[Technical Difficulty] Thank you, Lynn. Good morning, everyone.

Welcome to LAN Airlines First Quarter 2012 Conference Call on this, the 14th of May 2012. Today, LAN Airlines management will discuss their earnings release per the press release distributed Friday evening.

This call is for investors and analysts only. If you're a member of the media, we request that you refrain from asking questions and contact LAN Airlines directly.

If you have any difficulty during this call or have any questions, please contact i-advize in New York at (212) 406-3693. Please note that certain statements regarding the company's business outlook and anticipated financial results constitute forward-looking statements.

These expectations are highly dependent on the economy, the airline industry, international markets, and therefore are subject to change. And at this time, it is my pleasure to turn the call over to Mr.

Alejandro de la Fuente, LAN's Chief Financial Officer for his presentation. Mr.

De la Fuente, please begin.

Thank you, Pete. This is Alejandro de la Fuente, Chief Financial Officer of LAN.

With me here in Santiago are Luis Eduardo Riquelme from our Passenger Division; Alvaro Caril from our Cargo Business; Andrés del Valle from our Corporate Finance Department; and Gisela Escobar, our Investor Relations Officer. In addition, this quarter we are joined by Hernan Pasman, CEO of LAN Columbia, who will be able to give you additional insights as to the development and operations of LAN Columbia.

We hope that you have all been able to access the webcast presentation that is available in our website for a better understanding of our result for the first quarter 2012. On Slide 3.

You can see the main highlights of LAN's results for the first quarter. LAN reported net income of $26 million a 22% decrease compared to first quarter 2011.

Operating margins reached 7.2%. The decline as compared to last year is due to 15% higher fuel prices, only a part of which were recovered through higher yields.

The difficult environment in the Cargo business reflected in weaker traffic growth, continued investment in the development of the operational plan in Colombia and finally, a one-time charge of $14.3 million resulting from the successful completion of the collective by gains, by gain process of 2 unions during the quarter. Nevertheless, passenger demand remains strong in most markets, providing the basis for a 16% increase in Passenger revenue.

This allow us to offset part of this negative impact. Turning to Slide 4.

You can see more detailed evaluations in our operating margin for the first quarter 2012. Fuel prices increased 14.7% compared to first quarter 2011.

Generating $65 million in higher fuel cost, excluding the impact of fuel hedging gains. Such impact was partially recovered through increased revenue per HK, mainly due to higher yields in both Passenger and Cargo relations and higher passenger load factors.

Passenger yields increased 2.2% and Cargo yields increased 4.7%. Margins were also impacted by the one-time charge related to the union negotiations, as well as by continued operating losses at LAN Columbia, as we advance in building up our domestic partner relations in that country.

Finally, LAN continues to recognize ongoing expenses related to the merge with TAM, which amounted to $2.1 million during the first quarter. Taking a closer look at Passenger operations on Slide 5, you can see details detailing the evolution of the business during the quarter.

We continue to experience very solid traffic trends in most markets. Traffic grew 14% while capacity increased 11.3%.

Consequently, load factors reached 82.9%, which is a record even considering the high season. Yields continue to increase, driven by higher fuel surcharges, showing an increase of 2.2% over first quarter 2011.

LAN continues to expand Passenger capacity throughout its network. As you can see on Slide 6, Passenger capacity expansion this quarter was driven by regional routes within South America.

Growth in the regional business as a result of the continued strength on LAN half Lima, as well as commercial activities focused on stimulating demand for travel within South America. Regarding our domestic operations, routes within Chile continue to be growth drivers, as well as Colombian domestic operations, where capacity increased by over 20%.

This expansion was partially offset by decreased capacity on local routes to Europe, as a result of itinerary changes implemented in 2011, mainly the cancellation of the Madrid and Paris route in July 2011. Overall, LAN's passenger capacity expansions remain highly diversified, which provides us with significant flexibility to adjust capacity deployment in demand conditions in different markets.

Please turn to Slide 7 for our -- for an overview of LAN's Cargo operations. The Cargo business is facing the more challenging environment, reflecting the situation in global Cargo markets since mid-2011.

LAN's Cargo traffic increased 1.5% during the first quarter, while capacity rose 2.3%. This led to a 67.4% load factor, slightly lower than 2011.

