6-K 1 s110072_6k.htm 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

May 9, 2018

Commission File Number 1-14728

LATAM Airlines Group S.A.

(Translation of Registrant’s Name Into English)

Presidente Riesco 5711, 20th floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

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

Form 20-F  ☒             Form 40-F  ☐

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

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

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

CONTENTS

Interim Consolidated Statement of Financial Position

Interim Consolidated Statement of Income by Function

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Changes in Equity

Interim Consolidated Statement of Cash Flows - Direct Method

Notes to the Interim Consolidated Financial Statements

CLP	-	CHILEAN PESO
ARS	-	ARGENTINE PESO
US$	-	UNITED STATES DOLLAR
THUS$	-	THOUSANDS OF UNITED STATES DOLLARS
COP	-	COLOMBIAN PESO
brl/R$	-	BRAZILIAN REAL
thr$	-	THOUSANDS OF BRAZILIAN REAL
MXN	-	MEXICAN PESO
VEF	-	STRONG BOLIVAR

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

Notes	Page
1 - General information	1
2 - Summary of significant accounting policies	4
2.1. Basis of Preparation	4
2.2. Basis of Consolidation	11
2.3. Foreign currency transactions	12
2.4. Property, plant and equipment	12
2.5. Intangible assets other than goodwill	13
2.6. Goodwill	14
2.7. Borrowing costs	14
2.8. Losses for impairment of non-financial assets	14
2.9. Financial assets	14
2.10. Derivative financial instruments and hedging activities	15
2.11. Inventories	17
2.12. Trade and other accounts receivable	17
2.13. Cash and cash equivalents	17
2.14. Capital	17
2.15. Trade and other accounts payables	17
2.16. Interest-bearing loans	17
2.17. Current and deferred taxes	18
2.18. Employee benefits	18
2.19. Provisions	19
2.20. Revenue recognition	19
2.21. Leases	20
2.22. Non-current assets (or disposal groups) classified as held for sale	21
2.23. Maintenance	21
2.24. Environmental costs	21
3 - Financial risk management	21
3.1. Financial risk factors	21
3.2. Capital risk management	35
3.3. Estimates of fair value	35
4 - Accounting estimates and judgments	37
5 - Segmental information	40
6 - Cash and cash equivalents	43
7 - Financial instruments	44
7.1. Financial instruments by category	44
7.2. Financial instruments by currency	46
8 - Trade, other accounts receivable and non-current accounts receivable	47
9 - Accounts receivable from/payable to related entities	50
10 - Inventories	51
11 - Other financial assets	52
12 - Other non-financial assets	53
13 - Non-current assets and disposal group classified as held for sale	54
14 - Investments in subsidiaries	55

15 - Intangible assets other than goodwill	58
16 - Goodwill	59
17 - Property, plant and equipment	61
18 - Current and deferred tax	67
19 - Other financial liabilities	73
20 - Trade and other accounts payables	81
21 - Other provisions	83
22 - Other non-financial liabilities	85
23 - Employee benefits	86
24 - Accounts payable, non-current	89
25 - Equity	89
26 - Revenue	95
27 - Costs and expenses by nature	95
28 - Other income, by function	97
29 - Foreign currency and exchange rate differences	97
30 - Earnings per share	106
31 - Contingencies	107
32 - Commitments	119
33 - Transactions with related parties	124
34 - Share based payments	125
35 - Statement of cash flows	127
36 - The environment	130
37 - Events subsequent to the date of the financial statements	131

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

			Note				As of March 31, 2018				As of December 31, 2017
							ThUS$				ThUS$
							Unaudited
Current assets
Cash and cash equivalents			6 - 7				814,230				1,142,004
Other financial assets			7 - 11				769,605				559,919
Other non-financial assets			12				276,497				221,188
Trade and other accounts receivable			7 - 8				1,291,933				1,214,050
Accounts receivable from related entities			7 - 9				2,284				2,582
Inventories			10				267,329				236,666
Tax assets			18				82,433				77,987
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners							3,504,311				3,454,396
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners			13				140,586				291,103
Total current assets							3,644,897				3,745,499
Non-current assets
Other financial assets			7 - 11				88,526				88,090
Other non-financial assets			12				219,290				220,807
Accounts receivable			7 - 8				6,499				6,891
Intangible assets other than goodwill			15				1,614,703				1,617,247
Goodwill			16				2,665,212				2,672,550
Property, plant and equipment			17				10,055,224				10,065,335
Tax assets			18				16,932				17,532
Deferred tax assets			18				376,822				364,021
Total non-current assets							15,043,208				15,052,473
Total assets							18,688,105				18,797,972

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

LIABILITIES AND EQUITY

LIABILITIES		Note				As of March 31, 2018				As of December 31, 2017
						ThUS$				ThUS$
Current liabilities						Unaudited
Other financial liabilities			7 - 19				1,299,350				1,300,949
Trade and other accounts payables			7 - 20				1,673,944				1,695,202
Accounts payable to related entities			7 - 9				513				760
Other provisions			21				2,922				2,783
Tax liabilities			18				4,302				3,511
Other non-financial liabilities			22				2,936,754				2,823,963
							5,917,785				5,827,168
Liabilities included in disposal groups classified as held for sale			13				20,819				15,546
Total current liabilities							5,938,604				5,842,714
Non-current liabilities
Other financial liabilities			7 - 19				6,348,814				6,605,508
Accounts payable			7 - 24				481,586				498,832
Other provisions			21				385,279				374,593
Deferred tax liabilities			18				961,978				949,697
Employee benefits			23				113,175				101,087
Other non-financial liabilities			22				141,889				158,305
Total non-current liabilities							8,432,721				8,688,022
Total liabilities							14,371,325				14,530,736
EQUITY
Share capital			25				3,146,265				3,146,265
Retained earnings			25				531,291				475,118
Treasury Shares			25				(178	)			(178	)
Other reserves							546,331				554,884
Parent’s ownership interest							4,223,709				4,176,089
Non-controlling interest			14				93,071				91,147
Total equity							4,316,780				4,267,236
Total liabilities and equity							18,688,105				18,797,972

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

						For the period ended
						March 31,
		Note				2018				2017
						ThUS$				ThUS$
						Unaudited
Revenue			26				2,613,835				2,359,907
Cost of sales							(2,019,583	)			(1,857,765	)
Gross margin							594,252				502,142
Other income			28				116,701				117,542
Distribution costs							(170,635	)			(173,465	)
Administrative expenses							(199,015	)			(204,913	)
Other expenses							(112,767	)			(89,115	)
Other gains/(losses)							(3,456	)			13,576
Income from operation activities							225,080				165,767
Financial income							12,187				22,924
Financial costs			27				(86,217	)			(95,788	)
Foreign exchange gains/(losses)			29				811				35,373
Result of indexation units							2,434				12
Income (loss) before taxes							154,295				128,288
Income (loss) tax expense / benefit			18				(46,723	)			(53,488	)
NET INCOME (LOSS) FOR THE PERIOD							107,572				74,800
Income (loss) attributable to owners of the parent							93,889				65,557
Income (loss) attributable to non-controlling interest			14				13,683				9,243
Net income (loss) for the year							107,572				74,800
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)			30				0.15483				0.10811
Diluted earnings (losses) per share (US$)			30				0.15483				0.10811

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

						For the period ended March 31,
		Note				2018				2017
						ThUS$				ThUS$
						Unaudited
NET INCOME (LOSS)							107,572				74,800
Components of other comprehensive income that will not be reclassified to income before taxes
Other comprehensive income, before taxes, gains (losses) by new measurements on defined benefit plans			25				(2,098	)			2,601
Total other comprehensive income that will not be reclassified to income before taxes							(2,098	)			2,601
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax			29				(28,659	)			109,122
Other comprehensive income, before taxes, currency translation differences							(28,659	)			109,122
Cash flow hedges
Gains (losses) on cash flow hedges before taxes			19				17,119				(4,879	)
Other comprehensive income (losses), before taxes, cash flow hedges							17,119				(4,879	)
Total other comprehensive income that will be reclassified to income before taxes							(11,540	)			104,243
Other components of other comprehensive income (loss), before taxes							(13,638	)			106,844
Income tax relating to other comprehensive income that will not be reclassified to income
Income tax relating to new measurements on defined benefit plans			18				525				(1,040	)
Accumulate income tax relating to other comprehensive income that will not be reclassified to income							525				(1,040	)
Income tax relating to other comprehensive income that will be reclassified to income
Income tax related to cash flow hedges in other comprehensive income							(527	)			(720	)
Income taxes related to components of other comprehensive income that will be reclassified to income							(527	)			(720	)
Total Other comprehensive income							(13,640	)			105,084
Total comprehensive income (loss)							93,932				179,884
Comprehensive income (loss) attributable to owners of the parent							81,491				166,333
Comprehensive income (loss) attributable to non-controlling interests							12,441				13,551
TOTAL COMPREHENSIVE INCOME (LOSS)							93,932				179,884

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

			Attributable to owners of the parent
											Change in other reserves
											Currency			Cash flow			Actuarial gains or losses on defined benefit			Shares based			Other			Total						Parent’s			Non-
				Share			Treasury				translation			hedging			plans			payments			sundry			other			Retained			ownership			controlling			Total
		Note		capital			shares				reserve			reserve			reserve			reserve			reserve			reserve			earnings			interest			interest			equity
				ThUS$			ThUS$				ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Equity as of January 1, 2018				3,146,265			(178	)			(2,131,591	)		18,140			(10,926	)		39,481			2,639,780			554,884			475,118			4,176,089			91,147			4,267,236
Total increase (decrease) in equity Comprehensive income Gain (losses)		25		—			—				—			—			—			—			—			—			93,889			93,889			13,683			107,572
Other comprehensive income				—			—				(27,493	)		16,611			(1,516	)		—						(12,398	)		—			(12,398	)		(1,242	)		(13,640	)
Total comprehensive income				—			—				(27,493	)		16,611			(1,516	)		—			—			(12,398	)		93,889			81,491			12,441			93,932
Transactions with shareholders Dividens		25		—			—				—			—			—			—			—			—			(28,167	)		(28,167	)		—			(28,167	)
Increase (decrease) through transfers and other changes, equity		25-34		—			—				—			—			—			(1,938	)		5,783			3,845			(9,549	)		(5,704	)		(10,517	)		(16,221	)
Total transactions with shareholders				—			—				—			—			—			(1,938	)		5,783			3,845			(37,716	)		(33,871	)		(10,517	)		(44,388	)
Closing balance as of March 31, 2018 (Unaudited)				3,146,265			(178	)			(2,159,084	)		34,751			(12,442	)		37,543			2,645,563			546,331			531,291			4,223,709			93,071			4,316,780

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

				Attributable to owners of the parent
											Change in other reserves
											Currency			Cash flow			Actuarial gains or losses on defined benefit			Shares based			Other			Total						Parent’s			Non-
					Share			Treasury			translation			hedging			plans			payments			sundry			other			Retained			ownership			controlling			Total
		Note			capital			shares			reserve			reserve			reserve			reserve			reserve			reserve			earnings			interest			interest			equity
					ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Equity as of January 1, 2017					3,149,564			(178	)		(2,086,555	)		1,506			(12,900	)		38,538			2,640,281			580,870			366,404			4,096,660			88,644			4,185,304
Total increase (decrease) in equity Comprehensive income Gain (losses)		25			—			—			—			—			—			—			—			—			65,557			65,557			9,243			74,800
Other comprehensive income					—			—			104,936			(5,718	)		1,558			—						100,776			—			100,776			4,308			105,084
Total comprehensive income					—			—			104,936			(5,718	)		1,558			—			—			100,776			65,557			166,333			13,551			179,884
Transactions with shareholders Dividens		25			—			—			—			—			—			—			—			—			(19,667	)		(19,667	)		—			(19,667	)
Increase (decrease) through transfers and other changes, equity		25-34			—			—			—			—			—			545			(3,304	)		(2,759	)		—			(2,759	)		(11,589	)		(14,348	)
Total transactions with shareholders					—			—			—			—			—			545			(3,304	)		(2,759	)		(19,667	)		(22,426	)		(11,589	)		(34,015	)
Closing balance as of March 31, 2017 (Unaudited)					3,149,564			(178	)		(1,981,619	)		(4,212	)		(11,342	)		39,083			2,636,977			678,887			412,294			4,240,567			90,606			4,331,173

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

						For the periods ended
						March 31,
		Note				2018				2017
						ThUS$				ThUS$
						(Unaudited)
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services							2,698,081				2,517,712
Other cash receipts from operating activities							25,539				13,134
Payments for operating activities
Payments to suppliers for goods and services							(1,743,238	)			(1,757,772	)
Payments to and on behalf of employees							(559,714	)			(496,577	)
Other payments for operating activities							(76,643	)			(63,648	)
Income taxes refunded (paid)							(11,796	)			(18,803	)
Other cash inflows (outflows)			35				(6,322	)			(26,201	)
Net cash flows from operating activities							325,907				167,845
Cash flows used in investing activities
Other cash receipts from sales of equity or debt instruments of other entities							903,496				742,456
Other payments to acquire equity or debt instruments of other entities							(1,083,699	)			(719,884	)
Amounts raised from sale of property, plant and equipment							107,129				1,481
Purchases of property, plant and equipment							(178,566	)			(67,137	)
Purchases of intangible assets							(19,911	)			(18,537	)
Interest received							3,790				5,676
Other cash inflows (outflows)			35				11,731				(1,697	)
Net cash flow from (used in) investing activities							(256,030	)			(57,642	)
Cash flows from (used in) financing activities			35
Amounts raised from long-term loans							5,004				49,726
Amounts raised from short-term loans							80,000				100,000
Loans repayments							(200,841	)			(288,228	)
Payments of finance lease liabilities							(184,144	)			(84,487	)
Dividends paid							(9,716	)			(11,796	)
Interest paid							(60,577	)			(63,913	)
Other cash inflows (outflows)							(2,449	)			80,581
Net cash flows from (used in) financing activities							(372,723	)			(218,117	)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change							(302,846	)			(107,914	)
Effects of variation in the exchange rate on cash and cash equivalents							(24,928	)			11,739
Net increase (decrease) in cash and cash equivalents							(327,774	)			(96,175	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			6				1,142,004				949,327
CASH AND CASH EQUIVALENTS AT END OF PERIOD			6				814,230				853,152

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

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2018 (UNAUDITED) 

NOTE 1 - GENERAL INFORMATION

LATAM Airlines Group S.A. (the “Company”) is a public company registered with the Commission for the Financial Market (1), under No.306, whose shares are quoted in Chile on the Stock Brokers - Stock Exchange (Valparaíso) - the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange (“NYSE”) in New York in the form of American Depositary Receipts (“ADRs”).

Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by their subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia.

The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca.

Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the Commission for the Financial Market (1) and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs (2).

At March 31, 2018, the Company’s capital stock is represented by 608,374,525 shares, all common shares, without par value, which is divided into: (a) the 606,407,693 subscribed and paid shares; and (b) 1,966,832 shares pending of subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plan; And (ii) 466,832 correspond to the balance of shares pending of placement of the last capital increase approved at the extraordinary meeting of shareholders of August 18, 2016.

(1)       On February 23, 2017 the Law No. 21,000 was published in the Official Journal, creating the new Commission for the Financial Market (CMF), a collegiate and technical entity that replaced the Superintendency of Securities and Insurance (SVS).

The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Ltda., Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A. and Inversiones La Espasa Dos y Cía. Ltda., owns 27.91% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.

As of March 31, 2018, the Company had a total of 1,453 registered shareholders. At that date approximately 3.93% of the Company’s share capital was in the form of ADRs.

For the period ended March 31, 2018, the Company had an average of 43,077 employees, ending this period with a total of 42,977 employees, spread over 6,673 Administrative employees, 4,740 in Maintenance, 15,016 in Operations, 9,266 in Cabin Crew, 4,036 in Controls Crew, and 3,246 in Sales.

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

a) Participation rate

									As March 31, 2018									As December 31, 2017
Tax No.		Company		Country of origin		Functional Currency			Direct			Indirect			Total			Direct			Indirect			Total
									%			%			%			%			%			%
									Unaudited
96.518.860-6		Latam Travel Chile S.A. and Subsidary		Chile		US$			99.9900			0.0100			100.0000			99.9900			0.0100			100.0000
96.969.680-0		Lan Pax Group S.A. and Subsidiaries		Chile		US$			99.8361			0.1639			100.0000			99.8361			0.1639			100.0000
Foreign		Lan Perú S.A.		Peru		US$			49.0000			21.0000			70.0000			49.0000			21.0000			70.0000
93.383.000-4		Lan Cargo S.A.		Chile		US$			99.8939			0.0041			99.8980			99.8939			0.0041			99.8980
Foreign		Connecta Corporation		U.S.A.		US$			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
Foreign		Prime Airport Services Inc. and Subsidary		U.S.A.		US$			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
96.951.280-7		Transporte Aéreo S.A.		Chile		US$			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
96.631.520-2		Fast Air Almacenes de Carga S.A.		Chile		CLP			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
Foreign		Laser Cargo S.R.L.		Argentina		ARS			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
Foreign		Lan Cargo Overseas Limited and Subsidiaries		Bahamas		US$			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidary		Chile		US$			0.0000			100.0000			100.0000			0.0000			100.0000			100.0000
96.575.810-0		Inversiones Lan S.A. and Subsidiaries		Chile		US$			99.7100			0.2900			100.0000			99.7100			0.2900			100.0000
96.847.880-K		Technical Trainning LATAM S.A.		Chile		CLP			99.8300			0.1700			100.0000			99.8300			0.1700			100.0000
Foreign		Latam Finance Limited		Cayman Insland		US$			100.0000			0.0000			100.0000			100.0000			0.0000			100.0000
Foreign		Peuco Finance Limited		Cayman Insland		US$			100.0000			0.0000			100.0000			100.0000			0.0000			100.0000
Foreign		Profesional Airline Services INC.		U.S.A.		US$			100.0000			0.0000			100.0000			100.0000			0.0000			100.0000
Foreign		TAM S.A. and Subsidiaries (*)		Brazil		BRL			63.0901			36.9099			100.0000			63.0901			36.9099			100.0000

(*)        As of March 31, 2018, the indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., a company over which LATAM Airlines Group S.A. it has a 99.9983% share on economic rights and 49% of political rights as a result of the provisional measure No. 714 of the Brazilian government implemented during 2016 that allows foreign capital to have up to 49% ownership. In this way, since April 2016, LATAM Airlines Group S.A. owns 901 shares with the right to vote of Holdco I S.A., which is equivalent to 49% of the total shares with voting rights of said company and TEP Chile S.A. owns 938 shares with the right to vote of Holdco I S.A., which is equivalent to 51% of the total shares with voting rights of said company.

2 

b) Financial Information

				Statement of financial position																		Net Income
																						For the periods ended
				As of March 31, 2018									As of December 31, 2017									March 31,
																						2018			2017
Tax No.		Company		Assets			Liabilities			Equity			Assets			Liabilities			Equity			Gain /(loss)
				ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
				Unaudited																		Unaudited
96.518.860-6		Latam Travel Chile S.A. and Subsidary		7,135			1,853			5,282			6,771			2,197			4,574			712			578
96.969.680-0		Lan Pax Group S.A. and Subsidiaries (*)		760,728			1,364,392			(598,195	)		499,345			1,101,548			(596,406	)		(7,583	)		(20,354	)
Foreign		Lan Perú S.A.		498,183			473,360			24,823			315,607			303,204			12,403			11,777			(7,451	)
93.383.000-4		Lan Cargo S.A.		586,994			375,567			211,427			584,169			371,934			212,235			(130	)		2,958
Foreign		Connecta Corporation		40,452			16,834			23,618			38,735			17,248			21,487			2,131			2,151
Foreign		Prime Airport Services Inc. and Subsidary (*)		13,102			15,981			(2,879	)		12,671			15,722			(3,051	)		183			22
96.951.280-7		Transporte Aéreo S.A.		329,750			103,867			225,883			324,498			104,357			220,141			5,982			12,300
96.631.520-2		Fast Air Almacenes de Carga S.A.		14,042			5,921			8,121			12,931			4,863			8,068			(108	)		(381	)
Foreign		Laser Cargo S.R.L.		17			25			(8	)		18			27			(9	)		—			—
Foreign		Lan Cargo Overseas Limited and Subsidiaries (*)		68,475			42,079			19,892			66,039			42,271			18,808			3,191			(1,143	)
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidary (*)		149,917			160,462			(9,621	)		144,884			156,005			(10,112	)		490			(807	)
96.575.810-0		Inversiones Lan S.A. and Subsidiaries (*)		12,124			4,749			7,256			11,681			5,201			6,377			837			962
96.847.880-K		Technical Trainning LATAM S.A.		1,619			371			1,248			1,967			367			1,600			(384	)		(294	)
Foreign		Latam Finance Limited		678,497			720,407			(41,910	)		678,289			708,306			(30,017	)		(11,893	)		—
Foreign		Peuco Finance Limited		608,191			608,191			—			608,191			608,191			—			—			—
Foreign		Profesional Airline Services INC.		1,989			1,667			322			3,703			3,438			265			56			—
Foreign		TAM S.A. and Subsidiaries (*)		5,104,118			3,513,177			1,513,226			4,490,714			3,555,423			856,829			48,549			26,866

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

Additionally, we have proceeded to consolidate the following special purpose entities: 1. Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 2. Guanay Finance Limited created to issue a bond collateralized with future credit card receivables; 3. Private investment funds. These companies have been consolidated as required by IFRS 10.

All controlled entities have been included in the consolidation.

The changes that occurred in the consolidation perimeter between January 1, 2017 and March 31, 2018, are detailed below:

(1) Incorporation or acquisition of companies

- On November 2015, the company Peuco Finance Limited was created, whose ownership corresponds 100% to LATAM Airlines Group S.A. The operation of this company began in December 2017.

- Prismah Fidelidade Ltda. is constituted on June 29, 2012, whose ownership corresponds 99.99% to Multiplus S.A. direct subsidiary of TAM S.A. The operation of this company began in December 2017.

3 

- During the month of December 2017, a capital increase in TAM S.A was reported to the Finance Committee for up to US $ 900 million.

The contributions were made on December 11, 2017 for US $ 210 million, January 24, 2018 for US $ 449 million and February 5, 2018 for US $ 200 million, without issuance of new shares.

These capital increases were made and integrated 100% by the shareholder LATAM Airlines Group S.A.

The foregoing, in accordance with the TAM’s shareholder Holdco I S.A., who renounces to any right arisinged from this increase.

- As of March 31, 2018, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 4,951 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.09498%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.19414%

- On January 22, 2018, Lan Pax Group S.A., purchased 17,717 shares of Laser Cargo SRL. to Andes Airport Service S.A., remaining with 3.77922% and Lan Cargo S.A. with a 96.22078% share.

(2) Dissolution of companies

- On November 20, 2017 LATAM Airlines Group S.A. acquires 100% of the shares of Inmobiliaria Aeronáutica S.A. consequently, a merger and subsequent dissolution of said company is carried out.

(3) Disappropriation of companies.

- On May 5, 2017 Lan Pax Group S.A. and Inversiones Lan S.A., both subsidiaries of LATAM Airlines Group S.A., sold Talma Servicios Aeroportuarios S.A. and Inversiones Talma S.A.C. 100% of the capital stock of Rampas Andes Airport Services S.A.

The sale value of Rampas Andes Airport Services S.A. it was of ThUS $ 8,624. 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.

2.1. Basis of Preparation

The consolidated financial statements of LATAM Airlines Group S.A. for the period ended March 31, 2018, have been prepared in accordance with IAS 34 Interim Financial Reporting, which is included in the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

4 

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

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

In order to facilitate comparison, some minor reclassifications have been made to the consolidated financial statements for the previous year.

The interim consolidated financial statements has been prepared accordance with the accounting policy used by the Group for the consolidated financial statements 2017, except for standards and interpretations adopted as from January 1, 2018.

(a) Accounting pronouncements with implementation effective from January 1, 2018:

		Date of issue		Mandatory application: exercises started at from
(i) Rules and amendments
IFRS 9: Financial instruments.		December 2009		01/01/2018
Amendment to IFRS 9: Financial instruments.		November 2013		01/01/2018
IFRS 15: Revenue from ordinary activities from contracts with customers.		May 2014		01/01/2018
Amendment to IFRS 15: Revenue from ordinary activities from contracts with customers.		April 2016		01/01/2018
Amendment to IFRS 2: Share-based payments		June 2016		01/01/2018
Amendment to IFRS 4: Insurance contract		September 2016		01/01/2018

5 

		Date of issue		Mandatory application: exercises started at from
(ii) Improvements
Improvements to the International Financial Reporting Standards (cycle 2014-2016) IFRS 1: Adoption for the first time of international financial reporting standards and IAS 28 Investments in associates and joint ventures.		December 2016		01/01/2018
(iii) Interpretations
IFRIC 22: Transactions in foreign currency and anticipated consideration		December 2016		01/01/2018

The Company has recognized the changes identified as a result of the adoption of IFRS 9 and 15, recognizing the cumulative effect of the initial application of these standards as an adjustment to the opening balance of retained earnings as of January 1, 2018, therefore, the Financial statements as of December 31, 2017 have not been modified.

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

Consolidated statement of financial position (extract)

						As of 31				Effect								As of 1
						december				adoption								january
		Note				2017				IFRS 9				IFRS 15				2018
						ThUS$				THUS$				ThUS$				ThUS$
										Unaudited				Unaudited				Unaudited
Current assets
Other non-financial assets, current			7 - 11				221,188				—				54,361	(4)			275,549
Trade debtors and other accounts receivable, current			7 - 8				1,214,050				(11,105	) (1)			—				1,202,945
Non-current assets
Deferred tax assets							364,021				89	(2)			6,005	(7)			370,115
Current liabilities
Accounts payable commercial and other
Debts to pay			7 - 20				1,695,202				—				(22,192	) (5)			1,673,010
Other non-financial liabilities, current			22				2,823,963				—				77,640	(6)			2,901,603
Non-current liabilities
Deferred tax liability			18				949,697				(1,021	)  (2)			4,472	(5)			953,148
Equity
Accumulated earnings			25				475,118				(9,995	)  (3)			446	(8)			465,569

6 

- Effects of adopting IFRS 9

(1) Expected credit losses: The Company modified the calculation of the impairment provision to comply with the expected credit loss model, established in IFRS 9 Financial Instruments, which replaces the current loss impairment model incurred. To the calculate porcentage of credit losses, a risk matrix was used, grouping the portfolio, according to similar characteristics of risk and maturity. This change resulted in the recognition of an increase in the provision for impairment losses of US $ (11.1) million.

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

As of January 1, 2018, the calculation of the impairment losses provision are as follows:

		Portfolio maturity
			Up to date ThUS$				Up to 90 days ThUS$				Up to 91 to 180 days ThUS$				Up to 181 to 365 days ThUS$				More than 365 days ThUS$				Total ThUS$
Expected loss rate			1	%			3	%			54	%			36	%			98	%			8	%
Gross book value			1,040,671				34,153				12,855				18,577				69,540				1,175,796
Impairment provision			(6,046	)			(10,660	)			(6,977	)			(6,628	)			(68,122	)			(98,433	)

(2) Deferred tax adjustments originated by the application of IFRS 9.

(3) Net effect on accumulated results of the adjustments indicated above.

