TAM Results for 2009 (press release)

Company Makes Net Profit of R$1.3 billion

São Paulo, April 2010: TAM ended 2009 with a net profit of R$ 1.3 billion, reversing the loss of R$ 1.5 billion registered in 2008. The results are mainly due to fuel hedge positions and exchange variations as a consequence of the appreciation of the Brazilian currency, the Real, against the US Dollar. The figures are presented according to Brazilian accounting principles (BR GAAP and Law 11.638).
 
"With solid planning we were courageous and kept our investment and fleet plans," explains TAM's president, Líbano Barroso. "At the same time we made concentrated cost cuttings, without compromising the quality of our service. The result was a 14.7% decrease in the unit costs of the seats offered (CASK - Cost per available seat kilometre). In this way we managed to respond well to the effects of the global crisis and are now well-positioned to continue to offer the best service as the economy improves."
 
Earnings before interest and taxes (EBIT) were R$ 336 million in 2009, a 51.8% decrease on the previous year due to the combined effects of three factors caused by the global financial crisis. Those being a reduction in the number of business trips flown; a decrease in yield (average price paid per passenger for each kilometre flown); and a reduction in the load factor on domestic and international flights.
 
In 2009 TAM transported 30.4 million paying passengers on domestic and international flights, a slight increase of 0.9% in comparison to the total number of passengers transported in 2008. Even so the company's gross operating income fell by 6.5% in 2009 compared to 2008, to R$ 10.3 billion, influenced by the global crisis, which affected mainly business trips - which historically account for 75% of the total passengers transported by TAM in a year, against a sector average of 68%.
 
As a result TAM registered an overall 14.2% decrease in average revenue per passenger per kilometre flown (yield), which was due to an 18% decrease in the domestic Brazilian market to 21.9 real cents; and a 15.6% decrease to 14.2 real cents in the international market. Load factor on international services decreased 2.8 percentage points to 68.2% in 2009, while on domestic flights the decrease was 2.7% in comparison to the previous year, to 72.4%. The company closed the year with a market share of 45.6% for domestic flights and 86.5% for international flights operated by Brazilian airlines, being the leading carrier in both these markets.
 
TAM's fuel hedge policy was maintained in 2009. The company renegotiated its hedge positions with an aim to dilute the cash disbursement, which was concentrated in the first semester of 2009, and set the most of the contracts in a period with lower volatility and prices closer to the contracts (strikes). The result of the renegotiation was a US$ 117 million reduction in cash outflow in 2009, which made it possible to strengthen the company's cash position. Furthermore, there was a reversal in the hedge accounting loss registered in 2008.
 
TAM closed 2009 with cash reserves of R$ 2.1 billion (taking into account cash and equivalents, as well as bonds and securities). During the year the company captured over R$ 1 billion, U$ 300 million in October issuing bonds and another R$ 600 million in July with the launching of non-convertible debentures.
 
Fourth quarter of 2009
 
The comparison between the results of the fourth quarter of 2009 with the previous quarter shows a recovery in TAM's operations in relation to the trend for strong market growth registered in the period. Gross operating income increased 5.3% in this period to R$ 2.6 billion. Operational profit, in turn, increased 35.9%, to R$ 137.4 million from October to December and the net operating margins increased 1.2% to 5.4%. Net profit, in turn, decreased 58.6%, to R$ 143.9 million in the period, mainly due to the lower financial results.
 
In the annual quarter comparison, net income fell 13%, operating income decreased 55.2%, and net profit offset to the loss of R$ 1.2 billion registered in the 4th quarter of 2008, due to the accounting losses related to fuel hedge positions and the Real depreciation versus the US dollar; the opposite situation when compared to 2009.
 
The yield in the domestic market decreased 25.3% from 27.6 cents of real in the fourth quarter of 2008 to 20.7 cents of real in the same period in 2009. In the comparison between the third and fourth quarters of 2009, the fall was of only 1.2%, reflecting the strong recovery in demand. In the international market, the yield fell 28.7% in the annual comparison to 13 cents of real in the last three months of 2009, while the decrease from the third to the fourth quarter was 4.7%.
 
Multiplus Fidelidade
 
In June 2009, according to the ‘unlocking value' strategy announced in 2007, TAM introduced Multiplus Fidelidade to the market, which operates as a loyalty program network - consumers may accrue points from several loyalty programs in a single account and redeem awards from companies in various different areas.
 
"Multiplus is totally aligned with the growth of social classes C and D in Brazil, as it has the ability of offering advantages in all buying occasions and helps turn these customers into loyal ones", explains Barroso. During the second semester of 2009, TAM finalised the structure of its subsidiary, Multiplus S.A., which in February 2010 became an open capital company, being the first company in the loyalty sector to be part of the Stock, Commodities and Future Exchange (BM&FBOVESPA).
 
Approximately R$ 622 million of the net resources received by Multiplus from the initial public offer of shares is to anticipate the payment of the purchase of TAM Linhas Aéreas' award-tickets. This should be enough to meet Multiplus Fidelidade's needs for approximately 24 months.
 
Multiplus' gross pro forma revenue in 2009 was R$ 906.4 million, a 23.1% increase over the R$736.4 million of the previous year. Also under the pro forma concept, net profit was R$ 127.8 million, 43% above the R$ 89,4 million in 2008. Multiplus Fidelidade ended 2009 with 6.6 million members, a 20% increase on 2008.
 