We have not taken delivery of any new freight to the surface since January 2011. In addition, capacity is also impacted by decreased availability in the bellies of passenger aircraft due to a very high passenger load factor.

On the other hand, the low increase in traffic during the quarter is a response to weaker Cargo demand in the region, increased competition in routes into Latin America, as well as new regulations in Argentina that reduced imports during February 2012. This was partially offset by a growing Chilean export market.

LAN Cargo continues to focus on profitable growth and to strengthen our market position in the region. Cargo yields increased 4.7% during the quarter, as a result of higher fuel surcharges, improved revenue management practices and optimization of itinerary.

On Slide 8, you can see to-date LAN's cost for the full quarter. Total expenses increased 17.7%.

On a per unit basis, cost per ATK increased 11.9%. Excluding fuel, cost per ATK grew 8.4%.

The main cost increases were related to: 15% high input costs; added decrease in the fuel hedge gains from $22 million to $14 million. The $14.3 million charges in wages and benefits is due to the completion of the collective bargaining process with LAN's pilot and administrative unions and the consolidation of LAN's Columbia operations.

Fuel cost for the quarters increased 27%, mainly driven by a 14.7% increase in prices and 7.4% increase in the consumption. In addition, LAN recognized a $13.6 million fuel hedge gain compared to a $31.9 million fuel hedge gain in the first quarter of 2011.

On Slide 9, you can see our fuel hedge position for the upcoming quarters. Our financial hedging strategy is in addition to our fuel surcharge policy, applied on both Passenger and Cargo operations, which allow us to recover a significant percentage of higher fuel costs.

As you can see on the slide, we have hedged approximately 50% of the estimated fuel consumption for the next 3 quarters of 2012, and approximately 5% of the estimated fuel consumption for the first quarter of 2013. We have continued increasing our hedge position and are in the process of hedging an additional 10% of our estimated fuel consumption for the third and fourth quarters of 2012.

And an additional 5% for the first quarter 2013. At current prices, our total hedge position is generating gains for the coming quarters.

On Slide 10, you can see our net fleet deliveries for the coming year. During 2012, LAN expects to receive 12 Airbus A320 family aircraft to operate domestic and regional routes, as well as 9 Boeing 737-300s.

We will also take delivery of the first Boeing 787 Dreamliners, becoming one of the first airline in the world to operate this smaller and efficient aircraft. During 2012, the company's fleet transport includes the same of 5 Airbus A318, and the return of 2 leased Boeing 737-300s, while also returning 3 of the Boeing 737-300s operated by LAN Columbia.

Regarding the Cargo fleet, during the second half of 2012, the company expects delivery of 2 Boeing 777 freighters in the second half of the year. Although we continue to have confidence in the significant growth opportunities in domestic and international markets in Latin America.

Please turn to Slide 11 to see our estimates for ASK and ATK growth in 2012. In our Passenger operations, we expect capacity growth of between 12% and 14%, driven by a net increase of 13 Passenger aircraft in our fleet, including the first 2 Boeing 787s.

On the Cargo side, we have revised our target for Cargo capacity growth in 2012 from 7% to 9%, to between 3% and 5%, as a result of a more challenging demand and competitive environment in the global cargo market. By this, we expect to continue showing healthy and profitable growth for 2012 and the coming years, and to maintain high margins relative to our industry peers.

We'll continue to see robust demand in Passenger operations and significantly -- significant growth opportunities in both Passenger and Cargo markets throughout Latin America. LAN is well positioned to benefit from expansion opportunities in the markets it operates, while maintaining our flexible and diversified business model and a strong financial position.

Finally, I would like to give you an update on the merge with TAM. Please turn to Slide 12.

LAN and TAM have successfully advanced in meeting all the requirements for the completion of the merge. On May 7, 2012, the Brazilian CVM granted obligation for the registration of the LAN's CDR program, which was assigned the ticker symbol LATAM 11.

On the same date, the CVM and Bovespa granted authorization for the registration of the exchange offer in the field. On May 9, 2012, the SEC declared effective the registration statement on Form S-4, relating to the exchange offer and combination, clearing the way for the exchange offer to commence in the United States.