7 

In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition. . The Company analyzed the business models and classified its financial assets and liabilities according to the following:

		Classification IAS 39																Classification IFRS 9
Assets		Loans and receivables				Hedge and derivatives				Held for traiding				Initial as fair value through profit and loss				Cost amortized				At fair value with changes in results				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Balance as of December 31, 2017			2,446,864				62,867				1,915				501,890				—				—				3,013,536
Cash and cash equivalents			(1,112,346	)			—				—				(29,658	)			1,112,346				29,658				—
Other financial assets, current			(23,918	)			—				(1,421	)			(472,232	)			23,918				473,653				—
Trade debtors and other accounts receivable, current			(1,214,050	)			—				—				—				1,214,050				—				—
Accounts receivable from entities related, current			(2,582	)			—				—				—				2,582				—				—
Other financial assets, non-current			(87,077	)			—				(494	)			—				87,077				494				—
Accounts receivable, non-current			(6,891	)			—				—				—				6,891				—				—
Balance as of January 1, 2018			—				62,867				—				—				2,446,864				503,805				3,013,536

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

- Effects of adopting IFRS 15

(4) Contract costs: The Company has capitalized the costs, related to the revenues from air transport of passengers, corresponding to: the commissions charged by the credit card administrators for US$ 22,0 million and the air ticket booking services through the system general distribution (GDS) for US$ 15,6 million. Additionally, there is a reclassification of commissions from travel agencies for US$ 16,8 million, which previously were presented, according IAS 18, net of the liability to fly.

(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore they must be deferred until the presentation of the service. These concepts are mainly related to the ground transportation service for US $ 15.6 million and traveler's checks for US $ 6.6 million.

8 

(6) Performance Obligations: The Company analyzed the moment in which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redeem of some products associated with loyalty programs for US$ 60,8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16,8 million.

(7) Deferred tax adjustments originated by the application of IFRS 15.

(8) Net effect on accumulated results of the adjustments indicated above.

Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of said services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.

The effects of the changes recognized in the application of IFRS 15 in the first quarter of the year 2018 in the consolidated income statement are presented below.

		For the period ended March 31, 2018
Reconciliation Revenue									Adjustments for reconciliation
						Results								Deferred								Results
						under				Contract				revenues								under
		Note				IFRS 15				costs (4)				recognition (5), (6)				Reclassifications				IAS 18
						ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
														Unaudited
Revenue			26				2,613,835				—				30,273				4,830				2,648,938
Cost of sales							(2,019,583	)			—				(10,732	)			—				(2,030,315	)
Gross margin							594,252				—				19,541				4,830				618,623
Other income			28				116,701				—				—				18,774				135,475
Distribution costs							(170,635	)			964				—				(4,698	)			(174,369	)
Administrative expenses							(199,015	)			3,381				—				(18,906	)			(214,540	)
Other expenses							(112,767	)			—				—				—				(112,767	)
Other gains/(losses)							(3,456	)			—				—				—				(3,456	)
Income from operation activities							225,080				4,345				19,541				—				248,966
Financial income							12,187				—				—				—				12,187
Financial costs			27				(86,217	)			—				—				—				(86,217	)
Foreign exchange gains/(losses)			29				811				—				—				—				811
Result of indexation units							2,434				—				—				—				2,434
Income (loss) before taxes							154,295				4,345				19,541				—				178,181
Income (loss) tax expense / benefit			18				(46,723	)			(1,240	)			(6,007	)			—				(53,970	)
NET INCOME (LOSS) FOR THE PERIOD							107,572				3,105				13,534				—				124,211
Income (loss) attributable to owners of the parent							93,889				3,105				13,534				—				110,528
Income (loss) attributable to non-controlling interest			14				13,683				—				—				—				13,683
Net income (loss) for the year							107,572				3,105				13,534				—				124,211

(b)       Accounting pronouncements not yet in force for financial years beginning on January 1, 2018 and which has not been effected early adoption

9 

	Date of issue	Mandatory application:  exercises started at from
IFRS 16: Leases Amendment to IFRS 9: Financial Instruments Amendment to IAS 28: Investments in associates and joint ventures IFRS 17: Insurance contracts	January 2016 October 2017 October 2017 May 2017	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2021
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	September 2014	To be determined
Amendment to IAS 19: Benefits to employees	February 2018	January 1, 2019
ii) Improvements Improvements to International Financial Reporting Standards (cycle 2015-2017) IFRS 3: Business combination; IAS 12: Income tax; IFRS 11: Joint agreements and IAS 23 Costs for loans. (i) Interpretations IFRIC 23: Uncertain tax positions	December 2017  June 2017	January 1, 2019 January 1, 2019

The Company's management believes that the adoption of the standards, amendments and interpretations described above will not have a significant impact on the consolidated financial statements of the Company in the exercise of its first application, except for IFRS 16.

IFRS 16 Leases incorporates significant changes in the accounting of tenants by requiring a similar treatment to financial leases for all those leases that are currently classified as operational with a term greater than 12 months. This means, in general terms, that an asset representative of the right to use the assets subject to operational leasing contracts and a liability equivalent to the present value of the payments associated with the contract must be recognized. As for the effects on the result, the monthly lease payments will be replaced by the depreciation of the asset and the recognition of a financial expense.

We are evaluating the impact that the adoption of the new lease rule will have on the consolidated financial statements. Currently, we believe that the adoption of this new standard will have a significant impact on the consolidated statement of financial position due to the recording of an asset for right of use and a liability, corresponding to the recording of the leases that are currently registered as operating leases.

LATAM Airlines Group S.A. and subsidiaries is analyzing this rule to determine the effects it may have on its financial statements, covenants and other financial indicators.

10 

2.2. Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all the entities (including special-purpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition.

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

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

(b) Transactions with non-controlling interests

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

(c) Sales of subsidiaries

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

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

(d) Investees or associates

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

11 

2.3. Foreign currency transactions

(a) Presentation and functional currencies

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

(b) Transactions and balances

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

(c) Group entities

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency other than the presentation currency are translated to the presentation currency 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.

The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar.

Adjustments to the Goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed.

2.4. Property, plant and equipment

The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in their initial recognition and in their subsequent measurement, at their historical cost less the corresponding depreciation and any loss due to deterioration.

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

12 

Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or are recognized as a separate asset, only when it is probable that the future economic benefits associated with the elements of property, plant and equipment , they will flow to the Company and the cost of the item can be determined reliably. The value of the replaced component is written off. The rest of the repairs and maintenance are charged to the result of the year in which they are incurred.

The depreciation of the properties, plants and equipment is calculated using the linear method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown.

The residual value and the useful life of the assets are reviewed and adjusted, if necessary, once a year. 

When the value of an asset exceeds its estimated recoverable amount, its value is immediately reduced to its recoverable amount (Note 2.8).

Losses and gains from the sale of property, plant and equipment are calculated by comparing the consideration with the book value and are included in the consolidated statement of income.

2.5. Intangible assets other than goodwill

(a) Airport slots and Loyalty program

Airport slots and the Coalition and Loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows:

Airport slots – Air transport CGU

Loyalty program – Coalition and loyalty program Multiplus CGU

(See Note 16)

The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period.

The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A.

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

(b) Computer software

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

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

13 

(c) Brands

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

2.6. Goodwill

Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually or each time that there is evidence of impairment. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.

2.7. Borrowing costs

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

2.8. Losses for impairment of non-financial assets

Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date.

2.9. Financial assets

As of January 1, 2018, the Company classifies its financial assets in the following categories: at fair value (either through other comprehensive income, or through gains or losses), and at amortized cost. The classification depends on the business model of the entity to manage the financial assets and the contractual terms of the cash flows.

The group reclassifies debt investments when and only when it changes its business model to manage those assets.

In the initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset classified at amortized cost, the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets accounted for at fair value through profit or loss are recorded as expenses in the income statement.

14 

(a) Debt instruments

The subsequent measurement of debt instruments depends on the group's business model to manage the asset and cash flow characteristics of the asset. The Company has two measurement categories in which the group classifies its debt instruments:

Amortized cost: the assets held for the collection of contractual cash flows where those cash flows represent only payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in income when the asset is derecognized or impaired. Interest income from these financial assets is included in financial income using the effective interest rate method.

Fair value through profit or loss: assets that do not meet the criteria of amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and is presented net in the income statement within other gains / (losses) in the period in which it arises.

(b) Equity instruments

Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gains / (losses) in the statement of income as appropriate.

The Company evaluates in advance the expected credit losses associated with its debt instruments recorded at amortized cost. The applied impairment methodology depends on whether there has been a significant increase in credit risk.

2.10. Derivative financial instruments and hedging activities

Derivatives are recognized, in accordance with IAS 39, initially at fair value on the date on which the derivative contract was made and are subsequently valued at their fair value. The method to recognize the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if so, the nature of the item being hedged. The Company designates certain derivatives as:

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

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

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

The Company documents, at the inception of each transaction, the relationship between the hedging instrument and the hedged item, as well as its objectives for managing risk and the strategy for carrying out various hedging transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged.

15 

The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities.

(a) Fair value hedges

Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.

(b) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income under other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. 

In case of variable interest-rate hedges, the amounts recognized in the statement of other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest.

For fuel price hedges, the amounts shown in the statement of other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used.

For foreign currency hedges, the amounts recognized in the statement of other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income.

When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as “Other gains (losses)”.

(c) Derivatives not booked as a hedge

The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in “Other gains (losses)”.

16 

2.11. Inventories

Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.

2.12. Trade and other accounts receivable

Commercial accounts receivable are initially recognized at their fair value and subsequently at their amortized cost in accordance with the effective rate method, less the provision for impairment according to the model of the expected credit losses. The company applies the simplified approach permitted by IFRS 9, which requires that expected lifetime losses be recognized upon initial recognition of accounts receivable.

The existence of significant financial difficulties on the part of the debtor, the probability that the debtor goes bankrupt or financial reorganization are considered indicators of a significant increase in credit risk.

The carrying amount of the asset is reduced as the provision account is used and the loss is recognized in the consolidated income statement under "Cost of sales". When an account receivable is written off, it is regularized against the provision account for the account receivable.

2.13. Cash and cash equivalents

Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments.

2.14. Capital

The common shares are classified as net equity.

Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares.

2.15. Trade and other accounts payables

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

2.16. Interest-bearing loans

Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.

17 

Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.

2.17. Current and deferred taxes

The expense by current tax is comprised of income and deferred taxes.

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

Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.

Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences.

The tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in other comprehensive income, directly in income by function or goodwill, respectively.

2.18. Employee benefits

(a) Personnel vacations

The Company recognizes the expense for personnel vacations on an accrual basis.

(b) Share-based compensation

The compensation plans implemented based on the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based payments, for plans based on the granting of options, the effect of fair value is recorded in equity with a charge to remuneration in a linear manner between the date of grant of said options and the date on which they become irrevocable, for the plans considered as cash settled award the fair value, updated as of the closing date of each reporting period, is recorded as a liability with charge to remuneration.

(c) Post-employment and other long-term benefits

Provisions are made for these obligations by applying the method of the projected unit credit method, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income.

18 

(d) Incentives

The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.

2.19. Provisions

Provisions are recognized when:

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

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

(iii) The amount has been reliably estimated.

2.20. Revenue from contracts with customers

(a) Transportation of passengers and cargo

The Company recognizes the sale for the transportation service as a deferred revenue which one is recognized as income either when the transportation service is rendered or whent the ticket expired. In the case of air transport services sold by the Company and that will be rendered by other airlines, the liability is reduced when they are remitted to those airlines. The Company periodically reviews whether it is necessary to adjust the Deferred Revenue, mainly related to returns, changes, among others.

Compensations granted to clients for changes in the levels of services or billing of additional services such as additional baggage, change of seat, among others, are considered modifications of the initial contract, therefore, they are deferred until the corresponding service is provided.

(b) Expiration of air tickets

The Company estimates monthly the probability of expiration of air tickets, with refund clauses, based on the history of use of the same. Air tickets without refund clause are expired on the date of the flight in case the passenger does not show up.

(c) Costs associated with the contract

The costs related to the sale of air tickets are activated and deferred until the corresponding service is provided. These assets are included under Other non-financial assets in the Consolidated Classified Statement of Financial Position.

19 

(d) Frequent passenger program

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

Members of these programs accumulate miles when flying with LATAM Airlines Group or any other member airline of the oneworld® program, as well as using the services of the associated entities.

When the miles and points are exchanged for products and services other than the services provided by the Company, the income is immediately recognized when the exchange is made through air tickets of an airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the provision of transportation service or expiration for non-use.

In addition, the Company has contracts with certain non-airline companies for the sale of miles or points. These contracts include some performance obligations in addition to the sale of the mile or point, such as marketing, advertising and other benefits. The income associated with these concepts is recognized in the result of the exercise to the extent that the miles are accredited.

The calculation of the deferred income by loyalty programs at the end of the period corresponds to the valuation of the miles and points awarded to the holders of the loyalty programs, pending use, weighted by the probability of their exchange.

The miles and points that the Company estimates will not be exchanged, the proportionally associated value is recognized during the period in which it is expected that the remaining miles and points will be exchanged. The Company uses statistical models to estimate the exchange probability, which is based on historical patterns and projections made by independent experts.

(e) Dividend income

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

2.21. Leases

(a) When the Company is the lessee – financial lease

The Company leases certain Property, plant and equipment in which it has substantially all the risk and benefits deriving from the ownership; they are therefore classified as financial leases. Financial leases are initially recorded at the lower of the fair value of the asset leased and the present value of the minimum lease payments.

Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it produces a constant periodic rate of interest on the remaining balance of the liability for each year. The asset acquired under a financial lease is depreciated over its useful life and is included in Property, plant and equipment.

20 

(b) When the Company is the lessee – operating lease

Leases, in which the lessor retains an important part of the risks and benefits deriving from ownership, are classified as operating leases. Payments with respect to operating leases (net of any incentive received from the lessor) are charged in the consolidated statement of income on a straight-line basis over the term of the lease.

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

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

2.23. Maintenance

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

In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, 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 leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.

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

2.24. Environmental costs

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

NOTE 3 - FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

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

21 

(a) Market risk

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

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

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

(i) Fuel-price risk:

Exposition:

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

Mitigation:

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

Fuel Hedging Results:

During the period ended March 31, 2018, the Company recognized gains of US $ 6.5 million for fuel net premium coverage. During the same period of 2017, the Company recognized losses of US $ 2.4 million for the same concept.

As of March 31, 2018, the market value of fuel positions amounted to US $ 18.9 million (positive). At the end of December 2017, this market value was US $ 10.7 million (positive).

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

Positions as of March 31, 2018 (Unaudited) (*)		Maturities
		Q218				Q318				Q418				Total
Percentage of coverage over the expected volume of consumption			45	%			44	%			23	%			37	%

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

Positions as of  December 31, 2017 (*)		Maturities
		Q118				Q218				Q318				Total
Percentage of coverage over the expected volume of consumption			19	%			12	%			5	%			12	%

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

22 

Sensitivity analysis

A drop in fuel price positively affects the Company through a reduction in costs. However, also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.

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

The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2018.

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2017 and the end of December, 2016.

		Positions as of March 31, 2018		Positions as of December 31, 2017
Benchmark price		effect on equity		effect on equity
(US$ per barrel)		(millions of US$)		(millions of US$)
		Unaudited
+5		+12.2		+1.8
-5		- 16.3		-3.3

Given the structure of fuel coverage during 2018, considers a hedge-free portion, a vertical drop of 5 dollars in the JET reference price (considered as the monthly average), would have meant an approximate impact US $ 32.9 million of lower fuel costs. For the same period, a vertical rise of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact of approximately US $ 36.5 million of higher fuel costs.

(ii) Foreign exchange rate risk:

Exposition:

The functional and presentation currency of the Financial Statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.

The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.

The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.

23 

At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: euro, pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.

Mitigation:

The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.

FX Hedging Results:

With the objective of reducing exposure to the exchange rate risk in the operational cash flows of 2018, and securing the operating margin, LATAM makes hedges using FX derivatives.

As of March 31, 2018, the market value of FX derivative positions amounted to US $ 3.7 million (positive). At the end of December 2017, this market value was US $ 4.4 million (positive).

During the period ended March 31, 2018, the Company recognized gains of US $ 0.8 million for FX net premium coverage. During the same period of 2017, the company recognized losses of US $ 2.8 million for this concept.

As of March 31, 2018, the Company has contracted FX derivatives for US $ 260 million for BRL. By the end of December 2017, the company had contracted FX derivatives for US $ 180 million for BRL.

Sensitivity analysis:

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

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

The following table shows the awareness of FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection term was defined until the end of the last contract of coverage in force, being the last business day of the second quarter of the year 2018:

Appreciation (depreciation)*		Effect at March 31, 2018	Effect at December 31, 2017
of  R$		Millions of US$	Millions of US$
		Unaudited
-10%		-13.1	-10.7
+10%		+13.9	+9.7

(*) Both currencies (BRL and GBP) only apply period to the closing of 2016.

24 

During 2017, the Company contracted derivative currency swaps to hedge debt issued the same year for a notional UF 8.7 million. As of March 31, 2018, the market value of derivative positions of currency swaps amounted to US$ 55.6 million (positive).

In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's Income Statement.

With the objective of reducing the impact on the Company's results caused by appreciations or depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure in US$ for TAM S.A.

The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:

Appreciation (depreciation)*		Effect at March 31, 2018	Effect at March 31, 2017
of R$/US$		Millons of US$	Millons of US$
		Unaudited	Unaudited
-10%		+28.5	+133.1
+10%		-28.5	-133.1
(*) Appreciation (depreciation) of US$ regard to the covered currencies.

Effects of exchange rate derivatives in the Financial Statements

The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).

Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in other comprehensive income.

The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:

Appreciation (depreciation)			Effect at March 31, 2018		Effect at December 31, 2017
of R$/US$			Millions of US$		Millions of US$
			Unaudited
-10%			+458.17		+386.62
+10%			-374.86		-316.33

25 

(iii) Interest -rate risk:

Exposition:

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

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

Mitigation:

In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 63% (63% at December 31, 2017) of the debt is fixed to fluctuations in interest rate.

Rate Hedging Results:

As of March 31, 2018, the market value of the derivative positions of interest rates amounted to US $ 4.7 million (negative). At the end of December 2017, this market value was US $ 6.6 million (negative).

Sensitivity analysis:

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

Increase (decrease)		Positions as of March 31, 2018		Positions as of March 31, 2017
futures curve		effect on profit or loss before tax		effect on profit or loss before tax
in libor 3 months		(millions of US$)		(millions of US$)
		Unaudited		Unaudited
+100 basis points		-28.5		-31.92
-100 basis points		+28.5		+31.92

Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.

Increase (decrease)		Positions as of March 31, 2018		Positions as of December 31, 2017
futures curve		effect on equity		effect on equity
in libor 3 months		(millions of US$)		(millions of US$)
		Unaudited
+100  basis points		+1.56		+1.9
-100   basis points		-1.60		-1.9

26 

The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.

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

(b) Credit risk

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

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

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

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

(i) Financial activities

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

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

The Company has no guarantees to mitigate this exposure.

(ii) Operational activities

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

27 

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

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

Credit quality of financial assets

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

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

(c) Liquidity risk

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

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

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

At March 31, 2018 is US$ 1,470 million (US$ 1,614 million at December 31, 2017), invested in short term instruments through financial high credit rating levels entities.

In addition to the balance of liquid funds, the Company has access to short-term credit lines. As of March 31, 2018, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line of US $ 450 million (US $ 450 million as of December 31, 2017) subject to availability of collateral.

28 

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

Debtor: LATAM Airlines Group S.A. and Subsidiaries, 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		Effective rate				Nominal rate
								ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $					%				%
Loans to exporters
97.032.000-8		BBVA		Chile		ThUS$			—				75,996				—				—				—				75,996				75,000		At Expiration			2.64				2.64
97.032.000-8		BBVA		Chile		UF			794				58,013				—				—				—				58,807				57,206		At Expiration			3.57				2.77
97.036.000-K		SANTANDER		Chile		ThUS$			40,261				—				—				—				—				40,261				40,000		At Expiration			2.67				2.67
97.030.000-7		ES TADO		Chile		ThUS$			40,097				—				—				—				—				40,097				40,000		At Expiration			2.73				2.73
97.003.000-K		BANCO DO BRASIL		Chile		ThUS$			100,680				—				—				—				—				100,680				100,000		At Expiration			2.73				2.73
97.951.000-4		HSBC		Chile		ThUS$			12,070				—				—				—				—				12,070				12,000		At Expiration			2.32				2.32
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			10,156				19,708				38,015				—				—				67,879				64,962		Quarterly			3.43				3.43
0-E		BLADEX		U.S.A.		ThUS$			8,337				8,128				15,628				—				—				32,093				30,000		Semiannual			5.51				5.51
97.036.000-K		SANTANDER		Chile		ThUS$			2,094				2,416				207,288				—				—				211,798				207,288		Quarterly			4.98				4.98
Obligations with the public
0-E		BANK OF NEW YORK		U.S.A.		ThUS$			42,188				42,188				650,625				96,250				772,188				1,603,439				1,200,000		At Expiration			7.44				7.03
97.030.000-7		ES TADO		Chile		UF			10,693				10,693				42,771				232,079				251,236				547,472				388,823		At Expiration			5.50				5.50
Guaranteed obligations
0-E		CREDIT AGRICOLE		Francia		ThUS$			8,528				25,480				52,006				9,195				—				95,209				90,324		Quarterly			3.00				2.56
0-E		BNP PARIBAS		U.S.A.		ThUS$			22,515				54,429				153,859				148,271				304,675				683,749				564,291		Quarterly			3.68				3.68
0-E		WELLS FARGO		U.S.A.		ThUS$			7,235				21,695				57,787				57,686				64,771				209,174				195,545		Quarterly			2.17				1.82
0-E		WILMINGTON TRUST COMPANY		U.S.A.		ThUS$			31,853				94,524				253,132				244,844				645,468				1,269,821				1,014,426		Quarterly			4.48				4.48
0-E		CITIBANK		U.S.A.		ThUS$			12,568				38,030				101,440				93,353				87,512				332,903				301,222		Quarterly			3.57				2.69
0-E		US BANK		U.S.A.		ThUS$			18,473				55,288				146,546				145,193				140,164				505,664				457,677		Quarterly			4.00				2.82
0-E		NATIXIS		Francia		ThUS$			17,124				52,047				121,280				100,079				156,978				447,508				381,583		Quarterly			3.96				3.94
0-E		P K AirFinance		U.S.A.		ThUS$			2,408				7,391				21,068				15,358				—				46,225				44,337		Quarterly			3.49				3.49
0-E		KFW IPEX-BANK		Germany		ThUS$			1,749				5,277				10,706				—				—				17,732				17,222		Quarterly			3.54				3.54
0-E		AIRBUS FINANCIAL		U.S.A.		ThUS$			2,068				6,181				13,974				—				—				22,223				21,070		Quarterly			3.35				3.35
0-E		INVESTEC		England		ThUS$			4,551				8,694				26,645				26,318				9,155				75,363				62,005		Monthly			6.19				6.19
Other guaranteed obligations
0-E		CREDIT AGRICOLE		France		ThUS$			1,933				7,008				245,621				—				—				254,562				241,287		At Expiration			3.56				3.56
Financial leases
0-E		ING		U.S.A.		ThUS$			4,025				12,076				24,209				—				—				40,310				37,609		Quarterly			5.70				5.01
0-E		CITIBANK		U.S.A.		ThUS$			14,659				44,247				101,197				62,167				5,360				227,630				211,068		Quarterly			3.94				3.34
0-E		P EFCO		U.S.A.		ThUS$			13,354				26,847				17,440				—				—				57,641				55,257		Quarterly			5.49				4.87
0-E		BNP PARIBAS		U.S.A.		ThUS$			14,043				29,250				45,444				—				—				88,737				84,959		Quarterly			3.77				3.37
0-E		WELLS FARGO		U.S.A.		ThUS$			32,931				99,261				259,588				223,928				142,609				758,317				711,716		Quarterly			2.74				1.99
97.036.000-K		SANTANDER		Chile		ThUS$			6,174				18,809				49,672				44,341				791				119,787				111,565		Quarterly			2.94				2.40
0-E		RRP F ENGINE		England		ThUS$			876				3,429				9,019				8,824				8,471				30,619				25,450		Monthly			4.01				4.01
0-E		APP LE BANK		U.S.A.		ThUS$			1,650				5,083				13,475				13,358				5,737				39,303				35,821		Quarterly			3.17				2.57
0-E		BTMU		U.S.A.		ThUS$			3,385				10,307				27,294				27,017				10,827				78,830				71,878		Quarterly			3.38				2.79
0-E		DEUTSCHE BANK		U.S.A.		ThUS$			4,173				12,719				33,634				33,126				28,548				112,200				93,942		Quarterly			4.85				4.85
0-E		NATIXIS		France		ThUS$			1,653				4,074				14,252				3,896				—				23,875				22,487		Quarterly			3.66				3.66
0-E		KFW IPEX-BANK		Germany		ThUS$			845				1,558				4,319				1,120				—				7,842				7,268		Quarterly			4.15				4.15
Other loans
0-E		CITIBANK (*)		U.S.A.		ThUS$			25,583				77,932				181,044				—				—				284,559				264,070		Quarterly			6.00				6.00
Derivatives of coverage
—		Others		—		ThUS$			1,982				797				—				—				—				2,779				2,878		—			—				—
		Total							523,708				939,575				2,938,978				1,586,403				2,634,490				8,623,154				7,342,236

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

29 

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

Debtor: TAM S .A. and Subsidiaries, 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		Effective rate				Nominal rate
								ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $					%				%
Bank loans
0-E		NEDERLANDS CHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland		ThUS $			176				499				1,332				555				—				2,562				2,253		Monthly			6.01				6.01
Financial leases
0-E		NATIXIS		France		ThUS $			2,523				9,295				44,905				45,977				—				102,700				96,183		Quarterly / Semiannual			6.18				6.18
0-E		WACAPOULEAS ING S.A.		Luxembourg		ThUS $			838				2,419				6,517				2,458				—				12,232				11,351		Quarterly			4.31				4.31
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		ThUS $			11,723				32,210				194,090				—				—				238,023				235,749		Quarterly			5.49				5.43
0-E		SOCIÉTÉ GÉNÉRALE		Brazil		BRL			12				—				—				—				—				12				8		Monthly			6.39				6.39
		Total							15,272				44,423				246,844				48,990				—				355,529				345,544

30 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March31, 2018 (Unaudited)

Debtor: LATAM Airlines Group S.A. and Subsidiaries, 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			Effective rate			Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%			%
Trade and other accounts payables
—		OTHERS		OTHERS		ThUS$4			58,827				16,043				—				—				—				474,870				474,870		—			—			—
						CLP			176,815				1,906				—				—				—				178,721				178,721		—			—			—
						BRL			341,733				690				—				—				—				342,423				342,423		—			—			—
						Other currencies			321,356				10,982				—				—				—				332,338				332,338		—			—			—
Accounts payable to related parties currents
78.997.060-2		Viajes Falabella Ltda.		Chile		CLP			1,032				—				—				—				—				1,032				1,032		—			—			—
0-E		Inversora Aeronáutica Argentina		Argentina		ThUS$			6				—				—				—				—				6				6		—			—			—
0-E		Consultoría Administrativa Profesional S.A. de C.V.		Mexico		MXN			224				—				—				—				—				224				224		—			—			—
78.591.370-1		Bethia S.A. y Filiales		Chile		CLP			13				—				—				—				—				13				13		—			—			—
		Total							1,300,006				29,621				—				—				—				1,329,627				1,329,627
		Total consolidated							1,315,278				1,013,620				246,844				48,990				—				1,685,156				1,675,170

