conference call 2q10
TRANSCRIPT
2Q10 Results Presentation
August 16th, 2010
(You will go with TAM)
2
Warning - Information and Projection
This notice may contain estimates for future events. These estimates merely reflect the expectations of
the Company’s management, and involve risks and uncertainties. The Company is not responsible for
investment operations or decisions taken based on information contained in this communication. These
estimates are subject to changes without prior notice.
This material has been prepared by TAM S.A. (“TAM“ or the “Company”) includes certain forward-looking
statements that are based principally on TAM’s current expectations and on projections of future events
and financial trends that currently affect or might affect TAM’s business, and are not guarantees of future
performance. They are based on management’s expectations that involve a number of business risks and
uncertainties, any of each could cause actual financial condition and results of operations to differ
materially from those set out in TAM’s forward-looking statements. TAM undertakes no obligation to
publicly update or revise any forward looking statements.
This material is published solely for informational purposes and is not to be construed as a solicitation or
an offer to buy or sell any securities or related financial instruments. Likewise it does not give and should
not be treated as giving investment advice. It has no regard to the specific investment objectives, financial
situation or particular needs of any recipient. No representation or warranty, either express or implied, is
provided in relation to the accuracy, completeness or reliability of the information contained herein. It
should not be regarded by recipients as a substitute for the exercise of their own judgment.
3
The new middle class in Brazil is a large market that wants to fly
Middle class accounts for 49% of the Brazilian population
Millions of Brazilians do not live in their home states
Over the next 12 months, 8.7 million Brazilians should travel by plane for the first time
Most people who intend to travel by plane belong to the new Brazilian middle class
Who experience traveling by plane don’t go back to bus anymore
Since 2002 the Brazilian middle class has grown 3 times more
than the total population
53% of the middle class never traveled by plane and 58% have traveled by bus more than 8h
80% of these trips have leisure purposes
56% of those who intend to travel are in middle class
85% of those who have flown want to fly again on the next trip
Source: Data Popular
4
We have a great opportunity in the off-peak flights, and to attract this new customers, we must work on three fronts
1 2
3
Communication Sales Channels
Payment Choices
Brazilian singer IveteSangalo will be the star of the advertising campaign
Campaign theme: Você vai. E vai de TAM (You will go with TAM)
Printed sheet containing information for first-time passengersWebsite TAM.COM.BR/COMOVIAJARBus comparison tables
Increased TAM Viagens’ capillarity by the franchising model, reaching 200 stores in 2 years
Sales kiosks at the retail chain CasasBahia
Today we are the airline that offers more payment chices
Possibility to buy tickets in up to 12 installments using the ItaúCard/TAM card and the Casas Bahia credit card
5
We made a capital increase for the acquisition of TAM Milor, bringing financial, corporate governance and intangible benefits
TAM SA
TAM Linhas Aéreas
TAM Milor
Payment in cash on the contract’s signature date
Payment by promissory notes in favor of the selling parties, being this credit will used by the selling parties for increasing TAM SA’s capital, with the issuance of new common shares, paying the debt of TAM Linhas Aéreas.
Cash outflow reduction
Improved corporate governance
Incorporation of a valuable asset
Issuance of 5.6 million new common shares
Issuance price of R$ 25.69 each common share
Preemptive right from August 2, 2010 up to September 14, 2010 (inclusive)
Expected Benefits Expected Benefits
Capital IncreaseCapital Increase
Transaction StructureTransaction Structure
TAM Milor acquisition by R$ 170 million:
15%
85%
6
São PauloMaringá
PresidentePrudente
Araçatuba
MaríliaJuiz de Fora
Bauru
We expanded Pantanal’s network, which will reach 17 cities and will use Airbus and ATR aircraft