Finally, on May 10, 2012, LAN commenced the exchange offer for TAM shares simultaneously in Brazil and in the United States. The exchange offer is currently scheduled to remain open until June 11, 2012, and the auction will be held on Bovespa on June 12, 2012.

While the transaction is completed, the LATAM Airline group will become the largest airline group in the region and one of the largest in the world. We currently expect the combined synergies arising from the proposed combination to increase LATAM Airlines group, our annual operating income over time by between $600 million and $700 million before deposition and taxes 4 years after completion of the transaction of the total expected annual pretax synergies between $170 million and $200 million may be achieved within the first year after completion of the transaction.

We estimate one-time merge cost of $170 million to $200 million. We also expect to benefit over time from $150 million in reduced investments [indiscernible] amended.

During the last month, LAN and TAM, together with our consultants, have been working in the integration plan, although we continue to be 2 separate companies and are unable to share strategic and confidential information. Prior to day one, we plan to have coordinated the process and information systems that will allow us to join information and report as one single company once the merge occurs.

After day one, we will start working on the integration of the business units, as well as the personnel, cultural integration of both companies. Our objective is to start as quickly as possible to generate the expected synergies.

We're still confident with the current $600 million to $700 million synergies expected. Now we will be pleased to answer your questions.

This is actually Richa Talwar calling in for Mike Linenberg. Just a few questions from our side.

First, can you just flesh out some more detail on what's going on with your Columbian operation? Your release states that you are seeing additional cost pressures there, and I'm hoping you could maybe update us on the status and when we might start to see that business turn around?

Or is that contributing to the bottom line?

Well, we have our partner, CEO LAN Columbia, he can explain to you the future developments in LAN Columbia.

Hi everyone, my name is Hernan Pasman, I am the CEO of LAN Columbia. And thanks for having me here today.

Well if we turn around, we could say that in Columbia, the operational turnaround is almost done. And we'd able to get to the LAN standards in terms of service, in terms of on-time performance.

As an example, we've had the company from 45% on-time performance to 80% today, and which certified IOSA during the last year, so we are on LAN standards in terms of safety standards as well. Financially, it's taking a little longer than we expected to turn around the company.

We are expecting -- initially, we thought that we were able -- or that we might have been able to turn around the company during this year, and this is going to take a little longer than expected. And it's due to, because we are investing -- we're still investing in the company and in the operations.

And we think we might be able to turn around the company by '13.

Okay. So this year, should we expect like a breakeven or maybe, more of a loss from that operation?

Well, this year's going to be -- we feel I think it's going to be more of a loss, I mean, we think the business is going to turnaround by the second semester. We're going to be close to breakeven.

Our expectation's is to be close to breakeven for the third quarter and be profitable on the fourth quarter. But that's not going to carry it throughout the year.

Okay. Is there a number where you could quantify how much money they lost this past quarter?

We can talk about the investments, if you want. I mean, we've been investing in this company for around -- we expect that we invest in this company around $140 million, including all the losses that we have last year and this year.

And it was mostly the initial investment was around $125 million. And what we think that the loss for the first quarter is going to be around $25 million.

Okay, that's helpful, thank you so much. Secondly, just on dividends.

We noticed that you had a 50% dividend payout ratio for 2011. And that's just seemed a bit on the high side.

I believe your required to pay out at least 30% of distributable net income? And I was hoping you could walk us through why it was relatively high this year?

No. This year, no, we paid dividends.

And therein, I guarantee you, as CEO, leavened [ph] results and then we completed that payout to be 50% based on the 2011 results. But by going forward, we don't have a declared policy, just that we oblige minimum open logs [ph] to distribute 30% of the previous year's net income.

Well, that's bottom line. So going forward, we don't give any guidance on dividend payments.

Also, that 50% for 2011 is in line with what we have paid in the previous years. Our dividend policy since 2007, 2006 has been between 50% and 70%.

This is actually Eduardo speaking. I have a couple of questions.

The first one is regarding the Cargo business. We saw I would say a softer first quarter in terms of Cargo demand and the April numbers that were preleaved [ph] a couple of weeks ago were also very light.

So I was just wondering, if you guys could comment a little bit about what is the outlook for Cargo demand in the coming quarters? What are the main products that where you have seen a deceleration?