31 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, 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		Effective rate				Nominal rate
								ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $					%				%
Loans to exporters
97.032.000-8		BBVA		Chile		ThUS $			75,863				—				—				—				—				75,863				75,000		At Expiration			2.30				2.30
97.032.000-8		BBVA		Chile		UF			—				57,363				—				—				—				57,363				55,801		At Expiration			3.57				2.77
97.036.000-K		SANTANDER		Chile		ThUS $			30,131				—				—				—				—				30,131				30,000		At Expiration			2.49				2.49
97.030.000-7		ESTADO		Chile		ThUS $			40,257				—				—				—				—				40,257				40,000		At Expiration			2.57				2.57
97.003.000-K		BANCO DO BRASIL		Chile		ThUS $			100,935				—				—				—				—				100,935				100,000		At Expiration			2.40				2.40
97.951.000-4		HS BC		Chile		ThUS $			12,061				—				—				—				—				12,061				12,000		At Expiration			2.03				2.03
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			22,082				22,782				43,430				—				—				88,294				84,664		Quarterly			3.68				3.68
0-E		BLADEX		U.S.A.		ThUS $			—				16,465				15,628				—				—				32,093				30,000		Semiannual			5.51				5.51
97.036.000-K		SANTANDER		Chile		ThUS $			2,040				3,368				202,284				—				—				207,692				202,284		Quarterly			4.41				4.41
Obligations with the public
0-E		BANK OF NEW YORK		U.S.A.		ThUS $			—				84,375				650,625				96,250				772,188				1,603,438				1,200,000		At Expiration			7.44				7.03
97.030.000-7		ESTADO		Chile		UF			—				20,860				41,720				226,379				245,067				534,026				379,274		At Expiration			5.50				5.50
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		ThUS $			8,368				25,415				56,305				12,751				—				102,839				98,091		Quarterly			2.66				2.22
0-E		BNP PARIBAS		U.S.A.		ThUS $			14,498				59,863				148,469				145,315				313,452				681,597				575,221		Quarterly			3.41				3.40
0-E		WELLS FARGO		U.S.A.		ThUS $			30,764				92,309				246,285				246,479				245,564				861,401				808,987		Quarterly			2.46				1.75
0-E		WILMINGTON TRUST COMPANY		U.S.A.		ThUS $			32,026				95,042				253,469				244,836				676,474				1,301,847				1,034,853		Quarterly			4.48				4.48
0-E		CITIBANK		U.S.A.		ThUS $			14,166				42,815				114,612				112,435				102,045				386,073				351,217		Quarterly			3.31				2.47
0-E		BTMU		U.S.A.		ThUS $			3,292				9,997				26,677				26,704				14,133				80,803				74,734		Quarterly			2.87				2.27
0-E		APPLE BANK		U.S.A.		ThUS $			1,611				4,928				13,163				13,196				7,369				40,267				37,223		Quarterly			2.78				2.18
0-E		US BANK		U.S.A.		ThUS $			18,485				55,354				146,709				145,364				158,236				524,148				472,833		Quarterly			4.00				2.82
0-E		DEUTS CHE BANK		U.S.A.		ThUS $			4,043				12,340				32,775				32,613				32,440				114,211				96,906		Quarterly			4.39				4.39
0-E		NATIXIS		France		ThUS $			18,192				54,952				129,026				105,990				166,011				474,171				413,011		Quarterly			3.42				3.40
0-E		PK AirFinance		U.S.A.		ThUS $			2,375				7,308				20,812				18,104				—				48,599				46,500		Monthly			3.18				3.18
0-E		KFWIP EX-BANK		Germany		ThUS $			2,570				7,111				16,709				1,669				—				28,059				26,888		Quarterly			3.31				3.31
0-E		AIRBUS FINANCIAL		U.S.A.		ThUS $			2,033				6,107				15,931				—				—				24,071				22,925		Monthly			3.19				3.19
0-E		INVESTEC		England		ThUS $			1,930				11,092				26,103				26,045				11,055				76,225				63,378		S emiannual			6.04				6.04
Other guaranteed obligations
0-E		CREDIT AGRICOLE		France		ThUS $			1,757				5,843				246,926				—				—				254,526				241,287		At Expiration			3.38				3.38
Financial leases
0-E		ING		U.S.A.		ThUS $			5,890				12,076				28,234				—				—				46,200				42,957		Quarterly			5.67				5.00
0-E		CITIBANK		U.S.A.		ThUS $			12,699				38,248				91,821				51,222				2,880				196,870				184,274		Quarterly			3.78				3.17
0-E		PEFCO		U.S.A.		ThUS $			13,354				34,430				23,211				—				—				70,995				67,783		Quarterly			5.46				4.85
0-E		BNP P ARIBAS		U.S.A.		ThUS $			13,955				35,567				50,433				2,312				—				102,267				98,105		Quarterly			3.66				3.25
0-E		WELLS FARGO		U.S.A.		ThUS $			12,117				38,076				98,424				66,849				21,253				236,719				221,113		Quarterly			3.17				2.67
97.036.000-K		SANTANDER		Chile		ThUS $			6,049				18,344				48,829				47,785				3,156				124,163				117,023		Quarterly			2.51				1.96
0-E		RRPF ENGINE		England		ThUS $			370				3,325				8,798				8,692				9,499				30,684				25,983		Monthly			4.01				4.01
Other loans
0-E		CITIBANK (*)		U.S.A.		ThUS $			25,783				77,810				206,749				—				—				310,342				285,891		Quarterly			6.00				6.00
Derivatives of coverage
—		Others		—		ThUS $			5,656				6,719				6,228				—				—				18,603				17,407		—			—				—
		Total							535,352				960,284				3,010,385				1,630,990				2,780,822				8,917,833				7,633,613

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

32 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: TAM S.A. and Subsidiaries, 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		Effective rate				Nominal rate
								ThUS $			ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $					%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATS CHAPPIJ		Holland		ThUS $		176				497				1,332				722				—				2,727				2,382		Monthly			6.01				6.01
Financial leases
0-E		NATIXIS		France		ThUS $		4,248				7,903				23,141				71,323				—				106,615				99,036		Quarterly / Semiannual			5.59				5.59
0-E		WACAPOU LEAS ING S.A.		Luxembourg		ThUS $		837				2,411				6,509				3,277				—				13,034				12,047		Quarterly			3.69				3.69
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		ThUS $		11,735				32,230				204,836				—				—				248,801				244,513		Quarterly			4.87				4.81
0-E		BANCO IBM S.A		Brazil		BRL		34				—				—				—				—				34				21		Monthly			6.89				6.89
0-E		SOCIÉTÉ GÉNÉRALE		France		BRL		161				12				—				—				—				173				109		Monthly			6.89				6.89
		Total						17,191				43,053				235,818				75,322				—				371,384				358,108

33 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, 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			Effective rate			Nominal rate
								ThUS $			ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $						%			%
Trade and other accounts payables
—		OTHERS		OTHERS		ThUS$		566,838				—				—				—				—				566,838				566,838		—			—			—
						CLP		165,299				—				—				—				—				165,299				165,299		—			—			—
						BRL		315,605				—				—				—				—				315,605				315,605		—			—			—
						Other currencies		290,244				11,215				—				—				—				301,459				301,459		—			—			—
Accounts payable to related parties currents
78.997.060-2		Viajes Falabella Ltda.		Chile		CLP		534				—				—				—				—				534				534		—			—			—
0-E		Inversora Aeronáutica Argentina		Argentina		ThUS$4		—				—				—				—				4				4				—		—			—
0-E		Consultoría Administrativa Profesional S.A. de C.V.		Mexico		MXN		210				—				—				—				—				210				210		—			—			—
78.591.370-1		Bethia S.A. y Filiales		Chile		CLP		12				—				—				—				—				12				12		—			—			—
		Total						1,338,746				11,215				—				—				—				1,349,961				1,349,961
		Total consolidated						1,891,289				1,014,552				3,246,203				1,706,312				2,780,822				10,639,178				9,341,682

34 

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

At the end of 2016, the Company provided US$ 30.2 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2017, the Company had provided US$ 16.4 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate and interest rates.

3.2. Capital risk management

The Company’s objectives, with respect to the management of capital, are (i) to comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.

The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.

Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.

The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2017 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with stable outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.

3.3. Estimates of fair value.

At March 31, 2018, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:

1. Hedge Instruments:

This category includes the following instruments:

- Interest rate derivative contracts,

- Fuel derivative contracts,

- Currency derivative contracts.

35 

2. Financial Investments:

This category includes the following instruments:

- Investments in short-term Mutual Funds (cash equivalent),

- Private investment funds.

The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.

The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.

The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:

		As of March 31, 2 018																As of December 31, 2017
						Fair value measurements using values considered as																Fair value measurements using values considered as
			Fair value				Level I				Level II				Level III				Fair value				Level I				Level II				Level III
		(Unaudited)
			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Assets
Cash and cash equivalents			125,391				125,391				—				—				29,658				29,658				—				—
Short-term mutual funds			125,391				125,391				—				—				29,658				29,658				—				—
Other financial assets, current			74 7,815				655,911				84,501				—				536,001				473,653				62,348				—
Fair value derived interest rate			7,40 3				—				—				—				3,113				—				3,113				—
Fair value of fuel derivatives			20,554				—				20 ,554				—				10,711				—				10,711				—
Fair value derived from foreign currency			63,947				—				63,947				—				48,322				—				48,3 22				—
Interest accrued since the last payment date of Cross Currency Swap			—				—				—				—				202				—				202				—
Private investment funds			655,911				655,911				—				—				472,232				472,232				—				—
Domestic and foreign bonds			—				—				—				—				1,421				1,421				—				—
Other financial assets, not current			488				—				488				—				—				—				519				—
Fair value derived from foreign currency			488				—				488				—				519				—				519				—
Liabilities
Other financial liabilities, current			6,239				—				6,239				—				12,200				—				12,200				—
Fair value of interest rate derivatives			3,256				—				3,256				—				8,919				—				8,919				—
Fair value of foreign currency derivatives			319				—				319				—				2,092				—				2,092				—
Interest accrued since the last payment date of Currency Swap			2,664				—				2,664				—				1,189				—				1,189				—
Other financial liabilities, non current			1,615				—				1,615				—				2,617				—				2,617				—
Fair value of interest rate derivatives			1,615				—				1,615				—				2,617				—				2,617				—

36 

Additionally, at March 31, 2018, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:

		As of March 31, 2018								As of December 31, 2017
		Book				Fair				Book				Fair
		value				value				value				value
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited
Cash and cash equivalents			688,839				688,839				1,112,346				1,112,346
Cash on hand			491				491				8,562				8,562
Bank balance			319,923				319,923				330,430				330,430
Overnight			154,930				154,930				239,292				239,292
Time deposits			213,495				213,495				534,062				534,062
Other financial assets, current			21,790				21,790				23,918				23,918
Other financial assets			21,790				21,790				23,918				23,918
Trade debtors, other accounts receivable and Current accounts receivable			1,291,933				1,291,933				1,214,050				1,214,050
Accounts receivable from entities related, current			2,284				2,284				2,582				2,582
Other financial assets, not current			88,038				88,038				87,571				87,571
Accounts receivable, non-current			6,499				6,499				6,891				6,891
Other current financial liabilities			1,293,111				1,469,922				1,288,749				1,499,495
Accounts payable for trade and other accounts payable, current			1,673,944				1,673,944				1,695,202				1,695,202
Accounts payable to entities related, current			513				513				760				760
Other financial liabilities, not current			6,347,199				6,374,639				6,602,891				6,738,872
Accounts payable, not current			481,586				481,586				498,832				498,832

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.

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

The Company has used estimates to value and record some of the assets, liabilities, income, expenses and commitments. Basically these estimates refer to:

(a) Evaluation of possible losses due to impairment of goodwill and intangible assets with indefinite useful life

As of March 31, 2018, the capital gain amounts to ThUS $ 2,665,212 (ThUS $ 2,672,550 as of December 31, 2017), while the intangible assets comprise the Airport Slots for ThUS $ 960,108 (ThUS $ 964,513 as of December 31, 2017) and Loyalty Program for ThUS $ 319,912 (ThUS $ 321,440 as of December 31, 2017).

37 

The Company checks at least once a year whether goodwill and intangible assets with an indefinite useful life have suffered an impairment loss. For this evaluation, the Company has identified two cash generating units (CGU), “Air transport” and “Multiplus coalition and loyalty program”. The book value of the surplus value assigned to each CGU as of March 31, 2018 amounts to ThUS $ 2,141,854 and ThUS $ 523,358 (ThUS $ ThUS $ 2,146,692 and ThUS $ 525,858 as of December 31, 2017), which include the following intangible assets with an indefinite useful life:

		Air Transport  CGU								Coalition and loyalty Program Multiplus CGU
		As of				As of				As of				As of
		March 31,				December 31,				March 31,				December 31,
		2018				2017				2018				2017
		ThUS$				ThUS$				ThUS$				ThUS$
			Unaudited								Unaudited
Airport Slots			960,108				964,513				—				—
Loyalty program			—				—				319,912				321,440

The recoverable value of these cash-generating units (CGUs) has been determined based on calculations of their value in use. The principal assumptions used by the management include: growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The estimation of these assumptions requires significant judgment by the management, as these variables feature inherent uncertainty; however, the assumptions used are consistent with Company’s internal planning. Therefore, management evaluates and updates the estimates on an annual basis, in light of conditions that affect these variables. The mainly assumptions used as well as, the corresponding sensitivity analyses are showed in Note 16.

(b) Useful life, residual value, and impairment of property, plant, and equipment

The depreciation of assets is calculated based on the linear model, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according with the Company’s future economic benefits associated with them.

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

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

38 

(c) Recoverability of deferred tax assets

Deferred taxes are calculated according to the liability method, on the temporary differences that arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available with which to offset the temporary differences. The Company makes financial and fiscal projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that these projections are consistent with those used to measure other long-lived assets. As of March 31, 2018, the Company has recognized deferred tax assets of ThUS $ 376,822 (ThUS $ 364,021 as of December 31, 2017) and has ceased to recognize deferred tax assets on tax losses of ThUS $ 82,500 (ThUS $ 81,155 December 31, 2017) (Note 18).

(d) Air tickets sold that will not be finally used.

The Company records the advance sale of air tickets as deferred revenue. Revenue from the sale of tickets is recognized in the income statement when the passenger transport service is provided or expired due to non-use. The Company evaluates monthly the probability of expiration
of air tickets, with refund clauses, based on the history of use of air tickets. A change in this probability could have an impact on ordinary income in the year in which the change occurs and in future periods. As of March 31, 2018, deferred revenues associated with air tickets sold amounted to ThUS $ 1,533,770 (ThUS $ 1,550,447 as of December 31, 2017). A hypothetical change of one percentage point in passenger behavior with respect to use would result in an impact of up to ThUS $ 6,000 per month.

(e) Valuation of miles and points awarded to holders of loyalty programs, pending use.

As of March 31, 2018, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS $ 853,062 (ThUS $ 853,505 as of December 31, 2017). A hypothetical change of one percentage point in the exchange probability would result in an impact of ThUS $ 26,000 on the results of 2018 (ThUS $ 25,000 in 2017). The deferred revenues associated with the LATAM Fidelidade and Multiplus loyalty programs amount to ThUS $ 491,036 as of March 31, 2018 (ThUS $ 364,866 as of December 31, 2017). A hypothetical change of two percentage points in the number of points pending to be exchanged would result in an impact of ThUS $ 3,855 on the results of 2018 (ThUS $ 4,486 in 2017).

(f) Provisions needs, and their valuation when required

Known contingencies are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The Company applies professional judgment, experience, and knowledge to use available information to determine these values, in light of the specific characteristics of known risks. This process facilitates the early assessment and valuation of potential risks in individual cases or in the development of contingent eventualities.

(g) Investment in subsidiary (TAM)

The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.

39 

The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus insuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.

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

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

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

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

NOTE 5 - SEGMENTAL INFORMATION

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

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

The Multiplus Coalition and Loyalty Program segment, unlike the LATAM Pass and LATAM Fidelidade programs, which are frequent flyer programs that operate as a unilateral loyalty system, offers a flexible, interrelated coalition system among its members, which has 19,9 million members, together with being an entity with a separate administration and a business not directly related to air transport.

40 

For the periods ended										Coalition and
		Air								loyalty program
		transportation								Multiplus								Eliminations								Consolidated
		At March 31,								At March 31,								At March 31,								At March 31,
		2018				2017				2018				2017				2018				2017				2018				2017
		ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $				ThUS $
		Unaudited
Income from ordinary activities from external customers (*)			2,613,835				2,239,425				—				120,482				—				—				2,613,835				2,359,907
Passengers			2,318,015				1,985,679				—				120,482				—				—				2,318,015				2,106,161
Freight			295,820				253,746				—				—				—				—				295,820				253,746
Income from ordinary activities from transactions with other operating segments			—				120,482				13,498				18,586				(13,498	)			(139,068	)			—				—
Other operating income			72,050				61,142				44,651				56,400				—				—				116,701				117,542
Interest income			5,009				9,032				7,178				13,892								—				12,187				22,924
Interest expense			(86,217	)			(95,788	)			—				—								—				(86,217	)			(95,788	)
Total net interest expense			(81,208	)			(86,756	)			7,178				13,892				—				—				(74,030	)			(72,864	)
Depreciation and amortization			(249,345	)			(250,179	)			(2,115	)			(2,036	)			—				—				(251,460	)			(252,215	)
Material non-cash items other than depreciation and amortization			(6,132	)			23,176				—				(5	)			—				—				(6,132	)			23,171
Disposal of fixed assets and inventory losses			(5,779	)			(8,625	)			—				—				—				—				(5,779	)			(8,625	)
Doubtful accounts			(3,598	)			(3,584	)			—				(5	)			—				—				(3,598	)			(3,589	)
Exchange differences			811				35,373				—				—				—				—				811				35,373
Result of indexation units			2,434				12				—				—				—				—				2,434				12
Income (loss) attributable to owners of the parents			58,416				24,565				35,473				40,992				—				—				93,889				65,557
Expenses for income tax			(32,341	)			(32,589	)			(14,382	)			(20,899	)			—				—				(46,723	)			(53,488	)
Segment profit / (loss)			72,099				33,808				35,473				40,992				—				—				107,572				74,800
Assets of segment			17,173,563				17,620,116				1,521,024				1,492,854				(6,482	)			(7,569	)			18,688,105				19,105,401
Segment liabilities			13,700,151				14,194,740				717,929				640,219				(46,755	)			(45,907	)			14,371,325				14,789,052
Amount of non-current asset additions			160,425				49,430				—				—				—				—				160,425				49,430
Property, plant and equipment			140,591				49,430				—				—				—				—				140,591				49,430
Intangibles other than goodwill			19,834				—				—				—				—				—				19,834				—
Purchase of non-monetary as sets of segment			169,566				85,674				—				—				—				—				169,566				85,674

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

41 

For the periods ended										Coalition and
		Air								loyalty program
		transportation								Multiplus								Eliminations								Consolidated
		At December 31,								At December 31,								At December 31,								At December 31,
		2018				2017				2018				2017				2018				2017				2018				2017
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Net cash flows from		Unaudited
Purchases of property, plant and equipment			149,655				67,137				—				—				—				—				149,655				67,137
Additions associated with maintenance			88,872				31,162				—				—				—				—				88,872				31,162
Other additions			60,783				35,975				—				—				—				—				60,783				35,975
Purchases of intangible assets (**)			18,940				18,419				—				—				—				—				18,940				18,419
Other additions			18,940				18,419				—				—				—				—				18,940				18,419
Net cash flows from (used in) operating activities			343,216				14,081				13,038				171,233				(10,050	)			(17,470	)			346,204				167,844
Net cash flow from (used in) investing activities			(226,837	)			(52,319	)			(282	)			(5,323	)			—				—				(227,119	)			(57,642	)
Net cash flows from (used in) financing activities			(399,322	)			(52,472	)			(2,688	)			(165,645	)			—				—				(402,010	)			(218,117	)

(**) The company does not have the cash flows of intangible asset acquisitions associated with maintenance.

42 

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

		For the period ended
		At March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Peru			154,974				146,101
Argentina			333,712				319,297
U.S.A.			255,511				224,324
Europe			200,166				170,728
Colombia			89,109				74,317
Brazil			894,854				791,929
Ecuador			49,018				43,401
Chile			424,800				405,411
Asia Pacific and rest of Latin America			211,691				184,399
Income from ordinary activities			2,613,835				2,359,907
Other operating income			116,701				117,542

The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area.

The Company has no customers that individually represent more than 10% of sales.

NOTE 6 - CASH AND CASH EQUIVALENTS

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Cash on hand			491				8,562
Bank balances			319,923				330,430
Overnight			154,930				239,292
Total Cash			475,344				578,284
Cash equivalents
Time deposits			213,495				534,062
Mutual funds			125,391				29,658
Total cash equivalents			338,886				563,720
Total cash and cash equivalents			814,230				1,142,004

43 

Cash and cash equivalents are denominated in the following currencies:

		As of				As of
Currency		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Argentine peso			18,585				12,135
Brazilian real			85,149				106,499
Chilean peso			18,717				81,845
Colombian peso			9,794				7,264
Euro			19,892				11,746
US Dollar			604,586				882,114
Other currencies			57,507				40,401
Total			814,230				1,142,004

NOTE 7 - FINANCIAL INSTRUMENTS

7.1.       Financial instruments by category

As of March 31, 2018 (Unaudited)

Assets		Measured				At fair value
		at amortized				with				Hedge
		cost				changes in				derivatives				Total
		ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			688,839				125,391				—				814,230
Other financial assets, current (*)			21,790				655,911				91,904				769,605
Trade and others accounts receivable, current			1,291,933				—				—				1,291,933
Accounts receivable from related entities, current			2,284				—				—				2,284
Other financial assets, non current (*)			88,038				—				488				88,526
Accounts receivable, non current			6,499				—				—				6,499
Total			2,099,383				781,302				92,392				2,973,077

Liabilities		Measured
		at amortized				Hedge
		cost				derivatives				Total
		ThUS$				ThUS$				ThUS$
Other liabilities, current			1,293,111				6,239				1,299,350
Trade and others accounts payable, current			1,673,944				—				1,673,944
Accounts payable to related entities, current			513				—				513
Other financial liabilities, non-current			6,347,199				1,615				6,348,814
Accounts payable, non-current			481,586				—				481,586
Total			9,796,353				7,854				9,804,207

(*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

44 

As of December 31, 2017

														Initial
Assets		Loans								Held				as fair value
		and				Hedge				for				through
		receivables				derivatives				trading				profit and loss				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			1,112,346				—				—				29,658				1,142,004
Other financial assets, current (*)			23,918				62,348				1,421				472,232				559,919
Trade and others
accounts receivable, current			1,214,050				—				—				—				1,214,050
Accounts receivable from related entities, current			2,582				—				—				—				2,582
Other financial assets,
non current (*)			87,077				519				494				—				88,090
Accounts receivable, non current			6,891				—				—				—				6,891
Total			2,446,864				62,867				1,915				501,890				3,013,536

Liabilities		Other				Held
		financial				Hedge
		liabilities				derivatives				Total
		ThUS$				ThUS$				ThUS$
Other liabilities, current			1,288,749				12,200				1,300,949
Trade and others accounts payable, current			1,695,202				—				1,695,202
Accounts payable to related entities, current			760				—				760
Other financial liabilities, non-current			6,602,891				2,617				6,605,508
Accounts payable, non-current			498,832				—				498,832
Total			10,086,434				14,817				10,101,251

(*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

45 

7.2. Financial instruments by currency

		As of				As of
		March 31,				December 31,
a )    Assets		2018				2017
		ThUS $				ThUS $
		Unaudited
Cash and cash equivalents			814,230				1,142,004
Argentine peso			18,585				12,135
Brazilian real			85,149				106,499
Chilean peso			18,717				81,845
Colombian peso			9,794				7,264
Euro			19,892				11,746
US Dollar			604,586				882,114
Other currencies			57,507				40,401
Other financial assets (current and non-current)			858,131				648,009
Argentine peso			293				297
Brazilian real			666,233				475,810
Chilean peso			26,705				26,679
Colombian peso			544				1,928
Euro			8,373				7,853
US Dollar			153,387				133,431
Other currencies			2,596				2,011
Trade and other accounts receivable, current			1,291,933				1,214,050
Argentine peso			76,038				49,958
Brazilian real			682,158				635,890
Chilean peso			89,369				83,415
Colombian peso			8,596				3,249
Euro			60,260				48,286
US Dollar			182,771				257,324
Other currencies (*)			192,741				135,928
Accounts receivable, non-current			6,499				6,891
Brazilian real			4				4
Chilean peso			6,495				6,887
Accounts receivable from related entities, current			2,284				2,582
Brazilian real			101				2
Chilean peso			130				735
US Dollar			2,053				1,845
Total assets			2,973,077				3,013,536
Argentine peso			94,916				62,390
Brazilian real			1,433,645				1,218,205
Chilean peso			141,416				199,561
Colombian peso			18,934				12,441
Euro			88,525				67,885
US Dollar			942,797				1,274,714
Other currencies			252,844				178,340

(*) See the composition of the others currencies in Note 8 Trade, other accounts receivable and non-current accounts receivable.

b) Liabilities

Liabilities information is detailed in the table within Note 3 Financial risk management.

46 

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

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Trade accounts receivable			1,229,631				1,175,796
Other accounts receivable			169,736				133,054
Total trade and other accounts receivable			1,399,367				1,308,850
Less: Allowance for impairment loss			(100,935	)			(87,909	)
Total net trade and accounts receivable			1,298,432				1,220,941
Less: non-current portion – accounts receivable			(6,499	)			(6,891	)
Trade and other accounts receivable, current			1,291,933				1,214,050

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

The maturity of the portfolio as of December 31, 2017 is as follows:

Up to date			1,040,671
Matured accounts receivable, but not impaired
Expired from 1 to 90 days			34,153
Expired from 91 to 180 days			10,141
More than 180 days overdue (*)			2,922
Total matured accounts receivable, but not impaired			47,216
Matured accounts receivable and impaired
Judicial, pre-judicial collection and protested documents			43,175
Debtor under pre-judicial collection process and portfolio sensitization			44,734
Total matured accounts receivable and impaired			87,909
Total			1,175,796

(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision.

As of March 31, 2018, in order 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.

47 

		Portfolio maturity
						from 1 to				from 91 to				from 181 to				more of
		Up to date				90 days				180 days				360 days				360 days				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Expected loss rate (1)			1	%			3	%			35	%			48	%			88	%			8	%
Gross book value (2)			975,666				124,463				23,813				35,699				69,990				1,229,631
Provision Deterioration			(9,784	)			(4,187	)			(8,510	)			(17,135	)			(61,319	)			(100,935	)

(1) Corresponds to the expected average rate.

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

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

		As of				As of
		March 31,				December 31,
Currency		2018				2017
		ThUS$				ThUS$
		Unaudited
Argentine Peso			76,038				49,958
Brazilian Real			682,162				635,894
Chilean Peso			95,864				90,302
Colombian peso			8,596				3,249
Euro			60,260				48,286
US Dollar			182,771				257,324
Other currency (*)			192,741				135,928
Total			1,298,432				1,220,941
(*) Other currencies
Australian Dollar			54,750				40,303
Chinese Yuan			950				37
Danish Krone			680				197
Pound Sterling			11,424				5,068
Indian Rupee			5,108				3,277
Japanese Yen			28,165				18,756
Norwegian Kroner			693				133
Swiss Franc			4,361				2,430
Korean Won			23,025				18,225
New Taiwanese Dollar			4,472				2,983
Other currencies			59,113				44,519
Total			192,741				135,928

48 

The movements of the provision for impairment losses of the Trade Debtors and other accounts receivable are as follows:

								Adjustment
				Opening				adoption								(Increase)				Closing
Periods				balance				IFRS 9 (*)				Punishments				Decrease				balance
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 as of March 31, 2017 (IAS 39) (Unaudited)					(77,054	)			—				676				(5,795	)			(82,173	)
From April 1 to December 31, 2017					(82,173	)			—				7,573				(13,309	)			(87,909	)
From January 1 as of March 31, 2018 (IAS 39) (Unaudited)					(87,909	)			(10,499	)			1,307				(3,834	)			(100,935	)

(*) Adjustment to the balance as of December 31, 2017 registered in retained earnings as of 01.01.2018 for the adoption of IFRS 9.

Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.

The historical and current renegotiations are not very relevant and the policy is to analyze case by case to classify them according to the existence of risk, determining if their reclassification corresponds to pre-judicial collection accounts.

The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.

As of March 31, 2018

As of December 31, 2017

Gross exposure

Gross

Exposure net

Gross exposure

Gross

Exposure net

according to

impaired

of risk

according to

Impaired

of risk

balance

exposure

concentrations

balance

exposure

concentrations

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

Unaudited

Trade accounts receivable

1,229,631

(100,935

)

1,128,696

1,175,796

(87,909

)

1,087,887

Other accounts receivable

169,736

—

169,736

133,054

—

133,054

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.