After
Yearly ASK(million)
Weekly Flights
Destinations
Aircraft
Before
3
220
6
ATR
22
405
17
Airbus and ATR
The new network will start on August 23
Var
7x
84%
3x
New NetworkNew NetworkPrevious NetworkPrevious Network
São Paulo
Rio de Janeiro
Salvador
Curitiba
Maringá
Porto Alegre
BeloHorizonte
Cuiabá Brasília
PresidentePrudente
Araçatuba Juiz de Fora
Uberlândia
UberabaRibeirão
Preto
Bauru
São JoséRio Preto
Marília
Airbus
ATRTo be approved
Recife
7
13.0 12.6 13.0
2Q09 1Q10 2Q10
RASK - R$ Cents
3%
2%
17%
12%
We increased by 11% our domestic passengers revenue and our yield by 1% comparing to the previous year
5,7437,220 6,335
2Q09 1Q10 2Q10
9,31110,422 10,357
ASK, RPK and Load Factor
Load Factor 62% 69% 61%
22.419.3
22.5
2Q09 1Q10 2Q10
Yield - R$ Cents
1,286 1,397 1,428
2Q09 1Q10 2Q10
Passenger Revenue - R$ Million
Domestic PassengersDomestic Passengers
11%
1%
10%
11%
1% 0%
8
10%
-1%
RPK4,440
5,020 5,055
2Q09 1Q10 2Q10
ASK6,482 6,557 6,621
ASK, RPK and Load Factor
Load Factor 68% 77% 76%
In dollars, we increased by 45% our international passengers revenue and our yield by 28% comparing to the previous year
U$ 6.3U$ 9.0 U$ 8.1
2Q09 1Q10 2Q10
R$ 13.2
R$ 16.2R$ 14.5
Yield - Cents
U$281U$453 U$409
2Q09 1Q10 2Q10
R$584
R$816R$732
Passenger Revenue - Million
U$4.3U$6.9 U$6.2
2Q09 1Q10 2Q10
R$9.0
R$12.4R$11.1
Scheduled RASK - Cents
2.1 1.8 1.8
2Q09 1Q10 2Q10
Avg US DollarAvg US Dollar
International PassengersInternational Passengers
2%
1%
14%
1%
10%
11%
28%
25%
10%
10%
45%
23%
11%
11%
42%-14%
9
20
124
134
15
108
159
2Q09 2Q10
278 281
0
50
100
150
200
250
300
(R$ Million)
Cargo revenue grew 33% and other revenues grew 1%
105
110
158
127
2Q09 2Q10
215
285
0
50
100
150
200
250
300
(R$ Million)
Cargo RevenueCargo Revenue Other RevenueOther Revenue
Domestic Internacional Others
33%
50%
16%
1%
-27%
-13%
19%
Loyalty Program Travel and tourism agencies
10
Our net revenue increased by 15% and we improved our EBIT margin by 8 p.p. compared to 2Q09
Net Revenue (million)
Operating Expenses (million)
EBIT (million)
EBIT Margin
EBITDAR (million)
EBITDAR Margin
Financial Result + Others* (million)
Net Income (million)
Total RASK (cents)
CASK (cents)
CASK ex-fuel (cents)
CASK USD (cents)
CASK USD ex-fuel (cents)
2,611
2,579
33
1.3%
289
11.1%
(211)
(154)
15.4
15.2
10.2
8.5
5,7
2,270
2,426
(157)
-6.9%
165
7.3%
994
555
14.4
15,4
11.4
7.4
5.5
2Q10 vs 2Q09
15.1%
6.3%
-
8.2p.p.
75.7%
3.8p.p.
-
-
7.0%
-1.1%
-10.8%
14.5%
3.2%
2Q10 vs 1Q10
0.3%
2.8%
-66.0%
-2.4p.p.
-23.1%
-3.4p.p.
-21.8%
-165.2%
0.3%
2.8%
1.1%
3.4%
1,7%
In Reais 2Q102Q10 2Q092Q09 1Q101Q10
* Others includes “Movements in fair value of fuel derivatives” and “Gains (losses) on aircraft revaluation”
2,604
2,508
96
3.7%
376
14.5%
(173)
(58)
15.3
14.8
10.1
8.2
5.6
11
Cash 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
84%
16%
2005 2006 2007 2008 2009 2T10
3.8
2.1
5.66.3 6.5 6.3
0.0
2.0
4.0
6.0
8.0
Liquidity and debt profile
Adequate debt profile*Adequate debt profile* Debentures issued in 2009Debentures issued in 2009
Adjusted Net Debt / EBITDARAdjusted Net Debt / EBITDAR
US$
Maturity date
Grace period
Interest
CDI %
Installments
July, 2013
12 months
Monthly
126.5%
Quarterly
July, 2017
18 months (Jan 2012)
Semiannually
124%
Semiannually
Original Actual
Obs.1: 2010 EBITDAR considers last 12 months from 2Q10Obs.2: Net Debt Adjusted includes annual operating leases x 7Obs.3: Debt is considered in US GAAP for 2005 and 2006 and in IFRS since 2007
R$ Million
Debt mix by currency
R$
US$
Debentures, bonds and othersLeasing on the balance sheet
* Do not include the new debentures position
12
2010 Guidance
Domestic MarketDomestic Market
R$ 1,79R$ 1,81Average US dollar rate
USD 78USD 85Average WTI
-10%2-6%CASK ex-fuel
2 12New international frequency or destination
78%75%International
66%66%Domestic
71%69%Load factor
3%8%International
10%14%Domestic
8%12%Supply growth (ASK)
26%14% - 18%Demand growth (RPK)
AssumptionsAssumptions
Guidancefor 2010
Guidancefor 2010
ActualJan - JulActual
Jan - Jul
1 The two new flights from Rio de Janeiro to Frankfurt and London started on August 10 and the flight to Bogota has been authorized by ANAC2 Considers the period from January to June
13
Fleet plan
B767 Airbus wide-body Airbus narrow-bodyB777 ATR-42
43
A340 - 2
