2 rolls-royce.com. LATAM is the first airline group in the Americas to operate the Trent 1000-powered Boeing 787.

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1 LATAM is the first airline group in the Americas to operate the Trent 1000-powered Boeing 787. Below Enrique Cueto, CEO for LATAM Airlines Group. Below right LAN from Chile and TAM from Brazil have merged to create LATAM. 2 rolls-royce.com

AVIATION LATAM creating a common culture Chile s LAN Airlines has merged with Brazil s TAM, joining the Pacific with the Atlantic and creating a major airline force in South America.

2 AVIATION LATAM creating a common culture Chile s LAN Airlines has merged with Brazil s TAM, joining the Pacific with the Atlantic and creating a major airline force in South America. he deal was completed in June this year T and was big news in the aviation industry. The LATAM Airlines Group also recently hit the news headlines having been the first airline in the Americas to receive the Boeing 787 powered by Trent 1000 engines. South America has around five to six per cent of the world air traffic at present but is growing fast and the merger seems to be a good solution for both airlines to help consolidate their existing positions but also help provide a stronger foundation for growth. LAN has secured close to 80 per cent of the domestic market in Chile and is also strong domestically in seven South American countries, with a major hub in Lima, Peru, as well as its Santiago, Chile, headquarters. LAN though has long recognised that if it wanted to be a leader in the region and compete successfully in the global market, then it needed size and, vitally, it needed a foothold in the Brazilian market. Brazil is the biggest country in South America and TAM is its biggest player domestically and internationally. I believe that this is a very strategic deal for the airline industry because South America is huge geographically but still small in terms of global airline traffic. Working together, LAN and TAM will benefit from feeding more traffic into South America and then providing solutions from our hubs to destinations all over the region, says Enrique Cueto, CEO for LATAM Airlines Group. This merger is about growth. We will continue to operate under our two airline brands because for 98 per cent of the synergies surrounding this merger we do not need to be one company. There is only around a three per cent overlap in destinations, so the main benefit will be in the successful co-ordination and connection of the two networks and that should see more traffic, not reduced activity, he adds. issue135 3

it took two years from the first announcement of the intended merger in 2010 to bring it to a reality this year, but as a result, the new group has over 51,000 employees, a fleet of 310 aircraft and

Well the airline quotes the fact that South America is 30 per cent bigger geographically than the us, and with a population of 400 million also has around 30 per cent more people.

3 it took two years from the first announcement of the intended merger in 2010 to bring it to a reality this year, but as a result, the new group has over 51,000 employees, a fleet of 310 aircraft and a network that connects 150 destinations in 22 countries. And looking a little into the future, what is the size of the prize LATAM can aim for? Well the airline quotes the fact that South America is 30 per cent bigger geographically than the us, and with a population of 400 million also has around 30 per cent more people. However, current annual air traffic across South America stands at around 25 per cent of that in the us. The us has 700 million passenger journeys each year. Will it grow here to be the same size as the us market? Maybe not, but will it grow to 400 million passenger journeys per year? Yes, i think so, says Roberto Alvo, evp Corporate Development, Planning and Procurement for LATAM Airlines Group. He was intimately involved in the early negotiations with TAM and over the past two years helped bring a complex legal and cross-border deal to fruition. They (TAM) have what we don t. it is almost the perfect match and it creates a leading presence in South America something not replicated in other parts of the world. if you look at europe there are at least three-four big carriers, the same in the us and in Asia, but here we are now the biggest and we will have more than 50 per cent of the regional traffic. Below left Checking in at Santiago airport. Below right The first Boeing 787 arrives in Chile. As a result, LATAM Airlines Group is able to offer this region to the rest of the world from a position of strength. When LAN looked at the options it was clear that TAM was the most compelling partner, both from a strategic and cultural point of view. Fortunately, the TAM owners felt the same, he adds. CONdITIONS There were anti-trust concerns in both countries that had to be overcome. LAN is a member of the oneworld alliance and TAM is a member of the Star Alliance. One of the conditions of the merger is that TAM has to leave this alliance, as the competitor airline in South America, Avianca-TACA Airlines, is also a member. The new group has not yet stated its intentions thereafter but LATAM simply says that over the coming months it will study the options open to it. The main issue according to the group is that LATAM needs a strong partner in the us market that can provide good distribution and access. At the same time they need a strong partner in europe for the same reasons, as these are the current main markets for the LAN and TAM international operations. Both Chile and Brazil have seen their economies grow in recent years. in Chile s case, mainly on the back of mineral resources and its wine exports. Brazil has found new wealth in deep offshore oil and gas reserves and, of course, has both the 4 rolls-royce.com

