | ( | ( | ( | ||||||||||||||
| Exit effect of chapter 11 (*) | ( | ( | |||||||||||||||
| Payments | ( | ( | ( | ||||||||||||||
| Accrued interest | |||||||||||||||||
| Exchange differences | |||||||||||||||||
| Cumulative translation adjustment | ( | ||||||||||||||||
| Other increases (decreases) | |||||||||||||||||
| Changes | ( | ( | |||||||||||||||
| Closing balance as of December 31, 2022 | |||||||||||||||||
| Opening balance as of January 1, 2023 | |||||||||||||||||
| New contracts | |||||||||||||||||
| Lease termination | ( | ( | ( | ||||||||||||||
| Renegotiations | ( | ( | |||||||||||||||
| Payments | ( | ( | ( | ||||||||||||||
| Accrued interest | |||||||||||||||||
| Exchange differences | |||||||||||||||||
| Subsidiaries conversion difference | |||||||||||||||||
| Changes | ( | ||||||||||||||||
| Closing balance as of December 31, 2023 | |||||||||||||||||
(*) Corresponds to the effect of emergence from Chapter 11 ThUS$679,273 associated with claim settlement (Derecognition of assets for right of use for ThUS$639,728 (See Note 24 letter g (4)) and conversion of Notes forThUS$39,545 ) and ThUS$316,615 due to IBR rate change.
The Company recognizes interest payments related to lease liabilities in the consolidated result under Finance costs (See Note 26(c)). The Average discount rates for calculation of lease liability are as follows.
| Discount rate December 2023 | Discount rate December 2022 | ||||||||||
| Aircraft | |||||||||||
| Others | |||||||||||
F-82
(c) Hedge derivatives
| Current liabilities | Non-current liabilities | Total hedge derivatives | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Fair value of foreign currency derivatives | |||||||||||||||||||||||||||||||||||
| Total hedge derivatives | |||||||||||||||||||||||||||||||||||
The foreign currency derivatives correspond to options, forwards and swaps.
Hedging operation
The fair values of net assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Interest rate option (1) | |||||||||||
| Fuel options (2) | |||||||||||
| Foreign currency derivative R$/BRL$ (3) | ( | ||||||||||
(1)They cover significant variations in cash flows associated with the market risk implicit in increases in the SOFR interest rate for long-term loans originating from the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedge contracts.
(2)Hedge significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges.
(3) Hedge significant variations in expected cash flows associated with the market risk implicit in changes in exchange rates, particularly the US$/BRL. These contracts are recorded as cash flow hedge contracts.
The Company only maintains cash flow hedges. In the case of fuel and currency hedges, the cash flows subject to said hedges will occur and will impact results in the next 12 months months from the date of the consolidated statement of financial position. In the case of interest rate derivatives, the settlements will occur in the next 6 months and will remain in the balance until the date of arrival of the associated aircraft, date on which it will be part of the right-of-use asset and will begin to impact results on a monthly basis until the expiration of the respective lease
All hedging operations have been performed for highly probable transactions, except for fuel hedge. See Note 3.
See Note 24 (f) for reclassification to profit or loss for each hedging operation and Note 17 (b) for deferred taxes related.
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NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES
The composition of Trade and other accounts payables is as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current | |||||||||||
(a) Trade and other accounts payables | |||||||||||
(b) Accrued liabilities | |||||||||||
| Total trade and other accounts payables | |||||||||||
(a) Trade and other accounts payable:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Trade creditors | |||||||||||
| Other accounts payable | |||||||||||
| Total | |||||||||||
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The details of Trade and other accounts payables are as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Boarding Fees | |||||||||||
| Maintenance | |||||||||||
| Airport charges and overflight | |||||||||||
| Handling and ground handling | |||||||||||
| Suppliers technical purchases | |||||||||||
| Leases, maintenance and IT services | |||||||||||
| Other personnel expenses | |||||||||||
| Aircraft Fuel | |||||||||||
| Professional services and advisory | |||||||||||
| Services on board | |||||||||||
| Marketing | |||||||||||
| Air companies | |||||||||||
| Crew | |||||||||||
| Agencies sales commissions | |||||||||||
| Aircraft Insurance | |||||||||||
| Others | |||||||||||
| Total trade and other accounts payables | |||||||||||
(b) Liabilities accrued:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Aircraft and engine maintenance | |||||||||||
| Accrued personnel expenses | |||||||||||
| Accounts payable to personnel (1) | |||||||||||
| Others accrued liabilities | |||||||||||
| Total accrued liabilities | |||||||||||
(1) Participation in profits and bonuses (Note 22 letter b).
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NOTE 20 - OTHER PROVISIONS
| Current liabilities | Non-current liabilities | Total Liabilities | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Provision for contingencies (1) | |||||||||||||||||||||||||||||||||||
| Tax contingencies | |||||||||||||||||||||||||||||||||||
| Civil contingencies | |||||||||||||||||||||||||||||||||||
| Labor contingencies | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Provision for European | |||||||||||||||||||||||||||||||||||
| Commission investigation (2) | |||||||||||||||||||||||||||||||||||
| Total other provisions (3) | |||||||||||||||||||||||||||||||||||
(1)Provisions for contingencies:
The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.
The civil contingencies correspond to different demands of civil order filed against the Company.The labor contingencies correspond to different demands of labor order filed against the Company.
Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.
The Company maintains other judicial processes, individually and cumulatively , do not have a significant impact on these financial statements
(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.
(3) Total other provision as of December 31, 2023, and December 31, 2022, include the fair value of the contingencies arising at the time of the business combination with TAM S.A and subsidiaries,with a probability of loss under 50
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Movement of provisions:
| Legal claims (1) | European Commission Investigation (1) | Onerous Contracts | Total | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Opening balance as of January 1, 2021 | |||||||||||||||||||||||
| Increase in provisions | |||||||||||||||||||||||
| Provision used | ( | ( | |||||||||||||||||||||
| Difference by subsidiaries conversion | ( | ( | |||||||||||||||||||||
| Reversal of provision | ( | ( | ( | ||||||||||||||||||||
| Exchange difference | ( | ( | ( | ||||||||||||||||||||
| Closing balance as of December 31, 2021 | |||||||||||||||||||||||
| Opening balance as of January 1, 2022 | |||||||||||||||||||||||
| Increase in provisions | |||||||||||||||||||||||
| Provision used | ( | ( | |||||||||||||||||||||
| Difference by subsidiaries conversion | |||||||||||||||||||||||
| Reversal of provision | ( | ( | ( | ||||||||||||||||||||
| Exchange difference | ( | ( | ( | ||||||||||||||||||||
| Closing balance as of December 31, 2022 | |||||||||||||||||||||||
| Opening balance as of January 1, 2023 | |||||||||||||||||||||||
| Increase in provisions | |||||||||||||||||||||||
| Provision used | ( | ( | |||||||||||||||||||||
| Difference by subsidiaries conversion | ( | ( | |||||||||||||||||||||
| Reversal of provision | ( | ( | |||||||||||||||||||||
| Exchange difference | |||||||||||||||||||||||
| Closing balance as of December 31, 2023 | |||||||||||||||||||||||
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NOTE 21 - OTHER NON-FINANCIAL LIABILITIES
| Current liabilities | Non-current liabilities | Total Liabilities | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Deferred revenue (1)(2) | |||||||||||||||||||||||||||||||||||
| Sales tax | |||||||||||||||||||||||||||||||||||
| Retentions | |||||||||||||||||||||||||||||||||||
| Other taxes | |||||||||||||||||||||||||||||||||||
| Dividends payable | |||||||||||||||||||||||||||||||||||
| Other sundry liabilities | |||||||||||||||||||||||||||||||||||
| Total other non-financial liabilities | |||||||||||||||||||||||||||||||||||
Deferred Revenue Movement
| Deferred revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Initial balance | (1) Recognition | Use | Loyalty program (Award and redeem) | Expiration of tickets | Translation Difference | Others provisions | Final balance | ||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
(1)The balance includes mainly, deferred revenue for services not provided as of December 31, 2023 and December 31, 2022 and for the frequent flyer LATAM Pass program.
LATAM Pass is LATAM’s frequent flyer program that allows rewarding the preference and loyalty of its customers with multiple benefits and privileges, through the accumulation of miles or points that can be exchanged for tickets or for a varied range of products and services. Clients accumulate miles or LATAM Pass points every time they fly in LATAM and other airlines associated with the program, as well as by buying in stores or use the services of a vast network of companies that have agreements with the program around the world.
(2)As of December 31, 2023, Deferred Income includes ThUS$40,500 related to the compensation from Delta Air Lines, Inc., which is recognized in the income statement based on the estimation of income differentials until the implementation of the strategic alliance.
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NOTE 22 - EMPLOYEE BENEFITS
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Retirements payments | |||||||||||
| Resignation payments | |||||||||||
| Other obligations | |||||||||||
| Total liability for employee benefits | |||||||||||
(a)The movement in retirements, resignations and other obligations:
| Opening balance | Increase (decrease) current service provision | Benefits paid | Actuarial (gains) losses | Currency translation | Closing balance | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ( | ( | ||||||||||||||||||||||||||||||||
The main assumptions used in the calculation of the provision in Chile are presented below:
| For the year ended At December 31, | ||||||||||||||
| Assumptions | 2023 | 2022 | ||||||||||||
| Discount rate | % | % | ||||||||||||
| Expected rate of salary increase | % | % | ||||||||||||
| Rate of turnover | % | % | ||||||||||||
| Mortality rate | RV-2020 | RV-2014 | ||||||||||||
| Inflation rate | % | % | ||||||||||||
| Retirement age of women | ||||||||||||||
| Retirement age of men | ||||||||||||||
The discount rate is based on the bonds issued by the Central Bank of Chile with a maturity of 20 years. The RV-2020 and RV-2014 mortality tables correspond to those established by the Commission for the Financial Market of Chile. The inflation rates are based on the yield curves of the long term nominal and inflation adjusted bonds based on BCU and BCPs issued by the Central Bank of Chile.
The calculation of the present value of the defined benefit obligation is sensitive to the variation of some actuarial assumptions such as discount rate, salary increase, rotation and inflation.
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The sensitivity analysis for these variables is presented below:
| Effect on the liability | |||||||||||
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Discount rate | |||||||||||
| Change in the accrued liability an closing for increase in 100 b.p. | ( | ( | |||||||||
| Change in the accrued liability an closing for decrease of 100 b.p. | |||||||||||
| Rate of wage growth | |||||||||||
| Change in the accrued liability an closing for increase in 100 b.p. | |||||||||||
| Change in the accrued liability an closing for decrease of 100 b.p. | ( | ( | |||||||||
(b)The liability for short-term:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Profit-sharing and bonuses (*) | |||||||||||
(*)Accounts payables to employees (Note 19 letter b)
The participation in profits and bonuses related to an annual incentive plan for achievement of certain objectives.
(c) CIP (Corporate Incentive Plan)
With the aim of incentivizing the retention of talent among the executives of the Company and in response to the exit of the Chapter 11 Procedure, it was agreed to grant an extraordinary and exceptional incentive called Corporate Incentive Plan (hereinafter also "CIP"), which will be enforceable and paid subject to compliance with the terms, clauses and conditions approved at the Board meeting dated April 25, 2023. In summary, the CIP contemplates three categories oriented to three different groups or categories of employees, whether they are hired by the Company directly, or in other companies of the LATAM group. These categories are as follows: Non-Executive Employees; Executives Not part of the Global Executive Meeting o “GEM”; and GEM Executives. Employees in each of these groups are only eligible for the CIP that corresponds to their respective category. The terms of each of these CIP categories were communicated to the respective employees between the months of January to December 2023.
Below are more background on each of the different categories of the CIP. Additionally, in Note 33 describes in more detail the main terms and conditions of the last two categories of the CIP (i.e., Non-GEM Executives; and GEM Executives):
i) Non-Executive Employees: The first subprogram was aimed at non-executive employees who, while hired in LATAM as of December 31, 2020, were still in their position as of April 30, 2023, which includes a fixed and guaranteed payment in cash on certain dates, depending on the country where the employee is hired.
This subprogram is available to those employees who were unable to qualify for one of the two categories below, or who were able to do so, chose not to participate in them.
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ii) Executives Not part of the GEM: The second subprogram applies to senior executives not part of the GEM (Global Executive Meeting – Senior Managers, Managers, Assistant Managers). This program contemplates the creation of remuneration synthetic Units (hereinafter, simply "Units") that, by reference, are considered as equivalent to the price of one share of LATAM Airlines Group S.A., and consequently, in case they become effective, they grant the worker the right to receive the payment in cash that results from multiplying the number of Units that become effective by the value per share of LATAM Airlines Group S.A. that should be considered in accordance with CIP.
In this context, this program contemplates two different bonuses: (1) a withholding bonus, consisting of the amount in cash resulting from Units that are assigned to the respective employee, these Units being paid at 20 % at month 15 and 80 % at month 24 , in each case, counted from the exit date of Chapter 11 Procedure (i.e., November 3, 2022) (the "Exit Date"). This is consequently a guaranteed payment for these employees; and (2) a bonus associated with the certain financial indicators of LATAM Airlines Group S.A. and its subsidiaries, which is reflected in Note 19 (b), becoming effective 20 % at month 15 and 80 % at month 24 , in each case, from the Exit Date. Consequently, this is an eventual payment that is only made if these indicators are reached.
iii) GEM Executives: The third subprogram applies to the Company´s GEM executives (Global Executive Meeting) (CEO and employees whose job description is "vice presidents" or "directors"). This program, in essence, contemplates the creation of remuneration synthetic Units that, by referential means, are considered as equivalent to the price of one share of LATAM Airlines Group S.A. and consequently, in case they become effective, they grant the worker the right to receive the payment in cash that results from multiplying the number of Units that become effective by the value per share of LATAM Airlines Group S.A. that must be considered according to the CIP.
These Units are divided into:
(1) Units associated with the employee's permanence in the Company ("RSUs" – Retention Shares Units); and (2) Units associated with both the employee's permanence in the Company and the performance of LATAM Airlines Group S.A. ("PSUs" – Performance Shares Units). This performance is ultimately measured according to the share price of LATAM Airlines Group S.A. in the terms and conditions of the CIP.
Both the RSUs and the PSUs are consequently associated with the passage of time, becoming effective by partialities according to the calendar contemplated by the CIP. For the case of RSUs, having a vesting guaranteed by partialities as explained in more detail in Note 33. On the other hand, the PSUs also consider the market value of the share of LATAM Airlines Group S.A. considering a liquid market. However, as long as there is no such liquid market, the share price will be determined on the basis of representative transactions. As explained in more detail in Note 33, PSUs constitute a contingent and non-guaranteed payment.
In addition, some GEM Executives will also be entitled to receive a fixed and guaranteed cash payment ("MPP" – Management Protection Plan) on certain dates according to the CIP. Those employees who are eligible for this MPP will also be eligible for a limited number of additional MSUs ("MPP Based RSUs").
In all cases, the respective employees must have remained as such in the Company at the corresponding accrual date to qualify for these benefits.
During the year of 2023 until the month of December, the amount accrued related to this CIP was US$66.8 million, which is recorded in the "Administrative expenses" line of the Interim Consolidated Statement of Income by Function. As of December 31, 2023, the amount of this plan recorded in the consolidated statement of financial position is US$118.9 million.
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(d)Employment expenses are detailed below:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Salaries and wages | |||||||||||||||||
| Short-term employee benefits | |||||||||||||||||
| Other personnel expenses | |||||||||||||||||
| Total | |||||||||||||||||
NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Aircraft and engine maintenance | |||||||||||
| Fleet (JOL) | |||||||||||
| Airport and Overflight Taxes | |||||||||||
| Provision for vacations and bonuses | |||||||||||
| Other sundry liabilities | |||||||||||
| Total accounts payable, non-current | |||||||||||
NOTE 24 - EQUITY
(a)Capital
The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.
The paid capital of the Company at December 31, 2023 amounts to ThUS$ 5,003,534 divided into 604,437,877,587 common stock of a same series (ThUS$ 13,298,486 divided into 604,437,584,048 shares as of December 31, 2022), a single series nominative, ordinary character with no par value. The total number of authorized shares of the Company as of December 31, 2023, corresponds to 604,441,789,335 shares. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of the Corporate Law and its regulations.
At the Company's Extraordinary Shareholders' Meeting held on July 5, 2022, it was agreed to increase the Company's capital by ThUS$10,293,270 through the issuance of 73,809,875,794 paid shares and 531,991,409,513 backup shares, all ordinary, of the same and single series, without par value, of which: (a)ThUS$9,493,270 represented by 531,991,409,513 new shares, to be used to respond to the conversion of the Convertible Notes, according to this term is defined below (the “Support Shares”); and (b) ThUS$800,000 represented by 73,809,875,794 new paid shares (the “New Paid Shares”), to be offered preferentially to shareholders. On September 13, 2022, the preferential placement of the convertible notes and, in turn, of the new paid shares began, ending on the following dates, as explained below:
1.On October 12, 2022 expired the 30-day preemptive rights offering period (the “POP”) of (i) the 73,809,875,794 new paid shares, issued and registered in the Securities Registry of the Comisión para el Mercado Financiero (“CMF”) (the “ERO”); and (ii) 1,257,002,540 notes convertible into shares Serie G, the 1,372,839,695 notes
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convertible into shares Serie H, and the 6,863,427,289 notes convertible into shares Serie I, all registered in the Securities Registry of the CMF (jointly, the “Convertible Notes”).
2.On October 13, 2022, the second round (the “Second Round”) of subscription of the ERO has taken place, in which had the right to participate, the shareholders (or their assignees) that subscribed ERO in the POP and expressed to LATAM, at the time of the subscription, their intention to participate in the Second Round.
3.As previously reported, the Remainder will be placed, in compliance with the applicable laws and regulations, according to the rules governing the offering of the ERO and the Convertible Notes, as provided in Article 10 of the Regulations of the Corporations Law. Such placement includes, among other things, the placement of a portion of the Remainder with (i) a group of unsecured creditors of LATAM represented by Evercore and certain holders of Chilean notes issued by LATAM (collectively, the “Backstop Creditors”); and (ii) Delta Air Lines, Inc., Qatar Airways Investments (UK) Ltd. and the Cueto group (collectively, the “Backstop Shareholders”; and them jointly with the Backstop Creditors, the “Backstop Parties”) according to the rules of their respective backstop commitment agreements (the “Backstop Agreements”).
4.For purposes of the above, the Company will exercise its rights under the Backstop Agreements and will therefore require the Backstop Parties to subscribe and pay their respective portion of the Remainder, as provided in such agreements. Given the funding period contemplated in the Backstop Agreements, the Company managed to exit the Chapter 11 on November 3, 2022. Consequently, on this same date the Company, together with its various subsidiaries that were part of the Chapter 11 Procedure, have emerged from bankruptcy.
5.As part of the implementation of its Reorganization Plan within the framework of the exit from Chapter 11, LATAM issued US$800 million in new paid shares and ThUS$9,493,270 through the issue of three classes of notes convertible into Company shares, backed by 531,991,409,513 shares totaling of 605,801,285,307 shares. As of December 31, 2023, of the aforementioned capital increase, 603,831,469,894 shares were subscribed and paid (603,831,176,355 shares as of December 31, 2022), equivalent to ThUS$10,169,622 as of December 31, 2023 (ThUS$10,152,221 as of December 31, 2022) and as of December 31, 2022 costs of issuance and placement of shares and convertible bonds were generated for ThUS$810,279 , which are presented as part of the Other reserves and was reclassified to "paid-in capital" according to the Extraordinary Shareholders' Meeting held on April 20, 2023, as explained below
6.At the Company's Extraordinary Shareholders' Meeting held on April 20, 2023, it was agreed to:
6.i) A decrease in the Company's capital for an amount of ThUS$7,501,896 , without altering the number and characteristics of the shares into which it is divided, by absorbing the Company's accumulated losses as of December 31, 2022 for the same amount;
6.ii) Others decrease of the Company's capital for an amount of ThUS$178 , without altering the number and characteristics of the shares into which it is divided, through the absorption of the equity account of "Treasury Shares" as of December 31, 2022 for the same amount, produced on the occasion of the January 2013 reduction of capital stock by operation of law that took place in accordance with the provisions of Article 27 of the Corporations Law.
6.iii) Deduction of the Company´s capital the account "Costs of issuing shares and new convertible notes, for an amount of ThUS$810,279 .
On September 6, 2023, by public deed granted at the Notary of Santiago of Mr. Eduardo Diez Morello, under repertoire number 15,327-2023 entitled "Declaración de Colocación y Vencimiento Plazo de Colocación Bonos Convertibles "Series G", "Series H" and "Series I" and Reducción de Capital de Pleno Derecho", it was realized that on September 5, 2023 the maturity of the placement term (the "Placement Term") of Convertible Notes. Consequently, in accordance with the mentioned in number Four of Clause Six of the respective notes issuance contract (the "Issuance Agreement"), as of that date the amount placed against it remained unchanged, and consequently the Convertible Notes not placed on that date were null and void. For the sake of completeness, it was declared that upon maturity of the Placement Term, 123,605,720 Series G Convertible Notes and 37 Series I Convertible Notes (collectively, the "Unplaced Convertible Notes") remained unplaced, for an amount of US$123,605,720 and US$37 , respectively (hereinafter, together, the "Unplaced Amount"). The conversion option of the Unplaced Convertible Notes was backed by 1,965,903,665 shares as equity.
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Likewise, in the aforementioned deed it was realized that since all the Unplaced Convertible Bonds have been terminated, since they have been null and void, they cannot be converted into shares of the issuer, consequently reducing the Company's Capital Share by an amount equal to the Unplaced Amount.
Therefore, as of September 6, 2023, the amount of the Share Capital has been reduced by law in the amount of ThUS$123,606 , equivalent to 1,965,903,665 shares. As a result of the foregoing, as of December 31, 2023, the total statutory share capital of the Company was reduced by law from the amount of ThUS$5,127,182 , divided into 606,407,693,000 shares, of the same and unique series, without par value, to the amount of ThUS$5,003,576 , divided into 604,441,789,335 shares, of which US$5,003,534 million, equivalent to 604,437,877,587 shares, are fully paid. To date, the balance of ThUS$42 , equivalent to 3,911,748 shares, are pending of subscription and payment and are intended exclusively to respond to the conversion of 42,398 Series H Convertible Notes.
(b)Movement of authorized shares
The following table shows the movement of the authorized, fully paid shares and back-up shares to be delivered in the event that the respective conversion option is exercised under the convertible notes currently issued by the Company:
| As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||
| N° of authorized shares | N° of Subscribed of shares and paid or delivered pursuant to the exercise of the conversion option | N° of convertible notes back-up shares pending to place | N° of shares to subscribe or not used | N° of authorized shares | N° of Subscribed of shares and paid or delivered pursuant to the exercise of the conversion option | N° of convertible notes back-up shares pending to place | N° of shares to subscribe or not used | |||||||||||||||||||||||||||||||||||||
| Opening Balance | ||||||||||||||||||||||||||||||||||||||||||||
| New shares issued | ||||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes G | ||||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes H | - | |||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes I | ||||||||||||||||||||||||||||||||||||||||||||
| Reduction of full right (*) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Subtotal | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Closing Balance | ||||||||||||||||||||||||||||||||||||||||||||
(*) See letter (a) above, in the same Note.
F-94
(c)Share capital
The following table shows the movement of share capital:
| Paid- in Capital | |||||
| ThUS$ | |||||
| Initial balance as of January 1, 2021 | |||||
| There are no movements of shares paid during the 2021 period | |||||
| Ending balance as of December 31, 2021 | |||||
| Initial balance as of January 1, 2022 | |||||
| New shares issued (ERO) | |||||
| Conversion options of convertible notes exercised during the year - Convertible Notes G (1) | |||||
| Conversion options of convertible notes exercised during the year - Convertible Notes H | |||||
| Conversion options of convertible notes exercised during the year - Convertible Notes I (2) | |||||
| Subtotal | |||||
| Ending balance as of December 31, 2022 | |||||
| Initial balance as of January 1, 2023 | |||||
| Placement during the conversion options period - Convertible Notes G | |||||
| Absorption of Accumulated Losses as of December 31, 2022 (3) | ( | ||||
| Absorption of treasury shares (3) | ( | ||||
| Deduction of issuance and placement costs of shares and bonds convertible into shares (3) | ( | ||||
| Subtotal | ( | ||||
| Ending balance as of December 31, 2023 | |||||
(1)It only includes Convertible Notes bonds delivered as payment of debts recognized in Chapter 11.
(2)Part of the Convertible Notes were to extinguish through exchange credits that were recognized in Chapter 11.
(3)As explained in letter a) of this Note, at the Company's Extraordinary Shareholders' Meeting held on April 20, 2023, it was agreed to absorb retained losses and reduce the Company's capital.
(d)Treasury stock
At December 31, 2023, the Company held no treasury stock. The remaining of ThUS$(178 ) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares which held in its portfolio.As explained in letter a) of this same Note, at the Company's Extraordinary Shareholders' Meeting held on April 20, 2023, an absorption of the Company's capital was agreed for an amount of ThUS$178 .
(e)Other equity- Value of conversion right - Convertible Notes
(e.1)Notes subscription
The Convertible Notes were issued to be place in exchange for a cash contribution, in exchange for settlement of Chapter 11 Proceeding or a combination of both. Convertible Notes issued in exchange for cash were valued at fair value (the cash received). Notes issued in exchange for settlement of Chapter 11 claims were valued considering the discount that each group of liabilities settled on at the emergence date. The table below shows the 3 Convertible Notes at their nominal values, the adjustment, if any, to arrive at their fair values and the amount of transaction costs. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. The equity portion is recognized under Other equity at the time the Convertible Notes are issued.
F-95
| As of December 31, 2022 | ||||||||||||||||||||||||||
| Concepts | Convertible Notes G | Convertible Notes H | Convertible Notes I | Total Convertible Notes | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Face Value | ||||||||||||||||||||||||||
| Adjustment to fair value Convertible Notes at the date of issue | ( | ( | ( | |||||||||||||||||||||||
| Issuance cost | ( | ( | ( | |||||||||||||||||||||||
| Subtotal | ( | ( | ( | ( | ||||||||||||||||||||||
| Fair Value of Notes | ||||||||||||||||||||||||||
| Debt component at the date of issue | ( | ( | ||||||||||||||||||||||||
| Equity component at the date of issue | ||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Concepts | Convertible Notes G | Convertible Notes H | Convertible Notes I | Total Convertible Notes | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Face Value | ||||||||||||||||||||||||||
| Adjustment to fair value Convertible Notes at the date of issue | ( | ( | ||||||||||||||||||||||||
| Subtotal | ( | ( | ||||||||||||||||||||||||
| Fair Value of Notes | ||||||||||||||||||||||||||
| Equity component at the date of issue | ||||||||||||||||||||||||||
F-96
(e.2)Conversion of notes into shares
As of December 31, 2023, and December 31, 2022 the following notes have been converted into shares:
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Concepts | Convertible Notes G | Convertible Notes H | Convertible Notes I | Total Convertible Notes | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Conversion percentage | % | % | % | |||||||||||||||||||||||
| Conversion option of convertible notes exercised | ||||||||||||||||||||||||||
| Total Converted Notes | ||||||||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||
| Concepts | Convertible Notes G | Convertible Notes H | Convertible Notes I | Total Convertible Notes | ||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
| Conversion percentage | % | % | % | |||||||||||||||||||||||
| Conversion option of convertible notes exercised | ||||||||||||||||||||||||||
| Converted debt component | ||||||||||||||||||||||||||
| Total Converted Notes | ||||||||||||||||||||||||||
The conversion option from the issuance of convertible notes classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument (i.e. convertible notes) as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. As of December 31, 2023, the portion not converted into equity corresponds to ThUS$39 .
(e.3)The Convertible Notes
The contractual conditions of the G, H and I Convertible Notes consider the delivery of a fixed number of shares of LATAM Airlines Group S.A. at the time of settlement of the conversion option of each of them. The foregoing determined the classification of convertible notes as equity instruments, with the exception of Bond H, which considers, in addition to the delivery of a fixed number of shares, the payment of 1 % annual interest with certain conditions for its payment and its accrual from 60 days after the exit Date. The payment of this interest gives rise to the recognition of a liability component for the class H convertible notes.
At the date of issue, the fair value of the liability component in the amount of ThUS$102,031 was estimated using the prevailing market interest rate for similar non-convertible instruments.
Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortized over the period of the convertible notes using the effective interest method.
F-97
(f)Reserve of share- based payments
Movement of Reserves of share- based payments:
| Periods | Opening balance | Stock option plan | Closing balance | |||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||
| From January 1 to December 31, 2021 | ||||||||||||||||||||
| From January 1 to December 31, 2022 | ||||||||||||||||||||
| From January 1 to December 31, 2023 | ||||||||||||||||||||
These reserves are related to share based payment plans that expired during the first quarter of 2023. No equity instruments were issued and no amounts were paid associated with these plans.
(g)Other sundry reserves
Movement of Other sundry reserves:
| Periods | Opening balance | Transactions with non-controlling interest | Legal reserves | Other sundry reserves | Others increases (Decreases) (5) | Closing balance | ||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | ||||||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | ||||||||||||||||||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Balance of Other sundry reserves comprise the following:
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Higher value for TAM S.A. share exchange (1) | |||||||||||||||||
| Reserve for the adjustment to the value of fixed assets (2) | |||||||||||||||||
| Transactions with non-controlling interest (3) | ( | ( | ( | ||||||||||||||
| Adjustment to the fair value of the New Convertible Notes (4) | ( | ( | |||||||||||||||
| Cost of issuing shares and New Convertible Notes (5) | ( | ||||||||||||||||
| Others | ( | ( | ( | ||||||||||||||
| Total | ( | ( | |||||||||||||||
(1)Corresponds to the difference between the value of the shares of TAM S.A., acquired by Sister Holdco S.A. (under the Subscriptions) and by Holdco II S.A. (by virtue of the Exchange Offer), which is recorded in the declaration of completion of the merger by absorption, and the fair value of the shares exchanged by LATAM Airlines Group S.A. as of June 22, 2012.
F-98
(2)Corresponds to the technical revaluation of the fixed assets authorized by the Commission for the Financial Market in the year 1979, in Circular No. 1529. The revaluation was optional and could be made only once; the originated reserve is not distributable and can only be capitalized.
(3)The balance as of December 31, 2022 corresponds to the loss generated by: Lan Pax Group S.A. e Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional S.A. Aires S.A. for ThUS$ (3,480 ) and ThUS$ (20 ), respectively; the acquisition of TAM S.A. of the minority interest in Aerolinhas Brasileiras S.A. for ThUS$ (885 ), the acquisition of Inversiones Lan S.A. of the minority participation in Aerovías de Integración S.A. Aires S.A. for an amount of ThUS$ (2 ) and the acquisition of a minority stake in Aerolane S.A. by Lan Pax Group S.A. for an amount of ThUS$ (21,526 ) through Holdco Ecuador S.A. (3) The loss due to the acquisition of the minority interest of Multiplus S.A. for ThUS$(184,135 ) (see Note 1), (4) and the acquisition of a minority interest in LATAM Airlines Perú S.A. through LATAM Airlines Group S.A for an amount of ThUS$(3,225 ) and acquisition of the minority stake in LAN Argentina S.A. and Inversora Cordillera through Transportes Aéreos del Mercosur S.A. for an amount of ThUS$(3,383 ). The movements during 2023 was the following: (5) acquisition of the non-controlling interest of Aerovías de Integración Regional S.A. Aires S.A. for an amount of ThUS$(23 ) and (6) amendment of articles in the legal statutes of association related to premiums for the issuance of shares in the subsidiaries Aerovías de Integración Regional S.A. Aires S.A. for a total amount of ThUS$5,097 .
(4)The adjustment to the fair value of the Convertible Notes delivered in exchange for settlement of Chapter 11 claims was valued considering the discount that each group of liabilities settled on at the emergence date. These relate to: gain on the haircut for the accounts payable and other accounts payable ThUS$2,564,707 (ThUS$2,550,306 as of December 31, 2022), gain on the haircut for the financial liabilities for ThUS$420,436 639,728
(5)Corresponds to 20 % of the sum of the commitment of new funds of the Backstop Parties under the Series I Convertible Bonds and the New Paid Shares, plus additional costs for extension of the Backstop agreement. At the Company's Extraordinary Shareholders' Meeting held on April 20, 2023, it was agreed to deduct from the paid-in capital of the Company the account "Costs of issuance and placement of shares and bonds convertible into shares", for the sum of ThUS$810,279 .
(h)Reserves with effect in other comprehensive income.
F-99
Movement of Reserves with effect in other comprehensive income:
| Currency translation reserve | Cash flow hedging reserve | Gains (Losses) on change on value of time value of options | Actuarial gain or loss on defined benefit plans reserve | Total | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Opening balance as of January 1, 2021 | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Change in fair value of hedging instrument recognized in OCI | ( | ||||||||||||||||||||||||||||
| Reclassified from OCI to profit or loss | ( | ( | |||||||||||||||||||||||||||
| Deferred tax | ( | ( | |||||||||||||||||||||||||||
| Actuarial reserves by employee benefit plans | |||||||||||||||||||||||||||||
| Deferred tax actuarial IAS by employee benefit plans | ( | ( | |||||||||||||||||||||||||||
| Translation difference subsidiaries | ( | ||||||||||||||||||||||||||||
| Closing balance as of December 31, 2021 | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Opening balance as of January 1, 2022 | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Change in fair value of hedging instrument recognized in OCI | ( | ||||||||||||||||||||||||||||
| Reclassified from OCI to profit or loss | |||||||||||||||||||||||||||||
| Reclassified from OCI to the value of the hedged asset | ( | ( | |||||||||||||||||||||||||||
| Deferred tax | ( | ( | |||||||||||||||||||||||||||
| Actuarial reserves by employee benefit plans | ( | ( | |||||||||||||||||||||||||||
| Deferred tax actuarial IAS by employee benefit plans | |||||||||||||||||||||||||||||
| Translation difference subsidiaries | ( | ( | ( | ||||||||||||||||||||||||||
| Closing balance as of December 31, 2022 | ( | ( | ( | ( | |||||||||||||||||||||||||
| Opening balance as of January 1, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||
| Change in fair value of hedging instrument recognized in OCI | ( | ( | |||||||||||||||||||||||||||
| Reclassified from OCI to profit or loss | ( | ||||||||||||||||||||||||||||
| Reclassified from OCI to the value of the hedged asset | ( | ( | |||||||||||||||||||||||||||
| Deferred tax | |||||||||||||||||||||||||||||
| Actuarial reserves by employee benefit plans | ( | ( | |||||||||||||||||||||||||||
| Deferred tax actuarial IAS by employee benefit plans | |||||||||||||||||||||||||||||
| Translation difference subsidiaries | ( | ( | ( | ||||||||||||||||||||||||||
| Closing balance as of December 31, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||
F-100
(h.1)Cumulative translate difference
These are originated from exchange differences arising from the translation of any investment in foreign entities (or Chilean investments with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and a loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests
(h.2)Cash flow hedging reserve
These are originated from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted, and the corresponding results recognized.
(h.3)Reserves of actuarial gains or losses on defined benefit plans
Correspond to the increase or decrease in the present value obligation for defined benefit plans due to changes in actuarial assumptions, and experience adjustments, which are the effects of differences between the previous actuarial assumptions and the actual events that have occurred.
(i)Retained earnings/(losses)
Movement of Retained earnings/(losses):
| Periods | Opening balance | Result for the period | Dividends | Others increase (decreases) (1) | Closing balance | |||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
| From January 1 to December 31, 2021 | ( | ( | ( | |||||||||||||||||||||||||||||
| From January 1 to December 31, 2022 | ( | ( | ||||||||||||||||||||||||||||||
| From January 1 to December 31, 2023 | ( | ( | ||||||||||||||||||||||||||||||
(1) The detail of Other increases (decreases) is as follows:
| ThUS$ | ||||||||
| Absorption accumulated losses (*) | ||||||||
| Out of Period Adjustment (**) | ||||||||
| Total | ||||||||
(*) See letter a) under this same Note.
(**) Out of Period Adjustment
On April 30, 2020, LATAM's Shareholders approved the distribution of a dividend in the amount of ThUS$57,129 to be paid on May 28, 2020. On May 26, 2020, LATAM entered Chapter 11 proceedings which granted an automatic stay prohibiting the Company from making dividend payments. At that time it was not clear when this dividend would be paid. On November 3, 2022, upon emergence from Chapter 11 it was clear this dividend would not be paid, however, it was not derecognized from liabilities and transferred to retained earnings at that time. During the three months ended March 31, 2023, the Company corrected this matter and recorded an out of period adjustment to derecognized the dividend payable resulting in an increase of ThUS$57,129
F-101
Management has evaluated the impact of this out-of-period adjustment and concluded that it is not material to the financial statements for the year ended December 31, 2023, or to any previously reported quarter, semester or annual financial statements.
(j)Dividends per share
| Description of dividend | Minimum mandatory dividend 2023 | Minimum mandatory dividend 2022 | ||||||||||||
| Amount of the dividend (ThUS$)(*) | ||||||||||||||
| Number of shares among which the dividend is distributed | ||||||||||||||
| Dividend per share (US$) | ||||||||||||||
(*) It Corresponds to mandatory minimum dividend provision charged to the net income for the year 2023, As of the date of issuance of these financial statements, the Board of Directors has not yet approved a proposal for payment..
NOTE 25 - REVENUE
The detail of revenues is as follows:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Passengers | |||||||||||||||||
| Cargo | |||||||||||||||||
| Total | |||||||||||||||||
F-102
NOTE 26 - COSTS AND EXPENSES BY NATURE
(a)Costs and operating expenses
The main operating costs and administrative expenses are detailed below:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Aircraft fuel | ( | ( | ( | ||||||||||||||
| Other rentals and landing fees | ( | ( | ( | ||||||||||||||
| Aircraft maintenance | ( | ( | ( | ||||||||||||||
| Aircraft rental (*) | ( | ( | ( | ||||||||||||||
| Commissions | ( | ( | ( | ||||||||||||||
| Passenger services | ( | ( | ( | ||||||||||||||
| Other operating expenses | ( | ( | ( | ||||||||||||||
| Total | ( | ( | ( | ||||||||||||||
(*)During December 31, 2022, the Company amended its Aircraft Lease Contracts to include lease payments based on Power by the Hour (PBH) at the beginning of the contract and fixed-rent payments later on. For these contracts that contain an initial period based on PBH and then a fixed amount, a right of use asset and a lease liability was recognized at the date of modification of the contract. These amounts continue to be amortized over the contract term on a straight-line basis starting from the modification date of the contract. Therefore, as a result of the application of the lease accounting policy, the expenses for the year include both the lease expense for variable payments (Aircraft Rentals) as well as the expenses resulting from the amortization of the right of use assets (included in the Depreciation line included in b) below) and interest from the lease liability (included in Lease Liabilities letter c) below)
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Payments for leases of low-value assets | ( | ( | ( | ||||||||||||||
| Total | ( | ( | ( | ||||||||||||||
(b)Depreciation and amortization
Depreciation and amortization are detailed below:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Depreciation (*) | ( | ( | ( | ||||||||||||||
| Amortization | ( | ( | ( | ||||||||||||||
| Total | ( | ( | ( | ||||||||||||||
(*)Included within this amount is the depreciation of the Property, plant and equipment (See Note 16 (a)) and the maintenance of the aircraft recognized as right of use assets. The maintenance cost amount included in the depreciation line for the period ended December 31, 2023 is ThUS$565,384 (ThUS$463,306 for the same period in December 31, 2022 and ThUS$ $351,701 in December 31, 2021).
F-103
(c)Financial costs
The detail of financial costs is as follows:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Bank loan interests | ( | ( | ( | ||||||||||||||
| Financial leases | ( | ( | ( | ||||||||||||||
| Lease liabilities | ( | ( | ( | ||||||||||||||
| Other financial instruments | ( | ( | ( | ||||||||||||||
| Total | ( | ( | ( | ||||||||||||||
Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 22, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.
(d)Gains (losses) from restructuring activities
Gains (losses) from restructuring activities are detailed below:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Renegotiation of fleet contracts | ( | ( | |||||||||||||||
| Legal advice | ( | ( | |||||||||||||||
| Employee restructuring plan | ( | ( | |||||||||||||||
| Rejection of fleet contracts | ( | ||||||||||||||||
| Rejection of IT contracts | ( | ( | |||||||||||||||
| Adjustment net realizable value fleet available for sale | ( | ||||||||||||||||
| Gains resulting from the settlement of Chapter 11 claims (*) | |||||||||||||||||
| Others | ( | ||||||||||||||||
| Total | ( | ||||||||||||||||
(*)See Note 24 (g)
The Company did not recorded gains/(losses) restructuring activities during 2023.
F-104
(e)Financial income
Financial income is detailed below:
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Financial claims (*) | |||||||||||||||||
| Gains resulting from the settlement of Chapter 11 claims (**) | |||||||||||||||||
| Finance lease rate change effect | |||||||||||||||||
| Other miscellaneous income | |||||||||||||||||
| Total | |||||||||||||||||
(*)See Note 34 (a.4.)
(**)See Note 24 (g)
(f)Other gains (losses)
Other gains (losses) are detailed below:
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Provision for onerous contract related to purchase commitment | |||||||||||||||||
| Adjustment net realizable value fleet available for sale | ( | ( | |||||||||||||||
| Other | ( | ( | ( | ||||||||||||||
| Total | ( | ( | |||||||||||||||
F-105
NOTE 27 - OTHER INCOME, BY FUNCTION
Other income, by function is as follows:
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Tours | |||||||||||||||||
| Aircraft leasing | |||||||||||||||||
| Customs and warehousing | |||||||||||||||||
| Maintenance | |||||||||||||||||
| Income from non-airlines products LATAM Pass | |||||||||||||||||
| Other miscellaneous income (*) | |||||||||||||||||
| Total | |||||||||||||||||
(*)Included within this amount ThUS$30,408 in December 31, 2022 and ThUS$118,188 in December 31, 2021 related to the compensation of Delta Air Lines Inc. for the JBA signed during 2019.
NOTE 28 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES
The functional currency of LATAM Airlines Group S.A. is the US dollar, LATAM has subsidiaries whose functional currency is different to the US dollar, such as the chilean peso, argentine peso, colombian peso, brazilian real and guaraní.
The functional currency is defined as the currency of the primary economic environment in which an entity operates. For each entity and all other currencies are defined as a foreign currency.
Considering the above, the balances by currency mentioned in this note correspond to the sum of foreign currency of each of the entities that are part of the LATAM Airlines Group S.A. and Subsidiaries.
Following are the current exchange rates for the US dollar, on the dates indicated:
| As of December 31, | As of December 31, | As of December 31, | |||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Argentine peso | |||||||||||||||||
| Brazilian real | |||||||||||||||||
| Chilean peso | |||||||||||||||||
| Colombian peso | |||||||||||||||||
| Euro | |||||||||||||||||
| Australian dollar | |||||||||||||||||
| Boliviano | |||||||||||||||||
| Mexican peso | |||||||||||||||||
| New Zealand dollar | |||||||||||||||||
| Peruvian Sol | |||||||||||||||||
| Paraguayan Guarani | |||||||||||||||||
| Uruguayan peso | |||||||||||||||||
F-106
Foreign currency
The foreign currency detail of balances of monetary items in current and non-current assets is as follows:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Other financial assets, current | |||||||||||
| Chilean peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Other non - financial assets, current | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Trade and other accounts receivable, current | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
F-107
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Current assets | |||||||||||
| Accounts receivable from related entities, current | |||||||||||
| Chilean peso | |||||||||||
| U.S. dollar | |||||||||||
| Tax current assets | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Peruvian sun | |||||||||||
| Other currency | |||||||||||
| Total current assets | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. Dollar | |||||||||||
| Other currency | |||||||||||
F-108
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Non-current assets | |||||||||||
| Other financial assets, non-current | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Other non - financial assets, non-current | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Accounts receivable, non-current | |||||||||||
| Chilean peso | |||||||||||
| Deferred tax assets | |||||||||||
| Colombian peso | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Total non-current assets | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
F-109
The foreign currency detail of balances of monetary items in current liabilities and non-current is as follows:
| Up to 90 days | 91 days to 1 year | ||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Current liabilities | |||||||||||||||||||||||
| Other financial liabilities, current | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||
| Trade and other accounts payables, current | |||||||||||||||||||||||
| Argentine peso | |||||||||||||||||||||||
| Brazilian real | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| Colombian peso | |||||||||||||||||||||||
| Euro | |||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||
| Peruvian sol | |||||||||||||||||||||||
| Mexican peso | |||||||||||||||||||||||
| Pound sterling | |||||||||||||||||||||||
| Uruguayan peso | |||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||
| Accounts payable to related entities, current | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||
| Other provisions, current | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||
F-110
| Up to 90 days | 91 days to 1 year | ||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
| Current liabilities | |||||||||||||||||||||||
| Other non-financial liabilities, current | |||||||||||||||||||||||
| Argentine peso | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| Colombian peso | |||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||
| Total current liabilities | |||||||||||||||||||||||
| Argentine peso | |||||||||||||||||||||||
| Brazilian real | |||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||
| Colombian peso | |||||||||||||||||||||||
| Euro | |||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||
F-111
| More than 1 to 3 years | More than 3 to 5 years | More than 5 years | |||||||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
| Non-current liabilities | |||||||||||||||||||||||||||||||||||
| Other financial liabilities, non-current | |||||||||||||||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||||||||||||||
| Brazilian real | |||||||||||||||||||||||||||||||||||
| Euro | |||||||||||||||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||||||||||||||
| Accounts payable, non-current | |||||||||||||||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||||||||||||||
| Other provisions, non-current | |||||||||||||||||||||||||||||||||||
| Argentine peso | |||||||||||||||||||||||||||||||||||
| Brazilian real | |||||||||||||||||||||||||||||||||||
| Colombian peso | |||||||||||||||||||||||||||||||||||
| Euro | |||||||||||||||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||||||||||||||
| Provisions for employees benefits, non-current | |||||||||||||||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||||||||||||||
| Total non-current liabilities | |||||||||||||||||||||||||||||||||||
| Argentine peso | |||||||||||||||||||||||||||||||||||
| Brazilian real | |||||||||||||||||||||||||||||||||||
| Chilean peso | |||||||||||||||||||||||||||||||||||
| Colombian peso | |||||||||||||||||||||||||||||||||||
| Euro | |||||||||||||||||||||||||||||||||||
| U.S. dollar | |||||||||||||||||||||||||||||||||||
| Other currency | |||||||||||||||||||||||||||||||||||
F-112
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| General summary of foreign currency: | |||||||||||
| Total assets | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Total liabilities | |||||||||||
| Argentine peso | |||||||||||
| Brazilian real | |||||||||||
| Chilean peso | |||||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | |||||||||||
| Other currency | |||||||||||
| Net position | |||||||||||
| Argentine peso | ( | ||||||||||
| Brazilian real | ( | ( | |||||||||
| Chilean peso | ( | ( | |||||||||
| Colombian peso | |||||||||||
| Euro | |||||||||||
| U.S. dollar | ( | ||||||||||
| Other currency | ( | ||||||||||
F-113
NOTE 29 – EARNINGS (LOSS) PER SHARE
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic earnings (loss) per share | |||||||||||||||||
| Income (Loss) attributable to owners of the parent (ThUS$) | ( | ||||||||||||||||
| Weighted average number of shares, basic | (*) | (*) | |||||||||||||||
| Basic earnings (loss) per share (US$) | ( | ||||||||||||||||
| For the year ended at December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Diluted earnings (loss) per share | ||||||||||||||||||||
| Income (Loss) attributable to owners of the parent (ThUS$) | (***) | ( | ||||||||||||||||||
| Weighted average number of shares, diluted | (**) | (**) | ||||||||||||||||||
| Diluted earnings (loss) per share (US$) | ( | |||||||||||||||||||
(*)As of December 31, 2023, the weighted average number of shares considers 604,437,584,048 shares outstanding from January 1, 2023 to December 31, 2023. From January 10, 2023 to December 31, 2023, the number of shares outstanding increased due to the partial conversion of the Convertible Note H (See movement of shares in Note 24).As of December 31, 2022, the weighted average number of shares considers 606,407,693 shares outstanding from January 1, 2022 until November 2, 2022. From November 3, 2022 until December 31, 2022 the number of shares outstanding increases due to the equity rights offering and then increases daily as the holders of the convertible notes convert them into shares (See movement of shares in Note 24).
(**)As of December 31, 2023, the number of weighted diluted shares considers 604,437,584,048 shares from January 1, 2023 to December 31, 2023. From January 10, 2023 to December 31, 2023, the number of shares outstanding increased due to the partial conversion of the Convertibles Notes (See movement of shares in Note 24) and 3,911,748 shares outstanding from January 1, 2023 until December 31, 2023, assuming the full conversion of the Convertibles Notes that were issued on the date of exit from Chapter 11 (See movement of shares in Note 24). As of December 31, 2022, the weighted average number of fully diluted shares considers 606,407,693 shares outstanding from January 1, 2022 until November 2, 2022, and 605,801,285,307 shares outstanding from November 3, 2022 until December 31, 2022 which includes the equity rights offering and assumes the conversion of all Convertibles Notes that were issued upon emergence from Chapter 11 (See movement of shares in Note 24).
(***) Income (Loss) attributable to owners of equity instruments of the parent company is unchanged when calculating diluted EPS because only Convertible Note H accrued interest. However, this Note was converted into shares immediately after issuance and therefore did not accrue interest during the year.
F-114
NOTE 30 – CONTINGENCIES
I. Lawsuits
1)Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Finance Limited | Grand Court of the Cayman Islands | - | Request for a provisional bankruptcy process. | On May 26, 2020, LATAM Finance Limited submitted a request for a provisional liquidation in the Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on May 27, 2020 by the Grand Court of the Cayman Islands. On September 28, 2020, LATAM Finance Limited filed a petition to suspend the liquidation. On October 9, 2020, the Grand Court of Cayman Islands accepted the petition and extended the status of temporary liquidation for a period of | - | |||||||||||||||||||||||||||
F-115
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| Peuco Finance Limited | Grand Court of the Cayman Islands | - | Request for a provisional bankruptcy process. | On May 26,2020, Peuco Finance Limited submitted a request for a provisional liquidation in Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on May 27, 2020 by the Grand Court of the Cayman Islands. On September 28, 2020, Peuco Finance Limited filed a petition to suspend the liquidation. On October 9, 2020, the Grand Court of Cayman Islands accepted the petition and extended the status of temporary liquidation for a period of | - | |||||||||||||||||||||||||||
| Piquero Leasing Limited | Grand Court of the Cayman Islands | - | Request for a provisional bankruptcy process. | On July 08, 2020, Piquero Leasing Limited submitted a request for a provisional liquidation in Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on July 10, 2020, by the Grand Court of the Cayman Islands. Piquero Leasing Limited entered a motion to suspend the liquidation on September 28, 2020. On October 9, 2020 the Grand Court of the Cayman Islands granted the motion and extended the provisional liquidation status for | - | |||||||||||||||||||||||||||
F-116
2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries.
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Group S.A. y Lan Cargo S.A. | Comisión Europea | – | Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th, 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against | On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011. On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of ThUS$ This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the decision, but presented a new | ||||||||||||||||||||||||||||
F-117
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| Lan Cargo S.A. y LATAM Airlines Group S.A. | In the Ovre Romerike Disrtict Court (Noruega) y Directie Juridische Zaken Afdeling Ceveil Recht (Países Bajos) | — | Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany, these claims were filed in England, Norway, the Netherlands and Germany, but are only ongoing in Norway and the Netherlands. | The | - | |||||||||||||||||||||||||||
| Aerolinhas Brasileiras S.A. | Justicia Federal. | 0008285-53.2015.403.6105 | An action seeking to quash a decision and petitioning for early protection in order to obtain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge. | This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines: (i) ABSA:ThUS$ | ||||||||||||||||||||||||||||
F-118
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| Aerolinhas Brasileiras S.A. | Justicia Federal. | 0001872-58.2014.4.03.6105 | An annulment action with a motion for preliminary injunction, was filed on 28/02/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006-43 | The statement was authenticated on January 29, 2016. A new insurance policy was submitted on March 30, 2016 with the change to the guarantee requested by PGFN. On 05/20/2016 the process was sent to PGFN, which was manifested on 06/03/2016. The Decision denied the company's request in the lawsuit. The court (TRF3) made a decision to eliminate part of the debt and keep the other part (already owed by the Company, but which it has to pay only at the end of the process: ThUS$ | ||||||||||||||||||||||||||||
| Tam Linhas Aéreas S.A. | Tribunal Regional Federal da 2a Região. | 2001.51.01.012530-0 (vinculado a este proceso los Pas 19515.721154/2014-71, 19515.002963/2009-12) | Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to collect the Air Fund. | Unfavorable court decision in first instance. Currently expecting the ruling on the appeal filed by the company.In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered for R$ | ||||||||||||||||||||||||||||
| Tam Linhas Aéreas S.A. | Secretaria da Receita Federal do Brasil. | 10880.725950/2011-05 | Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to collect the Air Fund. | The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed. The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of Tax Appeals (CARF) on June 8, 2015. TAM’s appeal was included in the CARF session held August 25, 2016. An agreement that converted the proceedings into a formal case was published on October 7, 2016. The company has received the results of the due diligence and presented a claim. We must wait for an administrative decision. | ||||||||||||||||||||||||||||
F-119
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| Tam Linhas Aéreas S.A. | Secretaria da Receita Federal do Brasil. | 10880.722.355/2014-52 | On August 19th, 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport. | An objection was filed administratively on September 17, 2014. The lower court rendered a partially favorable ruling on June 1, 2016 that reversed the previous separate fine. A voluntary remedy was filed on June 30, 2015 on which a judgment by the Board of Tax Appeals is pending. The case was sent to the Second Panel of the Fourth Room of the Third Judgment Section of the Board of Tax Appeals (abbreviated as CARF in Portuguese). The CARF judges partially sustained the company’s appeal to pay part of the debt (we did not appeal the other part). The Ministry of Finance of Brazil filed a special remedy. The CARF dismissed the Ministry’s remedy in September 2019, but it filed a complaint that was denied by the CARF. The final calculations by the Federal Internal Revenue Service are pending. | ||||||||||||||||||||||||||||
F-120
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Group S.A. | 22° Juzgado Civil de Santiago | C-29.945-2016 | The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it. | The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017. LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit. A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement. The Court issued the evidentiary decree on May 12, 2017. We filed a petition for reconsideration because we disagreed with certain points of evidence. That petition was partially sustained by the Court on June 27, 2017. The evidentiary stage commenced and then concluded on July 20, 2017. Observations to the evidence must now be presented. That period expires August 1, 2017. We filed our observations to the evidence on August 1, 2017. We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable. The plaintiff filed an appeal on December 26, 2017. Arguments were pled before the Santiago Court of Appeals on April 23, 2019, and on April 30, 2019, this Court confirmed the ruling of the trial court absolving LATAM. The losing party was ordered to pay costs in both cases. On May 18, 2019, Inversiones Ranco Tres S.A. filed a remedy of vacation of judgment based on technicalities and on substance against the Appellate Court decision. The Appellate Court admitted both appeals on May 29, 2019. On August 11, 2021 Inversiones Ranco Tres S.A. requested the suspension of the hearing of the Appeal, after the recognition by the 2nd Civil Court of Santiago of the foreign reorganization procedure in accordance with Law No. 20,720, for the entire period that said procedure lasts, a request that was accepted by the Supreme Court. In December 2022 LATAM requested the end of the suspension, which was granted on February 17, 2023. Arguments were presented to the Supreme Court on April 27, 2023. On August 4, 2023, the Supreme Court dismissed the remedies of vacation of judgment based on substance and form filed by Inversiones Ranco Tres S.A.. The resolution rejecting the claim remains firm and enforceable. The assessment of personal and procedural costs in favor of LATAM was carried out by both the Court of Appeals and the Court of First Instance. | - | |||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | 10 ª Vara das Execuções Fiscais Federais de São Paulo | 0061196-68.2016.4.03.6182 | Tax Enforcement Lien No. 0020869-47.2017.4.03.6182 on Profit-Based Social Contributions from 2004 to 2007. | This tax enforcement was referred to the 10th Federal Jurisdiction on February 16, 2017. A petition reporting our request to submit collateral was recorded on April 18, 2017. At this time, the period is pending for the plaintiff to respond to our petition. The bond was replaced. The evidentiary stage has begun. | ||||||||||||||||||||||||||||
F-121
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Secretaría de Receita Federal | 5002912.29.2019.4.03.6100 | A lawsuit disputing the debit in the administrative proceeding 16643.000085/2009-47, reported in previous notes, consisting of a notice demanding recovery of the Income and Social Assessment Tax on the net profit (SCL) resulting from the itemization of royalties and use of the TAM trademark | The lawsuit was assigned on February 28, 2019. A decision was rendered on March 1, 2019 stating that no guarantee was required. On 04/06/2020 TAM Linhas Aéreas S.A. had a favorable decision (sentence). The National Treasury can appeal. Today, we await the final decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Delegacía de Receita Federal | 10611.720852/2016-58 | An improper charge of the Contribution for the Financing of Social Security (COFINS) on an import | There is no predictable decision date because it depends on the court of the government agency. On June 29, 2023, the company decided to propose a composition to the National Treasurer on payment of the debt, but with the legal deductions stipulated in Law 246/2022. We are awaiting a response from the authority. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Delegacía de Receita Federal | 16692.721.933/2017-80 | The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport (Referring to 2012). | An administrative defense was presented on May 29, 2018. The process has become a judicial proceeding. | ||||||||||||||||||||||||||||
F-122
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| SNEA (Sindicato Nacional das empresas aeroviárias) | União Federal | 0012177-54.2016.4.01.3400 | A claim against the | A decision is now pending on the appeal presented by SNEA. On January 30th, 2024, SNEA obtained a favorable court decision from the 2nd Instance (TRF1), regarding its appeal. The SNEA awaits the publication of the decision to assess the viability of possible appeals. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | União Federal | 2001.51.01.020420-0 | TAM and other airlines filed a recourse claim seeking a finding that there is no legal or tax basis to be released from collecting the Additional Airport Fee (“ATAERO”). | A decision by the superior court is pending. The amount is indeterminate because even though TAM is the plaintiff, if the ruling is against it, it could be ordered to pay a fee. | - | |||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal do Brasil | 19515-720.823/2018-11 | An administrative claim to collect alleged differences in SAT payments for the periods 11/2013 to 12/2017. | A defense was presented on November 28, 2018. The Court dismissed the Company’s appeal in August 2019. Then on September 17, 2019, Company filed a voluntary appeal (CRSF (Administrative Tax Appeals Board)) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.938832/2013-19 | The decision denied the reallocation petition and did not equate the Social Security Tax (COFINS) credit declarations for the second quarter of 2011, which were determined to be in the non-cumulative system | An administrative defense was argued on March 19, 2019. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal to the Brazilian Administrative Council of Tax Appeals (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.938834/2013-16 | The decision denied the reallocation petition and did not equate the Social Security Tax (COFINS) credit declarations for the third quarter of 2011, which were determined to be in the non-cumulative system. | An administrative defense was argued on March 19, 2019. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal to the Brazilian Administrative Council of Tax Appeals (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
F-123
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.938837/2013-41 | The decision denied the reallocation petition and did not equate the Social Security Tax (COFINS) credit declarations for the fourth quarter of 2011, which were determined to be in the non-cumulative system. | An administrative defense was argued on March 19, 2019. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal to the Brazilian Administrative Council of Tax Appeals (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.938838/2013-96 | The decision denied the reallocation petition and did not equate the Social Security Tax (COFINS) credit declarations for the first quarter of 2012, which were determined to be in the non-cumulative system. | We presented our administrative defense. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal to the Brazilian Administrative Council of Tax Appeals (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| LATAM Airlines Group Argentina, Brasil, Perú, Ecuador, y TAM Mercosur. | Juzgado de 1° Instancia en lo Civil y Comercial Federal N° 11 de la ciudad de Buenos Aires | 1408/2017 | Consumidores Libres Coop. Ltda. filed this claim on March 14, 2017 regarding a provision of services. It petitioned for the reimbursement of certain fees or the difference in fees charged for passengers who purchased a ticket in the last | Federal Commercial and Civil Trial Court No. 11 in the city of Buenos Aires. After | - | |||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10.880.938842/2013-54 | The decision denied the petition for reassignment and did not equate the COFINS credit statements for the third quarter of 2012 that had been determined to be in the non-accumulative system. | We presented our administrative defense. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal to the Brazilian Administrative Council of Tax Appeals (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
F-124
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10.880.938844/2013-43 | The decision denied the petition for reassignment and did not equate the COFINS credit statements for the third quarter of 2012 that had been determined to be in the non-accumulative system. | We presented our administrative defense. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.938841/2013-18 | The decision denied the petition for reassignment and did not equate the COFINS credit statements for the second quarter of 2012 that had been determined to be in the non-accumulative system. | We presented our administrative defense. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10840.727719/2019-71 | Collection of PIS / COFINS tax for the period of 2014. | We presented our administrative defense on January 11, 2020. The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| Latam-Airlines Ecuador S.A. | Tribunal Distrital de lo Fiscal | 17509-2014-0088 | An audit of the 2006 Income Tax Return that disallowed fuel expenses, fees and other items because the necessary support was not provided, according to Management. | On August 6, 2018, the District Tax Claims Court rendered a decision denying the request for a refund of a mistaken payment. An appeal seeking vacation of this judgment by the Court was filed on September 5th and we are awaiting a decision by the Appellate judges. As of December 31, 2018, the attorneys believed that the probability of recovering this sum had fallen to | ||||||||||||||||||||||||||||
F-125
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910559/2017-91 | Compensation non equate by Cofins | It is about the non-approved compensation of Cofins. Administrative defense submitted (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910547/2017-67 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910553/2017-14 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910555/2017-11 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910560/2017-16 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910550/2017-81 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910549/2017-56 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 10880.910557/2017-01 | Compensation non equate by Cofins | We presented our administrative defense (Manifestação de Inconformidade). The Court dismissed the Company’s defense in December 2020. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | Receita Federal do Brasil | 10840.722712/2020-05 | Administrative trial that deals with the collection of PIS/Cofins proportionality (fiscal year 2015). | We presented our administrative defense (Manifestação de Inconformidade). A decision is pending. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
F-126
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal do Brasil | 10880.978948/2019-86 | It is about the non-approved compensation/reimbursement of Cofins for the 4th Quarter of 2015. | TAM filed its administrative defense on July 14, 2020. A decision is pending. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal do Brasil | 10880.978946/2019-97 | It is about the non-approved compensation/reimbursement of Cofins for the 3th Quarter of 2015 | TAM filed its administrative defense on July 14, 2020. A decision is pending. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| TAM Linhas Aereas S.A. | Receita Federal do Brasil | 10880.978944/2019-06 | It is about the non-approved compensation/reimbursement of Cofins for the 2th Quarter of 2015 | TAM filed its administrative defense on July 14, 2020. A decision is pending. The Company filed a voluntary appeal (CARF) that is pending a decision. | ||||||||||||||||||||||||||||
| Latam Airlines Group S.A | 23° Juzgado Civil de Santiago | C-8498-2020 | Class Action Lawsuit filed by the National Corporation of Consumers and Users (CONADECUS) against LATAM Airlines Group S.A. for alleged breaches of the Law on Protection of Consumer Rights due to flight cancellations caused by the COVID-19 Pandemic, requesting the nullity of possible abusive clauses, the imposition of fines and compensation for damages in defense of the collective interest of consumers. LATAM has hired specialist lawyers to undertake its defense. | On 06/25/2020 we were notified of the lawsuit. On 04/07/2020 we filed a motion for reversal against the ruling that declared the action filed by CONADECUS admissible, the decision is pending to date. On 07/11/2020 we requested the Court to comply with the suspension of this case, ruled by the 2nd Civil Court of Santiago, in recognition of the foreign reorganization procedure pursuant to Law No. 20,720, for the entire period that said proceeding lasts, a request that was accepted by the Court. CONADECUS filed a remedy of reconsideration and an appeal against this resolution should the remedy of reconsideration be dismissed. The Court dismissed the reconsideration on August 3, 2020, but admitted the appeal. On March 1, 2023, the Court of Appeals resolved to omit the hearing of the case and pronouncement regarding the appeal, in view of the fact that in January 2023 LATAM's request the end of the suspension of the process that was decreed by resolution of July 17, 2020 in case file C-8498-2020 of the 23rd Civil Court of Santiago, for which the file was sent to the first instance to continue processing. On November 24, 2023, the Court dismissed LATAM’S motion for reversal against the ruling that declared the action filed by CONADECUS admissible. Accordingly, on December 4, 2023, LATAM filed the statement of defense. The amount at the moment is undetermined. | - | |||||||||||||||||||||||||||
F-127
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| Latam Airlines Group S.A. | 25° Juzgado Civil de Santiago | C-8903-2020 | Class Action Lawsuit filed by AGRECU against LATAM Airlines Group S.A. for alleged breaches of the Law on Protection of Consumer Rights due to flight cancellations caused by the COVID-19 Pandemic, requesting the nullity of possible abusive clauses, the imposition of fines and compensation for damages in defense of the collective interest of consumers. LATAM has hired specialist lawyers to undertake its defense. | On July 7, 2020 we were notified of the lawsuit. We filed our answer to the claim on August 21, 2020. A settlement was reached with AGRECU at that hearing that was approved by the Court on October 5, 2020. On October 7, 2020, the 25th Civil Court confirmed that the decision approving the settlement was final and binding. CONADECUS filed a brief on October 4, 2020 to become a party and oppose the agreement, which was dismissed on October 5, 2020. It petitioned for an official correction on October 8, 2020 and the annulment of all proceedings on October 22, 2020, which were dismissed, costs payable by CONADECUS, on November 16, 2020 and November 20, 2020, respectively. LATAM presented reports on the implementation of the agreement on May 19, 2021, November 19, 2021 and May 19, 2022, which concluded its obligation to report on that implementation. On December 28, 2022 the Civil Court ordered the filing of the file. The National Consumer and User Association (CONADECUS) filed appeals against these decisions with the Santiago Appellate Court that were joined under Case #14,213-2020. Arguments were made on March 8, 2023. In a decision on August 8, 2023, the Appellate Court dismissed the appeals by CONADECUS, costs included. On August 26, 2023, CONADECUS filed a petition based on technicalities and substance against the Appellate Court ruling in order to have it reversed by the Supreme Court. LATAM petitioned that such appeals be declared inadmissible in a brief filed September 13, 2023. On November 30, 2023, the Supreme Court declared CONADECUS’ petition inadmissible. On December 7, 2023, LATAM requested the Appellate Court to determine the costs of the procedure which must be borne by CONADECUS. CONADECUS currently has no petitions against the settlement reached between LATAM and AGRECU. The amount at the moment is undetermined. | - | |||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | Receita Federal de Brasil | 13074.726429/2021-41 | It is about the non-approved compensation/reimbursement of Cofins for the periods 07/2016 to 06/2017. | TAM filed its administrative defense. (Manifestação de Inconformidade). A decision is pending | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Receita Federal de Brasil | 2007.34.00.009919-3(0009850-54.2007.4.01.3400) | A lawsuit seeking to review the incidence of the Social Security Contribution taxed on 1/3 of vacations, maternity payments and medical leave for accident. | A decision is pending | ||||||||||||||||||||||||||||
F-128
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Tribunal del Trabajo de Brasília/DF | 0000038-25.2021.5.10.0017 | This civil suit was filed by the National Pilots Union seeking that the company be ordered to pay for meals daily when pilots are on alert status. | The hearing is scheduled for April 15, 2024. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | UNIÃO FEDERAL | 0052711-85.1998.4.01.0000 | An indemnity claim to collect a differentiated price from the Federal Union because of the disruption of the economic equilibrium in the concession agreements between 1988 and 1992. The indemnity, should the action prosper, cannot be estimated (Price Freeze). | The lawsuit began in 1993. In 1998, there was a decision favorable to TAM. The process reached the Court, and in 2019, the decision was against TAM. The company has appealed and a decision is pending. | - | |||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | Tribunal do Trabajo de São Paulo | 1000115-90.2022.5.02.0312 | A class action whereby the Air Transport Union is petitioning for payment of additional hazardous and unhealthy work retroactively and in the future for maintenance/CML employees. | The instruction hearing is pending in this case, scheduled for 12:02 p.m. on April 25, 2024 | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | Receita Federal | 15746.728063/2022-00 | This is an administrative claim regarding alleged irregularities in the payment of Technical Assistance (SAT) in 2018. | The administrative defense has been presented and a decision is pending. | ||||||||||||||||||||||||||||
F-129
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 1003320-78.2023.4.06.3800 | Legal action to discuss the debit of the administrative process 10611.720630/2017-16 (fine for violation of incorrect registration in DI- import declaration) | Distributed on January 19, 2023. The company obtained a precautionary measure suspending the collection without the need for a guarantee. Process awaiting response from the National Treasury | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 12585.720017/2012-84 | This is a petition to recover a credit (proportional) in the 3rd quarter of 2010 under the Social Security Financing Contribution program (abbreviated as COFINS in Portuguese). | An administrative defense was presented but was dismissed. The company filed a voluntary remedy before CARF that was also dismissed. A decision on the special remedy is now pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 10880-982.487/2020-80 | This is a petition to recover a credit (proportional) in the 4rd quarter of 2016 under the Social Security Financing Contribution program (abbreviated as COFINS in Portuguese) | An administrative defense was presented but was dismissed. The company filed a voluntary remedy before CARF. A decision on the special remedy is now pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 10880-967.530/2022-49 | This is a petition to recover a credit (proportional) in the 1rd quarter of 2018 under the Social Security Financing Contribution program (abbreviated as COFINS in Portuguese). | An administrative defense was presented. A decision is pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 10880-967.532/2022-38 | This is a petition to recover a credit (proportional) in the 2rd quarter of 2018 under the Social Security Financing Contribution program (abbreviated as COFINS in Portuguese). | An administrative defense was presented and a decision is pending. | ||||||||||||||||||||||||||||
F-130
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 10880-967.533/2022-82 | This is a petition to recover a credit (proportional) in the 4rd quarter of 2018 under the Social Security Financing Contribution program (abbreviated as COFINS in Portuguese). | An administrative defense was presented and a decision is pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 19613.725650/2023-86 | A Notice of Violation prepared in the petition by the Social Integration Program (abbreviated as PIS in Portuguese) and by COFINS on taxable events allegedly occurring between May 2018 and December 2018. | An administrative defense was presented and a decision is pending. | ||||||||||||||||||||||||||||
| LATAM Airlines Group S.A. | Tribunal de Defensa de la Libre Competencia | 445-2022 | On May 21, 2022, Agunsa filed a petition to TDLC for a preliminary preparatory measure of exhibition of documents in respect of Aerosan, Depocargo, Sociedad Concesionaria Nuevo Pudahuel and Fast Air in which Agunsa claimed that it was impacted by alleged anti-competition practices on the import cargo warehousing market at the Arturo Merino Benitez International Airport. | Fast Air was served on June 9, 2022 and on June 13, 2022, it lodged opposition against this petition, which was partially sustained by the Antitrust Court (TDLC) on July 19, 2022, in which the new exhibition date was set as August 22nd (the original date set by the court was July 1, 2022). On July 25, 2022, Fast Air requested a reconsideration of this latter court decision and petitioned that the temporary scope of the exhibition be reduced. Fast Air’s petition was sustained and the scope of the documents to be revealed was limited even further. On August 12th, Fast Air petitioned that a new date and time be set for the exhibition hearing. The court granted this latter request on August 17th and set the exhibition date as August 31st. Fast Air appeared with | - | |||||||||||||||||||||||||||
F-131
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Group S.A. | Tribunal de Defensa de la Libre Competencia | 489-2023 | A preliminary precautionary measure was filed by the Tourism Companies Trade Association of Chile seeking that LATAM’s NDC system cease to be implemented or, alternatively, that collection of the Distribution Cost Recovery Fee be suspended and that LATAM be forbidden to limit the inventory of tickets available through the indirect distribution channel. | On May 24, 2023 the preliminary measure was initially rejected. However, after accepting an appeal for reinstatement of ACHET, said resolution was annulled on June 8, 2023, providing instead that partially accepts the precautionary measure only in terms of suspending the Distribution Cost Recovery Fee and prohibiting any unjustified limitation of the inventory of tickets available for the indirect distribution channel. Currently awaiting a final ruling from the Court. The preliminary measure cannot be implemented until such a decision is rendered. For the time being, the amount is indeterminate. | - | |||||||||||||||||||||||||||
| LATAM Airlines Group S.A. | 23° Juzgado Civil de Santiago | C-8156-2022 | A class action filed by CONADECUS against LATAM Airlines Group S.A. for alleged violations of the Consumer Protection Law because of the cancellation of tickets for international flights purchased through travel agencies. It petitioned for fines and damage indemnities to be imposed in defense of the collective and/or diffuse interest of consumers. LATAM has retained specialized legal counsel to defend it. | We were served the claim on September 21, 2023. On September 30, 2023, we filed a remedy of reconsideration against the decision that declared the lawsuit filed by CONADECUS admissible, which was dismissed by the Court on November 11, 2023. A decision on that appeal is pending at this time. On November 18, 2023, LATAM filed the statement of defense. For the time being, the amount is undetermined. | - | |||||||||||||||||||||||||||
F-132
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | União Federal | 10880.967587/2022-48 | This is about the unaccredited compensation/reimbursement and redress regarding the improper payment of the monthly federal social assistance contribution (Cofins, as abbreviated in Portuguese) made in the third quarter of 2018. | The administrative defense has been presented and a decision is pending. | ||||||||||||||||||||||||||||
F-133
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Group S.A. | Tribunal de Defensa de la Libre Competencia | NC-388-2011 | On August 11, 2012, the Civil Aviation Administration (“JAC,” as abbreviated in Spanish) filed a petition for clarification with the Anti-Trust Court (“TDLC,” as abbreviated in Spanish) regarding Condition VIII.4 of Decision #37/2011 (“Condition VII.4”). The petition seeks to impose a temporary | LATAM filed a brief with the TDLC on August 27, 2023, petitioning that the JAC petition for clarification be dismissed because it was an improper request to change Condition VIII.4. The TDLC dismissed the JAC’s petition for clarification on September 13, 2023. The JAC filed an appeal against the TDLC’s ruling dismissing its petition for clarification on September 23, 2023. LATAM petitioned that said appeal by the JAC be declared inadmissible on September 30, 2023. The TDLC declared it admissible (it admitted the appeal for processing) on October 2, 2023, and LATAM filed a remedy of reconsideration against that decision on October 7, 2023, accompanied by a legal opinion. The TDLC accepted LATAM’s remedy of reconsideration on October 17, 2023 and amended its previous ruling and dismissed the JAC’s petition for clarification. On October 23, 2023, the JAC presented an appeal to the Supreme Court requesting that the TDLC resolution be annulled and petitioned declared admissible the remedy of reconsideration. On November 3, 2023, LATAM became part of the de facto appeal and requested its rejection. On December 20, 2023, the TDLC sent a report to the Supreme Court. On January 6, 2024, the JAC presented a note in relation to the TDLC report. On January 9, 2024, LATAM presented a document in response to the JAC presentation in which it analyzed the TDLC report. In a separate but related process, JetSmart filed a non-contentious inquiry on September 26, 2023, in relation to the terms of the future public tender of aviation frequencies on the Santiago-Lima route. JetSmart requested an injunction to suspend the tender and maintain the aviation frequency assignments as currently held until the inquiry has finalized. The TDLC declared the inquiry admissible on October 2, 2023, but only to begin a procedure to determine whether the rules in the terms of the public aviation frequency tender violate Decree Law 211, and dismissed the request for provisional measures. On October 4, 2023, JetSmart filed | - | |||||||||||||||||||||||||||
F-134
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | União Federal | 10880.967612/2022-93 | This is a petition to recover a credit Cofins in the 1rd quarter of 2019 (proportional) | The administrative defense has been presented and a decision is pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A. | Superior Tribunal de Justiça (STJ) | 0042711-61.2007.8.05.0001 (1449899) | Trial involving a commercial representation contract signed directly with the company Gm Serviços Auxiliares de Transporte Aéreo Ltda. alleging the irregular closing of the contract, requesting payment of compensation. | The procedure before the Court of Appeal is pending | ||||||||||||||||||||||||||||
F-135
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Group S.A Sucursal Perú | Tribunal Fiscal | 12511-2022 | Appeal for US$ | The resolution is pending. | ||||||||||||||||||||||||||||
| TAM Linhas Aéreas S.A | UNIÃO FEDERAL | 1012674-80.2018.4.01.3400 | Legal actions for members to have the right to collect contributions in the payroll collectible on the basis of gross sales. | This claim was filed in 2018. In January 2020, a decision favorable to the Company was rendered so that contributions would be collected on the basis of gross income. The company recently learned that the Superior Courts are rendering decisions unfavorable to contributors. They have ruled against the contributor in a recent decision. In December/2023 the position was withdrawn. | - | |||||||||||||||||||||||||||
F-136
| Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||||||||||||||||||||||||
| ThUS$ | ||||||||||||||||||||||||||||||||
| LATAM Airlines Perú S.A. | Tribunal Fiscal | Expediente de Apelación N° 2545-2023 | Appeal against the resolution of the Intendencia No. 4070140000253 that declared the claim against Determination Resolutions No. 0120030126112 to 0120030126123 and RM No. 0120020037412 to 0120020037423 partially founded. The objections contested through the values indicated above correspond to the taxable base of the IGV for the national interline (domestic national sale). | On September 16, 2022, an appeal was filed against the determination and fine resolutions issued by SUNAT; being that, through Resolution of the Intendencia No. 4070140000253, the claim filed by the company was partially founded and, in addition, (i) it rectified Annexes No. 01, 04, 05 and 06 of RD No. 0120030126112 to No. 0120030126123. , (ii) the Annex to RM N° 0120020037412 to N° 0120020037423, (iii) the balance in favor of the IGV for the tax periods of January and July 2016 contained in RD N° 0120030126112 and 0120030126118; and, (iv) rectified and continued the collection of the tax debt contained in RD No. 0120030126113 to 0120030126117 and 0120030126119 to 0120030126123 and RM No. 0120020037412 to 0120020037423. On January 11, 2023, an appeal was filed against the aforementioned resolution, which was admitted for processing and elevated to room 9 of the Tax Court. Currently the file is pending resolution. | ||||||||||||||||||||||||||||
| LATAM Airlines Perú S.A. | Superintendencia Nacional de Administración Tributaria (SUNAT) | Expediente de Reclamación N° 4070340000412. | Claim against Determination Resolution No. 0120030130232, Fine Resolution No. 0120020038314, notified on 12.22.2022 and Determination Resolution No. 0120030130245 for indirect disposal of income not susceptible to subsequent tax control linked to the objections made to determination of third category net income for fiscal year 2015 | On January 26, 2023, the Company filed an appeal against the determination and fine resolutions issued by SUNAT. Through Resolution of the Intendencia No. 4070340000928 dated December 19, 2023, SUNAT declared the appeal filed by the Company founded and, consequently, Determination Resolutions No. 012-003-0130232, No. 012-003- 0130245 and Fine Resolution No. 012-002-0038314 are void. Currently, the Gerencia de Fiscalización I and the Gerencia de Fiscalización Internacional y de Precios de Transferencia de la Intendencia de Principales Contribuyentes Nacionales of the SUNAT are pending to issue the inspection requirements necessary to correct the invalidity defects declared by the Intendencia Nacional de Impugnaciones. | ||||||||||||||||||||||||||||
F-137
In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2023, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 20.