A33016
A321 - 5
A32081
A31921
43
2
18
5
82
24
5
43
2
18
7
85
27
5
43
2
20
9
85
30
5
83
20
128
103
18
132
10
21
137
2009 2T10 2010 2011 2012 2013 2014
132143
151158 159 163
168
Total Fleet (end of period)Total Fleet (end of period)
14
“The only way to compete in an open skies market, is creating a large Latin American airline group”
Captain Rolim Adolfo Amaro
All information provided as of this slide will only materialize with the approval of shareholders and the authorities14
15
Evolving global context has created the opportunity for a Latin American leader to emerge
• The world is consolidating and international players are looking at Latin America for growth
• Regional consolidation creates the opportunity for a Latin American carrier to enter on an equal footing with the world leaders
• LAN and TAM have the opportunity to create this global champion, due to leading home market positions and shared focus on value creation
This is the right time for the two companies combined to take the opportunities of one of the regions with greatest potential
demand growth in the world
All information provided will only materialize with the approval of shareholders and the authorities
16
Transaction overview
• There will be a public offer to exchange for
cancellation of TAM’s registration as an open company
• LAN Airlines SA will be renamed to LATAM Airlines Group SA
and will be the holding company that will align the activities of
the entire group
• There will be a public offer to exchange for
cancellation of TAM’s registration as an open company
• LAN Airlines SA will be renamed to LATAM Airlines Group SA
and will be the holding company that will align the activities of
the entire group
• Transaction based on shares exchange seeks to consolidate
the economic interests of shareholders groups into a single
entity
• TAM and LAN controlling shareholders will keep control
of LATAM with balanced voting power of 50% each
• Board composed by 9 members, of which 4 from the
controlling shareholders:
• 2 from Amaro Family
• 2 from Cueto Family
• TAM and LAN controlling shareholders will keep control
of LATAM with balanced voting power of 50% each
• Board composed by 9 members, of which 4 from the
controlling shareholders:
• 2 from Amaro Family
• 2 from Cueto Family
• To TAM’s shareholders (controlling and others) will be
offered 0.90 LATAM common share for each share of
TAM
• To TAM’s shareholders (controlling and others) will be
offered 0.90 LATAM common share for each share of
TAM
LATAM will be listed on three stock exchanges•Santiago
•New York (ADRs)•São Paulo (BDRs)
LATAM will be listed on three stock exchanges•Santiago
•New York (ADRs)•São Paulo (BDRs)
DetailsDetails
All information provided will only materialize with the approval of shareholders and the authorities
Amaro Family13,5%
Amaro Family13,5%
Cueto Family24,1%
Cueto Family24,1%
Free FloatFrom TAM
15,8%
Free FloatFrom TAM
15,8%
Free FloatFrom LAN
46,6%
Free FloatFrom LAN
46,6%
LATAMLATAMControlling Shareholders
LAN CEO - Ignacio Cueto
Subsidiaries:LAN Peru
LAN ArgentinaLAN Ecuador
LAN Cargo
LATAM Chairman of the Board - Mauricio Amaro
LATAM CEO - Enrique Cueto
TAM SA Chairman of the Board - Maria Cláudia AmaroTAM SA CEO – Marco Antonio BolognaTAM Linhas Aéreas CEO – Líbano Miranda BarrosoSubsidiaries:PantanalTAM MercosurMultiplus
The Controlling Shareholders have a shareholders' agreement, which determines the equal LATAM’s control distribution
The control of the group will be equally divided among the families Amaro and Cueto
17 All information provided will only materialize with the approval of shareholders and the authorities
18
LAN e TAM today
4.9 3.7
14 17
63 70
26.3 17.7
143 98
90+ 121
14.0% 22.5%
30.4 15.4
64.7 38.8
183 649
Note: Most recent figures except for financials and ASK (as of Dec 2009)
FinancialFinancial
OperationalOperational
2009 Revenue (USD billion)
Countries served
Destinations
Employees (thousand)
Aircraft
Aircraft orders
2009 EBITDAR margin
Passengers (million)
2009 ASKs (billion)
Tons (thousand)
All information provided will only materialize with the approval of shareholders and the authorities
19
LATAM will be the leading company within it’s region...
Source: Company 20-F filings, Airline Business, IR presentation, Company websites.