And another point, you still have, LAN still has 2 freighters to be received, I think, this year. So if demand does not get back, would you reconsider those delivers?

Or what can you do to accommodate a softer demand on higher aircraft delivers?

This is Alvaro Caril from the Cargo division. And, yes, as you've said before, we've seen a decrease, a deceleration on the Cargo flows starting in the second semester last year and completing in the first semester of this year.

This is mainly, what we call southbound Cargo, meaning this Cargo coming from Greece, Europe, Asia into Latin America. This is mainly investments or high-tech products, cellular phones, computing and things, all related to consumer electronics or the investments for the industry here in Latin America.

As the growth of the countries here has been, this is relating, a little bit, especially in Brazil, because roughly 40% to 45% of all of this, the traffic that we will bring to Latin America goes to revenue. And as Brazil has decelerated a little bit, we have also seen that the Cargo flows has been coming down a bit, or not growing as the same pace as we were expecting.

On the other hand, the outbound cargo or the northbound cargo, as we call it, which are the exports from Latin America to the rest of the world, mainly perishables, had been improving. Mainly it's San Juan out of Chile that has recovered, almost 100% of what was when we speak 3 years ago.

It's up back against exports. In Chile, has been growing a lot and also exports out of the other countries mainly Peru, Columbia and Ecuador, Columbia and Ecuador with the flowers mainly for the Mother's Day and also for Valentines in February, all were up compared with last year's.

So there is a balance from inbound cargo, or southbound cargo which is down and export cargo which is up. What we see for this rest of the year, regarding the 2 freighters, we have plans for these 2 freighters, and first of all, we are going to replace part of our DCMI capacity.

We currently have 2 weight listers that are signed for us, and we are going to be replacing this capacity, with a newer high capacity class coming [ph]. And also, we are expecting to increase our itinerary to Europe, this under 777.

And also, we are going to be using the 777s to increase our operations into Latin America, replacing the 767s to destinations such as Brazil, Chile. And taken the 767s that we are going to be pushing out because of the entrance of the 777s in those markets, the 67s, we are going to be flying them to expand our short-haul flights out of Miami into Bogota, Australia and Central America.

So can we say that -- just to see if I understood it clearly, can we say that most of the additional capacity on the Cargo side will be basically a replacement to existing capacity? So we can think incremental capacity coming from these 2 additional freighters will be more or less lengthened?

That's the idea?

It's going to actually 1/3 of each of the 3 ideas that I mentioned. 1/3 will be replacing HMI capacity, 1/3 would be increasing our European operation.

We're currently flying 4 777s and 2 767s. The 67 is not really the right aircraft to fly to Europe, so we are going to be replacing those with 777s.

That will be the 1/3 also and the last 1/3, and it will be an increased operations, mainly to short-haul routes out of Miami. With the 767s that we're going to pull out on the long-haul routes out of Miami, there will be replacement of 777.

Okay. It's clear.

And just a second question now on the Passenger business side. Just trying to understand also your fleet plan for passengers is also quite aggressive, especially compared to other Latin American airlines, especially in Brazil, companies are really grading their fleet plan, so you're adding, I think, around 10, more than the 10 aircraft this year and another 13 aircraft next year.

So I was just wondering, if you see really demand to fill all those seats and you don't expect any impact on the load factor units? Or would you consider maybe a reduction or a slowdown to fleet plan, if you're seeing that passenger demand is decelerating following what we have seen on the Cargo business so far.

Just want to get your impressions about the fleet plan on the passenger side as well.

This is Riquelme from the Passenger division. So we see that the current fleet is in line with respect to the growth will be in the markets and especially thinking of new opportunities that we expect will arise with the integration will come.

But still, we have some what you're seeing in Slide 10, is the net fleet increases. There is some flexibility regarding the A340s and the 767s in the next year, so this plan could be affected downwards depending on the final conditions of the market.

So in this moment, we feel pretty confident with the fleet size, on the arrivals we are having. Also, what is important to mention is the by the end of this year the flat forward expecting the arrivals of the 787s.

And that also has been a very efficient aircraft. We'll give room to increase operations to certain markets that with the current fleet, we believe are not the right aircraft and that will mean that we'll have much more efficient operations to certain markets outside Latin America.