TAM Cargo
 
TAM Cargo, TAM Linhas Aéreas' cargo unit, achieved a total income of R$ 936.3 million in its domestic and international operations in 2009 and kept its share in total company income stable at 9.1%. In comparison with the previous year, there has been a 7,2% decrease, while the global demand for air cargo transportation, according to IATAThe International Air Transport Association: IATA represents and serves the airline industry, with a membership made up of around 230 airlines. The association seeks to raise awareness of how aviation benefits the economy, fight for airline's interests and ensure industry regulations are sensible. IATA helps its members directly by offering advice on reducing costs while improving efficiency and on improving safety standards. It also provides professional support in the form of publications, training and consulting. 's statistics, fell 10,1% in the same period due to the impact of the global economic crisis.
 
TAM Viagens
 
TAM Viagens, TAM's tour operator, invested in the renewal of its line of customised products and services to customers. In tune with the advent of a new middle class in Brazil, it is offering new leisure options to this segment of the market. With a new offer of segmenting itineraries, it is possible for customers to organize their trips with more freedom, and there are also specific specialised packages on offer, such as the ecotourism ones.
 
With the opening of a new store in Rua Augusta, one of the most traditional and busy streets in São Paulo, TAM Viagens inaugurated a new standard of store that is to be the blueprint for the entire franchised network and will serve as a model for growth in all TAM Viagens stores.
 
São Carlos Technological Centre
 
Among the big achievements in 2009 are those of the MRO (Maintenance, Repair and Overhaul) unit: TAM's Technological Centre located in São Carlos, in the interior of the state of São Paulo, which has received certifications that are important to the expansion of its maintenance services.
 
In June 2009 the MRO signed a contract with Grupo LAN, and in 2009 it performed scheduled maintenance on 13 aircraft from the Chilean company. In August the DGAC (Dirección General de Aeronáutica Civil), a Chilean government agency, issued the certificate for the MRO to perform maintenance services on Airbus A318s registered in Chile. The same certification was obtained from the Ecuadorean government. In September the FAA (Federal Aviation Administration), the main US air authority, issued the FAR 145, which authorised TAM to perform the maintenance of aircraft registered in the United States. In October the MRO was authorized by the Brazilian National Civil Aviation Agency (ANAC) to perform maintenance on the entire structure (except engines) of Boeing 767 aircraft in Brazil. TAM is also certified by the European air authority, EASAThe European Aviation Safety Agency promotes the common standards of safety and environmental protection in civil aviation in Europe and worldwide. (European Aviation Safety Agency), and has IOSA (IATA Operational Safety Audit) operational safety certification.
 
Pantanal Linhas Aéreas
 
In another sign of TAM's belief in the Brazilian economy's growth in the coming years, the company formalized the acquisition of Pantanal Linhas Aéreas, an airline which serves mid density cities in the states of São Paulo, Minas Gerais and Paraná from Congonhas Airport in São Paulo.
 
Pantanal's acquisition, announced in December 2009 and approved by ANAC in March 2010, is of great strategic value for TAM. Purchased for R$ 13 million, the company transported around 260,000 passengers and earned R$ 52 million in 2009 utilising five ATR42 aircraft. TAM plans to increase the fleet by 20 airplanes within the next four years to meet market demand.
 
Payment in up to 48 instalments
 
Líbano Barroso highlights that "in a year of overcoming the international crisis, Brazil showed itself to be strong and responded to the turmoil with better health than many other countries". He concludes: "One of the strengths of the reaction and a promise of future growth is the increase in the purchasing power of classes C and D in Brazil." Aligned to this strategy, TAM created more accessible financing options, allowing Banco do Brasil and Itaú customers in Brazil to pay for their TAM flights in up to 48 instalments deducted directly from their bank account. Other partnerships with big banks are expected in 2010. The site www.tam.com.br also now offers more search options, which enables customers to find more accessible prices in alternative times and dates.
 
Star Alliance
 
One of TAM's priorities for 2009 was the preparation of the company to be part of Star Alliance, the biggest global airline alliance. "Thanks to our employees' efforts, we met the important requirements to be accepted in to the alliance on 13 May 2010", says Líbano Barroso, and adds: "As a Star Alliance member, we acquired the status of a global standard air company and consolidated our international presence".
 
One of the priority actions to join Star Alliance was the migration of the passenger and check-in management systems. TAM met the schedule and Amadeus Altéa CMS became the standard company platform.
 
Expectations for 2010
 
TAM is expecting strong growth in demand in the Brazilian civil aviation market in 2010 of between 14% and 18%. Based on this, TAM will increase its seat offer in the domestic Brazilian market by using more of its aircraft and expanding the size of the fleet.
 
The increase in the international market will result in incorporating two new Airbus A330 airplanes, which during the first half of the year will be used for charter operations followed by two proposed regular direct services from Rio de Janeiro to Frankfurt and London later in the year. With the increase in aircraft use and the expected stabilization of the dollar, as well as the cost-reductions that will be maintained, TAM believes the unit costs per seat-kilometre could be reduced by 6%, excluding fuel costs.
 
Dividend Payment
 
On 28 January 2010, the company paid dividends for the period from 1 January to 30 September 2009 to the gross amount of R$ 0.156270 per share and R$ 0.01018 per share regarding the period from 1 October to 31 October 2009. At the next General Assembly the payment of gross dividends of R$ 1.40976 per share will be proposed.
 
Fleet plans
 
TAM ended 2009 with a fleet of 132 aircraft, being 125 from Airbus (2 A340, 16 A330, 5 A321, 81 A320 and 21 A319) and 7 from Boeing (4 B777-300ER and 3 B767). The fleet expansion plans have been reviewed and the forecast is to finish 2010 with 148 aircraft, 11 more than the previous plan, including the five from Pantanal. The estimate for 2014 is now for TAM to have a fleet of 165 aircraft.