The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.
(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
II. Governmental Investigations.
1.)On April 6, 2019, LATAM Airlines Group S.A. received the resolution issued by the National Economic Prosecutor's Office (FNE), which begins an investigation Role No. 2530-19 into the LATAM Pass frequent passenger program. The last activity in this investigation corresponds to request for information received in May 2019.
2.)On July 26, 2019, the National Consumer Service of Chile (SERNAC) issued the Ordinary Resolution No. 12,711 which proposed to initiate a collective voluntary mediation procedure on effectively informing passengers of their rights in cases of cancellation of flights or no show to boarding, as well as the obligation to return the respective boarding fees as provided by art. 133 C of the Aeronautical Code. The Company has voluntarily decided to participate in this proceeding, in which an agreement was reached on March 18, 2020, which implies the return of shipping fees from September 1, 2021, with an initial amount of ThUS$5,165 , plus ThUS$565 , as well as information to each passenger who has not flown since March 18, 2020, that their boarding fees are available. On January 18, 2021, the 14th Civil Court of Santiago approved the aforesaid agreement. LATAM published an abstract of the decision in nationwide newspapers in compliance with the law. LATAM began performance of the agreement on September 3, 2021. In April and October 2022, and in April and November 2023 the external auditors presented preliminary reports agreed upon with the National Consumer Service (SERNAC). The implementation of a voluntary class procedure concluded on September 3, 2023.
3.)On October 15, 2019, LATAM Airlines Group S.A. received the resolution issued by the National Economic Prosecuting Authority (“FNE”) which begins an investigation Role N°2585-19 into the agreement between LATAM Airlines Group S.A. and Delta Air Lines, Inc (“Delta”). On August 13, 2021 FNE, Delta and LATAM reached an out-of-court agreement that put an end to this investigation. On October 28, 2021, the Tribunal de Defensa de la Libre Competencia approved the out-of-court agreement reached by LATAM and Delta with the FNE.
4.)LATAM Airlines Group S.A. received a resolution by the National Economic Prosecutor (FNE) on February 1, 2018 beginning Investigation 2484-18 on air cargo carriage. On August 29, 2023, the Office of the National Economic Prosecutor (FNE) decided to separate part of the information from such investigation and created a new Case #2729-23 relative to cargo carriage on charter flights from Santiago to Easter Island during the pandemic. The latest activity in the investigation of Case 2484-18 is an Official Ordinary Letter issued August 28, 2023 in which it requested additional information from LATAM. That letter was answered on September 27, 2023.
5.)LATAM Airlines Group S.A. received a resolution by the National Economic Prosecutor (FNE) on August 12, 2021 beginning Investigation N° 2669-21 on compliance with condition VII Res. N° 37/2011 from TDLC related to restrictions as to certain codeshare agreements. On October 2, 2023, the FNE decided to separate part of the information in such investigation. Case #2737-23 will be about the code share agreements between LATAM and Delta that LATAM petitioned be amended; and Case #2669-21 will be about the remaining code share agreements. In relation to the investigation with Role No. 2737-23, dated November 06, 2023, the FNE and LATAM reached an extrajudicial agreement in order to allow certain codeshare agreements between LATAM and Delta to be modified. On December, 7, 2023, TDLC approved the extrajudicial agreement reached by LATAM and the FNE.
6.)The competition authority sent an inquiry [or request] to TAM Linhas Aéreas S.A. (LATAM Airlines Brasil) with the objective of obtaining information regarding certain pricing issues, which was received by the company on November 27, 2023. LATAM Airlines Brasil is cooperating with the authority and remains committed to transparency and compliance with all applicable rules and regulations.
F-138
NOTE 31 - COMMITMENTS
(a)Commitments arising from loans
In relation to certain contracts committed by the Company for the financing of the Boeing 777 aircraft, which are guaranteed by the Export – Import Bank of the United States of America, limits have been established for some financial indicators of LATAM Airlines Group S.A. on a consolidated basis. Under no circumstance does non-compliance with these limits generate loan acceleration.
The Company and its subsidiaries do not have credit agreements that impose limits on financial indicators of the Company or its subsidiaries, with the exception of those detailed below:
On October 12, 2022, LATAM Airlines Group S.A., acting through its Florida branch, closed a new four years revolving credit facility (“Exit RCF”) of US$500 million with a consortium of five banks led by JP Morgan Chase Bank, N.A. As of December 31, 2023, this credit facility is undrawn and fully available. In addition, LATAM Airlines Group S.A., together with Professional Airline Services, Inc., a Florida corporation and a wholly owned subsidiary of LATAM Airlines Group S.A., issued (i) on October 12, 2022, as modified on November 3, 2022, a five years term loan facility (“Term Loan B Facility”) of US$1,100 million (US$1,089 million outstanding as of December 31, 2023), (ii) on October 18, 2022, a 13.375 % senior secured notes due 2027 (“2027 Notes”) for an aggregate principal amount of US$450 million and (iii) on October 18, 2022, a 13.375 % senior secured notes due 2029 (“2029 Notes”, together with the 2027 Notes, the “Notes”) for and aggregate principal amount of US$700 million. The Exit RCF, the Term Loan B Facility and the Notes (together, the “Exit Financing”) share the same intangible collateral composed mainly of the FFP (LATAM Pass loyalty program) business receivables, Cargo business receivables, certain slots, gates and routes and LATAM’s intellectual property and brands. The Exit Financing contains certain covenants limiting us and our restricted subsidiaries’ ability to, among other things, make certain types of restricted payments, incur debt or liens, merge or consolidate with others, dispose of assets, enter into certain transactions with affiliates, engage in certain business activities or make certain investments. In addition, the agreements include a minimum liquidity restriction, requiring us to maintain a minimum liquidity, measured at the consolidated Company (LATAM Airlines Group S.A.) level, of US$750 million
On November 3, 2022, LATAM Airlines Group S.A., acting through its Florida branch, amended and extended the 2016 revolving credit facility (“RCF”) with a consortium of thirteen financial institutions led by Citibank, N.A., guaranteed by aircraft, engines and spare parts for a total committed amount of US$600 million. The RCF includes restrictions of minimum liquidity measured at the consolidated Company level (with a minimum level of US$750 million and measured individually for LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. (with a minimum level of US$400 million jointly). Compliance with these restrictions is a prerequisite for drawing under the line; if the line is used, compliance with said restrictions must be reported periodically, and non-compliance with these restrictions may trigger an acceleration of the loan. As of December 31, 2023, this line of credit is undrawn and fully available.
On November 3, 2022, LATAM Airlines Group S.A., acting through its Florida branch, executed a five years credit facility (“Spare Engine Facility”) with, among others, Crédit Agricole Corporate and Investment Bank, acting through its New York branch, as facility agent and arranger and guaranteed by spare engines for a principal amount of US$275 million. As of December 31, 2023, the outstanding amount under the Spare Engine Facility is US$266.8 million. The facility includes restrictions of minimum liquidity measured at the consolidated Company level (with a minimum level of US$750 million) and measured individually for LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. (with a minimum level of US$400 million jointly).
As of December 31, 2023, the Company complies with the aforementioned minimum liquidity covenants.
F-139
b)Other commitments
As of December 31, 2023, the Company maintains valid letters of credit, guarantee notes and guarantee insurance policies, according to the following detail:
| Creditor Guarantee | Debtor | Quantity | Type | Value ThUS$ | Release Date | |||||||||||||||||||||||||||
| SUPERINTENDENCIA NACIONAL DE ADUANAS Y DE ADMINISTRACION TRIBUTARIA | LATAM Airlines Perú S.A. | Letter of Credit | Jan 11, 2024 | |||||||||||||||||||||||||||||
| SÉTIMA TURMA DO TRIBUNAL REGIONAL FEDERAL DA 1ª REGIÃO - PROCEDIMENTO COMUM CÍVEL - DECEA - 0012177-54.2016.4.01.3400 | TAM Linhas Aereas S.A. | Guarantee Insurance | Apr 20, 2025 | |||||||||||||||||||||||||||||
| ISOCELES | LATAM Airlines Group S.A. | Letter of Credit | Aug 1, 2026 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL ( FAZENDA NACIONAL) | TAM Linhas Aereas S.A. | Guarantee Insurance | Jul 30, 2024 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL - PGFN | ABSA Aerolinhas Brasileiras S.A. | Guarantee Insurance | Feb 22, 2025 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL - PGFN | TAM Linhas Aereas S.A. | Guarantee Insurance | Sep 28, 2024 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL - FAZENDA NACIONAL | ABSA Aerolinhas Brasileiras S.A. | Guarantee Insurance | Apr 14, 2025 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL | TAM Linhas Aereas S.A. | Guarantee Insurance | Feb 4, 2025 | |||||||||||||||||||||||||||||
| FUNDACAO DE PROTECAO E DEFESA DO CONSUMIDOR PROCON | TAM Linhas Aereas S.A. | Guarantee Insurance | Apr 2, 2024 | |||||||||||||||||||||||||||||
| VARA DAS EXECUÇÕES FISCAIS ESTADUAIS DE SÃO PAULO - FORO DAS EXECUÇÕES FISCAIS DE SÃO PAULO | TAM Linhas Aereas S.A. | Guarantee Insurance | Mar 4, 2025 | |||||||||||||||||||||||||||||
| AMERICAN ALTERNATIVE INS. CO. C/O ROANOKE INS. GROUP INC | LATAM Airlines Group S.A. | Letter of Credit | Feb 1, 2024 | |||||||||||||||||||||||||||||
| TRIBUNAL DE JUSTIÇA DO ESTADO DE SÃO PAULO | ABSA Aerolinhas Brasileiras S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| BBVA | LATAM Airlines Group S.A. | Letter of Credit | Jan 23, 2025 | |||||||||||||||||||||||||||||
| 1° VARA DE EXECUÇÕES FISCAIS E DE CRIMES CONTRA A ORDEM TRIB DA COM DE FORTALEZA | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| FUNDAÇÃO DE PROTEÇÃO E DEFESA DO CONSUMIDOR DE SÃO PAULO - PROCON | TAM Linhas Aereas S.A. | Guarantee Insurance | Mar 7, 2025 | |||||||||||||||||||||||||||||
| BOND SAFEGUARD INSURANCE COMPANY | TAM Linhas Aereas S.A. | Guarantee Insurance | Jul 20, 2024 | |||||||||||||||||||||||||||||
| COMISÓN EUROPEA | LATAM Airlines Group S.A. | Letter of Credit | Mar 29, 2024 | |||||||||||||||||||||||||||||
| UNIAO FEDERAL (FAZENDA NACIONAL) | TAM Linhas Aereas S.A. | Guarantee Insurance | Nov 16, 2025 | |||||||||||||||||||||||||||||
| 17ª VARA CÍVEL DA COMARCA DA CAPITAL DE JOÃO PESSOA/PB | TAM Linhas Aereas S.A. | Guarantee Insurance | Jun 25, 2028 | |||||||||||||||||||||||||||||
| PROCON - FUNDACAO DE PROTECAO E DEFESA DO CONSUMIDOR | TAM Linhas Aereas S.A. | Guarantee Insurance | Nov 17, 2025 | |||||||||||||||||||||||||||||
| JFK INTERNATIONAL AIR TERMINAL LLC | LATAM Airlines Group S.A. | Letter of Credit | Jan 27, 2024 | |||||||||||||||||||||||||||||
F-140
| Creditor Guarantee | Debtor | Quantity | Type | Value ThUS$ | Release Date | |||||||||||||||||||||||||||
| METROPOLITAN DADE CONTY (MIAMI - DADE AVIATION DEPARTMENT) | LATAM Airlines Group S.A. | Letter of Credit | Mar 13, 2024 | |||||||||||||||||||||||||||||
| SÉTIMA TURMA DO TRIBUNAL REGIONAL FEDERAL DA 1ª REGIÃO - PROCEDIMENTO COMUM CÍVEL - DECEA - 0012177-54.2016.4.01.3400 | ABSA Aerolinhas Brasileiras S.A. | Guarantee Insurance | May 7, 2025 | |||||||||||||||||||||||||||||
| SERVICIO NACIONAL DE ADUANA DEL ECUADOR | LATAM-Airlines Ecuador S.A. | Letter of Credit | May 8, 2024 | |||||||||||||||||||||||||||||
| VARA DE EXECUÇÕES FISCAIS ESTADUAIS DA COMARCA DE SÃO PAULO/SP - EXECUÇÃO FISCAL N.º 1507367-03.2016.8.26.0014 | TAM Linhas Aereas S.A. | Guarantee Insurance | Apr 24, 2025 | |||||||||||||||||||||||||||||
| SOCIEDAD CONCESIONARIA NUEVO PUDAHUEL S.A. | LATAM Airlines Group S.A. | Letter of Credit | Mar 29, 2024 | |||||||||||||||||||||||||||||
| 14ª VARA FEDERAL DA SEÇÃO JUDICIÁRIA DO DISTRITO FEDERAL / TRIBUNAL: 7ª TURMA DO TRIBUNAL REGIONAL FEDERAL DA 1ª REGIÃO - ANULATÓRIA N.º 0007263-25.2008.4.01.3400 | TAM Linhas Aereas S.A. | Guarantee Insurance | May 29, 2025 | |||||||||||||||||||||||||||||
| UNIÃO FEDERAL, REPRESENTADO PELA PROCURADORIA SECCIONAL DA FAZENDA NACIONAL EM CAMPINAS | ABSA Aerolinhas Brasileiras S.A. | Guarantee Insurance | Nov 30, 2025 | |||||||||||||||||||||||||||||
| FIANÇA TAM LINHAS AÉREAS X JUIZ FEDERAL DE UMA DAS VARAS DA SEÇÃO JUDICIÁRIA DE BRASÍLIA/ | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| LIMA AIRPORT PARTNERS S.R.L. | LATAM Airlines Group S.A. | Letter of Credit | Dec 31, 2023 | |||||||||||||||||||||||||||||
| TRIBUNAL DE JUSTIÇA DO ESTADO DE SÃO PAULO | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| UNIDAD ADMINISTRATIVA BOGOTÁ | LATAM Airlines Group S.A. | Letter of Credit | Apr 17, 2024 | |||||||||||||||||||||||||||||
| JUIZO DE DIREITO DA VARA DA FAZENDA PUBLICA ESTADUAL DA COMARCA DA CAPITAL DO ESTADO DO RIO DE JANEIRO | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| JFK INTERNATIONAL AIR TERMINAL LLC | TAM Linhas Aereas S.A. | Guarantee Insurance | Jan 25, 2024 | |||||||||||||||||||||||||||||
| MUNICIPIO DO RIO DE JANEIRO | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| AENA AEROPUERTOS S.A | LATAM Airlines Group S.A. | Letter of Credit | Nov 15, 2024 | |||||||||||||||||||||||||||||
| CITY OF LOS ANGELES, DEPARTMENT OF AIRPORTS | LATAM Airlines Group S.A. | Letter of Credit | Jan 2, 2024 | |||||||||||||||||||||||||||||
| FUNDAÇÃO DE PROTEÇÃO E DEFESA DO CONSUMIDOR DO ESTADO DE SÃO PAULO | TAM Linhas Aereas S.A. | Guarantee Insurance | Dec 31, 2099 | |||||||||||||||||||||||||||||
| PARQUE DE MAETERIAL AERONAUTICO DO GALEAO - PAMA GL | TAM Linhas Aereas S.A. | Guarantee Insurance | Jun 18, 2024 | |||||||||||||||||||||||||||||
F-141
Letters of credit related to right-of-use assets are included in Note 16 Property, plant and equipment letter (d) Additional information Property, plant and equipment, in numeral (i) Property, plant and equipment delivered as collateral.
NOTE 32 - TRANSACTIONS WITH RELATED PARTIES
(a)Details of transactions with related parties as follows:
| Tax No. | Related party | Nature of relationship with related parties | Country of origin | Nature of related parties transactions | Currency | For the year ended At December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||||||||||
| 96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Related director | Chile | Tickets sales | CLP | |||||||||||||||||||||||||||||||||||||||||||||
| 81.062.300-4 | Costa Verde Aeronautica S.A. | Common shareholder | Chile | Loans received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| 87.752.000-5 | Granja Marina Tornagaleones S.A. | Common shareholder | Chile | Services provided | CLP | |||||||||||||||||||||||||||||||||||||||||||||
| 96.989.370-3 | Rio Dulce S.A. (**) | Related director | Chile | Tickets sales | CLP | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Patagonia Seafarms INC | Related director | U.S.A | Services provided of cargo transport | US$ | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | Real estate leases received | ARS | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Expense recovery | ARS | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | TAM Aviação Executiva e Taxi Aéreo S.A. | Common shareholder | Brazil | Services provided of passenger transport | BRL | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Qatar Airways | Indirect shareholder | Qatar | Interlineal received service | US$ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Services provided by aircraft lease | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interlineal provided service | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services received of handling | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Services provided of handling | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services received miles | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Services provided miles | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation for early return of aircraft | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services provided / received others | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Delta Air Lines, Inc. | Shareholder | U.S.A | Interlineal received service | US$ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Interlineal provided service | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loans received (*) | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest received (*) | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services provided of handling | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Services received miles | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Services provided miles | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Engine sale | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services provided maintenance | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Joint venture | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Real estates leases provided | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Services provided / received others | US$ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | QA Investments Ltd | Common shareholder | U.K. | Loans received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution | US$ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | QA Investments 2 Ltd | Common shareholder | U.K. | Loans received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | Lozuy S.A. | Common shareholder | Uruguay | Loans received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest received (*) | US$ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
F-142
The balances corresponding to Accounts receivable and accounts payable to related entities are disclosed in Note 9.
Transactions between related parties have been carried out under market conditions and duly informed.
(**) Related companies until November 2022
(b)Compensation of key management
The Company has defined for these purposes that key management personnel are the executives who define the Company’s policies and macro guidelines and who directly affect the results of the business, considering the levels of Vice-Presidents, Chief Executives and Senior Directors.
| For the year ended at December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Remuneration | |||||||||||||||||
| Board compensation | |||||||||||||||||
| Non-monetary benefits | |||||||||||||||||
| Short-term benefits | |||||||||||||||||
| Termination benefits (*) | |||||||||||||||||
| Total | |||||||||||||||||
In accordance with current legislation, the Ordinary Shareholders’ Meeting held on April 20, 2023, determined the amount of the annual remuneration for the Board for the period from that date until the next Ordinary Shareholders’ Meeting scheduled to take place within the first quarter of 2024. In this context, in addition to the base remuneration, an additional remuneration was approved for each Board member, with an incremental amount based on the following criteria:
(a)During the first year following their appointment, until November 15, 2023, provided that the Director serves continuously in their position, each Director will be entitled to receive an additional amount to the base remuneration, equivalent to 9,226,234 units of remuneration or “URAs.”
(b)For the second year following their appointment, covering the period from the end of the first anniversary since their designation until November 15, 2024, under the same condition mentioned previously and approved by the Ordinary Shareholders’ Meeting in the first quarter of 2024, each Director will be entitled to receive another additional amount equivalent to 9,226,234 URAs.
(c)Likewise, each Director who becomes part of the Board Committee will also receive, as additional compensation, a variable amount equivalent to an additional one-third (1/3) calculated on the incremental remuneration that the respective Committee member is entitled to as a Director, in accordance with the resolution of the Ordinary Shareholders’ Meeting.
For payment purposes, the value of each URA will be considered as referentially equivalent to the price of a company’s share. Consequently, URAs will be paid at the weighted average price of stock market transactions of the company’s shares during the 10 business days preceding the effective date (“Weighted Average Price”). For the calculation of the Weighted Average Price, transactions on national stock exchanges, as well as those on foreign exchanges recognized at the national level where LATAM’s American Depositary Shares may eventually be listed again, will be taken into account.
The amounts paid during the 2023 fiscal year for this concept, in accordance with the above, are:
| Paid during the year | |||||
| 2023 | |||||
| ThUS$ | |||||
| URAs Directors | |||||
| URAs Board Committee | |||||
| Total | |||||
F-143
NOTE 33 - SHARE-BASED PAYMENTS
(a) LP3 compensation plans (2020-2023)
The Company implemented a program for a group of executives, which existed until March 2023, with a demand period between October 2020 and March 2023, where the collection percentage was annual and cumulative. The methodology is an estimate of the number of units, where a goal of the value of the action is set.
The benefit is vested if the target of the share price defined in each year is met. In case the benefit accumulates up to the last year the total benefit is doubled (in case the share price is achieved).
This Compensation Plan was finally not executed because the share price required for its collection is below the initial target.
(b) CIP (Corporate Incentive Plan)
As indicated in Note 22, in the context of the exit from Chapter 11 Proceedings, the Company implemented a talent retention program for the Company's employees, which is divided into three categories. The first one (i.e., Non-Executive Employees) simply contemplates guaranteed payments in cash to the respective employees on certain dates depending on the country where the employee is hired. On the other hand, the remaining two categories (i.e., Non-GEM Executives and GEM Executives) contemplated the granting of synthetic units of remuneration (the "Units") that, by reference, are considered as equivalent to the price of one share of LATAM Airlines Group S.A. and consequently, in case they become effective, grant the worker the right to receive the payment in cash that results from multiplying the number of Units that are pay for the value per share of LATAM Airlines Group S.A. that must be considered in accordance with the CIP.
Below are more details of these two categories.
Non-GEM Executives
The first subprogram applies to senior executives not part of the GEM (Global Executive Meeting - Senior Managers, Managers, Deputy Managers). In this context, this program contemplates two different bonuses: (1) a retention bonus, consisting of the amount in money resulting from Units that are assigned to the respective employee and these Units being paid 20 % on month 15 and 80 % at month 24 , in each case, counted from Exit date from the Chapter 11 Procedure (i.e., November 3, 2022) (the "Exit Date"). This is consequently, a guaranteed payment for these employees; and (2) a bonus associated to the performance defined on based on the compliance of certain financial indicators of LATAM Airlines Group S.A. and its subsidiaries, which is reflected in Note 19(b), becoming effective 20 % at month 15 and 80 % at month 24 , in each case, from the Exit Date. Consequently, this is a temporary payment that is only made if these indicators are met.
GEM Executives
Applies to senior executives of the Company who are part of the GEM (CEO and employees whose job description is "vice presidents" or "directors"). Employees that participating in this program are eligible to receive cash payments for Units. These Units are as follows:
1. "RSUs" (Retention Shares Units): That is, Units associated with the employee's permanence in the Company, and consequently, are associated with the passage of time. In its totality, the CIP contemplates up to 3,107,603,293 RSUs which are made effective by partialities in the terms indicated below.
As a general rule, RSUs will be eligible to become effective at the rate of one third on each of the following dates: month 24 , month 36 and month 42 , in each case, counted from the Exit Date. The mentioned above, subject to the occurrence of a trigger event related to the volume of transactions of securities issued by LATAM Airlines Group S.A. in the terms contemplated in the CIP (hereinafter, a "VTE" – Volume Triggering Event). The number of RSUs actually paid will be determined based on the net resources accumulated as a result of a VTE on the respective determination date (hereinafter, this adjustment will be referred to as the "Pro Rata Factor").
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Notwithstanding the mentioned above, the CIP also contemplates a "Minimum Guaranteed Vesting" according to which, the percentage of RSUs indicated below will be effective on each date indicated, even if a VTE has not occurred. The foregoing, net of the RSUs that may eventually have become effective previously.
| Minimum Guaranteed Vesting of RSUs | |||||
| Percentage of Units that become effective | |||||
| Month 30 from Exit Date | % | ||||
| Month 42 from Exit Date | % | ||||
| Month 60 from Exit Date | % | ||||
2. "PSUs" (Performance Shares Units): That is, Units associated with both the employee's permanence in the Company and the performance of LATAM Airlines Group S.A. measured according to the share price. Consequently, like RSUs, these Units are associated with the passage of time. However, PSUs also consider the market value of the share of LATAM Airlines Group S.A. considering a liquid market. However, as long as there is no such liquid market, the share price will be determined on the basis of representative transactions. In its totality, the CIP contemplates up to 4,251,780,158 PSUs which are made effective by partialities in the terms indicated below.
As a general rule, PSUs will be eligible to become effective at the rate of one third on each of the following dates: month 24 , month 36 and month 42 , in each case, counted from the Exit Date. The foregoing, subject to (i) a VTE having occurred; and (ii) that the quotient (hereinafter, the "Net Price/ERO (Equity Rigths offering) Quotient") between the net price of sales originating in a VTE, divided by the price of share at which the shares issued were placed under the capital increase agreed at the extraordinary shareholders' meeting of LATAM Airlines Group S.A. dated July 5, 2022 (that is, US$ 0.01083865799 ), is greater than 150 %. The number of PSUs that actually becomes effective will be determined according to the Factor Pro Rata and the Quotient Net Price/ERO Price).
From the above it flows that the PSUs constitute an eventual and not guaranteed payment.
In addition, some of the GEM Executives will also be entitled to receive a fixed and guaranteed payment in cash ("MPP" – Management Protection Plan) on certain dates under the Plan, at the rate of 33 % in the month 18 , 34 % in the month 24 and 33 % in the 30 th month, all from the Exit Date. On the other hand, those employees who are eligible for this MPP will also be eligible for a limited number of additional RSUs ("MPP Based RSUs"). In its totality, the CIP includes 1,438,926,658 MPP based RSUs. As a general rule, MPP Based RSUs will be eligible to become effective on the same terms and conditions as RSUs; however, that they will be eligible to become effective at a rate of one third on each of the following dates: month 18 , month 24 and month 30 , in each case, from the Exit Date. The valuation of these Units will be equivalent to the value of the Company's share less the ERO Price at the time they become effective.
In all cases, the respective employees must have remained as such in the Company at the corresponding accrual date to qualify for these benefits.
Given the characteristics of this program, it has been recorded in accordance with the provisions of IFRS 2 "Share-based payments" and has been considered as a "cash settlement award" and, therefore, recorded at fair value as a liability that is part of the items Trade and other accounts payables and Provisions for employee benefits, non-current, which is updated at the closing date of each financial statement with effect on profit or loss for the period and classified in the line "Administrative expenses" of the Interim Consolidated Statement of Income by function.
The fair value has been determined on the basis of the current share price and the best estimate of the future value of the Company's share, multiplied by the number of underlying units granted. This estimate was made based on the Company's Business Plan and its main indicators such as EBITDAR, adjusted net debt.
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The movement of units as of December 31, 2023, is as follows:
| Opening balance as of 01.01.2023 | Granted during the period | Vested | Exercised during the period | Forfeited during the period | Closing balance as of 12.31.2023 | ||||||||||||||||||||||||||||||
| RSU - Retention | ( | ||||||||||||||||||||||||||||||||||
| PSU - Performance | ( | ||||||||||||||||||||||||||||||||||
| MPPBASEDRSU - Protection | ( | ||||||||||||||||||||||||||||||||||
| Total | ( | ||||||||||||||||||||||||||||||||||
NOTE 34 - STATEMENT OF CASH FLOWS
(a)The Company has carried out the following transactions with non-monetary impact:
a.1.) Proceeds from the issuance of shares as of December 31, 2022:
| Detail | ThUS$ | |||||||
| Issuance of shares | ||||||||
| Issuance costs | ( | |||||||
| DIP Junior offset | ( | |||||||
| Total cash flow | ||||||||
From the total capital increase for ThUS$800,000 , ThUS$549,038 were cash Inflows presented in Financing Activities. ThUS$170,962 were offset against a portion of the Junior DIP maintained with the shareholder Inversiones Costa Verde Ltda. y CPA Additionally, there were ThUS$80,000 deducted related to equity issuance cost, that are presented within Other sundry reserves of equity.
a.2.) Amount from the issuance of other equity instruments as of December 31, 2022:
| Detail | Convertible Notes H | Convertible Notes I | Total | |||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||
| Fair Value (see note 24) | ||||||||||||||||||||
| Use for settlement of claim | ( | ( | ||||||||||||||||||
| Issuance costs | ( | ( | ( | |||||||||||||||||
| DIP Junior offset | ( | ( | ( | |||||||||||||||||
| Cash inflow | ||||||||||||||||||||
The payment of DIP Junior offset is related to payment of the Junior Dip through the issues of the Convertible Notes subscribed for the shareholders Delta Air Lines, Inc and QA Investment Ltd. for ThUS$327,957 and of the other creditor for Th$381,018 .
a.3.) As a result of the exit from Chapter 11, in relation to trade accounts payable and other accounts payable, the conversion into shares for Notes G and I was carried out, for a total of ThUS$3,610,470 and a decrease in said item with effect in result which is included in Earning (Loss) from restructuring activities for ThUS$2,550,306 (see note 26d) and with effect in results in financial income for ThUS$$420,436 (see note 26e).
a.4.) As a result of the exit from Chapter 11, the Other financial liabilities item decreased its balance by ThUS$2,673,256 , which is detailed in letter, d). The break down of this decrease corresponds mainly to ThUS$491,326 (see note 26e), Th$US$354,249 (decrease with effect in Property, plant and equipment, mainly related to the effect of rate change),
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ThUS$381,018 related to the compensation of the debt with the effect of increasing Capital, ThUS$1,443,066 associated with the conversion of debt into shares and other minor effects of Th$US$3,596 .
a.5.) The Company has also carried out non-monetary transactions related to Right of use assets, Lease liabilities and Financial leases.
(b)Other inflows (outflows) of cash:
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Restricted Advances | ( | ||||||||||||||||
| Bank commissions, taxes paid and other | ( | ( | ( | ||||||||||||||
| Taxes on financial transactions | ( | ( | ( | ||||||||||||||
| Guarantees | ( | ( | |||||||||||||||
| Payment for hedging instruments | |||||||||||||||||
| Court deposits | ( | ( | ( | ||||||||||||||
| Derivative margin guarantees | ( | ( | ( | ||||||||||||||
| Payment for derivatives premiums | ( | ( | ( | ||||||||||||||
| Total Other inflows (outflows) Operation activities | ( | ( | ( | ||||||||||||||
| Tax paid on bank transactions | ( | ||||||||||||||||
| Guarantee deposit received from the sale of aircraft | |||||||||||||||||
| Insurance recovery | |||||||||||||||||
| Total Other inflows (outflows) Investment activities | |||||||||||||||||
| Interest rate derivatives | |||||||||||||||||
| Funds delivered as restricted advances | ( | ||||||||||||||||
| Payments of claims associated with the debt | ( | ||||||||||||||||
| Debt Issuance Cost - Stamp Tax | ( | ||||||||||||||||
| Taxes on financial transactions | ( | ||||||||||||||||
| Debt-related legal advice | ( | ( | |||||||||||||||
| RCF guarantee placement | ( | ||||||||||||||||
| Total Other inflows (outflows) Financing activities | ( | ( | |||||||||||||||
(c)Dividends:
As of December 31, 2023 and 2022, there were no
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(d)Reconciliation of liabilities arising from financing activities:
| Cash flows | Non cash-Flow Movements | ||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2022 | Obtainment | Payment | Interest accrued and others | Reclassifications (***) | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Capital (*) | Capital (**) | Interests | |||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||
| Obligations with financial institutions | |||||||||||||||||||||||||||||||||||||||||
| Bank loans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligations | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Obligation with the public | ( | ||||||||||||||||||||||||||||||||||||||||
| Financial leases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Other loans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Lease liability | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total Obligations with financial institutions | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Cash flows | Non cash-Flow Movements | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2021 | Obtainment | Payment | Extinguishment of debt under Chapter 11 | Interest accrued and others | Reclassifications | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital (*) | Capital (**) | Interests | Legal advices related to debt | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||
| Obligations with financial institutions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans to exporters | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligations | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Obligation with the public | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial leases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other loans | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Obligations with financial institutions | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Cash flows | Non cash-Flow Movements | ||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2020 | Obtainment | Payment | Interest accrued and others (****) | Reclassifications | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||
| Capital | Capital (**) | Interests | Transaction cost | ||||||||||||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||
| Obligations with financial institutions | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans to exporters | |||||||||||||||||||||||||||||||||||||||||||||||
| Bank loans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed obligations | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Other guaranteed obligations | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Obligation with the public | |||||||||||||||||||||||||||||||||||||||||||||||
| Financial leases | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Total Obligations with financial institutions | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
(*) During the year 2023, the Company did not obtain financing. During the year 2022, The Company obtained ThUS$2,361,875 amounts from long-term loans and ThUS$4,856,025 (ThUS$$661,609 in 2021) amounts from short-term loans, totaling ThUS$7,217,900 .
(**) As of December 31, 2023, loan repayments ThUS$342,005 and repayments of lease liabilities ThUS$225,358 , disclosed in flows from financing activities, as of December 31, 2022, loan repayments ThUS$8,759,413 and liability payments for leases ThUS$131,917 disclosed in flows from financing activities and as of December 31, 2021, loan repayments ThUS$463,048 and liability payments for leases ThUS$103,366 disclosed in flows from financing activities.
(***) As a result of the exit from Chapter 11, Bank Loans decreased mainly by ThUS$297,161 , related to the cancellation of the claim of TAM Linhas Aéreas S.A., which was pending resolution upon exit from the Chapter 11 process and which was compensated during 2023 with a fund delivered to an agent as restricted advances made in November 2022.
(****) As of December 31, 2021, Accrued interest and others, includes ThUS$458,642 , associated with the rejection of fleet contracts.
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Below are the details obtained (payments) of flows related to financing:
| For the years ended December 31 | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Capital raising | Payments | Capital raising | Payments | |||||||||||||||||||||||||||||||||||
| Flow of | Capital | Interest | Capital | Interest | ||||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||
| Aircraft financing | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Lease liability | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Non-aircraft financing | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Total obligations with Financial institutions | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
(e)Advances of aircraft
Corresponds to the cash flows associated with aircraft purchases, which are included in the statement of consolidated cash flows, within Purchases of property, plant and equipment.
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Increases (payments) | ( | ( | ( | ||||||||||||||
| Recoveries | |||||||||||||||||
| Total cash flows | ( | ( | |||||||||||||||
(f)Additions of property, plant and equipment and Intangibles
| For the year ended At December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
| Net cash flows from | |||||||||||||||||
| Purchases of property, plant and equipment | |||||||||||||||||
| Additions associated with maintenance | |||||||||||||||||
| Other additions | |||||||||||||||||
| Purchases of intangible assets | |||||||||||||||||
| Other additions | |||||||||||||||||
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(g)The net effect of the application of hyperinflation in the consolidated cash flow statement corresponds to:
| For the year ended At December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ThUS$ | ThUS$ | ||||||||||
| Net cash flows from (used in) operating activities | ( | ( | |||||||||
| Net cash flows from (used in) investment activities | ( | ||||||||||
| Net cash flows from (used in) financing activities | |||||||||||
| Effects of variation in the exchange rate on cash and cash equivalents | |||||||||||
| Net increase (decrease) in cash and cash equivalents | |||||||||||
(h)Payments of leased maintenance
Payments to suppliers for the supply of goods and services include the value paid associated with leased maintenance capitalizations for ThUS$294,549 (ThUS$149,142 as of December 31, 2022 and ThUS$163,717 as of December 31, 2021).
(i) Payments of loans to related entities as December 31, 2022:
| ThUS$ | |||||
| Delta Air Lines, Inc. | ( | ||||
| Qatar Airways | ( | ||||
| Costa Verde Aeronautica S.A. | ( | ||||
| Lozuy S.A. | ( | ||||
| QA Investments Ltd | ( | ||||
| QA Investments 2 Ltd | ( | ||||
| Payments of loans to related entities | ( | ||||
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NOTE 35 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS
On February 7, 2024, the Brazilian Federal Revenue Service Brazilian issued a tax assessment against TAM Linhas Aéreas on the amount of ThUS$52,281 (ThR$253,565 ) related to certain tax credits on about “PIS COFINS” (Federal Social Contributions Levied on Gross Revenue) during the period of 2019/2020. The company will be filing an administrative response disputing the total amount of the tax assessment.
After December 31, 2023 and up to the date of issuance of these financial statements, there is no knowledge of other events of a financial or other nature that significantly affect the balances or their interpretation.
The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of December 31, 2023, have been approved in the Extraordinary Session of the Board of Directors on February 22, 2024.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: February 22, 2024 | LATAM AIRLINES GROUP S.A. | |||||||
| By: | /s/ Ramiro Alfonsín Balza | |||||||
| Name: | Ramiro Alfonsín Balza | |||||||
| Title: | LATAM Airlines Group CFO | |||||||
143
P.A. 3256 SA-19 Boeing Proprietary SUPPLEMENTAL AGREEMENT NO. 19 TO PURCHASE AGREEMENT NO. 3256 BETWEEN THE BOEING COMPANY AND LATAM AIRLINES GROUP S.A. RELATING TO BOEING MODEL 787-916/787-816 AIRCRAFT THIS SUPPLEMENTAL AGREEMENT, entered into as of _ , 2023, (“SA-19”) by and between THE BOEING COMPANY, a Delaware corporation (“Boeing”), and LATAM Airlines Group S.A. (formerly having the legal name LAN Airlines S.A. and doing business as LAN Airlines), a Chilean corporation (“Customer”), amends Purchase Agreement No. 3256; WHEREAS, Boeing and Customer entered into Purchase Agreement No. 3256, dated October 29, 2007 (the “Purchase Agreement”), and as amended from time to time, relating to the purchase and sale of Boeing Model 787-816 and Model 787-916 aircraft (the “Aircraft”); and WHEREAS, Boeing and Customer are entering into this SA-19 to conform and further amend the Purchase Agreement to reflect the agreement of Boeing and Customer on the following matters: (i) Boeing and Customer’s agreement to add five (5) Boeing Model 787-916 Aircraft to the Purchase Agreement Execution Version Supplemental Agreement No. 19 to Purchase Agreement No. 3256, Page 1 of 206 August 30
DocuSign Envelope ID: EFD6BEF2-5F8B-48A4-9E0B-E9EC61 FB06EB EXECUTED as of the day and year first above written. LATAM AIRLINES GROUPS.A. �"�"'""" '" By: 1;,.),res OJ V& PP6A84F1314144C Andres Del Valle (Printed or Typed Name) Its: Authorised signatory By: 083BFOB9CC3943C ... Sebastian Acuto (Printed or Typed Name) Its: Authorised signatory P.A. 3256 By: Its: THE BOEING COMP ANY Attorney in Fact SA-19 Boeing Proprietary Execution Version Supplemental Agreement No. 19 to Purchase Agreement No. 3256, Page 6A of 206
P.A. 3256 SA-19 Boeing Proprietary EXECUTED as of the day and year first above written. LATAM AIRLINES GROUP S.A. THE BOEING COMPANY By: By: (Printed or Typed Name) Its: Its: Attorney in Fact By: (Printed or Typed Name) Its: Execution Version Supplemental Agreement No. 19 to Purchase Agreement No. 3256, Page 6B of 206
The Power oF Flight RATEPERFLIGHTHOURAGREEMENT FOR ENGINE SHOP MAINTENANCE SERVICES BETWEEN CFM INTERNATIONAL, INC. AND LATAM AIRLINES GROUP S.A. AND TAM LINHAS AEREAS S.A. Service Agreement Number: 1-2897 428081 Dated: June 29, 2016 PROPRIETARY INFORMATION NOTICE The information contained in this document is CFM Proprietary Information and is disclosed in confidence. lt is the property of CFM and will not be used, disclosed to others or reproduced without the express written consent of CFM. If consent is given for reproduction in whole or in part, this notice and the notice set forth on each page of this document will appear in any such reproduction. Export control laws may also control the information contained in this document. Unauthorized export or re-export is prohibited.
. AMENDMENT NUMBER 7 TO RATE PER FLIGHT HOUR AGREEMENT BETWEEN LATAM AIRLINES GROUP S.A. And TAM LINHAS AÉREAS S.A. And CFM INTERNATIONAL, INC. And GE CELMA LTDA Agreement Number: 1-2897428081-AM7 Dated: _______ 2023 This proposed Agreement will remain open until December 31, 2023 and will expire if not signed by all Parties on or before that date. PROPRIETARY INFORMATION NOTICE The information contained in this document is CFM Proprietary Information and is disclosed in confidence. It is the property of CFM and will not be used, disclosed to others or reproduced without the express written consent of CFM. If consent is given for reproduction in whole or in part, this notice and the notice set forth on each page of this document will appear in any such reproduction. Export control laws may also control the information contained in this document. Unauthorized export or re- export is prohibited. 22 Dec
CFM PROPRIETARY INFORMATION Subject to restrictions on the cover or first page IN WITNESS WHEREOF, the Parties have caused this Amendment No 7 to be signed in duplicate by their duly authorized officials as of the date written above. Those officials represent to each other and to the Parties that each is unequivocally authorized to execute this Amendment and serves in the capacity indicated below. This Amendment No 7 may be executed in one or more counterparts, all of which counterparts shall be treated as the same binding agreement, which shall be effective as of the date set forth on the first page hereof, upon execution and delivery by each Party hereto to the other Party of one or more such counterparts. CFM INTERNATIONAL, INC. GE CELMA LTDA By: By: Name: Name: Title: Title: Date: Date: LATAM AIRLINES GROUP S.A. LATAM AIRLINES GROUP S.A. By: By: Name: Name: Title: Title: Date: Date: TAM LINHAS AÉREAS S.A. TAM LINHAS AÉREAS S.A. By: By: Name: Name: Title: Title: Date: Date: ANDRES DEL VALLE SEBASTIAN ACUTO A S A S D D ! " ! "
CFM PROPRIETARY INFORMATION Subject to restrictions on the cover or first page IN WITNESS WHEREOF, the Parties have caused this Amendment No 7 to be signed in duplicate by their duly authorized officials as of the date written above. Those officials represent to each other and to the Parties that each is unequivocally authorized to execute this Amendment and serves in the capacity indicated below. This Amendment No 7 may be executed in one or more counterparts, all of which counterparts shall be treated as the same binding agreement, which shall be effective as of the date set forth on the first page hereof, upon execution and delivery by each Party hereto to the other Party of one or more such counterparts. CFM INTERNATIONAL, INC. GE CELMA LTDA By: By: Name: Name: Title: Title: Date: Date: LATAM AIRLINES GROUP S.A. LATAM AIRLINES GROUP S.A. By: By: Name: Name: Title: Title: Date: Date: TAM LINHAS AÉREAS S.A. TAM LINHAS AÉREAS S.A. By: By: Name: Name: Title: Title: Date: Date: /XL]D0LUDQGD/RXUHQoRGD6LOYD $WWRUQH\LQIDFW 'HFHPEHU 'DQLHOD$QGUHD/LMDYHW]N\*DFLWXD $WWRUQH\LQIDFW 'HFHPEHU ! ! " "
A320NEO - LAN - AMDT 10 - A320NEO Family PA - CT1101195 Page 1 of 28 AMENDMENT No.10 TO THE A320 FAMILY PURCHASE AGREEMENT BETWEEN LATAM AIRLINES GROUP S.A. (formerly known as LAN AIRLINES S.A.) AND AIRBUS S.A.S.
A320NEO - LAN - AMDT 10 - A320NEO Family PA - CT1101195 Page 28 of 28 IN WITNESS WHEREOF this Amendment No.10 to the Agreement was duly entered into the day and year first above written. Agreed and Accepted Agreed and Accepted For and on behalf of For and on behalf of LATAM AIRLINES GROUP S.A. AIRBUS S.A.S By: ______________ By: Its: ______________ Its: ______________ Date: ______________ Date: ______________ LATAM AIRLINES GROUP S.A. By: ______________ Its: ______________ Date: ______________ DocuSign Envelope ID: 94459E4E-FDB4-444D-B6BF-8481A1EF872C Authorised Signatory 17 August 2023 Andrés Del Valle Authorised Signatory Sebastián Acuto 17 August 2023
IN WITNESS WHEREOF this Amendment No.1O to the Agreement was duly entered into the dayand year first above written. Agreed and Accepted Agreed and Accepted For and on behaif of For and on behaif of LATAM AIRLINES GROUP S.A. AIRBUS S.A.S By: ___________ By: Its: _ _ _ _ _ ___________ Ils: ______________________ Olivier Marty Vice President Contracts Date: Date: LATAM AIRLINES GROUP S.A. By: Its: _ Date: _ _ A32ONEO - LAN - AMDT 10 - A32ONEO Family PA - CT1101195 Page 280f 28
A320 / A330 PA – LATAM – Amdt N°28 Page 1 of 33 AMENDMENT N°28 to the A320 / A330 PURCHASE AGREEMENT between AIRBUS S.A.S. and LATAM AIRLINES GROUP S.A. Reference: CT1242567
This Amendment N°28 has been executed in two (2) original specimens which are in English. IN WITNESS WHEREOF this Amendment N°28 to the Agreement was duly entered into the day and year first above written. For and on behalf of LATAM AIRLINES GROUPS.A. Name Title LATAM AIRLINES GROUPS.A. Name Title A320 I A330 PA - LAT AM - Arndt N°28 For and on behalf of AIRBUS S.A.S. Name : Benoit de Saint Exupery Title : Executive VP Contracts
A320 / A330 PA – LATAM – Amdt. No.29 Page 1 of 41 AMENDMENT No.29 to the A320 / A330 PURCHASE AGREEMENT between AIRBUS S.A.S. and LATAM AIRLINES GROUP S.A. Reference: CT1242567
A320 / A330 PA – LATAM – Amdt. No.29 Page 41 of 41 This Amendment No.29 has been executed in two (2) original specimens which are in English. IN WITNESS WHEREOF this Amendment No.29 to the Agreement was duly entered into the day and year first above written. For and on behalf of For and on behalf of LATAM AIRLINES GROUP S.A. AIRBUS S.A.S. Name : Name : Title : Title : LATAM AIRLINES GROUP S.A. Name : Title : DocuSign Envelope ID: 94459E4E-FDB4-444D-B6BF-8481A1EF872C Authorised Signatory Andrés Del Valle Authorised Signatory Sebastián Acuto
This Amendment No.29 has been executed in two (2) original specimens which are in English. IN WITNESS WHEREOF this Amendment No.29 to the Agreement was duly entered into the dayand year first above written. For and on behaif of For and on behaif of LATAM AIRLINES GROUP SA. AIRBUS S.A.S. Name Name Olivier Marty Titie Title : Vice Presjdent Contracts LATAM AIRLINES GROUP SA. Name Titie A320 / A330 PA — LATAM — Amdt. No.29 Page 41 of 41
LATAM AIRLINES GROUP S.A. ACL 2022-194 f (LATAM MSN TBD) – Execution Version One Boeing 787-9 MSN TBD Execution Version DEED IN RESPECT OF AIRCRAFT LEASE AGREEMENT Dated ________ ___, 2023, BETWEEN LATAM AIRLINES GROUP S.A. as LESSEE and BANK OF UTAH, not in its individual capacity but solely as owner trustee for Aircraft 78B-2022-194X (Utah) Trust as LESSOR Aircraft Make and Model: Boeing 787-9 Aircraft Manufacturer's Serial Number: TBD Model of Engines: Rolls Royce Trent 1000-J 2March
LATAM AIRLINES GROUP S.A. ACL 2022-195 a (LATAM MSN TBD) – Execution Version One Boeing 787-9 MSN TBD Execution Version DEED IN RESPECT OF AIRCRAFT LEASE AGREEMENT Dated ________ ___, 2023, BETWEEN LATAM AIRLINES GROUP S.A. as LESSEE and BANK OF UTAH, not in its individual capacity but solely as owner trustee for Aircraft 78B-2022-195X (Utah) Trust as LESSOR Aircraft Make and Model: Boeing 787-9 Aircraft Manufacturer's Serial Number: TBD Model of Engines: Rolls Royce Trent 1000-J March 2
LATAM AIRLINES GROUP S.A. ACL 2022-196 a (LATAM MSN TBD) – Execution Version One Boeing 787-9 MSN TBD Execution Version DEED IN RESPECT OF AIRCRAFT LEASE AGREEMENT Dated _________ ___, 2023, BETWEEN LATAM AIRLINES GROUP S.A. as LESSEE and BANK OF UTAH, not in its individual capacity but solely as owner trustee for Aircraft 78B-2022-196X (Utah) Trust as LESSOR Aircraft Make and Model: Boeing 787-9 Aircraft Manufacturer's Serial Number: TBD Model of Engines: Rolls Royce Trent 1000-J March 2
LATAM AIRLINES GROUP S.A. ACL 2022-197 a (LATAM MSN TBD) – Execution Version One Boeing 787-9 MSN TBD Execution Version DEED IN RESPECT OF AIRCRAFT LEASE AGREEMENT Dated _________ ___, 2023, BETWEEN LATAM AIRLINES GROUP S.A. as LESSEE and BANK OF UTAH, not in its individual capacity but solely as owner trustee for Aircraft 78B-2022-197X (Utah) Trust as LESSOR Aircraft Make and Model: Boeing 787-9 Aircraft Manufacturer's Serial Number: TBD Model of Engines: Rolls Royce Trent 1000-J March 2
GENERAL TERMS AGREEMENT NO. 1-1057041 GE PROPRIETARY INFORMATION The information contained in this document is GE Proprietary Information and is disclosed in confidence. It is the property of GE and shall not be used, disclosed to others, or reproduced without the express written consent of GE. If consent is given for reproduction in whole or in part, this notice and the notice set forth on each page of this document shall appear on any such reproduction. United States export control laws may also control the information contained in this document. Unauthorized export or re-export is prohibited. GE Aerospace General Terms Agreement No. 1-1057041 _________, 2023
______________________________________________________________________________________________________________________________________________________ GE PROPRIETARY INFORMATION (subject to restrictions on cover page) LATAM AIRLINES GROUP S.A. - 1-1057041 23 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and the year first above written. LATAM AIRLINES GROUP S.A. GENERAL ELECTRIC COMPANY By: _____________________________ By: _______________________________ Typed Name: ________________________________ Typed Name: __________________________________ Title: ____________________________ ____________________________ ____________________________ Title: ______________________________ ______________________________ ______________________________ Date: ___________________________ Date: _____________________________ LATAM AIRLINES GROUP S.A. GE ENGINE SERVICES DISTRIBUTION, LLC By: _____________________________ By: _______________________________ Typed Name: ________________________________ Typed Name: __________________________________ Title: ____________________________ ____________________________ ____________________________ Title: ______________________________ ______________________________ ______________________________ Date: ___________________________ Date: _____________________________ !" ! #!" " ! $ ! $ !
TrueChoicetm ENGINE SERVICES AGREEMENT BETWEEN GE ENGINE SERVICES, LLC AND LATAM AIRLINES GROUP S.A. Agreement Number: 1-1057027 Dated: _________________ This proposed Agreement will remain open until December 1, 2023 and will expire if not signed by all Parties on or before that date. PROPRIETARY INFORMATION NOTICE The information contained in this document is GE Engine Services, LLC ("GE") Proprietary Information and is disclosed in confidence. It is the property of GE and will not be used, disclosed to others or reproduced without the express written consent of GE. If consent is given for reproduction in whole or in part, this notice and the notice set forth on each page of this document will appear in any such reproduction. U.S. export control laws may also control the information contained in this document. Unauthorized export or re-export is prohibited.
GE PROPRIETARY INFORMATION Subject to restrictions on the cover or first page LATAM AIRLINES GROUP S.A. - 1-1057027 27 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and the year first above written. GE ENGINE SERVICES, LLC LATAM AIRLINES GROUP S.A. By: ________________________________ By: ___________________________________ Printed Name: ________________________ Printed Name: __________________________ Title: ________________________________ Title: __________________________________ Date: ________________________________ Date: __________________________________
GE PROPRIETARY INFORMATION Subject to restrictions on the cover or first page LATAM AIRLINES GROUP S.A. - 1-1057027 28 LATAM AIRLINES GROUP S.A. By: ________________________________ Printed Name: ________________________ Title: ________________________________ Date: ________________________________
[Certain confidential portions of this exhibit have been redacted pursuant to 4(a) of the Instructions as to Exhibits of Form 20-F. The omitted information (i) is not material and (ii) is the type of information the Company treats as private or confidential. In addition, schedules and similar attachments to this exhibit have been omitted pursuant to the Instructions as to Exhibits of Form 20-F.]
DEBTOR-IN-POSSESSION AND EXIT TERM LOAN CREDIT AGREEMENT
dated as of October 12, 2022 among
LATAM AIRLINES GROUP S.A.,
as Borrower,
PROFESSIONAL AIRLINE SERVICES, INC.,
as Co-Borrower,
THE SUBSIDIARIES OF PARENT PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO, GOLDMAN SACHS LENDING PARTNERS LLC,
as Administrative Agent,
and
WILMINGTON TRUST, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as Collateral Trustee
GOLDMAN SACHS LENDING PARTNERS LLC, JPMORGAN CHASE BANK, N.A.,
BARCLAYS BANK PLC,
BNP PARIBAS SECURITIES CORP., and NATIXIS, NEW YORK BRANCH,
as Joint Lead Arrangers and Joint Bookrunners
Table of Contents
Page
ARTICLE 1. DEFINITIONS 1
Section 1.01. Defined Terms 1
Section 1.02. Terms Generally; Classifications of Loans and Borrowings 61
Section 1.03. Accounting Terms; IFRS 61
Section 1.04. Divisions 62
Section 1.05. Interest Rates; Benchmark Notification 62
Section 1.06. Calculations and Tests 62
ARTICLE 2. AMOUNT AND TERMS OF CREDIT 63
Section 2.01. Commitments of the Lenders; Term Loans 63
Section 2.02. Requests for Loans 63
Section 2.03. Funding of Loans 64
Section 2.04. Interest Elections 64
Section 2.05. Limitation on Term Benchmark Tranches 65
Section 2.06. Interest on Loans 66
Section 2.07. Default Interest 66
Section 2.08. Amortization of Term Loans; Repayment of Loans; Evidence of Debt 66
Section 2.09. Mandatory Prepayment of Loans 67
Section 2.10. Optional Prepayment of Loans 69
Section 2.11. Increased Costs 71
Section 2.12. Break Funding Payments 72
Section 2.13. Taxes 73
Section 2.14. Payments Generally; Pro Rata Treatment 77
Section 2.15. Mitigation Obligations; Replacement of Lenders 78
Section 2.16. Certain Fees 79
Section 2.17. Alternate Rate of Interest 79
Section 2.18. Nature of Fees 81
Section 2.19. Right of Set-Off 81
Section 2.20. Payment of Obligations 82
Section 2.21. Defaulting Lenders 82
Section 2.22. Increase in Commitment 83
Section 2.23. Extension of Term Loans 86
Section 2.24. Refinancing Amendment 87
Section 2.25. Illegality 89
ARTICLE 3. REPRESENTATIONS AND WARRANTIES 89
Section 3.01. Organization and Authority 89
Section 3.02. Air Carrier Status 89
Section 3.03. Due Execution 89
Section 3.04. Statements Made 90
Section 3.05. Financial Statements; Material Adverse Effect 90
Section 3.06. Use of Proceeds 90
Section 3.07. Ownership of Subsidiaries 91
Section 3.08. Litigation and Compliance with Laws 91
Section 3.09. Margin Regulations; Investment Company Act 91
Section 3.10. Ownership of Significant Assets 91
Section 3.11. Intellectual Property 92
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Section 3.12. Perfected Security Interests 92
Section 3.13. Insurance 93
Section 3.14. Payment of Taxes 93
Section 3.15. Employee Matters 94
Section 3.16. Sanctions; Anti-Corruption; Anti-Money Laundering Laws 95
Section 3.17. Process Agent 96
Section 3.18. Final DIP Order 96
Section 3.19. Appointment of Trustee or Examiner; Liquidation 96
Section 3.20. Environmental Compliance 96
Section 3.21. No Default 96
Section 3.22. Beneficial Ownership Certificate 97
Section 3.23. Navigation Charges 97
Section 3.24. Slot Utilization 97
Section 3.25. Routes 97
Section 3.26. Debtor-in-Possession Obligations 97
Section 3.27. Chilean Capitalization Requirements 98
ARTICLE 4. CONDITIONS OF LENDING 98
Section 4.01. Conditions Precedent to Closing 98
Section 4.02. Conditions Precedent to Each Loan. 101
Section 4.03. Post-Closing Obligations 102
ARTICLE 5. AFFIRMATIVE COVENANTS 102
Section 5.01. Financial Statements, Reports, etc 102
Section 5.02. Taxes 105
Section 5.03. Stay, Extension and Usury Laws 106
Section 5.04. Corporate Existence 106
Section 5.05. Compliance with Laws; Compliance with Environmental Laws 106
Section 5.06. Air Carrier Status 107
Section 5.07. Delivery of Appraisals 107
Section 5.08. Regulatory Cooperation 108
Section 5.09. Regulatory Matters; Utilization; Collateral Requirements 108
Section 5.10. Significant Assets Ownership 108
Section 5.11. Insurance 108
Section 5.12. Additional Guarantors; Loan Parties; Collateral 109
Section 5.13. Maintenance of Properties; Access to Books and Records 110
Section 5.14. Further Assurances 111
Section 5.15. Cash Management Order 112
Section 5.16. Priority of Liens 112
Section 5.17. Lender Calls 112
Section 5.18. Ratings 112
Section 5.19. Brazilian Local Reorganization Proceeding 112
ARTICLE 6. NEGATIVE COVENANTS 113
Section 6.01. Restricted Payments 113
Section 6.02. Indebtedness 118
Section 6.03. Disposition of Significant Assets 120
Section 6.04. Transactions with Affiliates 120
Section 6.05. Liens 122
Section 6.06. Business Activities; Frequent Flyer Program 122
Section 6.07. Consolidated Liquidity 122
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Section 6.08. Asset Coverage Ratio 122
Section 6.09. Merger, Consolidation, or Sale of Assets 124
Section 6.10. Negative Pledge Clauses 126
Section 6.11. Restricted Distributions Clauses 126
Section 6.12. Use of Proceeds 127
ARTICLE 7. EVENTS OF DEFAULT 127
Section 7.01. Events of Default 127
Section 7.02. Remedies Upon an Event of Default 129
ARTICLE 8. THE AGENTS 130
Section 8.01. Administration by Agents 130
Section 8.02. Rights of Agents 131
Section 8.03. Liability of Agents 132
Section 8.04. Reimbursement and Indemnification 135
Section 8.05. Successor Agents 135
Section 8.06. Independent Lenders 136
Section 8.07. Advances and Payments 137
Section 8.08. Sharing of Setoffs 137
Section 8.09. Withholding Taxes 137
Section 8.10. Appointment by Secured Parties 138
Section 8.11. Posting of Communications 138
Section 8.12. Agents Individually 139
Section 8.13. Acknowledgements of Lenders 139
Section 8.14. Disqualified Lenders 141
Section 8.15. Credit Bidding 141
ARTICLE 9. GUARANTY 141
Section 9.01. Guaranty 141
Section 9.02. No Impairment of Guaranty 143
Section 9.03. Continuation and Reinstatement, etc 143
Section 9.04. Subrogation 143
Section 9.05. Subordination 143
Section 9.06. Right of Contribution 143
Section 9.07. Discharge of Guaranty 144
Section 9.08. Amendments, etc. with Respect to the Obligations; Waiver of Rights 144
ARTICLE 10. MISCELLANEOUS 145
Section 10.01. Notices 145
Section 10.02. Successors and Assigns 146
Section 10.03. Confidentiality 153
Section 10.04. Expenses; Indemnity; Damage Waiver 154
Section 10.05. Governing Law; Jurisdiction; Consent to Service of Process 157
Section 10.06. No Waiver 158
Section 10.07. Extension of Maturity 159
Section 10.08. Amendments, etc 159
Section 10.09. Severability 162
Section 10.10. Headings 162
Section 10.11. Survival 162
Section 10.12. Execution in Counterparts; Integration; Effectiveness 162
Section 10.13. USA Patriot Act; Beneficial Ownership Regulation 163
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Section 10.14. New Value 163
Section 10.15. WAIVER OF JURY TRIAL 163
Section 10.16. No Fiduciary Duty 164
Section 10.17. Currency Indemnity 164
Section 10.18. Collateral Trust Agreements 165
Section 10.19. Acknowledgement and Consent to Bail-In of Affected Financial
Institutions 165
Section 10.20. Certain ERISA Matters 166
Section 10.21. Registrations with International Registry 167
Section 10.22. Joint and Several Liability of the Borrowers 167
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ANNEXES: | ||||||||
Annex A Annex B Annex C-1 Annex C-2 Annex C-3 Annex D | Lenders and Commitments Supplemental Definitions Through the Conversion Date Negative Covenants Through the Conversion Date Supplemental Events of Default Through the Conversion Date Schedules Through the Conversion Date Conversion Date Conditions | |||||||
| EXHIBITS: | ||||||||
Exhibit A | -- | Form of Assignment and Acceptance | ||||||
Exhibit B | -- | Form of Loan Request | ||||||
Exhibit C | -- | Form of Instrument of Assumption And Joinder | ||||||
Exhibit D | -- | Form of Promissory Note | ||||||
Exhibit E | -- | Form of Intercompany Note | ||||||
Exhibit F | -- | Form of Conversion Date Certificate | ||||||
Exhibit G-1 | -- | Form of U.S. Tax Compliance Certificate (for Non-U.S. Lenders that are | ||||||
Exhibit G-2 | -- | not Partnerships for U.S. Federal Income Tax Purposes) Form of U.S. Tax Compliance Certificate (for Non-U.S. Participants that | ||||||
Exhibit G-3 | -- | are not Partnerships for U.S. Federal Income Tax Purposes) Form of U.S. Tax Compliance Certificate (for Non-U.S. Participants that | ||||||
Exhibit G-4 | -- | are Partnerships for U.S. Federal Income Tax Purposes) Form of U.S. Tax Compliance Certificate (for Non-U.S. Lenders that are | ||||||
Exhibit H | -- | Partnerships for U.S. Federal Income Tax Purposes) Pledged Spare Parts Covenants | ||||||
Exhibit I | -- | Pledged Engines Covenants | ||||||
Exhibit J | -- | Interest Election Request | ||||||
Exhibit K | -- | Collateral Trust Agreement | ||||||
| SCHEDULES: | ||||||||
Schedule 1.01(a) | -- | Environmental Licenses | ||||||
Schedule 1.01(f) | -- | Closing Date Liens | ||||||
Schedule 2.13 | -- | Chilean Low Tax Jurisdictions | ||||||
Schedule 3.07 | -- | Subsidiaries | ||||||
Schedule 4.01 | -- | Consents | ||||||
Schedule 5.02(a) | -- | Airport Fees | ||||||
DEBTOR-IN-POSSESSION AND EXIT TERM LOAN CREDIT AGREEMENT, dated as of
October 12, 2022 (this “Agreement”), among LATAM AIRLINES GROUP S.A., a sociedad anónima duly organized and validly existing under the laws of Chile (“Parent”), PROFESSIONAL AIRLINE SERVICES, INC., a Florida corporation (the “Co-Borrower”; and together with Parent, the “Borrowers”), the Guarantors party hereto from time to time, each of the several banks and other financial institutions or entities from time to time party hereto as a lender (the “Lenders”), GOLDMAN SACHS LENDING PARTNERS LLC (“GS”), as administrative agent for the Lenders (together with its permitted successors in such capacity, the “Administrative Agent”), the Joint Lead Arrangers and Joint Bookrunners set forth on the cover page hereto, and WILMINGTON TRUST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as collateral trustee for the Secured Parties (together with its permitted successors, in such capacity, the “Collateral Trustee”).