Okay. And then do you have an idea of how many aircraft you can cut your fleet plan?

If demand really slowed down? Or just like -- could be like 5, 4 or 10 aircraft.

What is your flexibility in terms of reducing the fleet plan?

Yes, well we have like 2 or 3 leases ending each year indicated in the [indiscernible] plan. And also we have the possibility to get rid of the A340s.

That's a total fleet of 5 aircraft, the fleet. So we now have flexibility of around 4 -- sorry, 8 or 9 aircraft.

Also, some of the aircraft of LANs have will be based, well some of them already are, so one of the [indiscernible] is also is to get rid of some of the aircraft at times we, hours, so we're not tried on security there.

I was wondering if you talk a little more about wages and the wage increases we saw in the cost lines. How much of the increase we saw is recurring?

And just curious about what kind of increase you saw in terms of the wage increase that the workers see in their paychecks that you gave for this year. And is this a contract that lasts just a year and you'll do the renegotiation again next year, or is this a multiyear contract?

That's the first question. And then second question, if you talk a little bit well I guess you already talked about Cargo, so I'll skip that.

Can you talk about Argentina, you discussed Colombia, but Argentina, obviously, I'm surprised, when I looked in some of the graphs that you showed, you got Argentina growth has done pretty well despite all the noise that's been coming out of that country. So if you just mention a little bit what your outlook there is if there've been any more issues, like what happened at Aeroparque, the regulatory changes there for -- that pertain to you guys?

And how much or what the outlook is for market share, considering that the income that there is, obviously not one of the best operators.

Yes, hi Nick, regarding the wages and salaries line. The increase that we saw this quarter, as we mentioned was in part related to the collective bargaining agreements.

We had 2 unions that finalized their collective bargaining during the first quarter; One of the pilot unions as well as an administrative union. The important thing here is that these were anticipated negotiations, so we negotiate prior to the actual date that the agreements end, and we signed 4-year contracts with these unions.

So that means that the conditions that are set out are for the next 4 years and there's no negotiation before that. So that's obviously a positive news.

There's some limited, but some real wage increases in these contracts. Outside of that, the increase in wages is related to inflation in each of the domestic markets.

And in addition to that, the rest of the increases is due to the fact that we've been seeing increases in the actual number of employees in preparation for the growth that we have coming in, in the following quarter, as well as the fact [indiscernible]

Can I just ask one detail there? In terms of real wage increases, probably like what, 1% or 2%?

In the part with inflation? Yes.

But inside -- in the contract, there is additional wage increases, yes, different stage in the union.

Understood. Okay.

So now just the follow-on was just about Argentina.

Yes, well, regarding Argentina, we've been seeing sort of positive results given the fact that we had an increase in the fare band, if you know the fares in the domestic market are regulated. And there was an increase during the first quarter, so that had a positive impact as well.

But we don't have a -- I mean, we've also increased some capacity there, but we don't have a market share target significantly different to the position that we have today, so our strategy in Argentina hasn't changed.

Okay, so Argentina, more of a steady state. You don't foresee taking significant market share at least not on purpose?

No.

Just a quick follow up on the Cargo side. So what's the capacity growth on a quarterly basis?

I'm assuming it will be towards the end of the year you'll see some year-over-year -- bigger year-over-year growth because of the aircraft delivery?

Alvaro Caril. The Cargo division, yes, we have currently our fleet is, it's 12 767s and 2 207s, the 2 777s that will be coming in by the end of the year represents roughly a 15% in increase our capacity or less.

Okay. So you'll see a lot of negative, like year-over-year declines in capacity in the second and third quarter?

No. What I meant, on the market we've seen, at the moment, an increase in capacity in all the competitors, including our additional capacity, doing the capacity that we have putting in.

So no, we have seen this year and then we also, we see by the end of the year is adding increased competition. So this indecision that we'll be in the market for this year and whole of the year.

So no, I don't see capacity pulling out. But on the Cargo business this is very -- it actually it changes very fast in a short period of time.

So if addition is too strong, there is a big chance that some of the competitors can pull out very fast. We don't foresee nothing like that at the moment.