49 

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

(a) Accounts Receivable

As of

As of

Country

March 31,

December 31,

Tax No.

Related party

Relationship

of origin

Currency

2018

2017

ThUS$

ThUS$

Unaudited

Foreign

Qatar Airways

Indirect shareholder

Qatar

ThU$

2,057

1,845

78.591.370-1

Bethia S.A. and Subsidiaries

Related director

Chile

CLP

209

728

Foreign

TAM Aviação Executiva e Taxi Aéreo S.A.

Related director

Brazil

BRL

8

2

87.752.000-5

Granja Marina Tornagaleones S.A.

Common shareholder

Chile

CLP

8

5

96.810.370-9

Inversiones Costa Verde Ltda. y CPA.

Related director

Chile

CLP

2

2

Total current assets

2,284

2,582

(b) Accounts payable

As of

As of

Country

March 31,

December 31,

Tax No.

Related party

Relationship

of origin

Currency

2018

2017

ThUS$

ThUS$

Unaudited

78.997.060-2

Viajes Falabella Ltda.

Related director

Chile

CLP

270

534

78.591.370-1

Bethia S.A. and Subsidiaries

Related director

Chile

CLP

13

12

Foreign

Inversora Aeronáutica Argentina S.A.

Related director

Argentina

ThUS$

6

4

Foreign

Consultoría Administrativa Profesional S.A. de C.V.

Related company

México

MXN

224

210

Total current liabilities

513

760

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary.

50 

NOTE 10 -INVENTORIES

The composition of Inventories is as follows:

		As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$
		Unaudited
Technical stock			223,261				195,530
Non-technical stock			44,068				41,136
Total			267,329				236,666

The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence, as per the following detail:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Provision for obsolescence Technical stock			22,207				21,839
Provision for obsolescence Non-technical stock			7,223				6,488
Total			29,430				28,327

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

As of March 31, 2018, the Company recorded ThUS $ 32,456 (ThUS $ 38,035 as of March 31, 2017) in product results, mainly on-board consumption and maintenance, which is part of the Cost of sales.

51 

NOTE 11 - OTHER FINANCIAL ASSETS

The composition of other financial assets is as follows:

		Current Assets								Non-current assets								Total Assets
		As of				As of				As of				As of				As of				As of
		March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
		2018				2017				2018				2017				2018				2017
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
(a) Other financial assets
Private investment funds			655,911				472,232				—				—				655,911				472,232
Deposits in guarantee (aircraft)			14,606				15,690				40,378				41,058				54,984				56,748
Guarantees for margins of derivatives			631				2,197				—				—				631				2,197
Other investments			—				—				844				494				844				494
Domestic and foreign bonds			—				1,421				—				—				—				1,421
Other guarantees given			6,553				6,031				46,816				46,019				53,369				52,050
Subtotal of other financial assets			677,701				497,571				88,038				87,571				765,739				585,142
(b) Hedging assets
Interest accrued since the last payment date of Cross currency swap			—				202				—				—				—				202
Fair value of interest rate derivatives			7,403				3,113				—				—				7,403				3,113
Fair value of foreign currency derivatives			63,947				48,322				488				519				64,435				48,841
Fair value of fuel price derivatives			20,554				10,711				—				—				20,554				10,711
Subtotal of hedging assets			91,904				62,348				488				519				92,392				62,867
Total Other Financial Assets			769,605				559,919				88,526				88,090				858,131				648,009

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

52 

NOTE 12 - OTHER NON-FINANCIAL ASSETS

The composition of other non-financial assets is as follows:

		Current assets								Non-current assets								Total Assets
		As of				As of				As of				As of				As of				As of
		March 31,				December				March 31,				December				March 31,				December
		2018				2017				2018				2017				2018				2017
		Unaudited								Unaudited								Unaudited
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a) Advance payments
Aircraft leases			33,774				31,322				2,662				4,718				36,436				36,040
Aircraft insurance and other			14,800				17,681				—				—				14,800				17,681
Others			9,868				10,012				1,095				1,186				10,963				11,198
Subtotal advance payments			58,442				59,015				3,757				5,904				62,199				64,919
(b) Contract assets (1)
GDS costs			14,614				—				—				—				14,614				—
Commissions credit cards			18,614				—				—				—				18,614				—
Commissions travel agencies			13,015				—				—				—				13,015				—
Subtotal assets of contracts			46,243				—				—				—				46,243				—
(c) Other assets
Aircraft maintenance reserve (2)			17,977				21,505				51,836				51,836				69,813				73,341
Sales tax			145,625				137,866				29,360				37,959				174,985				175,825
Other taxes			3,741				2,475				—				—				3,741				2,475
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”)			327				327				670				670				997				997
Judicial deposits			—				—				133,667				124,438				133,667				124,438
Others			4,142				—				—				—				4,142				—
Subtotal other assets			171,812				162,173				215,533				214,903				387,345				377,076
Total Other Non - Financial Assets			276,497				221,188				219,290				220,807				495,787				441,995

(1) As of March 31, 2018, the costs of activated contracts recognized in results amount to ThUS $ 57,919 and the amortization of the period is ThUS $ 69,400.

(2) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.

These amounts are calculated based on performance measures, such as flight hours or cycles, are paid periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.

In some cases (five lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. The cost of aircraft maintenance in the last years has been higher than the related maintenance reserves for all aircraft.

53 

As of March 31, 2018, the maintenance reserves amount to ThUS $ 69,813 (ThUS $ 74,341, December 31, 2017), corresponding to 13 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.

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

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

Non-current assets and groups in expropriation held for sale at March 31, 2018 and December 31, 2017, are detailed below:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Current assets
Aircraft			96,117				236,022
Engines and rotables			9,181				9,197
Other assets			35,288				45,884
Total			140,586				291,103
Current liabilities
Other liabilities			20,819				15,546
Total			20,819				15,546

The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.

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

During fiscal year 2017, adjustments were recognized for US $ 17.4 million to register these assets at their net realizable value.

In addition, during 2017, two Airbus A330 aircraft and seven spare Airbus A330 engines were sold.

During fiscal year 2018, adjustments for US $ 2.3 million were recognized to record these assets at their net realizable value.

Additionally, during the fiscal year 2018, the sale of a Boeing 777 aircraft took place and a transfer was made to the item Properties, plants and equipment of an Airbus A320 aircraft.

54 

The detail of fleet classified as non-current assets or groups of assets for disposal classified as held for sale is the following:

		As of				As of
		March 31,				December 31,
Aircraft		2018				2017
		Unaudited
Boeing 777 Freighter			1	(*)			2	(*)
Airbus A330-200			1				1
Airbus A320-200			—				1
ATR42-300			1				1
Total			3				5

(*) One aircraft leased to DHL.

(b)        Assets reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale

During in the first quarter of 2017, stocks of the fleet Airbus A330, were reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale.

During 2017 an adjustment of US $ 1.3 million was recognized to record these assets at their net realizable value.

In addition, during 2017 there was the partial sale of A330 inventory.

NOTE 14 - INVESTMENTS IN SUBSIDIARIES

(a)         Investments in subsidiaries

The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.

Detail of significant subsidiaries and summarized financial information:

Ownership

As of

As of

Country of

Functional

March 31,

December 31,

Name of significant subsidiary

incorporation

currency

2018

2017

%

%

Unaudited

Lan Perú S.A.

Peru

US$

70.00000

70.00000

Lan Cargo S.A.

Chile

US$

99.89803

99.89803

Lan Argentina S.A.

Argentina

ARS

99.86560

99.86560

Transporte Aéreo S.A.

Chile

US$

100.00000

100.00000

Aerolane Líneas Aéreas Nacionales del Ecuador S.A.

Ecuador

US$

100.00000

100.00000

Aerovías de Integración Regional, AIRES S.A.

Colombia

COP

99.19061

99.19061

TAM S.A.

Brazil

BRL

99.99938

99.99938

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

55 

Summary financial information of significant subsidiaries

																										Results for the period
		Statement of financial position as of March 31, 2018																								ended March 31, 2018
		Total				Current				Non-current				Total				Current				Non-current								Net
Name of significant subsidiary		Assets				Assets				Assets				Liabilities				Liabilities				Liabilities				Revenue				Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited																								Unaudited
Lan Perú S.A.			498,183				477,644				20,539				473,360				471,376				1,984				292,954				5,771
Lan Cargo S.A.			586,994				276,404				310,590				375,567				298,508				77,059				64,885				(130	)
Lan Argentina S.A.			342,556				308,831				33,725				301,695				297,653				4,042				111,013				(10,236	)
Transporte Aéreo S.A.			329,750				38,357				291,393				103,867				33,430				70,437				89,652				5,982
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			112,186				90,440				21,746				94,912				88,964				5,948				57,204				2,518
Aerovías de Integración Regional, AIRES S.A.			143,142				64,117				79,025				93,162				81,555				11,607				75,501				(221	)
TAM S.A. (*)			5,104,118				2,457,744				2,646,374				3,513,177				2,039,770				1,473,407				1,211,235				48,549

																										Results for the period
		Statement of financial position as of December 31, 2017																								ended March 31, 2017
		Total				Current				Non-current				Total				Current				Non-current								Net
Name of significant subsidiary		Assets				Assets				Assets				Liabilities				Liabilities				Liabilities				Revenue				Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
																										Unaudited
Lan Perú S.A.			315,607				294,308				21,299				303,204				301,476				1,728				255,619				(7,451	)
Lan Cargo S.A.			584,169				266,836				317,333				371,934				292,529				79,405				59,880				2,958
Lan Argentina S.A.			198,951				166,445				32,506				143,731				139,914				3,817				105,039				(8,071	)
Transporte Aéreo S.A.			324,498				30,909				293,589				104,357				36,901				67,456				84,353				12,300
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			96,407				66,166				30,241				84,123				78,817				5,306				48,239				(5,536	)
Aerovías de Integración Regional, AIRES S.A.			138,138				64,160				73,978				91,431				80,081				11,350				57,339				(7,347	)
TAM S.A. (*)			4,490,714				1,843,822				2,646,892				3,555,423				2,052,633				1,502,790				1,121,038				26,866

56 

(b)       Non-controlling interest

						As of				As of				As of				As of
Equity				Country		March 31,				December 31,				March 31,				December 31,
		Tax No.		of origin		2018				2017				2018				2017
						%				%				ThUS$				ThUS$
						Unaudited								Unaudited
Lan Perú S.A		0- E		Peru			30.00000				30.00000				7,448				3,722
Lan Cargo S.A. and Subsidiaries		93.383.000- 4		Chile			0.10196				0.10196				(536	)			849
Promotora Aérea Latinoamericana S.A. and Subsidiaries		0- E		Mexico			51.00000				51.00000				4,577				4,578
Inversora Cordillera S.A. and Subsidiaries		0- E		Argentina			0,13940				0,13940				4,291				3,502
Lan Argentina S.A.		0- E		Argentina			0,02842				0,02842				(461	)			79
Americonsult de Guatemala S.A.		0- E		Guatemala			1.00000				1.00000				1				1
Americonsult Costa Rica S.A.		0- E		Costa Rica			1.00000				1.00000				12				12
Linea Aérea Carguera de Colombiana S.A.		0- E		Colombia			10.00000				10.00000				(463	)			(520	)
Aerolíneas Regionales de Integración Aires S.A.		0- E		Colombia			0.80944				0.80944				487				461
Transportes Aereos del Mercosur S.A.		0- E		Paraguay			5.02000				5.02000				1,563				1,324
Multiplus S.A.		0- E		Brazil			27.26000				27.26000				76,152				77,139
Total															93,071				91,147

						For the period ended								For the period ended
Incomes				Country		March 31,								March 31,
		Tax No.		of origin		2018				2017				2018				2017
						ThUS$				ThUS$				ThUS$				ThUS$
						Unaudited								Unaudited
Lan Perú S.A		0- E		Peru			30.00000				30.00000				3,533				(2,235	)
Lan Cargo S.A. and Subsidiaries		93.383.000- 4		Chile			0.10196				0.10196				12				15
Promotora Aerea Latinoamericana S.A. and Subsidiaries		0- E		Mexico			51.00000				51.00000				261				234
Inversora Cordillera S.A. and Subsidiaries		0- E		Argentina			0,13940				0,70422				—				90
Lan Argentina S.A.		0- E		Argentina			0,02842				0,13440				—				19
Americonsult de Guatemala S.A.		0- E		Guatemala			1.00000				1.00000				—				—
Linea Aérea Carguera de Colombiana S.A.		0- E		Colombia			10.00000				10.00000				58				(94	)
Aerolíneas Regionales de Integración Aires S.A.		0- E		Colombia			0.80944				0.80944				(2	)			(59	)
Transportes Aereos del Mercosur S.A.		0- E		Paraguay			5.02000				5.02000				220				99
Multiplus S.A.		0- E		Brazil			27.26000				27.26000				9,601				11,174
Total															13,683				9,243

57 

NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL

The details of intangible assets are as follows:

		Classes of intangible assets								Classes of intangible assets
		(net)								(gross)
		As of				As of				As of				As of
		March 31,				December 31,				March 31,				December 31,
		2018				2017				2018				2017
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited
Airport slots			960,108				964,513				960,108				964,513
Loyalty program			319,912				321,440				319,912				321,440
Computer software			184,211				160,970				543,522				509,377
Developing software			106,390				123,415				106,390				123,415
Trademarks (1)			43,574				46,909				62,242				62,539
Other assets			508				—				1,315				—
Total			1,614,703				1,617,247				1,993,489				1,981,284

Movement in Intangible assets other than goodwill:

		Computer												Trademarks
		software				Developing				Airport				and loyalty
		Net				software				slots (2)				Program (1) (2)				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2017			157,016				91,053				978,849				383,395				1,610,313
Additions			944				17,600				—				—				18,544
Withdrawals			—				(642	)			—				—				(642	)
Transfer software			8,741				(8,545	)			—				—				196
Foreing exchange			2,080				677				28,021				10,975				41,753
Amortization			(11,380	)			—				—				(2,448	)			(13,828	)
Closing balance as of March 31, 2017 (Unaudited)			157,401				100,143				1,006,870				391,922				1,656,336
Opening balance as of April 1, 2017			157,401				100,143				1,006,870				391,922				1,656,336
Additions			7,509				61,280				—				—				68,789
Withdrawals			(244	)			(42	)			—				—				(286	)
Transfer software			37,042				(37,035	)			—				—				7
Foreing exchange			(3,295	)			(931	)			(42,357	)			(16,434	)			(63,017	)
Amortization			(37,443	)			—				—				(7,139	)			(44,582	)
Closing balance as of December 31, 2017			160,970				123,415				964,513				368,349				1,617,247
Opening balance as of January 1, 2018			160,970				123,415				964,513				368,349				1,617,247
Additions			750				19,084				—				—				19,834
Withdrawals			(27	)			(2	)			—				—				(29	)
Transfer software			35,956				(35,960	)			—				—				(4	)
Foreing exchange			(340	)			(147	)			(4,405	)			(1,751	)			(6,643	)
Amortization			(12,590	)			—				—				(3,112	)			(15,702	)
Closing balance as of March 31, 2018 (Unaudited)			184,719				106,390				960,108				363,486				1,614,703

(1) In 2016, after the extensive work of integration after the association between LAN and TAM, during which there has been solid progress in the homologation of the optimization processes of its air connections, in addition to the restructuring and modernization of the fleet of aircraft, the Company has resolved adopt a unique name and identity, and announce that the brand of the group will be LATAM”, which would unite all companies under a single image.

58 

Given the above, we have proceeded to review the brands useful life, concluding that these should go from an indefinite to defined useful life. The estimated new useful life is 5 years, equivalent to the period for finishing all the image changes necessary.

(2)      See Note 2.5

The amortization of each period is recognized in the consolidated income statement in the administrative expenses. The cumulative amortization of computer programs and brands as of March 31, 2018, amounts to ThUS $ 389,165 (ThUS $ 373,463 as of December 31, 2017).

NOTE 16 – GOODWILL

Goodwill as of March 31, 2018, amounts to ThUS $ 2,665,212 (ThUS $ 2,672,550 as of December 31, 2017). The goodwill movement, separated by CGU, includes the following:

						Coalition
Movement of Goodwill, separated by CGU:							and loyalty
			Air				program
			Transport				Multiplus				Total
			ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2017			2,176,634				533,748				2,710,382
Increase (decrease) due to exchange rate differences			61,360				15,280				76,640
Closing balance as of March 31, 2017 (Unaudited)			2,237,994				549,028				2,787,022
Opening balance as of April 1, 2017			2,237,994				549,028				2,787,022
Increase (decrease) due to exchange rate differences			(91,302	)			(23,170	)			(114,472	)
Closing balance as of December 31, 2017			2,146,692				525,858				2,672,550
Opening balance as of January 1, 2018			2,146,692				525,858				2,672,550
Increase (decrease) due to exchange rate differences			(4,838	)			(2,500	)			(7,338	)
Closing balance as of March 31, 2018 (Unaudited)			2,141,854				523,358				2,665,212

The Company has two cash- generating units (CGUs), “Air transportation” and, “Coalition and loyalty program Multiplus”. The CGU “Air transport” considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, and in a developed series of regional and international routes in America, Europe and Oceania, while the CGU “Coalition and loyalty program Multiplus” works with an integrated network associated companies in Brazil.

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of expected cash flows, 5 years after tax, which are based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated using the estimated growth rates, which do not exceed the average rates of long-term growth.

Management establish rates for annual growth, discount, inflation and exchange for each cash generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based on past performance and management’s expectations over market developments in each country where it operates. The discount rates used are in American Dollars for the CGU “Air transportation” and Brazilian Reals for CGU “Program coalition loyalty Multiplus”, both after taxes and reflect specific risks related to each country where the Company operates. Inflation and exchange rates are based on available data for each country and the information provided by the Central Bank of each country, and the fuel price is determined based on estimated production levels, competitive environment market in which they operate and its business strategy.

59 

As of December 31, 2017 the recoverable values were determined using the following assumptions presented below:

							Air transportation				Coalition and loyalty
							CGU				program Multiplus CGU (2)
Annual growth rate (Terminal)			%				1.0 - 2.0				4.0 - 5.0
Exchange rate (1)			R$/US$				3.3 - 3.9				3.3 - 3.9
Discount rate based on the weighted average
cost of capital (WACC)			%				7.55 - 8.55				—
Discount rate based on cost of equity (Ke)			%				—				12.4 - 13.4
Fuel Price from futures price curves
commodities markets			US$/barrel				73-78				—

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

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

										Decrease
		Increase				Increase				Minimum
		Maximum				Maximum				terminal
		WACC				CoE				growth rate
			%				%				%
Air transportation CGU			8.55				—				1.0
Coalition and loyalty program Multiplus CGU			—				13.4				4.0

In none of the previous cases impairment in the cash- generating unit was presented.

As of March 31, 2018, no signs of deterioration have been identified for the CGU Multiplus Coalition and Loyalty Program and for the UGE Transporte Aéreo that require a deterioration test.

60 

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

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

		Gross Book Value						Acumulated depreciation						Net Book Value
		As of			As of			As of			As of			As of			As of
		March 31,			December 31,			March 31,			December 31,			March 31,			December 31,
		2018			2017			2018			2017			2018			2017
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
		Unaudited						Unaudited						Unaudited
Construction in progress (1)		599,362			556,822			—			—			599,362			556,822
Land		49,675			49,780			—			—			49,675			49,780
Buildings		189,134			190,552			(67,119	)		(66,004	)		122,015			124,548
Plant and equipment		7,952,028			9,222,540			(2,173,205	)		(2,390,142	)		5,778,823			6,832,398
Own aircraft (2)		7,255,791			8,544,185			(1,913,651	)		(2,138,612	)		5,342,140			6,405,573
Other (3)		696,237			678,355			(259,554	)		(251,530	)		436,683			426,825
Machinery		38,976			39,084			(29,906	)		(29,296	)		9,070			9,788
Information technology equipment		168,395			166,713			(139,025	)		(136,557	)		29,370			30,156
Fixed installations and accessories		189,246			186,989			(109,142	)		(106,212	)		80,104			80,777
Motor vehicles		70,183			70,290			(60,256	)		(58,812	)		9,927			11,478
Leasehold improvements		196,224			186,679			(110,519	)		(102,454	)		85,705			84,225
Other property, plants and equipment		5,057,024			3,640,838			(1,765,851	)		(1,355,475	)		3,291,173			2,285,363
Financial leasing aircraft (2)		4,979,874			3,551,041			(1,738,221	)		(1,328,421	)		3,241,653			2,222,620
Other		77,150			89,797			(27,630	)		(27,054	)		49,520			62,743
Total		14,510,247			14,310,287			(4,455,023	)		(4,244,952	)		10,055,224			10,065,335

(1) As of March 31, 2018, includes advances paid to aircraft manufacturers for ThUS $ 584,722 (ThUS $ 543,720 as of December 31, 2017)

(2) In the period ended March 31, 2018, the Company sold its interest in seven special purposes companies. As a result of this, 23 aircraft were reclassified from the category Plants and equipment to the category Other properties, plants and equipment.

(3) Consider mainly rotables and tools.

61 

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

																										Other
														Information			Fixed									property,			Property,
											Plant and			technology			installations			Motor			Leasehold			plant and			Plant and
		Construction						Buildings			equipment			equipment			& accessories			vehicles			improvements			equipment			equipment
		in progress			Land			net			net			net			net			net			net			net			net
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2017		470,065			50,148			130,219			7,789,875			39,714			83,912			1,045			104,541			1,828,630			10,498,149
Additions		3,106			—			—			42,917			787			72			—			390			2,158			49,430
Disposals		—			—			—			—			(1	)		—			(12	)		—			(9	)		(22	)
Retirements		(8	)		—			—			(3,137	)		(399	)		(80	)		—			2			(1,266	)		(4,888	)
Depreciation expenses		—			—			(2,443	)		(138,506	)		(3,580	)		(3,886	)		(48	)		(6,829	)		(35,655	)		(190,947	)
Foreing exchange		505			881			846			8,537			528			1,483			6			538			10,019			23,343
Other increases (decreases )		14,279			—			—			(11,038	)		—			9,515			—			(415	)		(900	)		11,441
Changes, total		17,882			881			(1,597	)		(101,227	)		(2,665	)		7,104			(54	)		(6,314	)		(25,653	)		(111,643	)
Closing balance as of March 31, 2017 (Unaudited)		487,947			51,029			128,622			7,688,648			37,049			91,016			991			98,227			1,802,977			10,386,506
Opening balance as of April 1, 2017		487,947			51,029			128,622			7,688,648			37,049			91,016			991			98,227			1,802,977			10,386,506
Additions		8,039			—			—			215,698			4,921			257			77			7,766			39,325			276,083
Disposals		—			—			—			(16,004	)		(5	)		(10	)		(31	)		—			(18	)		(16,068	)
Retirements		(119	)		—			(6	)		(21,204	)		(74	)		(417	)		—			(2	)		(344	)		(22,166	)
Depreciation expenses		—			—			(5,503	)		(358,351	)		(11,007	)		(10,238	)		(139	)		(20,437	)		(168,582	)		(574,257	)
Foreing exchange		(398	)		(1,249	)		(1,121	)		(13,140	)		(711	)		(2,303	)		(14	)		(781	)		(15,132	)		(34,849	)
Other increases (decreases )		61,353			—			2,556			(642,419	)		(17	)		2,472			(448	)		(548	)		627,137			50,086
Changes, total		68,875			(1,249	)		(4,074	)		(835,420	)		(6,893	)		(10,239	)		(555	)		(14,002	)		482,386			(321,171	)
Closing balance as of December 31, 2017		556,822			49,780			124,548			6,853,228			30,156			80,777			436			84,225			2,285,363			10,065,335
Opening balance as of January 1, 2018		556,822			49,780			124,548			6,853,228			30,156			80,777			436			84,225			2,285,363			10,065,335
Additions		1,210			—			—			135,306			2,729			51			3			—			1,292			140,591
Disposals		—			—			(791	)		—			—			(45	)		—			—			—			(836	)
Retirements		(6	)		—			—			(6,830	)		(86	)		(22	)		—			(4	)		(14	)		(6,962	)
Depreciation expenses		—			—			(1,614	)		(114,678	)		(3,376	)		(3,348	)		(45	)		(7,188	)		(65,910	)		(196,159	)
Foreing exchange		(6	)		(105	)		(128	)		(1,403	)		(58	)		(111	)		(1	)		(81	)		(1,623	)		(3,516	)
Other increases (decreases )		41,342			—			—			(1,068,196	)		5			2,802			—			8,753			1,072,065			56,771
Changes, total		42,540			(105	)		(2,533	)		(1,055,801	)		(786	)		(673	)		(43	)		1,480			1,005,810			(10,111	)
Closing balance as of March 31, 2018 (Unaudited)		599,362			49,675			122,015			5,797,427			29,370			80,104			393			85,705			3,291,173			10,055,224

(1)        During 2016 the sale of two Airbus A330 aircraft was materialized. 

(2) During 2016 the reclassification to non-current assets or groups of assets for disposal classified as held for sale (see Note 13) of two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 aircraft and two Boeing 777 aircraft was materialized.

62 

(b)       Composition of the fleet:

							Aircraft included in Property, plant and equipment								Operating leases								Total fleet
							As of				As of				As of				As of				As of				As of
							March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
Aircraft			Model				2018				2017				2018				2017				2018				2017
							Unaudited								Unaudited								Unaudited
Boeing 767				300ER				34				34				2				2				36				36
Boeing 767				300F				8				8	(1)			1				2				9	(1)			10	(1)
Boeing 777				300ER				4				4				6				6				10				10
Boeing 777				Freighter				—				—				—				—				—				—
Boeing 787				800				6				6				4				4				10				10
Boeing 787				900				4				4				10				10				14				14
Airbus A319				100				37				37				9				9				46				46
Airbus A320				200				95	(2)			93	(2)			37				38				132	(2)			131	(2)
Airbus A320				NEO				1				1				3				3				4				4
Airbus A321				200				30				30				19				17				49				47
Airbus A330				200				—				—				1				—				1				—
Airbus A350				900				5	(3)			5	(3)			2	(3)			2	(3)			7	(3)			7	(3)
Total								224				222				94				93				318				315

(1) An aircraft leased to FEDEX as of December 2017

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

(3) Two aircraft leased to Qatar Air. One in operating leases and one in property, plant and equipment.

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

		Method		Useful life (years)
				minimum				maximum
Buildings		Straight line without residual value			20				50
Plant and equipment		Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)			5				23
Information technology equipment		Straight line without residual value			5				10
Fixed installations and accessories		Straight line without residual value			10				10
Motor vehicle		Straight line without residual value			10				10
Leasehold improvements		Straight line without residual value			5				5
Other property, plant and equipment		Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)			10				23

(*)        Except for the Boeing 767 300ER and Boeing 767 300F fleets which consider a lower residual value due to the extension of their useful life to 22 and 23 years respectively. Additionally certain technical components, which are depreciated based on the basis of cycles and flight hours.

The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values ​​are estimated according to market value at the end of such contracts.

(**) Aircraft with remarketing clause are those that are required to sell at the end of the contract.

63 

As of March 31, 2018, the charge to income for the depreciation of the period, which is included in the consolidated statement of income, amounts to ThUS $ 196,159 (ThUS $ 173,975 as of March 31, 2017). This charge is recognized in the cost of sales and administrative expenses of the consolidated statement of income.