INTRODUCTORY STATEMENT
The Borrowers have applied to the Lenders for a term loan facility in an aggregate principal amount of $750.0 million as set forth herein.
The proceeds of the Loans will be used on the Closing Date in accordance with the Reorganization Plan to repay the Existing DIP Facility and to pay transaction costs, fees and expenses related thereto.
To provide guarantees and security for the repayment of the Loans and the payment of the other obligations of the Borrowers and the Guarantors hereunder and under the other Loan Documents, the Borrowers and the Guarantors will, among other things, provide the following (each as more fully described herein):
(a)to the Administrative Agent and the Lenders, a guaranty from each Guarantor of the due and punctual payment and performance of the Obligations of the Borrowers pursuant to Article 9 hereof; and
(b)to the Collateral Trustee, for the benefit of the Secured Parties and the other Priority Lien Secured Parties, a security interest or mortgages (or comparable Liens) with respect to the Collateral from each Borrower and each other Loan Party (if any) pursuant to the Pledge and Security Agreement and the other Collateral Documents, subject to the Collateral Trust Agreement.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.01. Defined Terms.
“2027 Bridge Loan Administrative Agent ” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“2027 Bridge Loans” shall mean the “Loans” as defined in the 2027 Bridge Loan Credit
Agreement.
“2027 Bridge Loan Credit Agreement” shall mean the Senior Secured Bridge to 5Y Notes Credit Agreement, dated as of the date hereof, among Parent, each guarantor party thereto from time to time, the 2027 Bridge Loan Administrative Agent and the Collateral Trustee.
“2027 Exchange Notes” shall have the meaning assigned to such term in the 2027 Bridge Loan Credit Agreement.
“2027 Exchange Notes Indenture” shall have the meaning assigned to such term in the 2027 Bridge Loan Credit Agreement.
“2027 Securities” shall have the meaning assigned to such term in the 2027 Bridge Loan Credit Agreement.
“2029 Bridge Loan Administrative Agent” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“2029 Bridge Loans” shall mean the “Loans” as defined in the 2029 Bridge Loan Credit
Agreement.
“2029 Bridge Loan Credit Agreement” shall mean the Senior Secured Bridge to 7Y Notes Credit Agreement, dated as of the date hereof, among Parent, each guarantor party thereto from time to time, the 2029 Bridge Loan Administrative Agent and the Collateral Trustee.
“2029 Exchange Notes” shall have the meaning assigned to such term in the 2029 Bridge Loan Credit Agreement.
“2029 Exchange Notes Indenture” shall have the meaning assigned to such term in the 2029 Bridge Loan Credit Agreement.
“2029 Securities” shall have the meaning assigned to such term in the 2029 Bridge Loan Credit Agreement.
“ABR” when used in reference to any Loan or Borrowing, refers to when such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Alternate Base Rate.
“ABR Borrowing” shall mean any Borrowing bearing interest at a rate determined by reference to the Alternate Base Rate.
“ABR Loan” shall mean any Loan bearing interest at a rate determined by reference to the Alternate Base Rate.
“Acceptable Letter of Credit” shall mean an irrevocable standby letter of credit on customary terms issued by a bank or branch having a long term unsecured debt rating of at least [*] (or the equivalent) or better by S&P, Moody’s or Fitch and drawable by the Administrative Agent upon presentation in New York.
“Account” shall mean all “accounts” as defined in the UCC, and all rights to payment for interest (other than with respect to debt and credit card receivables).
“Additional Collateral” shall mean any of the following assets pledged or mortgaged to the Collateral Trustee, or a Local Collateral Agent, as applicable, after the Closing Date which would not
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have automatically been pledged or mortgaged pursuant to the Collateral Documents in existence as of the Closing Date without modifying such Collateral Documents or entering into new Collateral Documents not then in existence: (a) any category of Collateral set forth in the Collateral Documents as of the Closing Date (provided that any Slots or Gate Leaseholds pledged as Additional Collateral shall be at an Eligible Airport), (b) Aircraft, Engines, Spare Parts, Appliances or Parts or (c) any other assets acceptable to the Administrative Agent (it being understood that cash, Cash Equivalents and Receivables shall be acceptable to the Administrative Agent), which in each case shall (i) be valued by a new Appraisal at the time the Parent designates such assets as Additional Collateral (except for any cash or Cash Equivalents), (ii) as of the date such assets are added as Collateral, be subject, to the extent purported to be created by the applicable Collateral Documents, to a perfected first priority Lien in favor of the Collateral Trustee (or sub-trustee or sub-agent designated pursuant to the applicable Collateral Documents) or Local Collateral Agent, as applicable, for the benefit of the Secured Parties and otherwise subject only to Permitted Liens (other than Liens referred to in clause (5) and (13) of the definition of Permitted Liens in effect as of the Closing Date).
“Additional Obligors” shall mean collectively, TAM S.A., Tam Linhas Aereas S.A., Prismah Fidelidade Ltda., Fidelidade de Viagens e Turismo S.A., TP Franchising Ltda., ABSA – Aerolinhas Brasileiras S.A. and Holdco I S.A.
“Adjusted Daily Simple SOFR” shall mean an interest rate per annum equal to (a) the Daily Simple SOFR, plus (b)(i) in the case of a one-month Interest Period, 0.10%, (ii) in the case of a three-month Interest Period, 0.15% or (iii) in the case of a six-month Interest Period, 0.25%; provided that if the Adjusted Daily Simple SOFR as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Adjusted Term SOFR Rate” shall mean, for any Interest Period, an interest rate per annum equal to (a) the Term SOFR Rate for such Interest Period, plus (b)(i) in the case of a one-month Interest Period, 0.10%, (ii) in the case of a three-month Interest Period, 0.15% or (iii) in the case of a six- month Interest Period, 0.25%; provided that if the Adjusted Term SOFR Rate as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Administrative Agent” shall have the meaning set forth in the first paragraph of this
Agreement.
“Administrative Agent Fee Letter” shall mean the Fee Letter, dated as of June 10, 2022 among Parent, the Administrative Agent and certain others party thereto.
“Administrative Questionnaire” shall mean an administrative questionnaire in a form supplied by the Administrative Agent.
“Administrator” shall have the meaning given it in the Regulations and Procedures for the International Registry.
“Adverse Proceeding” shall mean any action, suit, proceeding, hearing (in each case, whether administrative or judicial), governmental investigation or arbitration at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of any Loan Party, threatened in writing against or affecting any Loan Party or any property of any Loan Party.
“Affected Financial Institution” shall mean (a) any EEA Financial Institution or (b) any UK Financial Institution.
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“Affiliate” shall mean, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person (a “Controlled Person”) shall be deemed to be “controlled by” another Person (a “Controlling Person”) if the Controlling Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of the Controlled Person whether by contract or otherwise; provided that (i) beneficial ownership by any “person” or “group” of 10% or more of the Voting Stock of a Person shall be deemed to be control and (ii) the terms “person,” “group” and “beneficial owner” shall have the meanings ascribed to them when such terms are used pursuant to Sections 13(d), Section 14(d) and Rule 13d-3 of the Exchange Act, respectively.
“Affiliated Lender” means, at any time, any Lender that is an Affiliate of a Loan Party at
such time.
“Affiliate Transaction” shall have the meaning assigned to such term in Section 6.04(a).
“Agents” shall mean the Administrative Agent, the Joint Lead Arrangers, the Collateral Trustee and the Local Collateral Agents, as applicable.
“Aggregate Exposure” shall mean, with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and
(b) thereafter, the aggregate then outstanding principal amount of such Lender’s Term Loans.
“Aggregate Exposure Percentage” shall mean, with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.
“Agreement” shall have the meaning set forth in the first paragraph hereof.
“Air Carrier Entity” shall mean Parent and each other Guarantor that owns or operates
Aircraft.
“Aircraft” shall mean any contrivance invented, used, or designed to navigate, or fly in, the air, including, without duplication, the airframes related thereto.
“Aircraft Financing” shall mean (i) any indebtedness, guarantee, finance lease, operating lease, sale and lease back or other financing arrangements (including any bonds, debentures, notes or similar instruments) in respect of or secured by Engines, Spare Parts, Aircraft, airframes or Appliances, Parts, components, instruments, appurtenances, furnishings, other equipment installed on such Engines, Spare Parts, Aircraft, airframes or any other related assets, (ii) any financing arrangements assumed or incurred in connection with the acquisition, construction (including any pre-delivery payments in connection with such acquisition or construction), modifications or improvement of any Engines, Spare Parts, Aircraft, airframes or Appliances, Parts, components, instruments, appurtenances, furnishings, other equipment installed on such Engines, Spare Parts, Aircraft, airframes or any other related assets, and
(iii) extensions, renewals and replacements of such financing arrangements under clauses (i) and (ii); provided that, in each case under clauses (i), (ii) or (iii), such financing arrangement, if secured, is secured on a usual and customary basis (which may include the collateralization thereof with cash, Cash Equivalents or letters of credit) as determined by Parent in good faith for such financing arrangement or Indebtedness in respect of Engines, Spare Parts, Aircraft, airframes or Appliances, Parts, components, instruments, appurtenances, furnishings, other equipment installed on such Engines, Spare Parts, Aircraft, airframes or any other related assets.
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“Aircraft Financing Related Cargo Business Assets” shall mean assets described in clauses (a) and (b) of the definition of Cargo Business Assets.
“Aircraft Protocol” shall mean the official English language text of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment adopted on November 16, 2001, at a diplomatic conference in Cape Town, South Africa, and all amendments, supplements and revisions thereto, as in effect in the United States or any other applicable jurisdiction, as the case may be.
“Airport Authority” shall mean any city or any public or private board or other body or organization chartered or otherwise established for the purpose of administering, operating or managing airports or related facilities, which in each case is an owner, administrator, operator or manager of one or more airports or related facilities.
“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted Term SOFR Rate for a one month Interest Period as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day) plus 1%; provided that for the purpose of this definition, the Adjusted Term SOFR Rate for any day shall be based on the Term SOFR Reference Rate at approximately 5:00 a.m. Chicago time on such day (or any amended publication time for the Term SOFR Reference Rate, as specified by the Term SOFR Administrator in the Term SOFR Reference Rate methodology). Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted Term SOFR Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Term SOFR Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.17 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 2.17(b)), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 1.50%, such rate shall be deemed to be 1.50% for purposes of this Agreement.
“Annex No. 2” shall have the meaning set forth in Section 2.13(c).
“Anti-Corruption Laws” shall mean all applicable anti-corruption and anti-bribery laws, rules and regulations of any jurisdiction from time to time, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended.
“Anti-Money Laundering Laws” shall mean any and all laws, rules and regulations of any jurisdiction applicable to Parent or its Subsidiaries or Affiliates from time to time concerning or relating to terrorism financing, money laundering or any predicate crime to money laundering, including, without limitation, any applicable provision of the Patriot Act and The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959).
“Appliance” shall mean any instrument, equipment, apparatus, part, appurtenance, or accessory used, capable of being used, or intended to be used, in operating or controlling Aircraft in flight, including a parachute, communication equipment, and another mechanism installed in or attached to an Aircraft during flight, and not a part of an Aircraft or Engine.
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“Applicable Margin” shall mean (a) at any time when the Emergence Condition has not been satisfied, the rate per annum determined pursuant to the following: (i) for ABR Loans, 8.75% or (ii) for Term Loans bearing interest based on the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR, 9.75% and (b) at any time after the Emergence Condition has been satisfied, the rate per annum determined pursuant to the following: (i) for ABR Loans, 8.50% or (ii) for Term Loans bearing interest based on the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR, 9.50%.
“Appraisal” shall mean (a) the Initial Appraisals, (b) any other appraisal (a “Subsequent Appraisal”), certifying, at the time of determination, in reasonable detail the Appraised Value of the Coverage Assets that are the subject thereof, which is prepared by either, at the option of Parent, (i) an Initial Appraiser and any successor thereof (including any appraiser whose employees or principals previously appraised the relevant Coverage Assets) but solely in respect of asset classes assigned to such Initial Appraiser in the definition thereof or (ii) another independent appraisal firm appointed by Parent and reasonably satisfactory to the Administrative Agent; provided that, (x) in the case of Pledged SGR, the methodology and form of presentation of such Subsequent Appraisal are consistent in all material respects with the methodology and form of presentation of the Initial Appraisal applicable to such type of Coverage Assets, or which, as to any deviations from such methodology (including as to discount rate and terminal value growth rate) and/or form of presentation, are otherwise in form and substance reasonably satisfactory to the Administrative Agent or (y) in the case of assets other than Pledged SGR, the Subsequent Appraisal sets forth the Fair Market Value thereof in a manner consistent with market practice for assets of such type in a manner reasonably satisfactory to the Administrative Agent.
“Appraised Value” shall mean, as of any date of determination, the sum of the aggregate value of all Coverage Assets as of such date, as reflected in the most recent Appraisals delivered to the Administrative Agent in respect of such Coverage Assets in accordance with this Agreement as of that date (for the avoidance of doubt, calculated after giving effect to any additions to or eliminations from the Coverage Assets since the date of delivery of such Appraisal); provided that (i) if any Pledged Slots at an airport have been added to or eliminated from the Coverage Assets since the most recent Appraisal of the Pledged Slots at such airport and such most recent Appraisal assigned differing Appraised Values to Pledged Slots at such airport based on the criteria set forth in such most recent Appraisal, such added or eliminated Pledged Slots at such airport shall, for purposes of determining the Appraised Value of all remaining Pledged Slots at such airport (including any added Pledged Slots as the case may be), be assigned an Appraised Value in accordance with such criteria set forth in such most recent Appraisal (and for clarity, such assignment of Appraised Value to such added or eliminated Pledged Slots shall not otherwise impact the Appraised Value of any other Pledged Slots at such airport) and (ii) when used in reference to any particular Coverage Asset, “Appraised Value” shall mean the value of such Coverage Asset as reflected in such most recent Appraisal of such Coverage Asset; provided that if at the relevant time Parent has not previously delivered to the Administrative Agent an Appraisal of a specific Coverage Asset item (such as a single Route), but has delivered to the Administrative Agent an Appraisal that includes the Appraised Value of a portion of the Coverage Assets (such as all Routes to a particular region) that includes such specific Coverage Asset item, Parent shall allocate the Appraised Value of such specific Coverage Asset item on a reasonable basis, and such allocated amounts shall be the Appraised Value of such specific Coverage Asset item, except that this proviso shall not be applicable in a case where this Agreement or other Loan Document expressly requires that the Borrowers obtain an Appraisal in respect of such specific Coverage Asset item.
“Approved Electronic Platform” shall have the meaning given to such term in
Section 8.11.
“Approved Fund” shall have the meaning given to such term in Section 10.02(b).
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“Asset Coverage Ratio” shall mean, as of any date, the ratio of (a) the Appraised Value of the Coverage Assets as of such date to (b) the sum of (i) the aggregate principal amount of all Priority Lien Debt as of such date (including, other than for purposes of Section 6.08(a), without duplication of any outstanding principal amounts, the amount of any unfunded commitments under all revolving credit facilities (including the Revolving Credit Agreement) of Parent and its Restricted Subsidiaries) plus (ii) without duplication, any Senior Priority Refinancing Indebtedness plus (iii) the aggregate outstanding amount of Currency under any Frequent Flyer Program as of such date that has been Disposed by Parent or any Restricted Subsidiary pursuant to a financing arrangement for cash in advance of such Currency being redeemed for goods or services provided by Parent or its Restricted Subsidiaries (“Pre-Sold Currency”).
“Asset Coverage Ratio Certificate” shall mean an Officer’s Certificate of Parent setting forth in reasonable detail the calculation of the Asset Coverage Ratio.
“Asset Coverage Test” shall have the meaning given to such term in Section 6.08(a).
“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.02), and accepted by the Administrative Agent, substantially in the form of Exhibit A.
“Available Tenor” shall mean, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark (or component thereof) or payment period for interest calculated with reference to such Benchmark (or component thereof), as applicable, that is or may be used for determining the length of an Interest Period for any term rate or otherwise, for determining any frequency of making payments of interest calculated pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then- removed from the definition of “Interest Period” pursuant to Section 2.17(e).
“Aviation Authorities” shall mean (a) the Dirección General de Aeronáutica Civil of Chile and any successor organization and each other Governmental Authority or other Person who shall from time to time be vested with the control and supervision of, or have jurisdiction over, the registration, airworthiness and operation of Aircraft or other matters relating to civil aviation in Chile; (b) the FAA; and/or (c) any other Governmental Authority which, from time to time, has control or supervision of civil aviation.
“Backstop Commitment Agreements” shall mean, collectively, (a) the Creditor Backstop Commitment Agreement and (b) the Shareholder Backstop Commitment Agreement.
“Bail-In Action” shall mean the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” shall mean (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
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“Bankruptcy Code” shall mean Title 11 of the United States Code (11 U.S.C. § 101 et seq.), as it has been, or may be, amended, from time to time.
“Bankruptcy Court” shall mean the United States Bankruptcy Court for the Southern District of New York (together with any other court having jurisdiction over any of the Chapter 11 Cases or any proceeding therein from time to time).
“Bankruptcy Event” shall mean, with respect to any Person, after September 29, 2020, such Person becomes the subject of a bankruptcy or insolvency proceeding (including any creditor contest (concurso de acreedores or concurso preventivo)), or initiates or institutes a process to reach a pre- bankruptcy or pre-insolvency process with its creditors the effects of which could, in the reasonable determination of the Administrative Agent, have effects similar to those of bankruptcy or insolvency proceedings, or has had a receiver, conservator, trustee, administrator, custodian, assignee or supervisor for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment; provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof; provided, further, that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Bankruptcy Law” shall mean the Bankruptcy Code or any similar U.S. federal or state law for the relief of debtors.
“Bankruptcy Maturity Event” shall mean, to the extent the Conversion Date has not occurred prior to such date, the earliest of: (a) December 2, 2023, (b) the date of the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code unless otherwise consented to in writing by the Required Lenders; (c) the date on which the Bankruptcy Court dismisses any of the Chapter 11 Cases, unless otherwise consented to in writing by the Required Lenders and (d) the date of the consummation of a sale of all, substantially all or a material portion of the Collateral, unless otherwise consented to in writing by the Required Lenders.
“Bankruptcy Rules” shall mean the Federal Rules of Bankruptcy Procedure and local rules of the Bankruptcy Court, each as amended, and applicable to the Chapter 11 Cases.
“Benchmark” shall mean, initially, with respect to any (i) RFR Loan, the Daily Simple SOFR or (ii) Term Benchmark Loan, the Term SOFR Rate; provided that if a Benchmark Transition Event, and the related Benchmark Replacement Date have occurred with respect to the Daily Simple SOFR or the Term SOFR Rate, as applicable, or the then-current Benchmark, then “Benchmark” shall mean the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.17(b).
“Benchmark Replacement” shall mean, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(a)the Adjusted Daily Simple SOFR; or
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(b)the sum of: (i) the alternate benchmark rate that has been selected by the Administrative Agent and Parent as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (A) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for dollar- denominated syndicated credit facilities at such time in the United States and (ii) the related Benchmark Replacement Adjustment.
If the Benchmark Replacement as determined pursuant to clause (a) or (b) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” shall mean, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and Parent for the applicable Corresponding Tenor giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.
“Benchmark Replacement Conforming Changes” shall mean, with respect to any Benchmark Replacement and/or any Term Benchmark Loan, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the length of lookback periods, the applicability of breakage provisions and other technical, administrative or operational matters) that the Administrative Agent, in consultation with Parent, decides may be appropriate to reflect the adoption and implementation of any such Benchmark and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark exists, in such other manner of administration as the Administrative Agent, in consultation with Parent, decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” shall mean, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
(a)in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
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(b)in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be no longer representative; provided that such non- representativeness will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or
(b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” shall mean, with respect to any Benchmark, the occurrence of one or more of the following events with respect to the then-current Benchmark:
(a)a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(b)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRB, the Term SOFR Administrator, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case, which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(c)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” shall mean, with respect to any Benchmark, the period (if any) (a) beginning at the time that a Benchmark Replacement Date pursuant to clause (a) or (b) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current
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Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.17 and (b) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.17.
“Beneficial Ownership Certification” shall mean a customary certification regarding beneficial ownership or control of any Borrower required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” shall have the meaning set forth in Section 10.13.
“Benefit Plan” shall mean any U.S. Benefit Plan, any Non-U.S. Government Scheme or Arrangement and any Non-U.S. Plan, in each case, established, maintained or contributed to by any Loan Party or under which any Loan Party has any liability, contingent or otherwise.
“Board of Directors” shall mean (a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (b) with respect to a partnership, the Board of Directors of the general partner of the partnership; (c) with respect to a limited liability company, the managing member or members, manager or managers or any controlling committee of managing members or managers thereof; and (d) with respect to any other Person, the board, committee or administrator of such Person serving a similar function.
“Borrowers” shall have the meaning set forth in the first paragraph of this Agreement.
“Borrowing” shall mean the incurrence, conversion or continuation of Loans of a single tranche and Type made from all of the relevant Lenders of such tranche on a single date and having, in the case of Term Benchmark Loans, a single Interest Period.
“Brazilian Engine Mortgage” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Brazilian Local Collateral Agent” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Brazilian Local Reorganization Proceeding” shall mean a judicial reorganization (re- cuperação judicial) or an extrajudicial reorganization (recuperação extrajudicial), in each case, before a Brazilian civil court, pursuant to Federal Law No. 11,101, dated February 9, 2005, as amended and regulated with respect to any of the direct or indirect Subsidiaries of Parent formed or organized pursuant to the laws of the Federative Republic of Brazil.
“Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in New York City, State of New York, United States of America or Santiago, Chile are authorized or required by law to remain closed; provided that, in addition to the foregoing, a “Business Day” shall refer to a “U.S. Government Securities Business Day” (a) in relation to RFR Loans and any interest rate settings, fundings, disbursements, settlements or payments of any such RFR Loan, or any other dealings of such RFR Loan and (b) in relation to Loans referencing the Adjusted Term SOFR Rate and any interest rate settings, fundings, disbursements, settlements or payments of any such Loans referencing the Adjusted Term SOFR Rate or any other dealings of such Loans referencing the Adjusted Term SOFR Rate.
“Cape Town Convention” shall mean the official English language text of the Convention on International Interests in Mobile Equipment, adopted on November 16, 2001 at a diplomatic
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conference in Cape Town, South Africa, and all amendments, supplements and revisions thereto, as in effect in the United States or any other applicable jurisdiction, as the case may be.
“Cape Town Treaty” shall mean, collectively, (a) the Cape Town Convention, (b) the Aircraft Protocol, and (c) all rules and regulations (including but not limited to the Regulations and Procedures for the International Registry) adopted pursuant thereto and all amendments, supplements and revisions thereto.
“Capital Lease Obligation” shall mean, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized and reflected as a liability on a balance sheet prepared in accordance with IFRS as in effect immediately prior to the adoption of IFRS 16 (Leases), and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
“Capital Stock” shall mean:
(1)in the case of a corporation, corporate stock;
(2)in the case of an association or business entity or exempted company, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3)in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4)any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“Cargo Business Assets” shall mean (a) all intercompany Aircraft leases in respect of freighter Aircraft used in the cargo business of Parent and its Restricted Subsidiaries, (b) all intercompany contracts providing rights to use the belly of passenger Aircraft for the cargo business of Parent and its Restricted Subsidiaries, (c) all accounts receivable in respect of the cargo business of Parent and its Restricted Subsidiaries and (d) all owned and leased real estate assets used in the cargo business of Parent and its Restricted Subsidiaries; provided that, for purposes of calculating the Asset Coverage Ratio and the Total Asset Coverage Ratio, the Cargo Business Assets shall not include any of the foregoing assets described in clauses (a) through (d) above to the extent owned or acquired by a Non-Guarantor Acquired Airline.
“Carve-Out” shall have the meaning given to it in the Final DIP Order.
“Cash Equivalents” shall mean each of the following:
(a)direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one (1) year from the date of acquisition thereof;
(b)each Acceptable Letter of Credit;
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(c)investments in commercial paper maturing within 365 days from the date of acquisition thereof and having, at such date of acquisition, a rating of at least A-2 (or the equivalent thereof) from S&P or P-2 (or the equivalent thereof) from Moody’s;
(d)investments in certificates of deposit (including investments made through an intermediary, such as the certificated deposit account registry service), banker’s acceptances, time deposits, eurodollar time deposits and overnight bank deposits maturing within one (1) year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank of recognized standing organized under the laws of the United States or any State thereof that has a combined capital and surplus and undivided profits of not less than [*];
(e)fully collateralized repurchase agreements with a term of not more than six (6) months for underlying securities that would otherwise be eligible for investment;
(f)investments in money in an investment company registered under the Investment Company Act of 1940, as amended, or in pooled accounts or funds offered through mutual funds, investment advisors, banks and brokerage houses which invest its assets in obligations of the type described in clauses (a) through (e) above. This could include, but not be limited to, money market funds or short-term and intermediate bonds funds;
(g)money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA (or the equivalent thereof) by S&P and Aaa (or the equivalent thereof) by Moody’s and (iii) have portfolio assets of at least $5.0 billion;
(h)securities with maturities of one (1) year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A- by S&P or A3 by Moody’s;
(i)any other securities or pools of securities that are classified under IFRS as Cash Equivalents or short-term investments on a balance sheet; and
(j)instruments or investments denominated in any currency that have a comparable tenor and credit quality to those referred to above (as determined by the Parent in good faith) and
(x) are customarily utilized in the countries in which such instrument is used or investment is made or (y) are consistent with the cash management practices of the Parent (as determined by Parent in good faith).
“Cash Flow Statement and Notes” shall have the meaning given to such term in
Section 5.01(a).
“Cash Management Order” shall mean that Final Order (I) Authorizing Continued Use of Cash Management System, (II) Authorizing the Continuation of Intercompany and Affiliate Transactions,
(III) Granting Administrative Priority Status to Postpetition Intercompany and Applicable Affiliate Claims, (IV) Waiving Compliance with Restrictions Imposed by Section 345 of the Bankruptcy Code, and
(V) Authorizing Continued Use of Prepetition Bank Accounts, Payment Methods, and Existing Business Forms (Docket No. 430), as subsequently amended by that certain Amended Final Order (I) Authorizing
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Continued Use of Cash Management System, (II) Authorizing the Continuation of Intercompany and Affiliate Transactions, (III) Granting Administrative Priority Status to Postpetition Intercompany and Applicable Affiliate Claims, (IV) Waiving Compliance with Restrictions imposed by Section 345 of the Bankruptcy Code, and (V) Authorizing Continued use of Prepetition Bank Accounts, Payment Methods and Existing Business Forms, entered on October 12, 2020 (Docket No. 1185), and as further amended from time to time.
“Cayman Companies Act” shall mean the Companies Act (Revised) of the Cayman
Islands.
“Cayman JPLs” shall mean the joint provisional liquidators appointed by the Grand Court of the Cayman Islands with regard to LATAM Finance Limited and Peuco Finance Limited pursuant to the Cayman JPL Applications.
“Cayman JPL Applications” shall mean the applications pursuant to section 104(3) of the Cayman Companies Act for the appointment of the Cayman JPLs in furtherance of the Chapter 11 Cases.
“Change in Law” shall mean, after the Closing Date, (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or
(c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
“Change of Control” shall mean [*].
“Chapter 11 Case” or “Chapter 11 Cases” shall mean the filing by the Obligors on the applicable Petition Date of voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
“Chilean Debtors” shall mean collectively Parent, HoldCo I.S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Holdco Colombia I SpA, Holdco Colombia II SpA, Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A., Technical Training LATAM S.A. and Holdco Ecuador S.A.
“Chilean Engine Pledge” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Chilean Income Tax Law” shall mean the income tax law of Chile (Ley sobre Impuesto a la Renta), contained in Decree Law No. 824 of 1974.
“Chilean Local Reorganization Proceeding” shall mean a Procedimiento de Reorganización Judicial de la Empresa Deudora or a proceeding seeking an Acuerdo de Reorganización Simplificado, in either case, before a Chilean civil court, pursuant to the Chilean Insolvency and Reorganization Law No. 20,720 (Ley de Insolvencia y Reemprendimiento) with respect to the Chilean Debtors.
“Chilean Recognition Proceeding” shall mean the proceeding conducted before the Second Civil Court of Santiago, Chile titled LATAM Airlines Group S.A./ Technical Training Latam S.A., Rol N° C-8.553-2020, concerning the recognition in Chile of the Chapter 11 Cases as foreign main insolvency proceedings pursuant to the Chilean Insolvency and Reorganization Law No. 20,720 (Ley de Insolvencia y Reemprendimiento) with respect to LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air
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Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Holdco Colombia I SpA, Holdco Colombia II SpA, Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A., Technical Training LATAM S.A. and Holdco Ecuador S.A.
“Chilean Securities Market Act” shall mean Chilean Ley 18,045 sobre Mercado de
Valores.
“Chilean Stamp Tax” shall mean impuesto de timbres y estampillas established by Decree Law No. 3475 of year 1980, Ley Sobre Impuesto de Timbres y Estampillas, as amended.
“Class,” when used in reference to any Commitment, Loan or Borrowing, shall refer to whether such Loan, or the Loans comprising such Borrowing, or the Loans that would be disbursed under such Commitment, are Initial Term Loans or any Incremental Term Loans.
“Closing Date” shall mean the date on which this Agreement has been executed and the conditions precedent set forth in Section 4.01 have been satisfied or waived.
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“Closing Date Make Whole Premium” shall mean an amount reasonably determined by the Administrative Agent in accordance with accepted financial practice equal to (i) 2.0% of the principal amount of the prepaid, repaid, redeemed, paid, refinanced or accelerated Initial Term Loans plus (ii) all required interest payable on the aggregate principal amount of such Initial Term Loans from the date of the applicable prepayment, repayment, redemption, payment, refinancing or acceleration through and including the first anniversary of the Closing Date, computed using an assumed interest rate equal to (x) the Adjusted Term SOFR Rate (including the Floor thereto) for an Interest Period of three months (determined using the Term SOFR Reference Rate at approximately 5:00 a.m. Chicago time, two U.S. Government Securities Business Days prior to the date of the applicable prepayment, repayment, redemption, payment, refinancing or acceleration) plus (y) the Applicable Margin for Term Benchmark Loans that are Initial Term Loans in effect as of the date of the applicable prepayment, repayment, redemption, payment, refinancing or acceleration, discounted from each applicable interest payment date to the date of such prepayment, repayment, redemption, payment, refinancing or acceleration using a discount rate equal to the sum of the Treasury Rate one Business Day prior to the date of prepayment, repayment, redemption, payment, refinancing or acceleration plus 0.50%.
“Closing Date Material Adverse Effect” shall mean a material adverse effect on, and/or any condition, development, change, circumstance or event that, taken alone or together, has resulted in, or would reasonably be expected to result in, a material adverse effect on (a) the business, assets, properties, liabilities, operations, financial condition or prospects of the Loan Parties, taken as a whole or
(b) the ability of the Loan Parties to perform their obligations under (or to implement the transactions contemplated by) the Reorganization Plan, the Backstop Commitment Agreements, this Agreement, any material Loan Documents or any other material agreement (in the case of this clause (b), that is not reasonably capable of timely being avoided, reversed, rescinded or overturned), other than, in each case, to the extent arising from or attributable to the following: (i) the filing of the Chapter 11 Cases and the events typically resulting from the filing of the Chapter 11 Cases, including the filing of the Reorganization Plan and the other documents contemplated thereby, or any action required by the Reorganization Plan that is made in compliance with the Bankruptcy Code, (ii) the filing of the Non-U.S. Cases and the Brazilian Local Reorganization Proceeding and the events typically resulting from the filing of such cases, (iii) any epidemic, pandemic, or disease outbreak, including but not limited to COVID-19 and any evolutions thereof, (iv) any change in global, national or regional political conditions (including hostilities, acts of war, sabotage, terrorism, military actions, protests, riots or other civil unrest, or any escalation or material worsening of such matters existing or underway as of the date of this Agreement) or in the general business, market, financial, legal, tax or economic conditions affecting the industries, regions, countries and markets in which the Loan Parties operate, including in any change in
U.S. or applicable foreign economies or securities, currencies or financial markets, changes in commodity prices including fuel prices and oil prices, force majeure events, “acts of God,” (v) changes in applicable law or IFRS in the United States or Chile or (vi) natural disasters or declarations of national emergencies in the United States or Chile; provided that the exceptions in clauses (ii) through (v) shall not apply to the extent such described change, event, development or circumstance has a disproportionately adverse effect on the Loan Parties, taken as a whole, as compared to other companies in the industries, regions and markets in which the Loan Parties and their Subsidiaries operate.
“Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to
time.
“Collateral” shall mean all assets and properties (real and personal) of the Loan Parties now owned or hereafter acquired upon which Liens have been granted to the Collateral Trustee or a Local Collateral Agent, as applicable, to secure the Obligations or any other Priority Lien Obligations, including without limitation any Additional Collateral and all of the “Collateral” as defined in (or such other equivalent term in the Collateral Documents), and pledged pursuant to, the Collateral Documents (but
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excluding all such assets and properties released from such Liens pursuant to the applicable Collateral Document), together with all proceeds of the foregoing (including, without limitation, proceeds from Dispositions of the foregoing).
“Collateral Documents” shall mean, collectively, the Pledge and Security Agreement, the Non-U.S. Pledge Agreements, Non-U.S. IP Security Agreements, the Receivables Pledge Agreements, the Collateral Trust Agreement (and each Reaffirmation Agreement, Loan Party Joinder, Local Collateral Agent Joinder and/or Secured Debt Joinder under and as defined therein), the Junior Lien Intercreditor Agreement, the Local Collateral Agency Agreements and the Intellectual Property Security Agreements and any other instrument or agreement (which is designated as a Collateral Document therein) executed and delivered by any Loan Party to the Administrative Agent, the Collateral Trustee or any Local Collateral Agent, in favor of the Secured Parties or in respect of the priorities in the Collateral, including with respect to any Additional Collateral, and any financing statement or other instrument or document required to be filed or recorded to perfect or register or record the Priority Lien, in each case, as amended modified renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms and so long as such agreement, instrument or document shall not have been terminated in accordance with its terms; provided that prior to the Conversion Date, the Collateral Documents shall also include the Final DIP Order, the Junior DIP Intercreditor Agreement, the Engine Collateral Documents, the Real Estate Mortgages and any Deposit Account Control Agreement required hereunder or under the other Loan Documents, each of which document in this proviso shall be automatically terminated upon the occurrence of the Conversion Date.
“Collateral Taxes” shall have the meaning set forth in Section 10.04(e).
“Collateral Trust Agreement” shall mean that certain Collateral Trust Agreement dated as of the Closing Date, among the Borrowers, the other Loan Parties from time to time party thereto, the Administrative Agent, the Revolver Administrative Agent, the 2027 Bridge Loan Administrative Agent, the 2029 Bridge Loan Administrative Agent, the Collateral Trustee, each Local Collateral Agent from time to time party thereto and each other Secured Debt Representative (as defined in the Collateral Trust Agreement) from time to time party thereto, substantially in the form attached hereto as Exhibit K, as the same may be amended, restated, modified, supplemented, extended or amended and restated from time to time in accordance with the terms thereof.
“Collateral Trustee” shall have the meaning set forth in the first paragraph of this
Agreement.
“Collateral Trustee Fee Letter” shall mean that certain Fee Letter dated as of August 24, 2022, among the Borrowers and the Collateral Trustee.
“Colombian Engine Pledge” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Colombian Recognition Proceeding” shall mean the recognition proceeding conducted before the Superintendence of Companies of Colombia, under legal record 20641 of 2020, whereby the Chapter 11 Cases have been recognized as foreign main insolvency proceedings pursuant to Title III of Law No. 1116 of 2006 by court order proffered in a 12 June of 2020 hearing.
“Commitment” shall mean, as to any Lender, the Term Loan Commitment of such
Lender.
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“Commitment Date Reorganization Plan” shall mean the Joint Plan of Reorganization of LATAM Airlines Group, S.A., et al. Under Chapter 11 of the Bankruptcy Code [Docket No. 5331], without giving effect to any amendment, supplement or modification thereto.
“Commodity Exchange Act” shall mean the Commodity Exchange Act (7 U.S.C. §1 et seq.), as amended from time to time, and any successor statute.
“Conditions to Conversion” shall have the meaning set forth in the definition of Conversion Date.
“Confirmation Order” shall mean the Order (I) Confirming Debtors’ Joint Plan of Reorganization of LATAM Airlines Group S.A. et al. Under Chapter 11 of the Bankruptcy Code and (II) Granting Related Relief [Docket No. 5754] entered by the Bankruptcy Court on June 18, 2022, as amended, supplemented or modified from time to time after entry thereof in accordance with the terms hereto.
“Consolidated Liquidity” shall mean, as of any date, the sum of (i) the Unrestricted Cash Amount as of such date, (ii) the aggregate principal amount committed and available to be drawn by Parent and its Restricted Subsidiaries (taking into account all borrowing base limitations, collateral coverage requirements and other restrictions on borrowing in effect as of such date) under all revolving credit facilities (including the Revolving Credit Agreement) of Parent and its Restricted Subsidiaries and
(iii) the net proceeds, as determined by the Borrower in good faith (after giving effect to any expected repayment of existing indebtedness using such proceeds) of any offerings of “securities” (as defined under the Securities Act) in (a) a public offering registered under the Securities Act, or (b) an offering not required to be registered under the Securities Act (including, without limitation, a private placement under section 4(a)(2) of the Securities Act, an exempt offering pursuant to Rule 144A and/or Regulation S of the Securities Act and an offering of exempt securities) of Parent or any of its Restricted Subsidiaries that has priced but has not yet closed (until the earliest of the closing thereof, the termination thereof without closing or the date that falls five (5) Business Days after the initial scheduled closing date thereof).
“Consolidated Net Income” shall mean, with respect to any specified Person for any period, the aggregate of the net income (or loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis (excluding the net income (or loss) of any Unrestricted Subsidiary of such Person), determined in accordance with IFRS and without any reduction in respect of preferred stock dividends; provided that:
(1)all net after tax extraordinary, non-recurring or unusual gains or losses and all gains or losses realized in connection with the Disposition of securities by such Person or the early extinguishment of Indebtedness of such Person, together with any related provision for Taxes on any such gain, will be excluded;
(2)the net income of any Unrestricted Subsidiary or any other Person that is not the specified Person or a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included for such period only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the specified Person;
(3)the net income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that net income is not at the date of determination permitted (x) without any prior governmental
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approval (that has not been obtained) or (y) directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;
(4)the cumulative effect of a change in accounting principles on such Person will be excluded;
(5)any non-cash compensation expense recorded from grants by such Person of stock appreciation or similar rights, stock options or other rights to officers, directors or employees, will be excluded;
(6)the effect on such Person of any non-cash items resulting from any amortization, write-up, writedown or write-off of assets (including intangible assets, goodwill and deferred financing costs) in connection with any acquisition, Disposition, merger, consolidation or similar transaction or any other non-cash impairment charges incurred subsequent to the Closing Date resulting from the application of Financial Accounting Standards Board Accounting Standards Codifications 205 – Presentation of Financial Statements, 350 – Intangibles – Goodwill and Other, 360 – Property, Plant and Equipment and 805 – Business Combinations or, to the extent applicable, the equivalent standard under IFRS (excluding any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period except to the extent such item is subsequently reversed), will in each case be excluded;
(7)any provision for income tax reflected on such Person’s financial statements for such period will be excluded to the extent such provision exceeds the actual amount of taxes paid in cash during such period by such Person and its consolidated Subsidiaries;
(8)any gain (or loss) attributable to the mark to market movement in the valuation of hedging obligations or other derivative instruments pursuant to FASB Accounting Standards Codification 815-Derivatives and Hedging or mark to market movement of other financial instruments pursuant to FASB Accounting Standards Codification 825 – Financial Instruments or, to the extent applicable, the equivalent standard under IFRS, will be excluded; provided that any cash payments or receipts relating to transactions realized in a given period shall be taken into account in such period;
(9)any gain (or loss) on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business) or income (or loss) from closed or discontinued operations (but if such operations are classified as discontinued due to the fact that they are subject to an agreement to Dispose of such operations, only when and to the extent such operations are actually Disposed of) will be excluded; and
(10)any non-cash gain (or loss) related to currency remeasurements of Indebtedness (including the net loss or gain resulting from Currency Agreements and revaluations of intercompany balances or any other currency-related risk), unrealized or realized net foreign currency translation or transaction gains or losses impacting net income will be excluded.
“Consolidated Total Assets” shall mean, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of Parent and its consolidated Restricted Subsidiaries as the total assets of Parent and its consolidated Restricted Subsidiaries in accordance with IFRS.
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“Controlled Account” shall mean any Deposit Account of a Loan Party that is subject to a Deposit Account Control Agreement, including, but not limited to, the Disbursement Account.
“Controlling Representative” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Conversion Anniversary Date” shall mean the date that is one year after the Conversion
Date.
“Conversion Date” shall mean the date all the conditions on Annex D (such conditions, the “Conditions to Conversion”) are satisfied or waived in accordance with Section 10.08.
“Conversion Date Certificate” shall mean a certificate in substantially the form attached hereto as Exhibit F.
“Conversion Date Indebtedness” shall mean Priority Lien Debt in an aggregate principal amount not to exceed [*], which (a) Indebtedness is incurred solely to either (i) make payments required to unsecured creditors pursuant to the Reorganization Plan in connection with the Conversion Date or (ii) refinance any payment made pursuant to clause (i) above or (b) is Permitted Refinancing Indebtedness in respect of any Priority Lien Debt incurred on the Closing Date.
“Corresponding Tenor” shall mean with respect to any Available Tenor, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Coverage Assets” shall mean (a) the Frequent Flyer Program Assets of the Loan Parties,
(b) the Cargo Business Assets of the Loan Parties, (c) Intellectual Property constituting Collateral,
(d) Pledged Slots, Pledged Routes and Pledged Gate Leaseholds, in each case held at Eligible Airports, and (e) any Additional Collateral not covered by the foregoing clauses.
“Creditor Backstop Commitment Agreement” shall mean that certain Backstop Commitment Agreement, dated as of January 12, 2022, by and among Parent, each of its direct and indirect debtor subsidiaries that have filed Chapter 11 Cases and certain creditors in their capacity as backstop parties party thereto, as may be amended, restated, modified, supplemented, extended or amended and restated from time to time in accordance with the terms thereof; provided that, for purpose of determining the satisfaction of the Conditions to Conversion, the Creditor Backstop Commitment Agreement referred to therein shall be such agreement as in effect on June 10, 2022.
“Creditors’ Committee” shall mean the official committee of unsecured creditors appointed in any of the Chapter 11 Cases on June 5, 2020.
“Currency” shall mean miles, points and/or other units that are a medium of exchange constituting a convertible, virtual and private currency that is tradeable property and that can be sold or issued to persons.
“Currency Agreement” shall mean any foreign exchange contract, currency swap agreement or other similar agreement or arrangement.
“Daily Simple SOFR” shall mean, for any day (a “SOFR Rate Day”), a rate per annum equal to SOFR for the day (such day “SOFR Determination Date”) that is five (5) U.S. Government Securities Business Day prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business
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Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website; provided that if Daily Simple SOFR as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement. Any change in Daily Simple SOFR due to a change in SOFR shall be effective from and including the effective date of such change in SOFR without notice to the Borrowers.
“Debtor Relief Law” shall mean the Bankruptcy Code and all other liquidation, compromise, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, corporate or similar laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” shall mean any event that, unless cured or waived, is, or with the passage of time or the giving of notice or both would be, an Event of Default.
“Defaulting Lender” shall mean, at any time, any Lender that (a) has failed, within two
(2) Business Days of the date required to be funded or paid by it hereunder, to fund or pay (x) any portion of the Loans or (y) any other amount required to be paid by it hereunder to the Administrative Agent or any other Lender (or its banking Affiliates), unless, in the case of clause (x) above, such Lender notifies the Administrative Agent and Parent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified Parent, the Administrative Agent or any other Lender in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied), (c) has failed, within three (3) Business Days after request by the Administrative Agent or Parent, acting in good faith, to provide a confirmation in writing from an authorized officer or other authorized representative of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, which request shall only have been made after the conditions precedent to borrowings have been met; provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the Administrative Agent’s, such other Lender’s or Parent’s, as applicable, receipt (with a copy to the Administrative Agent, as applicable) of such confirmation in form and substance satisfactory to it and the Administrative Agent, or (d) has become, or has had its Parent Company become, the subject of a Bankruptcy Event or a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or its Parent Company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. If the Administrative Agent determines that a Lender is a Defaulting Lender under any of clauses (a) through (d) above, such Lender will be deemed to be a Defaulting Lender upon notification of such determination by the Administrative Agent to the Borrowers and the Lenders.
“Deferred Asset” shall have the meaning assigned to such term in the Pledge and Security
Agreement.
“Delta Airlines” shall mean Delta Air Lines, Inc., a Delaware corporation.
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“Deposit Account” shall have the meaning assigned to such term in the Pledge and Security Agreement.
“Deposit Account Control Agreement” shall have the meaning assigned to such term in the Pledge and Security Agreement.
“Designated Guarantor” shall have the meaning assigned to such term in Section 5.12(c).
“DIP Budget” shall mean, the most recently approved at such time: (a) 13-week cash flow forecast of receipts and disbursements for the period from the Closing Date setting forth projected cash flows and disbursements (the “Initial Approved DIP Budget”) and (b) updated 13-week cash flow forecast of receipts and disbursements projected to be made at the end of each four-week period for the then-remaining term of this Term Loan Facility, which shall, in each case, include detailed line item receipts and expenditures, including the aggregate amount of Professional Fees and expenses for Professional Persons, together with appropriate supporting schedules and information and an explanation of any change from the DIP Budget then in effect (each, an “Updated DIP Budget”). From and after the Closing Date, each Updated DIP Budget shall be in form and substance substantially similar to the DIP Budgets provided under the Existing DIP Facility or otherwise in form and substance acceptable to the Administrative Agent and the Required Lenders.
“DIP Budget Variance Report” shall have the meaning set forth in Section 5.01(l)(ii).
“DIP Intercreditor Agreement” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Disbursement Account” shall mean that certain deposit account number ending 9980 maintained by Parent at JPMorgan Chase Bank, N.A.
“Disposition” shall mean, with respect to any property, any sale (including conditional sale), lease, sale and leaseback, conveyance, transfer or other disposition thereof (including by means of a Restricted Payment or an Investment). The terms “Dispose”, “Disposes” and “Disposed of” shall have correlative meanings.
“Disqualified Lender” shall mean (a) any Defaulting Lender, (b) any Person that is a competitor of Parent or its Subsidiaries or an Affiliate of such competitor, in each case that is either (x) separately identified in writing by Parent to the Administrative Agent or (y) is reasonably identifiable as an Affiliate of a competitor identified pursuant to clause (x) above solely on the basis of similarity of its name or (c) any Low Tax Jurisdiction Entity.
“Disqualified Stock” shall mean any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a change of control or asset sale), is convertible or exchangeable for Indebtedness or Disqualified Stock, or is redeemable at the option of the holder of the Capital Stock, in whole or in part (other than as a result of a change of control or asset sale), on or prior to the date that is 91 days after the Latest Maturity Date then in effect. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require Parent to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that Parent may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 6.01 hereof. The
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amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that Parent and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
“Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in Dollars, such amount and (b) with respect to any amount denominated in any other currency, the equivalent amount thereof in Dollars as determined in accordance with Section 1.06 hereof.
“Dollars” and “$” shall mean lawful money of the United States of America.
“DOT” shall mean the U.S. Department of Transportation and any successor thereto.
“Dutch Auction” shall mean an auction of Term Loans conducted pursuant to Section 10.02(i) to allow the Borrower to purchase Term Loans at a discount to par value and on a non- pro rata basis, in each case in accordance with the applicable Dutch Auction Procedures.
“Dutch Auction Procedures” shall mean, with respect to a purchase of Term Loans by the Borrower pursuant to Section 10.02(i), Dutch auction procedures to be reasonably agreed upon by the Borrower and the Administrative Agent in connection with any such purchase.
“EEA Financial Institution” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Electronic Signature” shall mean an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Eligible Airport” shall mean John F. Kennedy International Airport, Heathrow Airport or any other airport proposed by Parent reasonably acceptable to the Administrative Agent.
“Eligible Assignee” shall mean (a) a Lender, or any Affiliate of, or Approved Fund with respect to, a Lender or (b) a finance company, insurance company or other financial institution or fund, in each case reasonably acceptable to the Administrative Agent, and whose becoming an assignee would not constitute or give rise to a non-exempt “prohibited transaction” under Section 4975 of the Code or Section 406 of ERISA; provided that (i) Eligible Assignee shall not include any Disqualified Lender or a Low Tax Jurisdiction Entity and (ii) except as set forth in Section 10.02(i), no Loan Party or any Affiliate of a Loan Party shall constitute an Eligible Assignee.
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“Emergence Condition” means the occurrence of the Conversion Date on or prior to February 23, 2023.
“Emergence Make Whole Premium” shall mean an amount reasonably determined by the Administrative Agent in accordance with accepted financial practice equal to all required interest payable on the aggregate principal amount of such Initial Term Loans from the date of the applicable prepayment, repayment, redemption, payment, refinancing or acceleration through and including the second anniversary of the Closing Date, computed using an assumed interest rate equal to (x) the Adjusted Term SOFR Rate (including the Floor thereto) for an Interest Period of three months (deter-mined using the Term SOFR Reference Rate at approximately 5:00 a.m. Chicago time, two U.S. Government Securities Business Days prior to the date of the applicable prepayment, repayment, redemption, payment, refinancing or acceleration plus (y) the Applicable Margin for Term Benchmark Loans that are Initial Term Loans in effect as of the date of the applicable prepayment, re-payment, redemption, payment, refinancing or acceleration, discounted from each applicable interest payment date to the date of such prepayment, repayment, redemption, payment, refinancing or acceleration using a discount rate equal to the sum of the Treasury Rate one Business Day prior to the date of prepayment, repayment, redemption, payment, refinancing or acceleration plus 0.50%.
“Engine” shall mean an engine used, or intended to be used, to propel an Aircraft, including a Part, appurtenance, and accessory of such Engine and any records relating to such Engine.
“Engine Collateral Documents” shall have the meaning set forth in the Collateral Trust
Agreement.
“Engine Mortgage” shall mean, as the context may require a Chilean Engine Pledge, Colombian Engine Pledge, Peruvian Engine Pledge or Brazilian Engine Mortgage.
“Environmental Claim” shall mean any written notice, claim, proceeding, notice of proceeding, investigation, demand, abatement order or other order or directive by any Person or Governmental Authority alleging or asserting liability with respect to any Loan Party or the property of such Loan Party, as the case may be, arising out of, based on, in connection with or resulting from (a) the actual or alleged presence, Release or threatened Release of any Hazardous Materials, (b) a violation of Environmental Law, or (c) any actual or alleged injury or threat of injury to human health or safety (solely to the extent related to exposure to Hazardous Materials), natural resources or the environment.
“Environmental Laws” shall mean all applicable laws (including common law), statutes, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions or legally binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating to the environment, pollution, human health and safety (solely to the extent related to exposure to Hazardous Materials), or natural resources.
“Environmental Liability” shall mean any liability (including any liability for damages, natural resource damage, costs of environmental investigation, remediation or monitoring or costs, fines or penalties) resulting from or based upon (a) a violation of Environmental Law, (b) the presence or the arrangement for disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials into the environment or (e) any contract, agreement, or lease pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Environmental Permit” shall mean any permit, approval, identification number, license or other authorization required to be held by any Loan Party under any Environmental Law.
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“Equity Interests” shall mean Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with any Loan Party, is (i) treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code and (ii) under common control, within the meaning of Section 4001(a)(14) of ERISA.
“EU Bail-In Legislation Schedule” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Event of Default” shall have the meaning given to such term in Section 7.01.
“Event of Loss” shall mean, with respect to any Collateral, any of the following events:
(i) the destruction of or damage to such property that renders repair uneconomic or that renders such property permanently unfit for normal use; (ii) any damage or loss to or other circumstance with respect to such property that results in an insurance settlement with respect to such property on the basis of a total loss, or a constructive or arranged total loss; (iii) the confiscation or nationalization of, or requisition of title to such property by any Governmental Authority; (iv) the theft or disappearance of such property that shall have resulted in the loss of possession of such property by any Loan Party for a period in excess of thirty (30) days; or (v) the seizure of, detention of or requisition for use of, such property by any Governmental Authority that shall have resulted in the loss of possession of such property by any Loan Party and such requisition for use shall have continued beyond the earlier of (A) sixty (60) days and
(B) the date of receipt of insurance or condemnation proceeds with respect thereto.
An Event of Loss shall be deemed to have occurred:
(a)in the case of an actual total loss, at 12 midnight (London time) on the actual date the relevant Collateral was lost;
(b)in the case of any of the events described in paragraph (i) of the definition of Event of Loss above (other than an actual total loss), upon the date of occurrence of such destruction, damage or rendering unfit;
(c)in the case of any of the events described in paragraph (ii) of the definition of Event of Loss above (other than an actual total loss), the date and time at which either a total loss is subsequently admitted by the insurers or a competent court or arbitration tribunal issues a judgment to the effect that a total loss has occurred;
(d)in the case of any of the events referred to in paragraph (iii) of the definition of Event of Loss above, upon the occurrence thereof; and
(e)in the case of any of the events referred to in paragraphs (iv) and (v) of the definition of Event of Loss above, upon the expiration of the period of time specified therein.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
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“Exchange Rate” means, on any day, with respect to conversions from any Non-U.S. Currency to Dollars, (i) the rate of exchange for the purchase of Dollars with such Non-U.S. Currency last provided by Reuters on the Business Day (New York City time) immediately preceding the date of determination or (ii) if at the time of any such determination, no such rate pursuant to clause (i) is being provided, then (x) Administrative Agent, may use any reasonable method it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error or (y) if such Exchange Rate is being determined by the Borrowers for the purpose of determining compliance under Articles VI or VII, Parent may, at its election, use any customary method that it reasonably determines in good faith is an appropriate substitute to determine such rate and shall promptly notify the Administrative Agent of such substitute. The Administrative Agent shall promptly provide Parent with the then current Exchange Rate used by the Administrative Agent upon Parent’s request therefor, and Parent shall promptly provide the Administrative Agent with the then current Exchange Rate used by Parent upon the Administrative Agent’s request therefor.
“Excluded Aircraft Subsidiary” shall mean (a) any Subsidiary involved or contemplated to be involved in an Aircraft Financing, where substantially all of the assets of such Subsidiary consists of an interest in Aircraft (including airframes), Engines, Spare Parts, intercompany obligations, cash and/or Cash Equivalents and that owns no Significant Assets other than Aircraft Financing Related Cargo Business Assets as a result of the relevant Subsidiary being a party to an intercompany lease or contract and (b) any Subsidiary that owns the Equity Interest in one or more Subsidiaries referred to in clause (a) and no other material assets.
“Excluded Assets” shall have the meaning provided in the Pledge and Security
Agreement.
“Excluded Contributions” shall mean net cash proceeds received by Parent after the Conversion Date from:
(1)contributions to its common equity capital (other than from any Subsidiary); or
(2)the sale (other than to a Subsidiary or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of Parent or any Subsidiary) of Qualifying Equity Interests,
in each case designated as Excluded Contributions pursuant to an Officer’s Certificate executed on or around the date such capital contributions are made or the date such Equity Interests are sold, as the case may be. Excluded Contributions will not be considered to be net proceeds of Qualifying Equity Interests for purposes of Section 6.01(a)(iv)(3)(C) hereof.
“Excluded Subsidiary” shall mean any Subsidiary of Parent (a) that is not or ceases to be a Subsidiary in which at least 85% of its capital stock is owned by Parent or another Subsidiary of Parent, other than due to a minority interest required to comply with a local ownership requirement; provided that this clause (a) shall not apply to [*], and any other Restricted Subsidiary of Parent that the Parent may elect to exclude from time to time from the application of this clause (a) by written notice to the Administrative Agent (which election may be subsequently revoked by Parent from time to time by written notice to the Administrative Agent), (b) that is prohibited or restricted by applicable law, or regulation from being or becoming a Guarantor, (c) that is subject to any contract or other restrictions existing prior to the Closing Date or the date such entity is acquired by Parent or a Restricted Subsidiary of Parent, as applicable, that prohibits such Subsidiary from providing a Guarantee of the Obligations, (d) for which Parent and the Administrative Agent mutually agree that the granting or maintenance of a Guarantee by such Subsidiary would result in material adverse
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tax consequences to a Borrower or any of its Restricted Subsidiaries, (e) that is a captive insurance company, special purpose entity, securitization, receivables subsidiary, not-for-profit subsidiary, or Excluded Aircraft Subsidiary, (f) that is a Non-Guarantor Acquired Airline, or (g) at the election of Parent by written notice to the Administrative Agent, [*], or any other Restricted Subsidiary of Parent that owns Significant Assets, in the good faith determination of Parent, (1) in an aggregate amount not to exceed [*] and (2) together with all other Restricted Subsidiaries excluded pursuant to this clause (g), in an aggregate amount not to exceed [*] (provided that any such election pursuant to this clause (g) may be subsequently revoked and reallocated to any other Restricted Subsidiary from time to time); provided, further, that “Excluded Subsidiary” shall not include any Designated Guarantor that becomes a Loan Party pursuant to Section 5.12 for as long as such Subsidiary remains a Designated Guarantor.
“Excluded Taxes” shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made hereunder or under any Loan Document (collectively, “Tax Indemnitees”), (a) any Taxes based on (or measured by) its net income, profits or capital or any franchise taxes, imposed (i) by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located or (ii) that are Other Connection Taxes, (b) any branch profits Taxes or any similar Tax imposed by any other jurisdiction in which such recipient is located, (c) any withholding Tax that is attributable to a recipient’s failure to deliver the documentation described in Section 2.13(h) or Section 2.13(i), (d) any
U.S. withholding Tax that is imposed by reason of FATCA, and (e) any withholding Taxes that are imposed by Chile, the United States or the jurisdiction of a Lender’s lending office imposed on amounts payable to or for the account of such Lender that are attributable to the Lender’s designation of a new lending office except to the extent that, pursuant to Section 2.13 additional amounts with respect to such Taxes were payable to such Lender immediately prior to such Lender’s designation of such new lending office.
“Existing DIP Facility” shall mean that certain Amended and Restated Super-Priority Debtor-in-Possession Term Loan Agreement, dated as of April 8, 2022 among Parent, the other Loan Parties party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and certain others party thereto.
“Existing Environmental Proceedings” shall mean the following:
(i)Civil inquiry (No. 013.2018.002610) initiated by the State of Paraiba Public Prosecutor’s Office to investigate the lack of certain environmental license(s) to undertake potentially polluting activities;
(ii)Civil inquiry (No. 14/02) started by the State of São Paulo Public Prosecutor’s Office to investigate allegedly irregular vegetation suppression. Compensatory measures were already implemented, based on an adjustment conduct term entered into among TAM S.A. or its subsidiaries, the State of São Paulo Public Prosecutor’s Office and other involved parties;
(iii)Civil Class Action (No. 0005425-75.2007.403.6100) filed by a residential-related association (Association of Residents Friends of Moema), against TAM S.A. or its subsidiaries, the Brazilian Federal Government, Agência Nacional de Aviação Civil (ANAC) of Brazil, the Brazilian Airport Infrastructure Company (“INFRAERO”, in Brazilian acronym), the City of São Paulo, and other airline companies, challenging certain activities undertaken at Congonhas airport in the City of São Paulo, State of São Paulo, particularly with respect to matters relating to operating hours and noise emission;
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(iv)Proceeding (No. 02027.000448/2016-26) in connection with land/underground water contamination at the Congonhas airport in the city of São Paulo, State of São Paulo, in connection with which TAM S.A. or its subsidiaries has been the subject of administrative fines imposed by the State of São Paulo Environmental Protection Agency (“CETESB,” for its acronym in Portuguese); and
(v)Certain expired or pending environmental licenses, as listed below on Schedule
1.01(a).
“Extended Term Loan” shall have the meaning given to such term in Section 2.23(a)(ii).
“Extension Amendment” shall have the meaning given to such term in Section 2.23(c).
“FAA” shall mean the Federal Aviation Administration of the United States of America and any successor thereto.
“Fair Market Value” shall mean the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the board of directors or an officer of Parent (unless otherwise provided in this Agreement); provided that the board of directors or officer of Parent, as applicable, shall be permitted to consider the circumstances existing at such time (including, without limitation, economic or other conditions affecting the U.S. airline industry generally and any relevant legal compulsion, judicial proceeding or administrative order or the possibility thereof) in determining such Fair Market Value in connection with such transaction; and provided, further, that nothing herein shall be construed as a limitation of the fiduciary duties of the board of directors of Parent pursuant to applicable law.
“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement, any amended or successor provisions that are substantively comparable thereto and not materially more onerous to comply with, any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreements, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Rate” shall mean, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as the NYFRB shall set forth on the SOFR Administrator’s Website from time to time) and published on the next succeeding Business Day by the SOFR Administrator as the federal funds rate; provided that, if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System of the United States.
“Fees” shall mean the fees referred to in Section 2.16.
“Fee Letters” shall mean (a) the Collateral Trustee Fee Letter and (b) the Administrative Agent Fee Letter.
“Final DIP Order” shall mean the Order (I) Authorizing the Debtors to (A) Obtain DIP and DIP-To-Exit Financing and (B) Grant Superpriority Administrative Expense Claims, and (II) Granting Related Relief [Docket No. 5791] entered by the Bankruptcy Court on June 24, 2022.
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“Final Order” shall mean an order or judgment of the Bankruptcy Court as entered on its docket that has not, in whole or in part, been reversed, vacated, modified, amended or stayed pursuant to any applicable Bankruptcy Law or any other applicable rule of civil or appellate procedure, and as to which the time to appeal, petition for certiorari or seek re-argument or rehearing has expired, or as to which any right to appeal, petition for certiorari or seek re-argument or rehearing has been waived in writing in a manner satisfactory to the parties in interest, or if a notice of appeal, petition for certiorari or motion for re-argument or rehearing was timely filed, the order or judgment has been affirmed by the highest court to which the order or judgment was appealed or from which the re-argument or rehearing was sought, or a certiorari has been denied, and the time to file any further appeal or to petition for certiorari or to seek further re-argument has expired.
“Financial Officer” shall mean, with respect to any Person, the Chief Financial Officer, the Director of Finance or any Vice President with knowledge of the transactions contemplated by this Agreement, of such Person.
“Fitch” shall mean Fitch, Inc., also known as Fitch Ratings, and its successors.
“Five-Year Business Plan” shall mean the five (5) year business plan (2022 to 2026) of the Loan Parties, as updated from time to time by the Loan Parties and delivered to the Administrative Agent and the Lenders.
“Flood Insurance Laws” means, collectively, (i) the National Flood Insurance Reform Act of 1994 (which comprehensively revised the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973) as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Reform Act of 2004 as now or hereafter in effect or any successor statute thereto, and (iii) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or hereafter in effect or any successor statute thereto.
“Floor” shall mean, the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise), with respect to the Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR, as applicable. For the avoidance of doubt the initial Floor for each of Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR shall not be less than 0.50%.
“Frequent Flyer Program” shall mean any customer loyalty program available to individuals that is operated, owned or controlled, directly or indirectly, by Parent or any of its Restricted Subsidiaries and which loyalty program grants members in such program Currency based on a member’s purchasing behavior and that entitles a member to accrue and redeem such Currency for a benefit or reward, including flights and/or other goods and services.
“Frequent Flyer Program Agreement” shall mean all currently existing, future and successor co-branding agreements, partnering agreements, airline-to-airline frequent flyer program agreements or similar agreements related to or entered into in connection with a Frequent Flyer Program.
“Frequent Flyer Program Assets” shall mean (a) all Frequent Flyer Program Agreements,
(b) Intellectual Property owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Parent or any of its Restricted Subsidiaries and required or necessary to operate a Frequent Flyer Program, (c) customer data (i) owned, or later developed or acquired and owned or purported to be owned, by Parent or any of its Restricted Subsidiaries and (ii) used, generated or produced as part of a Frequent Flyer Program (including a list of all members and profile data for each member), (d) all currently existing or future intercompany agreements governing the sale, transfer or
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redemption of Currency under any Frequent Flyer Program (“Intercompany Frequent Flyer Agreements”) and (e) accounts receivable in respect of any Frequent Flyer Program, including accounts receivable arising under Frequent Flyer Program Agreements or Intercompany Frequent Flyer Agreements; provided that, for purposes of calculating the Asset Coverage Ratio and the Total Asset Coverage Ratio, as of any date of determination, the Frequent Flyer Program Assets shall not include any of the foregoing assets described in clauses (a) through (e) above to the extent owned or acquired by a Non-Guarantor Acquired Airline as of such date.
“Fuel Hedging Agreement” shall mean any spot, forward or option fuel price protection agreements and other types of fuel hedging agreements or economically similar arrangements designed to protect against or manage exposure to fluctuations in fuel prices.
“Funds Flow Direction Letter” shall mean that certain direction letter, dated as of the Closing Date, executed by the Borrowers, which instructs the Administrative Agent as to the flow of loan proceeds on the Closing Date.
“Gate Leasehold” shall mean, at any time, all of the right, title, privilege, interest and authority, now held or hereafter acquired, of a Loan Party in connection with the right to use or occupy holdroom and passenger boarding and deplaning space in an airport terminal at any airport at which such Loan Party conducts scheduled operations.
“Governmental Authority” shall mean the government of Chile, the United States of America, Peru, Colombia, Ecuador, Brazil and any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank organization, or other entity exercising executive, legislative, judicial, taxing or regulatory powers or functions of or pertaining to government. Governmental Authority shall not include any Person in its capacity as an Airport Authority.
“Guarantee” shall mean a guarantee (other than (a) by endorsement of negotiable instruments for collection or (b) customary contractual indemnities, in each case in the ordinary course of business), direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions).
“Guaranteed Obligations” shall have the meaning given to such term in Section 9.01(a).
“Guarantors” shall mean, collectively, each Subsidiary of Parent (including any Designated Guarantor) that is either (i) party hereto on the Closing Date or (ii) becomes a party to the Guarantee contained in Article 9 by executing an Instrument of Assumption and Joinder.
“Guaranty and Security Principles” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Guaranty Obligations” shall have the meaning given to such term in Section 9.01(a).
“Hazardous Materials” shall mean (a) all explosive or radioactive substances or wastes,
(b) all hazardous or toxic substances or wastes, (c) all other pollutants, including petroleum, petroleum products, petroleum by-products, petroleum breakdown products, petroleum distillates, asbestos, asbestos containing materials, polychlorinated biphenyls, radon gas, and infectious or medical wastes and (d) all
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other substances or wastes of any nature that are regulated pursuant to, or could reasonably be expected to give rise to liability under any Environmental Law.
“Hedging Agreement” shall mean any Interest Rate Agreement, any Currency Agreement, any Fuel Hedging Agreement and any other derivative or hedging contract, agreement, confirmation or other similar transaction or arrangement that is entered into by any Loan Party, including any commodity or equity exchange, swap, collar, cap, floor, adjustable strike cap, adjustable strike corridor, cross-currency swap or forward rate agreement, spot or forward foreign currency or commodity purchase or sale, listed or over-the-counter option or similar derivative right related to any of the foregoing, non-deliverable forward or option, foreign currency swap agreement, currency exchange rate price hedging arrangement or other arrangement designed to protect against fluctuations in interest rates or currency exchange rates, commodity, currency or securities values, or any combination of the foregoing agreements or arrangements.
“Hedging Obligations” shall mean obligations under or with respect to Hedging
Agreements.
“IATA” shall mean the International Air Transport Association and any successor
thereto.
“IFRS” shall mean the International Financial Reporting Standards.
“Incremental Term Loan Commitment” shall have the meaning given to such term in
Section 2.22(a).
“Incremental Term Loans” shall have the meaning given to such term in Section 2.22(c)(i).
“Indebtedness” shall mean, with respect to any specified Person, any indebtedness of such Person (excluding advance ticket sales, accrued expenses and trade payables), whether or not contingent:(1)in respect of borrowed money;
(2)evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3)in respect of banker’s acceptances;
(4)representing Capital Lease Obligations;
(5)representing the balance deferred and unpaid of the purchase price of any property or services due more than eighteen (18) months after such property is acquired or such services are completed, but excluding in any event trade payables arising in the ordinary course of business;
(6)representing any Hedging Obligations; or
(7)representing Disqualified Stock,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with
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IFRS. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without giving effect to the effects of IFRS 9, Chapter 6 – Hedge Accounting (or any successor provision thereto) and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Agreement as a result of accounting for any embedded derivatives created by the terms of such Indebtedness.
“Indemnified Taxes” shall mean Taxes (other than Excluded Taxes) imposed on or with respect to any payments, accruals, or amounts deemed paid by or on account of any obligation of any Borrower or any Guarantor under this Agreement or any other Loan Document.
“Indemnitee” shall have the meaning given to such term in Section 10.04(b).
“Initial Appraisals” shall mean, collectively, the report of (a) BK Associates, Inc., dated as of February 14, 2022 setting forth the Appraised Value of the Cargo Business Assets of the Loan Parties; (b) BK Associates, Inc., dated as of February 11, 2022 setting forth the Appraised Value of the Frequent Flyer Program Assets of the Loan Parties; (c) Ocean Tomo, LLC, dated as of February 17, 2022 setting forth the Appraised Value of Intellectual Property of the Loan Parties; (d) mba Aviation, dated as of December 23, 2021 setting forth the Appraised Value of certain Routes in Brazil; (e) ICF SH&E Limited, dated as of December 17, 2021 setting forth the Appraised Value of certain Slots and Routes; f) mba Aviation, dated as of December 23, 2021 setting forth the Appraised Value of certain Routes in Peru;
(g) mba Aviation, dated as of December 23, 2021 setting forth the Appraised Value of certain Routes in Chile; (h) mba Aviation, dated as of December 23, 2021 setting forth the Appraised Value of certain Routes in Colombia; (i) mba Aviation, dated as of December 17, 2021 setting forth the Appraised Value of certain Slots and (j) AVITAS, Inc., dated as of February 8, 2022 setting forth the Appraised Value of certain Aircrafts and Engines, in each case, as delivered to the Administrative Agent by Parent pursuant to Section 4.01.
