66thth Annual FAA International Aviation Safety Forum Annual FAA International Aviation Safety Forum

“Safety in times of crisis, a permanent challenge”

Enrique Rosende

Director of Safety, LAN Airlines September 10, 2009

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

The pillars of Chilean economic policy:

I. Economy open to international trade & commerce…

…Focused on becoming a goods and services distribution center & gateway for Asian imports into the region

The pillars of Chilean economic policy:

II. Commercial agreements with main economies worldwide

These nations represent 87% of the world total GDP

• USA

• Canada

• Bolivia

• Panama

• Mexico

• Colombia

• Cuba

• Ecuador

• Venezuela

• EU

• Norway

• Switzerland

• India

• Brunei

• Singapore

• Australia

• New Zealand

• China

• South Korea

• Japan

The pillars of Chilean economic policy:

Chilean Exports (US$ MM)

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Banco Central de Chile

The pillars of Chilean economic policy:

III. Export oriented economy

+11% Compound Annual

Growth Rate

Aviation Policy in Chile

OBJECTIVE:

To achieve the largest number of aviation services, with the best quality and efficiency, and at the lowest cost

THIS IS ACHIEVED THROUGH:Non regulated faresLimited intervention of the authoritiesFree access to markets

• No legal barriers to entry.

• No limits regarding property or control of the airline.

• No subsidies.

• Bilateral agreements with 45 countries. Of these, 35 are open to 3rd and 4th

freedoms for Chile and 7 are open skies including cabotage.

Chile has an Open Skies Policy

Airport Concessions

Investment of US$ 2.000 million

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

Accident Rate is Higher in Regions Without a Common Norm

Source: IATA Safety Report - 2008

Administrative and Regulation Issues in Europe and North America

SecurityEfficiency

Europe50 Countries

30% of world traffic

SINGLE REGULATION

North America

3 Countries

45% of world traffic

SINGLE REGULATION

Administrative and Regulation Issues in Latin America

22 Countries

7% of world traffic

SEVERAL REGULATIONS

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

Saf

ety

Effi

cien

cy

SAFETY: AN ESSENTIAL AND NON NEGOTIABLE VALUE

Imp

rove

men

t

War

mth

18

LAN's Regional Strategy – Passenger Hubs

Santiago

1929

Lima

1999

Guayaquil

2003

Buenos Aires

2005

LAN Business StrategyPassenger Operations – Low cost model for domestic markets

Lower Fares-20%

Lower Costs-30%

More Capacity

+20%

• More seats: 126 - 168

• More direct flights: 70%

• Higher aircraft utilization: 12 hrs

More Passengers

+40%

• New fare structure

• Discounts of up to 35%

• Demand stimulation

• Load factor: 75%

• Fuel: Modern & fuel efficient fleet

• Maintenance: Longer flight leg

• Sales costs: Internet penetration >50%

• Self check in, OBS, others

20

LAN's Regional Strategy – Cargo Hubs

LAN Business StrategyCargo Operations

Source: Boeing World Air Cargo 2008 - 2009

Northbound

Fish, flowers and vegetables dominate Northbound Flows

Consumer electronics, machinery, spare parts and automotive parts dominate Southbound Flows

Operational efficiencies must be obtained by managing unbalanced flows and seasonal fluctuations

Southbound

21

•Sources: DGAC Chile, DGAC Peru, Undersecretary of Transportation Argentina, DAC Ecuador, LAN Estimates.

•* International market shares for December 2008; Domestic market shares for June 2009.