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

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

Description of Property, plant and equipment pledged as guarantee:

							As of								As of
							March 31,								December 31,
							2018								2017
Guarantee		As sets					Existing				Book				Existing				Book
agent (*)		committed		Fleet			Debt				Value				Debt				Value
							ThUS$				ThUS$				ThUS$				ThUS$
							Unaudited
Wilmington		Aircraft and engines		Airbus A321 / A350				625,356				711,742				637,934				721,602
Trust Company				Boeing 767				195,545				271,729				593,655				888,948
				Boeing 787				565,299				622,531				720,267				842,127
Banco Santander S.A.		Aircraft and engines		Airbus A320				192,551				286,172				199,165				291,649
				Airbus A321				28,395				39,949				29,296				40,584
BNP Paribas		Aircraft and engines		Airbus A319				30,704				47,292				84,767				136,407
				Airbus A320				10,783				20,864				110,267				175,650
Credit Agricole		Aircraft and engines		Airbus A319				19,572				38,062				20,874				38,826
				Airbus A320				43,048				101,830				46,895				98,098
				Airbus A321				27,704				82,688				30,322				85,463
Wells Fargo		Aircraft and engines		Airbus A320				217,782				302,294				224,786				306,660
Bank of Utah		Aircraft and engines		Airbus A320 / A350				603,757				652,817				614,632				666,665
Natixis		Aircraft and engines		Airbus A320				14,912				34,044				34,592				72,388
				Airbus A321				366,672				473,808				378,418				481,397
Citibank N. A.		Aircraft and engines		Airbus A320				90,713				139,164				94,882				141,817
				Airbus A321				34,281				70,808				36,026				72,741
KfW IP EX-Bank		Aircraft and engines		Airbus A319				5,106				5,590				5,592				5,505
				Airbus A320				12,117				12,890				21,296				30,513
Airbus Financial Services		Aircraft and engines		Airbus A319				21,071				26,400				22,927				26,973
P K AirFinance US, Inc.		Aircraft and engines		Airbus A320				44,337				55,487				46,500				56,539
Banco BBVA		Land and buildings (2)						55,801				66,280				55,801				66,876
Total direct guarantee								3,205,506				4,062,441				4,008,894				5,247,428

(*) Due to the characteristics of a syndicated loan, the guarantee agent is the representative of the creditors.

(1) Corresponds to a debt classified in item loans to exporters (see Note 19).

The amounts of the current debt are presented at their nominal value. The book value corresponds to the goods granted as collateral.

Additionally, there are indirect guarantees associated with assets registered in properties, plants and equipment whose total debt as of March 31, 2018, amounts to ThUS$ 1,707,978 (ThUS $ 1,087,052 as of December 31, 2017). The book value of the assets with indirect guarantees as of March 31, 2018, amounts to ThUS $ 3,241,653 (ThUS $ 2,222,620 as of December 31, 2017).

64 

(ii) Commitments and others

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

		As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$
		Unaudited
Gross book value of fully depreciated property, plant and equipment still in use			140,848				136,811
Commitments for the acquisition of aircraft (*)			15,400,000				15,400,000

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

Purchase commitment of aircraft

		Year of delivery
Manufacturer		2018				2019				2020				2021				2022				Total
Airbus S.A.S.			13				11				16				21				11				72
A320-NEO			7				3				9				8				5				32
A321			—				1				—				—				—				1
A321-NEO			2				3				5				5				4				19
A350-1000			—				—				2				8				2				12
A350-900			4				4				—				—				—				8
The Boeing Company			—				6				2				2				—				10
Boeing 777			—				2				—				—				—				2
Boeing 787-9			—				4				2				2				—				8
Total			13				17				18				23				11				82

As of March 31, 2018, as a result of the different aircraft purchase agreements signed with Airbus SAS, there remain to receive 52 Airbus aircraft of the A320 family, with deliveries between 2018 and 2022, and 20 Airbus aircraft of the A350 family with dates delivery between 2018 and 2022. The approximate amount, according to manufacturer's list prices, is ThUS $ 12,600,000.

As of March 31, 2018, as a result of the different aircraft purchase agreements signed with The Boeing Company, there remain 8 Boeing 787 Dreamliner aircraft, with delivery dates between 2019 and 2021, and 2 Boeing 777 aircraft, with delivery planned for the year 2019. The approximate amount, according to manufacturer's list prices, is ThUS $ 2,800,000.

65 

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

						For the periods ended
						March 31,
						2018				2017
						Unaudited
Average rate of capitalization of capitalized interest costs			%				4.47				3.62
Costs of capitalized interest			ThUS$				5,456				3,583

(iv) Financial leases

The detail of the main financial leases is as follows:

Lessor		Aircraft				Model				As of March 31, 2018				As of December 31, 2017
										Unaudited
Azalea Leasing Limited			Airbus A320				200				2				—
Bailarin Leasing LLC			Boeing B787				800				2				—
Bandurria Leasing Limitd			Airbus A319				100				3				3
Bandurria Leasing Limitd			Airbus A320				200				4				4
Becacina Leasing LLC			Boeing 767				300ER				1				1
Chucao Leasing Limited			Airbus A319				100				2				—
Caiquen Leasing LLC			Boeing 767				300F				1				1
Cisne Leasing LLC			Boeing 767				300ER				2				2
Conure Leasing Limited			Airbus A320				200				2				2
Flamenco Leasing LLC			Boeing 767				300ER				1				1
FLYAFI 1 S.R.L.			Boeing 777				300ER				1				1
FLYAFI 2 S.R.L.			Boeing 777				300ER				1				1
FLYAFI 3 S.R.L.			Boeing 777				300ER				1				1
Fragata Leasing LLC			Boeing B787				800				1				—
Garza Leasing LLC			Boeing 767				300ER				1				1
Jilguero Leasing LLC			Boing B767				300ER				3				3
Loica Leasing Limited			Airbus A319				100				2				2
Loica Leasing Limited			Airbus A320				200				2				2
Manaca Leasing Limited			Airbus A320				200				1				—
Mirlo Leasing LLC			Boeing 767				300ER				1				1
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)			Airbus A320				200				1				1
NBB São Paulo Lease CO. Limited (BBAM)			Airbus A321				200				1				1
Osprey Leasing Limited			Airbus A319				100				8				8
Patagon Leasing Limited			Airbus A319				100				3				3
Petrel Leasing LLC			Boeing 767				300ER				—				1
Pochard Leasing LLC			Boeing 767				300ER				2				2
Quetro Leasing LLC			Boeing 767				300ER				3				3
SG Infraestructure Italia S.R.L.			Boeing 777				300ER				1				1
SL Alcyone LTD (Showa)			Airbus A320				200				1				1
Tagua Leasing LLC			Boeing B767				300ER				9				—
Tiuque Leasing Limited			Airbus A319				100				1				—
Tiuque Leasing Limited			Airbus A320				200				5				—
Torcaza Leasing Limited			Airbus A320				200				8				8
Tricahue Leasing LLC			Boeing 767				300ER				3				3
Wacapou Leasing S.A			Airbus A320				200				1				1
Wells Fargo Bank North National Association			Airbus A319				100				1				1
Total											82				60

66 

Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.

Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircrafts, perform maintenance on the aircrafts and update the airworthiness certificates at their own cost.

The assets acquired under the financial leasing modality are classified under Other property, plant and equipment. As of March 31, 2018, the Company registers under this modality eighty-two aircraft (sixty aircraft as of December 31, 2017).

The book value of the assets by financial leasing as of March 31, 2018, amounts to ThUS$ 3,268,822 (ThUS$ 2,107,526 as of December 31, 2017).

The minimum payments under financial leases are as follows:

		As o f March 31, 2018												As o f December 31, 2017
		Gross Value				Interest				Present Value				Gross Value				Interest				Present Value
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited
No later than one year			291,050				(31,733	)			259,317				303,863				(32,447	)			271,416
Between one and five years			786,639				(28,589	)			758,050				835,696				(30,050	)			805,646
Over five years			25,243				(669	)			24,574				36,788				(816	)			35,972
Total			1,102,932				(60,991	)			1,041,941				1,176,347				(63,313	)			1,113,034

NOTE 18 - CURRENT AND DEFERRED TAXES

In the period ended March 31, 2018, the income tax provision was calculated for such period, applying the rate of 27% for the business year 2018, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.

Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System" is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System" the top rate would reach 25% in 2017.

As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System", unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System". This decision was taken in the last quarter of 2016.

On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System" and could not elect to use the other system.

67 

The Partially Integrated Taxation System is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.

Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities always correspond to the same entity and tax authority.

(a) Current taxes

(a.1) The composition of the current tax assets is the following:

		Current assets								Non- current assets								Total assets
		As of March 31, 2018				As of December 31, 2017				As of March 31, 2018				As of December 31, 2017				As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Provisional monthly payments (advances)			68,652				65,257				—				—				68,652				65,257
Other recoverable credits			13,778				12,730				16,932				17,532				30,710				30,262
Total assets by current tax			82,430				77,987				16,932				17,532				99,362				95,519

(a.2) The composition of the current tax liabilities are as follows:

		Current liabilities								Non- current liabilities								Total liabilities
		As of March 31, 2018				As of December 31, 2017				As of March 31, 2018				As of December 31, 2017				As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Income tax provision			4,302				3,511				—				—				4,302				3,511
Additional tax provision			—				—				—				—				—				—
Total liabilities by current tax			4,302				3,511				—				—				4,302				3,511

(b) Deferred taxes

68 

The balances of deferred tax are the following:

		Assets								Liabilities
Concept		As of March 31, 2018				As of December 31, 2017				As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited
Depreciation			225,948				210,855				1,318,825				1,401,277
Leased assets			(105,519	)			(103,201	)			397,869				275,142
Amortization			(1,113	)			(484	)			54,776				54,335
Provisions			(18,972	)			(9,771	)			15,648				690
Revaluation of financial instruments			—				(734	)			(7,779	)			(4,484	)
Tax losses			275,344				290,973				(1,205,035	)			(1,188,586	)
Intangibles			—				—				378,964				406,536
Others			1,134				(23,617	)			8,710				4,787
Total			376,822				364,021				961,978				949,697

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

(a) From January 1 to March 31, 2017 (Unaudited)

		Opening balance Assets /(liabilities)				Recognized in consolidated income				Recognized in comprehensive income				Exchange rate variation				Ending balance Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(1,376,025	)			(144,697	)			—				(623	)			(1,521,345	)
Leased assets			(239,758	)			32,673				—				(569	)			(207,654	)
Amortization			(77,480	)			13,296				—				(336	)			(64,520	)
Provisions			281,369				24,476				(1,040	)			9,253				314,058
Revaluation of financial instruments			3,223				2,666				(720	)			232				5,401
Tax losses (*)			1,328,736				31,278				—				2,434				1,362,448
Revaluation propety, plant and equipment			—				(1,074	)			—				1,074				—
Intangibles			(430,705	)			23,483				—				(12,208	)			(419,430	)
Others			(20,539	)			(7,916	)			—				618				(27,837	)
Total			(531,179	)			(25,815	)			(1,760	)			(125	)			(558,879	)

69 

(b) From April 1 to December 31, 2017

		Opening				Recognized in				Recognized in				Exchange				Ending
		balance				consolidated				comprehensive				rate				balance
		Assets /(liabilities)				income				income				variation				Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(1,521,345	)			329,979				—				945				(1,190,421	)
Leased assets			(207,654	)			(171,552	)			—				863				(378,343	)
Amortization			(64,520	)			9,190				—				510				(54,820	)
Provisions			314,058				(310,743	)			255				(14,031	)			(10,461	)
Revaluation of financial instruments			5,401				(249	)			(1,050	)			(352	)			3,750
Tax losses (*)			1,362,448				120,803				—				(3,691	)			1,479,560
Intangibles			(419,430	)			953				—				11,941				(406,536	)
Others			(27,837	)			369				—				(937	)			(28,405	)
Total			(558,879	)			(21,250	)			(795	)			(4,752	)			(585,676	)

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

		Opening				Recognized in				Recognized in				Exchange				Ending
		balance				consolidated				comprehensive				rate				balance
		Assets /(liabilities)				income				income				variation				Asset (liability)
			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(1,190,421	)			97,442				—				102				(1,092,877	)
Leased assets			(378,343	)			(125,138	)			—				93				(503,388	)
Amortization			(54,820	)			(1,124	)			—				55				(55,889	)
Provisions			(10,461	)			(22,385	)			(260	)			(1,514	)			(34,620	)
Revaluation of financial instruments			3,750				6,364				(2,297	)			(38	)			7,779
Tax losses (*)			1,479,560				1,217				—				(398	)			1,480,379
Intangibles			(406,536	)			29,721				—				(2,150	)			(378,965	)
Others			(28,405	)			20,931				—				(101	)			(7,575	)
Total			(585,676	)			7,028				(2,557	)			(3,951	)			(585,156	)

Deferred tax assets not recognized:		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Tax losses			82,500				81,155
Total Deferred tax assets not recognized			82,500				81,155

Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization of future tax benefit By the above at March 31, 2018, the Company has not recognized deferred tax assets of ThUS$ 82,500 (ThUS$ 81,155 at December 31, 2017) according with a loss of ThUS$ 252,120 (ThUS$ 247,920 at December 31, 2017).

70 

Deferred tax expense and current income taxes:

		For the period ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Current tax expense
Current tax expense			39,695				23,815
Adjustment to previous period’s current tax			—				1,267
Total current tax expense, net			39,695				25,082
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences			7,028				28,387
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness			—				19
Total deferred tax expense, net			7,028				28,406
Income tax expense			46,723				53,488

Composition of income tax expense (income):

		For the period ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Current tax expense, net, foreign			38,965				23,900
Current tax expense, net, Chile			730				1,201
Total current tax expense, net			39,695				25,101
Deferred tax expense, net, foreign			(208	)			(8,307	)
Deferred tax expense, net, Chile			7,236				36,694
Deferred tax expense, net, total			7,028				28,387
Income tax expense			46,723				53,488

Profit before tax by the legal tax rate in Chile (27% and 25.5% at March 31, 2018 and 2017, respectively)

71 

		For the period ended								For the period ended
		March 31,								March 31,
		2018				2017				2018				2017
		ThUS$				ThUS$				%				%
		Unaudited								Unaudited
Tax expense using the legal rate (*)			41,660				32,712				27.00				25.50
Tax effect by change in tax rate (*)			—				—				—				—
Tax effect of rates in other jurisdictions			6,627				8,903				4.30				6.94
Tax effect of non-taxable operating revenues			97				(44,658	)			0.06				(34.81	)
Tax effect of disallowable expenses			4,023				71,862				2.61				56.02
Tax effect of the use of tax losses not previously recognized			1,087				(10,423	)			0.70				(8.13	)
Other increases (decreases) in legal tax charge			(6,771	)			(4,908	)			(4.39	)			(3.83	)
Total adjustments to tax expense using the legal			5,063				20,776				3.28				16.19
Tax expense using the effective rate			46,723				53,488				30.28				41.69

(*) On September 29, 2014, Law No. 20,780 “Amendment to the system of income taxation and introduces various adjustments in the tax system.” was published in the Official Journal of the Republic of Chile. Within major tax reforms that this law contains, the First- Category Tax rate is gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.

Thus, at March 31, 2018 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.

Deferred taxes related to items charged to net equity:

		For the period ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Aggregate deferred taxation of components of other comprehensive income			2,557				(1,760	)

72 

NOTE 19 - OTHER FINANCIAL LIABILITIES

The composition of other financial liabilities is as follows:

					As of				As of
					March 31,				December 31,
					2018				2017
					ThUS$				ThUS$
					Unaudited
Current
(a)			Interest bearing loans			1,293,111				1,288,749
(b)			Hedge derivatives			6,239				12,200
			Total current			1,299,350				1,300,949
Non-current
(a)			Interest bearing loans			6,347,199				6,602,891
(b)			Hedge derivatives			1,615				2,617
			Total non-current			6,348,814				6,605,508

(a)        Interest bearing loans

Obligations with credit institutions and debt instruments:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Current
Loans to exporters			325,648				314,618
Bank loans (1)			44,722				59,017
Guaranteed obligations			404,399				531,173
Other guaranteed obligations			2,228				2,170
Subtotal bank loans			776,997				906,978
Obligation with the public (2)			42,157				14,785
Financial leases			382,229				276,541
Other loans			91,728				90,445
Total current			1,293,111				1,288,749
Non-current
Bank loans			260,382				260,433
Guaranteed obligations (3) (7)			2,690,125				3,505,669
Other guaranteed obligations			240,220				240,007
Subtotal bank loans			3,190,727				4,006,109
Obligation with the public (4) (5) (6)			1,578,813				1,569,281
Financial leases (7)			1,406,018				832,964
Other loans			171,641				194,537
Total non-current			6,347,199				6,602,891
Total obligations with financial institutions			7,640,310				7,891,640

73 

(1) On September 29, 2016 TAM Linhas Aéreas S.A. obtained financing for US$ 200 million, guaranteed with 18% of the shares of Multiplus S.A., percentage adjustable depending on the shares price. Additionally, TAM obtained a hedging economic (Cross Currency Swap) for the same amount and period, in order to convert the commitment currency from US$ to BRL.

On March 30, 2017, TAM Linhas Aéreas S.A. restructured the financing mentioned in the previous paragraph, modifying the nominal amount of the transaction to US $ 137 million.

On September 27, 2017, TAM Linhas Aéreas S.A. made the payment of capital plus interest corresponding to the last installment of the financing described above. Simultaneously, all the garments were lifted on the shares of Multiplus S.A. delivered as collateral.

(2) On April 25, 2017, the payment of the principal plus interest on the long-term bonds issued by the company TAM Capital Inc. for an amount of US$ 300,000,000 at an interest rate of 7.375% annual. The payment consisted of 100% of the capital, US$ 300,000,000, and interest accrued as of the date of payment for ThUS $ 11,063.

(3) On April 10, 2017, the issuance and private placement of debt securities in the amount of US$ 140,000,000 was made under the current structure of the Enhanced Equipment Trust Certificates (“EETC”) issued and placed the year 2015 to finance the acquisition of eleven Airbus A321-200, two Airbus A350-900 and four Boeing 787-9 with arrivals between July 2015 and April 2016. The offer is made up of Class C Certificates, which are subordinate to the Current Class A Certificates and Class B Certificates held by the Company. The term of the Class C Certificates is six years and expires in 2023.

(4) On April 11, 2017, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group SA, has issued and placed on the international market, pursuant to Rule 144 -A and Regulation S of the securities laws of the United States of America, long-term unsecured bonds in the amount of US$ 700,000,000, maturing in 2024 at an annual interest rate of 6.875%.

As reported in the essential fact of April 6, 2017, the Issue and placement of the 144-A Bonds was intended to finance general corporate purposes of LATAM.

(5) On August 17, 2017, LATAM made the placement in the local market (Santiago Stock Exchange) of the Series A Bonds (BLATM-A), Series B (BLATM-B), Series C (BLATM-) C) and Series D (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in the Securities Registry of the Commission for the Financial Market (“CMF”), under number 862 for a total of UF 9,000,000.

The total amount placed of the Series A Bond was UF 2,500,000; The total amount placed of the Series B Bond was UF 2,500,000. The total amount placed of the Series C Bond was UF 1,850,000. The total amount placed of the Series D Bond was UF 1,850,000, thus totaling UF 8,700,000.

The Series A Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series B Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%. The Series C Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series D Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%.

74 

The proceeds of the placement of the Series A, Series B, Series C and Series D Bonds were allocated in full to the partial financing of the early redemption of the total bonds of TAM Capital 3 inc.

(6) On September 1, 2017, TAM Capital 3 Inc., a company controlled indirectly by TAM S.A. through its subsidiary TAM Linhas Aéreas SA, which consolidates its financial statements with LATAM, made the full advance redemption of the bonds it placed abroad on June 3, 2011, for an amount of US $ 500 million at a 8.375% rate and with an expiration date on June 3, 2021. The total redemption was partially financed with the placement of bonds in the local market described in number (5) above, and the balance, with other funds available from the Company.

(7) In the period ended March 31, 2018, the Company sold its interest in seven special purposes companies. As a result of this, the classification of the financial liabilities associated with 23 aircraft from guaranteed obligations to financial leases was modified.

All interest-bearing liabilities are recorded according to the effective rate method. Under IFRS, in the case of fixed rate loans, the effective rate determined does not vary over the duration of the loan, whereas in variable rate loans, the effective rate changes to the date of each payment of interest.

Currency balances that make the interest bearing loans:

		As of				As of
		March 31,				December 31,
		2018				2017
Currency		ThUS$				ThUS$
		Unaudited
Brazilian real			8				130
Chilean peso (U.F.)			518,150				521,122
US Dollar			7,122,152				7,370,388
Total			7,640,310				7,891,640

75 

Interest-bearing loans due in installments to March 31, 2018 (Unaudited)

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		Effective rate				Nominal rate
												ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA			Chile				ThUS$				—				75,000				—				—				—				75,000				—				75,401				—				—				—				75,401			At Expiration			2.64				2.64
97.032.000-8		BBVA			Chile				UF				—				57,206				—				—				—				57,206				522				57,206				—				—				—				57,728			At Expiration			3.57				2.77
97.036.000-K		SANTANDER			Chile				ThUS$				40,000				—				—				—				—				40,000				40,068				—				—				—				—				40,068			At Expiration			2.67				2.67
97.030.000-7		ESTADO			Chile				ThUS$				40,000				—				—				—				—				40,000				40,006				—				—				—				—				40,006			At Expiration			2.73				2.73
97.003.000-K		BANCO DO BRASIL			Chile				ThUS$				100,000				—				—				—				—				100,000				100,437				—				—				—				—				100,437			At Expiration			2.73				2.73
97.951.000-4		HSBC			Chile				ThUS$				12,000				—				—				—				—				12,000				12,008				—				—				—				—				12,008			At Expiration			2.32				2.32
Bank loans
97.023.000-9		CORPBANCA			Chile				UF				9,594				18,456				36,912				—				—				64,962				9,674				18,456				36,631				—				—				64,761			Quarterly			3.43				3.43
0-E		BLADEX			U.S.A.				ThUS$				7,500				7,500				15,000				—				—				30,000				8,082				7,500				14,750				—				—				30,332			Semiannual			5.51				5.51
97.036.000-K		SANTANDER			Chile				ThUS$				—				—				207,288				—				—				207,288				459				—				207,288				—				—				207,747			Quarterly			4.98				4.98
Obligations with the public
0-E		BANK OF NEW YORK			U.S.A.				ThUS$				—				—				500,000				—				700,000				1,200,000				22,857				12,172				492,745				—				697,535				1,225,309			At Expiration			7.44				7.03
97.030.000-7		ESTADO			Chile				UF				—				—				—				194,412				194,411				388,823				7,128				—				—				194,267				194,266				395,661			At Expiration			5.50				5.50
Guaranteed obligations
0-E		CREDIT AGRICOLE			France				ThUS$				7,876				23,740				49,773				8,935				—				90,324				8,217				23,740				48,926				8,935				—				89,818			Quarterly			3.00				2.56
0-E		BNP PARIBAS			U.S.A.				ThUS$				16,380				39,119				115,349				119,530				273,913				564,291				20,550				39,481				111,883				117,578				271,361				560,853			Quarterly			3.68				3.68
0-E		WELLS FARGO			U.S.A.				ThUS$				6,344				19,197				52,422				54,261				63,321				195,545				7,343				19,197				45,243				51,331				61,902				185,016			Quarterly			2.17				1.82
0-E		WILMINGTON TRUST			U.S.A.				ThUS$				20,491				61,866				177,033				185,485				569,551				1,014,426				26,551				61,866				171,359				182,786				566,471				1,009,033			Quarterly			4.48				4.48
0-E		CITIBANK			U.S.A.				ThUS$				10,546				32,087				89,041				86,201				83,347				301,222				11,714				32,087				83,726				83,736				81,262				292,525			Quarterly			3.57				2.69
0-E		US BANK			U.S.A.				ThUS$				15,244				46,254				127,272				133,197				135,710				457,677				17,381				46,254				110,983				126,153				132,042				432,813			Quarterly			4.00				2.82
0-E		NATIXIS			France				ThUS$				13,332				40,868				97,463				84,514				145,406				381,583				14,290				40,868				95,502				83,538				143,797				377,995			Quarterly			3.96				3.94
0-E		PK AIRFINANCE			U.S.A.				ThUS$				2,202				6,840				20,091				15,204				—				44,337				2,268				6,840				20,091				15,204				—				44,403			Monthly			3.49				3.49
0-E		KFW IPEX-BANK			Germany				ThUS$				1,654				5,052				10,516				—				—				17,222				1,682				5,052				10,516				—				—				17,250			Quarterly			3.54				3.54
0-E		AIRBUS FINANCIAL			U.S.A.				ThUS$				1,870				5,699				13,501				—				—				21,070				1,912				5,699				13,501				—				—				21,112			Monthly			3.35				3.35
0-E		INVESTEC			England				ThUS$				3,246				6,198				20,613				23,172				8,776				62,005				4,153				6,311				19,996				22,979				8,753				62,192			Semiannual			6.19				6.19
-		SWAP Aircraft arrive			—				ThUS$				276				667				571				—				—				1,514				276				667				571				—				—				1,514			Quarterly			—				—
Other guaranteed obligations
0-E		CREDIT AGRICOLE			France				ThUS$				—				—				241,287				—				—				241,287				2,228				—				240,220				—				—				242,448			At Expiration			3.56				3.56
Financial leases
0-E		ING			U.S.A.				ThUS$				3,552				10,914				23,143				—				—				37,609				3,872				10,914				22,865				—				—				37,651			Quarterly			5.70				5.01
0-E		CITIBANK			U.S.A.				ThUS$				12,872				39,247				93,699				59,968				5,282				211,068				13,741				39,247				91,366				59,544				5,266				209,164			Quarterly			3.94				3.34
0-E		PEFCO			U.S.A.				ThUS$				12,696				25,640				16,921				—				—				55,257				13,070				25,640				16,659				—				—				55,369			Quarterly			5.49				4.87
0-E		BNP PARIBAS			U.S.A.				ThUS$				13,322				27,643				43,994				—				—				84,959				13,723				27,643				43,514				—				—				84,880			Quarterly			3.77				3.37
0-E		WELLS FARGO			U.S.A.				ThUS$				29,228				88,688				239,325				214,064				140,411				711,716				31,678				88,688				224,687				208,565				138,361				691,979			Quarterly			2.74				1.99
97.036.000-K		SANTANDER			Chile				ThUS$				5,492				16,627				45,655				43,005				786				111,565				5,877				16,627				44,339				42,749				785				110,377			Quarterly			2.94				2.40
0-E		RRPF ENGINE			England				ThUS$				804				2,463				6,950				7,543				7,690				25,450				804				2,463				6,950				7,543				7,690				25,450			Monthly			4.01				4.01
0-E		APPLE BANK			U.S.A.				ThUS$				1,422				4,300				11,907				12,556				5,636				35,821				1,613				4,300				11,408				12,404				5,618				35,343			Quarterly			3.17				2.57
0-E		BTMU			U.S.A.				ThUS$				2,886				8,735				24,166				25,439				10,652				71,878				3,129				8,735				23,167				25,140				10,617				70,788			Quarterly			3.38				2.79
0-E		DEUTSCHE  BANK			U.S.A.				ThUS$				3,020				9,206				26,113				28,516				27,087				93,942				3,611				9,206				25,417				28,052				26,681				92,967			Quarterly			4.85				4.85
0-E		NATIXIS			France				ThUS$				1,497				3,633				13,553				3,804				—				22,487				1,586				3,633				13,553				3,804				—				22,576			Quarterly			3.73				3.73
0-E		KFW IPEX-BANK			Germany				ThUS$				768				1,367				4,030				1,103				—				7,268				771				1,367				4,030				1,103				—				7,271			Quarterly			4.15				4.15
Other loans
0-E		CITIBANK (*)			U.S.A.				ThUS$				21,951				69,075				173,043				—				—				264,069				22,653				69,075				171,641				—				—				263,369			Quarterly			6.00				6.00
		Total											418,065				753,287				2,496,631				1,300,909				2,371,979				7,340,871				475,934				766,335				2,423,527				1,275,411				2,352,407				7,293,614

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

76 

Interest-bearing loans due in installments to March 31, 2018 (Unaudited)