“Initial Appraisers” shall mean, collectively, (a) BK Associates, Inc. (as it relates to appraisals of any Cargo Business Assets or any Frequent Flyer Program Assets); (b) Ocean Tomo, LLC, (as it relates to any Intellectual Property); (c) mba Aviation (as it relates to Slots and Routes); (d) ICF SH&E Limited (as it related to Slots and Routes); and (e) AVITAS, Inc. (as it relates to Aircrafts and Engines).
“Initial Approved DIP Budget” shall have the meaning set forth in the definition of “DIP
Budget.”
“Initial Obligors” shall mean each Borrower and each other Loan Party that filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on May 26, 2020.
“Initial Term Loans” shall mean the Loans incurred by the Borrowers on the Closing Date in an amount not to exceed the aggregate amount of the Term Loan Commitments set forth on Annex A attached hereto.
“Installment” shall have the meaning given to such term in Section 2.08(a).
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“Instrument of Assumption and Joinder” shall mean that certain joinder agreement in the form of Exhibit C hereto
“Instruments” shall have the meaning given to such term in the Pledge and Security
Agreement.
“Intellectual Property” shall have the meaning given to such term in the Pledge and Security Agreement.
“Intellectual Property Security Agreement” shall have the meaning given to such term in the Pledge and Security Agreement.
“Intercompany Note” shall mean a subordinated global promissory note among the Loan Parties and certain other Restricted Subsidiaries that are not Loan Parties substantially in the form of Exhibit E.
“Interest Election Request” shall mean a request by the Borrowers to convert or continue a Borrowing in accordance with Section 2.04, which shall be substantially in the form of Exhibit J or any other form approved by the Administrative Agent.
“Interest Payment Date” shall mean (a) with respect to any ABR Loan, the last day of each March, June, September and December and the Maturity Date, (b) with respect to any RFR Loan, (1) each date that is on the numerically corresponding day in each calendar month that is one month after the Borrowing of such Loan (or, if there is no such numerically corresponding day in such month, then the last day of such month) and (2) the Maturity Date, and (c) with respect to any Term Benchmark Loan, the last day of each Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Term Benchmark Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period, and the Maturity Date.
“Interest Period” shall mean, with respect to any Term Benchmark Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months thereafter (in each case, subject to the availability for the Benchmark applicable to the relevant Loan or Commitment), as the Borrowers may elect; provided that
(a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day,
(b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (b) no tenor that has been removed from this definition pursuant to Section 2.17(e) shall be available for specification in such Loan Request or Interest Election Request. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“Interest Rate Agreement” shall mean any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement.
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“International Interest” shall mean an “international interest” as defined in the Cape
Town Treaty.
“International Registry” shall mean the “International Registry” as defined in the Cape
Town Treaty.
“Investments” shall mean, with respect to any Person, all direct or indirect investments made from and after the Closing Date by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), capital contributions or advances (but excluding advance payments and deposits for goods and services and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities of other Persons, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with IFRS. If Parent or any other Restricted Subsidiary sells or otherwise Disposes of any Equity Interests of any direct or indirect Restricted Subsidiary after the Closing Date such that, after giving effect to any such sale or Disposition, such Person is no longer a Restricted Subsidiary, Parent will be deemed to have made an Investment on the date of any such sale or Disposition equal to the Fair Market Value of Parent’s Investments in such Subsidiary that were not sold or Disposed of in an amount determined as provided in Section 6.01 hereof. Notwithstanding the foregoing, any Equity Interests retained by Parent or any of its Subsidiaries after a Disposition or dividend of assets or Capital Stock of any Person in connection with any partial “spin-off” of a Subsidiary or similar transactions shall not be deemed to be an Investment. The acquisition by Parent or any Restricted Subsidiary after the Closing Date of a Person that holds an Investment in a third Person will be deemed to be an Investment by Parent or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in Section 6.01 hereof. Except as otherwise provided in this Agreement, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
“Joint Bookrunners” shall mean the parties listed as “Joint Bookrunners” on the cover of
this Agreement.
“Joint Lead Arrangers” shall mean the parties listed as “Joint Lead Arrangers” on the cover of this Agreement.
“Junior DIP Facility” shall have the meaning assigned to such term in the DIP Intercreditor Agreement.
“Junior DIP Loan Documents” shall have the meaning assigned to such term in the DIP Intercreditor Agreement.
“Junior Lien Indebtedness” shall mean any Indebtedness incurred by a Loan Party that is secured by all or a portion of the Collateral on a junior lien basis to the Liens on the Collateral securing the Obligations; provided that (a) such Indebtedness is subordinated in right of payment to the Obligations pursuant to the Junior Lien Intercreditor Agreement or otherwise on terms reasonably satisfactory to the Administrative Agent; provided that, for clarity, any Permitted Refinancing Indebtedness in respect of Priority Lien Debt (or any successive Permitted Refinancing Indebtedness) may be pari passu in right of payment to the Obligations, (b) the Liens on Collateral, if any, securing such Indebtedness are junior to the Liens on the Collateral securing the Obligations pursuant to the Junior Lien Intercreditor Agreement or otherwise on terms reasonably satisfactory to the Administrative Agent,
(c) such Indebtedness matures no earlier than the Latest Maturity Date in effect at the time of incurrence of such Indebtedness, (d) such Indebtedness has a Weighted Average Life to Maturity no shorter than the
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Weighted Average Life to Maturity of the Loans outstanding hereunder with the longest Weighted Average Life to Maturity at the time of incurrence of such Indebtedness, (e) is not subject to any Guarantee by any Person other than a Loan Party and (f) such Indebtedness is secured only by Collateral.
“Junior Lien Intercreditor Agreement” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Latest Maturity Date” shall mean, at any date of determination, the latest maturity or expiration date applicable to any Loan or Commitment hereunder at such time.
“Lease Subordination Agreement” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Lenders” shall have the meaning set forth in the first paragraph of this Agreement.
“Liabilities” shall mean any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
“Lien” shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or similar encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (but excluding any lease, sublease, use or license agreement or similar arrangement by any Loan Party described in clauses (g) or (h) of the definition of “Permitted Disposition”), including any conditional sale or other title retention agreement, any option or other agreement to sell or give a security interest in and, except in connection with any Qualified Receivables Transaction, any agreement to give any financing statement under the UCC (or equivalent statutes) of any jurisdiction.
“Loan Documents” shall mean this Agreement, the Collateral Documents, the Fee Letters, any Promissory Notes, the Intercompany Note and any other instrument or agreement designated as a Loan Document therein executed and delivered by a Borrower or a Guarantor to the Administrative Agent, the Collateral Trustee, any Local Collateral Agent or any Lender, in each case, as the same may be amended, restated, modified, supplemented, extended or amended and restated from time to time in accordance with the terms hereof.
“Loan Parties” shall mean each Borrower and any Guarantor party hereto from time to
time.
“Loan Request” shall mean a request by the Borrowers, executed by a Financial Officer of each Borrower, for a Loan in accordance with Section 2.02 in substantially the form of Exhibit B.
“Loans” shall mean the Term Loans.
“Local Collateral Agency Agreements” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Local Collateral Agents” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Low Tax Jurisdiction Entity” shall mean any Person resident in a territory or jurisdiction deemed to have a preferential tax regime within the meaning of Article 41 H of the Chilean
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Income Tax Law or any subsequent regulations governing the definition of “low tax jurisdiction” for the purposes of Article 41 F of the Chilean Income Tax Law.
“Margin Stock” shall have the meaning given to such term in Section 3.09(a).
“Material Adverse Effect” shall mean a material adverse effect on (a) the consolidated business, operations or financial condition of Parent and its Restricted Subsidiaries, taken as a whole, (b) the validity or enforceability of any material Loan Documents or the material rights or remedies of the Agents and the Lenders thereunder or (c) the ability of the Loan Parties, collectively, to pay the Obligations or otherwise perform their material obligations under the Loan Documents.
“Material Cargo Business Contract” shall have the meaning given to such term in the Pledge and Security Agreement.
“Material Indebtedness” shall mean Indebtedness of the Borrowers and/or Guarantors (other than the Loans) outstanding under the same agreement in a principal amount exceeding [*].
“Material Pledged Routes” shall mean the ten [*] Routes of the Loan Parties with the highest revenues from ticket revenues during the [*] calendar year.
“Material Pledged Slots” shall mean, the Slots of any Loan Party held at John F. Kennedy International Airport and London Heathrow Airport.
“Maturity Date” shall mean the date upon which this Term Loan Facility will mature on the earliest to occur of any of the following: (a) the Scheduled Maturity Date; (b) the date of acceleration or termination of any Obligations under this Term Loan Facility, in each case, pursuant to an Event of Default or (c) a Bankruptcy Maturity Event.
“Minimum Chilean Dividends” shall have the meaning given to such term in Section 6.01(b)(13).
“Minimum Extension Condition” shall have the meaning given to such term in
Section 2.23(b).
“MNPI” shall mean material non-public information (within the meaning of the U.S. Federal, state or other applicable securities laws) with respect to the Loan Parties and their Affiliates or their securities.
“Moody’s” shall mean Moody’s Investors Service, Inc. and its successors.
“Mortgaged Collateral” shall mean all of the “Collateral” as defined in any Engine Mortgage or the “Real Property” as defined in the U.S. Real Estate Mortgage.
“Net Proceeds” shall mean (i) with respect to any incurrence of Indebtedness, the cash received by any Loan Party in respect of such incurrence net of fees, commissions, taxes, costs and expenses incurred in connection therewith and (ii) the aggregate cash and Cash Equivalents received by Parent or any of its Restricted Subsidiaries in respect of any Disposition (including, without limitation, any cash or Cash Equivalents received in respect of or upon the sale or other disposition of any non-cash consideration received in any Disposition) or Recovery Event, net of: (a) the direct costs and expenses relating to such Disposition and incurred by Parent or a Restricted Subsidiary (including the sale or
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disposition of such non-cash consideration) or any such Recovery Event, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Disposition or Recovery Event, (b) any Taxes paid or payable as a result of the Disposition or Recovery Event, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements; (c) any reserve for adjustment or indemnification obligations in respect of the sale price of such asset or assets established in accordance with IFRS; (d) any portion of the purchase price from a Disposition placed in escrow pursuant to the terms of such Disposition (either as a reserve for adjustment of the purchase price, or for satisfaction of indemnities in respect of such Disposition) until the termination of such escrow; (e) with respect to (i) any Disposition of Significant Assets that are not Collateral or (ii) any Recovery Event in respect of Significant Assets that are not Collateral, any portion of the aggregate cash and Cash Equivalents received by Parent or any of its Restricted Subsidiaries in respect of such Disposition that are required to be applied to any contractual arrangement permitted by this Agreement or any financing arrangement that is secured by such Significant Assets, and (f) with respect to any Disposition prior to the Conversion Date, amounts for payment of the outstanding principal amount of, premium or penalty, if any, and interest on any claim allowed by the Bankruptcy Court in the Chapter 11 Cases relating to Indebtedness or any other obligation (other than the Obligations, any other Priority Lien Debt and the Indebtedness outstanding under the Junior DIP Loan Documents) that is secured by a Permitted Priority Lien on the Collateral subject to such Disposition and that is required to be repaid under the terms thereof as a result of such Disposition.
“Net Proceeds Amount” shall have the meaning given to such term in Section 2.09(a).
“No Undisclosed MNPI Representation” by a Person shall mean a representation that such Person is not in possession of any MNPI (other than MNPI that the Person in whose favor such representation is made has elected not to receive).
“Non-Defaulting Lender” shall mean, at any time, a Lender that is not a Defaulting
Lender.
“Non-Extending Lender” shall have the meaning given to such term in Section 10.08(f).
“Non-Guarantor Acquired Airline” shall mean any Restricted Subsidiary acquired by Parent after the Conversion Date that owns a passenger airline and is not principally a cargo business for so long as such Restricted Subsidiary operates its cargo business and its Frequent Flyer Program business separately from, and on an arms’ length basis with, Parent.
“Non-Recourse Debt” shall mean Indebtedness:
(1)as to which neither Parent nor any of its Restricted Subsidiaries (A) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (B) is directly or indirectly liable as a guarantor or otherwise; and
(2)as to which the holders of such Indebtedness do not otherwise have recourse to the stock or assets of Parent or any of its Restricted Subsidiaries (other than the Equity Interests of an Unrestricted Subsidiary).
“Non-U.S. Aviation Authority” shall mean any non-U.S. governmental, quasi- governmental, regulatory or other agency, public corporation or private entity that exercises jurisdiction over the issuance or authorization (a) to serve any non-U.S. point on any flights that any Loan Party is serving at any time and/or to conduct operations related to routes or gates that constitute Significant Assets and/or (b) to hold and operate any Non-U.S. Route or Slots at any time.
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“Non-U.S. Cases” shall mean the Cayman JPL Applications, the Chilean Recognition Proceeding, the Colombian Recognition Proceeding and the Peruvian Preventivo.
“Non-U.S. Currency” shall mean any currency other than Dollars.
“Non-U.S. Government Scheme or Arrangement” shall have the meaning given to such term in Section 3.15(e).
“Non-U.S. Intellectual Property” shall have the meaning assigned to such term in the Pledge and Security Agreement.
“Non-U.S. IP Registration Office” shall have the meaning assigned to such term in the Pledge and Security Agreement.
“Non-U.S. IP Security Agreement” shall have the meaning assigned to such term in the Pledge and Security Agreement.
“Non-U.S. person” shall mean a person or entity that is not a U.S. person (as defined in Regulation S under the Securities Act), is not acquiring the Obligations for the account or benefit of a
U.S. person and is acquiring the Obligations in an offshore transaction meeting the requirements of Regulation S.
“Non-U.S. Plan” shall have the meaning given to such term in Section 3.15(e).
“Non-U.S. Pledge Agreements” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Non-U.S. Route or Slot” shall mean any Slot of any Person at any airport outside the United States that is an origin and/or destination point.
“NYFRB” shall mean the Federal Reserve Bank of New York.
“NYFRB Rate” shall mean, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” shall mean the rate for a federal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Obligations” shall mean the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and interest accruing after the filing of any petition of bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to a Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), the Loans, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which arise under this Agreement or any other Loan Document, whether on account of principal, interest, fees, indemnities, out-of-pocket costs, and expenses (including all fees, charges and disbursements of counsel to the Administrative Agent or any Lender that are required to be paid by any Borrower pursuant hereto) or otherwise.
“Obligors” shall mean, collectively, the Initial Obligors and the Additional Obligors.
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“OFAC” shall mean the U.S. Department of Treasury’s Office of Foreign Assets Control.
“Officer” shall mean, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Director, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
“Officer’s Certificate” shall mean a certificate signed on behalf of Parent by an Officer of
Parent.
“OID” shall have the meaning given to such term in Section 2.22(c)(iii).
“Other Connection Taxes” shall mean, with respect to any Tax Indemnitee, any Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Taxes (other than a connection arising from such Tax Indemnitee’s having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, or engaged in any other transaction pursuant to, or enforced, this Agreement or any Loan Document, or sold or assigned an interest in this Agreement or any Loan Document).
“Other Taxes” shall mean any and all present or future Chilean Stamp Tax, court stamp, stamp, mortgage, intangible, recording, filing, or documentary taxes or any other similar, charges or similar levies arising from any payment made hereunder or from the execution, performance, delivery, registration of or enforcement of, the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.15).
“Overnight Bank Funding Rate” shall mean, for any day, the rate comprised of both overnight federal funds and overnight eurodollar transactions denominated in Dollars by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the SOFR Administrator as set forth on the SOFR Administrator’s Website from time to time, and published on the next succeeding Business Day by the SOFR Administrator as an overnight bank funding rate.
“Parent” shall have the meaning set forth in the introductory paragraph hereto.
“Parent Company” shall mean, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.
“Participant” shall have the meaning given to such term in Section 10.02(d).
“Participant Register” shall have the meaning given to such term in Section 10.02(d).
“Parts” shall mean all Appliances, parts, modules, accessories, furnishings and instruments, appurtenances and other equipment (including all inflight equipment, buyer-furnished and buyer-designated equipment) of whatever nature which may from time to time be incorporated or installed in or attached to any Aircraft or any Engine, and including all such parts removed from an Aircraft or Engine, so long as title thereto either (i) remains vested in the owner of such parts (provided that such owner is not a Loan Party) or (ii) is subject to the Lien of any applicable financing party, in each case until such parts have been replaced in accordance with the terms of any applicable lease or financing or security agreement.
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“Passenger Accounts Receivable” shall mean any Account of Parent and its Restricted Subsidiaries arising as a result of the passenger business of Parent and its Restricted Subsidiaries (and not, for the avoidance of doubt, arising out of the cargo business of Parent and its Restricted Subsidiaries or any Frequent Flyer Program).
“Patriot Act” shall mean the USA Patriot Act, Title III of Pub. L. 107-56, signed into law on October 26, 2001 and any subsequent legislation that amends or supplements such Act or any subsequent legislation that supersedes such Act.
“Payment” has the meaning assigned to it in Section 8.13(c).
“Payment in Full” shall mean, with respect to any obligations, that such obligations have been paid, performed or discharged in full in cash (and if no obligations are specified, the reference shall be to the Obligations). “Paid in Full” shall have a correlative meaning.
“Payment Notice” has the meaning assigned to it in Section 8.13(c)(i).
“Permits” shall have the meaning set forth in Section 3.02.
“Permitted Business” shall mean any business that is the same as, or reasonably related, ancillary, supportive or complementary to, the business in which Parent and its Restricted Subsidiaries are engaged on the date of this Agreement.
“Permitted DIP Disposition” shall have the meaning set forth in Annex B.
“Permitted DIP Liens” shall have the meaning assigned thereto on Annex B.
“Permitted Disposition” shall mean any of the following:
(a)Disposition of cash or Cash Equivalents in exchange for other cash or Cash Equivalents;
(b)(i) Dispositions of accounts receivable, inventory or other current assets (including defaulted receivables but excluding any accounts receivable, inventory or current assets constituting Additional Collateral) in the ordinary course of business or consistent with past or industry practice and (ii) the conversion of accounts receivable to notes receivable or other Dispositions of accounts receivable or rights to payment in connection with the collection or compromise thereof, or as part of any bankruptcy or reorganization process (including any discount or forgiveness in connection with the foregoing);
(c)sales or other Dispositions of surplus, obsolete, negligible or uneconomical assets no longer used in the business of the Borrowers and the other Loan Parties; provided that any such sale or disposition, as applicable, is made in the ordinary course of business consistent with past practices and does not materially and adversely affect the business of Parent and its Restricted Subsidiaries, taken as a whole;
(d)Dispositions of Significant Assets among the Loan Parties (including any Person that shall become a Loan Party simultaneous with such Disposition in the manner contemplated by Section 5.12) to the extent the interests of the Secured Parties in the Collateral are not adversely affected in any material respect after giving effect to such Disposition;
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(e)the Disposition or abandonment of Slots and Gate Leaseholds; provided that such Disposition or abandonment is (i) in the ordinary course of business consistent with past practices and does not materially and adversely affect the business of Parent and its Restricted Subsidiaries, taken as a whole, (ii) is reasonably determined by Parent to relate to Slots and Gate Leaseholds of de minimis value or surplus to Parent’s needs or (iii) is required by a Governmental Authority;
(f)exchange of Pledged Slots in the ordinary course of business that in Parent’s reasonable judgment are of reasonably equivalent value (so long as such new Pledged Slots remain at all times subject to a Lien with the same priority and level of perfection as was the case immediately prior to such exchange (and are otherwise subject only to Permitted Liens));
(g)any other lease or sublease of, or use or license agreements with respect to, assets and properties that constitute Slots or Gate Leaseholds in the ordinary course of business and swap agreements or similar arrangements with respect to Slots in the ordinary course of business and which lease, sublease, use or license agreement or swap agreement or similar arrangement
(A) has a term of one year or less, or does not extend beyond two comparable IATA traffic seasons (and contains no option to extend beyond either of such periods), (B) has a term (including any option period) longer than allowed in clause (A); provided, however, that (x) in the case of each transaction pursuant to this clause (B), an Officer’s Certificate is delivered to the Administrative Agent concurrently with or promptly after the applicable Loan Party’s entering into any such transaction that (i) immediately after giving effect to such transaction the Asset Coverage Test would be satisfied (excluding, for purposes of calculating such ratio, the proceeds of such transaction and the intended use thereof), (ii) the Collateral Trustee’s Liens on Collateral subject to such lease, sublease, use, license agreement or swap or similar arrangement are not materially adversely affected (it being understood that no Permitted Lien shall be deemed to have such an effect) and (iii) no Event of Default exists at the time of such transaction, and (y) immediately after giving effect to any transaction pursuant to this clause (B), the aggregate Appraised Value of Collateral subject to transactions covered by this clause (B) shall not exceed [*]; provided that the foregoing cap shall not apply to the extent such lease, sublease, use or license agreement or swap agreement or similar arrangement is required or advisable (as reasonably determined by the Borrower) to preserve and keep in full force and effect its rights in such Slot or Gate Leasehold, (C) is for purposes of operations by another airline operating under a brand associated with the Parent or otherwise operating routes under a joint business arrangement or at the Parent’s direction under a code share agreement, capacity purchase agreement, pro-rate agreement or similar arrangement between such airline and the Parent, or (D) is subject and subordinated to the rights (including remedies) of the Collateral Trustee under the applicable Collateral Documents on terms reasonably satisfactory to the Administrative Agent;
(h)the lease or sublease of assets and properties in the ordinary course of business; provided that, if such Significant Assets constitute Collateral, the rights of the lessee or sublessee shall be subordinated to the rights (including remedies) of the Collateral Trustee under the applicable Collateral Document on terms reasonably satisfactory to the Administrative Agent;
(i)sales of Equity Interests in Restricted Subsidiaries to comply with local regulatory requirements, subject to the requirements of Section 2.09;
(j)Dispositions of Currency in respect of a Frequent Flyer Program pursuant to financing arrangements for liquidity purposes or pursuant to co-branding arrangements; provided that (i) such financing arrangement or co-branding arrangement is in the ordinary course of business and (ii) immediately after giving effect to such Disposition the Asset Coverage Test would be satisfied on a Pro Forma Basis;
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(k)in each case, in the ordinary course of business, (i) the termination or amendment of leases, subleases, use or license agreements and (ii) the termination or amendment of agreements, arrangements or balances between and among Parent and its Restricted Subsidiaries (including paying, transferring, contributing, forgiving or cancelling balances incurred pursuant to any such intercompany agreements or arrangements);
(l)in each case, in the ordinary course of business or in connection with any Aircraft Financing, intercompany agreements between and among Parent and its Restricted Subsidiaries with respect to (i) Aircraft, Engines, Spare Parts, Appliances or Parts, in each case not constituting Significant Assets and (ii) Aircraft Financing Related Cargo Business Assets;
(m)transactions that involve assets having an aggregate Appraised Value of less than
[*] (such aggregate amount to be calculated on a cumulative basis from the Closing Date);
(n)any Disposition or other transaction permitted by Section 6.09(a) (other than clauses (v) or (vi) thereof); and
(o)any Permitted Lien.
“Permitted Holders” shall mean any of [*].
“Permitted Investments” shall mean:
(1)any Investment in Parent or in a Restricted Subsidiary of Parent;
(2)any Investment in cash or Cash Equivalents;
(3)any Investment by Parent or any Restricted Subsidiary of Parent in a Person, if as a result of such Investment:
(A)such Person becomes a Restricted Subsidiary of Parent; or
(B)such Person, in one transaction or a series of related and substantially concurrent transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Parent or a Restricted Subsidiary of Parent;
(4)any Investment made as a result of the receipt of non-cash consideration from a Disposition of assets;
(5)any acquisition of assets or Capital Stock in exchange for the issuance of Qualifying Equity Interests;
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(6)any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of Parent or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer or (B) litigation, arbitration or other disputes;
(7)Investments represented by Hedging Obligations;
(8)loans or advances to officers, directors or employees made in the ordinary course of business of Parent or any Restricted Subsidiary of Parent in an aggregate principal amount not to exceed [*] at any one time outstanding;
(9)prepayment of any Loans in accordance with the terms and conditions of this Agreement or prepayment of any other Priority Lien Debt;
(10)any Guarantee of Indebtedness other than a Guarantee of Indebtedness of an Affiliate of Parent that is not a Restricted Subsidiary of Parent;
(11)any Investment existing on, or made pursuant to binding commitments existing on, the Closing Date and any Investment consisting of an extension, modification or renewal of any Investment existing on, or made pursuant to a binding commitment existing on, the Closing Date; provided that the amount of any such Investment may be increased (A) as required by the terms of such Investment as in existence on the Closing Date or (B) as otherwise permitted under this Agreement;
(12)Investments acquired after the Closing Date as a result of the acquisition by Parent or any Restricted Subsidiary of Parent of another Person, including by way of a merger, amalgamation or consolidation with or into Parent or any of its Restricted Subsidiaries in a transaction that is not prohibited by Section 6.09 hereof after the Closing Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(13)the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by Parent or a Subsidiary of Parent in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction;
(14)Investments constituting (i) accounts receivable or accounts payable, (ii) deposits, prepayments and other credits to suppliers, and/or (iii) in the form of advances made to distributors, suppliers, licensors and licensees, in each case, made in the ordinary course of business and consistent with the past practices;
(15)Investments in connection with outsourcing initiatives in the ordinary course of business;
(16)Investments having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value other than a reduction for all returns of principal in cash and capital dividends in cash), when taken together
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with all Investments made pursuant to this clause (16) that are at the time outstanding, not to exceed [*] of the Consolidated Total Assets of Parent and its Restricted Subsidiaries at the time of such Investment;
(17)Investments in Restricted Subsidiaries as required under the laws of the jurisdiction of formation of each of such Subsidiaries to avoid liquidation under such laws;
(18)Investments in any Affiliate in an aggregate amount not to exceed [*] in any one calendar month for all such Investments pursuant to this subclause and, in each case, to pay employee severance, taxes, permits, government charges or wind-down costs in respect of such Affiliate; and
(19)Investments constituting or related to Aircraft Financings. “Permitted Liens” shall mean:
(1)Priority Liens held by the Collateral Trustee or a Local Collateral Agent, as applicable, securing the Indebtedness permitted by Section 6.02(a) and Related Obligations in respect thereof;
(2)Liens on the Collateral securing Junior Lien Indebtedness incurred pursuant to Section 6.02(b) and all other Related Obligations; provided that all such junior Liens shall rank junior to the Liens securing the Obligations subject to the Junior Lien Intercreditor Agreement or otherwise on terms reasonably satisfactory to the Administrative Agent;
(3)Liens for Taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with IFRS has been made therefor;
(4)Liens imposed by law, including carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business;
(5)Liens arising by operation of law in connection with judgments, attachments or awards which do not, in the aggregate, constitute an Event of Default hereunder;
(6)Liens existing as the Closing Date and, to the extent securing Indebtedness greater than or equal to [*], listed on Schedule 1.01(f) hereto; and any modifications, replacements, renewals or extensions thereof; provided that (A) such modified, replacement, renewal or extension Lien does not extend to any additional property other than (1) after- acquired property that is affixed or incorporated into the property covered by such Lien and (2) proceeds and products thereof and (B) such modifications, replacement, renewal or extension does not increase the amount secured or change any direct or contingent obligor in respect thereof;
(7)any overdrafts and related liabilities arising from treasury, netting, depository and cash management services or in connection with any automated clearing house transfers of funds, in each case as it relates to cash or Cash Equivalents, if any;
(8)licenses, sublicenses, leases and subleases by any Loan Party as they relate to any Additional Collateral to the extent (A) such licenses, sublicenses, leases or subleases do not
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interfere in any material respect with the business of Parent and its Restricted Subsidiaries, taken as a whole, and in each case, such license, sublicense, lease or sublease is to be subject and subordinate to the Liens granted to the Collateral Trustee pursuant to the Collateral Documents, and in each case, would not result in a Material Adverse Effect or (B) otherwise expressly permitted by the Collateral Documents;
(9)salvage or similar rights of insurers;
(10)pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations, or Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with IFRS;
(11)customary rights of set-off and liens arising by operation of law or by the terms of documents or contracts of banks or other financial institutions in relation to the ordinary maintenance and administration of Deposit Accounts or securities accounts;
(12)non-exclusive licenses and sublicenses, whether written, oral or implied, to Intellectual Property granted in the ordinary course of business and consistent with past practice that do not materially interfere with the ordinary conduct of the business of the Loan Parties;
(13)Liens incurred in the ordinary course of business of Parent or any Restricted Subsidiary of Parent with respect to obligations that do not exceed in the aggregate [*] at any one time outstanding;
(14)leases, subleases, interchanges, use agreements, license agreements and/or swap agreements constituting “Permitted Dispositions”;
(15)in the case of any Gate Leaseholds, any interest or title of a licensor, sublicensor, lessor, sublessor or airport operator under any lease, license or use agreement;
(16)in each case as it relates to Aircraft, Engine, Spare Parts, Appliances or Parts that may be pledged as Additional Collateral from time to time (any such pledged Additional Collateral, “Pledged Aircraft, Engine, Spare Parts, Appliances or Parts Collateral”), Liens solely on Engines, Spare Parts, Appliances, Parts, components, instruments, appurtenances, furnishings and other equipment (other than the Pledged Aircraft, Engine, Spare Parts, Appliances or Parts Collateral) (x) installed on such Pledged Aircraft, Engine, Spare Parts, Appliances or Parts Collateral and (y) separately financed by a Loan Party, to secure such financing;
(17)customary Liens securing the Indebtedness permitted under Section 6.02(h) in accordance with the terms thereof; provided that, such Liens are limited to the fixed or capital assets that are acquired, constructed or improved by such Indebtedness;
(18)easements, zoning restrictions, licenses, title restrictions, rights-of-way and similar encumbrances on real property imposed by law or incurred or granted by Parent or any Restricted Subsidiary in the ordinary course of business that do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of Parent or any Restricted Subsidiary;
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(19)to the extent Parent or any of its Restricted Subsidiaries is an obligor in respect of any Aircraft Financing, pledges of, collateral assignments of or other Liens securing such Aircraft Financing on any lease, sublease, interchange, license, contract, arrangement or agreement related to such financed Aircraft, Engine or Spare Parts, including Aircraft Financing Related Cargo Business Assets to which Parent or such Restricted Subsidiary, as applicable, is a party; and/or
(20)with respect to the equity pledge agreement in respect of TAM Linhas Aéreas S.A.’s shares, the fiduciary lien created by the equity fiduciary lien agreement over the shares held in TAM Linhas Aéreas S.A., considering the listing of assets (arrolamento de bens) in connection with the Administrative Proceeding No. 13855.720079/2014-93, as required by article 12 of Federal Revenue Office Normative Ruling (Instrução Normativa RFB) No. 2,091, dated June 22, 2022;
provided that until a perfected Lien has been provided to the Collateral Trustee or a Local Collateral Agent, as applicable, in respect of any Deferred Asset, no consensual Lien shall be granted in respect of any such Deferred Asset.
“Permitted Person” shall mean (i) any Person (including any “person” as that term is used in Section 13(d)(3) of the Exchange Act) which owns or operates, directly or indirectly through a contractual arrangement, a Permitted Business, or (ii) any Subsidiary of such Person.
“Permitted Priority Liens” shall mean valid, perfected and unavoidable Liens that were in existence immediately prior to the Petition Date or that are perfected as permitted by Section 546(b) of the Bankruptcy Code.
“Permitted Refinancing Indebtedness” shall mean any Indebtedness (or commitments in respect thereof) of Parent or any of its Restricted Subsidiaries issued in exchange for, or the proceeds of which are used to renew, refund, extend, refinance, replace, defease or discharge other Indebtedness (the “Refinanced Indebtedness”) of Parent or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1)the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the original principal amount (or accreted value, if applicable) when initially incurred of the Refinanced Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith); provided that, with respect to any such Permitted Refinancing Indebtedness that is refinancing secured Indebtedness and is secured by the same collateral, the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness shall not exceed the greater of (x) the preceding amount and (y) the Fair Market Value of the assets securing such Permitted Refinancing Indebtedness (taking into account any other Indebtedness secured on a pari passu or senior basis by such assets);
(2)such Permitted Refinancing Indebtedness has a maturity date no earlier than the maturity date of the Refinanced Indebtedness;
(3)such Permitted Refinancing Indebtedness has a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity of the Refinanced Indebtedness;
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(4)if the Refinanced Indebtedness is subordinated in right of payment to the Loans, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Loans on terms at least as favorable to the Lenders as those contained in the documentation governing the Refinanced Indebtedness;
(5)no Restricted Subsidiary that is not a Loan Party shall be an obligor with respect to such Permitted Refinancing Indebtedness unless such Restricted Subsidiary was an obligor with respect to the Refinanced Indebtedness; and
(6)such Permitted Refinancing Indebtedness is incurred no later than 36 months after the date on which the Refinanced Indebtedness is actually repaid or discharged by Parent or any of its Restricted Subsidiaries.
“Permitted Sale Leaseback” shall have the meaning assigned thereto on Annex B.
“Person” shall mean any natural person, corporation, division of a corporation, partnership, limited liability company, trust, joint venture, association, company, estate, unincorporated organization, Airport Authority or Governmental Authority or any agency or political subdivision thereof.
“Peruvian Engine Pledge” shall have the meaning assigned to such term in the Collateral Trust Agreement.
“Peruvian Preventivo” shall mean the Peruvian “preventive proceeding” filed on May 26, 2020 with the Institute for the Defense of Competition and Intellectual Property with respect to LATAM Airlines Perú S.A.
“Petition Date” shall mean, with respect to the Initial Obligors, May 26, 2020, the date of commencement of their Chapter 11 Cases, and, with respect to the Additional Obligors, July 9, 2020, the date of commencement of their Chapter 11 Cases.
“Plan” shall mean any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Plan Asset Regulations” shall mean 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA.
“Pledge and Security Agreement” shall mean that certain Priority Lien Pledge and Security Agreement dated as of the Closing Date by and among the Collateral Trustee and the Loan Parties, substantially in the form attached as Exhibit E to the Collateral Trust Agreement, as amended, restated, modified, supplemented, extended or amended and restated from time to time.
“Pledged Engines” shall have the meaning given to it in the Pledge and Security
Agreement.
“Pledged Gate Leaseholds” shall have the meaning given to it in the Pledge and Security
Agreement.
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“Pledged Routes” shall mean, to the extent not excluded as Excluded Assets, all Routes owned by any Loan Party.
“Pledged SGR” shall mean the Pledged Slots, Pledged Gate Leaseholds and Pledged
Routes.
“Pledged Slots” shall have the meaning given to it in the Pledge and Security Agreement.
“Pledged Spare Parts” shall have the meaning given to it in the Pledge and Security
Agreement.
“Post-Closing Guarantor” shall mean any Subsidiary of Parent that becomes a Guarantor after the Closing Date.
“Prepayment Percentage” shall mean 100%.
“Pre-Petition Indebtedness” shall have the meaning set forth in Annex B hereto.
“Prime Rate” shall mean the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“Priority Lien” shall mean a Lien granted pursuant to a Collateral Document to the Collateral Trustee or any Local Collateral Agent, at any time, upon any property of any Loan Party to secure any Priority Lien Obligations, including the Liens granted to the Collateral Trustee and each Local Collateral Agent in connection with this Agreement, the Revolving Credit Agreement, the 2027 Bridge Loan Credit Agreement and the 2029 Bridge Loan Credit Agreement.
“Priority Lien Debt” shall mean:
(a)Indebtedness of the Loan Parties under (i) the 2027 Bridge Loan Credit Agreement, any 2027 Exchange Notes Indenture, and any agreement or instrument pursuant to which any 2027 Securities secured by all or a portion of the Collateral on a pari passu basis with the Obligations are issued, in an aggregate principal amount not to exceed $750.0 million under this clause (a)(i), (ii) the 2029 Bridge Loan Credit Agreement, any 2029 Exchange Notes Indenture, and any agreement or instrument pursuant to which any 2029 Securities secured by all or a portion of the Collateral on a pari passu basis with the Obligations are issued, in an aggregate principal amount not to exceed $750.0 million under this clause (a)(ii) and (iii) any Permitted Refinancing Indebtedness in respect of any Indebtedness incurred pursuant to clause (a)(i) or (ii) (or any successive Permitted Refinancing Indebtedness) that is secured by all or a portion of the Collateral on a pari passu basis with the Obligations;
(b)(i) Indebtedness of the Loan Parties under the Revolving Credit Facility (including letters of credit and reimbursement obligations with respect thereto) in an aggregate principal amount not to exceed [*] at any time outstanding, and (ii) on and after the Conversion Date, additional Indebtedness of Parent under the Revolving Credit Facility (including letters of credit and reimbursement obligations with respect thereto) or any other
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revolving facility in an aggregate principal amount not to exceed [*] at any time outstanding in addition to any Indebtedness incurred pursuant to clause (i) of this paragraph (b); provided that, after giving Pro Forma Effect to the issuance or incurrence of any such Indebtedness incurred pursuant to this clause (ii), the aggregate amount of all Priority Lien Debt, and without duplication, Senior Priority Refinancing Indebtedness (including, in each case, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under a revolving credit facility as of such date) would not exceed the greater of (A) [*] and (B) such an amount that would cause the Asset Coverage Ratio to be equal to [*], and (iii) any Permitted Refinancing Indebtedness (disregarding clauses (2) and (3) of such defined term) in respect of any Indebtedness incurred pursuant to clause (b)(i) or (ii) (or any successive Permitted Refinancing Indebtedness) that is secured by all or a portion of the Collateral on a pari passu basis with the Obligations; provided that all Indebtedness incurred under this clause (b) in the form of revolving Indebtedness may be senior or superpriority in right of payment from the Collateral to the Obligations;
(c)(i) Indebtedness of the Loan Parties under this Agreement and (ii) any Permitted Refinancing Indebtedness in respect of any Indebtedness incurred pursuant to clause (c)(i) (or any successive Permitted Refinancing Indebtedness) that is secured by all or a portion of the Collateral on a pari passu basis with the Obligations; and
(d)(i) any other Total Funded Debt of the Loan Parties that is secured by all or a portion of the Collateral on a pari passu basis with the Obligations; provided that (1) after giving Pro Forma Effect to the issuance or incurrence of any such Indebtedness, the aggregate principal amount of the sum of all Priority Lien Debt, and, without duplication, Senior Priority Refinancing Indebtedness (including, in each case, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under a revolving credit facility as of such date) would not exceed the greater of (A) [*] and (B) such an amount that would cause the Asset Coverage Ratio to be equal to [*], and (2) other than with respect to Conversion Date Indebtedness, no Indebtedness may be incurred under this clause (d) prior to the Conversion Anniversary Date and (ii) any Permitted Refinancing Indebtedness in respect of any Indebtedness incurred pursuant to clause (d)(i) (and any successive Permitted Refinancing Indebtedness) that is secured by all or a portion of the Collateral on a pari passu basis with the Obligations.
“Priority Lien Obligations” shall have the meaning given to the term “Secured Obligations” in the Collateral Trust Agreement.
“Priority Lien Secured Parties” shall have the meaning given to the term “Secured Parties” in the Collateral Trust Agreement.
“Priority Pledged Engine” shall mean those Engines set forth on Schedule 5.5 to the Pledge and Security Agreement.
“Priority Pledged Equity Interests” shall mean those Pledged Equity Interests (as defined in the Pledge and Security Agreement and any similar term defined in the Non-U.S. Pledge Agreements) subject to a Priority Lien as set forth in the Pledge and Security Agreement and the Non-U.S. Pledge Agreements, as applicable.
“Pro Forma Basis,” “Pro Forma Compliance” and “Pro Forma Effect” means, in connection with determining whether any Disposition, Investment or other Restricted Payment, or repayment and/or incurrence of Indebtedness (each a “Pro Forma Event”) is permitted by reference to the Asset Coverage Ratio, Total Asset Coverage Ratio, Asset Coverage Test or Consolidated Liquidity, that
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such calculations shall be determined by Parent in good faith after giving pro forma effect to each Pro Forma Event (and any transactions related thereto).
“Process Agent” shall have the meaning set forth in Section 3.17.
“Professional Fees” shall mean the fees and reimbursable expenses of a Professional Person, solely to the extent such fees have been approved by the Bankruptcy Court.
“Professional Person” shall mean a person who is an attorney, financial advisor, accountant, appraiser, monitor, auctioneer or other professional person and who is retained, with Bankruptcy Court approval, by (a) the Loan Parties pursuant to any one or more of Sections 327 328(a) and 363 of the Bankruptcy Code or (b) the Creditors’ Committee pursuant to Section 1103(a) of the Bankruptcy Code.
“Professional User” shall have the meaning given it in the Regulations and Procedures for the International Registry.
“Promissory Note” shall have the meaning set forth in Section 2.08(e).
“PTE” shall mean a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Qatar Group” shall mean Qatar Airways Group Q.C.S.C., a company incorporated under the laws of the State of Qatar with commercial registration number 16070 and having its principal place of business at Qatar Airways Tower One, Airport Road, P.O. Box 22550, Doha, Qatar.
“Qualified Receivables Transaction” shall mean any transaction or series of transactions entered into by Parent or any of its Subsidiaries pursuant to which Parent or any of its Subsidiaries (a) sells, conveys or otherwise transfers to (x) a Receivables Subsidiary or any other Person (in the case of a transfer by Parent or any of its Subsidiaries) or (y) any other Person (in the case of a transfer by a Receivables Subsidiary), or (b) grants a security interest in any Passenger Accounts Receivable, whether now existing or arising in the future, of Parent or any of its Subsidiaries, and any assets related thereto including, without limitation, all Equity Interests and other investments in the Receivables Subsidiary, all collateral securing such Passenger Accounts Receivable, all contracts and all Guarantees or other obligations in respect of such Passenger Accounts Receivable, proceeds of such Passenger Accounts Receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable, other than assets that constitute Collateral or proceeds of Collateral.
“Qualifying Equity Interests” shall mean Equity Interests of Parent other than Disqualified Stock.
“RCF Loan Agreement” shall mean that certain credit and guaranty agreement dated as of March 29, 2016 by and among Parent, as borrower, Citibank, N.A, as administrative agent, the guarantors from time to time party thereof, the collateral agents from time to time party thereto, and the lenders from time to time party thereto, as amended, restated, amended and restated, supplemented or otherwise modified from time to time.
“RCF Spare Parts Replacement Liens” shall have the meaning set forth in Annex B.
“Real Estate” shall have the meaning set forth in Section 5.01(k).
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“Real Estate Mortgages” shall have the meaning set forth in the Collateral Trust
Agreement.
“Receivables Pledge Agreements” shall have the meaning set forth in the Collateral Trust
Agreement.
“Receivables Subsidiary” shall mean a Subsidiary of Parent which engages in no activities other than in connection with the financing of Passenger Accounts Receivable and which is designated by the Board of Directors of Parent (as provided below) as a Receivables Subsidiary; provided that (a) no portion of its Indebtedness or any other obligations (contingent or otherwise) (1) is guaranteed by Parent or any Restricted Subsidiary of Parent that is not a Receivables Subsidiary (other than comprising a pledge of the Capital Stock or other interests in such Receivables Subsidiary (an “incidental pledge”), and excluding any Guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction), (2) is recourse to or obligates Parent or any Restricted Subsidiary of Parent in any way other than through an incidental pledge or pursuant to representations, warranties, covenants, indemnities or other obligations that are usual and customary for a limited recourse financing in the applicable jurisdiction in connection with a Qualified Receivables Transaction or (3) subjects any property or asset of Parent or any Subsidiary of Parent that is not a Receivables Subsidiary (other than Passenger Accounts Receivable and related assets as provided in the definition of “Qualified Receivables Transaction”), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction,
(b)with which neither Parent nor any other Restricted Subsidiary of Parent that is not a Receivables Subsidiary has any material contract, agreement, arrangement or understanding (other than pursuant to the Qualified Receivables Transaction) other than (i) on terms no less favorable to Parent or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Parent, and (ii) fees payable in the ordinary course of business in connection with servicing Passenger Accounts Receivable and (c) with which neither Parent nor any other Subsidiary of Parent has any obligation to maintain or preserve such Subsidiary’s financial condition, other than a minimum capitalization in customary amounts, or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of a Parent will be evidenced to the Administrative Agent by filing with the Administrative Agent a certified copy of the resolution of the Board of Directors of Parent giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the foregoing conditions.
“Recovery Event” shall mean any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding in respect of Significant Assets or any Event of Loss.
“Reference Date” shall mean the thirtieth (30th) Business Day after each of March 31st and September 30th of each calendar year (commencing with March 31, 2023).
“Reference Time” with respect to any setting of the then-current Benchmark shall mean
(a) if such Benchmark is the Term SOFR Rate, 5:00 a.m. (Chicago time) on the day that is two U.S. Government Securities Business Days preceding the date of such setting, (b) if the RFR for such Benchmark is Daily Simple SOFR, then four Business Days prior to such setting or (c) if such Benchmark is none of the Term SOFR Rate or Daily Simple SOFR, the time determined by the Administrative Agent in its reasonable discretion.
“Refinanced Term Loans” shall have the meaning set forth in Section 2.24(a).
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“Refinancing Amendment” shall mean an amendment to this Agreement executed by each of (a) the Borrowers and the other Loan Parties, (b) the Administrative Agent and (c) each Lender that agrees to provide any portion of the Replacement Term Loans being incurred pursuant thereto, in accordance with Section 2.24.
“Register” shall have the meaning set forth in Section 10.02(b)(iv).
“Regulations and Procedures for the International Registry” shall mean the official English language text of the International Registry Procedures and Regulations issued by the Supervisory Authority (as defined in the Cape Town Convention) pursuant to the Aircraft Protocol.
“Related Obligations” shall mean, with respect to any Indebtedness, any principal (including reimbursement obligations with respect to letters of credit whether or not drawn), interest (including interest accruing after the maturity of such Indebtedness and interest accruing after the filing of any petition of bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the borrower or issuer thereof, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities, in each case payable under the documentation governing such Indebtedness.
“Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, partners, members, employees, agents and advisors of such Person and such Person’s Affiliates.
“Release” shall mean spilling, leaking, pumping, pouring, emitting, emptying, discharging, migrating, injecting, escaping, leaching, dumping, or disposing of any Hazardous Material into the environment.
“Relevant Governmental Body” shall mean the Federal Reserve Board or the NYFRB, the Term SOFR Administrator, as applicable, or a committee officially endorsed or convened by the Federal Reserve Board or the NYFRB, or any successor thereto.
“Relevant Rate” shall mean (i) with respect to any Term Benchmark Borrowing, the Adjusted Term SOFR Rate or (ii) with respect to any RFR Borrowing, the Adjusted Daily Simple SOFR, as applicable.
“Reorganization Plan” shall mean the Joint Plan of Reorganization of LATAM Airlines Group, S.A., et al. Under Chapter 11 of the Bankruptcy Code [Docket No. 5753], as amended, supplemented or modified in accordance with the provisions thereto (but without giving effect to any amendment, supplement or modification that is materially adverse to the Lenders to which the Required Lenders have not consented).
“Replacement Term Loans” shall have the meaning set forth in Section 2.24(a).
“Required Class Lenders” shall mean, with respect to any Class of Term Loans, the Term Lenders having more than 50% of all outstanding Term Loans of such Class.
“Required Lenders” shall mean, at any time, Lenders holding more than 50% of (a) until the Closing Date, the Term Loan Commitments then in effect and (b) thereafter, the aggregate principal amount of all Term Loans outstanding. The outstanding Loans and Commitments of any Defaulting Lender shall be disregarded in determining the “Required Lenders” at any time.
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“Resolution Authority” shall mean an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Restricted Investment” shall mean an Investment other than a Permitted Investment.
“Restricted Payments” shall have the meaning set forth in Section 6.01(a).
“Restricted Subsidiary” of a Person shall mean any Subsidiary of the referent Person that is not an Unrestricted Subsidiary; provided that, if a referent Person is not specified, then the referent Person shall be Parent.
“Revised Claims Procedures Order” shall mean the Revised Order Pursuant to 11 U.S.C.
§ 105(a) and Fed. R. Bankr. P. 3007 (I) Establishing Claims Objection and Notice Procedures and (II) Granting Related Relief (ECF No. 3624) entered by the Bankruptcy Court on November 19, 2021.
“Revolver Administrative Agent” shall have the meaning given to such term in the Collateral Trust Agreement.
“Revolving Credit Agreement” shall have the meaning given to such term in the Collateral Trust Agreement.
“Revolving Credit Facility” shall mean the credit facility established under the Revolving Credit Agreement in favor of Parent in accordance with the terms set forth therein or in the other Revolving Loan Documents.
“Revolving Loan Documents” shall mean the “Loan Documents” as defined in the Revolving Credit Agreement.
“RFR Borrowing” shall mean, as to any Borrowing, the RFR Loans comprising such
Borrowing.
“RFR Loan” shall mean a Loan that bears interest at a rate based on the Adjusted Daily
Simple SOFR.
“Routes” shall mean the authority of Parent or, if applicable, another Loan Party, pursuant to Title 49 or other applicable law, to operate scheduled service between a specifically designated pair of terminal points and intermediate points, if any, including applicable frequencies, exemption and certificate authorities, including at any time of determination, any route authority identified on Schedule 5.2 of the Pledge and Security Agreement as such Schedule may be amended or modified from time to time in accordance with the terms hereof and “Route” shall mean any of such route authorities as the context requires, in each case whether or not such route authority is utilized at such time by a Borrower or a Loan Party and including, without limitation, any other route authority held by a Loan Party pursuant to certificates, orders, notices and approvals issued to a Loan Party from time to time, but in each case solely to the extent relating to such route authority.
“S&P” shall mean S&P Global Ratings, and its successors.
“Sale of a Loan Party” shall mean, with respect to any Significant Asset, an issuance, sale, lease, conveyance, transfer or other disposition of the Capital Stock of the applicable Loan Party that owns such Significant Asset other than (1) an issuance of Equity Interests by a Loan Party to Parent or another Restricted Subsidiary of Parent, and (2) an issuance of directors’ qualifying shares.
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“Sanctioned Country” shall have the meaning given to such term in Section 3.16(b).
“Sanctioned Person” shall have the meaning given to such term in Section 3.16(b).
“Sanctions” shall have the meaning given to such term in Section 3.16(b).
“Scheduled Maturity Date” shall mean October 12, 2027.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“Second Conversion Anniversary Date” shall mean the date that is two years after the Conversion Date.
“Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral Trustee, the Local Collateral Agents, the Lenders and all other holders of Obligations.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Senior Priority Refinancing Indebtedness” shall mean any Permitted Refinancing Indebtedness in respect of Priority Lien Debt (and any successive Permitted Refinancing Indebtedness) other than any Permitted Refinancing Indebtedness that is subordinated in right of payment to the Obligations on terms reasonably satisfactory to the Administrative Agent.
“Shareholder Backstop Commitment Agreement” shall mean that certain Backstop Commitment Agreement dated as of January 12, 2022, by and among Parent, each of its direct and indirect debtor subsidiaries that have filed Chapter 11 Cases and certain shareholders of Parent in their capacity as backstop parties party thereto, as may be amended, restated, modified, supplemented, extended or amended and restated from time to time in accordance with the terms thereof; provided that, for purpose of determining the satisfaction of the Conditions to Conversion, the Shareholder Backstop Commitment Agreement referred to therein shall be such agreement as in effect on June 10, 2022.
“Significant Assets” shall mean (a) the Collateral, (b) the Coverage Assets and (c) any other Slots, Gate Leaseholds and Routes.
“Slot” shall mean, at any date of determination, the right and operational authority to conduct one landing or take-off operation at a specific time or during a specific time period at an airport and including, without limitation, slots, arrival authorizations and operating authorizations, whether pursuant to FAA or DOT regulations or orders pursuant to Title 14, Title 49 or other federal statutes or regulations now or hereinafter in effect, but excluding in all cases any slot that was obtained by a Person from another air carrier pursuant to an agreement and is held by such Person on a temporary basis.
“SOFR” shall mean a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” shall mean the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” shall mean the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
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“SOFR Determination Date” shall have the meaning specified in the definition of “Daily
Simple SOFR.”
“SOFR Loan” shall have the meaning given to such term in Section 2.25.
“SOFR Rate Day” shall have the meaning specified in the definition of “Daily Simple
SOFR.”
“Spare Engine Loan Agreement” shall mean that certain Amended and Restated Loan Agreement, dated as of June 29, 2018, by and among Parent, acting through its Florida Branch, as borrower, Crédit Agricole Corporate and Investment Bank, as lender, arranger, agent, and security agent, and the other lenders party thereto, as modified, replaced or refinanced from time to time.
“Spare Parts” shall mean all accessories, appurtenances or Parts of an Aircraft (except an Engine), Parts of an Engine, or Parts of an Appliance, in each case that are to be installed at a later time in an Aircraft, Engine or Appliance.
“Specified Jurisdiction” shall mean the United States, any state of the United States, the District of Columbia, Luxembourg, the Netherlands or any other jurisdiction mutually agreed by Parent and the Administrative Agent.
“Stated Maturity” shall mean, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“Statement of Changes in Equity” shall have the meaning given to such term in
Section 5.01(a).
“Statement of Comprehensive Income” shall have the meaning given to such term in
Section 5.01(a).
“Statement of Financial Position” shall have the meaning given to such term in
Section 5.01(a).
“Subject Company” shall have the meaning set forth in Section 6.09(a).
“Subsidiary” shall mean, in respect of any specified Person, any corporation, association, partnership or other business entity of which more than 50% of the total Voting Power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person.
“Superpriority Claim” shall mean a claim against an Obligor in any of the Chapter 11 Cases which is an administrative expense claim having priority and right to payment over all other administrative expenses and unsecured claims against such Obligor of any kind or nature, whether now existing or hereafter arising, including all administrative expenses of the kind specified in or arising or ordered under sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1113 and 1114 of the Bankruptcy Code.
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“Tax Indemnitee” shall have the meaning set forth in the definition of “Excluded Taxes.”
“Tax Return” shall mean any return, report, form, claim for refund, information return, declaration, statement, schedule or other similar document (including but not limited to any related or supporting information, schedule or attachment thereto and estimated or amended returns, reports, forms, information returns, declarations, statements or schedules) relating to Taxes.
“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, assessments, fees, deductions, charges or withholdings imposed by any Governmental Authority including any interest, additions to tax or penalties applicable thereto.
“Term Benchmark” shall mean, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted Term SOFR Rate.
“Term Benchmark Tranche” shall mean the collective reference to Term Benchmark Loans under the Term Loan Facility the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).
“Term Lender” shall mean each Lender having a Term Loan Commitment or, as the case may be, an outstanding Term Loan.
“Term Loan” shall mean the Initial Term Loans and any other Class of Term Loan
hereunder.
“Term Loan Commitment” shall mean the commitment of each Term Lender to make Term Loans hereunder and, in the case of the Initial Term Loans, in an aggregate principal amount equal to the amount set forth under the heading “Term Loan Commitment” opposite its name in Annex A hereto or in the Assignment and Acceptance pursuant to which such Term Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is $750.0 million. The Term Loan Commitments as of the Closing Date are for Initial Term Loans.
“Term Loan Extension” shall have the meaning given to such term in Section 2.23(a).
“Term Loan Extension Offer” shall have the meaning given to such term in
Section 2.23(a).
“Term Loan Extension Offer Date” shall have the meaning given to such term in Section 2.23(a)(i).
“Term Loan Facility” shall mean the credit facility established under this Agreement in favor of the Borrowers in accordance with the terms set forth herein or in the other Loan Documents and pursuant to which the Commitments are established.“Term SOFR Administrator” shall mean the CME Group Benchmark Administration Limited (CBA) as administrator of the forward-looking term Secured Overnight Financing Rate (SOFR) (or a successor administrator).
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“Term SOFR Determination Day” shall have the meaning assigned to it under the definition of Term SOFR Reference Rate.
“Term SOFR Rate” shall mean, with respect to any Term Benchmark Borrowing and for any tenor comparable to the applicable Interest Period, the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, two U.S. Government Securities Business Days prior to the commencement of such Interest Period, as such rate is published by the Term SOFR Administrator.
“Term SOFR Reference Rate” shall mean for any day and time (such day, the “Term SOFR Determination Day”), with respect to any Term Benchmark Borrowing denominated in Dollars and for any tenor comparable to the applicable Interest Period, the rate per annum published by the Term SOFR Administrator and identified by the Administrative Agent as the forward-looking term rate based on SOFR. If by 5:00 pm (New York City time) on such Term SOFR Determination Day, the “Term SOFR Reference Rate” for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Rate has not occurred, then, so long as such day is otherwise a U.S. Government Securities Business Day, the Term SOFR Reference Rate for such Term SOFR Determination Day will be the Term SOFR Reference Rate as published in respect of the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate was published by the Term SOFR Administrator, so long as such first preceding U.S. Government Securities Business Day is not more than five (5) U.S. Government Securities Business Days prior to such Term SOFR Determination Day.
“Title 49” shall mean Title 49 of the United States Code, which, among other things, recodified and replaced the U.S. Federal Aviation Act of 1958, and the rules and regulations promulgated pursuant thereto, and any subsequent legislation that amends, supplements or supersedes such provisions.
“Total Asset Coverage Ratio” shall mean, as of any date, the ratio of (a) the Appraised Value of the Coverage Assets as of such date to (b) the sum of (i) the aggregate principal amount of all Priority Lien Debt as of such date (including, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under all revolving credit facilities (including the Revolving Credit Agreement) of Parent and its Restricted Subsidiaries as of such date) plus (ii) the aggregate principal amount of all Junior Lien Indebtedness (including, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under a revolving credit facility as of such date) plus (iii) without duplication, the aggregate principal amount of all Permitted Refinancing Indebtedness in respect of Priority Lien Debt or Junior Lien Indebtedness as of such date (including, in each case, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under a revolving credit facility constituting such Permitted Refinancing Indebtedness as of such date) plus (iv) the aggregate outstanding amount of Pre-Sold Currency.
“Total Funded Debt” shall mean, as of any date, the outstanding principal amount of all funded third-party Indebtedness for borrowed money of Parent and its Restricted Subsidiaries determined on a consolidated basis (excluding, for the avoidance of doubt, any Aircraft or Engine leases or other lease obligations), as reflected on a balance sheet of Parent and its Restricted Subsidiaries prepared in accordance with IFRS.
“Transactions” shall mean (a) the execution, delivery and performance by the Loan Parties of this Agreement and the other Loan Documents to which they may be a party, (b) the creation of the Liens on the Collateral in favor of the Collateral Trustee or the Local Collateral Agents, as applicable, for the benefit of the Secured Parties, (c) the incurrence of the commitments and the borrowing of the Loans (as defined in the Revolving Credit Agreement) under the Revolving Credit Agreement and the borrowing of the 2027 Bridge Loans, the 2029 Bridge Loans and the term loans under the Junior DIP
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Facility, (d) the use of the proceeds of the Indebtedness referred to in clause (c), including the satisfaction in full of the obligations under the Existing DIP Facility and (e) the borrowing of the Loans hereunder and the use of proceeds thereof.
“Treasury Rate” shall mean, as of the date of any repayment, prepayment, redemption or acceleration of Term Loans or the Term Loans becoming due and payable, the yield to maturity as of such date of U.S. Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least one Business Day prior to such day of repayment, prepayment, redemption or acceleration or such date such Term Loan became due and payable (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such date of repayment, prepayment, redemption or acceleration to the first anniversary of the Closing Date (in the case of the Closing Date Make Whole Premium) or the second anniversary of the Closing Date (in the case of the Emergence Make Whole Premium); provided that if such period is less than one year, the weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of one year will be used.
“Type,” when used in reference to any Term Loan or Borrowing, refers to whether the rate of interest on such Term Loan or on the Term Loans comprising such Borrowing, as determined by reference to the Adjusted Term SOFR Rate, the Alternate Base Rate or the Adjusted Daily Simple SOFR.
“U.S. Benefit Plan” shall mean any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I or Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA.
“U.S. Government Securities Business Day” shall mean any day except for (i) a Saturday,
(ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.
“U.S. Real Estate Mortgage” shall mean an agreement, including, but not limited to, a mortgage, deed of trust, leasehold mortgage, leasehold deed of trust or any other document, as amended, restated, modified, supplemented, extended or amended and restated from time to time, creating and evidencing a Lien in favor of the Collateral Trustee on that certain real property leased by Loan Party and set forth on Schedule 1.1(c) to the Collateral Trust Agreement.
“UCC” shall mean the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code or any successor provision thereof (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to the perfection or priority of any Lien on any item or items of Collateral.
“UK Financial Institution” shall mean any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” shall mean the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
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“Unadjusted Benchmark Replacement” shall mean the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Uninsured Liabilities” shall mean any losses, damages, costs, expenses and/or, liabilities (including any losses, damages, costs, expenses or liabilities resulting from property damage or casualty, general liability, workers’ compensation claims and business interruption) incurred by any Borrower or any Guarantor which are not covered by insurance, but with respect to which insurance coverage is commercially available to Persons engaged in the same or similar business as the Borrowers and the Guarantors.
“Unrestricted Cash Amount” means, (a) on any date of determination, as determined in accordance with IFRS (where applicable), the aggregate amount of unrestricted cash and Cash Equivalents owned by the Parent or any Restricted Subsidiary as shown on a balance sheet prepared in accordance with IFRS and (b) cash and Cash Equivalents owned by the Parent or any Restricted Subsidiary restricted in favor of any Secured Party to secure the Obligations (it being understood such cash and Cash Equivalents may also secure other Secured Obligations (as defined in the Pledge and Security Agreement)).
“Unrestricted Subsidiary” shall mean any Subsidiary of Parent that is designated by the Board of Directors of Parent as an Unrestricted Subsidiary if that designation would not cause a Default or Event of Default and no Default or Event of Default exists at the time of such designation; provided that if a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Parent and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation, which Investment is permitted at that time under Section 6.01. Any designation of an Unrestricted Subsidiary shall be made pursuant to a resolution of the Board of Directors, but only if such Subsidiary:
(1)has no Indebtedness other than Non-Recourse Debt;
(2)other than as permitted by Section 6.04 hereof, is not party to any agreement, contract, arrangement or understanding with Parent or any Restricted Subsidiary of Parent unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Parent or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Parent;
(3)is a Person with respect to which neither Parent nor any of its Restricted Subsidiaries has any direct or indirect obligation (A) to subscribe for additional Equity Interests or (B) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results;
(4)has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Parent or any of its Restricted Subsidiaries;
(5)has substantially simultaneously with any such designation, been similarly designated under the documents governing any outstanding Priority Lien Debt, the Junior DIP Facility (if outstanding) and any outstanding Junior Lien Indebtedness;
(6)after giving effect to such designation, the Asset Coverage Ratio shall be greater than or equal to [*];
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(7)does not own any assets or properties that constitute Collateral; and
(8)does not own assets or properties, taken together with the assets and properties owned by existing Unrestricted Subsidiaries (and Restricted Subsidiaries that substantially simultaneously with such designation shall also be designated as Unrestricted Subsidiaries), in excess [*].
The Board of Directors of Parent may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (x) no Default or Event of Default would be in existence following such designation, (y) after giving effect to such designation, the Asset Coverage Ratio shall be greater than or equal to [*] and (z) all Liens of such Unrestricted Subsidiary outstanding immediately following such designation would, if incurred at such time, have been permitted to be incurred for all purposes of this Agreement.
“Updated DIP Budget” shall have the meaning set forth in the definition of “DIP
Budget.”
“Use” shall mean, with respect to any Hazardous Materials, generation, manufacture, processing, distribution, handling, possession, use, discharge, placement, treatment, disposal, transportation, disposition, removal, abatement, recycling or storage.
“Use or Lose Rule” shall mean with respect to Slots, any applicable utilization requirements issued by the FAA, other Governmental Authorities, any Non-U.S. Aviation Authorities or any Airport Authorities.
“Voting Power” in respect of any Person shall mean the power to vote, or direct the vote of, the Voting Stock of such Person (rather than simply the number of shares of Voting Stock held in respect of such Person).
“Voting Stock” of any specified Person as of any date shall mean the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“Weighted Average Life to Maturity” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1)the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2)the then outstanding principal amount of such Indebtedness.
“Withholding Agent” shall mean each Borrower, each Guarantor and the Administrative
Agent.
“Write-Down and Conversion Powers” shall mean (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down
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and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
Section 1.02. Terms Generally; Classifications of Loans and Borrowings.
(a)The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein, this Agreement or any other Loan Document shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented, extended, amended and restated or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in such other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, unless expressly provided otherwise, (v) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (vi) “knowledge” or “aware” or words of similar import shall mean, when used in reference to the Borrowers or the Guarantors, the actual knowledge of any Officer and (vii) any reference to any law, rule or regulation herein shall, unless otherwise specified, refer to such law, rule or regulation as amended, modified or supplemented from time to time.
(b)For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Term Loan”) or by Type (e.g., a “Term Benchmark Loan” or an “RFR Loan”) or by Class and Type (e.g., a “Term Benchmark Term Loan” or an “RFR Term Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Term Borrowing”) or by Type (e.g., a “Term Benchmark Borrowing” or an “RFR Borrowing”) or by Class and Type (e.g., a “Term Benchmark Term Borrowing” or an “RFR Term Borrowing”).
Section 1.03. Accounting Terms; IFRS. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with IFRS, as in effect from time to time; provided that, if Parent notifies the Administrative Agent that the Borrowers request an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in IFRS or in the application thereof on the operation of such provision (or if the Administrative Agent notifies Parent that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in IFRS or in the application thereof, then such provision shall be interpreted on the basis of IFRS as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Upon any such request for an amendment, the Borrowers, the Required Lenders and the Administrative Agent agree to consider in good faith any such amendment in order to amend the provisions of this Agreement so as to reflect equitably such accounting changes so that the criteria for evaluating Parent’s consolidated financial condition shall be the same after
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such accounting changes as if such accounting changes had not occurred; provided that with respect to the treatment of Capital Lease Obligations or other leases, IFRS shall be applied without regard to any changes to IFRS resulting from the adoption of IFRS 16 (Leases).
Section 1.04. Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized and acquired on the first date of its existence by the holders of its Equity Interests at such time.
Section 1.05. Interest Rates; Benchmark Notification. The interest rate on a Loan denominated in dollars may be derived from an interest rate benchmark that may be discontinued or is, or may in the future become, the subject of regulatory reform. Upon the occurrence of a Benchmark Transition Event, Section 2.17 provides a mechanism for determining an alternative rate of interest. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission, performance or any other matter related to any interest rate used in this Agreement, or with respect to any alternative or successor rate thereto, or replacement rate thereof, including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, the existing interest rate being replaced or have the same volume or liquidity as did any existing interest rate prior to its discontinuance or unavailability. The Administrative Agent and its affiliates and/or other related entities may engage in transactions that affect the calculation of any interest rate used in this Agreement or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrowers. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain any interest rate used in this Agreement, any component thereof, or rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrowers, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
Section 1.06. Calculations and Tests.
(a)For purposes of any determination under Article VI or any other provision of this Agreement subject to any Dollar limitation, threshold or basket, all amounts incurred, outstanding or proposed to be incurred or outstanding in currencies other than Dollars shall be translated into Dollars at the Exchange Rate (rounded to the nearest currency unit, with 0.5 or more of a currency unit being rounded upward) at the applicable time determined in accordance with this Section 1.06; provided, however, that for purposes of determining compliance with Article VI with respect to any amount in a currency other than Dollars, no Default or Event of Default shall be deemed to have occurred solely as a result of changes in rates of exchange occurring after the time such Indebtedness or Lien is incurred or Investment or other Restricted Payment or Disposition is made, or transaction with an Affiliate is entered into. For purposes of any determination of the Asset Coverage Ratio, the Total Asset Coverage Ratio or Consolidated Liquidity, amounts in currencies other than Dollars shall be translated into Dollars at the currency exchange rates used in preparing the most recently delivered financial statements pursuant to Section 5.01(a) or Section 5.01(b) (adjusted to reflect the currency translation effects, determined in accordance with IFRS, of any Hedging Agreements for currency exchange risks with respect to the applicable currency in effect on the date of determination of the Dollar Equivalent).
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(b)It is understood and agreed that any Indebtedness, Lien, Investment or other Restricted Payment, Disposition and/or Affiliate transaction need not be permitted solely by reference to one category of permitted Indebtedness, Lien, Investment or other Restricted Payment, Disposition and/or Affiliate transaction within the same covenant, but may instead be permitted in part under any combination thereof or under any other available exception within the same covenant.
ARTICLE 2.
AMOUNT AND TERMS OF CREDIT
Section 2.01. Commitments of the Lenders; Term Loans.
(a)Closing Date; Term Loan Commitments. Each Term Lender severally, and not jointly with the other Term Lenders, agrees, upon the terms and subject to the conditions herein set forth, to make a term loan denominated in Dollars (each, an “Initial Term Loan” and collectively the “Initial Term Loans”) to the Borrowers on the Closing Date in an aggregate principal amount equal to the Term Loan Commitment of such Term Lender on the Closing Date, which Initial Term Loans shall constitute Term Loans for all purposes of this Agreement and shall be repaid in accordance with the provisions of this Agreement. Any amount borrowed under this Section 2.01(a) and subsequently repaid or prepaid may not be reborrowed. Each Term Lender’s Term Loan Commitment shall terminate automatically and without further action on the Closing Date after giving effect to the funding by such Term Lender of the Initial Term Loans to be made by it on such date and permanently be reduced to $0 upon the funding of the Commitment on the Closing Date.
(b)Type of Borrowing. Subject to Section 2.17, each Borrowing shall be comprised entirely of ABR Loans or Term Benchmark Loans (or, in accordance with Section 2.17, RFR Loans) as the Borrowers may request in accordance with Section 2.02.
(c)Amount of Borrowing. At the commencement of each Interest Period for any Term Benchmark Borrowing, such Borrowing shall be in an aggregate amount that is in an integral multiple of
$1.0 million and not less than $1.0 million. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $1.0 million. Borrowings of more than one Type may be outstanding at the same time.
(d)Limitation on Interest Period. Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue, any Borrowing of a Term Loan if the Interest Period requested with respect thereto would end after the applicable Maturity Date.
(e)Pro Rata Share. All Initial Term Loans made by Term Lenders on the Closing Date are made ratably according to their respective Aggregate Exposure Percentages, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder.