4 World Cup and the Olympics to look forward to in the next four years. even so, LATAM Airlines Group anticipates passenger growth of 8-14 per cent per annum, which is two-three times more than the average GDP for the region. in Chile alone LAN expects 20 per cent growth this year. europe may still be weak but LATAM Airlines Group has its sights set on benefiting from a growing South America market, recovering us and a strong Asia. Although there is little overlap in the route network, there is clearly the opportunity for back-office and other strategic savings to be made. At the time of the merger, LATAM Airlines Group promised to identify us$ million in savings from areas such as converging it systems, co-ordination of maintenance, airport and procurement activities. That work is only just starting but they expect to realise these fully by LATAM Airlines Group is quick to point out that although there are synergies and cost savings to be made, the airlines primarily agreed the merger in order to develop their competitive position jointly. They claim that most employees have been supportive because in reality not much will visibly change for most people. So long as the airlines operate under their own banners then LATAM Airlines Group s ambition is for a more subtle cultural revolution to take place rather than a forced immediate change. Passengers may know that TAM and WORkiNG TOGeTHeR LAN AND TAM WiLL BeNeFiT FROM FeeDiNG MORe TRAFFiC into SOuTH AMeRiCA. LAN are not exactly the same, but we want them to be assured that when they book with LATAM Airlines Group that both carriers have the same approach to customer care, to quality and to safety. We also want them to benefit from our frequent flyer programmes so that we can crosssell effectively and let people benefit from a seamless reservation system, says enrique Cueto. in terms of the aircraft experience, the short-haul experience may be easier to replicate cross-airline as both operate the Airbus A320 family as their primary airframes. The long-haul fleet is more complex, TAM having opted for the A330 and future A350 XWBs as its backbone, whereas LAN flies the Boeing 767 and now has 787s gradually feeding into the fleet. issue135 5

For Rolls-Royce, this is the start of an important relationship with the new South American airline force.

XWB. The first 787 Dreamliner and its Trent 1000 engines went into service with LAN in September of this year on the Santiago to Buenos Aires route.

The airline intends to train crew and familiarise itself with the new airframe on these routes before flying the longer-haul Santiago-Madrid route

Below left The crew that delivered the first Boeing 787 to Chile. Below LATAM is the new airline force in South America.

5 years we have been working hard on preparing for the entry into service (eis) and that has involved an integrated team of crew, engineering,

i am delighted to say that we had no problems and we were ready, we were even complimented by Boeing for the preparation we had put into this, says

5 For Rolls-Royce, this is the start of an important relationship with the new South American airline force. LAN has ordered 32 Trent 1000-powered 787s with 15 on option, and TAM has 27 firm A350 XWBs with five on option all powered by the Rolls-Royce Trent XWB. The first 787 Dreamliner and its Trent 1000 engines went into service with LAN in September of this year on the Santiago to Buenos Aires route. Another two of the aircraft will arrive before year-end and will be placed on the Santiago-Lima and Lima-Los Angeles routes respectively. The airline intends to train crew and familiarise itself with the new airframe on these routes before flying the longer-haul Santiago-Madrid route which is planned for the first quarter of Right The Trent 1000 engine powers the Boeing 787. Below left The crew that delivered the first Boeing 787 to Chile. Below LATAM is the new airline force in South America. COMPLIMENTEd We ordered the 787s five years ago but before that we did a detailed analysis of the aircraft and its competitors. For the last 2.5 years we have been working hard on preparing for the entry into service (eis) and that has involved an integrated team of crew, engineering, marketing, maintenance and supply chain. i am delighted to say that we had no problems and we were ready, we were even complimented by Boeing for the preparation we had put into this, says enrique elsaca, Senior VP Operations and CeO for LAN in Chile. We did an equally rigorous analysis of the engine options before selecting Rolls-Royce. We have signed a TotalCare programme for the Trent 1000s because this is a new engine and we believe Rolls-Royce is better placed to do the maintenance work and to minimise our risk. On other engines where we have more knowledge and experience we may take a 6 rolls-royce.com

6 THe NeWeST AeROPLANe in THe WORLD FLYiNG SuCCeSSFuLLY WiTH LAN, in MY VieW HAS SHOWN THe WORLD HOW CAPABLe We ARe. different view. But the LAN philosophy is only do ourselves what we know we can do well. For enrique elsaca, the eis of the 787 has felt like a very personal journey. He had been Senior VP Planning when the airline was studying aircraft options and then became Senior VP Operations in 2008 and helped prepare the pilots, crew and maintenance operations to get ready for managing the new high-technology aircraft with its composite airframe. Now i am in charge of the airline in Chile and i have had the chance to see my people fly it and be the first airline in the Americas to put it into service. To have planned for this, trained for it and now experienced the newest aeroplane in the world flying successfully with LAN, in my view has shown the world how capable we are. Commenting on the introduction of the 787 into the LATAM group, enrique Cueto says: We really think that the 787 fleet will be very important because of its fuel efficiency. We have bet on the 787 and Rolls-Royce Trent 1000 engines, having worked closely with both manufacturers in the past 18 months. Rolls-Royce and Boeing have moved quickly to resolve any teething problems we have had and we are very comfortable that with both these companies we will have a good operation and a great success story. it s a new era for air travel in South America with a major new airline group and a new fleet of high-technology and efficient airliners entering service. For LATAM Airlines Group, the challenge is to cope with the challenges today of merging the partner airlines and managing the demands of an ever changing industry. We need to concentrate on creating a strong group that can cope with whatever happens. A group that will deliver real benefits in terms of service, and network opportunities and that our customers can trust, says Cueto. Author: David Howie is Director of Brand for Rolls-Royce. He joined the company from a marketing consultancy and prior to that was a press officer. issue135 7

LAN and TAM announce intention to combine. Investor Presentation August 13, 2010

LAN and TAM announce intention to combine Investor Presentation August 13, 2010 Forward Looking Statements This presentation contains forward-looking statements, including with respect to the negotiation,