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

										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				Effective rate				Nominal rate
										ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$								%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland			ThUS$				132				408				1,179				534				—				2,253				143				408				1,179				534				—				2,264				Monthly				6.01				6.01
Financial leases
0-E		NATIXIS		France			ThUS$				1,557				7,585				41,739				45,302				—				96,183				1,906				7,585				41,739				45,302				—				96,532				Quarterly/ Semiannual				6.18				6.18
0-E		WACAPOU LEASING S.A.		Luxemburg			ThUS$				701				2,152				6,081				2,417				—				11,351				736				2,152				6,081				2,417				—				11,386				Quarterly				4.31				4.31
0-E		SOCIÉTÉ GÉNÉRALE  MILAN BRANCH		Italy			ThUS$				9,093				27,854				198,802				—				—				235,749				10,050				27,854				198,602				—				—				236,506				Quarterly				5.49				5.43
0-E		SOCIETE GENERALE		France			BRL				8				—				—				—				—				8				8				—				—				—				—				8				Monthly				6.39				6.39
		Total									11,491				37,999				247,801				48,253				—				345,544				12,843				37,999				247,601				48,253				—				346,696
		Total consolidado									429,556				791,286				2,744,432				1,349,162				2,371,979				7,686,415				488,777				804,334				2,671,128				1,323,664				2,352,407				7,640,310

77 

Interest-bearing loans due in installments to December 31, 2017

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 90days				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 90days				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		Effective rate				Nominal rate
												ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA			Chile				ThUS$				75,000				—				—				—				—				75,000				75,781				—				—				—				—				75,781			At Expiration			2.30				2.30
97.032.000-8		BBVA			Chile				UF				—				55,801				—				—				—				55,801				—				55,934				—				—				—				55,934			At Expiration			3.57				2.77
97.036.000-K		SANTANDER			Chile				ThUS$				30,000				—				—				—				—				30,000				30,129				—				—				—				—				30,129			At Expiration			2.49				2.49
97.030.000-7		ESTADO			Chile				ThUS$				40,000				—				—				—				—				40,000				40,071				—				—				—				—				40,071			At Expiration			2.57				2.57
97.003.000-K		BANCO DO BRASIL			Chile				ThUS$				100,000				—				—				—				—				100,000				100,696				—				—				—				—				100,696			At Expiration			2.40				2.40
97.951.000-4		HSBC			Chile				ThUS$				12,000				—				—				—				—				12,000				12,007				—				—				—				—				12,007			At Expiration			2.03				2.03
Bank loans
97.023.000-9		CORPBANCA			Chile				UF				21,298				21,360				42,006				—				—				84,664				21,542				21,360				41,548				—				—				84,450			Quarterly			3.68				3.68
0-E		BLADEX			U.S.A.				ThUS$				—				15,000				15,000				—				—				30,000				—				15,133				14,750				—				—				29,883			Semiannual			5.51				5.51
97.036.000-K		SANTANDER			Chile				ThUS$				—				—				202,284				—				—				202,284				439				—				202,284				—				—				202,723			Quarterly			4.41				4.41
Obligations with the public
0-E		BANK OF NEW YORK			U.S.A.				ThUS$				—				—				500,000				—				700,000				1,200,000				—				13,047				492,745				—				697,536				1,203,328			At Expiration			7.44				7.03
97.030.000-7		ESTADO			Chile				UF				—				—				—				189,637				189,637				379,274				—				1,738								189,500				189,500				380,738			At Expiration			5.50				5.50
Guaranteed obligations
0-E		CREDIT AGRICOLE			France				ThUS$				7,767				23,840				54,074				12,410				—				98,091				8,101				23,840				52,924				12,026				—				96,891			Quarterly			2.66				2.22
0-E		BNP PARIBAS			U.S.A.				ThUS$				10,929				44,145				114,800				119,948				285,399				575,221				13,328				44,781				111,319				117,987				282,714				570,129			Quarterly			3.41				3.40
0-E		WELLS FARGO			U.S.A.				ThUS$				27,223				82,402				225,221				233,425				240,716				808,987				30,143				82,402				203,371				224,295				236,179				776,390			Quarterly			2.46				1.75
0-E		WILMINGTON TRUST			U.S.A.				ThUS$				20,427				61,669				175,334				183,332				594,091				1,034,853				26,614				61,669				169,506				180,520				590,723				1,029,032			Quarterly			4.48				4.48
0-E		CITIBANK			U.S.A.				ThUS$				11,994				36,501				101,230				104,308				97,184				351,217				13,231				36,501				95,208				101,558				94,807				341,305			Quarterly			3.31				2.47
0-E		BTMU			U.S.A.				ThUS$				2,856				8,689				24,007				25,278				13,904				74,734				3,082				8,689				22,955				24,941				13,849				73,516			Quarterly			2.87				2.27
0-E		APPLE BANK			U.S.A.				ThUS$				1,401				4,278				11,828				12,474				7,242				37,223				1,583				4,278				11,303				12,303				7,212				36,679			Quarterly			2.78				2.18
0-E		US BANK			U.S.A.				ThUS$				15,157				45,992				126,550				132,441				152,693				472,833				17,364				45,992				109,705				125,006				148,318				446,385			Quarterly			4.00				2.82
0-E		DEUTSCHE  BANK			U.S.A.				ThUS$				2,965				9,127				25,826				28,202				30,786				96,906				3,534				9,127				25,130				27,739				30,323				95,853			Quarterly			4.39				4.39
0-E		NATIXIS			France				ThUS$				14,645				44,627				107,068				91,823				154,848				413,011				15,642				44,627				105,056				90,823				153,124				409,272			Quarterly			3.42				3.40
0-E		PK AIRFINANCE			U.S.A.				ThUS$				2,163				6,722				19,744				17,871				—				46,500				2,225				6,722				19,744				17,871				—				46,562			Monthly			3.18				3.18
0-E		KFW IPEX-BANK			Germany				ThUS$				2,397				6,678				16,173				1,640				—				26,888				2,428				6,677				16,174				1,640				—				26,919			Quarterly			3.31				3.31
0-E		AIRBUS FINANCIAL			U.S.A.				ThUS$				1,855				5,654				15,416				—				—				22,925				1,900				5,654				15,416				—				—				22,970			Monthly			3.19				3.19
0-E		INVESTEC			England				ThUS$				1,374				7,990				20,440				22,977				10,597				63,378				1,808				8,181				19,801				22,769				10,565				63,124			Semiannual			6.04				6.04
-		SWAP Aviones llegados			—				ThUS$				301				749				765				—				—				1,815				301				749				765				—				—				1,815			Quarterly							—
Other guaranteed obligations
0-E		CREDIT AGRICOLE			France				ThUS$				—				—				241,287				—				—				241,287				2,170				—				240,007				—				—				242,177			At Expiration			3.38				3.38
Financial leases
0-E		ING			U.S.A.				ThUS$				5,347				10,779				26,831				—				—				42,957				5,717				10,779				26,500				—				—				42,996			Quarterly			5.67				5.00
0-E		CITIBANK			U.S.A.				ThUS$				11,206				34,267				86,085				49,853				2,863				184,274				12,013				34,267				84,104				49,516				2,859				182,759			Quarterly			3.78				3.17
0-E		PEFCO			U.S.A.				ThUS$				12,526				32,850				22,407				—				—				67,783				12,956				32,850				22,088				—				—				67,894			Quarterly			5.46				4.85
0-E		BNP PARIBAS			U.S.A.				ThUS$				13,146				33,840				48,823				2,296				—				98,105				13,548				33,840				48,253				2,293				—				97,934			Quarterly			3.66				3.25
0-E		WELLS FARGO			U.S.A.				ThUS$				10,630				33,866				91,162				64,471				20,984				221,113				11,460				33,866				88,674				63,860				20,903				218,763			Quarterly			3.17				2.67
97.036.000-K		SANTANDER			Chile				ThUS$				5,459				16,542				45,416				46,472				3,134				117,023				5,813				16,542				44,010				46,153				3,128				115,646			Quarterly			2.51				1.96
0-E		RRPF ENGINE			England				ThUS$				265				2,430				6,856				7,441				8,991				25,983				265				2,430				6,856				7,441				8,991				25,983			Monthly			4.01				4.01
Other loans
0-E		CITIBANK (*)			U.S.A.				ThUS$				21,822				67,859				196,210				—				—				285,891				22,586				67,859				194,537				—				—				284,982			Quarterly			6.00				6.00
		Total											482,153				713,657				2,562,843				1,346,299				2,513,069				7,618,021				508,477				729,534				2,484,733				1,318,241				2,490,731				7,531,716

78 

Interest-bearing loans due in installments to December 31, 2017

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

										Nominal values																								Accounting values
Tax No.		Creditor		Creditor country		Currency				Up to 90days				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 90days				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				Effective rate				Nominal rate
										ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$								%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland			ThUS$				130				401				1,161				690				—				2,382				142				401				1,161				690				—				2,394				Monthly				6.01				6.01
Financial leases
0-E		NATIXIS		France			ThUS$				2,853				6,099				19,682				70,402				—				99,036				3,592				6,099				19,682				70,402				—				99,775				Quarterly/ Semiannual				5.59				5.59
0-E		WACAPOU LEASING S.A.		Luxemburg			ThUS$				696				2,125				6,020				3,206				—				12,047				732				2,125				6,020				3,207				—				12,084				Quarterly				3.69				3.69
0-E		SOCIÉTÉ GÉNÉRALE  MILAN BRANCH		Italy			ThUS$				8,964				27,525				208,024				—				—				244,513				9,992				27,525				208,024				—				—				245,541				Quarterly				4.87				4.81
0-E		BANCO IBM S.A		Brazil			BRL				21				—				—				—				—				21				21				—				—				—				—				21				Monthly				6.89				6.89
0-E		SOCIETE GENERALE		France			BRL				101				8				—				—				—				109				101				8				—				—				—				109				Monthly				6.89				6.89
		Total									12,765				36,158				234,887				74,298				—				358,108				14,580				36,158				234,887				74,299				—				359,924
		Total consolidated									494,918				749,815				2,797,730				1,420,597				2,513,069				7,976,129				523,057				765,692				2,719,620				1,392,540				2,490,731				7,891,640

79 

(b) Hedge derivatives

		Current liabilities								Non-current liabilities								Total hedge derivatives
		As of March 31, 2018				As of December 31, 2017				As of December 31, 2018				As of December 31, 2017				As of December 31, 2018				As of December 31, 2017
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Accrued interest from the last date of interest rate swap			2,664				1,189				—				—				2,664				1,189
Fair value of interest rate derivatives			3,256				8,919				1,615				2,617				4,871				11,536
Fair value of foreign currency derivatives			319				2,092				—				—				319				2,092
Total hedge derivatives			6,239				12,200				1,615				2,617				7,854				14,817

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 March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$
			Unaudited
Cross currency swaps (CCS) (1)			61,616				38,875
Interest rate swaps (2)			(4,981	)			(6,542	)
Fuel options (3)			14,330				10,711
Currency options  R$/US$  (4)			3,723				4,370
Currency options  CLP/US$  (4)			626				636

(1) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate and the exchange rate US$/UF of bank loans. These contracts are recorded as cash flow hedges and fair value.

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

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

(4) Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$, US$/EUR and US$/GBP. These contracts are recorded as cash flow hedges.

During the periods presented, the Company only has cash flow and fair value hedges (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will occur and will impact results in the next 3 months from the date of the consolidated statement of financial position, while in the case of hedges of interest rates, these they will occur and will impact results throughout the life of the associated loans, up to their maturity. In the case of currency hedges through a CCS, there is a group of hedging relationships, in which two types of hedge accounting are generated, one of cash flow for the US $ / UF component; and another of fair value, for the floating rate component US $. The other group of hedging relationships only generates cash flow hedge accounting for the US $ / UF component.

80 

During the periods presented, no hedging operations of future highly probable transaction that have not been realized have occurred.

Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.

The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:

		For the period ended March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Debit (credit) recognized in comprehensive income during the period			15,533				(4,879	)
Debit (credit) transferred from net equity to income during the period			4,097				(18,653	)

NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES

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

		As of March 31, 2018				As of December 31, 2017
		ThUS$				ThUS$
		Unaudited
Current
(a) Trade and other accounts payables			1,328,352				1,349,201
(b) Accrued liabilities at the reporting date			345,592				346,001
Total trade and other accounts payables			1,673,944				1,695,202

81 

(a)        Trade and other accounts payable:

		As of				As of
		March 31,				December 31,
		2018				2017
			ThUS$				ThUS$
			Unaudited
Trade creditors			1,098,960				1,096,540
Leasing obligation			4,920				4,448
Other accounts payable			224,472				248,213
Total			1,328,352				1,349,201

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

		As of				As of
		March 31,				December 31,
		2018				2017
			ThUS$				ThUS$
			Unaudited
Boarding Fee			230,002				249,898
Aircraft Fuel			215,052				219,601
Suppliers technical purchases			144,015				114,690
Airport charges and overflight			126,885				106,534
Professional services and advisory			91,261				81,679
Other personnel expenses			90,846				89,621
Handling and ground handling			88,692				103,784
Services on board			69,335				68,605
Marketing			62,120				75,220
Leases, maintenance and IT services			61,965				69,873
Crew			28,925				24,163
Air companies			28,530				31,381
Land services			21,071				31,151
Maintenance			15,092				26,244
Aviation insurance			10,003				5,108
Achievement of goals			4,920				4,285
Communications			4,127				5,732
Aircraft and engines leasing			2,228				5,273
Others			33,283				36,359
Total trade and other accounts payables			1,328,352				1,349,201

82 

(b) Liabilities accrued:

		As of				As of
		March 31,				December 31,
		2018				2017
			ThUS$				ThUS$
			Unaudited
Accrued personnel expenses			148,404				125,246
Aircraft and engine maintenance			124,534				92,711
Accounts payable to personnel (*)			38,101				99,862
Others accrued liabilities			34,553				28,182
Total accrued liabilities			345,592				346,001

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

NOTE 21 - OTHER PROVISIONS

Other provisions:

			Current liabilities						Non-current liabilities						Total Liabilities
			As of			As of			As of			As of			As of			As of
			March 31,			December 31,			March 31,			December 31,			March 31,			December 31,
			2018			2017			2018			2017			2018			2017
			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
			Unaudited						Unaudited						Unaudited
Provision for contingencies (1)
Tax contingencies			1,913			1,913			263,746			258,305			265,659			260,218
Civil contingencies			635			497			67,675			62,858			68,310			63,355
Labor contingencies			374			373			28,466			28,360			28,840			28,733
Other			—			—			15,285			15,187			15,285			15,187
Provision for European Commision investigation (2)			—			—			10,107			9,883			10,107			9,883
Total other provisions (3)			2,922			2,783			385,279			374,593			388,201			377,376

(1)      Provisions for contingencies:

The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.

The civil contingencies correspond to different demands of civil order filed against the Company.

The labor contingencies correspond to different demands of labor order filed against the Company.

The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.

83 

(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.

(3) Total other provision at March 31, 2018, and 2017, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3.

Movement of provisions:

						European
		Legal				Commission
		claims (1)				Investigation (2)				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2017			416,473				8,664				425,137
Increase in provisions			14,353				—				14,353
Provision used			(3,444	)			—				(3,444	)
Difference by subsidiaries conversion			11,290				—				11,290
Reversal of provision			(13,896	)			—				(13,896	)
Exchange difference			339				118				457
Closing balance as of March 31, 2017 (Unaudited)			425,115				8,782				433,897
Opening balance as of April 1, 2017			425,115				8,782				433,897
Increase in provisions			92,590				—				92,590
Provision used			(11,416	)			—				(11,416	)
Difference by subsidiaries conversion			(17,120	)			—				(17,120	)
Reversal of provision			(121,213	)			—				(121,213	)
Exchange difference			(463	)			1,101				638
Closing balance as of December 31, 2017			367,493				9,883				377,376
Opening balance as of January 1, 2018			367,493				9,883				377,376
Increase in provisions			27,623				—				27,623
Provision used			(9,956	)			—				(9,956	)
Difference by subsidiaries conversion			(1,642	)			—				(1,642	)
Reversal of provision			(5,670	)			—				(5,670	)
Exchange difference			246				224				470
Closing balance as of March 31, 2018 (Unaudited)			378,094				10,107				388,201

(1) Cumulative balances include judicial deposit delivered as security, with respect to the “Aerovía Fundo” (FA), for US $ 101 million, made in order to suspend the application of the tax credit. The Company is discussing in the Court the constitutionality of the requirement made by FA in a lawsuit. Initially it was covered by the effects of a precautionary measure, this means that the Company would not be obliged to collect the tax, as long as there is no judicial decision in this regard. However, the decision taken by the judge in the first instance was published unfavorably, revoking the injunction. As the lawsuit is still underway (TAM appealed this first decision), the Company needed to make the judicial deposit, for the suspension of the enforceability of the tax credit; deposit that was classified in this item, discounting the existing provision for this purpose. Finally, if the final decision is favorable to the Company, the deposit made will return to TAM. On the other hand, if the court confirms the first decision, said deposit will become a final payment in favor of the Government of Brazil. The procedural stage as of March 31, 2018 is described in Note 31 in the Role of the case 2001.51.01.012530-0.

84 

(2)        European Commission Provision:

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

With respect to Europe, the General Directorate of Competition imposed fines totaling € 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros) for infractions of European Union regulations on free competition against eleven (11 ) airlines, among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A .. For its part, LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these infractions, an amount that was provisioned in the financial statements of LATAM. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the Court of Justice of the European Union. On December 16, 2015, the European Court resolved the appeal and annulled the Commission’s Decision. The European Commission did not appeal the judgment, but on March 17, 2017, the European Commission again adopted its original decision to impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of 776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed the same fine of 8.2 million Euros. The procedural stage as of March 31, 2018 is described in Note 31 in section (ii) judgments received by LATAM Airlines Group S.A. and Subsidiaries.

NOTE 22 - OTHER NON-FINANCIAL LIABILITIES

			Current liabilities						Non-current liabilities						Total Liabilities
			As of			As of			As of			As of			As of			As of
			March 31,			December 31,			March 31,			December 31,			March 31,			December 31,
			2018			2017			2018			2017			2018			2017
			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
			Unaudited						Unaudited						Unaudited
Deferred revenues(*)			2,761,877			2,690,961			141,889			158,305			2,903,766			2,849,266
Sales tax			13,751			22,902			—			—			13,751			22,902
Retentions			42,681			38,197			—			—			42,681			38,197
Others taxes			5,826			8,695			—			—			5,826			8,695
Dividends payable			74,757			46,590			—			—			74,757			46,590
Other sundry liabilities			37,862			16,618			—			—			37,862			16,618
Total other non-financial liabilities			2,936,754			2,823,963			141,889			158,305			3,078,643			2,982,268

(*) Note 2.20.

85 

The balance comprises, mainly, deferred income by services not yet rendered at March 31, 2018 and 2017; and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:

LATAM Pass is the frequent passenger program created by LAN to reward the preference and loyalty of its customers with multiple benefits and privileges, through the accumulation of miles that can be exchanged for free flight tickets or for a varied range of products and services. Customers accumulate LATAM Pass miles every time they fly on LAN, TAM, oneworld® member companies and other airlines associated with the program, as well as buying at stores or using the services of a vast network of companies that have an agreement with the program around the world.

For its part, TAM, thinking of people who travel constantly, created the LATAM Fidelidade program, in order to improve the service and give recognition to those who choose the company. Through the program, customers accumulate points in a wide variety of loyalty programs in a single account and can redeem them in all TAM destinations and associated airline companies, and even more, participate in the Multiplus Fidelidade Network.

Multiplus is a coalition of loyalty programs, with the objective of operating accumulation and exchange of points. This program has a network integrated by associated companies, including hotels, financial institutions, retail companies, supermarkets, vehicle leases and magazines, among many other partners from different segments.

Movement of Other non-financial liabilities:

		Deferred income
		Air transport
		and other
		ThUS$
Opening balance as of january 1, 2018			2,849,266
Recognition of deferred income			2,065,620
Use deferred income			(2,083,793	)
Expiration of tickets			(59,506	)
Deferred revenue loyalty (accreditation and exchange)			124,959
Others			7,220
Closing balance as of march 31,2018 (Unaudited)			2,903,766

NOTE 23 - EMPLOYEE BENEFITS

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Retirements payments			58,376				55,119
Resignation payments			10,496				10,124
Other obligations			44,303				35,844
Total liability for employee benefits			113,175				101,087

86 

(a)           The movement in retirements and resignation payments and other obligations:

							Increase (decrease)								Actuarial
			Opening				current service				Benefits				(gains)				Currency				Closing
			balance				provision				paid				losses				translation				balance
			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2017 (Unaudited)				82,322				6,078				(1,638	)			(2,736	)			—				84,026
From January 1 to December 31, 2017				84,026				15,557				(3,761	)			(27	)			5,292				101,087
From January 1 to March 31, 2018 (Unaudited)				101,087				4,921				(1,470	)			2,098				6,539				113,175

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

		As of
		March 31,
Assumptions		2018				2017
		Unaudited
Discount rate			4.47	%			4.22	%
Expected rate of salary increase			4.50	%			4.50	%
Rate of turnover			6.98	%			6.98	%
Mortality rate			RV-2014				RV-2014
Inflation rate			2.72	%			2.58	%
Retirement age of women			60				60
Retirement age of men			65				65

The discount rate corresponds to the 20-year term rate of the BCP Central Bank of Chile Bonds. The RV-2014 mortality tables correspond to those established by the Commission for the Financial Market of Chile and for the determination of the inflation rates; the market performance curves of Central Bank of Chile papers of the BCUs have been used. BCP long term at the date of scope.

The calculation of the present value of the defined benefit obligation is sensitive to the variation of some actuarial assumptions such as discount rate, salary increase, rotation and inflation.

87 

The sensitivity analysis for these variables is presented below:

			Effect on the liability
			As of			As of
			March 31,			December 31,
			2018			2017
			ThUS$			ThUS$
			Unaudited
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.			(6,055	)		(5,795	)
Change in the accrued liability an closing for decrease of 100 p.b.			6,912			6,617
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.			6,690			6,412
Change in the accrued liability an closing for decrease of 100 p.b.			(6,003	)		(5,751	)

(b)       The liability for short-term:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Profit-sharing and bonuses (*)			38,101				99,862

(*) Accounts payables to employees (Note 20 letter b)

The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives.

(c)       Employment expenses are detailed below:

		For the periods ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Salaries and wages			414,634				420,497
Short-term employee benefits			33,743				38,859
Termination benefits			14,622				19,964
Other personnel expenses			51,544				45,898
Total			514,543				525,218

88 

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Aircraft and engine maintenance			466,117				483,795
Provision for vacations and bonuses			15,154				14,725
Other sundry liabilities			315				312
Total accounts payable, non-current			481,586				498,832

NOTE 25 - EQUITY

(a)               Capital

The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.

The paid capital of the Company at March 31, 2018 amounts to ThUS$ 3,146,265 divided into 606,407,693 common stock of a same series (ThUS$ 3,146,265 (*) divided into 606,407,693 shares as of December 31, 2017), a single series nominative, ordinary character with no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.

(*) Includes deduction of issuance costs for ThUS $ 3,299 and adjustment for placement of 10,282 shares for ThUS $ 156, approved at the Extraordinary Shareholders Meeting of the Company on April 27, 2017.

(b)                Subscribed and paid shares

On August 18, 2016, the Company held an extraordinary meeting of shareholders in which it was approved to increase the capital by issuing 61,316,424 shares of payment, all ordinary shares, without par value. As of December 31, 2016, 60,849,592 shares had been placed against this increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the end of the preferred subscription period, which expired on, December 2016, raising the equivalent of US$ 304,996,850; and (b) 30,349,907 additional shares subscribed on December 28, 2016, earning the equivalent of US$ 303,499,070.

As a result of the last placement, as of March 31, 2018, the number Company shares subscribed and paid amounts to 606,407,693.

At March 31, 2018, the Company’s capital stock is represented by 608,374,525 shares, all of the same and unique series, nominative, ordinary, with no par value, which is divided into: (a) the 606,407,693 subscribed and paid shares mentioned above; And (b) 1,966,832 shares pending subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plans; And (ii) 466,832 correspond to the balance of shares pending placement of the last capital increase.

89 

The following table shows the movement of the authorized and fully paid shares described above:

Movement of authorized shares		Nro. Of
		shares
Autorized shares as of January 1, 2017			608,374,525
There is no movement of authorized shares during the period 2017			—
Authorized shares as of December 31, 2017			608,374,525
Autorized shares as of January 1, 2018			608,374,525
There is no movement of authorized shares during the period 2018			—
Authorized shares as of March 31, 2018 (Unaudited)			608,374,525

(*) See Note 34 (a.1) 

Movement fully paid shares
						Movement
						value				Cost of issuance
						of shares				and placement				Paid- in
			N° of				(1)				of shares (2)				Capital
			shares				ThUS$				ThUS$				ThUS$
Paid shares as of January 1, 2017			606,407,693				3,160,718				(11,154	)			3,149,564
Capital reserve			—				—				(3,299	)			(3,299	)
Paid shares as of December 31, 2017			606,407,693				3,160,718				(14,453	)			3,146,265
Paid shares as of January 1, 2018			606,407,693				3,160,718				(14,453	)			3,146,265
Capital reserve			—				—				—				—
Paid shares as of March 31, 2018 (Unaudited)			606,407,693	(3)			3,160,718				(14,453	)			3,146,265

(1)        Amounts reported represent only those arising from the payment of the shares subscribed.

(2)        Decrease of capital by capitalization of reserves for cost of issuance and placement of shares established according to Extraordinary Shareholder´s Meetings, where such decreases were authorized.

(3)       At March 31, 2018, the difference between authorized shares and fully paid shares are 1,966,832 shares, of which 1,500,000 correspond to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 34(a.2)) and 466,832 correspond to the shares issued and unsubscribed from the capital increase approved at the Extraordinary Shareholders Meeting held on August 18, 2016.

(4)        These 10,282 shares were placed in January 2014 and charged to the Compensation plan 2011 (See Note 34 (a.1))

90 

(c)       Treasury stock

At March 31, 2018, 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.

(d)                Reserve of share- based payments

Movement of Reserves of share- based payments:

							Stock
			Opening				option				Net movement				Closing
Periods			balance				plan				of the period				balance
			ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2017 (Unaudited)				38,538				545				545				39,083
From April 1 to December 31, 2017				39,083				398				398				39,481
From January 1 to March 31, 2018 (Unaudited)				39,481				(1,938	)			(1,938	)			37,543

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

(e)                Other sundry reserves

Movement of Other sundry reserves:

			Opening				Legal				Closing
Periods			balance				reserves				balance
			ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2017 (Unaudited)				2,640,281				(3,304	)			2,636,977
From April 1 to December 31, 2017				2,636,977				2,803				2,639,780
From January 1 to March 31, 2018 (Unaudited)				2,639,780				5,783				2,645,563

Balance of Other sundry reserves comprises the following:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Higher value for TAM S.A. share exchange (1)			2,665,692				2,665,692
Reserve for the adjustment to the value of fixed assets (2)			2,620				2,620
Transactions with non-controlling interest (3)			(25,911	)			(25,911	)
Others			3,162				(2,621	)
Total			2,645,563				2,639,780

(1)        Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012.

91 

(2)        Corresponds to the technical revaluation of fixed assets authorized by the Commission for the Financial Market in 1979, in Circular N° 1529. The revaluation was optional and could be taken only once, the reserve is not distributable and can only be capitalized.

(3)        The balance at March 31, 2018, correspond to the loss generated by the participation of Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526).

92 

(f)                 Reserves with effect in other comprehensive income.