Section 2.02. Requests for Loans. Unless otherwise agreed to by the Administrative Agent, to request the Initial Term Loans on the Closing Date, the Borrowers shall notify the Administrative Agent of such request by delivering a Loan Request (a) in the case of a Term Benchmark Borrowing, not later than 11:00 a.m., New York City time, three (3) U.S. Government Securities Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one (1) Business Day before the date of the proposed Borrowing. Each such Loan
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Request shall be irrevocable and shall be signed by the Financial Officer of each Borrower. Each such Loan Request shall specify the following information in compliance with Section 2.01:
(i)the aggregate amount of the requested Loan (which shall comply with Section 2.01(c));
(ii)the date of such Loan, which shall be a Business Day;
(iii)whether such Loan is to be an ABR Loan or a Term Benchmark Loan; and
(iv)in the case of a Term Benchmark Loan, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”.
If no election as to the Type of Loan is specified, then the requested Loan shall be an ABR Loan. If no Interest Period is specified with respect to any requested Term Benchmark Loan, then the Borrowers shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of the Loan Request in accordance with this Section 2.02, the Administrative Agent shall advise each Term Lender of the details thereof and of the amount of such Term Lender’s Term Loan to be made as part of the requested Loan.
Section 2.03. Funding of Loans.
(a)Each Lender shall make each Term Loan required to be made by it hereunder on the Closing Date by wire transfer of immediately available funds by 12:00 p.m., New York City time, or such other time as may be reasonably practicable, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Upon satisfaction or waiver of the applicable conditions precedent specified herein, the Administrative Agent will make the Term Loans available to the Borrowers by promptly crediting the proceeds so received, in like funds, to an account designated by the Borrowers in the applicable borrowing notice.
(b)Unless the Administrative Agent shall have received notice from a Lender prior to the time set forth in Section 2.03(a) that such Lender will not make available to the Administrative Agent such Lender’s share of such Loan, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.03(a) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Loan available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith upon written demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrowers, the interest rate otherwise applicable to such Loan. If such Lender pays such amount to the Administrative Agent, then (x) such amount shall constitute such Lender’s Loan included in such Loan and the Borrowers shall not be obligated to repay such amount pursuant to the preceding sentence if not previously repaid and (y) if such amount was previously repaid by the Borrowers, the Administrative Agent shall promptly make a corresponding amount available to the Borrowers.
Section 2.04. Interest Elections.
(a)The Borrowers may elect from time to time to (i) convert ABR Loans to Term Benchmark Loans, (ii) convert Term Benchmark Loans to ABR Loans; provided that any such conversion
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of Term Benchmark Loans may be made only on the last day of an Interest Period with respect thereto or
(iii) continue any Term Benchmark Loan as such upon the expiration of the then current Interest Period with respect thereto.
(b)To make an Interest Election Request pursuant to this Section 2.04, the Borrowers shall notify the Administrative Agent of such election by hand, facsimile or electronic mail delivery of a written Interest Election Request by the time that the Loan Request would be required under Section 2.02 if the Borrowers were requesting a Loan of the Type resulting from such election to be made on the effective date of such election; provided that the initial Interest Election Request may be incorporated into the Loan Request on the Closing Date. Each such Interest Election Request shall be irrevocable.
(c)Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.01:
(i)the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii)the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii)whether the resulting Borrowing is to be an ABR Borrowing or a Term Benchmark Borrowing; and
(iv)if the resulting Borrowing is a Term Benchmark Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Term Benchmark Borrowing but does not specify an Interest Period, then the Borrowers shall be deemed to have selected an Interest Period of one month’s duration.
(d)Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e)If the Borrowers fail to deliver a timely Interest Election Request with respect to a Term Benchmark Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Term Benchmark Borrowing with a one-month Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing, and upon the request of the Required Lenders, (i) no outstanding Borrowing may be converted to or continued as a Term Benchmark Borrowing and (ii) unless repaid, each Term Benchmark Borrowing (and, if applicable, each RFR Borrowing) shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 2.05. Limitation on Term Benchmark Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Term Benchmark Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that,
(a)after giving effect thereto, the aggregate principal amount of the Term Benchmark Loans comprising each Term Benchmark Tranche shall be equal to $1.0 million or a whole multiple of $1.0 million in
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excess thereof and (b) no more than ten (10) Term Benchmark Tranches shall be outstanding at any one time.
Section 2.06. Interest on Loans.
(a)Subject to the provisions of Section 2.07, each ABR Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 days or 366 days in a leap year) at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin.
(b)Subject to the provisions of Section 2.07, each Term Benchmark Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal, during each Interest Period applicable thereto, to the Adjusted Term SOFR Rate for such Interest Period in effect for such Borrowing plus the Applicable Margin.
(c)Subject to the provisions of Section 2.07, each RFR Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum to the Adjusted Daily Simple SOFR plus the Applicable Margin.
(d)Accrued interest on all Loans shall be payable in arrears on each Interest Payment Date applicable thereto, on the Maturity Date with respect to such Loans and thereafter on written demand and upon any repayment or prepayment thereof (on the amount repaid or prepaid); provided that in the event of any conversion of any Term Benchmark Loan to an ABR Loan or an RFR Loan, accrued interest on such Loan shall be payable on the effective date of such conversion.
Section 2.07. Default Interest. If any Borrower or any Guarantor, as the case may be, shall default in the payment of the principal of or interest on any Loan or in the payment of any other amount becoming due hereunder, whether at stated maturity, by acceleration or otherwise, the Borrowers shall pay interest, to the extent permitted by law, on all unpaid and overdue amounts up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days or, when the Alternate Base Rate is applicable, a year of 365 days or 366 days in a leap year) equal to (a) with respect to the principal amount of any Loan, the rate then applicable for such Borrowings plus 2.0%, and (b) in the case of all other amounts, the rate applicable for ABR Loans plus 2.0%.
Section 2.08. Amortization of Term Loans; Repayment of Loans; Evidence of Debt.
(a)(i) The principal amounts of the Initial Term Loans shall be repaid, for the ratable account of each Term Lender holding Initial Term Loans, in consecutive quarterly installments (each, an “Installment”) of 0.25% of the original aggregate principal amount thereof, on the last Business Day of each March, June, September and December, commencing with the first full fiscal quarter ended after the Conversion Date (or, if the Emergence Condition has not been satisfied, March 31, 2023); provided that such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Initial Term Loans in accordance with Section 2.09 and Section 2.10, as applicable and (ii) on the Maturity Date, the Borrowers hereby unconditionally promise to pay to the Administrative Agent for the ratable account of each Lender holding Initial Term Loans the then unpaid principal amount of each Initial Term Loan then outstanding, in accordance with the terms herein.
(b)Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
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(c)The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof. Each Borrower shall have the right, upon reasonable notice, to request information regarding the accounts referred to in the preceding sentence.
(d)The entries made in the accounts maintained pursuant to Section 2.08(b) or (c) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Loans in accordance with the terms of this Agreement.
(e)Any Lender may request that Loans made by it be evidenced by a promissory note, substantially in the form attached hereto as Exhibit D (a “Promissory Note”). In such event, the Borrowers shall as promptly as reasonably possible execute and deliver to such Lender a Promissory Note payable to such Lender (or its permitted assigns). Thereafter, the Loans evidenced by such Promissory Note and interest thereon shall at all times (including after assignment pursuant to Section 10.02) be represented by one or more promissory notes in such form payable to such payee and its registered assigns.
Section 2.09. Mandatory Prepayment of Loans.
(a)Prior to the Conversion Date, within (5) Business Days of receipt by any Loan Party of any Net Proceeds from the incurrence of any Indebtedness of such Loan Party not permitted to be incurred pursuant to Section 6.02, the Borrowers shall deposit 100% of such Net Proceeds into the Disbursement Account or another Controlled Account to be applied (to the extent not otherwise applied pursuant to the immediately succeeding proviso) to repay the Term Loans; provided that, subject to Section 2.09(d), the Borrowers may use a portion of the Net Proceeds to prepay or repurchase any other Indebtedness permitted hereunder and the documentation governing such other Indebtedness requires such a prepayment or repurchase thereof with such Net Proceeds, in each case in an amount not to exceed the product of (1) such Net Proceeds and (2) a fraction, the numerator of which is the outstanding principal amount of such other Indebtedness and the denominator of which is the aggregate outstanding amount of Term Loans and such other Indebtedness.
(b)Within five (5) Business Days after the receipt of any Net Proceeds from (1) a Disposition of Significant Assets (other than a Disposition constituting (x) to the extent the Net Proceeds are received prior to the Conversion Date, a Permitted DIP Disposition and (y) to the extent the Net Proceeds are received on and after the Conversion Date, a Permitted Disposition), (2) on and after the Conversion Date, a Disposition of Collateral referred to in clause (i) of the definition of “Permitted Disposition” (other than a Disposition of a minority stake in the equity of [*]) or (3) a Recovery Event in respect of Significant Assets, in each case, Parent shall apply the Prepayment Percentage of such Net Proceeds:
(i)to invest in or replace, purchase or acquire Significant Assets (or, in the case of Net Proceeds from a Disposition of Collateral or Recovery Event in respect of Collateral, new or additional Collateral), other than an investment in, purchase or acquisition of Significant Assets by a Non-Guarantor Acquired Airline, within 365 days after the sale or other Disposition, or Recovery Event, that generated the Net Proceeds; provided that, Parent will be deemed to have complied with this clause (i) if and to the extent that, within 365 days after the sale or other Disposition, or Recovery Event, that generated the Net Proceeds, Parent or any of its Restricted
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Subsidiaries has entered into and not abandoned or rejected a binding agreement to acquire, purchase or invest in the assets that would constitute Significant Assets (or Collateral, as applicable) in compliance with this clause (i), and that acquisition, purchase or investment is thereafter completed within 180 days after the end of such 365-day period); or
(ii)to repay the Term Loans (provided that, subject to Section 2.09(d), the Borrowers may elect to use a portion of the Net Proceeds to prepay or repurchase any other Indebtedness that is pari passu in right of payment and security with the Term Loans (and to permanently reduce commitments with respect thereto) to the extent such other Indebtedness and the Liens securing the same are permitted hereunder and the documentation governing such other Indebtedness requires such a prepayment or repurchase thereof with such Net Proceeds, in each case in an amount not to exceed the product of (1) such Net Proceeds and (2) a fraction, the numerator of which is the outstanding principal amount of such other Indebtedness and the denominator of which is the aggregate outstanding amount of Term Loans and such other Indebtedness).
Notwithstanding any other provisions of this Section 2.09(b), (A) to the extent any or all of the Net Proceeds of any Disposition by a Restricted Subsidiary or the Net Proceeds of a Recovery Event received by a Restricted Subsidiary are prohibited or delayed by (x) any contractual restriction permitted by this Agreement or (y) any applicable local law (including financial assistance, corporate benefit restrictions on upstreaming of cash intra group and the fiduciary and statutory duties of the directors of such Restricted Subsidiary) from being repatriated or passed on to or used for the benefit of the Borrowers or if Parent has determined in good faith that repatriation of any such amount to the Borrowers would have material adverse tax consequences (including a material acceleration of the point in time when such earnings would otherwise be taxed) with respect to such amount, the portion of such Net Proceeds so affected will not be required to be applied to prepay the Term Loans at the times provided in this Section 2.09(b) but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable contractual restriction or local law will not permit repatriation or the passing on to or otherwise using for the benefit of the Borrowers, or Parent believes in good faith that such material adverse tax consequence would result, and once such repatriation of any of such affected Net Proceeds is permitted under the applicable contractual agreement or local law or Parent determines in good faith such repatriation would no longer have such material adverse tax consequences, such repatriation will be promptly effected and such repatriated Net Proceeds will be promptly (and in any event not later than five Business Days after such repatriation) applied (net of additional taxes payable or reasonably estimated to be payable as a result thereof) to the prepayment of the Term Loans pursuant to this Section 2.09(b) (provided that no such prepayment of the Term Loans pursuant to this Section 2.09(b) shall be required in the case of any such Net Proceeds the repatriation of which Parent believes in good faith would result in material adverse tax consequences, if on or before the date on which such Net Proceeds so retained would otherwise have been required to be applied to reinvestments or prepayments (after giving effect to the reinvestment period therefor), Parent applies an amount equal to the amount of such Net Proceeds to such reinvestments or prepayments as if such Net Proceeds had been received by Parent rather than such Restricted Subsidiary, less the amount of additional taxes that would have been payable or reserved against if such Net Proceeds had been repatriated).
(c)Amounts required to be applied to the prepayment of Loans pursuant to Section 2.09(a) and (b) shall be applied in accordance with Section 2.14(e)(ii). The application of any prepayment pursuant to this Section 2.09 shall be made, first, to ABR Loans and, second, to Term SOFR Loans (or, if applicable RFR Loans). Term Loans prepaid pursuant to this Section 2.09 may not be reborrowed.
(d)To the extent the holders of Indebtedness that is pari passu in right of payment and security with the Term Loans decline to have such Indebtedness repurchased, repaid or prepaid with any
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such Net Proceeds, the declined amount of such Net Proceeds shall promptly (and, in any event, within 10 Business Days after the date of such rejection) be applied to prepay Term Loans in accordance with the terms hereof (to the extent such Net Proceeds would otherwise have been required to be applied if such other pari passu Indebtedness was not then outstanding).
(e)All prepayments under this Section 2.09 shall be accompanied by accrued but unpaid interest on the principal amount being prepaid to (but not including) the date of prepayment, plus any accrued and unpaid fees and any losses, costs and expenses, as more fully described in Section 2.12 hereof.
Section 2.10. Optional Prepayment of Loans.
(a)The Borrowers shall have the right, at any time and from time to time, to prepay any Loans, in whole or in part, without premium or penalty (except as set forth in Section 2.10(c) and Section 2.12) (i) with respect to Term Benchmark Loans, upon (A) telephonic notice (followed promptly by written or facsimile notice or notice by electronic mail) to the Administrative Agent or (B) written or facsimile notice (or notice by electronic mail) to the Administrative Agent, in any case received by 1:00 p.m., New York City time, three (3) Business Days prior to the proposed date of prepayment, (ii) with respect to ABR Loans, upon written or facsimile notice (or notice by electronic mail) to the Administrative Agent received by 1:00 p.m., New York City time, one Business Day prior to the proposed date of prepayment and (iii) with respect to RFR Loans, upon (A) telephonic notice (followed promptly by written or facsimile notice or notice by electronic mail) to the Administrative Agent or (B) written or facsimile notice (or notice by electronic mail) to the Administrative Agent, in any case received by 11:00 a.m., New York City time, five (5) Business Days prior to the proposed date of prepayment; provided that ABR Loans may be prepaid on the same day notice is given if such notice is received by the Administrative Agent by 12:00 noon, New York City time; provided further, however, that (A) each such partial prepayment shall be in an amount not less than $1.0 million and in integral multiples of $1.0 million in the case of Term Benchmark Loans and integral multiples of $100,000 in the case of ABR Loans and RFR Loans, (B) no prepayment of Term Benchmark Loans shall be permitted pursuant to this Section 2.10(a) other than on the last day of an Interest Period applicable thereto unless such prepayment is accompanied by the payment of the amounts described in Section 2.12, and (C) no partial prepayment of a Term Benchmark Tranche shall result in the aggregate principal amount of the Term Benchmark Loans remaining outstanding pursuant to such Term Benchmark Tranche being less than $1.0 million.
(b)Any prepayments under Section 2.10(a) shall be applied, at the option of the Borrowers, to prepay the Term Loans of the Term Lenders, in each case to such Classes as the Borrowers shall specify. All such prepayments of Term Loans shall be applied to the installments of the applicable Term Loans as directed by the Borrowers (and absent such direction, in direct order of maturity). All prepayments under Section 2.10(a) shall be accompanied by accrued but unpaid interest on the principal amount being prepaid to (but not including) the date of prepayment, plus any payment required by Section 2.10(c), plus any Fees and any losses, costs and expenses, as more fully described in Section 2.12 hereof. Term Loans prepaid pursuant to Section 2.10(a) may not be reborrowed.
(c)Notwithstanding anything herein to the contrary:
(i)exclusively in the event of any optional prepayments of the Initial Term Loans incurred on or after the Closing Date at a time when the Emergence Condition has not been satisfied and such optional prepayment is made pursuant to Section 2.10(a) (or in the event of any acceleration of the Term Loans pursuant to Section 7.02) (i) prior to the first anniversary of the Closing Date, the Borrowers shall pay to the applicable Lenders with respect to such Initial Term Loans the Closing Date Make Whole Premium on the aggregate principal amount of the Initial
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Term Loans being prepaid (or accelerated), and (ii) on or after the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, the Borrowers shall pay to the applicable Lenders with respect to such Initial Term Loans a prepayment premium of two percent (2%) of the aggregate principal amount of the Initial Term Loans being prepaid (or accelerated), in each case, unless such fee is waived by the applicable Term Lender. No prepayment premium pursuant to this clause (c) shall be payable at any time for any prepayment of Initial Term Loans made by the Borrowers pursuant to Section 2.10(a) on or after the second anniversary of the Closing Date.
(ii)exclusively in the event of any optional prepayments of the Initial Term Loans incurred on or after the Closing Date at a time when the Emergence Condition has been satisfied and such optional prepayment is made pursuant to Section 2.10(a) (or in the event of any acceleration of the Term Loans pursuant to Section 7.02) prior to the second anniversary of the Closing Date, the Borrowers shall pay to the applicable Lenders with respect to such Initial Term Loans the Emergence Make Whole Premium on the aggregate principal amount of the Initial Term Loans being prepaid (or accelerated). No prepayment premium pursuant to this clause (ii) shall be payable at any time for any prepayment of Initial Term Loans made by the Borrowers pursuant to Section 2.10(a) on or after the second anniversary of the Closing Date.
Payment of amounts pursuant to this clause (c) constitutes liquidated damages, not unmatured interest or a penalty, and the actual amount of damages to the Term Lenders as a result of the relevant triggering event, prepayment, repayment or acceleration would be impracticable and extremely difficult to ascertain. Accordingly, the payment of amounts pursuant to this clause (c) is provided by mutual agreement of the Borrowers, the Term Lenders and the Administrative Agent as a reasonable estimation and calculation of such actual lost profits and other actual damages of the Term Lenders. Without limiting the generality of the foregoing, it is understood and agreed that upon the occurrence of any prepayments of Term Loans pursuant to Section 2.10(a) (including any such deemed prepayment in accordance with Section 2.24(f)) or repayment of the Term Loans following acceleration pursuant to Section 7.02 (including, for the avoidance of doubt, the acceleration of claims as a result of the commencement of a proceeding under any Debtor Relief Law, by operation of law or as a result of an automatic acceleration thereunder), the premium payable pursuant to clause (c), shall be automatically and immediately due and payable as though any prepaid or repaid Term Loans were voluntarily prepaid as of such date and shall constitute part of the Obligations secured by the Collateral. The premium payable pursuant to clause (c) shall also be automatically and immediately due and payable if the Term Loans are satisfied or released by foreclosure (whether by power of judicial proceeding or otherwise), deed in lieu of foreclosure or by any other means. EACH BORROWER HEREBY EXPRESSLY WAIVES (TO THE FULLEST EXTENT IT MAY LAWFULLY DO SO) THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR OTHER LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING PREMIUM IN CONNECTION WITH ANY SUCH EVENTS.
The Borrowers and the Loan Parties expressly agree (to the fullest extent it may lawfully do so) that with respect to the premiums payable pursuant to this clause (c) payable under the terms of this Agreement: (i) such premium is reasonable and is the product of an arm’s length transaction between sophisticated business parties, ably represented by counsel; (ii) such premium shall be payable notwithstanding the then prevailing market rates at the time payment is made; (iii) there has been a course of conduct between the Administrative Agent, the Term Lenders and the Loan Parties giving specific consideration in this transaction for such agreement to pay the premium payable pursuant to this clause (c); and (iv) the Loan Parties shall be estopped hereafter from claiming differently than as agreed to in this paragraph. The Loan Parties expressly acknowledge that their agreement to pay the premium pursuant to this clause (c) as herein described is a material inducement to the Term Lenders to provide the Commitments and make the Term Loans.
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(d)Each notice of prepayment shall specify the prepayment date, the principal amount of the Loans to be prepaid and, in the case of Term Benchmark Loans, the Borrowing or Borrowings pursuant to which made, shall be irrevocable and shall commit the Borrowers to prepay such Loan by the amount and on the date stated therein; provided that, notwithstanding anything to the contrary, any notice of prepayment under this Section 2.10 may state that such notice is conditional upon the effectiveness of other transactions, in which case such notice may be revoked or its effectiveness deferred by the Parent (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied. The Administrative Agent shall, promptly after receiving notice from the Borrowers hereunder, notify each Lender of the principal amount of the Loans held by such Lender which are to be prepaid, the prepayment date and the manner of application of the prepayment.
Section 2.11. Increased Costs.
(a)If any Change in Law shall:
(i)impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Term SOFR Rate); or
(ii)impose on any Lender any other condition, cost or expense or subject any Lender to any liability in respect of any Taxes (other than Excluded Taxes, Indemnified Taxes, or Other Taxes) imposed on or with respect to any payment made on any Loan under this Agreement;
and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting into, continuing or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder with respect to any Loan (whether of principal, interest or otherwise), then, upon the request of such Lender, the Borrowers will pay to such Lender (without duplication of any other amounts to such Lender under this Agreement or any other Loan Document) such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b)If any Lender reasonably determines in good faith that any Change in Law affecting such Lender or such Lender’s holding company regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrowers will pay to such Lender, as the case may be, such additional amount or amounts, in each case as documented by such Lender to the Borrowers as will compensate such Lender or such Lender’s holding company for any such reduction suffered; it being understood that to the extent duplicative of the provisions in Section 2.13, this Section 2.11(b) shall not apply to Taxes.
(c)Solely to the extent arising from a Change in Law, the Borrowers shall pay to each Lender as long as such Lender shall be required to comply with any reserve ratio requirement or analogous requirement of any other central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Loans, such additional costs (expressed as a percentage per annum and rounded upwards, if necessary, to the nearest five decimal places) equal to the actual costs allocated to such Commitment or Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent manifest error) which in each case shall be due
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and payable on each date on which interest is payable on such Loan; provided that the Borrowers shall have received at least fifteen (15) days’ prior written notice (with a copy to the Administrative Agent) of such additional interest or cost from such Lender. If a Lender fails to give written notice fifteen (15) days prior to the relevant Interest Payment Date, such additional interest or cost shall be due and payable fifteen (15) days from receipt of such notice.
(d)A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Section 2.11(a) or (b) and the basis for calculating such amount or amounts shall be delivered to the Borrowers and shall be prima facie evidence of the amount due; provided, however, that any determination by a Lender of amounts owed pursuant to this Section 2.11 to such Lender due to any such Change in Law shall be made in good faith in a manner generally consistent with such Lender’s standard practice. The Borrowers shall pay such Lender the amount due within fifteen (15) days after receipt of such certificate.
(e)Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.11 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrowers shall not be required to compensate a Lender pursuant to this Section 2.11 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided, further that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 2.11 shall be available to each Lender regardless of any possible contention as to the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed.
(f)The Borrowers shall not be required to make payments under this Section 2.11 to any Lender if (A) a claim hereunder arises solely through circumstances peculiar to such Lender and which do not affect commercial banks in the jurisdiction of organization of such Lender generally or (B) the claim arises out of a voluntary relocation by such Lender of its applicable lending office (it being understood that any such relocation effected pursuant to Section 2.15 is not “voluntary”).
Section 2.12. Break Funding Payments.
(a)With respect to Loans that are not RFR Loans, in the event of (i) the payment of any principal of any Term Benchmark Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or an optional or mandatory prepayment of Loans), (ii) the conversion of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto, (iii) the failure to borrow, convert, continue or prepay any Term Benchmark Loan on the date specified in any notice delivered pursuant hereto or (iv) the assignment of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto as a result of a request by a Borrower pursuant to Section 2.15 then, in any such event, at the request of such Lender, the Borrowers shall compensate such Lender for the loss, cost and expense sustained by such Lender attributable to such event; provided that this Section 2.12(a) shall not apply to any payment of an Installment pursuant to Section 2.08(a). Such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined in good faith by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the applicable rate of interest for such RFR Loan (excluding, however the Applicable Margin included therein, if any), for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such RFR Loan), over (ii) the amount of interest (as reasonably determined by such Lender) which would accrue on such principal amount for such period at the interest rate which such
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Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the applicable SOFR market for the Term SOFR Rate. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.12(a) shall be delivered to the Borrowers and shall be prima facie evidence of the amount due. The Borrowers shall pay such Lender the amount due within thirty (30) days after receipt of such certificate.
(b)With respect to RFR Loans, in the event of (i) the payment of any principal of any RFR Loan other than on the Interest Payment Date applicable thereto (including as a result of an Event of Default or an optional or mandatory prepayment of Loans), (ii) the failure to borrow or prepay any RFR Loan on the date specified in any notice delivered pursuant hereto or (iii) the assignment of any RFR Loan other than on the Interest Payment Date applicable thereto as a result of a request by a Borrower pursuant to Section 2.15, then, in any such event, at the request of such Lender, the Borrowers shall compensate such Lender for the loss, cost and expense sustained by such Lender attributable to such event; provided that this Section 2.12(b) shall not apply to any payment of an Installment pursuant to Section 2.08(a). Such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined in good faith by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the applicable rate of interest for such RFR Loan (excluding, however the Applicable Margin included therein, if any), for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such RFR Loan), over (ii) the amount of interest (as reasonably determined by such Lender) which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the applicable SOFR market for Daily Simple SOFR. A certificate of any Lender setting forth any amount or amounts (and the basis for requesting such amount or amounts) that such Lender is entitled to receive pursuant to this Section 2.12(b) shall be delivered to the Borrowers and shall be prima facie evidence of the amount due. The Borrowers shall pay such Lender the amount due within thirty (30) days after receipt such certificate.
Section 2.13. Taxes.
(a)Any and all payments by or on account of any Obligation of any Borrower or any Guarantor hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Indemnified Taxes or Other Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender, as determined in good faith by the applicable Withholding Agent, then (i) the sum payable by the applicable Borrower or applicable Guarantor shall be increased as necessary so that after making all required deductions for any Indemnified Taxes or Other Taxes (including deductions for any Indemnified Taxes or Other Taxes applicable to additional sums payable under this Section 2.13), the Administrative Agent, Lender or any other recipient of such payments (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the applicable Withholding Agent shall make such deductions and (iii) the applicable Withholding Agent shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b)In addition, the Borrowers or the Guarantors, as applicable, shall pay any Other Taxes (except any such Taxes or portions thereof that have been paid or will be paid under Section 2.13(a)) to the relevant Governmental Authority in accordance with applicable law, or at the option and upon written demand of the Administrative Agent timely reimburse it for the payment of any such Taxes (except any such Taxes or portions thereof that have been paid or will be paid under Section 2.13(a)) made on behalf of the Borrowers or the Guarantors, as applicable, to the extent permitted by applicable law.
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(c)Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, that such Lender is not and (other than as a result of a change to Annex 2) will not become a Low Tax Jurisdiction Entity; provided that, for purposes of this Error! Reference source not found. no entity shall be considered to be a Low Tax Jurisdiction Entity if it is not organized or resident in a jurisdiction listed on Annex No. 2 of the Resolución Exenta No. 55 of 2018 issued by the Chilean tax authority (“Annex No. 2”) or on any amendment or replacement thereof, a current copy of which is attached to this Agreement as Schedule 2.13. In the event that any Lender becomes or is likely to become a Low Tax Jurisdiction Entity as a result of a change to Annex No. 2, the Lender and Borrowers shall in good faith cooperate to identify a suitable jurisdiction (taking into account tax costs) to which the Lender’s Obligation may be transferred, and will use reasonable best efforts to transfer such Obligation to such jurisdiction, it being understood that any such jurisdiction should not impose a greater tax burden on the Lender than the original jurisdiction would have done; provided, however, that in the event that such transfer cannot be effected after such good faith cooperation, Borrowers shall have the ability to find a replacement Lender satisfactory to Borrowers and require the Lender to promptly assign the Lender’s Obligation to such replacement Lender at a price no less than par plus accrued and unpaid interest and fees.
(d)
(i) Prior to becoming a Lender hereto and (ii) in the event that any supporting material previously provided pursuant to this Section 2.13(d) becomes inaccurate with respect to its status, each Lender or prospective Lender shall be responsible for notifying the Borrowers of its status as a non-Low Tax Jurisdiction Entity and provide supporting materials sufficient to establish such status that is satisfactory to the Borrowers; provided that such responsibility shall be deemed satisfied if (x) such Lender or prospective Lender provides to the Borrowers (either directly or indirectly through the Administrative Agent) an Internal Revenue Service Form W-9 or an Internal Revenue Service Form W-8 (or an Internal Revenue Service Form W-8IMY without beneficial owner withholding certificates attached) showing that such Lender or prospective Lender is resident in a jurisdiction other than a “low tax jurisdiction” for the purposes of Article 41 F of the Chilean Income Tax Law and (y) the Borrowers do not have actual knowledge or reason to believe that such Internal Revenue Service Form W-9 or Internal Revenue Service Form W-8 is incorrect or such Lender or prospective Lender is a Low Tax Jurisdiction Entity.
(i) Prior to becoming a Lender hereto and (ii) in the event that any supporting material previously provided pursuant to this Section 2.13(d) becomes inaccurate with respect to its status, each Lender or prospective Lender shall be responsible for notifying the Borrowers of its status as a non-Low Tax Jurisdiction Entity and provide supporting materials sufficient to establish such status that is satisfactory to the Borrowers; provided that such responsibility shall be deemed satisfied if (x) such Lender or prospective Lender provides to the Borrowers (either directly or indirectly through the Administrative Agent) an Internal Revenue Service Form W-9 or an Internal Revenue Service Form W-8 (or an Internal Revenue Service Form W-8IMY without beneficial owner withholding certificates attached) showing that such Lender or prospective Lender is resident in a jurisdiction other than a “low tax jurisdiction” for the purposes of Article 41 F of the Chilean Income Tax Law and (y) the Borrowers do not have actual knowledge or reason to believe that such Internal Revenue Service Form W-9 or Internal Revenue Service Form W-8 is incorrect or such Lender or prospective Lender is a Low Tax Jurisdiction Entity.(e)The Borrowers shall indemnify the Administrative Agent and each Lender, within ten
(10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by or on behalf of or withheld or deducted from payments owing to the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of any Borrower or any Guarantor hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.13) and any penalties, interest and reasonable out-of-pocket expenses arising therefrom or with respect thereto. A certificate as to the amount of such payment or liability delivered to the Borrowers by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(f)As soon as practicable after any payment of Taxes by a Borrower to a Governmental Authority pursuant to this Section 2.13, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment to the extent available, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(g)Each Lender shall, within ten (10) days after written demand therefor, indemnify the Administrative Agent (to the extent the Administrative Agent has not been reimbursed by the Borrowers)
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for the full amount of any Taxes imposed by any Governmental Authority that are attributable to such Lender and that are payable or paid by the Administrative Agent, together with all interest, penalties, reasonable out-of-pocket costs and expenses arising therefrom or with respect thereto, as determined by the Administrative Agent in good faith. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.
(h)Any Tax Indemnitee that is entitled to an exemption from or reduction of withholding Tax with respect to payments under this Agreement shall deliver to the Borrowers and the Administrative Agent, at the time or times prescribed by applicable law or as reasonably requested by a Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law or requested by the Borrowers or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate; provided that a Lender shall not be required to complete, execute or deliver any documentation pursuant to this Section 2.13(h) if in such Lender’s sole discretion exercised in good faith such completion, execution or delivery would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(i)United States Person – Tax Indemnitee
(x)Any Tax Indemnitee that is a “United States Person” (as such term is defined in Section 7701(a)(30) of the Code) shall deliver to the Administrative Agent and the Borrowers, on or prior to the date on which such Tax Indemnitee becomes a party to this Agreement or any other Loan Document (and from time to time thereafter when the previously delivered certificates and/or forms expire, or upon request of a Borrower or the Administrative Agent), two (2) copies of Internal Revenue Service Form W-9 (or any successor form), properly completed and duly executed by such Tax Indemnitee, certifying that such Tax Indemnitee is entitled to an exemption from United States backup withholding tax.
(y)Any Tax Indemnitee that is not a “United States Person” (as such term is defined in Section 7701(a)(30) of the Code) shall deliver to the Administrative Agent and the Borrowers, on or prior to the date on which such Tax Indemnitee becomes a party to this Agreement or any other Loan Document (and from time to time thereafter when the previously delivered certificates and/or forms expire, or upon request of a Borrower or the Administrative Agent), two (2) copies of whichever of the following is applicable:
(1)in the case of a Tax Indemnitee claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of Internal Revenue Service Form W-8BEN or Internal Revenue Service Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and
(z)with respect to any other applicable payments under any Loan Document, Internal Revenue Service Form W-8BEN or Internal Revenue Service Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2)executed copies of Internal Revenue Service Form W-8ECI;
(3)in the case of a Tax Indemnitee claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Tax Indemnitee is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of a Borrower
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within the meaning of Section 871(h)(3)(B) of the Code, or a “controlled foreign corporation” related to a Borrower as described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of Internal Revenue Service Form W-8BEN or Internal Revenue Service Form W 8BEN-E; or
(4)to the extent a Tax Indemnitee is not the beneficial owner, executed copies of Internal Revenue Service Form W-8IMY, accompanied by Internal Revenue Service Form W-8ECI, Internal Revenue Service Form W-8BEN, Internal Revenue Service Form W 8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, Internal Revenue Service Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Tax Indemnitee is a partnership and one or more direct or indirect partners of such Tax Indemnitee are claiming the portfolio interest exemption, such Tax Indemnitee may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;
(iii) Any Tax Indemnitee that is not a “United States Person” (as such term is defined in Section 7701(a)(30) of the Code) shall deliver to the Administrative Agent and the Borrowers, on or prior to the date on which such Tax Indemnitee becomes a party to this Agreement or any other Loan Document (and from time to time thereafter when the previously delivered forms expire, or upon request of a Borrower or the Administrative Agent), any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in any withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made.
(j)If a payment made to a Tax Indemnitee under this Agreement or any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Tax Indemnitee were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Tax Indemnitee shall deliver to the Borrowers and the Administrative Agent, at the time or times prescribed by law or at such time or times reasonably requested by a Borrower or the Administrative Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by a Borrower or the Administrative Agent as may be necessary for such Borrower or the Administrative Agent to comply with its obligations under FATCA, to determine that such Tax Indemnitee has or has not complied with such Tax Indemnitee’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.13(j), “FATCA” shall include any amendments made to FATCA after the Closing Date.
(k)If a Tax Indemnitee determines, in its reasonable sole discretion exercised in good faith, that it has received a refund of any Taxes or Other Taxes from the Governmental Authority to which such Taxes or Other Taxes were paid and as to which it has been indemnified by any Borrower or any Guarantor or with respect to which any Borrower or any Guarantor has paid additional amounts pursuant to this Section 2.13, it shall pay over such refund to such Borrower or such Guarantor (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower or such Guarantor under this Section 2.13 with respect to the Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of such Tax Indemnitee incurred in obtaining such refund (including Taxes imposed with respect to such refund) and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that any Borrower or any Guarantor, upon the request of the Tax Indemnitee, agrees to repay the amount paid over to such Borrower or such Guarantor (plus any penalties, interest or other charges imposed by the relevant
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Governmental Authority) to the Tax Indemnitee in the event the Tax Indemnitee is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.13(k), in no event will the Tax Indemnitee be required to pay any amount to any Borrower pursuant to this Section 2.13(k) if, and then only to the extent, the payment of such amount would place such Tax Indemnitee in a less favorable net after-Tax position than the Tax Indemnitee would have been in if the Tax indemnification payments or additional amounts under this Section 2.13 giving rise to such refund had never been paid. This Section shall not be construed to require the Tax Indemnitee to make available its tax returns (or any other information relating to its taxes which it deems confidential) to any Borrower or any other Person.
Section 2.14. Payments Generally; Pro Rata Treatment.
(a)The Borrowers shall make each payment or prepayment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.11 or 2.12, or otherwise) prior to 1:00 p.m., New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the reasonable discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent pursuant to wire instructions to be provided by the Administrative Agent, except that payments pursuant to Sections 2.11, 2.12 and 10.04 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day (and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension). All payments hereunder shall be made in U.S. Dollars.
(b)Application of Payment Amounts. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all Obligations then due hereunder, such funds shall be applied (i) first, towards payment of Fees and expenses then due under Sections 2.16 and 10.04 payable to the Administrative Agent and the Collateral Trustee, in their respective capacities as such, (ii) second, towards payment of Fees and expenses then due under Section 10.04 payable to the Lenders and towards payment of interest then due on account of the Term Loans, ratably among the parties entitled thereto in accordance with the amounts of such Fees and expenses and interest then due to such parties and (iii) third, towards payment of principal of the Term Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
(c)Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(d)If any Defaulting Lender shall fail to make any payment required to be made by it pursuant to Section 2.03(a), 2.03(b) or 8.04 then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the
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Administrative Agent for the account of such Defaulting Lender to satisfy such Defaulting Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
(e)Pro Rata Treatment. (i) Each payment by any Borrower in respect of the Loans shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders.
(ii) Each payment (including each prepayment) by any Borrower on account of principal of and interest on any Class of Term Loans shall be made pro rata according to the respective outstanding principal amounts of such Class of Term Loans then held by the applicable Term Lenders (except that assignments to the Borrower pursuant to Section 10.02(i) shall not be subject to this Section 2.14(e)(ii)).
Section 2.15. Mitigation Obligations; Replacement of Lenders.
(a)Mitigation of Obligations. If the Borrowers are required to pay any additional amount to any Lender under Section 2.11 or to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder, to assign its rights and obligations hereunder to another of its offices, branches or affiliates, to file any certificate or document reasonably requested by the Borrowers or to take other reasonable measures, if, in the judgment of such Lender, such designation, assignment, filing or other measures (i) would eliminate or reduce amounts payable pursuant to Section 2.11 or 2.13, as the case may be, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. Nothing in this Section 2.15 shall affect or postpone any of the obligations of the Borrowers or the rights of any Lender pursuant to Section 2.11 or 2.13.
(b)Replacement of Lenders. If, after the Closing Date, (i) any Lender requests compensation under Section 2.11, (ii) any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13 or (iii) any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by a Borrower that requires the consent of 100% of the Lenders or 100% of all affected Lenders and which, in each case, has been consented to by the Required Lenders, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, (i) prepay such Lender’s outstanding Loans or (ii) require such Lender to assign, without recourse (in accordance with and subject to the restrictions contained in Section 10.02), all its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such assigned obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment), in any case as of a Business Day specified in such notice from the Borrower; provided that (A) (w) in the case of any such assignment resulting from a claim for compensation under Section 2.11(a) or payments required to be made pursuant to Section 2.13, such assignment will result in a reduction in such compensation or payments thereafter,
(x) such assignment shall not conflict with any applicable legal requirement, (y) the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld or delayed and (z) such terminated or assigning Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts due, owing and payable to it hereunder at the time of such termination or assignment, from the assignee (to the extent of such outstanding principal and accrued interest and fees in the case of an assignment) or the Borrowers (in the case of all other amounts) and (B) if prior to any such transfer and assignment the circumstances or event that resulted in such Lender’s claim for compensation cease to cause such Lender to suffer increased costs or reductions in amounts received or receivable or reduction
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in return on capital, or cease to result in amounts being payable under Section 2.13, as the case may be, or if such Lender shall waive its right to claim further compensation under to Section 2.11(a) in respect of such circumstances, then such Lender shall not thereafter be required to make any such transfer and assignment hereunder. Any Lender being replaced pursuant to this Section 2.15(b) shall execute and deliver an Assignment and Acceptance with respect to such Lender’s outstanding Commitment or Loans; provided that, an assignment contemplated by this Section 2.15(b) shall become effective notwithstanding the failure by the Lender being replaced to deliver the Assignment and Acceptance contemplated by this Section 2.15(b), so long as the other actions specified in this Section 2.15(b) shall have been taken.
Section 2.16. Certain Fees. The Borrowers shall pay (a) to the Collateral Trustee the fees set forth in that certain Collateral Trustee Fee Letter and (b) to the Administrative Agent the fees set forth in that certain Administrative Agent Fee Letter.
Section 2.17. Alternate Rate of Interest. (a) Subject to clauses (b), (c), (d), (e) and (f) of this Section 2.17, if:
(i)the Administrative Agent determines (which determination shall be conclusive absent manifest error) (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, that adequate and reasonable means do not exist for ascertaining the Adjusted Term SOFR Rate or the Term SOFR Rate (including because the Term SOFR Reference Rate is not available or published on a current basis), for such Interest Period or (B) at any time, that adequate and reasonable means do not exist for ascertaining Adjusted Daily Simple SOFR or Daily Simple SOFR; or
(ii)the Administrative Agent is advised by the Required Lenders that (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, the Adjusted Term SOFR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period or (B) at any time, Adjusted Daily Simple SOFR will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing;
then the Administrative Agent shall give notice thereof to the Borrowers and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until (x) the Administrative Agent notifies the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrowers deliver a new Interest Election Request in accordance with the terms of Section 2.04 or a new Loan Request in accordance with the terms of Section 2.02, (1) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Term Benchmark Borrowing and any Loan Request that requests a Term Benchmark Borrowing shall instead be deemed to be an Interest Election Request or a Loan Request, as applicable, for (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 2.17(a)(i) or (ii) above or (y) an ABR Borrowing if the Adjusted Daily Simple SOFR also is the subject of Section 2.17(a)(i) or (ii) above and (2) any Loan Request that requests an RFR Borrowing shall instead be deemed to be a Loan Request, as applicable, for an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then all other Types of Borrowings shall be permitted. Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 2.17 with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until (x) the Administrative Agent notifies the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrowers deliver a new Interest Election Request in accordance with the terms of Section 2.04 or a
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new Loan Request in accordance with the terms of Section 2.02, (1) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 2.17(i) or (ii) above or (y) an ABR Loan if the Adjusted Daily Simple SOFR also is the subject of Section 2.17(i) or (ii) above, on such day, and (2) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
(b)Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (a) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (b) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
(c)Notwithstanding anything to the contrary herein or in any other Loan Document, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(d)The Administrative Agent will promptly notify the Borrowers and the Lenders of (i) any occurrence of a Benchmark Transition Event, (ii) the implementation of any Benchmark Replacement,
(iii)the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (f) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 2.17, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 2.17.
(e)Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then- current Benchmark is a term rate (including the Adjusted Term SOFR Rate) and either (1) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (2) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or
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after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (1) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (2) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(f)Upon the Borrowers’ receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrowers may revoke any request for a Term Benchmark Borrowing or RFR Borrowing of, conversion to or continuation of Term Benchmark Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrowers will be deemed to have converted any request for a Term Benchmark Borrowing into a request for a Borrowing of or conversion to (A) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (B) an ABR Borrowing if the Adjusted Daily Simple SOFR is the subject of a Benchmark Transition Event. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of ABR based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of ABR. Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until such time as a Benchmark Replacement is implemented pursuant to this Section 2.17, (1) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (y) an ABR Loan if the Adjusted Daily Simple SOFR is the subject of a Benchmark Transition Event, on such day and (2) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
Section 2.18. Nature of Fees. All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent, as provided herein and in each Fee Letter. Once paid, none of the Fees shall be refundable under any circumstances.
Section 2.19. Right of Set-Off. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, the Collateral Trustee, each Local Collateral Agent and each Lender (and their respective banking Affiliates) are hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness (including obligations owing under any derivatives positions) at any time owing by the Administrative Agent, the Collateral Trustee, each such Local Collateral Agent and each such Lender (or any of such banking Affiliates) to or for the credit or the account of any Borrower or any Guarantor against any and all of any such overdue amounts owing under the Loan Documents, irrespective of whether or not the Administrative Agent, the Collateral Trustee, each such Local Collateral Agent or such Lender shall have made any demand under any Loan Document; provided that (a) prior to the Conversion Date, any such set-off is subject to the Final DIP Order and (b) in the event that any Defaulting Lender exercises any such right of setoff, (x) all amounts so set off will be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.21(c) and, pending such payment, will be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders and (y) the Defaulting Lender will provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. Each Lender agrees promptly to notify the Administrative Agent and the Borrowers after any such set-off and application made by such Lender (or any of its banking Affiliates) and the
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Administrative Agent agrees promptly to notify the Borrowers after any such set-off and applicable made by such Person, as the case may be; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender, the Administrative Agent, the Collateral Trustee and each Local Collateral Agent under this Section 2.19 are in addition to other rights and remedies which such Lender and the Administrative Agent, the Collateral Trustee and each Local Collateral Agent may have upon the occurrence and during the continuance of any Event of Default (and, prior to the Conversion Date, as provided for in the Final DIP Order).
Section 2.20. Payment of Obligations. Subject to the provisions of Section 7.01, upon the maturity (whether on the Maturity Date, by acceleration or otherwise) of any of the Obligations under this Agreement or any of the other Loan Documents of the Borrowers and the Guarantors, the Lenders shall be entitled to immediate Payment in Full of such Obligations.
Section 2.21. Defaulting Lenders.
(a)If at any time any Lender becomes a Defaulting Lender, then the Borrowers may, on ten
(10) Business Days’ prior written notice to the Administrative Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall be obligated to) assign pursuant to Section 10.02(b) (with the assignment fee to be waived in such instance and subject to any consents required by such Section) all of its rights and obligations under this Agreement to one or more assignees; provided that neither the Administrative Agent nor any Lender shall have any obligation to the Borrowers to find a replacement Lender or other such Person; provided further that, for any such assignment, Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld or delayed.
(b)Any Lender being replaced pursuant to Section 2.21(a) shall (i) execute and deliver an Assignment and Acceptance with respect to such Lender’s outstanding Commitments and Loans, and (ii) deliver any documentation evidencing such Loans to the Borrowers or the Administrative Agent. Pursuant to such Assignment and Acceptance, (A) the assignee Lender shall acquire all or a portion, as specified by the Borrowers and such assignee, of the assigning Lender’s outstanding Commitments and Loans, (B) all obligations of the Borrowers owing to the assigning Lender relating to the Commitments, Loans and participations so assigned shall be Paid in Full by the assignee Lender to such assigning Lender concurrently with such Assignment and Acceptance (including, without limitation, any amounts owed under Section 2.12 due to such replacement occurring on a day other than the last day of an Interest Period), and (C) upon such payment and, if so requested by the assignee Lender, delivery to the assignee Lender of the appropriate documentation executed by the Borrowers in connection with previous Borrowings, the assignee Lender shall become a Lender hereunder and the assigning Lender shall cease to constitute a Lender hereunder with respect to such assigned Commitments and Loans, except with respect to indemnification provisions under this Agreement, which shall survive as to such assigning Lender; provided that an assignment contemplated by this Section 2.21(b) shall become effective notwithstanding the failure by the Lender being replaced to deliver the Assignment and Acceptance contemplated by this Section 2.21(b), so long as the other actions specified in this Section 2.21(b) shall have been taken.
(c)Any amount paid by any Borrower or otherwise received by the Administrative Agent for the account of a Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity payments or other amounts) will not be paid or distributed to such Defaulting Lender, but shall instead be retained by the Administrative Agent in a segregated account until (subject to Section 2.21(d)) the termination of the Commitments and Payment in Full of all Obligations and will be applied by the Administrative Agent, to the fullest extent permitted by law, to the making of payments from time to time in the following order of priority:
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first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent and the Collateral Trustee,
second, to the payment of the default interest and then current interest due and payable to the Lenders which are Non-Defaulting Lenders hereunder, ratably among them in accordance with the amounts of such interest then due and payable to them,
third, to the payment of fees then due and payable to the Non-Defaulting Lenders hereunder, ratably among them in accordance with the amounts of such fees then due and payable to them,
fourth, to the payment of principal then due and payable to the Non-Defaulting Lenders hereunder ratably in accordance with the amounts thereof then due and payable to them,
fifth, to the ratable payment of other amounts then due and payable to the Non-Defaulting Lenders, and
sixth, after the termination of the Commitments and Payment in Full of all Obligations, to pay amounts owing under this Agreement to such Defaulting Lender or as a court of competent jurisdiction may otherwise direct.
(d)The Borrowers may terminate the unused amount of the Commitment of any Lender that is a Defaulting Lender upon not less than fifteen (15) Business Days’ prior notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and in such event the provisions of Section 2.21(c) will apply to all amounts thereafter paid by any Borrower for the account of such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts); provided that (i) no Event of Default shall have occurred and be continuing and (ii) such termination shall not be deemed to be a waiver or release of any claim any Borrower, the Administrative Agent, the Collateral Trustee or any Lender may have against such Defaulting Lender.
(e)If the Borrowers and the Administrative Agent agree in writing that a Lender that is a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the Lenders, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any amounts then held in the segregated account referred to in Section 2.21(c)), such Lender shall purchase at par such portions of outstanding Loans of the other Lenders, and/or make such other adjustments, as the Administrative Agent may determine to be necessary to cause the Lenders to hold Loans on a pro rata basis in accordance with their respective Commitments, whereupon such Lender shall cease to be a Defaulting Lender and will be a Non-Defaulting Lender; provided that no adjustments shall be made retroactively with respect to fees accrued while such Lender was a Defaulting Lender; provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Non-Defaulting Lender shall constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.
(f)Notwithstanding anything to the contrary herein, the Administrative Agent may not be replaced hereunder except in accordance with the terms of Section 8.05.
Section 2.22. Increase in Commitment.
(a)Borrower Request. Parent may by written notice to the Administrative Agent request the establishment of one or more new Term Loan Commitments (each, an “Incremental Term Loan
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Commitment”) by an amount not less than [*] individually and, in the aggregate for all such requests, not to exceed [*] (it being understood and agreed, for the avoidance of doubt, that such amount shall not be increased by the amount of any prepayment or repayment of the Term Loans); provided that no such Incremental Term Loan Commitments (other than in respect of Conversion Date Indebtedness) may be incurred prior to the Conversion Anniversary Date. Any such notice shall specify (i) the date (each, an “Increase Effective Date”) on which Parent proposes that the Incremental Term Loan Commitments shall be effective, which shall be a date not less than fifteen (15) Business Days after the date on which such notice is delivered to the Administrative Agent (or such shorter time as agreed by the Borrower and the Required Lenders), (ii) the proposed size and terms of such Incremental Term Loan Commitments and (iii) offer each Lender the opportunity to subscribe for its pro rata share of the Incremental Term Loan Commitments. If any portion of the Incremental Term Commitments offered to the Lenders as contemplated in the immediately preceding sentence is not subscribed for by the Lenders within five (5) Business Days of receipt of such notice (or such shorter time as agreed by the Borrower and the Required Lenders), the Borrowers may, with the consent of the Administrative Agent as to any bank or financial institution that is not at such time a Lender (which consent shall not be unreasonably withheld or delayed), offer to any existing Lender or to one or more additional banks or financial institutions the opportunity to provide all or a portion of such unsubscribed portion of the Incremental Term Loan Commitments. Any existing Lender approached to provide all or a portion of the Incremental Term Loan Commitments may elect or decline, in its sole discretion, to provide such Incremental Term Loan Commitment.
(b)Conditions. The increased or new Commitments shall become effective, as of such Increase Effective Date; provided that:
(i)each of the conditions set forth in Section 4.02 shall be satisfied on or prior to such Increase Effective Date;
(ii)no Event of Default shall have occurred and be continuing or would result from giving effect to the increased or new Commitments on, or the making of any new Loans on, such Increase Effective Date;
(iii)after giving Pro Forma Effect to the increased or new Commitments and any new Loans to be made on such Increase Effective Date, the aggregate principal amount of the sum of all Priority Lien Debt and, without duplication, all Senior Priority Refinancing Indebtedness (including, in each case, without duplication of any outstanding principal amounts, the amount of any unfunded commitments under a revolving credit facility as of such date) would not exceed the greater of (A) [*] and (B) such an amount that would cause the Asset Coverage Ratio to be equal to [*]; and
(iv)Parent shall deliver or cause to be delivered any legal opinions or other documents reasonably requested by the Administrative Agent in connection with any such transaction.
(c)Terms of New Loans and Commitments. The terms and provisions of Loans made pursuant to the new Commitments shall be as follows:
(i)terms and provisions with respect to interest rates, maturity date and amortization schedule of Loans made pursuant to any Incremental Term Loan Commitments (“Incremental Term Loans”) shall be as agreed upon among the Borrowers and the applicable Lenders providing such Loans (it being understood that the Incremental Term Loans may be part of the Initial Term Loans or any other Class of Term Loans);
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(ii)the Weighted Average Life to Maturity of any Loans made pursuant to Incremental Term Loan Commitments shall be no shorter than the Weighted Average Life to Maturity of the Class of existing Term Loans having the shortest Weighted Average Life to Maturity at such time;
(iii)the interest rate margins for the new Incremental Term Loans shall be determined by the Borrowers and the applicable Lenders providing such Loans; provided, however, that the interest rate margins for such new Incremental Term Loans that are (A) denominated in Dollars,
(B) secured by all or a portion of the Collateral on a pari passu basis with the Initial Term Loans,
(C) broadly syndicated to banks and/or other institutional investors and (D) incurred within 18 months of the Closing Date, shall not be greater than the highest interest rate margins that may, under any circumstances, be payable with respect to any existing Term Loans plus 50 basis points unless the interest rate margins with respect to the applicable existing Term Loans are increased by an amount equal to (x) the excess of the interest rate margins with respect to such Incremental Term Loans over the corresponding interest rate margins on the respective applicable existing Term Loans minus (y) 50 basis points; provided that in determining the excess of the interest rate margins between the Incremental Term Loans and the applicable existing Term Loans for purposes of the foregoing clause (x), (1) original issue discount or upfront or similar fees (collectively, “OID”) payable by the Borrowers to the Lenders for the existing Term Loans or the Incremental Term Loans in the primary syndication thereof shall be included (with OID being equated to interest based on an assumed four-year life to maturity), (2) any amendments to the interest rate margin on any existing Term Loans that became effective subsequent to the Closing Date but prior to the effective time of the Incremental Term Loans shall also be included in such calculations, (3) customary arrangement, structuring, underwriting and commitment fees payable to the Administrative Agent or any arrangers (or any of their respective Affiliates) shall be excluded and (4) if the Incremental Term Loans include an interest rate floor greater than the interest rate floor applicable to the existing Term Loans, such excess amount shall be equated to interest rate margins for purposes of determining whether an increase in the interest rate margins for the existing Term Loans shall be required under this Section 2.22(c)(iii) to the extent an increase in the interest rate floor in the existing Term Loans would cause an increase in the interest rate margins, and in such case the interest rate floor (but not the Applicable Margin) applicable to the existing Term Loans shall be increased by such increased amount;
(iv)the Incremental Term Loans shall be (x) secured solely by the Collateral and on a pari passu basis with the Initial Term Loans and (y) incurred and Guaranteed solely by Loan Parties; and
(v)to the extent that the terms and provisions of Incremental Term Loans are not identical to an outstanding Class of Term Loans (except to the extent permitted by clauses (i), (ii) and (iii) above), such terms and conditions will either be (1) substantially identical to, or, taken as a whole, less favorable to the Lenders providing such Incremental Term Loans than the Term Loans in existence immediately prior to the incurrence of such Incremental Term Loans, provided that, the terms and conditions applicable to such Incremental Term Loans may provide for any additional or different financial or other covenants or other provisions that are agreed between Parent and the Lenders thereof and applicable only during periods after the Latest Maturity Date that is in effect immediately prior to the incurrence of such Incremental Term Loans or (2) otherwise reasonably satisfactory to the Administrative Agent.
The increased or new Commitments shall be effected by a joinder agreement (the “Increase Joinder”) executed by the Borrowers, the Administrative Agent and each Lender making such increased or new Commitment, in form and substance satisfactory to each of them. The Increase Joinder may, without the
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consent of any other Lenders not making such increased or new Commitment, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section 2.22. In addition, unless otherwise specifically provided herein, all references in the Loan Documents to Term Loans shall be deemed, unless the context otherwise requires, to include references to any Incremental Term Loans that are Term Loans made pursuant to this Agreement.
(d)Making of New Term Loans. On any Increase Effective Date on which one or more Incremental Term Loan Commitments becomes effective, subject to the satisfaction of the foregoing terms and conditions, each Lender of such Incremental Term Loan Commitment shall make an Incremental Term Loan to the Borrowers in an amount equal to its Incremental Term Loan Commitment.
(e)Equal and Ratable Benefit. The Loans and Commitments established pursuant to this Section 2.22 shall constitute Loans and Commitments under, and shall be entitled to all the benefits afforded by, this Agreement and the other Loan Documents and shall, without limiting the foregoing, benefit equally and ratably from the security interests created by the Collateral Documents.
Section 2.23. Extension of Term Loans.
(a)Extension of Term Loans. Notwithstanding anything to the contrary in this Agreement, pursuant to one or more offers (each, a “Term Loan Extension Offer”), made from time to time by the Borrowers to all Term Lenders holding Term Loans with like maturity date, on a pro rata basis (based on the aggregate Term Loans with like maturity date) and on the same terms to each such Term Lender, the Borrowers are hereby permitted to consummate from time to time transactions with individual Term Lenders that accept the terms contained in such Term Loan Extension Offers to extend the scheduled maturity date with respect to all or a portion of any outstanding principal amount of such Term Lender’s Term Loans and otherwise modify the terms of such Term Loans pursuant to the terms of the relevant Term Loan Extension Offer (including, without limitation, by changing the interest rate or fees payable in respect of such Term Loan Commitments) (each, a “Term Loan Extension”, and each group of Term Loans, as so extended, as well as the original Term Loans not so extended, being a “tranche of Term Loans”, and any Extended Term Loan shall constitute a separate tranche of Term Loans from the tranche of Term Loans from which they were converted), so long as the following terms are satisfied:
(i)no Default or Event of Default shall have occurred and be continuing at the time the offering document in respect of a Term Loan Extension Offer is delivered to the applicable Term Lenders (the “Term Loan Extension Offer Date”);
(ii)except as to interest rates, fees, scheduled amortization payments of principal and final maturity (which shall be as set forth in the relevant Term Loan Extension Offer), the Term Loan of any Term Lender that agrees to a Term Loan Extension with respect to such Term Loan extended pursuant to an Extension Amendment (an “Extended Term Loan”), shall be a Term Loan with the same terms as the original Term Loans; provided that (1) the permanent repayment of Extended Term Loans after the applicable Term Loan Extension shall be made on a pro rata basis with all other Term Loans, except that the Borrowers shall be permitted to permanently repay any such tranche of Term Loans on a better than a pro rata basis as compared to any other tranche of Term Loans with a later maturity date than such tranche of Term Loans, (2) assignments and participations of Extended Term Loans shall be governed by the same assignment and participation provisions applicable to Term Loans, (3) the relevant Extension Amendment may provide for other covenants and terms that apply solely to any period after the Latest Maturity Date that is in effect on the effective date of such Extension Amendment (immediately prior to the establishment of such Extended Term Loans), (4) Extended Term Loans
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may have call protection as may be agreed by the Borrowers and the applicable Term Lenders of such Extended Term Loans, (5) no Extended Term Loans may be optionally prepaid prior to the date on which all Term Loans with an earlier Maturity Date are repaid in full, unless such optional prepayment is accompanied by a pro rata optional prepayment of such other Term Loans and (6) at no time shall there be Term Loans hereunder (including Extended Term Loans and any original Term Loans) which have more than five different maturity dates;
(iii)all documentation in respect of such Term Loan Extension shall be consistent with the foregoing; and
(iv)any applicable Minimum Extension Condition shall be satisfied unless waived by the Borrowers. For the avoidance of doubt, no Term Lender shall be obligated to accept any Term Loan Extension Offer.
(b)Minimum Extension Condition. With respect to all Term Loan Extensions consummated by the Borrowers pursuant to this Section 2.23, (i) such Term Loan Extensions shall not constitute voluntary or mandatory payments or prepayments for purposes of Section 2.09 or Section 2.10 and (ii) each Term Loan Extension Offer shall specify the minimum amount of Term Loans to be tendered, which shall be a minimum amount approved by the Administrative Agent (a “Minimum Extension Condition”). The Administrative Agent and the Lenders hereby consent to the transactions contemplated by this Section 2.23 (including, for the avoidance of doubt, payment of any interest, fees or premium in respect of any Extended Term Loans on such terms as may be set forth in the relevant Term Loan Extension Offer) and hereby waive the requirements of any provision of this Agreement (including, without limitation, Section 2.09, 2.14 and 8.08) or any other Loan Document that may otherwise prohibit any such Term Loan Extension or any other transaction contemplated by this Section 2.23.
(c)Extension Amendment. The consent of the Administrative Agent shall be required to effectuate any Term Loan Extension, such consent not to be unreasonably withheld. No consent of any Lender shall be required to effectuate any Term Loan Extension, other than the consent of each Lender agreeing to such Term Loan Extension with respect to one or more of its Term Loans (or a portion thereof), as applicable. All Extended Term Loans and all obligations in respect thereof shall be Obligations under this Agreement and the other Loan Documents that are secured by the Collateral on a pari passu basis with all other applicable Obligations under this Agreement and the other Loan Documents. The Lenders hereby irrevocably authorize the Administrative Agent to enter into amendments to this Agreement and the other Loan Documents (each, an “Extension Amendment”) with the Borrowers as may be necessary in order to establish new tranches or sub-tranches in respect of Term Loans so extended and such technical amendments as may be necessary or appropriate in the reasonable opinion of the Administrative Agent and the Borrowers in connection with the establishment of such new tranches or sub-tranches, in each case on terms consistent with this Section 2.23.
(d)In connection with any Term Loan Extension, the Borrowers shall provide the Administrative Agent at least five (5) Business Days (or such shorter period as may be agreed by the Administrative Agent) prior written notice thereof, and shall agree to such procedures (including, without limitation, regarding timing, rounding and other adjustments and to ensure reasonable administrative management of the credit facilities hereunder after such Term Loan Extension), if any, as may be established by, or acceptable to, the Administrative Agent, in each case acting reasonably to accomplish the purposes of this Section 2.23.
Section 2.24. Refinancing Amendment.
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(a)The Borrowers may refinance, replace or modify all or any portion of any tranche or tranches of Term Loans then outstanding (the “Refinanced Term Loans”) with Permitted Refinancing Indebtedness (“Replacement Term Loans”) pursuant to a Refinancing Amendment; provided that:
(i)the obligations in respect of such Replacement Term Loans shall be (1) Obligations under this Agreement and the other Loan Documents (and thus guaranteed on a pari passu basis with all the other Obligations under this Agreement and the other Loan Documents) and (2) secured by the Collateral but no other property (and secured on a pari passu basis with the Liens on the Collateral);
(ii)such Replacement Term Loans may have such pricing (including interest, fees and premiums) and other economic terms as may be agreed by the Borrowers and the Lenders thereof;
(iii)such Replacement Term Loans, subject to clause (ii) above, will have terms and conditions that are either substantially identical to, or, taken as a whole, less favorable to the Lenders providing such Replacement Term Loans than the Refinanced Term Loans provided that the terms and conditions applicable to such Replacement Term Loans may provide for any additional or different financial or other covenants or other provisions that are agreed between Parent and the Lenders thereof and applicable only during periods after the Latest Maturity Date that is in effect immediately prior to the incurrence of such Replacement Term Loans; and
(iv)the proceeds of such Replacement Term Loans shall be applied, substantially concurrently with the incurrence thereof, to the prepayment of the Refinanced Term Loans.
(b)The effectiveness of any Refinancing Amendment shall be subject, to the extent reasonably requested by the Administrative Agent, receipt by the Administrative Agent of legal opinions, board resolutions and officers’ certificates consistent with those delivered on the Closing Date under Section 4.01.
(c)Upon the effectiveness of any Refinancing Amendment, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Replacement Term Loans incurred pursuant thereto (including any amendments necessary to treat the Replacement Term Loans subject thereto as “Loans” and “Term Loans” and the Lenders providing such Replacement Terms Loans as “Lenders”).
(d)Any Refinancing Amendment may, without the consent of any other Lenders who are not providing Replacement Term Loans, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.24. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Refinancing Amendment.
(e)This Section 2.24 shall supersede any provisions in Section 2.14 or Section 10.08 to the contrary.
(f)For the avoidance of doubt, in connection with the repayment of any Refinanced Term Loans, the Lenders holding such Refinanced Term Loans shall be entitled to payment of any premium payable pursuant to Section 2.10(c) as if such Refinanced Term Loans had been prepaid pursuant to Section 2.10(a), other than to the extent such Lenders accept Replacement Term Loans in exchange for their Refinanced Term Loans.
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Section 2.25. Illegality. If any Lender shall notify the Administrative Agent that either (a) there is any introduction of, or change in or in the interpretation of, any law or regulation that in the opinion of counsel for such Lender in the relevant jurisdiction makes it unlawful; or (b) any central bank or other Governmental Authority asserts that it is unlawful for such Lender to continue to fund or maintain any Loan bearing interest based on SOFR (a “SOFR Loan”) or to perform its obligations hereunder with respect to SOFR Loans hereunder, then, upon the issuance of such opinion of counsel or such assertion by a central bank or other Governmental Authority, the Administrative Agent shall give notice of such opinion or assertion to the Borrowers (accompanied by such opinion, if applicable). The Borrowers shall forthwith (or at the end of the then-current Interest Period if any applicable Term Benchmark Loans may be lawfully maintained as SOFR Loans until then) either: (i) prepay in full all SOFR Loans made by such Lender, with accrued interest thereon or (ii) convert each such SOFR Loan made by such Lender into a ABR Loan. Upon such prepayment or conversion, the obligation of such Lender to make SOFR Loans, or to convert ABR Loans into SOFR Loans, shall be suspended until the Administrative Agent shall notify the Borrowers that the circumstances causing such suspension no longer exists.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to make Loans hereunder, each of the Borrowers and each of the Guarantors jointly and severally represent and warrant as follows:
Section 3.01. Organization and Authority. Parent has no separate legal personality from that of Latam Airlines Group S.A., a sociedad anónima duly organized under the laws of Chile. Parent is a sociedad anónima duly organized and validly existing under the laws of Chile. Each Borrower and each of the Guarantors (a) (i) is duly organized, validly existing and in good standing (to the extent such concept is applicable in the applicable jurisdiction and in the case of LATAM Finance Limited and Peuco Finance Limited to the best of their knowledge and belief other than to the extent that, prior to the Conversion Date, such good standing is impacted by the Cayman JPL Applications) under the laws of the jurisdiction of its organization and (ii) is duly qualified and in good standing in each other jurisdiction in which the failure to so qualify would have a Material Adverse Effect and (b) has the requisite corporate or limited liability company power and authority to effect the Transactions, to own or lease and operate its properties and to conduct their business as now or currently proposed to be conducted.
Section 3.02. Air Carrier Status. Each Air Carrier Entity is authorized to operate as an “air carrier” in all jurisdictions in which each has air routes. Each Air Carrier Entity possess all material certificates, franchises, licenses, permits, rights, designations, authorizations, exemptions, concessions, frequencies and consents which relate to the operation of the routes flown by them and the conduct of their business and operations as currently conducted (the “Permits”). Each Aircraft is operated by a duly authorized and certificated air carrier in good standing under applicable law, which has complied with and satisfied all of the requirements of and is in good standing with the applicable Aviation Authority (to the extent such concept is applicable), and to otherwise lawfully operate, possess, use and maintain the applicable Aircraft.
Section 3.03. Due Execution. The execution, delivery and performance by the Borrowers and the Guarantors of each of the Loan Documents to which it is a party (a) are within the respective corporate or limited liability company powers of each of the Borrowers and each of the Guarantors, have been duly authorized by all necessary corporate or limited liability company action, including the consent of shareholders or members where required, and do not (i) contravene the charter, by-laws or limited liability company agreement (or equivalent documentation) of the Borrowers or the Guarantors, (ii)
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violate any applicable law (including, without limitation, the Exchange Act) or regulation (including, without limitation, Regulations T, U or X of the Federal Reserve Board), or any material order or decree of any court or Governmental Authority, (iii) except to the extent arising under the documents governing any Pre-Petition Indebtedness, conflict with or result in a breach of, or constitute a default under, any material indenture, mortgage or deed of trust or any material lease, agreement or other instrument binding on any Borrower or any Guarantor or any of their properties, or (iv) result in or require the creation or imposition of any Lien upon any of the property of any Borrower or any other Loan Party other than the Liens granted pursuant to this Agreement or the other Loan Documents; and (b) does not require the consent, authorization by or approval of or notice to or filing or registration with any Governmental Authority or any other Person, other than (i) the filings and consents contemplated by the Collateral Documents, (ii) approvals, consents and exemptions that have been obtained on or prior to the Closing Date and have not been modified in a manner that is materially adverse to the Lenders and in full force and effect, (iii) consents, approvals and exemptions that the failure to obtain in the aggregate would not be reasonably expected to result in a Material Adverse Effect, (iv) payment of the Chilean Stamp Tax, if applicable, and mandatory filings associated with the Chilean Stamp Tax and (v) routine reporting obligations. Each Loan Document to which a Loan Party is a party has been duly executed and delivered by the Loan Parties party thereto. Each of this Agreement and the other Loan Documents to which any of the Borrowers or any of the Guarantors is a party is a legal, valid and binding obligation of each Borrower and each Guarantor party thereto, enforceable against the Borrowers and the Guarantors, as the case may be, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 3.04. Statements Made. The written information furnished by or on behalf of any Borrower or any Guarantor to the Administrative Agent or any Lender in connection with the negotiation of this Agreement (as modified or supplemented by other written information so furnished), taken as a whole as of the Closing Date did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein not misleading in light of the circumstances in which such information was provided; provided that, with respect to projections, estimates or other forward looking information, the Borrowers and the Guarantors represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
Section 3.05. Financial Statements; Material Adverse Effect.
(a)The audited consolidated financial statements of Parent and its Subsidiaries for the fiscal year ended December 31, 2021 and the fiscal quarter ended March 31, 2022, included in Parent’s consolidated audited financial statements filed with the SEC, as amended, present fairly, in all material respects, in accordance with IFRS, the financial condition, results of operations, shareholder’s equity and cash flows of Parent and its Subsidiaries on a consolidated basis as of such date and for such period.
(b)The DIP Budget has been based on good faith estimates and assumptions believed by such Persons to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and such differences may be material.
(c)Since March 25, 2022, there has been no Material Adverse Effect (both before and after giving effect to the Transactions).
Section 3.06. Use of Proceeds. The proceeds of the Loans made on the Closing Date shall be used by the Borrowers (i) in accordance with the Reorganization Plan to repay the Existing DIP Facility
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and to pay transaction costs, fees and expenses related thereto and (ii) with respect to any remaining proceeds not applied pursuant to the foregoing clause (i), for general corporate purposes. The proceeds of Loans made after the Closing Date shall be used by the Borrowers for general corporate purposes.