DestinationsNumber of cities, as of today
CopaAvianca-Taca
GOLLAN-TAM
62 58
51
116
PassengersMillion, 2009
CopaAvianca-Taca
GOLLAN-TAM
45.8
28.4
11.35.6
RevenueUS$ Billion, 2009
CopaAvianca-Taca
GOLLAN-TAM
$3.5$2.6
$1.3
$8.5
EBITDARUS$ Million, 2009
CopaAvianca-Taca (E)
GOLLAN-TAM
$320$400$690
$1.505
All information provided will only materialize with the approval of shareholders and the authorities
20
... and will be among the leading airlines in the world
The Top 15 passenger airlines in revenueUS$ Billion, 2009
Source: Company reports for LAN and TAM, Airline Business
The Top 15 passenger airlines in passengersMillion, 2009
AMR Corporation
Delta
United - COAir France-KLM Group
Lufthansa Group
LATAM
Air Canada
Cathay Pacific
Singapore Air Group
Southwest
US Airways
QantasANA Group
JAL
BA - Iberia
China Southern
Lufthansa
Air France-KLM
Southwest
United-CO
Delta
Qantas
Air China
JAL
American
China Eastern
LATAM
US Airways
BA - Iberia
Ryanair
1
10
15
5
1
10
15
5
9999101011
1316
1920
28293031
38404144465152
65667071
8686
102161
All information provided will only materialize with the approval of shareholders and the authorities
21
Will be the absolute leader in South America and co-leader on routes to and from the USA and Canada
Note: International non-stop segmentsSource: OAG as of July 2010
United and Continental
Delta
Avianca80
60
40
20
100%
0Europe
1,1
Other
1,6
Intra South America
1,4
USA e Canada
Alitalia
Other
American
LATAM
LATAM
Avianca
GOL
Aerolineas
Pluna
Outher
British Airwaysand Iberia
Air Franceand KLM
TAP
LATAM
Lufthansa and Swiss
Avianca
2nd
4th
1st
Current capacityMillion of seats per month
All information provided will only materialize with the approval of shareholders and the authorities
22
The combination will provide growth opportunities to the group
... and we have the opportunity to grow even more acting initially on four growth areas
This combination provides us an unique position...
116 destinations in 23 countries
Fleet of 241 aircraft
44 thousand employees
Leaders in the domestic markets of Brazil, Chile, Ecuador and Peru
In South American intra-regional our leadership will be very strong
1
4
3
2
Brazil to Europe/Africa
Lima to North/Central Am.
New hubs
Increased Southern cone feed to support new service to Europe
Increased Brazil feed supports new service to US and Mexico
Potential new hubs could connect to Europe and US
Cargo Combination of LAN’s expertise and TAM’s footprint
All information provided will only materialize with the approval of shareholders and the authorities
23
The transaction is expected to generate estimated annual synergies of ~US$400 million
• Expectation to implement one third of the synergies within the first year
• All synergies should be implemented by the end of the third year
US$ ~400M
PAX Revenue
$170M
Cargo Revenue
$110M
Costs
$120M
Synergy Source Rationale
Value US$ Million
10
35
35
40
110
50
15
25
25
20
20
15
Revenues: Cargo ~$110M, Pax ~$170MRevenues: Cargo ~$110M, Pax ~$170M Costs: ~$120MCosts: ~$120M
Synergy Source Rationale
Value US$ Million
Increased connectivity
Frequent flyer
New flights
Other passenger revenue
Cargo
Network relevance
New service, sharing of best practices
Improved access to joint hubs and combined network appeal
Combined network supports new flights and hubs
Including consolidation of partner airline contracts and increased utilization
Consolidation of the programs and sharing of best practices
Combined network creates new city pairs and increased service
Procurement
Airports
Sales
Corporate
IT
Maintenance
Consolidation of functions in overlapping stations
Leveraging economies of scale in contracts
Streamlining of corporate overhead and some functions
Efficiency of combined sales efforts
Efficiencies of common IT platforms
Leveraging economies and efficiencies of scale
All information provided will only materialize with the approval of shareholders and the authorities
24
Opportunities on cargo transportation combining LAN cargo expertise with TAM market opportunity
LAN’s global and diversified cargo network…
…with TAM’s Brazilian market presence
Brazil is the largest domestic cargo market in Latin America
TAM offers significant strengthsDomestic widebody network
Existing cargo operation
Strong and growing European network
Europe to South America
Regional (intra) South America
North America to South America
All information provided will only materialize with the approval of shareholders and the authorities
25
We will be the third largest airline of the world in market value
Source: Bloomberg (30/07/2010)
0.0
5.0
10.0
15.0
20.0
Air Ch
ina
Sing
apor
e
LATA
MDel
ta+Nor
thwes
t
Ryan
air
Lufth
ansa
+Sw
iss
Unite
d+CO
Briti
sh+
Iber
ia
Qanta
sAi
rFra
nce+
KLM Gol
Copa
Market Cap (USD B)
19.2
13.7
10.69.4
7.5 7.4 7.4 7.2
5.14.5 3.8
2.3
All information provided will only materialize with the approval of shareholders and the authorities