Movement of Reserves with effect in other comprehensive income:

										Actuarial gain
		Currency				Cash flow				or loss on defined
		translation				hedging				benefit plans
		reserve				reserve				reserve				Total
		ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2017			(2,086,555	)			1,506				(12,900	)			(2,097,949	)
Derivatives valuation gains (losses)			—				(5,058	)			—				(5,058	)
Deferred tax			—				(660	)			—				(660	)
Actuarial reserves by employee benefit plans			—				—				2,597				2,597
Deferred tax actuarial IAS by employee benefit plans			—				—				(1,039	)			(1,039	)
Difference by subsidiaries conversion			104,936				—				—				104,936
Closing balance as of March 31, 2017 (Unaudited)			(1,981,619	)			(4,212	)			(11,342	)			(1,997,173	)
Opening balance as of April 1, 2017			(1,981,619	)			(4,212	)			(11,342	)			(1,997,173	)
Derivatives valuation gains (losses)			—				23,494				—				23,494
Deferred tax			—				(1,142	)			—				(1,142	)
Actuarial reserves by employee benefit plans			—				—				161				161
Deferred tax actuarial IAS by employee benefit plans			—				—				255				255
Difference by subsidiaries conversion			(149,972	)			—				—				(149,972	)
Closing balance as of December 31, 2017			(2,131,591	)			18,140				(10,926	)			(2,124,377	)
Opening balance as of January 1, 2018			(2,131,591	)			18,140				(10,926	)			(2,124,377	)
Derivatives valuation gains (losses)			—				17,148				—				17,148
Deferred tax			—				(537	)			—				(537	)
Actuarial reserves by employee benefit plans			—				—				(2,041	)			(2,041	)
Deferred tax actuarial IAS by employee benefit plans			—				—				525				525
Difference by subsidiaries conversion			(27,493	)			—				—				(27,493	)
Closing balance as of March 31, 2018 (Unaudited)			(2,159,084	)			34,751				(12,442	)			(2,136,775	)

(f.1)       Currency translation reserve

These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.

93 

(f.2)     Cash flow hedging reserve

These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.

(f.3)     Reserves of actuarial gains or losses on defined benefit plans

Correspond to the increase or decrease in the obligation present value for defined benefit plan due to changes in actuarial assumptions, and experience adjustments, which is the effects of differences between the previous actuarial assumptions and what has actually occurred.

(g)       Retained earnings

Movement of Retained earnings:

Periods			balance				period				Dividends				(decreases)				balance
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2017 (Unaudited)				366,404				65,557				(19,667	)			—				412,294
From April 1 to December 31, 2017				412,294				89,747				(26,923	)			—				475,118
From January 1 to March 31, 2018 (Unaudited)				475,118				93,889				(28,167	)			(9,549	) (*)			531,291

(*) Adjustment of adoption of IFRS 9 and IFRS 15 (See note 2).

(h)       Dividends per share

		Minimum mandatory				Minimum mandatory				Final dividend
		dividend				dividend				dividend
Description of dividend		2018				2017				2016
Date of dividend			03-31-2018				12-31-2017				12-31-2016
Amount of the dividend (ThUS$)			28,167				46,590				20,766	(*)
Number of shares among which the dividend is distributed			606,407,693				606,407,693				606,407,693
Dividend per share (US$)			0.0464				0.0768				0.0342

(*) In accordance with the Material Fact issued on April 27, 2017, LATAM Airlines Group S.A. shareholders approved the distribution of the final dividend proposed by the board of directors in the Ordinary Session of April 4, 2017, amounting to ThUS $ 20,766, which corresponds to 30% of the profits for the year corresponding to the year 2016.

94 

The payment was made on May 18, 2017. 

NOTE 26 - REVENUE

The detail of revenues is as follows:

			For the periods ended
			March 31,
			2018				2017
			ThUS$				ThUS$
			Unaudited
Passengers				2,318,015				2,106,161
Cargo				295,820				253,746
Total				2,613,835				2,359,907

NOTE 27 - COSTS AND EXPENSES BY NATURE

(a)      Costs and operating expenses

The main operating costs and administrative expenses are detailed below:

		For the periods ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Aircraft fuel			717,854				595,031
Other rentals and landing fees			310,218				278,219
Aircraft rentals			135,761				150,396
Aircraft maintenance			101,642				85,186
Comissions			60,120				61,692
Passenger services			79,756				74,316
Other operating expenses			330,646				302,985
Total			1,735,997				1,547,825

95 

(b)      Depreciation and amortization

Depreciation and amortization are detailed below:

			For the period ended
			March 31,
			2018				2017
			ThUS$				ThUS$
			Unaudited
Depreciation (*)				235,758				238,387
Amortization				15,702				13,828
Total				251,460				252,215

(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at March 31, 2018 is ThUS$ 89,270 and ThUS$ 92,650 for the same period of 2017.

(c)      Personnel expenses

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

(d)      Financial costs

The detail of financial costs is as follows:

		For the period ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Bank loan interest			68,977				82,925
Financial leases			15,730				10,836
Other financial instruments			1,510				2,027
Total			86,217				95,788

Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 23, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.

96 

NOTE 28 - OTHER INCOME, BY FUNCTION

Other income by function is as follows:

		For the period ended
		March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Coalition and loyalty program Multiplus			44,651				56,400
Tours			32,463				26,532
Aircraft leasing			16,029				16,625
Customs and warehousing			6,510				5,434
Maintenance			517				1,633
Duty free			1,379				2,348
Other miscellaneous income			15,152				8,570
Total			116,701				117,542

NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

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

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

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

97 

(a) Foreign currency

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

		As of				As of
		March 31,				December 31,
Current assets		2018				2017
		ThUS$				ThUS$
		Unaudited
Cash and cash equivalents			234,931				260,092
Argentine peso			14,278				7,309
Brazilian real			26,986				14,242
Chilean peso			18,425				81,693
Colombian peso			942				1,105
Euro			19,892				11,746
U.S. dollar			103,591				108,327
Other currency			50,817				35,670
Other financial assets, current			39,019				36,484
Argentine peso			20				21
Brazilian real			4,499				17
Chilean peso			26,629				26,605
Colombian peso			161				150
U.S. dollar			6,863				9,343
Other currency			847				348
Other non - financial assets, current			100,969				107,170
Argentine peso			15,252				16,507
Brazilian real			20,089				19,686
Chilean peso			32,671				34,258
Colombian peso			348				340
Euro			2,824				2,722
U.S. dollar			18,991				21,907
Other currency			10,794				11,750

98 

		As of				As of
		March 31,				December 31,
Activos corrientes		2018				2017
		ThUS$				ThUS$
		Unaudited
Trade and other accounts receivable, current			513,785				373,447
Argentine peso			64,018				49,680
Brazilian real			84,954				22,006
Chilean peso			88,605				82,369
Colombian peso			445				1,169
Euro			60,260				48,286
U.S. dollar			23,906				34,268
Other currency			191,597				135,669
Accounts receivable from related entities, current			183				958
Chilean peso			130				735
U.S. dollar			53				223
Tax current assets			44,156				33,575
Argentine peso			1,851				1,679
Brazilian real			3,270				3,934
Chilean peso			5,033				3,317
Colombian peso			918				660
Euro			200				179
U.S. dollar			350				327
Peruvian sol			30,976				21,948
Other currency			1,558				1,531
Total current assets			933,043				811,726
Argentine peso			95,419				75,196
Brazilian real			139,798				59,885
Chilean peso			171,493				228,977
Colombian peso			2,814				3,424
Euro			83,176				62,933
U.S. dollar			153,754				174,395
Other currency			286,589				206,916

99 

		As of				As of
Non-current assets		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Other financial assets, non-current			21,781				20,975
Brazilian real			4,001				3,831
Chilean peso			76				74
Colombian peso			301				281
Euro			8,373				7,853
U.S. dollar			7,281				7,273
Other currency			1,749				1,663
Other non - financial assets, non-current			9,142				9,108
Argentine peso			161				172
Brazilian real			6,737				6,368
U.S. dollar			3				38
Other currency			2,241				2,530
Accounts receivable, non-current			6,495				6,887
Chilean peso			6,495				6,887
Deferred tax assets			4,862				2,081
Colombian peso			91				86
U.S. dollar			2,773				—
Other currency			1,998				1,995
Total non-current assets			42,280				39,051
Argentine peso			161				172
Brazilian real			10,738				10,199
Chilean peso			6,571				6,961
Colombian peso			392				367
Euro			8,373				7,853
U.S. dollar			10,057				7,311
Other currency			5,988				6,188

100 

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

			Up to 90 days								91 days to 1 year
			As of				As of				As of				As of
Current liabilities			March 31,				December 31,				March 31,				December 31,
			2018				2017				2018				2017
			ThUS$				ThUS$				ThUS$				ThUS$
			Unaudited								Unaudited
Other financial liabilities, current			59,176				36,000				120,789				115,182
Chilean peso			46,341				21,542				82,790				79,032
U.S. dollar			12,835				14,458				37,999				36,150
Trade and other accounts payables, current			941,956				919,373				35,332				33,707
Argentine peso			145,141				122,452				12,203				8,636
Brazilian real			37,216				28,810				690				669
Chilean peso			210,105				233,202				8,450				11,311
Colombian peso			5,006				2,964				321				855
Euro			70,676				58,081				4,858				9,165
U.S. dollar			405,005				409,380				2,347				1,154
Peruvian sol			38,471				39,064				5,072				825
Mexican peso			2,011				2,732				206				115
Pound sterling			5,568				5,839				254				199
Uruguayan peso			980				1,890				—				—
Other currency			21,777				14,959				931				778
Accounts payable to related entities, current			212				760				—				—
Chilean peso			12				546				—				—
U.S. dollar			—				4				—				—
Other currency			200				210				—				—
Other provisions, current			961				959				—				—
Chilean peso			31				30				—				—
Other currency			930				929				—				—
Tax liabilities, current			232				—				—				174
Argentine peso			232				—				—				174

101 

			Up to 90 days								91 days to 1 year
			As of				As of				As of				As of
Current liabilities			March 31,				December 31,				March 31,				December 31,
			2018				2017				2018				2017
			ThUS$				ThUS$				ThUS$				ThUS$
Other non-financial			Unaudited								Unaudited
liabilities, current			42,844				25,190				—				—
Argentine peso			1,036				393				—				—
Brazilian real			1,874				542				—				—
Chilean peso			22,402				11,283				—				—
Colombian peso			557				837				—				—
Euro			3,466				5,954				—				—
U.S. dollar			4,778				3,160				—				—
Other currency			8,731				3,021				—				—
Total current liabilities			1,040,381				982,282				156,121				149,063
Argentine peso			146,409				122,845				12,203				8,810
Brazilian real			39,090				29,352				690				669
Chilean peso			278,891				266,603				91,240				90,343
Colombian peso			563				3,801				321				855
Euro			74,142				64,035				4,858				9,165
U.S. dollar			422,618				427,002				40,346				37,304
Other currency			78,668				68,644				6,463				1,917

102 

			More than 1 to 3 years								More than 3 to 5 years								More than 5 years
			As of				As of				As of				As of				As of				As of
Non-current liabilities			March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
			2018				2017				2018				2017				2018				2017
			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
			Unaudited								Unaudited								Unaudited
Other financial liabilities, non-current			284,233				276,436				242,519				263,798				194,266				189,500
Chilean peso			36,631				41,548				194,267				189,500				194,266				189,500
U.S. dollar			247,602				234,888				48,252				74,298				—				—
Accounts payable, non-current			337,439				362,964				—				—				—				—
Chilean peso			13,589				13,251				—				—				—				—
U.S. dollar			322,359				348,329				—				—				—				—
Other currency			1,491				1,384				—				—				—				—
Other provisions, non-current			42,092				41,514				—				—				—				—
Argentine peso			899				940				—				—				—				—
Brazillian real			24,432				24,074				—				—				—				—
Colombian peso			589				551				—				—				—				—
Euro			10,107				9,883				—				—				—				—
U.S. dollar			6,065				6,066				—				—				—				—
Provisions for employees benefits, non-current			83,531				77,579				—				—				—				—
Chilean peso			77,351				73,399				—				—				—				—
U.S. dollar			6,180				4,180				—				—				—				—
Other non-financial liabilities, non-current			4				—				—				—				—				—
Colombian peso			4				—				—				—				—				—
Total non-current liabilities			747,299				758,493				242,519				263,798				194,266				189,500
Argentine peso			899				940				—				—				—				—
Brazilian real			24,432				24,074				—				—				—				—
Chilean peso			127,571				128,198				194,267				189,500				194,266				189,500
Colombian peso			593				551				—				—				—				—
Euro			10,107				9,883				—				—				—				—
U.S. dollar			582,206				593,463				48,252				74,298				—				—
Other currency			1,491				1,384				—				—				—				—

103 

		As of				As of
General summary of foreign currency:		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Total assets			975,323				850,777
Argentine peso			95,580				75,368
Brazilian real			150,536				70,084
Chilean peso			178,064				235,938
Colombian peso			3,206				3,791
Euro			91,549				70,786
U.S. dollar			163,811				181,706
Other currency			292,577				213,104
Total liabilities			2,385,587				2,343,136
Argentine peso			159,511				132,595
Brazilian real			64,212				54,095
Chilean peso			886,235				864,144
Colombian peso			6,477				5,207
Euro			89,108				83,083
U.S. dollar			1,093,422				1,132,067
Other currency			86,622				71,945
Net position
Argentine peso			(63,931	)			(57,227	)
Brazilian real			86,324				15,989
Chilean peso			(708,171	)			(628,206	)
Colombian peso			(3,271	)			(1,416	)
Euro			2,441				(12,297	)
U.S. dollar			(929,611	)			(950,361	)
Other currency			205,955				141,159

104 

(b) Exchange differences

The exchange differences recognized in profit or loss, except for financial instruments measured at fair value through profit or loss, for the period ended March 31, 2018 and 2017, meant a payment of ThUS $ 811 and ThUS $ 35,373, respectively.

The exchange differences recognized in equity as reserves for exchange differences for conversion, for the period ended March 31, 2018 and 2017, meant a charge of ThUS $ 76,154 and a payment of ThUS $ 109,122, respectively.

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

		As of
		March 31,				As of December 31,
		2018				2017				2016				2015
		Unaudited
Argentine peso			20.13				18.57				15.84				12.97
Brazilian real			3.31				3.31				3.25				3.98
Chilean peso			603.39				614.75				669.47				710.16
Colombian peso			2,792.10				2,984.77				3,000.25				3,183.00
Euro			0.81				0.83				0.95				0.92
Strong bolivar			49,498.00				3,345.00				673.76				198.70
Australian dollar			1.30				1.28				1.38				1.37
Boliviano			6.86				6.86				6.86				6.85
Mexican peso			18.21				19.66				20.63				17.34
New Zealand dollar			1.38				1.41				1.44				1.46
Peruvian Sol			3.22				3.24				3.35				3.41
Uruguayan peso			28.31				28.74				29.28				29.88

105 

NOTE 30 - EARNINGS / (LOSS) PER SHARE

		For the period ended
		March 31,
Basic earnings / (loss) per share		2018				2017
		Unaudited
Earnings / (loss) attributable to owners of the parent (ThUS$)			93,889				65,557
Weighted average number of shares, basic			606,407,693				606,407,693
Basic earnings / (loss) per share (US$)			0.15483				0.10811

		For the period ended
		December 31,
Diluted earnings / (loss) per share		2018				2017
		Unaudited
Earnings / (loss) attributable to owners of the parent (ThUS$)			93,889				65,557
Weighted average number of shares, basic			606,407,693				606,407,693	(*)
Weighted average number of shares, diluted			606,407,693				606,407,693
Diluted earnings / (loss) per share (US$)			0.15483				0.10811

(*) In the calculation of diluted earnings per share have not been considered the compensation plan disclosed in Note 34 (a.1), because the average market price is lower than the price of options.

106 

NOTE 31 – CONTINGENCIES

I. Lawsuits

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

Company		Court		Case Number		Origin		Stage of trial		Amounts  Committed (*)
										ThUS$
Atlantic Aviation Investments  LLC (AAI).		Supreme Court of the State of New York County of New York.		07-6022920		Atlantic Aviation Investments LLC. (“AAI”), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 29th , 2007 Varig Logistics S.A. (“Variglog”) for non-payment of four documented loans in credit agreements governed by New York law. These contracts establish the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A.		The decision ordering Variglog to pay principal, interest and costs to AAI is in the enforcement stage in Switzerland. A settlement for CHF 24,541,781.45 was reached in Brazil for the Swiss funds, and it was agreed that it would be divided as follows: (i) 54.6% of Variglog’s assets for the Swiss funds; and (ii) 45.4% to AAI, subject to approval of the Brazilian Bankruptcy Commission. Variglog also filed a petition in Switzerland for recognition of the decision declaring its condition of being in judicial recovery, and subsequently, of being declared in bankruptcy. The Brazilian courts approved the AAI settlement and Variglog’s bankruptcy on April 11, 2016, which were confirmed by those courts on September 21, 2016. The final decision approving the agreement was certified September 23, 2016. US$8,9 thousand had been recovered as of December 2017. US$2,246,499.02 were recovered on January 30, 2018, so there is no balance pending. As a result, AAI has begun the process to release the lien on Variglog accounts in Switzerland..		10,976  Plus interests  and costs
Tam Viagens S.A.		Fazenda Pública do Município de São Paulo.		1004194-37.2018.8.26.0053		This is a voidance action appealing the charges for violations and fines (67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965). We are arguing that numbers are missing from the ISS calculation base since the company supposedly made improper deductions.		The lawsuit was assigned on January 31, 2018. That same day, a decision was rendered suspending the charges without any bond. We are waiting for the deadline for the municipality to appeal to expire.		95,202

107 

2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries

Company		Court		Case Number		Origin		Stage of trial		Amounts  Committed (*)
										ThUS$
LATAM Airlines Group S.A. y Lan Cargo S.A.		European Commission.		-		Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight.		On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011. On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction). On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of ThUS$ 10,106 (8,220,000 Euros) This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the decision, but presented a new one on March 17, 2017 reiterating the imposition of the same fine on the eleven original airlines. The fine totals 776,465,000 Euros. It imposed the same fine as before on Lan Cargo and its parent, LATAM Airlines Group S.A., totaling 8.2 million Euros. On May 31, 2017 Lan Cargo S.A. and LATAM Airlines Group S.A. filed a petition with the General Court of the European Union seeking vacation of this decision. We presented our defense in December 2017.		10,106

108 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
Lan Cargo S.A. y LATAM Airlines Group S.A.		In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway) y Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands) , Cologne Regional Court (Landgerich Köln Germany).		-		Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany.		Cases are in the uncovering evidence stage.		-0-
Aerolinhas Brasileiras S.A.		Federal Justice.		0008285-53.2015.403.6105		An action seeking to quash a decision and petioning for early protection in order to obgain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge.		This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines: (i) ABSA: ThUS$10,438; (ii) Norberto Jochmann: ThUS$201; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper. This obligation had also been stayed by the court of federal justice in this process. Awaiting CADE’s statement. ABSA began a judicial review in search of an additional reduction in the fine amount. At this time we cannot predict the final amount of the fine as the judicial review by the Federal Court Judge is still pending.		11,904
Aerolinhas Brasileiras S.A.		Federal Justice.		0001872-58.2014.4.03.6105		An annulment action with a motion for preliminary injunction, was filed on 28/02/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006.43.		We have been waiting since August 21, 2015 for a statement by Serasa on TAM’s letter of indemnity and a statement by the Union. The statement was authenticated on January 29, 2016. A petition on evidence and replications were filed on June 20, 2016. A new insurance policy was submitted on March 3, 2016 with the change to the guarantee requested by PGFN, which was declared on June 3, 2016. A decision is pending.		15,851

109 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
Tam Linhas Aéreas S.A.		Department of Federal Revenue of Brazil		19515.720476/2015-83		Alleged irregularities in the SAT payments for the periods 01/2011 to 12/2012		A judgment by CARF is pending since April 12, 2016.		66,483
Tam Linhas  Aéreas S.A.		Court of the Second Region.		2001.51.01.012530-0		Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to collect the Air Fund.		Unfavorable court decision in first instance. Currently expecting the ruling on the appeal filed by the company.  In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered for MUS$106.  The court decision requesting that the Expert make all clarifications requested by the parties in a period of 30 days was published on March 29, 2016. The plaintiffs’ submitted a petition on June 21, 2016 requesting acceptance of the opinion of their consultant and an urgent ruling on the dispute. No amount additional to the deposit that has already been made is required if this case is lost.		100,603

110 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
Tam Linhas  Aéreas S.A.		Internal Revenue Service of Brazil.		10880.725950/2011-05		Compensation credits of the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS) Declared on DCOMPs.		The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed. The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of Tax Appeals (CARF) on June 8, 2015. TAM’s appeal was included in the CARF session held August 25, 2016. An agreement that converted the proceedings into a formal case was published on October 7, 2016.		64,524

111 

Company		Court		Case Number		Origin		Stage of trial		Amounts  Committed (*)
										ThUS$
Aerovías de Integración Regional, AIRES S.A.		United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.		2013-20319 CA 01		The July 30th , 2012 Aerovías de Integración Recional, Aires S.A. ( LATAM AIRLINES COLOMBIA) initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LATAM AIRLINES COLOMBIA arising from breach of contractual obligations of the aircraft HK-4107. The June 20th , 2013 AIRES SA And / Or LATAM AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LATAM AIRLINES COLOMBIA customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.		This case is being heard by the 45th Civil Court of the Bogotá Circuit in Colombia. The court issued an order on August 16, 2016 setting the hearing date pursuant to Article 101 for February 2, 2017. At that hearing, a reconciliation should have been attempted, the facts in dispute determined, interrogatories made and evidence admitted. At the petition of Regional One’s attorneys on January 27, 2017, which was accepted by the respondent, the hearing to be held on February 2, 2017 was postponed. A reconciliation hearing was held on June 14, 2017 that failed. This commenced the evidentiary stage in which the legal representative of LATAM Airlines Colombia was interrogated. The judge must now decree which evidence must be presented and analyzed. The measure was suspended on January 17, 2018 and rescheduled to February 12, 2018. Witnesses for Regional One and VAS made statements on February 12, 2018. The court received the expert opinions requested by Regional One and VAS and at the request of these latter two, asked the experts to expand upon those opinions. It also replaced the experts requested by LAN Colombia. These opinions must be received before a new hearing can be scheduled. The U.S. Federal Court for the State of Florida rendered a decision on March 26, 2014 sustaining the petition of Lan Colombia Airlines to stay the proceedings in the U.S. as long as the lawsuit in Colombia was pending. The U.S. Court also closed the case administratively. The Federal Court of Appeals confirmed the closing of the U.S. case on April 1, 2015. On October 13, 2015, Regional One filed a petition with the U.S. Court seeking a reopening of the case. Lan Colombia Airlines presented its arguments for keeping the case closed, which were sustained by the Court on August 23, 2016. On January 1, 2018, Regional One again petitioned the U.S. Court to reopen the case. Both parties have filed their arguments on Regional One’s latest petition. The U.S. case remains closed until the Court renders a decision.		12,443

112 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
Tam Linhas  Aéreas S.A.		Internal Revenue Service of Brazil		10880.722.355/2014-52		On August 19th, 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.		An administrative objection was filed on September 17th, 2014. A first-instance ruling was rendered on June 1, 2016 that was partially favorable. The separate fine was revoked. A voluntary appeal was filed on June 30, 2016, which is pending a decision by CARF. On January 9, 2016, the case was referred to the Second Division, Fourth Chamber, of the Third Section of the Administrative Council of Tax Appeals (CARF).		74,094
Tam Linhas Aéreas S.A.		Labor Court of São Paulo.		0001734-78.2014.5.02.0045		Action filed by the Ministry of Labor, which requires compliance with legislation on breaks, extra hours and others.		This case is in the initial stages. It could possibly impact both operations and employee work shift control. TAM won in the first instance, but the Prosecutor’s Office has appealed the trial court’s decision. That decision was sustained by the appellate court. A petition by the Prosecutor’s Office for clarification is now pending before the courts. The Office of the Public Prosecutor withdrew the petition for clarification and the case was closed in favor of LATAM. Now pending are the measures pertaining to lawsuit management so that transfer to the court is declared.		16,093
TAM S.A.		Conselho Administrativo de Recursos Fiscais.		13855.720077/2014-02		Notice of an alleged infringement presented by Secretaria da Receita Federal do Brasil requiring the payment of IRPJ and CSLL, taxes related to the income earned by TAM on March, 2011, in relation of the reduction of the statute capital of Multiplus S.A.		On January 12, 2014, it was filed an appeal against the object of the notice of infringement. Currently, the company is waiting for the court judgment regarding the appeal filed in the Conselho Administrativo de Recursos Fiscais (CARF) The case will be put into the system again for re-assignment for hearing and reporting because of the departure of Eduardo de Andrade, a CARF council member. The decision was against TAM. The lawsuit was on August 13, 2017. The administrative court’s decision was that TAM Linhas Aereas must pay Corporate Income Tax (IRPJ) and the Social Contribution based on Net Profits (CSLL). The Company was summoned to hear a decision on December 18, 2017. TAM filed an appeal on December 28, 2017. TAM’s appeal was not heard on January 17, 2018. A decision is pending service.		149,398

113 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
TAM Linhas Aéreas S.A.		Sao Paulo Labor Court, Sao Paulo		1001531-73.2016.5.02.0710		The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.		In August 2016, the Ministry of Labor filed a new lawsuit before the competent Labor Court in Sao Paulo, in the same terms as case 0000009-45.2016.5.02.090, as previously reported. The judgment is pending. (22/06/2018).		17,668
LATAM Airlines Group S.A.		22° Civil Court of Santiago		C-29.945-2016		The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it.		The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017. LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit. A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement. The Court issued the evidentiary decree on May 12, 2017. We filed a petition for reconsideration because we disagreed with certain points of evidence. That petition was partially sustained by the Court on June 27, 2017. The evidentiary stage commenced and then concluded on July 20, 2017. Observations to the evidence must now be presented. That period expires August 1, 2017. We filed our observations to the evidence on August 1, 2017. We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable. The plaintiff filed an appeal on December 26, 2017. We are currently waiting for the case to be heard by the Court of Appeals.		21,969

114 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
TAM Linhas Aéreas S.A.		10th Jurisdiction of Federal Tax  Enforcement of Sao Paulo		0061196-68.2016.4.03.6182		Tax Enforcement Lien No. 0020869-47.2017.4.03.6182 on Profit-Based Social Contributions from 2004 to 2007.		This tax enforcement was referred to the 10th Federal Jurisdiction on February 16, 2017. A petition reporting our request to submit collateral was recorded on April 18, 2017. At this time, the period is pending for the plaintiff to respond to our petition. The bond was replaced.		43,675
TAM Linhas Aéreas S.A.		Federal Revenue Bureau		10880.900360/2017-55		A claim regarding the negative Company Income Tax (IRPJ) balance. Appraisals of compensation that were not accepted.		The case was referred to the National Claims Management Center of the Federal Revenue Bureau for Sao Paulo on May 11, 2017.		15,989
TAM Linhas Aéreas S.A.		Internal Revenue Service of Brazil		16643.000085/2009-47		Notice of claim to recover income taxes and social contributions paid on the basis of net profits (SCL) according to the royalty expenses and use of the TAM trademark.		Before the Internal Revenue Service of Brazil. A service of process is expected in the lawsuit on admissibility of the special appeal, filed by the General Counsel of the National Treasury, as well as notification of the decision rendered by the Administrative Council of Tax Appeals (CARF). The decision was made to file a lawsuit on December 5, 2017.		17,674
TAM Linhas Aéreas S.A.		Internal Revenue Service of Brazil		10831.012344/2005-55		Notice of an infringement filed by the Company to request the import tax (II), the Social Integration Program (PIS) of the Social Security Funding Contribution (COFINS) as a result of an unidentified international cargo loss.		Before the Internal Revenue Service of Brazil. The administrative decision was against the company. The matter is pending a decision by the CARF.		17,841
TAM Linhas Aéreas S.A.		Treasury Department of the State of Sao Paulo		3.123.785-0		Notice of an infringement to demand payment of the tax on the circulation of merchandise and services (ICMS) assessable on aircraft imports.		Before the Treasury Department of the State of Sao Paulo. A decision is now pending on the appeal that the company has filed with the Federal Supreme Court (STF).		14,662

115 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										ThUS$
TAM Linhas Aéreas S.A.		Treasury Department of the State of Sao Paulo		4.037.054		Action brought by the Treasury Department of the State of Sao Paulo because of non-payment of the tax on the circulation of merchandise and services (ICMS) in relation to telecommunications services.		Before the Treasury Department of the State of Sao Paulo. Defensive arguments have been presented. The first-instance decision sustained all parts of the notice. We filed an ordinary appeal on which a decision is pending by the Sao Paulo Tax Court.		10,839
TAM Linhas Aéreas S.A.		DERAT SPO (Delegacía de Receita Federal)		13808.005459/2001-45		Collection of the Social Security Funding Contribution (COFINS) based on gross revenue of the company in the period 1999-2000.		The decision on collection was pending through June 2, 2010.		27,190
Pantanal Linhas Aéreas S.A.		Tax Enforcement Court		0253410-30.2012.8.26.0014		A lawsuit seeking enforcement of the fine and ICMS.		A decision is pending on the appeal.		10,898
TAM Linhas Aéreas S.A.		Federal Revenue Bureau		10880.938.664/2016-12		An administrative lawsuit about compensation not being proportional to the negative corporate income tax balance.		A decision is pending by CARF on the appeal.		27.486
TAM Linhas Aéreas S.A.		Delegacía de Receita Federal		10611.720630/2017-16		This is an administrative claim about a fine for the incorrectness of an import declaration (new lawsuit).		The administrative defensive arguments were presented September 28, 2017.		22,374
TAM Linhas Aéreas S.A.		Delegacía de Receita Federal		10611.720852/2016-58		An improper charge of the Contribution for the Financing of Social Security (COFINS) on an import (new lawsuit).		We are currently awaiting a decision. There is no predictable decision date because it depends on the court of the government agency		16,154
TAM Linhas Aéreas S.A		Delegacía de Receita Federal		16692.721.933/2017-80		The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport.		We are awaiting the presentation of an administrative defense.		34,322

116 

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 72% increase in airport control fees (TAT-ADR) and approach control fees (TAT-APP) charged by the Airspace Control Department (“DECEA”).		A decision is now pending on the appeal presented by SNEA.		29,460
TAM Linhas Aéreas S/A		União Federal		2001.51.01.020420-0		TAM and other airlines filed a recourse claim seeking a finding that there is no legal or tax basis to be released from collecting the Additional Airport Fee (“ATAERO”).		A decision by the superior court is pending. The amount is indeterminate because even though TAM is the plaintiff, if the ruling is against it, it could be ordered by the trial judge to pay certain fees.		-0-
TAM Linhas Aéreas S/A		Delegacia da Receita Federal		10880-900.424/2018-07		This is a claim for a negative Legal Entity Income Tax (IRPJ) balance for the 2014 calendar year (2015 fiscal year) because set-offs were not allowed.		The administrative defensive arguments were presented March 19, 2018. An administrative decision is now pending.		18,983

117 

- In order to deal with any financial obligations arising from legal proceedings in effect at March 31, 2018, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 21.