Section 3.07. Ownership of Subsidiaries. As of the Closing Date, each of the Persons listed on Schedule 3.07 is a Subsidiary (direct or indirect) of Parent and the ownership of such Subsidiary is as set forth on such Schedule, and Parent owns no other Subsidiaries, either directly or indirectly.
Section 3.08. Litigation and Compliance with Laws.
(a)Except for the Chapter 11 Case, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrowers or the Guarantors, threatened against any Borrower or any Guarantor or any of their respective properties (including any properties or assets that constitute Collateral under the terms of the Loan Documents), before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that (i) are likely to have a Material Adverse Effect or (ii) could reasonably be expected to affect the legality, validity, binding effect or enforceability of the Loan Documents or, in any material respect, the rights and remedies of the Administrative Agent, the Collateral Trustee, the Local Collateral Agents or the Lenders thereunder or in connection with the Transactions; provided that prior to the Conversion Date, neither the commencement nor existence of a Chilean Local Reorganization Proceeding solely on the terms provided in Section 8.01(i) of the Existing DIP Facility nor a Brazilian Local Reorganization Proceeding shall affect the representation in this Section 3.08.
(b)Except with respect to any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, each Borrower and each Guarantor to its knowledge is currently in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and ownership of its property, including, without limitations, regulation issued by the Dirección General de Aeronáutica Civil of Chile, the FAA or the Agência Nacional de Aviação Civil (ANAC) of Brazil.
Section 3.09. Margin Regulations; Investment Company Act.
(a)Neither any Borrower nor any Guarantor is engaged, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Federal Reserve Board, “Margin Stock”), or extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loans will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock in violation of Regulation U.
(b)Neither any Borrower nor any Guarantor (i) is, or after the making of the Loans will be, or is required to be, registered as an “investment company” under the Investment Company Act of 1940, as amended or (ii) otherwise is subject to any other regulatory requirement limiting its ability to incur a guarantee or Indebtedness or grant a security interest in its property to secure such guarantee or Indebtedness or requiring any approval or consent from, or registration or filing with, any Governmental Authority in connection therewith; provided that prior to the Conversion Date, neither the commencement nor existence of a Chilean Local Reorganization Proceeding solely on the terms provided in Section 8.01(i) of the Existing DIP Facility nor the commencement and/or existence of a Brazilian Local Reorganization Proceeding shall affect the representation in this Section 3.09.
Section 3.10. Ownership of Significant Assets. Each Loan Party has (i) good, marketable and legal title to (in the case of fee or ownership interests in real or personal property), (ii) valid leasehold
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interests in (in the case of leasehold interests in real or personal property), (iii) good title to (in the case of any personal property or assets that are Significant Assets) and (iv) except as would not reasonably be expected to have a Material Adverse Effect, good title to (in the case of all other personal property), all properties and assets (in each case of the foregoing (i)-(iv), other than Intellectual Property, which is the subject of Section 3.11) owned by such Loan Party free and clear of all Liens other than Liens permitted under Section 6.05, except, in each case, for assets Disposed of in accordance with the terms hereof or the Final DIP Order.
Section 3.11. Intellectual Property. Except as would not reasonably be expected to have a Material Adverse Effect, (i) each Loan Party owns, or has a valid and enforceable right, whether express or implied, to use, all Intellectual Property that is used in the conduct of their respective businesses as currently conducted; (ii) no Adverse Proceeding is pending or threatened in writing against any Loan Party (or, to the knowledge of any Loan Party, otherwise threatened) by any Person (1) challenging the right of any Loan Party to use any Intellectual Property owned by or licensed to such Loan Party, (2) challenging the validity of any Intellectual Property owned by any Loan Party or (3) claiming infringement, misappropriation or any other violation by any Loan Party of any right in Intellectual Property of any Person, and (iii) no Intellectual Property used in the operation of the business of each Loan Party as currently conducted infringes, misappropriates or otherwise violates any rights in Intellectual Property of any Person.
Section 3.12. Perfected Security Interests.
(a)Prior to the Conversion Date, upon entry of the Final DIP Order, the Obligations shall constitute Superpriority Claims and the Final DIP Order shall be effective to create, during the Chapter 11 Cases, in favor of the Collateral Trustee, for the benefit of the Secured Parties, a legal, valid, enforceable and perfected security interest under the laws of the United States in the Collateral, with the following priority:
(i)pursuant to section 364(c)(2) of the Bankruptcy Code, a first priority security interest in and Lien on the Collateral not otherwise subject to Permitted Priority Liens and RCF Spare Parts Replacement Liens, subject only to the Carve-Out; and
(ii)pursuant to section 364(c)(3) of the Bankruptcy Code, junior priority security interest in and Lien on the Collateral subject to Permitted Priority Liens, the Carve-Out and RCF Spare Parts Replacement Liens,
as and to the extent contemplated by and described in the Final DIP Order and the Collateral Documents. Without limiting the immediately foregoing sentence, at such time as (x) UCC financing statements in appropriate form are filed in the appropriate offices (and the appropriate fees are paid) and (y) the other requirements of the Collateral Documents have been taken as and when required therein and subject to Section 4.03 herein, the Collateral Trustee or any Local Collateral Agent, as applicable, for the benefit of the Secured Parties, shall have a perfected security interest under the UCC and any similar or equivalent laws of any other jurisdiction required in the Collateral Documents in that portion of such Collateral to the extent that the Liens thereon may be perfected upon the taking of the actions described in clauses (x) and (y) above, subject in each case only to the Carve-Out and Permitted DIP Liens, and such security interest is (1) entitled to the benefits, rights and protections afforded under the Collateral Documents applicable thereto (subject to the qualification set forth in the first sentence of this Section 3.12) and (2) of such priority as provided herein and in the Final DIP Order. For the avoidance of doubt but without affecting the first sentence of this Section 3.12(a), the Loan Documents will not require (i) the execution, filing or recording of mortgages in respect of real property (other than the Real Estate Mortgages) or control agreements (other than with respect to the Disbursement Account or any Controlled Account), (ii)
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the taking of any action to obtain possession or control of any Collateral (other than in respect of any Priority Pledged Equity Interests and the Intercompany Note), (iii) any action in addition to those required by the second sentence of this Section 3.12(a) with respect to the perfection of any security interest in any Intellectual Property beyond the filing of Intellectual Property Security Agreements in respect of Intellectual Property registered, issued or applied-for with the United States Patent and Trademark Office or the Copyright Office or the filing of Non-U.S. IP Security Agreements in respect of Non-U.S. Intellectual Property in the applicable Non-U.S. IP Registration Office, (iv) the filing or taking of any action with respect to the perfection of any security interest in any Pledged Spare Part or Pledged Engine (other than Priority Pledged Engines, as contemplated in Section 4.03), or (v) in any event, the making of any filing or taking of any action with respect to creation, perfection, priority or other action with respect to security interests in any jurisdiction outside of the United States in assets located, titled or arising or protected under the laws of a jurisdiction outside of the United States, except as provided in Section 4.03.
(b)On and after the Conversion Date, the Collateral Documents, taken as a whole, are effective to create in favor of the Collateral Trustee or the Local Collateral Agents, as applicable, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in all of the Collateral to the extent purported to be created thereby, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or in law (but excluding any Collateral Document governed by the law of a Security Jurisdiction outside the United States under whose Law execution alone of such Collateral Document is not sufficient to so create such a Security Interest). At such time as (i) UCC financing statements in appropriate form are filed in the appropriate offices (and the appropriate fees are paid) and (ii) the other requirements of the Collateral Documents have been taken as and when required therein and subject to Section 4.03 herein, the Collateral Trustee or the Local Collateral Agent, as applicable, for the benefit of the Secured Parties, shall have a perfected security interest under the UCC and any similar or equivalent laws of any other jurisdiction required in the Collateral Documents in that portion of such Collateral to the extent that the Liens thereon may be perfected upon the taking of the actions described in clauses (i) and (ii) above, subject in each case only to Permitted Liens, and such security interest is (x) entitled to the benefits, rights and protections afforded under the Collateral Documents applicable thereto (subject to the qualification set forth in the first sentence of this Section 3.12(b)) and (y) of such priority as provided in the Collateral Trust Agreement. For the avoidance of doubt but without affecting the first sentence of this Section 3.12(b), the Loan Documents will not require (A) the execution, filing or recording of mortgages in respect of real property or control agreements, (B) the taking of any action with respect to any Collateral in any non-Security Jurisdiction (other than any actions in accordance with the English Law Security Agreement (as defined in the Collateral Trust Agreement)) or (C) any action to obtain possession or control of any Collateral (other than in respect of any Priority Pledged Equity Interests, the Intercompany Note or as otherwise expressly required by Section 4.1 or 4.3 of the Pledge and Security Agreement).
Section 3.13. Insurance. The properties of the Loan Parties are insured with financially sound and reputable insurance companies which are not Affiliates of Parent, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties and assets in localities where the applicable Loan Party operates, as are necessary to ensure that Uninsured Liabilities of such Loan Party are not reasonably likely to result in a Material Adverse Effect.
Section 3.14. Payment of Taxes.
(a)The Borrowers and the Guarantors have timely filed or caused to be filed all Tax Returns and reports required to have been filed by them and have paid or caused to be paid when due all Taxes
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required to have been paid by them (whether or not shown on any Tax Return), taking into account any applicable extensions. All such Tax Returns are true, complete and correct in all material respects.
(b)There are no pending or threatened audits or claims relating to the assessment or collection of Taxes with respect to the Borrowers and the Guarantors or any unresolved questions or claims concerning the Tax liability of the Borrowers and the Guarantors.
(c)There are no encumbrances for Taxes against the assets of the Borrowers and the Guarantors.
(d)The Borrowers and the Guarantors have deducted or withheld and timely paid over to the proper Governmental Authorities all Taxes required to have been deducted or withheld and paid over, and have complied with all information reporting, withholding and backup withholding requirements.
(e)The Borrowers and the Guarantors do not have liability for the Taxes of another person as a transferee, successor, by contract, or pursuant to applicable law.
In any event, the Borrowers and the Guarantors jointly and severally represent and warrant the above Section 3.14(a) to Section 3.14(e) except and solely to the extent that, in each case, (i) Taxes, if any, are being contested in good faith by appropriate proceedings and subject to maintenance of adequate reserves in accordance with IFRS, or (ii) any such Taxes, related liabilities, audits or claims could not reasonably be expected to result in a Material Adverse Effect.
Section 3.15. Employee Matters.
(a)Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Loan Parties are not engaged in any unfair labor practice, and there is no
(i) unfair labor practice charge or complaint pending against any Loan Party or, to the knowledge of the Loan Parties, threatened by or on behalf of any employees of the Loan Parties, (ii) material grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against any Loan Party or, to the knowledge of the Loan Parties, threatened against any Loan Party and
(iii) strike, work stoppage or other labor dispute against any of the Loan Parties or, to the knowledge of the Loan Parties, threatened against any Loan Party, except where any such situation could not reasonably be expected to result in a Material Adverse Effect.
(b)Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Loan Parties are in compliance with all applicable laws respecting employment, discrimination in employment, terms and conditions of employment, worker classification, wages, hours and occupational safety and health and employment practices.
(c)Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) each Benefit Plan has been adopted and administered in accordance with its terms and complies with applicable law, (ii) there are no pending, or to the knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Benefit Plan and (iii) the present value of all accumulated benefit obligations under each Benefit Plan (based on the assumptions used for purposes of International Accounting Standard No. 26) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Benefit Plan.
(d)Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) no Benefit Plan is subject to ERISA Title IV and no Loan Party has any
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liability under ERISA Title IV with respect to any employee benefit plan including on account of any ERISA Affiliate, and (ii) no Loan Party has ever contributed to or been required to contribute to a “multiemployer plan” as defined in Section 3(37) or Section 4001(a)(3) of ERISA.
(e)With respect to each scheme or arrangement mandated by a government other than the United States (a “Non-U.S. Government Scheme or Arrangement”) and with respect to each employee benefit plan maintained or contributed to by any Loan Party that is not subject to United States law (a “Non-U.S. Plan”) except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect:
(i)any employer and employee contributions required by law or by the terms of any Non-U.S. Government Scheme or Arrangement or any Non-U.S. Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices;
(ii)the fair market value of the assets of each funded Non-U.S. Plan, the liability of each insurer for any Non-U.S. Plan funded through insurance or the book reserve established for any Non-U.S. Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Closing Date, with respect to all current and former participants in such Non-U.S. Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and
(iii)each Non-U.S. Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
Section 3.16. Sanctions; Anti-Corruption; Anti-Money Laundering Laws.
(a)Neither Parent nor any of its Subsidiaries or Affiliates, or their respective directors or officers, nor to their knowledge, their or their Affiliates’ employees, has in the last five years, nor is now, engaged in any activity or conduct which would comprise a violation in any material respect of any applicable Anti-Corruption Laws, Sanctions, or Anti-Money Laundering Laws, regulations or rules in any applicable jurisdiction, and Parent and its Subsidiaries have instituted and maintain in place policies and procedures reasonably designed to promote compliance with such laws, regulations and rules.
(b)Neither Parent nor any of its Subsidiaries, or their respective directors or officers, nor to their knowledge, their Affiliates is a Person that is the subject or target of any Sanctions as a result of (i) being listed on any list of persons subject to Sanctions, (ii) being located, organized or resident in a country or territory that is the subject of comprehensive Sanctions broadly prohibiting dealings with such country or territory (currently, the Crimea, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic regions of Ukraine, Cuba, Iran, North Korea, and Syria) (each, a “Sanctioned Country”), (iii) being the government of Venezuela or (iv) being a Person that is 50% or more owned or controlled by any Person described in (i), (ii) or (iii) (any Person described in (i), (ii), (iii), or (iv), a “Sanctioned Person”). “Sanctions” shall mean any economic or trade sanctions or embargos enacted, imposed, administered or enforced by the U.S. government, including those administered by OFAC and the U.S. Department of State, the United Nations Security Council, the European Union, any European Union member state, the United Kingdom and/or any other applicable Governmental Authorities with jurisdiction over the conduct of a Person performing under this Agreement.
(c)None of the Loan Parties, any of their Subsidiaries, or, to their knowledge based on the information available to them after due inquiry, any of their respective officers, directors, employees, or any Persons acting on their behalf in connection with the Loan are Sanctioned Persons.
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(d)None of the proceeds in connection with this Agreement will be used, lent, contributed, or otherwise made available, directly or indirectly, (i) to fund, finance or facilitate any activities or business of or with any Person that, at the time of such funding, financing or facilitation, is the subject or target of Sanctions, (ii) to fund, finance or facilitate any activities of or business in any Sanctioned Country, in each case of (i) and (ii), except to the extent permitted under Sanctions, or (iii) in any other manner that would result in a violation of Sanctions by any Person in connection with this Agreement (including any Person participating or acting in connection with the loan hereunder, whether as underwriter, advisor, investor, lender, hedge provider, facility or security agent or otherwise).
Section 3.17. Process Agent. The Borrowers shall continue to maintain Law Debenture Corporate Services, Inc., 801 2nd Avenue, Suite 403, New York, New York, 10017, or another entity acceptable to the Administrative Agent, as its process agent (the “Process Agent”).
Section 3.18. Final DIP Order. Prior to the Conversion Date, (a) the Final DIP Order is in full force and effect and has not been vacated, reversed, terminated, stayed, modified or amended in any manner without the written consent of the Required Lenders and (b) upon the occurrence of the Maturity Date (whether by acceleration or otherwise), the Lenders shall, subject to Section 7.01 and the applicable provisions of the Final DIP Order, be entitled to immediate payment of the Borrowers’ Obligations, and to enforcement of the remedies provided for under the Loan Documents in accordance with the terms thereof and the Final DIP Order without further application to or order by the Bankruptcy Court.
Section 3.19. Appointment of Trustee or Examiner; Liquidation. No order has been entered in any of the Obligors’ Chapter 11 Cases (a) for the appointment of a Chapter 11 trustee, (b) for the appointment of a responsible officer or examiner (other than a fee examiner) having enlarged powers (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1104 of the Bankruptcy Code or (c) to convert any of the Obligors’ Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code or to dismiss any of the Obligors’ Chapter 11 Cases.
Section 3.20. Environmental Compliance.
(a)Except with respect to (i) any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect and (ii) the Existing Environmental Proceedings, each of the Loan Parties is in compliance with all applicable Environmental Laws and Environmental Permits.
(b)There are no Environmental Claims pending or, to the knowledge of the Loan Parties, threatened, including any such Environmental Claims pending or threatened against the Loan Parties or any of their respective properties (including any properties or assets that constitute Significant Assets under the terms of the Loan Documents), in each case that are reasonably expected to have a Material Adverse Effect, except with respect to the Existing Environmental Proceedings.
(c)Except with respect to the Existing Environmental Proceedings or any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, to the knowledge of the Borrowers, there are no conditions or circumstances that are likely to result in any Environmental Liability or requirement for investigation or assessment or remedial or response action relating to any presence, actual or threatened Release or Use of Hazardous Materials at any site, location or operation to be imposed on, or asserted against, the Loan Parties.
Section 3.21. No Default. No Default has occurred and is continuing under this Agreement or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
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Section 3.22. Beneficial Ownership Certificate. As of the Closing Date, the information included in the Beneficial Ownership Certification, if applicable, is true and correct in all respects.
Section 3.23. Navigation Charges. To the best of Parent’s knowledge, there are no navigation or landing fees and charges of an Airport Authority or applicable Aviation Authority or Non-U.S. Aviation Authority (including Eurocontrol and any applicable EU-ETS authority) outstanding in respect of the Aircraft or any Engine in the fleet of any Air Carrier Entity as a result of which such Airport Authority or Aviation Authority or Non-U.S. Aviation Authority would be entitled to seize, arrest, detain or forfeit the Aircraft or any Engine.
Section 3.24. Slot Utilization. (a) As of the Closing Date, (i) each Borrower and each applicable Loan Party holds its respective Material Pledged Slots that were allocated through the IATA seasonal allocation process and are ruled by the Worldwide Slot Guidelines (WSG) of IATA and the local regulations of each airport and (ii) there exists no material violation by such Loan Party of the terms, conditions or limitations of any rule, regulation or order of the applicable slots’ conditions and regulations. Neither any Borrower nor any Guarantor has received any written notice from the FAA, other applicable Governmental Authorities or Aviation Authorities, or is otherwise aware of any other event or circumstance, that would, taking into account any exemptions or other relief granted by the relevant Governmental Authority, be reasonably likely to impair in any material respect its respective right to hold and operate any Material Pledged Slot, except for any such impairment that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.Except for matters which could not reasonably be expected to have a Material Adverse Effect, the Borrowers and the other Loan Parties, as applicable, are utilizing, or causing to be utilized, their respective Slots (except any such Slots which are reasonably determined by Parent to be of de minimis value or surplus to Parent’s needs) in a manner consistent in all material respects with applicable rules, regulations, laws and contracts in order to preserve both their respective right to hold and operate such Slots, taking into account any waivers or other relief granted to any Borrower or any Guarantor by the FAA, other applicable Governmental Authorities in the United States, Airport Authorities in the United States, any applicable Non-U.S. Aviation Authority or any foreign Airport Authorities.
(c) Neither any Borrower nor any Guarantor has received any written notice from the FAA, other applicable Governmental Authorities, any Non-U.S. Aviation Authority or any Airport Authority, as applicable, or is otherwise aware of any other event or circumstance, that would, taking into account any exemptions or other relief granted by the relevant Governmental Authority, be reasonably likely to impair in any material respect its respective right to hold and operate any Slot, except for any such impairment that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
Section 3.25. Routes. With respect to the Pledged Routes, (i) each applicable Loan Party holds or co-holds the requisite authority to operate over such Loan Party’s Routes pursuant to Title 49, applicable foreign law and the applicable rules and regulations of the FAA, DOT and any Non-U.S. Aviation Authorities with jurisdiction over its Routes, and (ii) there exists no material violation by such Loan Party of any certificate or order issued by the relevant Aviation Authorities authorizing such Loan Party to operate over such Routes, with respect to such Routes or the provisions of Title 49, applicable foreign law and the applicable rules and regulations of the FAA, DOT and any Non-U.S. Aviation Authorities with jurisdiction over such Routes that gives the relevant Aviation Authority the right to modify in any material respect, terminate, cancel or withdraw the rights of such Loan Party in any such Routes.
Section 3.26. Debtor-in-Possession Obligations. Prior to the Conversion Date, each Obligor shall comply in a timely manner with its obligations and responsibilities as a debtor-in-possession under
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the Bankruptcy Code, the Bankruptcy Rules and any order of the Bankruptcy Court (including, for the avoidance of doubt, the Final DIP Order), as each such order is amended and in effect from time to time.
Section 3.27. Chilean Capitalization Requirements. (a) The aggregate value of the Collateral pledged by Parent on the Closing Date and pursuant to Section 4.03 does not equal or exceed 50% of the total assets of Parent and (b) none of the Subsidiaries whose equity interests are directly owned and being pledged by Parent on the Closing Date or pursuant to Section 4.03 individually represents 20% or more of the total assets of Parent, determined in each case according to the individual balance sheet of Parent as of December 31, 2021.
ARTICLE 4.
CONDITIONS OF LENDING
Section 4.01. Conditions Precedent to Closing. This Agreement and the obligation of the Lenders to make Initial Term Loans on the Closing Date hereunder shall be subject to satisfaction of the following conditions precedent (unless waived in accordance with Section 10.08 by the Administrative Agent (acting at the direction of the Term Lenders)):
(a)Executed Counterparts of the Loan Documents. The Administrative Agent shall have received duly executed copies of (i) this Agreement by (A) each of the Term Lenders, (B) each Loan Party and (C) each of the other parties party thereto and (ii) duly executed copies of each other Loan Document by each Loan Party and each of the other parties party thereto, other than those Loan Documents that are to be delivered after the Closing Date in accordance with Section 4.03.
(b)Final DIP Order. The Final DIP Order shall not have been vacated, reversed, modified, amended or stayed except as otherwise agreed to in writing by the Joint Lead Arrangers.
(c)Closing Date Debt. The sum of (i) the aggregate gross cash proceeds in respect of the 2027 Bridge Loans and the 2029 Bridge Loans on the Closing Date shall be no less than $1.5 billion and
(ii) the aggregate commitments outstanding under the Revolving Credit Facility on the Closing Date shall be no less than $500.0 million.
(d)Closing Date Material Adverse Effect. Since March 25, 2022, there shall have been no Closing Date Material Adverse Effect.
(e)Corporate Deliverables. The Administrative Agent shall have received from each Loan Party a certificate, executed by a Secretary or an Assistant Secretary or Director (or similar officer) of such Loan Party certifying that attached thereto: (i) is a true and complete copy of the resolutions adopted by the board of directors, board of managers or members of that entity authorizing the Borrowings hereunder or shareholders (as required pursuant to applicable law) of such Loan Party (or a duly authorized committee thereof) authorizing (A) the execution, delivery and performance of this Agreement and the other Loan Documents to which such Loan Party is party and any other documents required or contemplated hereunder or thereunder, and the granting of the Liens contemplated hereby or the other Loan Documents (in each case to the extent applicable to such entity), and (B) in the case of each Borrower, the extensions of credit contemplated hereunder; (ii) is a true and complete copy of the formation documents and governing documents (or any document of similar import) of each Loan Party, and in the case of any entity organized in the United States, a certificate of the Secretary of State of the state of such entity’s incorporation or formation, dated as of a recent date, as to the charter documents on file in the office of such Secretary of State as in effect on the date of such certification; (iii) a certificate of good standing (or such other document of similar import) or letter confirming no outstanding fees or
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filings with respect to such Loan Party from the secretary of state (or comparable body), or the relevant companies’ registry of the jurisdiction in which such Loan Party is organized or incorporated, dated as of a recent date and (iv) as to the incumbency and specimen signature of each officer of that entity executing this Agreement and the Loan Documents or any other document delivered by it in connection herewith or therewith (such certificate to contain a certification by another officer of that entity as to the incumbency and signature of the officer signing the certificate referred to in this clause (iv));
(f)Opinions of Counsel. The Administrative Agent shall have received customary legal opinions with respect to the New York law governed Loan Documents from (i) Cleary Gottlieb Steen & Hamilton LLP, New York counsel to the Loan Parties, (ii) Claro & Cia, Chilean counsel to the Loan Parties, (iii) Brigard Urrutia, Colombian counsel to the Loan Parties, (iv) Rodrigo Elias & Medrano, Peruvian counsel to the Loan Parties, (v) Demarest Advogados, Brazilian counsel to the Loan Parties, (v) Walkers, Cayman counsel to the Loan Parties, (vi) Higgs & Johnson, Bahamian counsel to the Loan Parties, (vii) Pillsbury Winthrop Shaw Pittman LLP, Florida counsel to the Loan Parties and (viii) Perez Bustamante & Ponce, Ecuadorian counsel to the Loan Parties, in each case in form and substance reasonably satisfactory to the Administrative Agent.
(g)Officer’s Certificates. The Administrative Agent shall have received (i)(x) an Officer’s Certificate from Parent, dated the Closing Date, certifying (A) as to the truth in all material respects of the representations and warranties made by it contained in the Loan Documents as though made on the Closing Date, except to the extent that any such representation or warranty relates to a specified date, in which case as of such date (provided that any representation or warranty that is qualified by materiality or “Material Adverse Effect” shall be true and correct in all respects as of the applicable date, before and after giving effect to the Transactions) and (B) as to the absence of any event occurring and continuing, or resulting from the Transactions, that constitutes an Event of Default and (ii) an Officer’s Certificate from each Borrower, dated the Closing Date, certifying compliance with the conditions set forth in this Section 4.01 as of the Closing Date, in form and substance reasonably acceptable to the Administrative Agent.
(h)Lien Searches and Lien Perfection. (i) The Administrative Agent shall have received UCC lien searches conducted in Florida, Delaware and the District of Columbia, as applicable, reflecting the absence of Liens and encumbrances on the assets of the Loan Parties constituting Collateral, other than Permitted Liens, (ii) if applicable, priority search certificates for each applicable Priority Pledged Engine reflecting the absence of registered International Interests on such Priority Pledged Engines and
(iii) the Administrative Agent shall have received evidence as it reasonably requires to demonstrate that upon the taking of the actions specified in Section 3.12 and Section 4.03, the Collateral Trustee or the Local Collateral Agents, as applicable, shall hold perfected security interests in and Priority Liens upon the Collateral; provided that nothing herein shall require any Loan Party to take any actions not required under Section 3.12 and Section 4.03 with respect to the pledge and perfection of Collateral.
(i)Consents. All material governmental and third party consents and approvals necessary in connection with the financing (including the granting and, subject to Sections 3.13 and 4.03, perfecting of the security interests with respect to the Collateral) listed on Schedule 4.01 shall have been obtained, in form and substance reasonably satisfactory to the Administrative Agent, and be in full force and effect, including the approval of the Cayman JPLs.
(j)Patriot Act; Beneficial Ownership Regulation. The Administrative Agent, each of the Term Lenders that have requested the same shall have received (i) at least three (3) days prior to the Closing Date all documentation and other information reasonably requested in writing by them at least ten
(10) Business Days prior to the Closing Date that they shall have reasonably determined is required by the applicable regulatory authorities to comply with applicable “know your customer” and Anti-Money
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Laundering Laws, rules and regulations, including the USA PATRIOT Act and (ii) at least five (5) days prior to the Closing Date to the extent reasonably requested in writing by them at least ten (10) business days prior to the Closing Date, in connection with applicable “beneficial ownership” rules and regulations, a Beneficial Ownership Certification in relation to each Borrower.
(k)Payment of Fees and Expenses. Subject to, and in accordance with the procedures and requirements set forth in the Final DIP Order, the Administrative Agent, the Collateral Trustee, the Joint Lead Arrangers and the Lenders shall have received all compensation (to the extent due), transaction costs, expenses (including, without limitation, reasonable documented legal and financial advisor fees) required to be paid on or prior to the Closing Date and all reasonable, documented and invoiced out-of- pocket expenses incurred by counsel to the Term Lenders solely in connection with the preparation, negotiation and execution of the Loan Documents for which invoices have been presented at least five (5) Business Days prior to the Closing Date.
(l)Insurance Coverage. The Collateral Trustee shall have received, to the extent obtainable by the Borrowers prior to the Closing Date after evidence of the use of commercially reasonable efforts, evidence of all primary liability and property insurance coverages of the Loan Parties.
(m)Non-U.S. Cases. There is no order, injunction, stay, restriction or other similar limitation in any of the Non-U.S. Cases that in any way prevents, limits, or restricts any Loan Party’s ability to enter into this Agreement or otherwise consummate or perform any of the transactions contemplated by this Agreement, including, but not limited to, the transactions provided for in the Loan Documents.
(n)Funds Flow Direction Letter. The Borrowers shall have executed and delivered a Funds Flow Direction Letter to the Administrative Agent.
(o)Representations and Warranties. All representations and warranties of the Borrowers and the Guarantors contained in this Agreement and the other Loan Documents executed and delivered on the Closing Date shall be true and correct in all material respects on and as of the Closing Date (except to the extent any such representation or warranty by its terms is made as of a different specified date, in which case as of such specified date); provided that any representation or warranty that is qualified by materiality or “Material Adverse Effect” shall be true and correct in all respects, as though made on and as of the applicable date, before and after giving effect to the Transactions.
(p)Trustee. No trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, or examiner or receiver with enlarged powers beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code shall have been appointed or designated with respect to the Obligors or their respective business, properties or assets under any of the Chapter 11 Cases.
(q)Confirmation Order. The Confirmation Order confirming the Reorganization Plan shall be in full force and effect, not subject to a stay and shall not have been reversed, modified, amended or vacated, in any manner that is materially adverse to the Joint Lead Arrangers or to the Term Lenders without the consent of such Joint Lead Arrangers.
(r)Junior DIP Facility. The Junior DIP Facility shall be effective or shall become effective on the Closing Date.
(s)Payoff of Existing DIP Facility. The Administrative Agent shall have received evidence reasonably satisfactory to it that, upon the making of the Initial Term Loans and the making of the 2027 Bridge Loans and the 2029 Bridge Loans on the Closing Date (and after giving effect to the application of the proceeds thereof), the principal amount of and accrued interest on all outstanding loans, and all other
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amounts due and payable, under the Existing DIP Facility shall have been paid, discharged or otherwise satisfied in full and that such Existing DIP Facility shall be terminated, subject to the survival of certain provisions as expressly provided therein, and all Liens securing the obligations of Parent and its subsidiaries thereunder shall be released (or there are arrangements (reasonably satisfactory to the Administrative Agent) for such release as soon as practicable after the Closing Date.
(t)Financial Statements. The Administrative Agent shall have received audited consolidated financial statements of Parent and its Subsidiaries for the fiscal year ended December 31, 2021 and unaudited consolidated financial statements for the fiscal quarter ended March 31, 2022 and each subsequent fiscal quarter ended at least 60 days prior to the Closing Date included in Parent’s consolidated financial statements filed with the SEC (as amended through the Closing Date), in each case, prepared in accordance with the IFRS and presenting fairly, in all material respects, the financial condition, results of operations and cash flows of Parent and its Subsidiaries on a consolidated basis as of such date and for such period.
(u)Pro Forma Financial Statements. The Administrative Agent shall have received a pro forma consolidated balance sheet and a related pro forma consolidated statement of income of Parent and its Subsidiaries (based on the financial statements referred to in paragraph above) as of and for (i) the fiscal year ended December 31, 2021, (ii) the six months ended June 30, 2021 and (iii) the six months ended June 30, 2022, in each case, prepared after giving effect to the Transactions as if they had occurred as of such date (in the case of such balance sheet) or at the beginning of such period (in the case of such other statement of income).
(v)
Notice. The Administrative Agent shall have received a Loan Request pursuant to Section 2.02 with respect to such Borrowing.
Notice. The Administrative Agent shall have received a Loan Request pursuant to Section 2.02 with respect to such Borrowing.
The execution by each Lender of this Agreement shall be deemed to be confirmation by such Lender that any condition relating to such Lender’s satisfaction or reasonable satisfaction with any documentation set forth in this Section 4.01 has been satisfied as to such Lender.
Section 4.02. Conditions Precedent to Each Loan. The obligation of the Lenders to make each Loan after the Closing Date is subject to the satisfaction (or waiver in accordance with Section 10.08) of the following conditions precedent:(a)Notice. The Administrative Agent shall have received a Loan Request pursuant to Section 2.02 with respect to such Borrowing.
(b)Representations and Warranties. All representations and warranties of the Borrowers and the Guarantors contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such Loan hereunder (both before and after giving effect thereto and the application of proceeds therefrom) with the same effect as if made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date and in such case as of such date; provided that any representation or warranty that is qualified by materiality or “Material Adverse Effect” shall be true and correct in all respects, as though made on and as of the applicable date, before and after giving effect to such Loan hereunder.
(c)No Default. On the date of such Loan hereunder, no Event of Default or Default shall have occurred and be continuing nor shall any such Event of Default or Default, as the case may be, occur by reason of the making of the requested Borrowing and, in the case of each Loan, the application of proceeds thereof.
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The acceptance by any Borrower of each extension of credit hereunder shall be deemed to be a representation and warranty by the Borrowers that the conditions specified in this Section 4.02 have been satisfied at that time.
Section 4.03. Post-Closing Obligations. The Loan Parties shall comply with the obligations set forth in Section 4.5 to the Pledge and Security Agreement within the time periods set forth therein.
ARTICLE 5.
AFFIRMATIVE COVENANTS
From the date hereof and for so long as the Commitments remain in effect or the principal of or interest on any Loan is owing (or any other amount that is due and unpaid on the first date that none of the foregoing is in effect, outstanding or owing, respectively, is owing) to any Lender or the Administrative Agent hereunder:
Section 5.01. Financial Statements, Reports, etc. Parent shall deliver to the Administrative Agent on behalf of the Lenders:
(a)Quarterly Financials. As soon as available and in any event within sixty (60) days (or solely with respect to the second fiscal quarter of each fiscal year, on or before the date that is seventy-five
(75) days) after the end of each of the first three quarters of each fiscal year of Parent, the consolidated financial statements of Parent and its Subsidiaries, in each case as at the end of such quarterly period, that includes a statement of financial position (the “Statement of Financial Position”), a statement of comprehensive income (the “Statement of Comprehensive Income”), a statement of changes in equity (the “Statement of Changes in Equity”), a cash flow statement and notes (the “Cash Flow Statement and Notes”), comprising a summary of the significant accounting policies for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and setting forth comparative consolidated figures for the related periods in the prior fiscal year or, in the case of such consolidated balance sheet, for the last day of the prior fiscal year, all of which shall be duly certified (subject to year-end audit adjustments) by a Financial Officer of Parent as having been prepared in accordance with IFRS and certificates of a Financial Officer of Parent as to compliance with the terms of this Agreement, which financials shall be accompanied by customary management discussion and analysis (which requirement with respect to management discussion and analysis may be satisfied by the Parent posting on its publicly available website a quarterly earnings statement in customary form prepared by the Parent);
(b)Annual Financials. As soon as available and in any event on or before the date that is ninety (90) days after the end of each fiscal year of Parent, the consolidated financial statements of Parent and its Subsidiaries as at the end of such fiscal year, that includes the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity, a Cash Flow Statement and Notes, comprising a summary of the significant accounting policies, setting forth comparative consolidated figures for the preceding fiscal year, and certified by PricewaterhouseCoopers Consultores, Auditores SpA or another independent certified public accountant of recognized national standing (which such opinion shall be without any qualification or exception as to the scope of such audit, other than any exception, explanatory paragraph or qualification that is with respect to, or resulting from, (i) an upcoming maturity date of any Priority Lien Debt occurring within one year from the time such opinion is delivered, (ii) any actual or prospective breach of a financial covenant in any Priority Lien Debt or potential inability to satisfy a financial covenant in any Priority Lien Debt on a future date or in a future period, (iii) the activities, operations, financial results, assets or liabilities of any Unrestricted Subsidiary, and (iv) the Chapter 11 Cases) to the effect that such consolidated financial statements fairly present in all
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material respects the financial condition and results of operations of Parent and its Subsidiaries on a consolidated basis in accordance with IFRS, which financials shall be accompanied by customary management discussion and analysis; provided that, the delivery requirements under this Section 5.01(b) may be satisfied through a filing by the Parent with the SEC on Form 20-F.
(c)Financial Certification. Within the time periods under Section 5.01(a) and (b) above, as applicable, a certificate of a Financial Officer of Parent certifying that, to the knowledge of such Financial Officer, no Default or Event of Default has occurred and is continuing, or, if, to the knowledge of such Financial Officer, such a Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto;
(d)Consolidated Liquidity Certification. Within the time period under Section 5.01(a) and (b), a certificate of an Officer demonstrating in reasonable detail compliance with Section 6.07 as of the end of the preceding fiscal quarter;
(e)Asset Coverage Ratio Certificate. An Asset Coverage Ratio Certificate, as and when required under Section 6.03(2)(iii), 6.08(a) or Section 6.08(c);
(f)Appraisals. Promptly after a Financial Officer of any Loan Party obtains knowledge thereof, notice of any factual misstatement or error contained in any Appraisal that would materially affect the valuation therein;
(g)Notices of Events of Default. So long as any Commitment or Loan is outstanding, promptly after the Chief Financial Officer or the Treasurer of Parent or any other Loan Party becoming aware of the occurrence of a Default or an Event of Default that is continuing, an Officer’s Certificate specifying such Default or Event of Default and what action the Loan Parties are taking or propose to take with respect thereto;
(h)Notice of Employee Plan. Prompt notice of the occurrence of any event or circumstance relating to any employee retirement or similar plan of Parent or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect; and
(i)Information. Promptly, from time to time, (i) such other information regarding the Significant Assets, and (ii) solely to the extent not constituting MNPI, the operations, business affairs and financial condition of any Loan Party, in each case under (i) and (ii), as the Administrative Agent or the Collateral Trustee, each at the request of any Lender, may reasonably request;
(j)Notice of Litigation. Prompt notice after any officer of any Loan Party becomes aware of any actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against any Loan Party or any of their respective properties (including any properties or assets that constitute Collateral under the terms of the Loan Documents), before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that are reasonably likely to have a Material Adverse Effect;
(k)Environmental Matters. Parent will promptly advise the Administrative Agent in writing after obtaining actual knowledge of any one or more of the following environmental matters, unless such environmental matters would not, individually or when aggregated with all other such matters, be reasonably expected to result in a Material Adverse Effect:
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(i)Any pending or, to Parent’s knowledge, threatened Environmental Claim (other than the Existing Environmental Proceedings), including any pending or threatened Environmental Claim against any Loan Party;
(ii)Any condition or occurrence on any Real Estate that could reasonably be anticipated to form the basis of an Environmental Claim, including any Environmental Claim against any Loan Party; and
(iii)The conduct of any investigation, or any removal, remedial or other corrective action in response to the actual or alleged presence, Release or threatened Release of any Hazardous Material on, at, under, in or from any Real Estate.
All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the response thereto. The term “Real Estate” shall mean land, buildings and improvements owned, leased or licensed by any Loan Party;
(l)Prior to the Conversion Date,
(i)Monthly Reporting. (x) On the tenth Business Day of each calendar month after the Closing Date, commencing after October 2022, an Updated DIP Budget certified by the Chief Financial Officer of Parent with respect to the Loan Parties for the current week and the immediately following consecutive 12 weeks, set forth on a weekly basis, in form substantially similar to the Initial Approved DIP Budget (or such other form acceptable to the Required Lenders) and (y) forty-five (45) calendar days after the end of each month, Parent will provide a report certified by the Chief Financial Officer of Parent showing actual pro-forma unaudited consolidated income statement results of the prior monthly period compared to the same period in the Five-Year Business Plan along with an explanation for all material variances thereto including commentary on actual results compared to underlying assumptions (it being understood and agreed that each such report shall include information with respect to days of sales outstanding, days of inventory outstanding, days of payables outstanding and days of deferred revenue (together with a breakdown of deferred revenue in respect of air traffic liability, the Frequent Flyer Program and advances for credit card points), in each case in form and substance similar to the information provided to the Administrative Agent and the Lenders in support of the Five-Year Business Plan);
(ii)Bi-Weekly Reporting. Commencing on October 21, 2022, and then bi-weekly, on the Wednesday which is twelve (12) days following each reporting period, a report certified by the Chief Financial Officer of Parent (A) showing preliminary actual cash receipts and disbursements for the two (2) week period ending prior to the week prior to the reporting date, including an estimated breakout of passenger, cargo and other revenue, (B) noting therein variances for such two (2) week period from amounts set forth in the DIP Budget for such period on a line item basis, (C) providing an explanation for all material variances thereto, and (D) showing compliance with the Consolidated Liquidity covenant in Section 6.07 at the end of each such two (2) week period (a “DIP Budget Variance Report”);
(iii)Bankruptcy Matters. (i) as soon as practicable in advance, and in any event no less than three (3) calendar days in advance of filing, (1) prior written notice of any assumption or rejection of any Obligor’s material contracts pursuant to Section 365 of the Bankruptcy Code; and
(2) copies of all the Obligors’ material pleadings, affecting this Term Loan Facility in the Chapter 11 Cases and in any Non-U.S. Case which shall be reasonably satisfactory to the Administrative Agent and the Required Lenders; provided the Obligors shall not be required to provide material
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pleadings relating to this Term Loan Facility if doing so would violate any applicable legal rule or such material pleadings contain privileged information and (y) substantially contemporaneously with the filing or distribution thereof, copies of all financial information and non-privileged information distributed by or on behalf of any Obligor to the Creditors’ Committee;
(iv)Quarterly Reporting. Prior to the Conversion Date, Seventy-five (75) calendar days after the end of each fiscal quarter, Parent will provide a report certified by the Chief Financial Officer showing the actual pro-forma unaudited consolidated income statement, balance sheet and cash flow statement results for such quarter compared to the period in the Five-Year Business Plan along with an explanation for all material variances thereto including commentary on actual results compared to underlying assumptions;
(m)Patriot Act; Beneficial Ownership Regulation. Promptly following any request therefor, information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and Anti-Money Laundering Laws, rules and regulations, including, without limitation, the PATRIOT Act and the Beneficial Ownership Regulation.
Subject to the next succeeding sentence, information required to be delivered pursuant to this Section 5.01 to the Administrative Agent and/or Collateral Trustee, may be delivered electronically, and if so delivered, shall be deemed to have been delivered on the earlier of the date on which (i) the Parent (or a representative thereof) provides written notice to the Administrative Agent that such information has been posted on Parent’s or any Affiliate’s general commercial website on the Internet (to the extent such information has been posted or is available as described in such notice), as such website may be specified by Parent to the Administrative Agent from time to time or (ii) solely with respect to deliveries to the Administrative Agent, such documents are delivered by the Parent to the Administrative Agent for posting on the Parent’s behalf on IntraLinks/IntraAgency, SyndTrak, Debt Domain or another secure website to which the Administrative Agent has access (whether a commercial, third-party website or whether sponsored by the Administrative Agent), as such website may be specified by Parent to the Administrative Agent from time to time. Information required to be delivered pursuant to this Section 5.01 by Parent shall be delivered pursuant to Section 10.01 hereto. Information required to be delivered pursuant to this Section 5.01 shall be in a format which is suitable for transmission. Any notice or other communication delivered pursuant to this Section 5.01, or otherwise pursuant to this Agreement, shall be deemed to contain material non-public information unless (1) expressly marked by a Borrower or a Guarantor as “PUBLIC”, (2) such notice or communication consists of copies of Parent’s public filings with the SEC or (3) such notice or communication has been posted on Parent’s general commercial website on the Internet, as such website may be specified by Parent to the Administrative Agent from time to time.
Section 5.02. Taxes.
(a)Parent shall, and shall ensure that, the Guarantors shall pay all taxes (including, for the avoidance of doubt, any Indemnified Taxes and Other Taxes, without duplication of any indemnification obligations set forth under any Loan Document), assessments, and governmental levies before the same shall become more than ten (10) days delinquent (taking into account any applicable extensions) other than taxes, assessments and levies (i) being contested in good faith by appropriate proceedings and subject to maintenance of appropriate reserves in accordance with IFRS, (ii) in connection with or constituting certain airport fees as described on Schedule 5.02(a) or (iii) the failure to effect such payment of which are not reasonably be expected to result in a Material Adverse Effect.
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(b)Parent shall undertake to comply in all respects with Decree Law No. 2564 of 1979 in order to be exempt from Chilean withholding taxes; provided that Parent shall not be responsible for any failure to comply with Decree Law No. 2564 of 1979 if Parent becomes unable to comply with Decree Law No. 2564 of 1979 as a result of any change in law.
Section 5.03. Stay, Extension and Usury Laws. Each Loan Party covenants (to the extent that it may lawfully do so) to not, at any time, insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and each Loan Party (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Administrative Agent and the other Secured Parties, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 5.04. Corporate Existence. Each Loan Party shall do or cause to be done all things reasonably necessary to preserve and keep in full force and effect:
(a)(i) with respect to the Borrowers, their corporate existence in accordance with the respective organizational documents (as the same may be amended from time to time) of such Borrower, and (ii) with respect to each other Loan Party, their corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in each case, in accordance with the respective organizational documents (as the same may be amended from time to time) of such Person, except where, with respect to clause (ii), the failure to do so would not reasonably be expected to result in a Material Adverse Effect; and
(b)their rights (charter and statutory) and material franchises of each Loan Party and its Restricted Subsidiaries; provided, however, that the Loan Parties shall not be required to preserve any such right or franchise, or the corporate, partnership or other existence, of it or any of its Restricted Subsidiaries if the Board of Directors of the Parent shall determine that the preservation thereof is no longer desirable in the conduct of the business of Parent and its Subsidiaries, taken as a whole, and that the loss thereof would not, individually or in the aggregate, have a Material Adverse Effect.
For the avoidance of doubt, this Section 5.04 shall not prohibit any actions permitted by Section 6.09 hereof.
Section 5.05. Compliance with Laws; Compliance with Environmental Laws.
(a)Each Loan Party shall comply, and cause each of its Subsidiaries to comply in all material respects, with all applicable laws, rules, regulations and orders of any Governmental Authority (including Sanctions, Anti-Money Laundering Laws and Anti-Corruption Laws) applicable to it or its business or property.
(b)Each Loan Party shall (1) comply, and take commercially reasonable efforts to cause all lessees and other Persons operating or occupying the Real Estate to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; and (2) conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in each case in all material respects to the extent required by and in material accordance with the requirements of all applicable Environmental Laws; provided, however, that no Loan Party shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances.
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(c)Each Loan Party will maintain in effect policies and procedures reasonably designed to promote compliance by itself, its Subsidiaries and, when acting in such capacity, their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
Section 5.06. Air Carrier Status. Each Air Carrier Entity will use commercially reasonable efforts to maintain at all times its status and rights to operate as an “air carrier” in Chile, Brazil, Peru or Colombia, as applicable, and all other jurisdictions in which it operates air routes from time to time, except to the extent the failure to maintain such rights would not reasonably be expected to result in a Material Adverse Effect. Each Air Carrier Entity will possess and maintain at all times, all necessary certificates, exemptions, licenses, designations, authorizations and consents required by the FAA, the DOT or any applicable Non-U.S. Aviation Authority or Airport Authority or any other Governmental Authority that are material to the operation of the Pledged Routes and Material Pledged Slots operated by it, and to the conduct of its business and operations as currently conducted, in each case, to the extent necessary for such Air Carrier Entity’s operation of flights, except where a failure to so possess or maintain would not reasonably be expected to have a Material Adverse Effect. Each Air Carrier Entity will also:
(a)utilize its Material Pledged Slots in a manner consistent with applicable regulations, rules and contracts in order to preserve its right to hold and use its Material Pledged Slots, taking into account any waivers or other relief granted to it by the FAA, the DOT, any Non-U.S. Aviation Authority or any Airport Authority, except to the extent that any failure to utilize would not reasonably be expected to result in a Material Adverse Effect;
(b)cause to be done all things commercially reasonably necessary to preserve and keep in full force and effect its rights in and to use its Material Pledged Slots, including, without limitation, if applicable, satisfying any applicable Use or Lose Rule, except to the extent that any failure to do so would not reasonably be expected to result in a Material Adverse Effect;
(c)use commercially reasonable efforts to utilize its Pledged Routes in a manner consistent with Title 49, the applicable rules and regulations of the FAA, the DOT, any applicable Non-U.S. Aviation Authorities, and any applicable treaty in order to preserve its rights to operate the scheduled services, except to the extent that any failure would not reasonably be expected to result in a Material Adverse Effect; and
(d)cause to be done all things commercially reasonably necessary to preserve and keep in full force and effect its authority to operate the scheduled services, except to the extent that any failure would not reasonably be expected to result in a Material Adverse Effect.
Section 5.07. Delivery of Appraisals. Parent shall:
(a)within (i) thirty (30) Business Days of December 31, 2022 and (ii) thereafter (commencing with March 31, 2024), within thirty (30) Business Days of March 31 of each calendar year;
(b)on or prior to the date upon which any Additional Collateral is pledged to the Collateral Trustee or a Local Collateral Agent, as applicable, or assets are transferred to a Loan Party in order to constitute Coverage Assets, but only with respect to such Additional Collateral or new Coverage Assets; and
(c)promptly (but in any event within 45 days) following a request by the Administrative Agent if an Event of Default has occurred and is continuing;
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deliver to the Administrative Agent and the Collateral Trustee one or more Appraisals establishing the Appraised Value of the Coverage Assets; provided, however, that, in the case of clause (b), only an Appraisal with respect to the Additional Collateral or new Coverage Assets shall be required to be delivered. Parent may from time to time cause subsequent Appraisals to be delivered to the Administrative Agent and the Collateral Trustee if it believes that any affected Coverage Asset has a higher Appraised Value than that reflected in the most recent Appraisals delivered pursuant to this Section 5.07.
Section 5.08. Regulatory Cooperation. In connection with any foreclosure, collection, sale or other enforcement of Liens granted to the Collateral Trustee or the Local Collateral Agents in the Collateral Documents, Parent will, and will cause the other Restricted Subsidiaries to, reasonably cooperate in good faith with the Collateral Trustee or the Local Collateral Agents, as applicable, or its designee in obtaining all regulatory licenses, consents and other governmental approvals necessary or (in the reasonable opinion of the Collateral Trustee or the Local Collateral Agents, as applicable, or its designee) reasonably advisable to conduct all aviation operations with respect to the Collateral and will, at the reasonable request of the Collateral Trustee or the Local Collateral Agents, as applicable, and in good faith, continue to operate and manage the Collateral and maintain all applicable regulatory licenses with respect to the Collateral until such time as the Collateral Trustee or the Local Collateral Agents, as applicable, or its designee obtain such licenses, consents and approvals, and at such time Parent will, and will cause its Restricted Subsidiaries to, cooperate in good faith with the transition of the aviation operations with respect to the Collateral to any new aviation operator (including, without limitation, the Collateral Trustee a Local Collateral Agent, as applicable, or its designee).
Section 5.09. Regulatory Matters; Utilization; Collateral Requirements. Each Loan Party will promptly take all such steps as may be commercially reasonably necessary to maintain, renew and obtain, or obtain the use of, Material Pledged Slots and Material Pledged Routes as needed for its continued and future operations using such Material Pledged Slots or Material Pledged Routes, and pay any applicable filing fees and other expenses related to the submission of applications, renewal requests, and other filings as may be reasonably necessary to have access to its Material Pledged Slots and Material Pledged Routes, except to the extent that any failure to do so would not reasonably be expected to result in a Material Adverse Effect.
Section 5.10. Significant Assets Ownership. Subject to the provisions described (including the actions permitted) under Sections 6.03 and 6.09 hereof, each Loan Party will continue to maintain its interest in and right to use all property and assets in its reasonable judgment necessary for the conduct of its business, taken as a whole. Each Loan Party shall use, operate and maintain the Significant Assets in the same manner and with the same care as shall be the case with similar assets owned by such Loan Party without discrimination.
Section 5.11. Insurance. The Loan Parties shall:
(a)keep all Significant Assets that constitute tangible property insured at all times against such risks, including risks insured against by extended coverage, as is prudent and customary in each case with companies of the same or similar size in the same or similar businesses and predominately operating in the same jurisdictions as the Loan Parties;
(b)prior to the Conversion Date, comply with the insurance provisions of Exhibit H (in the case of the Pledged Spare Parts) and Exhibit I (in the case of the Pledged Engines);
(c)maintain such other insurance or self-insurance as may be required by law; and
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(d)with respect to any Significant Assets (including, for the avoidance of doubt, each Subsidiary of Parent whose Equity Interests have been pledged as Collateral), by the time specified in Schedule 4.5 to the Pledge and Security Agreement, (i) ensure that general property insurance and general liability insurance policies are endorsed to the Collateral Trustee’s reasonable satisfaction for the benefit of the Collateral Trustee (including, without limitation, by naming the Collateral Trustee as certificate holder, mortgagee and loss payee or additional insured) and (ii) ensure that such endorsements shall state that such insurance policies shall not be cancelled or materially adversely changed without at least thirty
(30) days’ prior written notice thereof, except in the case of a cancellation or material adverse change resulting from war, which shall require at least seven (7) days’ prior written notice thereof, by the respective insurer to the Collateral Trustee.
(e)With respect to the Mortgaged Collateral that is located in the Unites States which is in an area identified by the Federal Emergency Management Agency (or any successor agency thereto) as a “special flood hazard area” with respect to which flood insurance has been made available under the Flood Insurance Laws, the applicable Loan Party (a) shall obtain and maintain with financially sound and reputable insurance companies flood insurance in such amounts and otherwise sufficient to comply with all applicable rules and regulations promulgated under the Flood Insurance Laws and (b) shall deliver to the Administrative Agent or such Lender as applicable, evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent or such Lender, including, without limitation, evidence of annual renewals of such flood insurance.
Section 5.12. Additional Guarantors; Loan Parties; Collateral.
(a)Prior to the Conversion Date, subject to approval by the Bankruptcy Court and any requisite approval in any of the Non-U.S. Cases, Parent will, within forty-five (45) days following filing a material Subsidiary’s chapter 11 petition, cause such material Subsidiary that becomes a debtor under the Chapter 11 Cases after the Closing Date to execute joinder agreements and amendments to this Agreement and the other Loan Documents and related schedules and exhibits thereto, in each case as necessary to cause such material Subsidiary to become a Guarantor and a Loan Party hereunder and thereunder and in form and substance reasonably satisfactory to the Administrative Agent.
(b)Subject (other than with respect to the pledge and perfection of Additional Collateral) to the Guaranty and Security Principles, if any Restricted Subsidiary of Parent (a) elects to add Additional Collateral or (b) (other than any Excluded Subsidiary) acquires or holds any Significant Asset, Parent shall promptly (and in any event, within forty-five (45) calendar days (or such later date as Administrative Agent may agree in its sole discretion) of such acquisition, termination, release or other applicable event), in each case at its own expense, (A) cause such Subsidiary to become a party to the Guarantee contained in Article 9 hereof (to the extent such Subsidiary is not already a party thereto) and cause any such Subsidiary to become a party to each applicable Collateral Document and all other agreements, instruments or documents that create or purport to create and perfect a first priority Lien (subject to Permitted DIP Liens (prior to the Conversion Date) or Permitted Liens (on and after the Conversion Date)) in favor of the Collateral Trustee or applicable Local Collateral Agent, as applicable, for the benefit of the Secured Parties, by executing and delivering to the Administrative Agent an Instrument of Assumption and Joinder substantially in the form attached hereto as Exhibit C hereto and/or by executing and delivering to the Collateral Trustee or the applicable Local Collateral Agent joinders, or collateral supplements, to all applicable Collateral Documents or new Collateral Documents, as the case may be, in form and substance reasonably satisfactory to the Administrative Agent (it being understood, that in the case of Additional Collateral of a type that has not been theretofore included in the Collateral, such Additional Collateral may be subject to such additional terms and conditions as may be customarily required by lenders in similar financings of a similar size for similarly situated borrowers secured by the same type of Collateral (including obtaining title insurance policies to the extent customary in the relevant
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jurisdiction, surveys and opinions), as agreed by Parent and the Administrative Agent in their reasonable discretion), (B) promptly execute and deliver (or cause such Subsidiary to execute and deliver) to the Collateral Trustee or a Local Collateral Agent, as applicable, such documents and take such actions to create, grant, establish, preserve and perfect the Priority Lien (including to obtain any release or termination of Liens not permitted under the definition of “Additional Collateral” or under Section 6.05) in favor of the Collateral Trustee or a Local Collateral Agent, as applicable, for the benefit of the Secured Parties on such assets of Parent or such Restricted Subsidiary, as applicable, to secure the Obligations to the extent required under the applicable Collateral Documents or reasonably requested by the Collateral Trustee or the Local Collateral Agent, as applicable (in accordance with Section 5.14), and to ensure that such Collateral shall be subject to no other Liens other than (prior to the Conversion Date) Permitted DIP Liens or (on and after the Conversion Date) Permitted Liens and (C) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent and the Collateral Trustee, for the benefit of the Secured Parties, a written opinion of counsel (which counsel shall be reasonably satisfactory to the Administrative Agent) to Parent or such Restricted Subsidiary, as applicable, with respect to the matters described in clauses (A) and (B) hereof, in each case within twenty (20) Business Days after the addition of such Collateral or Significant Assets and in form and substance reasonably satisfactory to the Administrative Agent.
(c)Notwithstanding anything to the contrary, Parent may from time to time, upon written notice to the Administrative Agent, (i) elect to cause any Restricted Subsidiary that would otherwise be an Excluded Subsidiary to become a Guarantor (a “Designated Guarantor”) but shall have no obligation to do so (and for clarity, there is no obligation to cause any Restricted Subsidiary that would otherwise be an Excluded Subsidiary to become a Designated Guarantor because another Designated Guarantor is formed or acquired in the same jurisdiction), subject to the satisfaction of the requirements of Section 5.12(b) by such Designated Guarantor and (ii) elect to cause any Designated Guarantor to be an Excluded Subsidiary provided that such Designated Guarantor is either an Excluded Aircraft Subsidiary or does not own any Significant Assets at such time of election (other than pursuant to the thresholds set forth in clause (g) of the definition of “Excluded Subsidiary”).
Section 5.13. Maintenance of Properties; Access to Books and Records. Each Loan Party
shall:
(a)except where the failure to do so could not reasonably be expected to have a Material Adverse Effect (i) maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted, (ii) make all necessary repairs thereto and renewals and replacements thereof, and (iii) use the standard of care typical in the industry in the operation and maintenance of its facilities,
(b)(i) maintain proper books of records and accounts, in which true and correct entries in conformity with IFRS shall be made of all financial transactions and matters involving the assets and business of the Loan Parties, as the case may be; and (ii) maintain such books of records and accounts in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Loan Parties, as the case may be;
(c)prior to the Conversion Date, with respect to the Priority Pledged Engines and the Real Estate subject to a Real Estate Mortgage, and matters relating thereto, upon request of the Administrative Agent, the applicable Loan Party will permit the Administrative Agent, or any of its agents or representatives, at reasonable times and intervals upon reasonable prior notice, to visit during normal business hours its offices and sites, excluding administrative or registered office locations, and inspect any documents relating to (i) the existence of such assets, (ii) the condition of such assets, and (iii) the validity, perfection and priority of the Liens on such assets, and to discuss such matters with its officers,
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except to the extent the disclosure of any such document or any such discussion shall result in the applicable Loan Party’s violation of its contractual or legal obligations; provided, however, that the Administrative Agent’s right to visit a Loan Party’s offices or sites will be limited to twice during any calendar year with the first such visit to occur no earlier than six (6) months after the Closing Date. All confidential or proprietary information obtained in connection with any such visit, inspection or discussion shall be held confidential by the Administrative Agent and each agent or representative thereof and shall not be furnished or disclosed by any of them to anyone other than their respective bank examiners, auditors, accountants, agents and legal counsel, and except as may be required by an order of any court or administrative agency or by any statute, rule, regulation or order of any Governmental Authority; and
(d)The Loan Parties will permit, to the extent not prohibited by applicable law or contractual obligations, no more than once per calendar year, any representatives designated by the Administrative Agent or the Collateral Trustee or any Governmental Authority that is authorized to supervise or regulate the operations of the Administrative Agent or Collateral Trustee, as designated by the Administrative Agent or Collateral Trustee, upon reasonable prior written notice and, so long as no Event of Default has occurred and is continuing, at no out-of-pocket cost to the Loan Parties, to visit and inspect the Significant Assets and the properties of the Loan Parties, during which time, such representative may (x) examine the Loan Parties’ books and records and (y) discuss the Loan Parties’ affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested (it being understood that a representative of Parent will be present at all times during such visit), subject to any restrictions in any applicable Collateral Document; provided that, if an Event of Default has occurred and is continuing, the Loan Parties shall (1) be responsible for the reasonable and documented costs and expenses of any visits of the Administrative Agent, the Collateral Trustee and the Lenders, acting together (but not separately) and (2) permit such visit more than once per calendar year, at times and frequencies reasonably required by the Administrative Agent and the Collateral Trustee. All confidential or proprietary information obtained in connection with any such visit, inspection or discussion shall be held confidential by the Administrative Agent, the Collateral Trustee and each of their respective agents and representatives and shall not be furnished or disclosed by any of them to anyone other than their respective bank examiners, auditors, accountants, agents and legal counsel, and except as may be required by any court or administrative agency or by any statute, rule, regulation or order of any Governmental Authority.
Section 5.14. Further Assurances. In each case, subject (other than with respect to the pledge and perfection of Additional Collateral) to the Guaranty and Security Principles:
(a)the Loan Parties shall execute, acknowledge and deliver or shall cause to be executed, acknowledged and delivered, all such further agreements, instruments, certificates or documents, and shall do and cause to be done such further acts and things as any other party hereto shall reasonably request in connection with the administration of, or to carry out more effectively the purposes of, or to better assure and confirm to such other party the rights and benefits to be provided under this Agreement and the other Loan Documents.
(b)subject to the Collateral Documents, upon the reasonable request of the Administrative Agent, each Loan Party shall execute, acknowledge and deliver or shall cause to be executed, acknowledged and delivered, all such further agreements, instruments, certificates or documents, and take all further actions, that such Administrative Agent shall reasonably request in order to create, grant, establish, preserve, protect and perfect, as applicable, the priorities, rights, security interests and remedies of the Collateral Trustee for the benefit of the Secured Parties with respect to the Collateral; subject to the last sentence of Section 3.12(a) or Section 3.12(b), as applicable.
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(c)with respect to Pledged Routes, Material Pledged Slots, and any Routes otherwise constituting Collateral, upon the reasonable request of the Collateral Trustee, the Parent or the applicable Loan Party shall take, or cause to be taken, such actions with respect to the due and timely recording, filing, re-recording and refiling of any financing statements and any continuation statements under the UCC as are necessary to maintain, so long as such applicable Collateral Document is in effect, the perfection of the security interests created by such Collateral Document, as applicable, in such Pledged Routes, Material Pledged Slots and any Routes otherwise constituting Collateral, subject, in each case, to (prior to the Conversion Date) Permitted DIP Liens or (on or after the Conversion Date) Permitted Liens, or at the reasonable request of the Collateral Trustee will furnish the Collateral Trustee, together with such financing statements and continuation statements, as may be required to enable the Collateral Trustee to take such action.
(d)with respect to Collateral constituting Priority Pledged Engines, the applicable Borrower or the applicable Loan Party shall take, or cause to be taken, such actions with respect to the due and timely recording and filing of such Engine Collateral Documents in accordance with Section 4.03, subject to Permitted DIP Liens.
Section 5.15. Cash Management Order. Prior to the Conversion Date, the Obligors shall maintain their cash management systems in accordance with the Cash Management Order, the Final DIP Order and the Collateral Documents.
Section 5.16. Priority of Liens. At all times, the Obligors shall maintain the priority of the Priority Liens, and, prior to the Conversion Date, the Superpriority Claims and the other related claims as described in this Agreement, the Collateral Trust Agreement, the DIP Intercreditor Agreement and the Final DIP Order.
Section 5.17. Lender Calls. Following delivery of the financial statements pursuant to each of Section 5.01(a) and (b), at the reasonable request of the Administrative Agent, Parent will host a conference call (which can be combined with any calls held with the equity shareholders of Parent or other debtholders of Parent), within fifteen (15) calendar days after the delivery of the financial statements, at a time selected by Parent and reasonably acceptable to the Administrative Agent, with the Lenders to discuss the financial performance of Parent and its Restricted Subsidiaries.
Section 5.18. Ratings. Parent shall use commercially reasonable efforts to maintain a public rating for the Term Loan Facility from each of Moody’s and S&P, or in each case the successor thereto.
Section 5.19. Brazilian Local Reorganization Proceeding. In the event that, prior to the Conversion Date, the shareholders of any Obligor domiciled in Brazil determine that it is necessary and in the best interest of such Obligor to file a Brazilian Local Reorganization Proceeding on a voluntary basis, then prior to and in any event no later than three (3) Business Days prior to such filing, the Borrowers shall notify and consult with the Lenders with respect to such filing. Notwithstanding any of the provisions hereunder, the filing of a Brazilian Local Reorganization Proceeding by any Obligor prior to the Conversion Date shall not (i) constitute an Event of Default or violation of the terms of this Agreement or (ii) otherwise give rise to a right to enforce or realize upon any Collateral pursuant to the Collateral Documents.
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ARTICLE 6.
NEGATIVE COVENANTS
I.From the date hereof until the Conversion Date and for so long as the Commitments remain in effect or principal of or interest on any Loan is owing (or any other amount that is due and unpaid on the first date that none of the foregoing is in effect, outstanding or owing, respectively, is owing) to any Lender or the Administrative Agent hereunder, the negative covenants applicable to Parent and its Restricted Subsidiaries shall be (a) those negative covenants set forth on Annex C-1 hereto and (b) the negative covenants set forth in Sections 6.07 and 6.08.
II.After the occurrence of the Conversion Date and for so long as the Commitments remain in effect or principal of or interest on any Loan is owing (or any other amount that is due and unpaid on the first date that none of the foregoing is in effect, outstanding or owing, respectively, is owing) to any Lender or the Administrative Agent hereunder, the negative covenants applicable to Parent and its Restricted Subsidiaries shall be as set forth below in this Article 6.
Section 6.01. Restricted Payments.
(a)Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i)declare or pay any dividend or make any other payment or distribution on account of Parent’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Parent or any of its Restricted Subsidiaries) or to the direct or indirect holders of Parent’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than (A) dividends, distributions or payments payable in Qualifying Equity Interests or in the case of preferred stock of Parent (to the extent applicable), an increase in the liquidation value thereof and (B) dividends, distributions or payments payable to Parent or a Restricted Subsidiary of Parent);
(ii)purchase, redeem or otherwise acquire or retire for value any Equity Interests of
Parent;
(iii)make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value (collectively for purposes of this clause (iii), a “purchase”) any Indebtedness of any Loan Party that is subordinated to the Obligations in right of payment or distributions from Collateral (but excluding any intercompany Indebtedness between or among Parent and any of its Restricted Subsidiaries), except (i) any scheduled payment of interest, (ii) any repayment, repurchase, defeasance or other extinguishment of principal within two years of the Stated Maturity thereof, (iii) in connection with any Permitted Refinancing Indebtedness in respect of such Indebtedness, or (iv) conversion of such Indebtedness into common Equity Interests of Parent; or
(iv)make any Restricted Investment,
(all such payments and other actions set forth in these clauses (i) through (iv) above being collectively referred to as “Restricted Payments”),
unless, at the time of and after giving effect to such Restricted Payment:
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(1)no Default or Event of Default has occurred and is continuing as of such time or would result therefrom;
(2)Consolidated Liquidity on a Pro Forma Basis is at least [*]; and
(3)such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Parent and its Restricted Subsidiaries since the Closing Date (excluding Restricted Payments permitted by clauses (2) through Error! Reference source not found. of Section 6.01(b) hereof), is less than the sum, without duplication, of:
[*]
(b)The provisions of Section 6.01(a) hereof will not prohibit:
(1)the payment of any dividend or distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or distribution or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of this Agreement;
(2)the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Parent) of, Qualifying Equity Interests or from the substantially concurrent contribution of common equity capital to Parent; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will not be considered to be net proceeds of Qualifying Equity Interests for purposes of clause (a)(3)(C) of Section 6.01 hereof and will not be considered to be Excluded Contributions;
(3)the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution), distribution or payment by a Restricted Subsidiary of Parent to the holders of its Equity Interests on a pro rata basis (or in the case of the payment of any such Restricted Payment to a Loan Party, on at least a pro rata basis to such Loan Party);
(4)the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of any Borrower or any Guarantor that is contractually subordinated to the Obligations with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(5)the repurchase, redemption, acquisition or retirement for value of any Equity Interests of Parent or any Restricted Subsidiary of Parent held by any current or former officer, director, consultant or employee (or their estates or beneficiaries of their estates) of Parent or any of its Restricted Subsidiaries pursuant to any management equity plan or equity subscription agreement, stock option agreement, shareholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed [*] in any 12- month period (except to the extent such repurchase, redemption, acquisition or retirement is in connection with the acquisition of a Permitted Business or merger, consolidation or
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amalgamation otherwise permitted by this Agreement and in such case the aggregate price paid by Parent and its Restricted Subsidiaries may not exceed [*] in connection with such acquisition of a Permitted Business or merger, consolidation or amalgamation); provided, further, that Parent or any of its Restricted Subsidiaries may carry over and make in subsequent 12-month periods, in addition to the amounts permitted for such 12-month period, up to [*] of unutilized capacity under this clause (5) attributable to the immediately preceding twelve-month period;
(6)the repurchase of Equity Interests or other securities deemed to occur upon (A) the exercise of stock options, warrants or other securities convertible or exchangeable into Equity Interests or any other securities, to the extent such Equity Interests or other securities represent a portion of the exercise price of those stock options, warrants or other securities convertible or exchangeable into Equity Interests or any other securities or (B) the withholding of a portion of Equity Interests issued to employees and other participants under an equity compensation program of Parent or its Subsidiaries to cover withholding tax obligations of such persons in respect of such issuance;
(7)so long as no Default or Event of Default has occurred and is continuing, the declaration and payment of regularly scheduled or accrued dividends, distributions or payments to holders of any class or series of Disqualified Stock or subordinated Indebtedness of Parent or any preferred stock of any Restricted Subsidiary of Parent either outstanding on the Closing Date or issued on or after the Closing Date in accordance with Section 6.02;
(8)payments of cash, dividends, distributions, advances, common stock or other Restricted Payments by Parent or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares upon (A) the exercise of options or warrants, (B) the conversion or exchange of Capital Stock of any such Person or (C) the conversion or exchange of Indebtedness or hybrid securities into Capital Stock of any such Person;
(9)any Restricted Payment made pursuant to the Reorganization Plan (including the repayment of the Junior DIP Facility on the Conversion Date);
(10)in the event of a Change of Control, and if no Default shall have occurred and be continuing, the payment, purchase, redemption, defeasance or other acquisition or retirement of any subordinated Indebtedness of any Borrower or any Guarantor, in each case, at a purchase price not greater than 101% of the principal amount of such subordinated Indebtedness, plus any accrued and unpaid interest thereon;
(11)Restricted Payments made with Excluded Contributions;
(12)[reserved];
(13)the distribution, as a dividend or otherwise, of cash in an amount, as of any calendar year, not to exceed 30% of the annual net profits of the preceding calendar year (assuming there are no carry forward losses from previous years) to the extent necessary (and not in excess of the amount necessary) to satisfy Chilean minimum dividend requirements (as such requirements may be amended from time to time) (any dividends pursuant to this clause (13), “Minimum Chilean Dividends”);
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(14)the distribution or dividend of assets or Capital Stock of any Person in connection with any full or partial “spin-off” of a Subsidiary or similar transactions; having an aggregate Fair Market Value not to exceed [*] since the Closing Date; provided that the assets distributed or dividended do not include, directly or indirectly, any property or asset that constitutes Significant Assets;
(15)so long as no Default or Event of Default has occurred and is continuing or would result therefrom, other Restricted Payments in an aggregate amount (such aggregate amount to be calculated from the Closing Date) not to exceed the greater of
[*] as of the date of such Restricted Payment;
(16)so long as no Event of Default has occurred and is continuing or would result therefrom, any Restricted Investment by Parent and/or any Restricted Subsidiary of Parent; and
(17)the payment of any amounts in respect of any restricted stock units or other instruments or rights whose value is based in whole or in part on the value of any Equity Interests issued to any directors, officers or employees of Parent or any Restricted Subsidiary of Parent.