But if something like that happens, it can -- it happen in, very fast.

Okay. And then just my follow-up question, just on the synergies you're talking about.

Thinking about your experience with AIRES and how long it's going to take them to get that business profitable taking longer than you had anticipated. What's the level of confidence with the synergies being targeted with the LAN TAM merger and the deliverables there?

As I mentioned, we feel confident with the current $600 million and $700 million. So thinking right now, a number bigger than that.

That's why our estimations...

And then maybe with that first year synergies, is that more back half loaded in that first year? Or how should we think of once the acquisition takes place, the closing synergies?

Like how -- what should we think about the timeline on being able to move forward and bring those synergies?

The $200 million that we mentioned for the first year will -- is for the first 12 months after the close. And then they should begin to occur probably towards the second half of that first year, which puts us in sort of the first part of 2013, different from the recognition of the one-time cost, which will probably occur pretty shortly after the close of the merger.

So during 2012, we'll expect to have recognized more of the one-time costs and then start recognizing the synergy towards the end of 2012 beginning of 2013.

This is Ryan with Steve Trent's team here at Citi. I'll keep it very brief.

I'd like to know if there's a chance that LATAM doesn't join either a global alliance and stays independent? And the second one is, after the merger, will TAM level debt be considered no recourse for LATAM?

Well, in terms of the alliance, we have not decided yet if this is something that we will removal analyze after day one. And in terms, in terms of CapEx going forward to pursue, I have not made a decision regarding the concept that's happen to be analyzed post day one.

So we may have ideas but that those ideas are not yet a topic. Going forward, on the fleet, as that's coming in, is going to be linked to LATAM, of course.

That's the addition going forward. Of course, we have a few perspective on future price financing.

My question is about the merger cost. How much of the total merge goes -- how much is it?

And how much is already been included the previous quarters?

In the cost of the merger?

Yes, like legally cost or stuff like that?

Legally for this quarter, it was $2.2 million. And previous that, last year, $15 million plus in 2011, we expect that to [indiscernible]

How much is for 2012?

The total costs that we estimate after day 1 are approximately $170 million. A part of which is...

Yes. It is a one-time merge cost.

Okay. And how much of this is -- has been including previous quarters?

Well, as Alejandro mentioned, we recognized last year, approximately $15 million of costs, related mostly to fees and expenses...

Last year. For this quarter, this past quarter, $2.2 million.

Just one here on the guidance with regards to the synergies. Just wondering, as you're modeling it out, what -- maybe if you can provide a little bit more guidance as to what cost items might start to reflect the synergies sooner rather than later in the first year?

If you're talking about the $170 million of cost estimates?

No. More like the $200 million benefit, I guess.

I mean, what items are going to start naturally reflecting that improvement?

Well, I think we'll -- I mean, for now, just the synergy estimates that we provided is just that we don't -- obviously, we're working to achieve most of these synergies as quickly as possible after the close. And they're both revenue and cost opportunities that can be implemented quickly.

But for now, we can't really provide much more insight.

A quick follow up on the other expense line. I was curious in terms of the increase, what's -- how much of that was related to the merger?

And then were there other one-time items maybe not related to the merger but other outsourcing fees that you're otherwise -- any details with you can give on that would be helpful.

There's $2 million related to the merger transactions. But for the rest, the biggest increases are in advertising and marketing and in sort of reservation systems expense.

Okay. And the reservation system, is that does it have to do in improvement that you're doing -- I guess obviously, it's not related to the merger, so it's something separate?

No, it's not related to the merger. It -- as you know, we are planning a change in our reservation and in inventory systems in later this year.

And so, we had ongoing costs for the last couple of years related to the rollout of that.

Could you remind me the... sorry, go ahead.

It's nothing specific to this quarter.

Got it. And then could you remind me, what system do you use for revenue management and reservation facility.

Do you use one integrated system, like Sabre or something else?

No. Well, right now, we have an inventory system, which is an Iberia-developed sort of inventory system.

It -- and we have a reservation system, which is Amariw [ph]. And we are switching over both of those to Sabre starting later this year.

Thanks again, for joining us today. Please feel free to contact our Investor Relations Department if you have any additional questions.

We look forward to speaking with you again, so thank you very much and good bye.