- The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.

(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

II. Governmental Investigations.

1) On July 25, 2016, LATAM reached agreements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) regarding the investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a consultant advising it in the resolution of labor matters in Argentina.

The purpose of the investigation was to determine whether these payments violated the U.S. Foreign Corrupt Practices Act (“FCPA”) that: (i) forbids bribery of foreign government authorities in order to obtain a commercial advantage; and (ii) requires the companies that must abide by the FCPA to keep appropriate accounting records and implant an adequate internal control system. The FCPA is applicable to LATAM because of its ADR program in effect on the U.S. securities market.

After an exhaustive investigation, the DOJ and SEC concluded that there was no violation of the bribery provisions of the FCPA, which is consistent with the results of LATAM’s internal investigation. However, the DOJ and SEC consider that LAN accounted for these payments incorrectly and, consequently, infringed the part of the FCPA requiring companies to keep accurate accounting records. These authorities also consider that LAN’s internal controls in 2006-2007 were weak, so LAN would have also violated the provisions in the FCPA requiring it to maintain an adequate internal control system.

The agreements signed, included the following:

(a) The agreement with the DOJ involves: (i) entering into a Deferred Prosecution Agreement (“DPA”), which is a public contract under which the DOJ files public charges alleging an infringement of the FCPA accounting regulations. LATAM is not obligated to answer these charges, the DOJ will not pursue them for a period of 3 years, and the DOJ will dismiss the charges after expiration of that 3-year period provided LATAM complies with all terms of the DPA. In exchange, LATAM must admit to the negotiated events described in the DPA and agree to pay the negotiated fine explained below and abide by other terms stipulated in the agreement; (ii) clauses in which LATAM admits that the payments to the consultant in Argentina were incorrectly accounted for and that at the time those payments were made (2006-2007), it did not have adequate internal controls in place; (iii) LATAM’s agreement to have an outside consultant monitor, evaluate and report to the DOJ on the effectiveness of LATAM’s compliance program for a period of 27 months; and LATAM’s agreement to continue evaluating and reporting directly to the DOJ on the effectiveness of its compliance program for a period of 9 months after the consultant’s work concludes; and (iv) LATAM paid a fine of KUS$12,750.

118 

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

NOTE 32 – COMMITMENTS

(a) Loan covenants

With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis, for which, in any case non-compliance does not generate acceleration of the loans.

Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership, in relation to the ownership structure and the controlling group, and disposal of the assets which mainly refers to important transfers of assets.

The Company and its subsidiaries do not maintain financial credit contracts with banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries.

The Revolving Credit Facility (“Revolving Credit Facility”) with guaranteed aircraft, engines, spare parts and supplies for a total amount of US $ 450 million includes restrictions of minimum liquidity measured at the level of the Consolidated Company and measured at the individual level for the companies LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. which remain stand by while the credit line is not used. This credit line established with a consortium of eleven banks led by Citibank, is not used as of March 31, 2018.

As of March 31, 2018, the Company is in compliance with all the indicators detailed above.

119 

(b) Commitments under operating leases as lessee

Details of the main operating leases are as follows:

						As of				As of
						March 31,				December 31,
Lessor		Aircraft				2018				2017
						Unaudited
ACS Aero 1 Alpha limited			Airbus A320				—				1
Aircraft 76B-26329 Inc.			Boeing 767				1				1
Aircraft 76B-28206 Inc.			Boeing 767				1				1
Aviación Centaurus, A.I.E.			Airbus A319				3				3
Aviación Centaurus, A.I.E.			Airbus A321				1				1
Aviación Real A.I.E.			Airbus A319				1				1
Aviación Real A.I.E.			Airbus A320				1				1
Aviación Tritón A.I.E.			Airbus A319				3				3
Avolon Aerospace AOE 62 Limited			Boeing 777				1				1
Avolon Aerospace AOE 100 Limited			Airbus A320				2				2
Avolon Aerospace AOE 134 Limited			Airbus A321				2				—
AWAS 5234 Trust			Airbus A320				1				1
Baker & Spice Aviation Limited			Airbus A320				1				1
Bank of America			Airbus A321				2				2
Bank of Utah			Boeing 787				2				2
CIT Aerospace International			Airbus A320				1				1
ECAF I 2838 DAC			Airbus A320				1				1
ECAF I 40589 DAC			Boeing 777				1				1
Eden Irish Aircr Leasing MSN 1459			Airbus A320				1				1
IC Airlease One Limited			Airbus A321				1				1
JSA Aircraft 38484, LLC			Boeing 787				1				1
JSA Aircraft 7126, LLC			Airbus A320				1				1
JSA Aircraft 7128, LLC			Airbus A321				1				1
JSA Aircraft 7239, LLC			Airbus A321				1				1
JSA Aircraft 7298, LLC			Airbus A321				1				1
Macquarie Aerospace Finance 5125-2 Trust			Airbus A320				1				1
Macquarie Aerospace Finance 5178 Limited			Airbus A320				1				1

120 

						As of				As of
						March 31,				December 31,
Lessor		Aircraft				2018				2017
						Unaudited
Merlin Aviation Leasing (Ireland) 18 Limited			Airbus A320				1				1
Merlin Aviation Leasing (Ireland) 7 Limited			Airbus A320				1				1
NBB Cuckoo Co., Ltd			Airbus A321				1				1
NBB Grosbeak Co., Ltd			Airbus A321				1				1
NBB Redstart Co. Ltd			Airbus A321				1				1
NBB-6658 Lease Partnership			Airbus A321				1				1
NBB-6670 Lease Partnership			Airbus A321				1				1
Orix Aviation Systems Limited			Airbus A320				4				4
PAAL Aquila Company Limited			Airbus A321				2				2
PAAL Gemini Company Limited			Airbus A321				1				1
Shenton Aircraft Leasing Limited			Airbus A320				1				1
Sky High XXIV Leasing Company Limited			Airbus A320				5				5
Sky High XXV Leasing Company Limited			Airbus A320				2				2
SMBC Aviation Capital Limited			Airbus A320				4				4
SMBC Aviation Capital Limited			Airbus A321				2				2
Volito Aviation August 2007 AB			Airbus A320				—				2
Volito Aviation November 2006 AB			Airbus A320				—				2
Volito November 2006 AB			Airbus A320				—				2
Wamos Air S.A.			Airbus A320				1				—
Wells Fargo Bank North National Association			Airbus A319				2				2
Wells Fargo Bank Northwest National Association			Airbus A320				11				5
Wells Fargo Bank Northwest National Association			Airbus A350				2				2
Wells Fargo Bank Northwest National Association			Boeing 767				1				2
Wells Fargo Bank Northwest National Association			Boeing 777				4				4
Wells Fargo Bank Northwest National Association			Boeing 787				11				11
Total							94				93

The rentals are shown in results for the period for which they are incurred.

The minimum future lease payments not yet payable are the following:

		As of				As of
		March 31,				December 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
No later than one year			507,860				462,205
Between one and five years			1,766,913				1,620,253
Over five years			1,464,833				1,498,064
Total			3,739,606				3,580,522

121 

The minimum operating lease payments charged to income are the following:

		For the period ended
						March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Minimum operating lease payments			135,761				150,396
Total			135,761				150,396

During 2018, two (2) Airbus A321-200 aircraft were added for a period of 10 years each and one (1) Airbus A330-200 aircraft for a period of 4 months. On the other hand, one (1) Boeing 767-300 Freighter aircraft was returned.

The operating lease agreements entered into by the Parent Company and its subsidiaries establish that aircraft maintenance must be carried out in accordance with the technical provisions of the manufacturer and in the margins agreed in the contracts with the lessor, a cost assumed by the lessee. Additionally, for each aircraft, the lessee must purchase policies that cover the associated risk and the amount of the assets involved. As for the rent payments, they are unrestricted, and can not be netted from other accounts receivable or payable by the lessor and the lessee.

The ACMI lease agreements entered into by the Parent Company and its subsidiaries establish that the costs of the aircraft, crew, maintenance and insurance must be provided by the lessor. As for the rent payments, they are unrestricted, and cannot be netted from other accounts receivable or payable by the lessor and the lessee. At March 31, 2018 the Company has existing letters of credit related to operating leasing as follows:

Value

Release

Creditor Guarantee

Debtor

Type

ThUS$

date

GE Capital Aviation Services Limited

Lan Cargo S.A.

One letter of credit

1,100

Nov 30, 2018

ACS Aero 1 Alpha Limited

LATAM Airlines Group S.A.

One letter of credit

3,255

Aug 31, 2018

Bank of America

LATAM Airlines Group S.A.

Three letter of credit

1,043

Jul 2, 2018

Bank of Utah

LATAM Airlines Group S.A.

One letter of credit

2,000

Mar 24, 2019

Engine Lease Finance Corporation

LATAM Airlines Group S.A.

One letter of credit

4,750

Oct 8, 2018

GE Capital Aviation Services Ltd.

LATAM Airlines Group S.A.

Six letter of credit

22,105

Apr 30, 2018

International Lease Finance Corp

LATAM Airlines Group S.A.

Three letter of credit

1,450

Aug 5, 2018

ORIX Aviation Systems Limited

LATAM Airlines Group S.A.

Two letter of credit

7,366

Dec 11, 2018

Wells Fargo Bank

LATAM Airlines Group S.A.

Nine letter of credit

15,160

Jun 16, 2018

CIT Aerospace International

Tam Linhas Aéreas S.A.

One letter of credit

6,500

Jul 15, 2018

Wells Fargo Bank North N.A.

Tam Linhas Aéreas S.A.

One letter of credit

5,500

Oct 25, 2018

70,229

122 

(c) Other commitments

At March 31, 2018 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:

Value

Release

Creditor Guarantee

Debtor

Type

ThUS$

date

Servicio Nacionalde Aduana del

Líneas Aéreas Nacionales

Ecuador

del Ecuador S.A.

Three letter of credit

1,705

Aug 5, 2018

Corporación Peruana de Aeropuertos y Aviación Comercial

Lan Perú S.A.

Seventeen letter of credit

1,781

May 16, 2018

Lima Airport Partners S.R.L.

Lan Perú S.A.

Twenty two letter of credit

2,364

Apr 30, 2018

Superintendencia Nacionalde Aduanas y de Administración Tributaria

Lan Perú S.A.

Ten letter of credit

88,000

Jun 30, 2018

Aena Aeropuertos S.A.

LATAM Airlines Group S.A.

Four letter of credit

2,770

Nov 15, 2018

American Alternative Insurance Corporation

LATAM Airlines Group S.A.

Six letter of credit

3,690

Jun 9, 2018

Comisión Europea

LATAM Airlines Group S.A.

One letter of credit

9,734

Jun 16, 2018

Deutsche Bank A.G.

LATAM Airlines Group S.A.

One letter of credit

5,000

Mar 31, 2018

Dirección General de Aeronáutica Civil

LATAM Airlines Group S.A.

Fifty eigth letter of credit

19,848

Apr 30, 2018

Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador

LATAM Airlines Group S.A.

One letter of credit

5,500

Jun 18, 2018

Metropolitan Dade County

LATAM Airlines Group S.A.

Eight letter of credit

2,273

May 31, 2018

4ª Vara Mista de Bayeux

Tam Linhas Aéreas S.A.

One insurance policies guarantee

1,040

Mar 25, 2021

Conselho Administrativo de Conselhos Federais

Tam Linhas Aéreas S.A.

One insurance policies guarantee

12,646

May 19, 2020

Fundação de Proteão de Defesa do Consumidor Procon

Tam Linhas Aéreas S.A.

Four insurance policies guarantee

5,175

Oct 28, 2019

União Federal

Tam Linhas Aéreas S.A.

Three insurance policies guarante

9,219

Sep 28, 2021

União Federal -Fazenda Nacional

Tam Linhas Aéreas S.A.

One insurance policies guarantee

41,057

Jul 30, 2020

União Federal - Procuradoira - Gral da fazenda Nacional

Tam Linhas Aéreas S.A.

Four insurance policies guarantee

50,961

Jan 4, 2020

União Federal Vara Comarca de SP

Tam Linhas Aéreas S.A.

One insurance policies guarantee

19,181

Feb 22, 2021

281,944

123 

NOTE 33 - TRANSACTIONS WITH RELATED PARTIES

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

Nature of relationship with

Country

Nature of related parties

Transaction amount with related parties As of March 31,

Tax No .

Related party

related parties

of origin

transactions

Currency

2018

2017

ThUS$

ThUS$

Unaudited

96.810.370-9

Inversiones Costa Verde Ltda. yCPA.

Related director

Chile

Tickets sales

CLP

4

7

65.216.000-K

Comunidad Mujer

Related director

Chile

Tickets sales

CLP

—

6

78.591.370-1

Bethia S.A and subsidiaries

Related director

Chile

Services received of cargo transport

CLP

212

442

Services received from National and International

(17

)

(127

)

65.216.000-K

Viajes Falabella Ltda.

Related director

Chile

Sales commissions

CLP

(353

)

(210

)

87.752.000-5

Granja Marina To rnagaleo nes S.A.

Common shareholder

Chile

Tickets sales

CLP

14

21

Foreign

Consultoría Administrativa Profesional S.A. de C.V.

Associate

Mexico

Professional counseling services received

MXN

(668

)

(474

)

Foreign

Invers o ra Aero náutica Argentina

Related director

Argentina

Leases as lessor

ARS

(66

)

(67

)

Foreign

TAM Aviação Executiva e Taxi Aéreo S/A

Related director

Brazil

Services received of transfer of passengers

BRL

17

—

Services received of cargo transport

BRL

1

1

Services received at airports

BRL

—

(19

)

Fo reign

Qatar Airways

Indirect shareholder

Qatar

Services provided by aircraft lease

US$

5,325

1,770

Interlineal received service

US$

(306

)

(262

)

Interlineal provided service

US$

1,330

168

Services provided of handling

US$

441

36

Other services received/provided

US$

159

—

The balances of Accounts receivable and accounts payable to related parties are disclosed in Note 9.

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.

124 

(b) Compensation of key management

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

		For the period ended
						March 31,
		2018				2017
		ThUS$				ThUS$
		Unaudited
Remuneration			3,427				5,493
Management fees			34				74
Non-monetary benefits			186				219
Short-term benefits			22,284				10,644
Share-based payments			7,735				3,608
Total			33,666				20,038

NOTE 34 - SHARE-BASED PAYMENTS

(a) Compensation plan for increase of capital

Compensation plans implemented by providing options for the subscription and payment of shares that have been granted by LATAM Airlines Group S.A. to employees of the Company and its subsidiaries, are recognized in the financial statements in accordance with the provisions of IFRS 2 “Share-based Payment”, showing the effect of the fair value of the options granted under compensation in linear between the date of grant of such options and the date on which these irrevocable.

(a.1) Compensation plan 2013

At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, in conformity with the stipulations established in Article 24 of the Corporations Law. With regard to this compensation, a defined date for implementation does not exist.

(b) Compensation plan 2016-2018

The company implemented a retention plan long-term for executives, which lasts until December 2018, with a vesting period between October 2018 and March 2019, which consists of an extraordinary bonus whose calculation formula is based on the variation the value to experience the action of LATAM Airlines Group S.A. for a period of time.

125 

This benefit is recognized in accordance with the provisions of IFRS 2 “Share-based Payments” and has been considered as cash settled award and therefore recorded at fair value as a liability, which is updated to the closing date of each financial statement with effect on profit or loss.

			Base Units
			Opening																Closing
Periods			balance				Granted				Annulled				Exercised				Balance
From January 1 to December 31, 2017				4,719,720				37,359				(1,193,286	)			(630,897	)			2,932,896
From January 1 to March 31, 2018 (Unaudited)				2,932,896				—				—				—				2,932,896

The fair value has been determined on the basis of the best estimate of the future value of the Company share multiplied by the number of units granted bases.

At March 31, 2018, the carrying amount of ThUS$ 7,735, is classified under “Administrative expenses” in the Consolidated Statement of Income by Function.

(c)       Subsidiaries compensation plans

(c.1)    Stock Options

Multiplus S.A., subsidiaries of TAM S.A., have outstanding stock options at March 31, 2018, which amounted to 247,500 shares (at December 31, 2017, the distribution of outstanding stock options amounted to 316,025 for Multiplus S.A.).

Multiplus S.A.

										4nd Extraordinary
		3rd Grant				4th Grant				Grant
Description		03-21-2012				04-03-2013				11-20-2013				Total
Outstanding option number as December 31, 2017			84,249				163,251				68,525				316,025
Outstanding option number as March 31, 2018 (Unaudited)			84,249				163,251				—				247,500

For Multiplus S.A., the plan’s terms provide that the options granted to the usual prizes are divided into three equal parts and employees may exercise one-third of their two, three and four, options respectively, as long as they keep being employees of the company. The agreed term of the options is seven years after the grant of the option. The first extraordinary granting was divided into two equal parts, and only half of the options may be exercised after three years and half after four years. The second extraordinary granting was also divided into two equal parts, which may be exercised after one and two years respectively.

126 

The acquisition of the share’s rights, in both companies is as follows:

Number of shares Accrued options

Number of shares Non accrued options

As of

As of

As of

As of

March 31,

December 31,

March 31,

December 31,

Company

2018

2017

2018

2017

Unaudited

Unaudited

Multiplus S.A.

—

—

—

316,025

In accordance with IFRS 2 - Payments based on shares, the fair value of the option must be recalculated and recorded in the liability of the Company, once cash payment is made (cash-settled). The fair value of these options was calculated using the “Black-Scholes-Merton” method, where the assumptions were updated with information from LATAM Airlines Group S.A. As of March 31, 2018 and 2017 there is no value recorded in liabilities and results.

(c.2) Payments based on restricted stock

In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 ordinary, registered book entry securities with no face value, issued by the Company to beneficiaries.

The quantity of restricted stock units was calculated based on employees’ expected remunerations divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to the restricted stock when the following conditions have been met:

a.       Compliance with the performance goal defined by this Council as return on Capital Invested.

b.       The Beneficiary must remain as an administrator or employee of the Company for the period running from the date of issue to the following dates described, in order to obtain rights over the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third) after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.

Number shares in circulation 

			Opening												Not acquired due to breach of employment retention		Closing
			balance				Granted				Exercised				conditions		balance
From January 1 to December 31, 2017				237,856				129,218				(41,801	)		(15,563)			309,710
From January 1 to March 31, 2018 (Unaudited)				309,710				—				(69,934	)		—			239,776

NOTE 35 - STATEMENT OF CASH FLOWS

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

127 

(b) Other inflows (outflows) of cash:

		2018				2017
		ThUS$				ThUS$
		Unaudited
Guarantees			1,799				(799	)
Fuel hedge			14,654				14,023
Fuel derivatives premiums			1,566				(3,790	)
Hedging margin guarantees			(5,844	)			(1,620	)
Tax paid on bank transaction			(3,308	)			(1,270	)
Bank commissions, taxes paid and other			(3,319	)			(4,998	)
Change reservation systems			—				(16,120	)
Currency hedge			(1,064	)			(3,634	)
Court deposits			(10,806	)			(7,993	)
Total Other inflows (outflows) Operation flow			(6,322	)			(26,201	)
Tax paid on bank transaction			(621	)			(1,218	)
Others			12,352				(479	)
Total Other inflows (outflows) Investment flow			11,731				(1,697	)
Loan guarantee			—				79,051
Aircraft Financing advances			—				13,107
Settlement of derivative contracts			(2,449	)			(11,577	)
Total Other inflows (outflows) Financing flow			(2,449	)			80,581

Dividends:

		For the periods ended
		March 31,
		2018				2017
		Unaudited
		ThUS$				ThUS$
Multiplus S.A. (*)			(9,716	)			(11,796	)
Total dividends paid			(9,716	)			(11,796	)

(*) Dividends paid to minority shareholders

128 

d)        Reconciliation of liabilities arising from financing activities:

		As of				Cash flows												Non-Flow Movements								As of
Obligations with		December 31,				Obtainment				Payment								Interest accrued								March 31,
financial institutions		2017				Capital				Capital				Interest				and others				Reclassifications				2018
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
																										Unaudited
Loans to exporters			314,619				79,989				(70,000	)			(2,246	)			3,287				—				325,649
Bank loans			321,633				5,003				(21,788	)			(3,367	)			5,804				—				307,285
Guaranteed obligations			4,036,843				—				(87,713	)			(30,300	)			30,550				(854,854	)			3,094,526
Other guaranteed obligations			242,175				—				213				(2,274	)			2,333				—				242,447
Obligation with the public			1,584,066				—				—				—				36,906				—				1,620,972
Financial leases			1,109,504				—				(183,839	)			(17,903	)			25,627				854,854				1,788,243
Other loans			282,800				—				(21,551	)			(4,560	)			4,499				—				261,188
Total Obligations with financial institutions			7,891,640				84,992				(384,678	)			(60,650	)			109,006				—				7,640,310

(e) Advances of aircraft

Below are the cash flows associated with aircraft purchases, which are included in the statement of consolidated cash flow, in the item Purchases of properties, plants and equipment:

		For the periods ended March 31,
		2018				2017
		MUS$				MUS$
		(Unaudited)
Increases (payments)			(33,772	)			(19,314	)
Total cash flows			(33,772	)			(19,314	)

129 

NOTE 36 - THE ENVIRONMENT

LATAM Airlines Group S.A has a commitment to sustainable development seeking to generate value taking into account the governance, environmental and social aspects. The company manages environmental issues at a corporate level, centralized in the Sustainability Management. For the company to monitor and minimize its impact on the environment is a commitment of the highest level; where the continuous improvement and contribute to the solution of the global climate change problem, generating added value to the company and the region, are the pillars of its management.

One of the functions of the Sustainability Management in environmental issues, together with the various areas of the Company, is to ensure environmental compliance, implement a management system and environmental programs that comply with the requirements every day more. demanding worldwide; in addition to continuous improvement programs in their internal processes, which generate environmental, social and economic benefits and which are added to those currently carried out.

Within the sustainability strategy, the Environment dimension of LATAM Airlines Group S.A., is called Climate Change and is based on the goal of achieving world leadership in this area, and for which we work on the following aspects:

i. Carbon footprint 

ii. Eco Efficiency 

iii. Sustainable Alternative Energy 

iv. Standards and Certifications

This is how, during 2018, the following initiatives have been carried out:

- Implementation of an Environmental Management System for the main operations of the company. It is highlighted that the company during 2016 has recertified its environmental management system in Miami facilities following the guidelines of the international standard ISO 14.001.

- Maintenance of the Stage 2 Certification of IATA Environmental Assestment (IEnvA) whose scope is the international flights operated from Chile, the most advanced level of this certification; being the first in the continent and one of the four airlines in the world that have this certification.

- Preparation of the environmental chapter for the sustainability report of the company, which allows to measure progress in environmental issues.

- Answer to the questionnaire of the DJSI.

- Measurement and external verification of the Corporate Carbon Footprint.

- Neutralization of land operations in the operations of Colombia and Peru with emblematic reforestation projects in the respective countries.

It is highlighted that in 2017, LATAM Airlines Group maintained its inclusion for the fourth consecutive year in the world category of the Dow Jones Sustainability Index, with only 3 airlines in the world belonging to this select group.

130 

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

(1) On April 10, 2018, The Company has reached a preliminary agreement for the sale of its stake of Aerotransportes Mas de Carga, S.A. de C.V. ("Mas Air") and Promotora Aerea Latinoamericana S.A. de C.V. to the Company Mas Aviation Group LTD. If the conditions stipulated in the agreement are met, the transaction is expected to be executed in early August of this year. The transaction amount is not considered material for LATAM Airlines Group financial statments.

(2) At the Ordinary Shareholders’ Meeting held on April 26, 2018, the shareholders approved the distribution of the final dividend proposed by the Board in the last meeting held on April 3 which proposed consists in distributing as dividend 30% of the Profit for the year 2017, equivalent to an amount of US $ 46,591,192.86, which will be paid on May 17, 2018.

(3) On May 7, 2018, LATAM Airlines and its subsidiaries Inversiones LAN S.A. and LAN Pax Group S.A. (collectively, the "Sellers"), sold, assigned and transferred to the Spanish companies Acciona Airport Services, S.A. and Acciona Aeropuertos, S.L. (collectively, the "Buyers") 100% of their shares (the"Shares") in the subsidiary that develops the ground handling business at the Santiago airport, Andes Aiport Services S.A.

The purchase price is the amount of $ 24,300 million Chilean pesos, which may be adjusted according to variations in net debt and working capital at the date of closing.

This operation will have a positive effect in the order of USD$ 25 million in the results of the Company.

(4) Subsequent to the closing date of the financial statements as of March 31, 2018, there has been a significant variation in the exchange rate (Central Bank of Brazil) R $ / US $, from R $ 3.32 to US$ to R $ 3.58 per US$ to May 8, 2018, which represents a depreciation of 7.67% of the Brazilian currency.

At the date of issuance of these financial statements, given the complexity of this matter, the administration has not yet concluded the analysis and determination of the financial effects of this situation.

Subsequent to March 31, 2018 and until the date of issuance of these financial statements, there is no knowledge of other financial or other events that significantly affect the balances or their interpretation.

The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of March 31, 2018, have been approved in an Extraordinary Board Meeting on May 8, 2018.

131 

 SIGNATURES

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

Date: May 8, 2018				LATAM AIRLINES GROUP S.A.
				By:		/s/ Ramiro Alfonsín
				Name:		Ramiro Alfonsín
				Title:		Chief Financial Officer