Notwithstanding anything to the contrary in the foregoing Section 6.01(a) or (b), (A) prior to the Second Conversion Anniversary Date, neither Parent nor any of its Restricted Subsidiaries will make (1) any Restricted Payment pursuant to clause (i) of the definition thereof paid in cash or that involves the distribution, directly or indirectly, of Significant Assets or the distribution, directly or indirectly, of Equity Interests of any Person substantially all of whose assets are cash or Cash Equivalents or (2) any Restricted Payment pursuant to clause (ii) of the definition thereof; provided that this paragraph shall not restrict (x) the cash payment of any Minimum Chilean Dividends or (y) any Restricted Payments made pursuant to Section 6.01(b)(3), (7), (8) (in respect of aggregate cash payments of up to [*] in connection with an exchange to effect a reverse stock split of the Parent’s shares) or (9), (B) no Investment may be made in any Unrestricted Subsidiary if, after giving effect thereto, the aggregate assets and properties of all Unrestricted Subsidiaries would exceed [*] and (C) no Restricted Payments may be made from the Net Proceeds of any incurrence of Indebtedness (other than the cash payment of Minimum Chilean Dividends).
In the case of any Restricted Payment that is not cash, the amount of such non-cash Restricted Payment will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Parent or such Restricted Subsidiary of Parent, as the case may be, pursuant to the Restricted Payment.
For purposes of determining compliance with this Section 6.01, if a Restricted Payment (or portion thereof) meets the criteria of more than one of the categories of Restricted Payments described in clauses (1) through (17) of Section 6.01(b), or is entitled to be made pursuant to Section 6.01(a), or pursuant to any category set forth in the definition of Permitted Investments or other defined term used in Section 6.01, Parent will be entitled to classify on the date of its payment or later reclassify such Restricted Payment (or portion thereof) in any manner that complies with this Section 6.01.
For the avoidance of doubt, the payment on or with respect to, or purchase, redemption, defeasance or other acquisition or retirement for value of any Indebtedness of Parent or any Restricted Subsidiary of Parent that is not contractually subordinated to the Obligations shall not constitute a
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Restricted Payment and therefore will not be subject to any of the restrictions described in this Section 6.01.
Section 6.02. Indebtedness. Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or guaranty or otherwise become or remain directly or indirectly liable with respect to any Indebtedness for borrowed money (including in the form of Disqualified Stock), except for:
(a)Priority Lien Debt of a Loan Party and any Guarantees of a Loan Party in respect thereof; provided that any Priority Lien Debt shall (i) not be secured other than as permitted by clause (1) of the definition of Permitted Liens and (ii) not be subject to or benefit from any Guarantee by any Person that does not also Guarantee the Obligations; provided, further, that any Priority Lien Debt (other than any Priority Lien Debt incurred in the form of revolving Indebtedness pursuant to clause (b) of the definition thereof, which may be senior or superpriority in right of payments from the Collateral to the Obligations) shall be pari passu in right of payment with the Obligations;
(b)Junior Lien Indebtedness of the Loan Parties and any Guarantees of a Loan Party in respect thereof; provided that either (i) such Junior Lien Indebtedness is Permitted Refinancing Indebtedness in respect of Priority Lien Debt, (ii) after giving Pro Forma Effect to the issuance or incurrence of any such Junior Lien Indebtedness, the Total Asset Coverage Ratio is at least equal to [*] or (iii) such Junior Lien Indebtedness is Permitted Refinancing Indebtedness in respect of any Indebtedness incurred pursuant to clause (i) or (ii) above (or any successive Permitted Refinancing Indebtedness); provided, further, that any Junior Lien Indebtedness shall not be secured other than as permitted by clause (2) of the definition of Permitted Liens; provided further that in the event such Indebtedness being Guaranteed is subordinated in right of payment to the Loans, then the related Guarantee shall be subordinated in right of payment to the Loans or the Guarantees guaranteeing the Loans, as the case may be;
(c)unsecured Indebtedness of the Loan Parties that is Permitted Refinancing Indebtedness in respect of either Priority Lien Debt or Junior Lien Indebtedness (or any successive Permitted Refinancing Indebtedness) and any Guarantees of a Loan Party in respect of any of the foregoing; provided that (i) such Indebtedness shall not be subject to or benefit from any Guarantee by any Person that does not also Guarantee the Obligations, (ii) such Indebtedness shall be pari passu in right of payment with the Obligations or subordinated in right of payment with the Obligations, with any such subordinated obligation on terms reasonably satisfactory to the Administrative Agent and (iii) in the event such Indebtedness being Guaranteed is subordinated in right of payment to the Loans, then the related Guarantee shall be subordinated in right of payment to the Loans or the Guarantees guaranteeing the Loans, as the case may be;
(d)unsecured Indebtedness of Parent; provided that such Indebtedness (i) is subordinated in right of payment to the Obligations, any other Priority Lien Debt and any Junior Lien Indebtedness on terms reasonably satisfactory to the Administrative Agent, (ii) matures no earlier than the Latest Maturity Date in effect at the time of incurrence of such Indebtedness, (iii) has a Weighted Average Life to Maturity no shorter than the Weighted Average Life to Maturity of the Loans outstanding hereunder with the longest Weighted Average Life to Maturity at the time of incurrence of such Indebtedness and (iv) is not subject to any Guarantee by any Subsidiary or Affiliate of Parent;
(e)unsecured Indebtedness of Parent and its Restricted Subsidiaries in an aggregate principal amount not to exceed [*] at any time outstanding; provided that (i) up to [*] of such unsecured Indebtedness may be used to incur Indebtedness for borrowed money and (ii) up to [*] of such unsecured Indebtedness may be used for working capital purposes; provided
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further that the outstanding amount of Indebtedness incurred pursuant to this Section 6.02(e), together with Indebtedness outstanding pursuant to Section 6.02(i), does not exceed [*];
(f)letters of credit, bank guarantees, bankers’ assurances or acceptances, surety bonds, insurance bonds and similar instruments entered into in the ordinary course of business;
(g)Hedging Obligations in respect of Hedging Agreements that are not for speculative purposes;
(h)Indebtedness of Parent or any Restricted Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including sale and lease back transactions, Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is incurred in connection with such sale and lease back prior to or within 180 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this Section 6.02(h) shall not exceed the greater of [*];
(i)Indebtedness incurred by Receivables Subsidiaries pursuant to Qualified Receivables Transactions; provided that the outstanding amount of Indebtedness incurred pursuant to this Section 6.02(i), together with Indebtedness outstanding pursuant to Section 6.02(e) does not exceed [*].
(j)Indebtedness incurred in connection with any Aircraft Financing (including, without limitation, the RCF Loan Agreement and the Spare Engine Loan Agreement);
(k)Indebtedness of Parent and its Restricted Subsidiaries with respect to infrastructure projects consistent with past practice; provided that (i) the Indebtedness incurred pursuant to this Section 6.02(k) shall not exceed the value of the collateral pledged in connection therewith and (ii) no Significant Assets shall be pledged to secure any such Indebtedness;
(l)Indebtedness issued in connection with the Reorganization Plan and Permitted Refinancing Indebtedness in respect thereof, including the Junior DIP Facility; provided that the Junior DIP Facility shall be repaid in full on the Conversion Date;
(m)unsecured Guarantees of (i) Indebtedness for borrowed money permitted by this Section 6.02 or (ii) other Indebtedness not constituting Indebtedness for borrowed money; provided that such Guarantee of such Indebtedness is not prohibited by the terms of this Agreement; provided, further, that in the event such Indebtedness being guaranteed is subordinated to the Loans, then the related Guarantee shall be subordinated in right of payment to the Loans or the Guarantees guaranteeing the Loans, as the case may be;
(n)intercompany Indebtedness among Parent and its Restricted Subsidiaries; provided that
(i) any such Indebtedness owing by a Loan Party shall be subordinated to the Obligations pursuant to an Intercompany Note or otherwise on terms reasonably satisfactory to the Administrative Agent and (ii) any such Indebtedness (A) owing to a Loan Party by another Loan Party or (B) owing to a Loan Party by a Restricted Subsidiary that is not a Loan Party if such Indebtedness under this clause (B) owing by such Restricted Subsidiary that is not a Loan Party is [*] or more in the aggregate, shall be evidenced by an Intercompany Note pursuant to the provisions contained therein and (iii) any such Indebtedness owing to a Loan Party shall be pledged pursuant to the Pledge and Security Agreement; and
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(o)Indebtedness incurred by Parent or any Restricted Subsidiary which, as of the Closing Date, (i) relates to any allowed claim in the Chapter 11 Cases and/or (ii) relates to any timely filed claim in the Chapter 11 Cases that is not yet allowed or disallowed; provided that Parent and/or such Restricted Subsidiary is resolving such claim in accordance with the Reorganization Plan, the Revised Claims Procedures Order and/or any other order of the Bankruptcy Court.
For the avoidance of doubt, a permitted refinancing in respect of Indebtedness incurred pursuant to a Dollar-denominated basket shall not increase capacity to incur Indebtedness under such Dollar- denominated basket, and such Dollar-denominated basket shall be deemed to continue to be utilized by the amount of the original Indebtedness incurred unless and until the Indebtedness incurred to effect such permitted refinancing is no longer outstanding.
Section 6.03. Disposition of Significant Assets. Neither Parent nor any Restricted Subsidiary shall sell or otherwise Dispose of any Significant Assets (including, without limitation, by way of any Sale of a Loan Party) except that such sale or other Disposition shall be permitted in the case of (1) a Permitted Disposition or (2) any other sale or Disposition; provided that, in the case of this clause (2), (i) no Event of Default shall have occurred and be continuing or would result therefrom, (ii) the Asset Coverage Test is satisfied on a Pro Forma Basis after giving effect to such sale or other Disposition (including any concurrent pledge of Additional Collateral), (iii) prior to effecting such Disposition, Parent shall promptly provide to the Administrative Agent an Asset Coverage Ratio Certificate calculating the Asset Coverage Ratio on a Pro Forma Basis after giving effect to such sale or other Disposition (including any pledge of Additional Collateral and/or prepayment of Priority Lien Debt or Senior Priority Refinancing Indebtedness (in each case, in the case of revolving debt together with a permanent reduction in the commitments thereunder), if any), (iv) such sale or other Disposition, if to any other Person, is an arms’ length Disposition to a third party that is not an Affiliate of the Parent or any of its Subsidiaries and
(v) to the extent that any Borrower receives any Net Proceeds from such sale or other Disposition, such Net Proceeds shall be applied as provided under Section 2.09; provided that nothing contained in this Section 6.03 is intended to excuse performance by the Borrowers or any Guarantor of any requirement of any Collateral Document that would be applicable to a Disposition permitted hereunder. A Disposition of Collateral referred to in clause (d), (g) or (h) of the definition of “Permitted Disposition” shall not result in the automatic release of such Collateral from the security interest of the applicable Collateral Document, and the Collateral subject to such Disposition shall continue to constitute Collateral for all purposes of the Loan Documents (without prejudice to the rights of the Borrowers to release any such Collateral pursuant to Section 6.08(c)).
Section 6.04. Transactions with Affiliates.
(a)Parent will not, and will not permit any of its Restricted Subsidiaries to, make any payment to or sell, lease, transfer or otherwise Dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of Parent (each an “Affiliate Transaction”) involving aggregate payments or consideration in excess of [*], unless:
(1)the Affiliate Transaction is on terms that are not materially less favorable to Parent or the relevant Restricted Subsidiary (taking into account all effects Parent or such Restricted Subsidiary expects to result from such transaction whether tangible or intangible) than those that would have been obtained in a comparable transaction by Parent or such Restricted Subsidiary with an unrelated Person; and
(2)Parent delivers to the Administrative Agent:
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(A)with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of [*] but less than or equal to [*], an Officer’s Certificate certifying that such Affiliate Transaction complies with clause (1) of this Section 6.04(a); and
(B)with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of [*], a board resolution stating the board of directors of Parent has approved such Affiliate Transaction and determined that it complies with clause (1) of this Section 6.04(a).
(b)The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 6.04(a) hereof:
(1)any employment agreement, confidentiality agreement, non-competition agreement, incentive plan, employee stock option agreement, long-term incentive plan, profit sharing plan, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by Parent or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;
(2)transactions between or among Parent and/or its Restricted Subsidiaries (including without limitation in connection with any full or partial “spin-off” or similar transactions);
(3)transactions with a Person (other than an Unrestricted Subsidiary of Parent) that is an Affiliate of Parent solely because Parent owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
(4)payment of fees, compensation, reimbursements of expenses (pursuant to indemnity arrangements or otherwise) and reasonable and customary indemnities provided to or on behalf of officers, directors, employees or consultants of Parent or any of its Restricted Subsidiaries;
(5)any issuance of Qualifying Equity Interests to Affiliates of Parent or any increase in the liquidation preference of preferred stock of Parent (if any);
(6)transactions with customers, clients, suppliers or purchasers or sellers of goods or services in the ordinary course of business or transactions with joint ventures, alliances, alliance members or Unrestricted Subsidiaries entered into in the ordinary course of business;
(7)Permitted Investments and Restricted Payments that do not violate Section 6.01 hereof;
(8)loans or advances to employees in the ordinary course of business not to exceed [*] in the aggregate at any one time outstanding;
(9)transactions pursuant to agreements or arrangements in effect on the Closing Date or any amendment, modification or supplement thereto or replacement thereof and any payments made or performance under any agreement as in effect on the
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Closing Date or any amendment, replacement, extension or renewal thereof (so long as such agreement as so amended, replaced, extended or renewed is not materially less advantageous, taken as a whole, to the Lenders than the original agreement as in effect on the Closing Date);
(10)transactions between or among Parent and/or its Restricted Subsidiaries or transactions between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment;
(11)any transaction effected as part of a Qualified Receivables Transaction;
(12)any purchase by Parent’s Affiliates of Indebtedness of Parent or any of its Restricted Subsidiaries, the majority of which Indebtedness is offered to Persons who are not Affiliates of Parent;
(13)shared services, joint purchasing, systems integration, fleet management and other transactions in the ordinary course of business that are customary for joint business agreements in the airline industry;
(14)transactions between Parent or any of its Restricted Subsidiaries and any employee labor union or other employee group of Parent or such Restricted Subsidiary; provided such transactions are not otherwise prohibited by this Agreement; and
(15)transactions with captive insurance companies of Parent or any of its Restricted Subsidiaries.
Section 6.05. Liens. Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any property or asset that constitutes Significant Assets, except Permitted Liens.
Section 6.06. Business Activities; Frequent Flyer Program. Parent will not, and will not permit any of its Restricted Subsidiaries to (a) engage in any business other than Permitted Businesses, except to such extent as would not be material to Parent and its Restricted Subsidiaries taken as a whole or (b) create or acquire any new Frequent Flyer Program unless (i) the related Frequent Flyer Program Assets are owned by a Loan Party, and (ii) to the extent any such Frequent Flyer Program Assets consist of Pledged Receivables (as defined in the Pledge and Security Agreement) and would not have automatically been pledged and subject to a perfected first priority Lien pursuant to the Collateral Documents in existence as of the Closing Date, execute and deliver to the Collateral Trustee or the applicable Local Collateral Agent, as applicable (subject to the Guaranty and Security Principles), joinders or collateral supplements to the applicable Collateral Documents or new Collateral Documents to create or purport to create and perfect a first priority Lien (subject to Permitted Liens) in such assets in favor of the Collateral Trustee or applicable Local Collateral Agent, as applicable, for the benefit of the Secured Parties within 120 days of such creation or acquisition (or such later date as Administrative Agent may agree in its sole discretion); provided that clause (b) shall not restrict the acquisition of any Non-Guarantor Acquired Airline so long as the Parent and its Restricted Subsidiaries continue to operate any existing Frequent Flyer Programs consistent with past practice.
Section 6.07. Consolidated Liquidity. Parent will not permit Consolidated Liquidity at the close of any Business Day to be less than $750.0 million.
Section 6.08. Asset Coverage Ratio.
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(a)On the tenth (10th) Business Day after a Reference Date (such date, the “Certificate Delivery Date”), Parent will deliver to the Administrative Agent an Asset Coverage Ratio Certificate containing a calculation of the Asset Coverage Ratio with respect to such Reference Date. If the Asset Coverage Ratio with respect to the applicable Reference Date is less than [*] (the “Asset Coverage Test”), Parent shall, no later than forty-five (45) days after the Certificate Delivery Date, designate additional assets as Additional Collateral and comply with Section 5.12 and/or prepay or redeem or cause to be prepaid or redeemed Priority Lien Debt (as selected by Parent in its sole discretion), such that, following such actions, the Asset Coverage Test shall be satisfied.
(b)Notwithstanding anything to the contrary contained herein, if the Asset Coverage Test is not satisfied solely as a result of damage to or loss of any Collateral covered by insurance (pursuant to which the Collateral Trustee is named as loss payee and with respect to which payments are to be delivered directly to the Collateral Trustee or the Administrative Agent) for which the insurer thereof has been notified of the relevant claim and has not challenged such coverage, any calculation of the Asset Coverage Ratio (and Total Asset Coverage Ratio) made pursuant to this Agreement shall deem the relevant Loan Party to have received Net Proceeds (and to have taken all steps necessary to have pledged such Net Proceeds as Additional Collateral) in an amount equal to the expected coverage amount (as determined by Parent in good faith and updated from time to time to reflect any agreements reached with the applicable insurer) and net of any amounts required to be paid out of such proceeds until the earliest of (i) the date any such Net Proceeds are actually first received by the Collateral Trustee or the Administrative Agent, (ii) the date that is 270 days after such damage and (iii) the date on which any such insurer denies such claim; provided, further, that prior to giving effect to this clause (b), the Appraised Value of the Coverage Assets shall be no less than 100% of the aggregate principal amount of all Priority Lien Debt at such time. If the Administrative Agent or the Collateral Trustee should receive any Net Proceeds directly from the insurer in respect of a Recovery Event, the Administrative Agent or the Collateral Trustee, as applicable, shall promptly cause such proceeds to be paid to Parent or the applicable Loan Party, or to be applied, as applicable, in accordance with Section 2.09(a).
(c)At Parent’s request, the Lien on any asset or type or category of asset (including after- acquired assets of that type or category) that (i) has been Disposed in accordance with this Agreement to a Person other than a Loan Party, (ii) is or has become Excluded Assets or (iii) constitutes Additional Collateral, will, in each case, be promptly released; provided that in each case, that the following conditions are satisfied or waived: (A) no Event of Default shall have occurred and be continuing, (B) either (x) after giving effect to such release, the Appraised Value of the Coverage Assets shall satisfy the Asset Coverage Test on a Pro Forma Basis or (y) Parent shall designate additional assets as Additional Collateral and comply with Section 5.12 and/or prepay or redeem or cause to be prepaid or redeemed Priority Lien Debt (as selected by Parent in its sole discretion), such that, following such actions and such release, the Asset Coverage Test shall be satisfied on a Pro Forma Basis, and (C) Parent shall deliver to the Administrative Agent an Asset Coverage Ratio Certificate demonstrating Pro Forma Compliance with the Asset Coverage Test after giving effect to such release (including after giving effect to any action taken pursuant to the foregoing clause (B)(y)). Each of the Administrative Agent and the Collateral Trustee agrees to promptly provide any documents or releases reasonably requested by Parent to evidence any such release. For the avoidance of doubt, (aa) nothing contained in the foregoing shall prohibit any substitution of any item of Additional Collateral if such substitution and related release of the Additional Collateral being replaced are permitted or required under the applicable Collateral Document, and such permitted or required release of such replaced Additional Collateral pursuant to such Collateral Document shall not be subject to (and shall be deemed to satisfy) the release conditions in the first sentence of this Section 6.08(c) and (bb) if a Loan Party releases (in accordance with this Section 6.08(c)) any Additional Collateral that has suffered (or corresponding to an asset that suffered) a Recovery Event, the applicable Loan Party shall be deemed to have complied with any provisions in the corresponding Collateral Documents requiring that such Loan Party take specific actions in respect of such Recovery Event.
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Section 6.09. Merger, Consolidation, or Sale of Assets.
(a)None of Parent or any of its Restricted Subsidiaries (whichever is applicable, the “Subject Company”) shall directly or indirectly: (i) consolidate or merge with or into another Person (whether or not such Subject Company is the surviving Person) or (ii) Dispose of all or substantially all of the properties or assets of the Subject Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; provided that:
(i)This Section 6.09(a) shall not restrict the foregoing actions by Parent or the Co- Borrower if:
(1)either:
(A)Parent or the Co-Borrower, as applicable (or, in the case of a consolidation or merger between Parent and the Co-Borrower, Parent), is the surviving Person; or
(B)the Person formed by or surviving any such consolidation or merger (if other than Parent or the Co-Borrower) or to which such Disposition has been made is an entity organized or existing under the laws of a Specified Jurisdiction; and, if such entity is not a corporation, a co-obligor of the Loans is a corporation organized or existing under any such laws;
(2)the Person formed by or surviving any such consolidation or merger (if other than Parent or the Co-Borrower) or the Person to which such Disposition has been made assumes all the obligations of the Subject Company under the Loan Documents by operation of law (if the surviving Person is Parent or the Co-Borrower) or pursuant to Section 5.12 or otherwise pursuant to agreements reasonably satisfactory to the Administrative Agent;
(3)immediately after such transaction, no Default or Event of Default exists;
(4)with respect to any merger or consolidation by Parent or the Co- Borrower with any other Loan Party or any Disposition by Parent or the Co-Borrower, after giving effect thereto, the interests of the Lenders in respect of the Collateral are not adversely affected; and
(5)the Subject Company shall have delivered to the Administrative Agent an Officer’s Certificate stating that such consolidation, merger or Disposition complies with this Agreement;
(ii)any Restricted Subsidiary of Parent that is not a Loan Party may consolidate or merge with or into a Loan Party or Dispose of all or substantially all of its properties to a Loan Party so long as, with respect to any consolidation or merger either (A) the Loan Party is the surviving Person or (B) (1) the Person formed or surviving any such consolidation (if other than such Loan Party) is an entity organized or existing under the laws of a Specified Jurisdiction and
(2) the Person formed by or surviving any such consolidation or merger assumes all the obligations of such Loan Party under the Loan Documents by operation of law or pursuant to Section 5.12 or otherwise pursuant to agreements reasonably satisfactory to the Administrative Agent;
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(iii)any Loan Party (other than Parent or the Co-Borrower) may consolidate or merge with or into any other Loan Party or Dispose of all or substantially all of its properties to another Loan Party so long as (x) after giving effect thereto, the interests of the Lenders in respect of the Collateral are not adversely affected and (y) in the case of any Disposition, the transferee is a Loan Party and the transferee is either (1) in the same jurisdiction as the transferor, (2) a Specified Jurisdiction or (3) another jurisdiction reasonably satisfactory to the Administrative Agent;
(iv)any Restricted Subsidiary that is not a Loan Party may consolidate or merge with or into any other Restricted Subsidiary that is not a Loan Party or Dispose of all or substantially all of its properties to a Restricted Subsidiary that is not a Loan Party; provided that (x) with respect to any consolidation or merger between a Restricted Subsidiary whose Equity Interests constitute Collateral and a Restricted Subsidiary whose Equity Interests do not constitute Collateral, the Restricted Subsidiary whose Equity Interests constitute Collateral shall be the surviving Person and (y) no Subsidiary whose Equity Interests constitute Collateral may Dispose of all or substantially all of its properties to a Restricted Subsidiary whose Equity Interests do not constitute Collateral, unless, in each case, under (x) and (y), (1) such Equity Interests of the applicable Restricted Subsidiary (the “Subject Entity”) that do not constitute Collateral as of the date of such consolidation or merger are promptly pledged as Collateral on or following the consummation of such consolidation or merger and (2) the Subject Entity is organized in a Security Jurisdiction (as defined in the Guaranty and Security Principles) or a different jurisdiction reasonably satisfactory to the Administrative Agent;
(v)any Permitted Investment may be structured as a merger or consolidation (provided that (x) if a Borrower is a party to such merger or consolidation, such Borrower shall be the surviving Person thereof, (y) if a Loan Party is a party to such merger or consolidation, such Loan Party shall be the surviving Person thereof and (z) if a Restricted Subsidiary that is not a Loan Party is a party to such merger or consolidation, such Restricted Subsidiary shall be the surviving Person thereof);
(vi)any merger, consolidation, dissolution or liquidation, in each case, not involving a Borrower, may be effected for the purposes of effecting a Disposition permitted by this Agreement; and
(vii)the dissolution of any Restricted Subsidiary (that is not a Loan Party) with no or
de minimis assets is permitted.
(b)Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties or assets of any Subject Company in a transaction that is subject to, and that complies with the provisions of, Section 6.09(a)(i) or (ii), the successor Person formed by such consolidation or into or with which such Subject Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Agreement and the other Loan Documents referring to such Subject Company shall refer instead to the successor Person and not to such Subject Company), and may exercise every right and power of such Subject Company under this Agreement and the other Loan Documents with the same effect as if such successor Person had been named as such Subject Company herein and therein; provided, however, that the predecessor Subject Company (in the case of Parent or the Co-Borrower), if applicable, shall not be relieved from the obligation to pay the principal of, and interest, if any, on the Loan except in the case of a sale of all of
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such Subject Company’s assets in a transaction that is subject to, and that complies with the provisions of, Section 6.09(a)(i) hereof.
Section 6.10. Negative Pledge Clauses. Parent will not, and will not permit any of its Restricted Subsidiaries to, enter into or become effective any agreement that prohibits or limits the ability of Parent or any Restricted Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its Significant Assets, now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) any Priority Lien Debt (so long as any prohibition or restriction in any documentation governing any Priority Lien Debt is not more restrictive in any material respect than this Agreement), including this Agreement, the Revolving Credit Agreement, the 2027 Bridge Loan Credit Agreement and the 2029 Bridge Loan Credit Agreement (and any documentation governing any Permitted Refinancing Indebtedness in respect of the foregoing (and any successive Permitted Refinancing Indebtedness in respect thereof), so long as any such prohibition or restriction in such documentation is not more restrictive in any material respect than the documentation in respect of the Indebtedness being refinanced), (b) the Collateral Trust Agreement and the Local Collateral Agency Agreements, (c) customary prohibitions and restrictions contained in any agreements governing any debt incurred pursuant to Section 6.02(h) or Aircraft Financing (including, without limitation, the RCF Loan Agreement and the Spare Engine Loan Agreement); provided that any such prohibitions and restrictions only apply to the assets financed thereby or the property subject to such lease or arrangement or any interests or agreements related thereto, (d) any such prohibition or limitation in any co-branding agreement, partnering agreement, airline-to-airline frequent flyer program agreement or similar agreement, in each case relating to a Frequent Flyer Program; provided that (i) prior to entering into any new such agreement or arrangement, Parent shall use commercially reasonable efforts to have any such agreement not include any such prohibition or limitation and (ii) any such prohibition or limitation shall apply only with respect to the applicable agreement and the proceeds thereof, (e) in respect of any contract arising in the ordinary course relating to the cargo business of the Parent and its Restricted Subsidiaries, any prohibition or limitation in any such contract and any amendments or modifications thereto so long as such amendment or modification does not expand the scope of any such prohibition or limitation in any material respect; provided that (x) any such prohibition or limitation applies only with respect to the applicable agreement and the proceeds thereof and (y) in respect of any such receivables that would otherwise constitute Collateral, Parent shall use commercially reasonable efforts to have any such contract not include any such prohibition or limitation, (f) any agreement in effect at the time any Person becomes a Restricted Subsidiary of Parent; provided that such agreement was not entered into in contemplation of such Person becoming a Restricted Subsidiary of Parent, (g) customary prohibitions and limitations contained in agreements relating to the sale of a Restricted Subsidiary (or the assets of Parent or a Restricted Subsidiary) pending such sale; provided that such prohibitions and limitations apply only to the Restricted Subsidiary that is to be sold (or the assets to be sold) and such sale is permitted (or not restricted) hereunder, (h) prohibitions and limitations under agreements evidencing or governing or otherwise relating to Indebtedness not restricted hereby of Restricted Subsidiaries that are not Loan Parties; provided that such prohibitions and limitations are only with respect to assets of such Restricted Subsidiaries, (i) any prohibition or limitation imposed by applicable law, regulation or order, or the terms of any license, authorization, concession or permit issued or granted by a Governmental Authority and (j) any customary prohibitions or limitations arising or agreed to in the ordinary course of business, arising under leases, licenses or other similar contractual arrangements and not relating to any Indebtedness, and that do not (i) restrict assets other than those subject to such leases, licenses or other arrangements or (ii) taken as a whole, materially diminish the value of the Collateral, in each case, as determined by Parent in good faith.
Section 6.11. Restricted Distributions Clauses. Parent will not, and will not permit any of its Restricted Subsidiaries to, enter into or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of Parent to pay dividends or distributions or to dividend the
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proceeds of any Disposition of Significant Assets to Parent or another Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (a) any restrictions with respect to a Restricted Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially of the Equity Interests or assets of such Restricted Subsidiary so long as such Disposition is not restricted hereby, (b) any agreement in effect at the time any Person becomes a Restricted Subsidiary of Parent; provided that such agreement was not entered into in contemplation of such Person becoming a Restricted Subsidiary of Parent, (c) provisions with respect to the Disposition or distribution of assets or property in joint venture agreements, asset sale agreements, agreements in respect of sales of Equity Interests and other similar agreements entered into in connection with transactions not prohibited by this Agreement; provided that such encumbrance or restriction shall only be effective against the assets or property that are the subject to such agreements, (d) any instrument governing Indebtedness or Equity Interests of a Person acquired by Parent or any of its Restricted Subsidiaries as in effect on the date of such acquisition, which encumbrance or restriction is not applicable to any Person or the property or assets of any Person, other than the Person, or the properties or assets of such Person, so acquired, and (e) customary encumbrances or restrictions contained in Aircraft Financings (including, without limitation, the RCF Loan Agreement and the Spare Engine Loan Agreement) or debt incurred pursuant to Section 6.02(h) to the extent such encumbrances and restrictions apply only to the property subject to such lease or arrangement, and (f) any customary prohibitions or limitations arising or agreed to in the ordinary course of business, arising under leases, licenses or other similar contractual arrangements and not relating to any Indebtedness, and that do not (i) restrict assets other than those subject to such lease, license or other arrangements, (ii) taken as a whole, materially diminish the value of the Collateral or (iii) taken as a whole, materially affect the ability of Parent or any Restricted Subsidiary to make future principal or interest payments on outstanding Indebtedness of Parent or any Restricted Subsidiary, in each case, as determined by Parent in good faith.
Section 6.12. Use of Proceeds. The Loan Parties will not use, and will not permit any of their respective Subsidiaries, officers, directors, employees or agents to use, the proceeds of any Loan (i) in violation of any Anti-Corruption Laws or Anti-Money Laundering Laws or (ii) (A) to fund, finance or facilitate any activities or business of or with any Person that, at the time of such funding, financing or facilitation, is the subject or target of Sanctions, (B) to fund, finance or facilitate any activities of or business in any Sanctioned Country, in each case of (A) and (B) except to the extent permitted under Sanctions, or (C) in any other manner, that would result in a violation of Sanctions by any Person in connection with this Agreement (including any Person participating or acting in connection with the loan hereunder, whether as underwriter, advisor, investor, lender, hedge provider, facility or security agent or otherwise).
ARTICLE 7.
EVENTS OF DEFAULT
Section 7.01. Events of Default. (I) In the case of the happening of any of the following events and the continuance thereof beyond the applicable grace period if any and (II) from and after the date hereof until the Conversion Date, the additional events set forth in Annex C-2 attached hereto (each of the foregoing, together with the events set forth in Annex C-2, each an “Event of Default”):
(a)Failure of Representation or Warranty. Any representation or warranty made by any Borrower or any Guarantor in this Agreement or in any other Loan Document shall prove to have been false or incorrect in any material respect when made, and such representation or warranty, to the extent capable of being corrected, is not corrected within ten (10) Business Days after the earlier of (A) an Officer of any Borrower obtaining knowledge of such default or (B) receipt by any Borrower of notice from the Administrative Agent of such default.
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(b)Payment Default. Default shall be made in the payment of (i) any principal of the Loans, when and as the same shall become due and payable; or (ii) any interest on the Loans or any other amount payable hereunder when due and such default under this subclause (ii) shall continue unremedied for more than five (5) Business Days.
(c)Certain Covenant Default. (i) A Default shall be made by Parent in the due observance of the covenants contained in Section 5.04 (with respect to any Borrower’s existence) or in Article 6 hereof (other than Section 6.07) or (ii) default shall be made by Parent in the due observance of the covenant in Section 6.07 and such default shall continue unremedied for more than ten (10) Business Days after the earlier of (A) an Officer of any Borrower obtaining knowledge of such default or (B) receipt by any Borrower of notice from the Administrative Agent of such default.
(d)Other Covenant Default. A Default shall be made by any Borrower or any other Loan Party in the due observance or performance of any covenant, condition or agreement (other than those specified in Section 7.01(a), (b) or (c)) to be observed or performed by it pursuant to the terms of this Agreement or any of the other Loan Documents and such default shall continue unremedied for more than thirty (30) days after the earlier of (i) receipt of written notice by any Borrower from the Administrative Agent of such default or (ii) any Officer of any Borrower becomes aware of such default.
(e)Unenforceability/Liens. (i) Any material provision of any Loan Document to which any Loan Party is a party, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations, ceases to be a valid and binding obligation of such Loan Party, or any Loan Party shall so assert in any pleading filed in any court, (ii) a material portion of the guarantees by the Guarantors shall cease to be in full force and effect;
(iii) any Borrower or any other Person contests in writing the validity or enforceability of any provision of any Loan Document; or a Borrower denies in writing that it has any or further liability or obligation under any Loan Document, or purports in writing to revoke, terminate or rescind any Loan Document; or (iv) the Liens on any material portion of the Collateral intended to be created by the Loan Documents shall cease to be or shall not be a valid and perfected Lien having the priorities required hereby or by the Collateral Trust Agreement, DIP Intercreditor Agreement or the Junior Lien Intercreditor Agreement, as applicable, (except as permitted by the terms of this Agreement or the Collateral Documents).
(f)Involuntary Proceeding. After the Conversion Date, an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Borrower or any Restricted Subsidiary or its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Restricted Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered.
(g)Voluntary Proceeding. After the Conversion Date, any Borrower or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 7.01(h), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Restricted Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or(vi) take any action for the purpose of effecting any of the foregoing.
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(h)Judgments. Entry of judgments by a court or courts of competent jurisdiction aggregating in excess of [*] (determined net of amounts covered by insurance policies issued by creditworthy insurance companies or by third party indemnities or a combination thereof), shall be entered against any Loan Party, which judgments are not paid, discharged, bonded, satisfied or stayed for a period of sixty (60) days.
(i)Change of Control. A Change of Control shall occur.
(j)Default Under Other Agreements. (x) Any Borrower or any Guarantor shall default in the performance of any obligation relating to Material Indebtedness and any applicable grace periods shall have expired and any applicable notice requirements shall have been complied with, and as a result of such default the holder or holders of such Material Indebtedness or any trustee or agent on behalf of such holder or holders shall have caused such Material Indebtedness to become due prior to its scheduled final maturity date or (y) any Borrower or any Guarantor shall default in the payment of the outstanding principal amount due on the scheduled final maturity date of any Material Indebtedness outstanding under one or more agreements of a Borrower or a Guarantor, any applicable grace periods shall have expired and any applicable notice requirements shall have been complied with.
(k)Benefit Plans. (i) Any event or circumstance shall have occurred with respect to any Benefit Plan which has resulted or could reasonably be expected to result in an additional annual liability of the Loan Parties under such Benefit Plan that would be a Material Adverse Effect, or (ii) Parent, the Co-Borrower or any Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment which would reasonably be expected to result in a Material Adverse Effect with respect to its withdrawal liability under any Benefit Plan.
Section 7.02. Remedies Upon an Event of Default. If an Event of Default occurs or is continuing, and at any time then, and in every such event and at any time thereafter during the continuance of such event, the Administrative Agent may with the consent of the Required Lenders, and shall at the request of the Required Lenders, by notice to the Borrowers, take any or all of the following actions, at the same or different times:
(a)terminate the Commitments, and thereupon the Commitments shall terminate immediately;
(b)declare the Loans (or any portion thereof) then outstanding to be due and payable, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and all other obligations of the Borrowers accrued hereunder and under any other Loan Document, shall become due and payable immediately, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding;
(c)exercise (or, with respect to Collateral Documents, direct the Collateral Trustee to exercise) on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents and applicable law; and
(d)prior to the Conversion Date, upon five (5) Business Days’ written notice to the Borrowers from the Administrative Agent, acting at the instructions of the Required Lenders, the automatic stay of Section 362 (and any other Section of the Bankruptcy Code) shall be terminated in all respects without further order of the Bankruptcy Court (or any other court), without the need for filing any motion for relief from the automatic stay or any other pleading, to permit the exercise of any and all
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rights and remedies under the Loan Documents, the Final DIP Order, and under applicable law available to the Administrative Agent and the Lenders; provided that prior to such five (5) day period, the Collateral Trustee, the Local Collateral Agents and the Lenders shall not take any enforcement action with respect to Collateral (including to exercise rights of set-off, to give any shifting control or exclusive control notice, or to apply any amounts in any bank accounts that are a part of the Collateral).
In case of any event with respect to any Borrower or any other Loan Party described in Section 7.01(f) or (g), the actions and events described in Section 7.02(a) and (b) shall be required or taken automatically, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. Any payment received as a result of the exercise of remedies hereunder shall be applied in accordance with Section 2.14(b).
ARTICLE 8. THE AGENTS
Section 8.01. Administration by Agents.
(a)Each of the Lenders hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors and assigns to serve as the administrative agent under the Loan Documents and the entity named as Collateral Trustee in the heading of this Agreement and its successors and assigns to serve as its Collateral Trustee under the Loan Documents, and each of the Lenders authorizes each such Agent to take such actions as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto, including (but not limited to) the execution and delivery of the Loan Documents to which such Agent is a party and the performance of all rights, powers, remedies and duties that such Agent may have under such Loan Documents. In addition, to the extent required under the laws of any jurisdiction other than within the United States, each Lender hereby grants to such Agent any required powers of attorney to execute and enforce any Collateral Document governed by the laws of such jurisdiction on such Lender’s behalf.
(b)Each of the Lenders (i) irrevocably appoints the Local Collateral Agents pursuant to the terms of each Local Collateral Agent Agreement to take such actions on its behalf and to exercise such powers as are delegated to such Local Collateral Agents by the terms of each Local Collateral Agent Agreement, as applicable, together with such actions and powers as are reasonably incidental thereto, including (but not limited to) the execution and delivery of the Loan Documents to which each Local Collateral Agent is a party and the performance of duties as expressly stated thereunder and (ii) delegates each of the Administrative Agent and/or the Collateral Trustee the authority to execute each Local Collateral Agent Agreement on its behalf, if applicable.
(c)Each of the Lenders hereby acknowledges for the benefit of each Agent that in connection with the sale or other Disposition of any asset or property that constitutes a Significant Asset of any Borrower or any other Loan Party, as the case may be, to the extent permitted by the terms of this Agreement, including without limitation upon any Permitted Disposition (prior to the Conversion Date, other than any Disposition pursuant to clause (d) of the definition of “Permitted DIP Disposition,” and after the Conversion Date, other than any Disposition pursuant to clauses (d), (g) or (h) of the definition of “Permitted Disposition”) or as otherwise permitted under Section 6.03, and in each other circumstance outlined in Section 7.3(a)-(b) of the Pledge and Security Agreement, that the Lien granted to such Agent, for the benefit of the Secured Parties, if any, on the relevant asset shall be automatically released, other than in respect of any proceeds, products or Investment related thereto, if applicable.
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(d)Each of the Lenders hereby authorizes each Agent, as applicable:
(i)if directed by the Required Lenders in their sole discretion, to determine that the cost to any Borrower or any other Loan Party, as the case may be, is disproportionate to the benefit to be realized by the Secured Parties by perfecting a Lien in a given asset or group of assets included in the Collateral and that such Borrower or such other Loan Party, as the case may be, should not be required to perfect such Lien in favor of the Collateral Trustee or any Local Collateral Agent for the benefit of the Secured Parties;
(ii)to enter into the other Loan Documents on terms acceptable to the Administrative Agent and to perform its respective obligations thereunder; and
(iii)to enter into any other agreements reasonably satisfactory to the Administrative Agent granting Liens to the Collateral Trustee or any Local Collateral Agent for the benefit of the Secured Parties, on any assets or properties of any Borrower or any other Loan Party to secure the Obligations.
(e)In performing its functions and duties hereunder and under the other Loan Documents, each Agent is acting solely on behalf of the Lenders (except in limited circumstances expressly provided for herein relating to the Administrative Agent’s maintenance of the Register), and its duties are entirely mechanical and administrative in nature. Without limiting the generality of the foregoing:
(i)no Agent assumes and no Agent shall be deemed to have assumed any obligation or duty or any other relationship as the agent, fiduciary or trustee of or for any Lender or holder of any other obligation other than as expressly set forth herein and in the other Loan Documents, regardless of whether a Default or an Event of Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” or “trustee” (or any similar term) herein or in any other Loan Document with reference to such Agent is not intended to connote any fiduciary duty or other implied (or express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties); additionally, each Lender agrees that it will not assert any claim against any Agent based on an alleged breach of fiduciary duty by such Agent in connection with this Agreement and/or the transactions contemplated hereby; and
(ii)nothing in this Agreement or any Loan Document shall require any Agent to account to any Lender for any sum or the profit element of any sum received by any Agent for its own account.
(f)The Joint Lead Arrangers (i) shall not have any obligations or duties whatsoever in such capacity under this agreement or any other Loan Document, other than in respect of the express voting provision set forth in clause (a) of Annex D hereof; provided that the Joint Lead Arrangers shall not provide consent to reverse, modify, amend or vacate, or waive any provision of, the Final DIP Order, the Confirmation Order or the Reorganization Plan without the prior written consent of the Required Lenders, and (ii) shall incur no liability hereunder or thereunder in such capacity, but all such persons shall have the benefit of the indemnities provided for hereunder.
Section 8.02. Rights of Agents. Any institution serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such institution and its respective Affiliates may accept deposits from,
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lend money to and generally engage in any kind of business with the Loan Parties or any Subsidiary or other Affiliate of the Loan Parties as if it were not an Agent hereunder.
Section 8.03. Liability of Agents.
(a)The Agents shall not have any duties or obligations except those expressly set forth herein, and no duties, responsibilities or obligations shall be inferred or implied against any Agent. Without limiting the generality of the foregoing, (i) the Agents shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing,
(ii) as to any matters not expressly provided for herein and in the other Loan Documents (including enforcement or collection), the Agents shall not be required to exercise any discretion or take any action but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, pursuant to the terms in the Loan Documents, or in the case of the Collateral Trustee, the Administrative Agent), and, unless and until revoked in writing, such instructions shall be binding upon each Lender; provided, however, that no Agent shall be required to take any action that (x) such Agent in good faith believes exposes it to liability unless such Agent receives an indemnification and is exculpated in a manner satisfactory to it from the Lenders with respect to such action or (y) is contrary to this Agreement or any other Loan Document or applicable law, including any action that may be in violation of the automatic stay under any requirement of law relating to bankruptcy, insolvency or reorganization or relief of debtors or that may affect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any requirement of law relating to bankruptcy, insolvency or reorganization or relief of debtors; provided, further, that such Agent may seek clarification or direction from the Required Lenders prior to the exercise of any such instructed action and may refrain from acting until such clarification or direction has been provided and (iii) except as expressly set forth herein, the Agents shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of Parent’s Subsidiaries or any Affiliate of any of the foregoing that is communicated to or obtained by the institution or Person serving as an Agent or any of its Affiliates in any capacity. No Agent nor any of its Related Parties shall be (i) liable for any action taken or not taken by such party, any Agent or any of its Related Parties under or in connection with this Agreement or the other Loan Documents (x) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith to be necessary, under the circumstances as provided in Section 10.08) or (y) in the absence of its own gross negligence or willful misconduct (such absence to be presumed unless otherwise determined by a court of competent jurisdiction by a final and non-appealable judgment) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Borrower or any of its Subsidiaries or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by such Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (including, for the avoidance of doubt, in connection with such Agent’s reliance on any Electronic Signature transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page) or for any failure of any Borrower or any of its Subsidiaries to perform its obligations hereunder or thereunder. No Agent shall be deemed to have knowledge of any (i) notice of any of the events or circumstances set forth or described in Section 5.01 unless and until written notice thereof stating that it is a “notice under Section 5.01” in respect of this Agreement and identifying the specific clause under said Section is given to such Agent by the Borrowers, or (ii) notice of any Default or Event of Default unless and until written notice thereof (stating that it is a “notice of Default” or a “notice of an Event of Default”) is given to such Agent by the Borrowers, any other Loan Party or a Lender and such Agent shall not be responsible for, or have any duty to ascertain or inquire into, (A) any statement, warranty or
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representation made in or in connection with any Loan Document, (B) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (C) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document or the occurrence of any Default or Event of Default, (D) the sufficiency, validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (E) the satisfaction of any condition set forth in Article 4 or elsewhere in any Loan Document, other than to confirm receipt of items (which on their face purport to be such items) expressly required to be delivered to such Agent or satisfaction of any condition that expressly refers to the matters described therein being acceptable or satisfactory to such Agent.
(b)Each Agent shall be entitled to rely upon, and shall not incur any liability under or in respect of this Agreement or any other Loan Document for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (which writing may be a fax, any electronic message, Internet or intranet website posting or other distribution) or any statement made to it orally or by telephone believed by it to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to be genuine and signed or sent or otherwise authenticated by the proper party or parties (whether or not such Person in fact meets the requirements set forth in the Loan Documents for being the maker thereof) and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, at the expense of the Borrowers, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
(c)Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by it. Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through its Related Parties. The exculpatory provisions of this Article 8 shall apply to any such sub-agent and to the Related Parties of such Agent and any such sub-agent, and shall apply to their respective activities pursuant to this Agreement. No Agent shall be responsible for the negligence or misconduct of any sub-agent except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that such Agent acted with gross negligence or willful misconduct in the selection of such sub-agent.
(d)The Agents shall not be responsible for and shall make no representation as to (i) the existence, genuineness, value or protection of any Collateral, (ii) the legality, effectiveness or sufficiency of any Collateral Document, or (iii) the creation, perfection, priority, sufficiency or protection of any Priority Liens. For the avoidance of doubt, nothing herein shall require any Agent to file financing statements or continuation statements, or be responsible for maintaining the security interests purported to be created as described herein (except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder or under any other Loan Document) and such responsibility shall be solely that of the Borrowers.
(e)Nothing in this Agreement shall require any Agent to expend or risk any of their own funds or otherwise incur any liability, financial or otherwise, in the performance of any of their duties hereunder or under the Loan Documents or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(f)In no event shall any Agent be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including loss of profit) irrespective of whether
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such Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(g)No Agent shall incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of any such Agent (including any act or provision of any present or future law or regulation or governmental authority, any act of God or war, civil unrest, local or national disturbance or disaster, any act of terrorism, or the unavailability of the Federal Reserve Board’s wire or facsimile or other wire or communication facility).
(h)Each Agent shall have the right to, unilaterally and without prior notice, remove itself or not comply with any obligation that would reasonably be expected to result in violation of Sanctions. The parties hereto expressly agree that no Agent shall be liable for not performing and/or delaying the receipt or the payment of any amount solely due to such Agent’s compliance with Sanctions.
(i)The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of any Agent and any such sub-agent and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.
(j)Without limiting the foregoing, each Agent (1) may treat the payee of any promissory note as its holder until such promissory note has been assigned in accordance with Section 10.02, (2) may rely on the Register to the extent set forth in Section 10.02, (3) may consult with legal counsel (including counsel to the Borrowers), independent public accountants and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (4) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made by or on behalf of any Borrower or any Loan Party or Guarantor in connection with this Agreement or any other Loan Document and (5) in determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, may presume that such condition is satisfactory to such Lender unless such Agent shall have received notice to the contrary from such Lender sufficiently in advance of the making of such Loan.
(k)In case of the pendency of any proceeding with respect to any Borrower or any of its Subsidiaries under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent (irrespective of whether the principal of any Loan or any reimbursement obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrowers) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(i)to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Administrative Agent and the Collateral Trustee (including any claim under Sections 2.06, 2.13, 2.16 and 10.04) allowed in such judicial proceeding; and
(ii)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Lender and each other Secured Party to make such payments to
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the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders or the other Secured Parties, to pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including under Section 10.04). Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
(l)The provisions of this Article 8 are solely for the benefit of the Agents and the Lenders, and, except solely to the extent of the Borrowers’ rights to consent pursuant to and subject to the conditions set forth in this Article 8, none of any Borrower or any Subsidiary, or any of their respective Affiliates, shall have any rights as a third party beneficiary under any such provisions. Each Secured Party, whether or not a party hereto, will be deemed, by its acceptance of the benefits of the Collateral and of the Guarantees of the obligations provided under the Loan Documents, to have agreed to the provisions of this Article 8.
Section 8.04. Reimbursement and Indemnification. Each Lender severally agrees (a) to reimburse on demand each Agent (acting in its capacity as such) for such Lender’s Aggregate Exposure Percentage of any expenses and fees incurred for the benefit of the Lenders under this Agreement and any of the Loan Documents, including, without limitation, counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, and any other expense incurred in connection with the operations or enforcement thereof, not reimbursed by the Loan Parties and (b) to indemnify and hold harmless each Agent and any of its Related Parties, on demand, in the amount equal to such Lender’s Aggregate Exposure Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it or any of them in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by it or any of them under this Agreement or any of the Loan Documents to the extent not reimbursed by the Loan Parties; provided that the indemnification set forth in this clause (b) shall not, as to any Agent or its Related Parties, be available to the extent that such liabilities, obligations, losses, damages, penalties or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Agent or such Related Party, as applicable.
Section 8.05. Successor Agents.
(a)Subject to the appointment and acceptance of a successor agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrowers as to such resignation. Upon any such resignation by the Administrative Agent, the Required Lenders shall have the right, with the consent (provided that no Event of Default or Default has occurred and is continuing) of the Borrowers (such consent not to be unreasonably withheld or delayed), to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, with the consent (provided no Event of Default or Default has occurred or is continuing) of the Borrowers (such consent not to be unreasonably withheld or delayed), appoint a successor Administrative Agent with respect to the scope of its resignation which, in the case of the retiring Administrative Agent, shall be a bank institution with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties for which the Administrative Agent is retiring, and the retiring Administrative Agent shall be discharged from such
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duties and obligations hereunder and under the other Loan Documents that are applicable thereto (but not, for the avoidance of doubt, any rights, powers, privileges and duties from which the Administrative Agent is not resigning). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed among the Borrowers and such successor. After the retiring Administrative Agent’s resignation hereunder, the provisions of this Article 8 and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as an Administrative Agent.
(b)Notwithstanding Section 8.05(a), in the event no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders and the Borrowers, whereupon, on the date of effectiveness of such resignation stated in such notice, (1) the retiring Administrative Agent shall be discharged from such duties and obligations hereunder and under the other Loan Documents that are applicable thereto (but not, for the avoidance of doubt, any rights, powers, privileges and duties from which the Administrative Agent is not resigning); provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under any Collateral Document, if applicable, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Lenders, and continue to be entitled to the rights set forth in such Collateral Documents and the Loan Document, and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this Section (it being understood and agreed that to the extent the retiring Administrative Agent resigned from such duty, the retiring Administrative Agent shall have no duty or obligation to take any further action under any Collateral Document, including any action required to maintain the perfection of any such security interest), and (2) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties from which such Agent retired (but not, for the avoidance of doubt, any rights, powers, privileges and duties from which the Agent is not resigning); provided that (a) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (b) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall directly be given or made to each Lender. Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article 8 and Section 10.04, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of the retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent and in respect of the matters referred to in the proviso under Section 8.07(a).
(c)The Collateral Trustee may resign or be removed and a replacement Collateral Trustee appointed all in accordance with Article VI of the Collateral Trust Agreement. Following the effectiveness of the Collateral Trustee’s resignation or removal from its capacity as such, the provisions of this Article 8 and Section 10.04, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of the retiring Collateral Trustee, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Collateral Trustee was acting as Collateral Trustee.
Section 8.06. Independent Lenders. Each Lender acknowledges that it has, independently and without reliance upon any Agent, the Joint Lead Arrangers or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to
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enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, the Joint Lead Arrangers or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
Section 8.07. Advances and Payments.
(a)On the date of each Loan, the Administrative Agent shall be authorized (but not obligated) to advance, for the account of each of the Lenders, the amount of the Loan to be made by such Lender in accordance with such Lender’s Commitment hereunder. Should the Administrative Agent do so, each of the Lenders agrees forthwith to reimburse the Administrative Agent in immediately available funds for the amount so advanced on its behalf by the Administrative Agent, together with interest at the Federal Funds Rate if not so reimbursed on the date due from and including the date such Loan was advanced by the Administrative Agent but not including the date of reimbursement.
(b)Any amounts received by the Administrative Agent in connection with this Agreement (other than amounts to which the Administrative Agent is entitled pursuant to Sections 2.08, 8.04 and 10.04), the application of which is not otherwise provided for in this Agreement, shall be applied in accordance with Section 2.14(b). All amounts to be paid to a Lender by the Administrative Agent shall be credited to that Lender, after collection by the Administrative Agent, in immediately available funds either by wire transfer or deposit in that Lender’s correspondent account with the Administrative Agent, as such Lender and the Administrative Agent shall from time to time agree.
Section 8.08. Sharing of Setoffs. Subject to the application of payments in Section 2.14(b), each Lender agrees that, except to the extent this Agreement expressly provides for payments to be allocated to a particular Lender, if it shall, through the exercise either by it or any of its banking Affiliates of a right of banker’s lien, setoff or counterclaim against any Loan Party under any applicable bankruptcy, insolvency or other similar law, or otherwise, obtain payment in respect of its Loans as a result of which the unpaid portion of its Loans is proportionately less than the unpaid portion of the Loans of any other Lender (a) it shall promptly purchase at par (and shall be deemed to have thereupon purchased) from such other Lender a participation in the Loans of such other Lender, so that the aggregate amount of each Lender’s Loans and its participation in Loans of the other Lenders shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the amount of its Loans prior to the obtaining of such payment was to the amount of all Loans prior to the obtaining of such payment and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that the Lenders share such payment pro rata; provided that if any such non pro rata payment is thereafter recovered or otherwise set aside, such purchase of participations shall be rescinded (without interest). The Borrowers expressly consent to the foregoing arrangements and agrees, to the fullest extent permitted by law, that any Lender holding (or deemed to be holding) a participation in a Loan acquired pursuant to this Section or any of its banking Affiliates may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by the Borrowers to such Lender as fully as if such Lender was the original obligee thereon, in the amount of such participation. The provisions of this Section 8.08 shall not be construed to apply to (a) any payment made by the Borrowers or the Guarantors pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or (b) any payment obtained by any Lender as consideration for the assignment or sale of a participation in any of its Loans or other Obligations owed to it.
Section 8.09. Withholding Taxes. To the extent required by any applicable law, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any withholding tax applicable to such payment. If any Governmental Authority asserts a claim that the
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Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender for any reason, or the Administrative Agent has paid over to any Governmental Authority the applicable withholding tax relating to a payment to a Lender but no deduction has been made from such payment, without duplication of any indemnification obligations set forth in Section 8.04 or Section 2.13(g) (and without limiting any obligations of any Borrower or any Guarantor pursuant to Section 2.13) such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including any penalties or interest and together with any expenses incurred.
Section 8.10. Appointment by Secured Parties. Each Secured Party that is not a party to this Agreement shall be deemed to have appointed the Administrative Agent as its agent and the Collateral Trustee and each Local Collateral Agent as its collateral agent under the Loan Documents in accordance with the terms of this Article 8 and to have acknowledged that the provisions of this Article 8 apply to such Secured Party mutatis mutandis as though it were a party hereto (and any acceptance by such Secured Party of the benefits of this Agreement or any other Loan Document shall be deemed an acknowledgment of the foregoing).
Section 8.11. Posting of Communications.
(a)The Borrowers agree that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).
(b)Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Closing Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders and the Borrowers acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are added to the Approved Electronic Platform, and that there may be confidentiality and other risks associated with such distribution. Each of the Lenders and the Borrowers hereby approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.
(c)THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE APPLICABLE PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, THE ARRANGER OR ANY OF ITS RESPECTIVE RELATED PARTIES (COLLECTIVELY, “APPLICABLE PARTIES”) HAVE ANY LIABILITY TO ANY BORROWER OR ANY GUARANTOR OR LOAN PARTY, ANY LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL
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OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT ANY BORROWER OR ANY GUARANTOR OR LOAN PARTY OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.
“Communications” shall mean, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrowers pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender by means of electronic communications pursuant to this Section, including through an Approved Electronic Platform.
(d)Each Lender agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from time to time of such Lender’s email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
(e)Each of the Lenders and each of the Borrowers agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.
(f)Nothing herein shall prejudice the right of the Administrative Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
Section 8.12. Agents Individually. With respect to its Commitment and Loans, each Person serving as an Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms “Lenders”, “Required Lenders” and any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity as a Lender or as one of the Required Lenders, as applicable. Each Person serving as an Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust or other business with, any Borrower, any Subsidiary or any Affiliate of any of the foregoing as if such Person was not acting as an Agent and without any duty to account therefor to the Lenders.
Section 8.13. Acknowledgements of Lenders.
(a)Each Lender represents and warrants that (1) the Loan Documents set forth the terms of a commercial lending facility, (2) it is engaged in making, acquiring or holding commercial loans and in providing other facilities set forth herein as may be applicable to such Lender, in each case in the ordinary course of business, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument (and each Lender agrees not to assert a claim in contravention of the foregoing), (3) it has, independently and without reliance upon any Agent, the Joint Lead Arrangers or any other Lender, or any of the Related Parties of any of the foregoing, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder and (4) it is sophisticated with respect to decisions to make, acquire and/or hold commercial loans and to provide other facilities set forth herein, as may be applicable to such Lender, and either it, or the Person exercising discretion in making its decision to make, acquire
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and/or hold such commercial loans or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans or providing such other facilities. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, the Joint Lead Arrangers or any other Lender, or any of the Related Parties of any of the foregoing, and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrowers and their Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
(b)Each Lender, by delivering its signature page to this Agreement on the Closing Date, or delivering its signature page to an Assignment and Acceptance Agreement or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative Agent, the Collateral Trustee or the Lenders on the Closing Date.
(c)Each Lender hereby agrees that (x) if the Administrative Agent notifies such Lender that the Administrative Agent has determined in its sole discretion that any funds received by such Lender from the Administrative Agent or any of its Affiliates (whether as a payment, prepayment or repayment of principal, interest, fees or otherwise; individually and collectively, a “Payment”) were erroneously transmitted to such Lender (whether or not known to such Lender), and demands the return of such Payment (or a portion thereof), such Lender shall promptly, but in no event later than two Business Days thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect, and (y) to the extent permitted by applicable law, such Lender shall not assert, and hereby waives, as to the Administrative Agent, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Payments received, including without limitation any defense based on “discharge for value” or any similar doctrine. A notice of the Administrative Agent to any Lender under this Section 8.13(c) shall be conclusive, absent manifest error.
(i)Each Lender hereby further agrees that if it receives a Payment from the Administrative Agent or any of its Affiliates (x) that is in a different amount than, or on a different date from, that specified in a notice of payment sent by the Administrative Agent (or any of its Affiliates) with respect to such Payment (a “Payment Notice”) or (y) that was not preceded or accompanied by a Payment Notice, it shall be on notice, in each such case, that an error has been made with respect to such Payment. Each Lender agrees that, in each such case, or if it otherwise becomes aware a Payment (or portion thereof) may have been sent in error, such Lender shall promptly notify the Administrative Agent of such occurrence and, upon demand from the Administrative Agent, it shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
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(ii)Each Borrower and each Guarantor hereby agrees that an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by any Borrower or any Guarantor, except, in each case, to the extent such Payment is, and solely with respect to the amount of such Payment that is, comprised of funds received by the Administrative Agent from any Borrower or any Guarantor for the purpose of making such Payment.
(iii)Each Borrower and each of its Subsidiaries hereby agrees that (x) in the event an erroneous Payment (or portion thereof) are not recovered from any Lender that has received such Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all the rights of such Lender with respect to such amount and (y) an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by each Borrower or any of its Subsidiaries.
(iv)Each party’s obligations under this Section 8.13(c) shall survive the resignation or replacement of the Administrative Agent or any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations under any Loan Document.
For the avoidance of doubt, nothing herein shall limit or waive any of any Borrower’s or any Guarantor’s rights or remedies to enforce return of any Payment.
Section 8.14. Disqualified Lenders. Neither the Administrative Agent nor any of its Related Parties shall be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions of this Agreement relating to Disqualified Lenders or Low Tax Jurisdiction Entities. Without limiting the generality of the foregoing, the Administrative Agent shall not
(a) be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Lender or Low Tax Jurisdiction Entities or (b) have any liability with respect to or arising out of any assignment or participation of Commitments or Loans, or disclosure of confidential information, to any Disqualified Lender or Low Tax Jurisdiction Entities.
Section 8.15. Credit Bidding. The Secured Parties hereby irrevocably authorize the Administrative Agent, at the direction of the Required Lenders, to authorize the Collateral Trustee to credit bid all or any portion of the Obligations (including by accepting some or all of the Collateral in satisfaction of some or all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the interests in the Collateral as set forth in Section 9.1(b) of the Pledge and Security Agreement. Notwithstanding that the ratable portion of the Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in the Pledge and Security Agreement, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party which will receive interests in or debt instruments issued by such acquisition vehicle) as the Collateral Trustee may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid.
ARTICLE 9.
GUARANTY
Section 9.01. Guaranty.
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(a)Each of the Guarantors, hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the due and punctual payment, when due, whether upon maturity, acceleration or otherwise, by the Borrowers of the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of the obligor whether or not post filing interest is allowed in such proceeding) (collectively, the “Guaranteed Obligations” and the obligations of each Guarantor in respect thereof, its “Guaranty Obligations”). Each of the Guarantors further agrees that, to the extent permitted by applicable law, the Guaranty Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and it will remain bound upon this guaranty notwithstanding any extension or renewal of any of the Guaranty Obligations. The Guaranty Obligations of the Guarantors shall be joint and several. Each of the Guarantors further agrees that its guaranty hereunder is a primary obligation of such Guarantor and not merely a contract of surety.
(b)To the extent permitted by applicable law, each of the Guarantors waives presentation to, demand for payment from and protest to any Borrower or any other Guarantor, and also waives notice of protest for nonpayment. The obligations of the Guarantors hereunder shall not, to the extent permitted by applicable law, be affected by (i) the failure of the Administrative Agent, the Collateral Trustee, the Local Collateral Agents or a Lender to assert any claim or demand or to enforce any right or remedy against any Borrower or any other Guarantor under the provisions of this Agreement or any other Loan Document or otherwise; (ii) any extension or renewal of any provision hereof or thereof; (iii) any rescission, waiver, compromise, acceleration, amendment or modification of any of the terms or provisions of any of the Loan Documents; (iv) the release, exchange, waiver or foreclosure of any security held by the Collateral Trustee or the Local Collateral Agents for the Obligations or any of them; (v) the failure of the Administrative Agent, the Collateral Trustee, the Local Collateral Agents or a Lender to exercise any right or remedy against any other Guarantor; or (vi) the release or substitution of any Collateral or any other Guarantor.
(c)To the extent permitted by applicable law, each of the Guarantors further agrees that this guaranty constitutes a guaranty of payment when due and not just of collection, and waives any right to require that any resort be had by the Administrative Agent, the Collateral Trustee, the Local Collateral Agents or a Lender to any security held for payment of the Obligations or to any balance of any deposit, account or credit on the books of the Administrative Agent, the Collateral Trustee, the Local Collateral Agents or a Lender in favor of any Borrower or any other Guarantor, or to any other Person.
(d)To the extent permitted by applicable law, each of the Guarantors hereby waives any defense that it might have based on a failure to remain informed of the financial condition of each Borrower and of any other Guarantor and any circumstances affecting the ability of each Borrower or any other Guarantor to perform under this Agreement.
(e)To the extent permitted by applicable law, each Guarantor’s guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations or any other instrument evidencing any Obligations, or by the existence, validity, enforceability, perfection, or extent of any collateral therefor or by any other circumstance relating to the Obligations which might otherwise constitute a defense to this guaranty (other than Payment in Full in cash of the Obligations in accordance with the terms of this Agreement (other than those that constitute unasserted contingent indemnification obligations)). None of the Administrative Agent, the Collateral Trustee or any of the Lenders makes any representation or warranty in respect to any such circumstances or shall have any duty or responsibility whatsoever to any Guarantor in respect of the management and maintenance of the Obligations.
(f)Upon the occurrence of the Obligations becoming due and payable (whether upon maturity, by acceleration or otherwise), the Lenders shall be entitled to immediate payment of such Obligations, together with any and all expenses which may be incurred by the Secured Parties in
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collecting any of the Obligations as provided hereunder, by the Guarantors upon written demand by the Administrative Agent.
Section 9.02. No Impairment of Guaranty. To the extent permitted by applicable law, the obligations of the Guarantors hereunder shall not be subject to any reduction, limitation or impairment for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, other than pursuant to a written agreement in compliance with Section 10.08 and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations. To the extent permitted by applicable law, without limiting the generality of the foregoing, the obligations of the Guarantors hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent, the Collateral Trustee or a Lender to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification of any provision hereof or thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Guarantors or would otherwise operate as a discharge of the Guarantors as a matter of law.
Section 9.03. Continuation and Reinstatement, etc. Each Guarantor further agrees that its guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by the Administrative Agent, the Collateral Trustee any Lender or any other Secured Party upon the bankruptcy or reorganization of a Borrower or a Guarantor, or otherwise.
Section 9.04. Subrogation. Upon payment by any Guarantor of any sums to the Administrative Agent, the Collateral Trustee or a Lender hereunder, all rights of such Guarantor against any Borrower arising as a result thereof by way of right of subrogation or otherwise, shall in all respects be subordinate and junior in right of payment to the prior Payment in Full of all the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of an obligor whether or not post filing interest is allowed in such proceeding). If any amount shall be paid to such Guarantor for the account of any Borrower relating to the Obligations prior to Payment in Full of the Obligations, if an Event of Default has occurred and is continuing, such amount shall be held in trust for the benefit of the Administrative Agent, the Collateral Trustee and the Lenders and shall forthwith be paid to the Administrative Agent, the Collateral Trustee and the Lenders to be credited and applied to the Obligations, whether matured or unmatured.
Section 9.05. Subordination. Any Indebtedness of any Guarantor now or hereafter owing to any other Guarantor or the Borrowers is hereby subordinated to the Obligations. Upon the occurrence and during the continuance of any Event of Default, if the Administrative Agent so requests, all such Indebtedness of any Guarantor to another Guarantor or any Borrower shall be collected, enforced and received by such other Guarantor or such Borrower for the benefit of the Secured Parties and be paid over to the Administrative Agent on behalf of the Secured Parties on account of the Obligations of such Guarantor to the Secured Parties, but without affecting or impairing in any manner the liability of any other Loan Party under the other provisions of this Article 9. Without limiting the generality of the foregoing, each Guarantor hereby agrees with the Secured Parties that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until irrevocable Payment in Full of the Obligations in cash.
Section 9.06. Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor
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hereunder who has not paid its proportionate share of such payment. The provisions of this Section 9.06 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the other Secured Parties for the full amount guaranteed by such Guarantor hereunder.
Section 9.07. Discharge of Guaranty.
(a)On and after the Conversion Date, in the event of (i) any sale or other Disposition of all or substantially all of the assets of any Guarantor (other than a Borrower), by way of merger, consolidation or otherwise, or a sale or other Disposition of Capital Stock of any Guarantor (other than a Borrower) such that after giving effect to such sale or other Disposition such Guarantor is no longer a Subsidiary, in each case to a Person that is not (either before or after giving effect to such transactions) a Loan Party (and excluding the merger or consolidation of such Loan Party with or into any Loan Party),
(ii) the designation of any Guarantor as an Unrestricted Subsidiary or (iii) the election by Parent to (A) cause a Designated Guarantor to be an Excluded Subsidiary (provided that such Designated Guarantor is either an Excluded Aircraft Subsidiary or does not own any Significant Assets at such time of election (other than pursuant to the thresholds set forth in clause (g) of the definition of “Excluded Subsidiary”)) or (B) designate any Post-Closing Guarantor as an Excluded Subsidiary pursuant to clause (g) of the definition thereof, in each case, in a transaction permitted under this Agreement (together with an Officer’s Certificate from Parent certifying that such transaction is permitted under this Agreement), then such Guarantor (in the event of a sale or other Disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor, the designation of an Unrestricted Subsidiary or the election to cause a Designated Guarantor to be an Excluded Subsidiary) or the corporation acquiring the property (in the event of a sale or other Disposition of all or substantially all of the assets of such Guarantor) will be automatically released and relieved of any obligations under its Guarantee of the Guaranteed Obligations; provided that no such release of any Guarantor shall be effective unless such Guarantor is substantially concurrently released from its Guarantees, if any, in respect of all other Priority Lien Debt, Junior Lien Indebtedness and Indebtedness outstanding under Section 6.02(c).
(b)After receipt of the Officer’s Certificate referenced in Section 9.07(a), the Administrative Agent, the Collateral Trustee and the Local Collateral Agents shall use commercially reasonable efforts to execute and deliver, at the Borrowers’ expense, such documents as any Borrower or any such Guarantor may reasonably request to evidence the release of the guarantee of such Guarantor provided herein.
Section 9.08. Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, (a) any demand for payment of any of the Obligations made by the Administrative Agent or any other Secured Party may be rescinded by such party and any of the Obligations continued, (b) the Obligations, Collateral or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, (c) this Agreement, any other Loan Document and any other documents executed and delivered in connection therewith, may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders, as the case may be) may deem advisable from time to time, subject to Section 10.08 and (d) any Collateral, guaranty or right of offset at any time held by the Collateral Trustee or the Local Collateral Agents, as applicable, the Administrative Agent or any other Secured Party for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this guaranty or any property subject thereto. When making any demand hereunder against any Guarantor, the Administrative Agent or any other Secured Party may, but
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shall be under no obligation to, make a similar demand on any Borrower or any other Guarantor, and any failure by the Administrative Agent or any other Secured Party to make any such demand or to collect any payments from the Borrowers or any other Guarantor or any release of any Borrower or any other Guarantor shall not relieve any Guarantor in respect of which a demand or collection is not made or any Guarantor not so released of its several obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any other Secured Party against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.
ARTICLE 10.
MISCELLANEOUS
Section 10.01. Notices.
(a)Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 10.01(b)), all notices and other communications provided for herein or under any other Loan Document shall be in writing (including by facsimile or electronic mail (with
.pdf attached)), and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy or electronic mail, as follows:
(i)if to any Borrower or any Guarantor, to it at: LATAM Airlines Group S.A.
Edificio Huidobro
Av. Presidente Riesco 5711 Piso 20
Las Condes Santiago Chile
Attention: Corporate Finance Director Telephone: + 56 2 565 3952
Facsimile: + 56 2 565 3950 with a copy to:
Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza
New York, NY 10006 Attn: Duane McLaughlin
Kara A. Hailey Telephone: + 1 (212) 225-2106
Facsimile: +1 (212) 225-3999
(ii)if to the Administrative Agent, to:
Goldman Sachs Lending Partners LLC 2001 Ross Ave, 29th Floor
Dallas, TX 75201
Telephone: 972-368-2323
Facsimile: (646) 769-7829
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E-mail: gs-dallas-adminagency@ny.email.gs.com and gs-sbdagency- borrowernotices@ny.email.gs.com
Attention: SBD Operations with a copy to:
Simpson Thacher & Bartlett LLP 425 Lexington Avenue
New York, NY 10017 Attn: Jessica Tuchinsky
Telephone: + 1 (212) 455-3623 Email: JTuchinsky@stblaw.com
(iii)if to any Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire; and
(iv)if to Wilmington Trust, National Association, as the Collateral Trustee, to Wilmington Trust, National Association, 1100 North Market Street, Wilmington, Delaware 19890, Attention: LATAM Collateral Trust Administrator, facsimile number (302) 636-4149.
(b)Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or Parent may, in its reasonable discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(c)Any party hereto may change its address or telecopy number or e-mail address for notices and other communications hereunder by notice to the other parties hereto. Except as otherwise set forth in this Section 10.01, all notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
(d)Unless the Administrative Agent otherwise prescribes, (1) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (2) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (1), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses
(1) and (2) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
Section 10.02. Successors and Assigns.
(a)The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) no Borrower may assign or otherwise transfer any of their respective rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by such Borrower without such consent shall ab initio be null and void); provided that the foregoing shall not restrict any transaction
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permitted by Section 6.09, and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 10.02. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby), Participants (to the extent provided in Section 10.02(d) and, to the extent expressly contemplated hereby, the Related Parties of the Administrative Agent, the Collateral Trustee, the Local Collateral Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)(i) Subject to the conditions set forth in Section 10.02(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:
(A)the Administrative Agent; provided that no consent of the Administrative Agent shall be required for an assignment if the assignee is a Lender, an Affiliate of a Lender or an Approved Fund of a Lender, in each case so long as such assignee is an Eligible Assignee; and
(B)the Borrowers; provided that no consent of the Borrowers shall be required for an assignment (I) if an Event of Default under Section 7.01(b), or, after the Conversion Date, Section 7.01(f)(ii) (with respect to a Borrower) or Section 7.01(g) (with respect to a Borrower), in each case has occurred and is continuing (except with respect to a Disqualified Lender or a Low Tax Jurisdiction Entity), (II) if the assignee is a Lender, an Affiliate of a Lender or an Approved Fund of a Lender, in each case so long as such assignee is an Eligible Assignee or (III) by the Joint Lead Arrangers, Joint Bookrunners or any of their respective Affiliates as part of the primary syndication of the Term Loans (as determined by the Joint Lead Arrangers and Joint Bookrunners and as previously consented to in writing (including by email) by Parent), in each case so long as such assignee is an Eligible Assignee; provided, further, that each Borrower’s consent will be deemed given with respect to a proposed assignment if no response is received within ten (10) Business Days after having received a written request from such Lender pursuant to this Section 10.02(b).
(ii)Assignments shall be subject to the following additional conditions:
(A)any assignment of any portion of the Commitments or Term Loans shall be made to an Eligible Assignee;
(B)except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount of such Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1.0 million, and after giving effect to such assignment, the portion of the Loan or Commitment held by the assigning Lender of the same tranche as the assigned portion of the Loan or Commitment shall not be less than $1.0 million, in each case unless the Borrowers and the Administrative Agent otherwise consent, such consent not to be unreasonably withheld; provided that no consent of the Borrowers shall be required with respect to such assignment, after the
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Conversion Date, if an Event of Default under Section 7.01(f) (with respect to a Borrower) or Section 7.01(g) (with respect to a Borrower) has occurred and is continuing; provided, further, that any fees in connection with such assignment may be waived by the Administrative Agent in its sole and absolute discretion.
(C)each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;
(D)the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment and Acceptance or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, together with, a processing and recordation fee of $3,500 and shall not be borne by any Loan Party for the account of the Administrative Agent, and shall deliver a copy of the Assignment and Acceptance to each Local Collateral Agent (it being understood that delivery of such copies via electronic mail shall be sufficient);
(E)the assignee, if it was not a Lender immediately prior to such assignment, shall deliver (i) to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more contacts to whom all syndicate-level information (which may contain MNPI about the Borrowers, the Guarantors and their relates parties or their securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws and
(ii) any documents required to be delivered pursuant to Section 2.13;
(F)the assignee shall have provided to each Agent any information required by such Agent in connection with its “know your customer” process; and
(G)the assignee shall have complied with the requirements under Section 2.13(d).
For the purposes of this Section 10.02(b), the term “Approved Fund” shall mean with respect to any Lender, any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) such Lender, (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers or manages or is administered or managed by such Lender.
(iii)Subject to acceptance and recording thereof pursuant to Section 10.02(c), from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement, except as provided in Section 2.21(b) (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.11, 2.13 and 10.04 and shall
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cease to be a secured party under each Local Collateral Agency Agreement). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.02 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.02(d).
(iv)The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, the Commitments of, and principal amount (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrowers, the Guarantors, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers and any Lender (but only as it relates to the Commitments of such Lender), at any reasonable time and from time to time upon reasonable prior notice. Notwithstanding the foregoing, in no event shall the Administrative Agent be obligated to ascertain, monitor or inquire as to whether any Lender is an Affiliated Lender nor shall the Administrative Agent be obligated to monitor the aggregate amount of Term Loans held by Affiliated Lenders.
(v)Notwithstanding anything to the contrary contained herein, no assignment may be made hereunder to any Defaulting Lender or any of its subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (v).
(vi)In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment will be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrowers and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Borrowers, the Administrative Agent, and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Loans in accordance with its Aggregate Exposure Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder becomes effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest will be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
(c)Upon its receipt of (x) a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by
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it pursuant to Section 2.03(b), 8.04 or 10.04(d), the Administrative Agent shall have no obligation to accept such Assignment and Acceptance and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(d)Participations.
(i)Any Lender may, without the consent of the Borrowers or the Administrative Agent, sell participations to any of their respective Affiliates (provided that such Affiliates shall not include any Low Tax Jurisdiction Entity) or to one or more banks or other entities (other than a Disqualified Lender or any Low Tax Jurisdiction Entity), Approved Funds (provided that such Approved Funds shall not include any Low Tax Jurisdiction Entity) or another Lender or an Affiliate of such Lender (provided that such Affiliate shall not include any Low Tax Jurisdiction Entity) (any of the foregoing, a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (C) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such assigning Lender in connection with such assigning Lender’s rights and obligations under this Agreement, (D) each prospective Participant shall have confirmed to the assigning Lender its status as a non-Low Tax Jurisdiction Entity by providing to the assigning Lender an Internal Revenue Service Form W-9 or an Internal Revenue Service Form W-8 showing that such prospective Participant is resident in a jurisdiction other than a “low tax jurisdiction” for the purposes of Article 41 F of the Chilean Income Tax Law (provided that receipt from such prospective Participant of an Internal Revenue Service Form W-8IMY without beneficial owner withholding certificates attached shall satisfy the requirement in this clause (D)) and (E) the assigning Lender does not have actual knowledge or reason to believe that the Internal Revenue Service Form W-9 or Internal Revenue Service Form W-8 received in clause (D) is incorrect or such prospective Participant is a Low Tax Jurisdiction Entity. Any agreement or instrument pursuant to which a Lender sells such a participation shall require that the Participant represent that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.08(a) that affects such Participant. Subject to Section 10.02(d)(ii), the Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.11 and 2.13 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.02(b); provided that no such Participant shall be entitled to receive any benefits under Sections 2.11 and 2.13 in excess of such amounts as would have been received by the applicable Lender had no participation occurred, except to the extent such entitlement by such Lender to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.08 as though it were a Lender; provided that such Participant agrees to be subject to the requirements of Section 8.08 as though it were a Lender. Each Lender that sells a participation, acting solely for this purpose as a non-fiduciary agent of the Borrowers, shall maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any
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Commitments, Loans or its other obligations under this Agreement or any Loan Document) except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations and Section 1.163-5(b) of the United States Proposed Treasury Regulations (or any amended or successor version). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender, the Borrowers, the Guarantors and the Administrative Agent shall treat each person whose name is recorded in the Participant Register pursuant to the terms hereof as the owner of such participation for all purposes of this Agreement, notwithstanding notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(ii)A Participant shall not be entitled to the benefits of Section 2.13 unless such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.13(g) and Section 2.13(i) as though it were a Lender (it being understood that such Participant shall deliver such forms and information to its participating Lender).
(e)Notwithstanding the foregoing, no assignment may be made or participation sold to a natural person, Disqualified Lender or Low Tax Jurisdiction Entity without the prior written consent of Parent. Notwithstanding anything contained in this Agreement or any other Loan Document to the contrary, if any Lender was a Disqualified Lender or Low Tax Jurisdiction Entity at the time of the assignment of any Loans or Commitments to such Lender, following written notice from Parent to such Lender and the Administrative Agent: (1) such Lender shall promptly assign all Loans and Commitments held by such Lender to an Eligible Assignee; provided that (A) the Administrative Agent shall not have any obligation to the Borrowers, such Lender or any other Person to find such a replacement Lender, (B) the Borrowers shall not have any obligation to such Disqualified Lender or Low Tax Jurisdiction Entity or any other Person to find such a replacement Lender or accept or consent to any such assignment to itself or any other Person subject to the Borrowers’ consent and (C) the assignment of such Loans and/or Commitments, as the case may be, shall be at par plus accrued and unpaid interest and fees; (2) any Disqualified Lender (other than a New Low Tax Jurisdiction Entity) shall not have any voting or approval rights under the Loan Documents and shall be excluded in determining whether all Lenders, all affected Lenders or the Required Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to this Section 10.02(e)); provided that (x) the Commitment of any Disqualified Lender may not be increased or extended without the consent of such Disqualified Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that affects any Disqualified Lender adversely and in a manner that is disproportionate to other affected Lenders shall require the consent of such Disqualified Lender; and (3) no Disqualified Lender (other than a New Low Tax Jurisdiction Entity) is entitled to receive information provided solely to Lenders by the Administrative Agent or any Lender or will be permitted to attend or participate in meetings attended solely by the Lenders and the Administrative Agent, other than the right to receive notices or Borrowings, notices or prepayments and other administrative notices in respect of its Loans or Commitments required to be delivered to Lenders pursuant to Article 2 hereof.
(f)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank or any central bank having jurisdiction over such Lender, and this Section 10.02 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g)Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.02, disclose to the assignee or participant or
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proposed assignee or participant, any information relating to any Borrower or any Guarantor furnished to such Lender by or on behalf of any Borrower or any of the Guarantors; provided that prior to any such disclosure, each such assignee or participant or proposed assignee or participant is subject to an agreement containing provisions substantially the same as those of Section 10.02(j) (and each Borrower shall be a third party beneficiary thereof).
(h)To the extent any Lender (an “Assignor”) assigns its rights and obligations under this Agreement in accordance with this Section 10.02, as of the effective date of such assignment, such assignment shall also assign a proportionate part of (i) all of the Assignor’s rights and obligations in its capacity as a Lender under this Agreement, the other Loan Documents (including without limitation under the Local Collateral Agency Agreements) and any other documents or instruments delivered pursuant hereto or thereto to the extent related to the amount and percentage interest identified in the Assignment and Acceptance of all of such outstanding rights and obligations of the Assignor under this Agreement (including, without limitation, any guarantees included in such facility) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with this Agreement, the other Loan Documents (including without limitation the Local Collateral Agency Agreements) and any other documents or instruments delivered pursuant hereto or thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned by the Assignor to the assignee pursuant to clause (i) above.
(i)Notwithstanding anything else to the contrary contained in this Agreement, any Lender may assign all or a portion of its Term Loans of any Class to Parent or a Subsidiary of Parent in accordance with Section 10.02(b); provided that,
(i)the assigning Lender and the Borrower purchasing such Lender’s Term Loans, as applicable, shall execute and deliver to the Administrative Agent an Assignment and Acceptance;
(ii)any Term Loans assigned to the Parent or a Restricted Subsidiary of Parent shall be automatically and permanently cancelled upon the effectiveness of such assignment and will thereafter no longer be outstanding for any purpose hereunder;
(iii)the purchase price of any such assignment may not be funded with the proceeds of any Revolving Loans (as defined in the Revolving Credit Agreement);
(iv)no Event of Default has occurred or is continuing;
(v)the aggregate amount of such Term Loans assigned to the Borrower (or any Affiliate of the Borrower) shall not exceed an aggregate principal amount of (a) [*] plus (b) one third of the aggregate principal amount of any Incremental Term Loans;
(vi)at the time of any such assignment effected pursuant to a Dutch Auction, the Borrower shall affirm to the assigning Term Lenders the No Undisclosed MNPI Representation with respect to its directors and officers (and shall affirm that such No Undisclosed MNPI Representation had been true and correct at the commencement of such Dutch Auction) with respect to the proposed assignment (it being understood that no such assignment of Term Loans pursuant to this Section 10.02(i) shall be required to be made by Dutch Auction);
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(vii)neither Parent nor its Subsidiaries shall be required to represent or warrant that it is not in possession of material non-public information with respect to Parent or their respective Subsidiaries and/or their respective loans or securities in connection with any assignment permitted by this Section 10.02(i) or any “Dutch auctions” or other offers to purchase open to all Lenders on a pro rata basis; provided that, Parent and/or its Subsidiaries clearly identify itself as such in any assignment and assumption executed in connection with such assignments or purchases and each such assignment and assumption shall contain customary “big boy” representations but no requirement to make representations as to the absence of any material non- public information; and
(viii)the assignment to the Borrower and cancellation of Term Loans shall not constitute a mandatory or voluntary payment for purposes of Section 2.09 or 2.10 and shall not be subject to Section 8.08, but the aggregate outstanding principal amount of the Term Loans shall be deemed reduced by the full par value of the aggregate principal amount of the Term Loans purchased pursuant to this Section 10.02(i), and each principal repayment installment with respect to the Term Loans of such Class shall be reduced pro rata by the aggregate principal amount of Term Loans of such Class purchased hereunder.
(j)Notwithstanding anything to the contrary herein, in connection with any amendment, modification, waiver or other action requiring the consent or approval of Required Lenders or Required Class Lenders, Affiliated Lenders shall not be permitted, in the aggregate, to account for more than 15.0% of the amounts actually included in determining whether the threshold in the definition of Required Lenders or Required Class Lenders, as applicable, has been satisfied. The voting power of each Affiliated Lender shall be reduced, pro rata, to the extent necessary in order to comply with the immediately preceding sentence.
(k)Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, each Affiliated Lender will be subject to the following limitations:
(i)Affiliated Lenders will not make any challenge to the Administrative Agent’s or any other Lender’s attorney-client privilege on the basis of its status as a Lender; and
(ii)Each Affiliated Lender hereby agrees that if a proceeding under any Debtor Relief Law shall be commenced by or against any Borrower or any other Loan Party at a time when such Lender is an Affiliated Lender, such Affiliated Lender irrevocably authorizes and empowers the Administrative Agent to vote on behalf of such Affiliated Lender with respect to the Term Loans held by such Affiliated Lender in any manner in the Administrative Agent’s sole discretion (except as otherwise directed by the Required Lenders in writing), unless the Required Lenders instruct such Affiliated Lender to vote, in which case such Affiliated Lender shall vote with respect to the Term Loans held by it as the Required Lenders direct; provided that such Affiliated Lender shall be entitled to vote in accordance with its sole discretion (and not in accordance with the direction of the Administrative Agent) in connection with any plan of reorganization to the extent any such plan of reorganization proposes to treat any Obligations held by such Affiliated Lender in a disproportionately adverse manner to such Affiliated Lender than the proposed treatment of similar Obligations held by Term Lenders that are not Affiliated Lenders.
Section 10.03. Confidentiality. Each of the Administrative Agent, the Collateral Trustee and each Lender (each, a “Lender Party”) agrees to keep any information delivered or made available by any Borrower or any Guarantor to it confidential, in accordance with its customary procedures, from anyone other than persons employed or retained by such Lender Party or its Affiliates who are or are expected to
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become engaged in evaluating, approving, structuring, insuring or administering the Loans, and who are advised by such Lender Party of the confidential nature of such information and instructed to keep such information confidential; provided that nothing herein shall prevent any Lender Party from disclosing such information (a) to any of its Affiliates and their respective agents, advisors, officers, directors and employees (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) or to any other Lender Party, (b) upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority (including any self-regulatory authority), (d) which has been publicly disclosed other than as a result of a disclosure by the Administrative Agent, the Collateral Trustee or any Lender which is not permitted by this Agreement, (e) in connection with any litigation to which the Administrative Agent, the Collateral Trustee, any Lender, or their respective Affiliates may be a party to the extent reasonably required under applicable rules of discovery, (f) to the extent reasonably required in connection with the exercise of any remedy hereunder, (g) to such Lender Party’s legal counsel, independent auditors, accountants and other professional advisors, (h) on a confidential basis to
(I) any rating agency in connection with rating Parent and its Subsidiaries or the Term Loan Facility or
(II) any direct or indirect provider of credit protection to such Lender Party or its Affiliates (or its brokers), (i) with the consent of the Borrowers, (j) to any actual or proposed participant or assignee of all or part of its rights hereunder or to any direct or indirect contractual counterparty (or the professional advisors thereto) to any swap or derivative transaction relating to each Borrower and its obligations, in each case, subject to the proviso in Section 10.02(f) (with any reference to any assignee or participant set forth in such proviso being deemed to include a reference to such contractual counterparty for purposes of this Section 10.03(j)), (k) to the extent that such information is received by such Lender Party from a third party that is not, to such Lender Party’s knowledge, subject to confidentiality obligations to the Borrowers, (l) to the extent that such information is independently developed by such Lender Party and
(m) the Agents, the Lead Arrangers and the Lenders may disclose the existence of this Agreement and publicly available information about this Agreement to market data collectors, similar service providers to the lending industry, and service providers to the Agents and the Lenders in connection with the administration and management of this Agreement, the other Loan Documents, the Commitments, and the Loans. If any Lender Party is in any manner requested or required to disclose any of the information delivered or made available to it by any Borrower or any Guarantor under Section 10.03(b) or (e), such Lender Party will, to the extent permitted by law, provide Parent with prompt notice, to the extent reasonable, so that such Borrower or Guarantor may seek, at its sole expense, a protective order or other appropriate remedy or may waive compliance with this Section 10.02(j).
Section 10.04. Expenses; Indemnity; Damage Waiver.
(a)Expenses. The Loan Parties agree to pay on demand (i) all reasonable out-of-pocket fees, costs and expenses of the each of the Lenders and each Agent in connection with the preparation, execution and delivery of the Loan Documents (including, without limitation, all due diligence, collateral review, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses), including (x) the reasonable and documented fees and expenses of one primary counsel for the Lenders collectively and one local law counsel in each relevant local jurisdiction and a single firm of regulatory counsel in each relevant jurisdiction for the Lenders collectively, and (y) the reasonable fees and expenses of each Agent, in each case with respect thereto, and (ii) all reasonable out-of-pocket fees, costs and expenses of each Agent (including reasonable and documented fees and expenses of counsel to such Agent) and the reasonable and documented fees and expenses of one primary counsel for the Lenders collectively and one local law counsel in each relevant local jurisdiction and a single firm of regulatory counsel in each relevant jurisdiction for the Lenders collectively in connection with participating and monitoring the Chapter 11 Cases solely in their capacity as Lenders, the administration, modification and amendment of, or any consent or waiver under, the Loan Documents and the other documents to be delivered hereunder and with respect to advising the Lenders and each Agent as
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to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with the Obligors or with other creditors of the Obligors or any of their Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors’ rights generally and any proceeding ancillary thereto and (iii) all costs and expenses of each Agent and each Lender in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency, workout or restructuring or other similar proceeding affecting creditors’ rights generally (including, without limitation, the reasonable and documented fees and expenses of counsel for each Agent and each Lender with respect thereto). All payments or reimbursements pursuant to the foregoing clause (a)(i) shall be paid within five (5) Business Days after the applicable Review Period (as defined in the Final DIP Order); provided that, (y) on and after the Conversion Date, such payments and reimbursements shall be made thirty (30) days after receipt of a written notice and (z) prior to the Conversion Date, payment of such fees, expenses and disbursements in this Section 10.04(a) shall be subject to the procedures set forth in the Final DIP Order.
(b)Indemnity. The Borrowers shall indemnify each Agent, the Joint Lead Arrangers and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, taxes that are, or imposed in respect of, any Collateral Taxes, claims, damages, liabilities and related expenses, including reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, arising out of, relating to, in connection with, or as a result of any actual or prospective claim, litigation, investigation or proceeding, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto and whether or not any such claim, litigation, investigation or proceeding is brought by a Borrower, its equity holders, its Affiliates, its creditors or any other Person (including any investigating, preparing for or defending any such claims, actions, suits, investigations or proceedings, whether or not in connection with pending or threatened litigation in which such Indemnitee is a party), relating to (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence, Use or Release of Hazardous Materials on, at, under, in or from any Real Estate or any other property owned or operated by any Borrower or any of its Subsidiaries, or any Environmental Liability of, or asserted against, the Borrowers or any of their Subsidiaries, (iv) any Collateral Taxes or the imposition of any Collateral Taxes or (v) prior to the Conversion Date, the operation, possession, use, non-use, control, leasing, subleasing, maintenance, storage, overhaul, testing, acceptance flights at return or inspections of (A) any Pledged Engine or B) any Pledged Spare Part, by the Borrowers, any Guarantor or any Person (other than such Indemnitee), including, without limitation, claims for death, personal injury, property damage, other loss or harm to any Person and claims relating to any applicable requirement of law, including, without limitation, Environmental Laws, noise and pollutions laws, rules or regulations; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from (x) the gross negligence or willful misconduct of such Indemnitee or any of its controlled affiliates, (y) other than in the case of the Collateral Trustee such Indemnitee’s or any of its controlled affiliates’ material breach of the Loan Documents in performing its activities or in furnishing its commitments or services under the Loan Documents or (z) disputes solely among Lenders not arising from a Borrower’s breach of its obligations under the Loan Documents (other than a dispute involving a claim against an Indemnitee for its acts or omissions in its capacity as an arranger, bookrunner, agent or similar role in respect of the Term Loan Facility), except, with respect to this clause (z), to the extent such acts or omissions are determined by a court of competent jurisdiction by a final and non-appealable
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judgment to have constituted the gross negligence, bad faith or willful misconduct of such Indemnitee in such capacity.
(c)Limitation of Liability. To the extent permitted by applicable law, each party hereto shall not assert, and hereby waives, any claim against any other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof; provided that nothing in this clause (c) shall relieve any Borrower of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party; further, provided, that any release, waiver or exculpation by any Borrower does not apply to the Lenders in their capacity as shareholders or in respect to their involvement in any contractual arrangements with the Obligors or its affiliates other than with regard to this Term Loan Facility. No Indemnitee referred to in Section 10.04(b) above shall be liable for any damages arising from the use by recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (except to the extent determined in a final and non-appealable judgment by a court of competent jurisdiction to have arisen from the bad faith, willful misconduct or gross negligence of such Indemnitee).
(d)The Loan Parties agree not to compel marshalling and affirmatively waive any claim they otherwise might have under section 506(c) and 552(b) of the Bankruptcy Code and agree that the Collateral securing this Term Loan Facility may not be charged with any costs or expenses they or their estates may have except with respect to the priority provided under this Agreement for the Carve-Out.
(e)In the event of any claim hereunder or under any other Loan Document against the Borrowers or other Loan Parties in respect of Taxes attributable to or arising out of the use, non-use, operation, ownership, possession, control, leasing, subleasing, maintenance, storage, import, or export of, or otherwise in connection with, the Collateral (“Collateral Taxes”), the relevant Indemnitee shall within forty-five (45) calendar days of the date such Indemnitee has received written notification of such claim, give any Borrower written notice of such claim; provided that, a failure to give such notice in a timely manner shall not preclude a claim for indemnification hereunder, except to the extent such failure precludes such Borrower’s right to contest such claim and such failure is not the result of the action or omission of such Borrower. If any Borrower so requests in writing within thirty (30) calendar days after receipt of such notice, the Indemnitee shall consult with such Borrower to consider what action may be taken to resist payment of the relevant Collateral Taxes, and following such consultation the Indemnitee shall take all reasonable action as determined in the Indemnitee’s reasonable sole discretion in the name of the Indemnitee to contest the claim in the name of the Indemnitee or, if permitted by applicable law to be contested in the Borrowers’ name, allow such Borrower at its expense to contest in the name of such Borrower, in which case such Borrower shall control the contest; provided that the following conditions are met:
(i)the Indemnitee shall have received adequate provision satisfactory to it for such claim and any liability, expense or loss arising out of or related to such contest (including without limitation indemnification for all costs, expenses, losses, reasonable legal and accounting fees and disbursements, penalties and interest);
(ii)the contest will not result in any material danger of the sale, forfeiture or loss of, or the creation of any Lien on, the Collateral;
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(iii)the contest does not involve any risk of criminal or any material risk of civil liability against the Indemnitee;
(iv)if such contest shall be conducted in a manner requiring the payment of the claim, the Borrowers shall have paid such claim to the extent required;
(v)no Event of Default shall have occurred and be continuing;
(vi)the Indemnitee shall have received a legal opinion (at the expense of the Borrowers) from counsel selected by the Borrowers (and reasonably satisfactory to such Indemnitee) indicating that there is a reasonable basis for contesting such Taxes; and
(vii)the Indemnitee has not determined that the proposed actions to contest such claim give rise to a material risk of creating a local franchise issue of the Tax Indemnitee (e.g. material adverse publicity or material impairment of the Tax Indemnitee’s relationship with local regulators) or impairing the status of other open Tax matters (e.g. Tax audits) between the Indemnitee and the relevant taxing authorities.
(viii)Unless one of the conditions enumerated in paragraphs (i) through (vii) above shall cease to be satisfied, the Indemnitees shall not settle any claim in respect of Collateral Taxes without the prior written consent of the Parent, which consent shall not be unreasonably withheld or delayed.
Section 10.05. Governing Law; Jurisdiction; Consent to Service of Process.
(a)This Agreement shall be construed in accordance with and governed by the law of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby and, during any Bankruptcy Event, including prior to the Conversion Date, the Bankruptcy Code.
(b)Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, (i) prior to the Conversion Date, if the Bankruptcy Court does have (and does not abstain from) jurisdiction, to the exclusive jurisdiction of the Bankruptcy Court, and (ii) (x) prior to the Conversion Date, if the Bankruptcy Court does not have (or abstains from) jurisdiction, and (y) on and after the Conversion Date, in each case of (x) and (y), to the exclusive jurisdiction of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan (or if such court lacks subject matter jurisdiction, the Supreme Court of the State of New York sitting in the Borough of Manhattan), and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may (and any such claims, cross-claims or third party claims brought against the Administrative Agent or any of its Related Parties may only) be heard and determined in such Federal (to the extent permitted by law) or New York State court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(c)Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in Section 10.05(a). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted
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by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01, except that each Loan Party hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in such courts may be made upon the Process Agent and irrevocably appoints the Process Agent as its true and lawful attorney-in-fact in its name, place and stead (as well as that of its respective successors and assigns) to accept such service of any and all such writs, process and summonses (including any citação inicial), and agrees that the failure of the Process Agent to give any notice of any such service of process to it shall not impair or affect the validity of such service or of any judgment based thereon. Each Loan Party further agrees (to the extent permitted by applicable laws) that a final judgment against it in any such action or proceeding may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law, a certified or true copy of which final judgment shall be conclusive evidence of the fact and of the amount of any indebtedness or liability of the Borrowers and/or the Guarantors, as the case may be, therein described. Each Loan Party agrees that (x) the sole responsibilities of the Process Agent shall be (i) to receive such process, (ii) to send a copy of any such process so received to such Loan Party, by airmail, or overnight courier at its address set forth in Section 10.01, or at the last address filed in writing by it with the Process Agent and (iii) to give prompt facsimile notice of receipt thereof to such Loan Party, at such address and
(y) the Process Agent shall have no responsibility for the receipt or nonreceipt by such Loan Party of such process. Each Loan Party hereby agrees to pay to the Process Agent such compensation as shall be agreed upon from time to time by it and the Process Agent for the Process Agent’s services hereunder. Each Loan Party hereby agrees that its submission to jurisdiction and its designation of the Process Agent is made for the express benefit of the Lenders, the Agents, and their respective successors, subrogees and assigns. Each Loan Party agrees that it will at all times continuously maintain a Process Agent to receive service of process in the City, County and State of New York on behalf of itself and its properties with respect to this Agreement and the other relevant Loan Documents and shall give each party hereto written notice prior to any change of address for such Process Agent, and in the event that, for any reason, the Process Agent named pursuant to this Section 10.05 shall no longer serve as Process Agent to receive service of process on such Loan Party’s behalf, such Loan Party shall promptly appoint a successor Process Agent. Each Loan Party hereby irrevocably further consents to the service of process in any suit, action or proceeding in said courts by the mailing thereof by any party hereto by registered or certified mail, postage prepaid, to it at its address specified in Section 10.01. Nothing in this Section 10.05 shall affect the right of any party hereto to serve legal process in any other manner permitted by law or affect the right of such party or its successors, subrogees or assigns to bring any action or proceeding against such Loan Party or any of their respective property in the courts of other jurisdictions.
(e)Each party hereto acknowledges and agrees that the activities contemplated by the provisions of the Loan Documents are commercial in nature rather than governmental or public and therefore acknowledges and agrees that it is not entitled to any right of immunity on the grounds of sovereignty or otherwise with respect to such activities or in any legal action or proceeding arising out of or relating to the Loan Documents. Each such party in respect of itself and its properties and revenues, expressly and irrevocably waives any such right of immunity (including, but not limited to, any immunity from suit, from the jurisdiction of any court, from service of process, from set-off, from any execution or attachment in aid of execution prior to judgment or otherwise or from any other legal process) or claim thereto which may now or hereafter exist (whether or not claimed) and irrevocably agrees not to assert any such right or claim in any such action or proceeding that may at any time be commenced, whether in the United States of America or otherwise.
Section 10.06. No Waiver. No failure on the part of the Administrative Agent, the Collateral Trustee, or the Local Collateral Agents or any of the Lenders to exercise, and no delay in exercising, any
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right, power or remedy hereunder or any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.
Section 10.07. Extension of Maturity. Should any payment of principal of or interest or any other amount due hereunder become due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of principal, interest shall be payable thereon at the rate herein specified during such extension.
Section 10.08. Amendments, etc.
(a)No modification, amendment or waiver of any provision of this Agreement or any other Loan Document (other than a Deposit Account Control Agreement or as otherwise expressly provided in any Collateral Document, including the Collateral Trust Agreement, with respect to amendment of Collateral Documents), and no consent to any departure by any Borrower or any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (or signed by the Administrative Agent with the consent of the Required Lenders), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given; provided, however, that no such modification, waiver or amendment shall without the prior written consent of:
(i)each Lender directly and adversely affected thereby (A) increase the Commitment of any Lender or extend the termination date of the Commitment of any Lender (it being understood that a waiver of an Event of Default shall not constitute an increase in or extension of the termination date of the Commitment of a Lender), or (B) reduce or forgive the principal amount of any Loan (it being understood that a waiver of an Event of Default shall not constitute a reduction or forgiveness of the principal amount of any Loan), or the rate of interest payable thereon or fees related thereto (provided that only the consent of the Required Lenders shall be necessary for a waiver of default interest referred to in Section 2.07), or extend any date for the payment of principal (including scheduled amortization payments), interest or Fees hereunder or reduce any Fees payable hereunder or extend the final maturity of the Borrowers’ obligations hereunder (it being understood that a waiver of an Event of Default shall not constitute an extension of any Maturity Date) or (C) amend, modify or waive any provision of Section 2.14(b), the last sentence of Section 7.02, or Section 8.08 or (D) amend, modify or waive any provision of Section 2.01(e) or Section 2.08(a) to amend the pro rata provisions therein;
(ii)prior to the Conversion Date, all of the Lenders, amend, modify or waive any provision of this Agreement in order to permit the incurrence of any financing pursuant to Section 364 of the Bankruptcy Code that would be secured by the Collateral (or any portion thereof) on a pari passu or senior basis with the Obligations or that would benefit from any Superpriority Claim in the Chapter 11 Cases that is pari passu or senior to the Superpriority Claims with respect to the Obligations as provided in the Final DIP Order; provided, further, that notwithstanding anything in this clause (ii), any Collateral Document may be amended, supplemented or otherwise modified with the consent of the applicable Loan Party and the Administrative Agent (i) to add assets (or categories of assets) to the Collateral covered by such Collateral Document or (ii) to remove any asset or type or category of asset (including after acquired assets of that type or category) from the Collateral covered by such Collateral Document to the extent the release thereof is expressly permitted by this Agreement;
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(iii)prior to the Conversion Date, no modification of the Final DIP Order that adversely effects any Lender or any Agent in particular shall be effective unless consented to by such affected Secured Party, as applicable;
(iv)all of the Lenders (A) amend or modify any provision of this Agreement which provides for the unanimous consent or approval of the Lenders, (B) amend this Section 10.08 that has the effect of changing the number or percentage of Lenders that must approve any modification, amendment, waiver or consent or modify the percentage of the Lenders required in the definition of Required Lenders, (C) alter the relative priority of the Liens in favor of the holders of Priority Lien Debt or subordinate (in payment or lien priority) any Loans in security or contractual right of payment to any senior indebtedness, (D) release all or substantially all of the Liens granted to the Collateral Trustee and the Local Collateral Agents for the benefit of the Secured Parties hereunder or under any other Loan Document (except to the extent contemplated by Section 6.08 on the date hereof or by the terms of the Collateral Documents), or release all or substantially all of the Guarantors (except to the extent contemplated by Section 9.05) or (E) amend or modify any provision of this Agreement to permit any additional “superpriority” or “first out” Indebtedness;
(v)any amendment or waiver that disproportionately affects a particular class of Lenders shall require the prior consent of the Required Class Lenders;
(vi)the Required Class Lenders of each Class that is being allocated a lesser repayment or prepayment as a result thereof (relating to the amount of repayment or prepayment being allocated to another Class), change the application of prepayments as among or between Classes under Section 2.09 (it being understood that if additional Classes of Term Loans or additional Loans under this Agreement consented to by the Required Lenders or additional Loans pursuant to Section 2.22 are made, such new Loans may be included on a pro rata basis in the various prepayments required pursuant to Section 2.09); and
(vii)all Lenders under any Class, reduce the percentage specified in the definition of “Required Class Lenders” with respect to such Class;
provided, further, that any Collateral Document may be amended, supplemented or otherwise modified with the consent of the applicable Loan Party and the Collateral Trustee (i) to add assets (or categories of assets) to the Collateral covered by such Collateral Document, as contemplated by the definition of “Additional Collateral” set forth in Section 1.01 hereof or (ii) to remove any asset or type or category of asset (including after-acquired assets of that type or category) from the Collateral covered by such Collateral Document to the extent the release thereof is permitted by the Loan Documents; provided that, if any such amendment, supplement or modification would change the terms and conditions (including in connection with the addition or removal of any categories of assets) reflected in the corresponding Collateral Document, or as required by the definition of “Additional Collateral” set forth in Section 1.01 hereof or otherwise, then the reasonable consent of the Administrative Agent shall also be required.
(b)No such amendment or modification shall adversely affect the rights and obligations of any Agent hereunder without such Agent’s prior written consent.
(c)No notice to or demand on the Borrowers or any Guarantor shall entitle any Borrower or any Guarantor to any other or further notice or demand in the same, similar or other circumstances, unless otherwise required under a Loan Document. Each assignee under Section 10.02(b) shall be bound by any amendment, modification, waiver, or consent authorized as provided herein, and any consent by a Lender shall bind any Person subsequently acquiring an interest on the Loans held by such Lender. No
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amendment to this Agreement shall be effective against any Borrower or any Guarantor unless signed by such Borrower or such Guarantor, as the case may be.
(d)Notwithstanding anything to the contrary contained in Section 10.08(a), (i) in the event that any Borrower requests that this Agreement be modified or amended in a manner which would require the unanimous consent of all of the Lenders or the consent of all Lenders directly and adversely affected thereby and, in each case, such modification or amendment is agreed to by the Required Lenders, then the Borrowers may replace any non-consenting Lender in accordance with an assignment pursuant to Section 10.02 (and such non-consenting Lender shall reasonably cooperate in effecting such assignment); provided that (x) such amendment or modification can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Borrowers to be made pursuant to this clause (i)) and (y) such non-consenting Lender shall have received payment of an amount equal to the outstanding principal amount of its Loans, accrued interest thereon, accrued Fees and all other amounts due and payable to it under this Agreement from the applicable assignee or the Borrowers; (ii) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender (it being understood that the Commitment and the outstanding Loans or other extensions of credit held or deemed held by any Defaulting Lender shall be excluded for a vote of the Lenders hereunder requiring any consent of any Lender), (iii) notwithstanding anything to the contrary herein or any Loan Document, any modifications or amendments under (1) an Increase Joinder entered in accordance with Section 2.22(c), (2) any Extension Amendment entered in accordance with Section 2.23 or (3) a Refinancing Amendment entered in accordance with Section 2.24, may in each case be made without the consent of any Lenders other than as provided therein, and (iv) if the Administrative Agent and the Borrowers shall have jointly identified an obvious error or any error or omission of a technical or immaterial nature (including to correct or cure incorrect cross references or similar inaccuracies) in any provision of the Loan Documents, then the Administrative Agent and the Borrowers shall be permitted to amend such provision and such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by the Required Lenders within five (5) Business Days after written notice thereof to the Lenders.
(e)In addition, notwithstanding anything to the contrary contained in Section 10.08(a), this Agreement and, as appropriate, the other Loan Documents, may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrowers (a) to add one or more additional credit facilities to this Agreement (whether pursuant to Section 2.22 or otherwise) and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders.
(f)In addition, notwithstanding anything to the contrary contained in Section 7.01 or Section 10.08(a), following the consummation of any Term Loan Extension pursuant to Section 2.23, no modification, amendment or waiver (including, for the avoidance of doubt, any forbearance agreement entered into with respect to this Agreement) shall limit the right of any non-extending Lender (each, a “Non-Extending Lender”) to enforce its right to receive payment of amounts due and owing to such Non- Extending Lender on the applicable Maturity Date, applicable to the Loans of such Non-Extending Lenders without the prior written consent of Non-Extending Lenders that would constitute the Required Class Lenders with respect to any affected Class of such Loans if the Non-Extending Lenders were the only Lenders hereunder at the time.
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(g)It is understood that the amendment provisions of this Section 10.08 shall not apply to extensions of the Maturity Date made in accordance with Section 2.23.
Section 10.09. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 10.10. Headings. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.
Section 10.11. Survival. All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Collateral Trustee or any Lender may have had notice or knowledge of any Event of Default or incorrect representation or warranty at the time any credit is extended hereunder. The provisions of Sections 2.11, 2.12, 2.13, 2.16, 10.04 and 10.11 and Article 8 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and the Commitments, or the termination of this Agreement or any provision hereof.
Section 10.12. Execution in Counterparts; Integration; Effectiveness.
(a)This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, electronic .pdf copy, electronic signature or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement. The parties hereto agree that the signatures appearing on this Agreement are the same as handwritten signatures for purposes of validity, enforceability and admissibility.
(b)Delivery of an executed counterpart of a signature page of (x) this Agreement, (y) any other Loan Document and/or (z) any document, amendment, approval, consent, information, notice (including, for the avoidance of doubt, any notice delivered pursuant to Section 10.01), certificate, request, statement, disclosure or authorization related to this Agreement, any other Loan Document and/or the transactions contemplated hereby and/or thereby (each an “Ancillary Document”) that is an Electronic Signature transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement, such other Loan Document or such Ancillary Document, as applicable. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement, any other Loan Document and/or any Ancillary Document shall be deemed to include Electronic Signatures, deliveries or the keeping of records in any electronic form (including deliveries by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed
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signature page), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be; provided that nothing herein shall require any Agent to accept Electronic Signatures in any form or format without its prior written consent and pursuant to procedures approved by it; provided, further, without limiting the foregoing, (1) to the extent an Agent has agreed to accept any Electronic Signature, such Agent and each of the Lenders shall be entitled to rely on such Electronic Signature purportedly given by or on behalf of any Borrower or any Guarantor without further verification thereof and without any obligation to review the appearance or form of any such Electronic Signature and (2) upon the request of any Agent or any Lender, any Electronic Signature shall be promptly followed by a manually executed counterpart. Without limiting the generality of the foregoing, each Borrower and each Guarantor hereby (a) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Collateral Trustee, the Lenders, any Borrower and any Guarantor, Electronic Signatures transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page and/or any electronic images of this Agreement, any other Loan Document and/or any Ancillary Document shall have the same legal effect, validity and enforceability as any paper original, (b) the Administrative Agent, the Collateral Trustee and each of the Lenders may, at its option, create one or more copies of this Agreement, any other Loan Document and/or any Ancillary Document in the form of an imaged electronic record in any format, which shall be deemed created in the ordinary course of such Person’s business, and destroy the original paper document (and all such electronic records shall be considered an original for all purposes and shall have the same legal effect, validity and enforceability as a paper record), (c) waives any argument, defense or right to contest the legal effect, validity or enforceability of this Agreement, any other Loan Document and/or any Ancillary Document based solely on the lack of paper original copies of this Agreement, such other Loan Document and/or such Ancillary Document, respectively, including with respect to any signature pages thereto and
(d)waives any claim against any Indemnitee for any Liabilities arising solely from the Administrative Agent’s, the Collateral Trustee’s and/or any Lender’s reliance on or use of Electronic Signatures and/or transmissions by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page, including any Liabilities arising as a result of the failure of any Borrower and/or any Guarantor to use any available security measures in connection with the execution, delivery or transmission of any Electronic Signature.
Section 10.13. USA Patriot Act; Beneficial Ownership Regulation. Each Lender that is subject to the requirements of the Patriot Act and the requirements of 31 C.F.R. § 1010.230 (the “Beneficial Ownership Regulation” ) hereby notifies each Borrower and each Guarantor that pursuant to the requirements of the Act and the Beneficial Ownership Regulation, it is required to obtain, verify and record information that identifies each Borrower and each Guarantor, which information includes the name and address of each Borrower and each Guarantor and other information that will allow such Lender to identify each Borrower and each Guarantor in accordance with the Patriot Act and the Beneficial Ownership Regulation (after giving effect to any applicable exclusions under the Beneficial Ownership Regulation, including, without limitation, 31 C.F.R. §1010.230(e)(2)). This notice is given in accordance with the requirements of the Patriot Act and the Beneficial Ownership Regulation and is effective for each Lender subject thereto.
Section 10.14. New Value. It is the intention of the parties hereto that any provision of Collateral by a Loan Party as a condition to, or in connection with, the making of any Loan shall be made as a contemporaneous exchange for new value given by the Lenders to the Borrowers.
Section 10.15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING
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OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 10.15.
Section 10.16. No Fiduciary Duty.
(a)Each Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that no Agent, Lender or any of their respective Affiliates (collectively, the “Credit Parties”) will have any obligations except those obligations expressly set forth herein and in the other Loan Documents and each Credit Party is acting solely in the capacity of an arm’s length contractual counterparty to the Borrowers with respect to the Loan Documents and the transactions contemplated herein and therein and not as a financial advisor or a fiduciary to, or an agent of, any Borrower or any other Person. The Borrowers agree that they will not assert any claim against any Credit Party based on an alleged breach of fiduciary duty by such Credit Party in connection with this Agreement and the transactions contemplated hereby. Additionally, the Borrowers acknowledge and agree that no Credit Party is advising any Borrower as to any legal, tax, investment, accounting, regulatory or any other matters in any jurisdiction. The Borrowers shall consult with their own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated herein or in the other Loan Documents, and the Credit Parties shall have no responsibility or liability to the Borrowers with respect thereto.
(b)Each Borrower further acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party, together with its Affiliates, is a full service securities or banking firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, any Credit Party may provide investment banking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of, the Borrowers and other companies with which the Borrowers may have commercial or other relationships. With respect to any securities and/or financial instruments so held by any Credit Party or any of its customers, all rights in respect of such securities and financial instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.
(c)In addition, each Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party and its affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which a Borrower may have conflicting interests regarding the transactions described herein and otherwise. No Credit Party will use confidential information obtained from the Borrowers by virtue of the transactions contemplated by the Loan Documents or its other relationships with the Borrowers in connection with the performance by such Credit Party of services for other companies, and no Credit Party will furnish any such information to other companies. Each Borrower also acknowledges that no Credit Party has any obligation to use in connection with the transactions contemplated by the Loan Documents, or to furnish to the Borrowers, confidential information obtained from other companies.
Section 10.17. Currency Indemnity. The payment obligations of any party to a Loan Document (the “payor”) expressed to be payable thereunder in one currency (the “first currency”) shall not be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the
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extent that the amount so paid on prompt conversion to the first currency under normal banking procedures would not yield the full amount of the first currency due thereunder, and the payor shall indemnify the recipient of such payment (the “payee”) against any such shortfall; and in the event that any payment by the payor, whether pursuant to a judgment or otherwise, upon conversion and transfer does not result in payment of such amount of the first currency, the payee shall have a separate cause of action against the payor for the additional amount necessary to yield the amount due and owing to the payee. If it is necessary to determine for any reason other than that referred to above the equivalent in the first currency of a sum denominated in the second currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with the second currency on the Business Day on which such determination is to be made (or, if such day is not a Business Day, on the next preceding Business Day).
Section 10.18. Collateral Trust Agreements. Notwithstanding anything to the contrary contained in this Agreement, so long as the Collateral Trust Agreement shall remain outstanding, the rights granted to the Secured Parties hereunder and under the other Loan Documents, the lien and security interest granted to the Collateral Trustee pursuant to this Agreement or any other Loan Document and the exercise of any right or remedy by the Administrative Agent and/or the Collateral Trustee hereunder or under any other Loan Document shall be subject to the terms and conditions of the Collateral Trust Agreement. In the event of any conflict between the terms of this Agreement, any other Loan Document and the Collateral Trust Agreement, the terms of the Collateral Trust Agreement shall govern and control with respect to any right or remedy, and no right, power or remedy granted to the Administrative Agent and/or the Collateral Trustee hereunder or under any other Loan Document shall be exercised by the Administrative Agent, and/or the Collateral Trustee and no direction shall be given by the Administrative Agent and/or the Collateral Trustee, in contravention of the Collateral Trust Agreement. In addition to the benefits afforded it under this Agreement, in acting under this Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges, immunities and indemnities granted to it under the Collateral Trust Agreement, as if such rights, privileges, immunities and indemnities were set forth herein.
Section 10.19. Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b)the effects of any Bail-In Action on any such liability, including, if applicable:
(i)a reduction in full or in part or cancellation of any such liability;
(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii)the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any applicable Resolution Authority.
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Section 10.20. Certain ERISA Matters.
(a)Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Joint Lead Arrangers and not, for the avoidance of doubt, to or for the benefit of any Borrower or any other Loan Party, that at least one of the following is and will be true:
(i)such Lender is not using “plan assets” (within the meaning of the Plan Asset Regulations) with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments or this Agreement,
(ii)the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable and the conditions of such exemption are and will continue to be satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement,
(iii)(A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84- 14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement; or
(iv)Such other representation, warranty and covenants as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b)In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of each party to this Agreement, the Joint Lead Arrangers and their respective Affiliates, that, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
(c)The Administrative Agent and the Joint Lead Arrangers hereby inform the Lenders that each such Person is not undertaking to provide investment advice or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial
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interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive or other payments with respect to the Loans, the Commitments, this Agreement and any other Loan Documents (ii) may recognize a gain if it extended the Loans, or the Commitments for an amount less than the amount being paid for an interest in the Loans or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
Section 10.21. Registrations with International Registry. Subject to Section 4.03, upon the Closing Date, each of the parties hereto consents to the registrations with the International Registry of the International Interests constituted by the Engine Mortgages, and covenants and agrees that it will take all such action reasonably requested by any Borrower or Administrative Agent in order to make any registrations with the International Registry, including without limitation establishing a valid and existing account with the International Registry and appointing an Administrator and/or a Professional User reasonably acceptable to the Administrative Agent to make registrations with respect to the Mortgaged Collateral and providing consents to any registration as may be contemplated by the Loan Documents.
Section 10.22. Joint and Several Liability of the Borrowers.
(a)Each Borrower agrees that it is jointly and severally liable for the obligations of the other Borrower hereunder, including with respect to the payment of principal of and interest on all Loans and the payment of fees and indemnities and reimbursement of costs and expenses. Each Borrower is accepting joint and several liability hereunder in consideration of the financial accommodations to be provided by the Administrative Agent, the Collateral Trustee and the Lenders under this Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of each of the Borrowers to accept joint and several liability for the obligations of each of them. Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, as a co- debtor, joint and several liability with each other Borrower, with respect to the payment and performance of all of the Obligations, it being the intention of the parties hereto that all Obligations shall be the joint and several obligations of all of the Borrowers without preferences or distinction among them. If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of such Obligations in accordance with the terms thereof, then in each such event each other Borrower will make such payment with respect to, or perform, such Obligations. A breach hereof or Default or Event of Default hereunder as to any single Borrower shall constitute a breach, Default or Event of Default as to all the Borrowers. Each Borrower waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the agreements contained in this Section 10.22 or acceptance of the agreements contained in this Section 10.22; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the agreements contained in this Section 10.22; and all dealings between the Loan Parties, on the one hand, and the Administrative Agent on behalf of the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the agreements contained in this Section 10.22. Each Borrower waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon such Borrower with respect to the Obligations. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Borrower, the Administrative Agent may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any other Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the
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Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent to make any such demand, to pursue such other rights or remedies or to collect any payments from any other Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any other Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Borrower of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent on behalf of the Lenders against such Borrower. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any Borrower. With respect to any Borrower’s Obligations arising as a result of the joint and several liability of the Borrowers hereunder with respect to Loans or other extensions of credit made to any of the other Borrowers hereunder, such Borrower waives, until the Obligations shall have been Paid in Full (other than contingent indemnification obligations that are not yet due and payable or as to which no claim has been asserted) and this Agreement shall have been terminated, any right to enforce any right of subrogation or any remedy which an Agent and/or any Lender now has or may hereafter have against any other Borrower, any endorser or any guarantor of all or any part of the Obligations, and any benefit of, and any right to participate in, any security or collateral given to an Agent and/or any Lender to secure payment of the Obligations or any other liability of any Borrower to an Agent and/or any Lender. Subject to the immediately preceding sentence, to the extent that any Borrower shall be required to pay a portion of the Obligations which shall exceed the amount of Loans or other extensions of credit received by such Borrower and all interest, costs, fees and expenses attributable to such Loans or other extensions of credit, then such Borrower shall be reimbursed by the other Borrower for the amount of such excess. This clause is intended only to define the relative rights of Borrowers, and nothing set forth in this clause is intended or shall impair the obligations of each Borrower, jointly and severally, to pay to Administrative Agent, the Collateral Trustee and Lenders the Obligations as and when the same shall become due and payable in accordance with the terms hereof. Notwithstanding anything to the contrary set forth in this clause or any other provisions of this Agreement, it is the intent of the parties hereto that the liability incurred by each Borrower in respect of the Obligations of the other Borrowers (and any Lien granted by any Borrower to secure such Obligations), not constitute a fraudulent conveyance or fraudulent transfer under the provisions of any applicable law of any state or other governmental unit (“Fraudulent Conveyance”). Consequently, each Borrower, each Agent and each Lender hereby agree that if a court of competent jurisdiction determines that the incurrence of liability by any Borrower in respect of the Obligations of any other Borrower (or any Liens granted by such Borrower to secure such Obligations) would, but for the application of this sentence, constitute a Fraudulent Conveyance, such liability (and such Liens) shall be valid and enforceable only to the maximum extent that would not cause the same to constitute a Fraudulent Conveyance, and this Agreement and the other Loan Documents shall automatically be deemed to have been amended accordingly, nunc pro tunc.
(b)Each Borrower’s obligation to pay and perform the Obligations shall be continuing, absolute, unconditional and irrevocable, and shall be paid and performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of this Agreement or any other Loan Document, or any term or provision therein, as to any other Borrower, (ii) any amendment or waiver of or any consent to departure from this Agreement or any other Loan Document, in respect of any other Borrower, (iii) the application of any Loan proceeds to, or the extension of any other credit for the benefit of, any other Borrower, any other Loan Party, or any of their Subsidiaries, (iv) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by such Borrower or any other Person against the Administrative Agent, the Collateral Trustee or any Lender or (v) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the
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provisions of this Section 10.22(b), constitute a legal or equitable discharge of, or provide a right of setoff against, any Borrower’s obligations hereunder, in each case other than any Payment in Full of the Obligations (other than contingent indemnification obligations not yet due or owing). Each of the Borrowers further agree that (i) its obligations under this Agreement and the other Loan Documents shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any such obligations is rescinded or must otherwise be returned by any Person upon the insolvency, bankruptcy or reorganization of, or the application of any bankruptcy, insolvency or similar law to, any other Borrower, all as though such payment had not been made and (ii) it hereby unconditionally and irrevocably waives any right to revoke its joint and several liability under the Loan Documents and acknowledges that such liability is continuing in nature and applies to all obligations of the Borrowers under the Loan Documents, whether existing now or in the future.
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DocuSign Envelope ID: 6B383D16-76BC-4F65-B166-44978FC791FB
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and the year first written.
LATAM AIRLINES GROUP S.A.,
as a BorrowerBy: Name: Andres del Valle Eitel
Title: Attorney-in-Fact
[Signature Page to LATAM Term Loan Credit and Guaranty Agreement (Borrower)] | ||
DocuSign Envelope ID: 252BD406-C18E-4CC3-8BB4-97A7DD7B5937
PROFESSIONAL AIRLINE SERVICES, INC.,
as a BorrowerBy: Name: Paola Peñarete
Title: President
[*]
[Signature Page to LATAM Term Loan Credit and Guaranty Agreement (Borrower)] | ||
Schedule 172.01 | ||
Exhibit 8.1
| Legal Name | Place of Incorporation | Doing Business as | Ownership (%)(1) | ||||||||||||||||||||
| Transporte Aéreo S.A | Chile | LATAM Airlines Chile | 100.00% | ||||||||||||||||||||
| LATAM Airlines Perú S.A. | Peru | LATAM Airlines Peru | 99.81% | ||||||||||||||||||||
| LATAM-Airlines Ecuador S.A. | Ecuador | LATAM Airlines Ecuador | Voting | 60.00% | |||||||||||||||||||
| No Voting | 100.00% | ||||||||||||||||||||||
| LAN Argentina S.A | Argentina | LATAM Airlines Argentina | 100.00% | ||||||||||||||||||||
| Aerovías de Integración Regional, Aires S.A | Colombia | LATAM Airlines Colombia | 99.23% | ||||||||||||||||||||
| TAM S.A | Brazil | LATAM Airlines Brasil (2) | Voting | 51.04% | |||||||||||||||||||
| No Voting | 100.00% | ||||||||||||||||||||||
| Transporte Aéreos del Mercosur S.A. | Paraguay | LATAM Paraguay | 94.98% | ||||||||||||||||||||
| Lan Cargo S.A | Chile | LATAM Airlines Cargo | 99.90% | ||||||||||||||||||||
| Linea Aérea Carguera de Colombia S.A. | Colombia | LATAM Cargo Colombia | 90.46% | ||||||||||||||||||||
| Aerolinhas Brasileiras S.A. | Brazil | LATAM Cargo Brazil | 100.00% | ||||||||||||||||||||
(1) Percentage of equity owned by LATAM Airlines Group S.A. directly or indirectly through subsidiaries or affiliates. | |||||||||||||||||||||||
(2) TAM S.A. include its affiliate TAM Linhas Aereas S.A (“TLA”), which does business under the name “LATAM Airlines Brazil”. | |||||||||||||||||||||||
Exhibit 12.1
LATAM AIRLINES GROUP S.A. SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Roberto Alvo Milosawlewitsch, certify that:
1. I have reviewed this annual report on Form 20-F of LATAM Airlines Group S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the company and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: February 22, 2024
| /s/ Roberto Alvo Milosawlewitsch | ||
| Roberto Alvo Milosawlewitsch | ||
| Chief Executive Officer | ||
Exhibit 12.2
LATAM AIRLINES GROUP S.A. SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Ramiro Alfonsín Balza, certify that:
1. I have reviewed this annual report on Form 20-F of LATAM Airlines Group S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the company and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: February 22, 2024
| /s/ Ramiro Alfonsín Balza | ||
| Ramiro Alfonsín Balza | ||
| Chief Financial Officer | ||
Exhibit 13.1
LATAM AIRLINES GROUP S.A. SECTION 906 CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of LATAM Airlines Group S.A. (“the Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2023 (the “Report”) of the Company to which this statement is provided as an exhibit fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and all information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 22, 2024
| /s/ Roberto Alvo Milosawlewitsch | ||
| Roberto Alvo Milosawlewitsch | ||
| Chief Executive Officer | ||
LATAM AIRLINES GROUP S.A. SECTION 906 CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of LATAM Airlines Group S.A. (“the Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2023 (the “Report”) of the Company to which this statement is provided as an exhibit fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and all information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 22, 2024
| /s/ Ramiro Alfonsín Balza | ||
| Ramiro Alfonsín Balza | ||
| Chief Financial Officer | ||
Exhibit 97
 | |||||||||||||||||||||||
| Policy of Recovery of Erroneously Awarded Compensation (Clawback) | |||||||||||||||||||||||
| LATAM Airlines Group S.A. | |||||||||||||||||||||||
| Version | Creation date | Publication date | Type of document | ||||||||||||||||||||
| 1.0 | October / 2023 | October / 2023 | Operational Policy | ||||||||||||||||||||
 | Title | Policy of Recovery of Erroneously Awarded Compensation (Clawback) | ||||||
| Version | 1.0 | |||||||
| Confidentiality | Internal | |||||||
1.Objective
The purpose of this Policy of Recovery of Erroneously Awarded Compensation (Clawback) (this “Policy”) is to describe the circumstances in which certain Executives of LATAM Airlines Group S. A. and (“LATAM”) will be required to repay or return Erroneously Awarded Compensation to LATAM in accordance with the Clawback Rules and applicable local laws.
2.Scope
This Policy applies to the Executive Positions (each individual with such a position, an “Executive”) listed in Exhibit A.
3.Detail
3.1.Process
(a)In the event LATAM is required to prepare an Accounting Restatement the Directors Committee of the Board of Directors (“ Directors Committee”) with Board of Directors approval resolution, shall reasonably promptly (in accordance with the applicable Clawback Rules) determine the amount of any Erroneously Awarded Compensation for each Executive in connection with such Accounting Restatement and also instruct the Chief Compliance Officer to reasonably promptly thereafter provide each Executive with written notice containing the amount of Erroneously Awarded Compensation and a demand for repayment or return, as applicable.
For Clawback Eligible Incentive Compensation based on stock price or total shareholder return where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement, the amount shall be determined by the Directors Committee and approved by the Board of Directors based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return upon which the Clawback Eligible Incentive was Received (in which case, LATAM shall maintain documentation of such determination of that reasonable estimate and provide such documentation to the Listing Exchange. The Audit Committee is authorized to engage (or delegate such authorization to any officer or employee of LATAM, including the Chief Compliance Officer, in accordance with Section 3.1(f) of this Policy), on behalf of LATAM, any qualified third-party advisors it deems advisable in order to perform any calculations contemplated by this Policy. For the avoidance of doubt, recovery under this Policy with respect to an Executive shall not require the finding of any misconduct by such Executive or such Executive being found responsible for the accounting error leading to an Accounting Restatement.
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| Title | Policy of Recovery of Erroneously Awarded Compensation (Clawback) | ||||||
| Version | 1.0 | |||||||
| Confidentiality | Internal | |||||||
(b)In the event that any repayment of Erroneously Awarded Compensation is owed to LATAM, the Audit Committee, with Board of Directors approval resolution, shall subject to the Clawback Rules, recover reasonably promptly the Erroneously Awarded Compensation through any Method of Recovery it deems reasonable and appropriate in its discretion based on all applicable facts and circumstances and taking into account the time value of money and the cost to shareholders of delaying recovery. The “Method of Recovery” may include, but is not limited to, requiring reimbursement of Erroneously Awarded Compensation; seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; offsetting the Erroneously Awarded Compensation from any compensation otherwise owed by LATAM to the Executive; canceling outstanding vested or unvested equity awards; and/or taking any other remedial and recovery action permitted by applicable law, as determined by the Audit Committee.
For the avoidance of doubt, except to the extent permitted pursuant to the Clawback Rules, in no event may LATAM accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive’s obligations hereunder. Notwithstanding anything herein to the contrary, LATAM shall not be required to take the actions contemplated in this Section if recovery would be Impracticable. In implementing the actions of this Section, the Audit Committee will act in accordance with the listing standards and requirements of the Listing Exchange and with the applicable Clawback Rules.
(c)Subject to the discretion of the Audit Committee and applicable laws, an applicable Executive may be required to reimburse LATAM for any and all expenses reasonably incurred (including legal fees) by LATAM in recovering Erroneously Awarded Compensation.
(d)LATAM shall not be permitted to indemnify any Executive against the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy and/or pursuant to the Clawback Rules or to pay or reimburse any Executive for the cost of third-party insurance purchased by an Executive to cover any such loss under this Policy and/or pursuant to the Clawback Rules. Further, LATAM shall not enter into any agreement that exempts any Incentive-based Compensation from the application of this Policy or that waives the LATAM’s right to recovery of any Erroneously Awarded Compensation and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date). Any such purported indemnification (whether oral or in writing) shall be null and void.
(e)LATAM is authorized to interpret this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of the Clawback Rules and all other applicable laws. In the event any
| October / 2023 | Page 3 of #NUM_PAGES# | |||||||
| Title | Policy of Recovery of Erroneously Awarded Compensation (Clawback) | ||||||
| Version | 1.0 | |||||||
| Confidentiality | Internal | |||||||
provision of this Policy is determined to be unenforceable or invalid under applicable law, such provision shall be applied to the maximum extent permitted by applicable law and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required by applicable law.
(f)Except as specifically set forth herein, this Policy shall be administered by the Directors Committee and the Board of Directors. Any determinations made by the Directors Committee and the Board of Directors shall be final and binding on all affected individuals and need not be uniform with respect to each individual covered by this Policy. Subject to any limitation under applicable law, the Directors Committee may authorize and empower any officer or employee of LATAM (including the Chief Compliance Officer) to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
(g)LATAM intends that this Policy will be applied to the fullest extent permitted by applicable law. LATAM may require that certain employment agreement, equity award agreement, or other agreement entered into on or after the Effective Date include, as a condition to the grant of any benefit thereunder, require an Executive to agree to abide by the terms of this Policy. Executives shall be deemed to have accepted continuing employment on terms that include compliance with the Policy, to the extent of its otherwise applicable provisions, and to be contractually bound by its enforcement provisions. Executives who cease employment or service with LATAM may continue to be bound by the terms of the Policy with respect to Clawback Eligible Incentive Compensation. Any right of recoupment under this Policy is in addition to and not instead of any other remedies or rights of recoupment that may be available to LATAM under applicable law, regulation or rule or pursuant to the terms of any similar policy in any employment agreement, cash-based bonus plan, equity award agreement or similar agreement and any other legal remedies available to LATAM.
To the extent that an Executive has already reimbursed LATAM for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by LATAM or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy, as determined by the Directors Committee in its sole discretion. Nothing in this Policy precludes LATAM from implementing any additional clawback or recoupment policies with respect to Executives or any other service provider of LATAM. Application of this Policy does not preclude LATAM from taking any other action to enforce any Executive’s obligations to LATAM, including termination of employment or institution of civil or criminal proceedings or any other remedies that may be available to LATAM with respect to any Executive.
4.Definitions
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| Title | Policy of Recovery of Erroneously Awarded Compensation (Clawback) | ||||||
| Version | 1.0 | |||||||
| Confidentiality | Internal | |||||||
For the purposes of this Policy, the following capitalized terms shall have the meaning set forth below.
“Accounting Restatement” shall mean an accounting restatement: due to the material noncompliance of the LATAM with any financial reporting requirement under the securities laws, including (i) any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement); or (ii) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
“Clawback Eligible Incentive Compensation” shall mean, with respect to each individual who served as an Executive at any time during the applicable performance period for any Incentive-based Compensation (whether or not such individual is serving as an Executive at the time the Erroneously Awarded Compensation is required to be repaid to LATAM), all eligible Incentive-based Compensation Received by such individual: (i) on or after the Effective Date; (ii) after beginning service as an Executive; (iii) while LATAM has a class of securities listed on the Listing Exchange; and (iv) during the applicable Clawback Period.
“Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of LATAM immediately preceding the Restatement Date and any transition period (that results from a change in the LATAM’s fiscal year) of less than nine months within or immediately following those three completed fiscal years.
“Clawback Rules” shall mean Section 10D of the Securities Exchange Act of 1934 of the United States, as amended, and any applicable rules or standards adopted by the United States Securities and Exchange Commission thereunder (including Rule 10D-1 under the Securities Exchange Act of 1934) or the Listing Exchange pursuant to Rule 10D-1 under the Exchange Act (including Section 303A.14 of the New York Stock Exchange Listed Company Manual), in each case as may be in effect from time to time
“Effective Date” shall mean the date upon which LATAM Airlines Group S.A. is relisted on the New York Stock Exchange.
“Erroneously Awarded Compensation” shall mean, with respect to each Executive in connection with an Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Clawback Eligible Incentive Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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| Title | Policy of Recovery of Erroneously Awarded Compensation (Clawback) | ||||||
| Version | 1.0 | |||||||
| Confidentiality | Internal | |||||||
“Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting principles used in preparing the LATAM’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return shall for purposes of this Policy be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented within the LATAM’s financial statements or included in a filing with the SEC.
“Impracticable” shall mean, in accordance with the good faith determination of the Audit Committee, that recovery would be impracticable and any of the following conditions are met: (i) the direct expenses paid to a third party to assist in enforcing the Policy against an Executive would exceed the amount to be recovered, after LATAM has made a reasonable attempt to recover the applicable Erroneously Awarded Compensation, documented such reasonable attempt(s) and provided such documentation to the Listing Exchange; (ii) recovery would violate Chilean law where that law was adopted prior to November 28, 2022, provided that, before concluding that it would be Impracticable to recover any amount of Erroneously Awarded Compensation based on violation of Chilean law, LATAM has obtained an opinion of Chilean counsel, acceptable to the Listing Exchange, that recovery would result in such a violation and a copy of the opinion is provided to the Listing Exchange; or (iii) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to LATAM employees, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
“Incentive-based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
“Listing Exchange” shall mean the New York Stock Exchange or such other U.S. national securities exchange or national securities association on which LATAM’s securities are listed.
“Received” shall, with respect to any eligible Incentive-based Compensation, mean deemed receipt and Incentive-based Compensation shall be deemed received in LATAM’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation occurs after the end of that period. For the avoidance of doubt, Incentive-based Compensation that is subject to both a Financial Reporting Measure vesting condition and a service-based vesting condition shall be considered received when the Financial Reporting Measure is achieved, even if the Incentive-based Compensation continues to be subject to the service-based vesting condition.
“Restatement Date” shall mean the earlier to occur of: (i) the date the Board of Directors of LATAM, a committee of the Board of Directors of LATAM or the Executive or Executives of LATAM authorized to take such action if action by the Board of Directors of LATAM is not required, concludes, or reasonably should have concluded, that LATAM is
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required to prepare an Accounting Restatement; or (ii) the date a court, regulator or other legally authorized body directs LATAM to prepare an Accounting Restatement.
5.Validity
This Policy is effective for an indefinite period as of its publication on the LATAM Portal. Notwithstanding the foregoing, the Compliance Department must review this Policy every two years from the date of its publication on the LATAM Portal and may amend it at any time in its sole discretion.
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6.Exhibit A
LIST OF EXECUTIVE POSITIONS
Chief Executive Officer LATAM Airlines Group S.A
Chief Financial Officer
Chief Commercial Officer
Chief Human Resources Officer
Chief Legal Affairs and Compliance Officer
Chief Customer and Experience Officer
Chief Operation and Maintenance Officer
Chief Digital and IT Officer
Director of Corporate Affairs and Sustainability
Chief Executive Officer LATAM Airlines Brazil
Chief Executive Officer LAN Cargo S.A.
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