Leading Presence in South American Markets

Peru

International: 39%

Domestic: 90%

Argentina

International: 17%

Domestic: 28%

Chile

International: 50%

Domestic: 81%

Ecuador

International: 27%

Domestic: 13%

•Buenos Aires•Santiago

•Guayaquil

•Lima

•22

Cargo

Latin America 40%

Solid Revenue Growth

318 407600 694

9721.083

1.2371.4251.4281.454

1.639

2.093

2.506

3.034

3.525

4.283

3.916

0

400

800

1.200

1.600

2.000

2.400

2.800

3.200

3.600

4.000

4.400

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008IFRS

LTMJ une09

US$ Million

CAGR24%

CAGR1%

CAGR20%

Operating Revenues 1993 – LTM Jun 09

Consistent Profitability Despite Industry Crises

$11 $15 $34 $44$83 $62

$112

$172

$303

$413

$620

$538

$6

$308$336

$246

$142

$50$51$80$46

$241

$147$164

$84

$31$11$48$48$31

$64$25

$0$38

050

100150200250300350400450500550600650

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008IFRS

LTMJune09

Operating Income and Net Income 1993 – LTM Jun 09

Operating Income Net Income

(US$ millions)

Recession

9/11 & Argentine CrisisIncreasing

Fuel Prices

LAN Airlines has been consistently profitable under the current management

LAN Consistently Receives International Recognition

Best South American Airline - 2009

Best Latin American Airline - 2008

Best Latin American Airline - 2004

Best Airline in South America, Central America and Caribbean - 2006

Best South American Airline - 2005

Airline Business Strategy Awards – Executive Leadership 2009

LAN's Fleet – September 2009Average fleet age of 5.4 years

Boeing 767

26

Airbus 319

20

Airbus 318

15

Airbus

340

5

Airbus 320

18

Boeing 767-F

9

Boeing 777-F

2

PA

SS

EN

GE

RC

AR

GO

LAN Continues to Invest in Fleet Expansion and Renewal

81 85 92 103 106134

9 1111

12 13

13

0

30

60

90

120

150

2008 2009 2010 2011 2012 2013-2019

Total Projected Investment of US$5.3 Billion (2009-2019)

90 96103

115 119

147

Cargo Aircraft

Passenger Aircraft

CAPEX 2009 2010 2011 2012 2013-2019

(US$ millions) 351 408 705 433 3,380

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

Strong Impact in Cargo and Passenger Traffic

Source: IATA

Passenger Traffic Growth (%RPKs)

Jun 09

9%

Aug 08

-3%

12%

6%

Sep 08

-1%

11%

3%

Oct 08

-5%

10%

3%

Nov 08

-5%

11%

3%

Dec 08

-6%

May 09

Industry

Lan Total

Lan International

11%

4%

15%

Jan 08

9%

16%

11%

Feb 08

6%

14%

11%10%

4%

9%

Mar 08

3%

8%

5%

Apr 08

6%

14%

9%

May 08

4%

10%

4%

Jun 08

2%

11%

5%

Jul 08

1%

16%

-7%

3%

Jan 09

-10%

8%

0%

Feb 09

-11%

8%

2%

Mar 09

-3%

20%

13%

Apr 09

-9%

12%

5%

Source: IATA

-16%-17%

5%

9%

Jan 08

6%

12%

Feb 08

3%

10%

Mar 08

4%

11%

Apr 08

1%

12%

May 08

-1%

14%

Jun 08

-2%

16%

Jul 08

-3%

14%

Aug 08

-8%

9%

Sep 08

-8%

9%

Oct 08

-14%

-2%

Nov 08

-23%

-16%

Dec 08

-23%

-16%

Jan 09 Jun 09

-20%

Feb 09

-21%-24%

Mar 09

-22%-22%

Apr 09

-17%-17%

May 09

Industry

Lan

-25%

Cargo Traffic Growth (%RTKs)

Strong Impact in Cargo and Passenger Traffic

IATA Projections

Actual

-9,0

-0,5

-15

-10

-5

0

5

10

15

8,6

1997

5,4%

8,2

1998

4,0%

8,5

1999

3,3%

3,7

2000

-3,8%

•-13,0

2001

-1,6%•-11,3

2002

-0,5%

•-7,6

2003

0,9%

•-5,6

2004

1,0%

•-4,1

2005

2,9%

2006

3,9%

12,9

2007

0,3%

•-10,4

2008

-0,4%

2009E

5,6%

-6%

-4%

-3%

-5%

2%

3%

4%

5%

6%

-1%

-2%

1%

0%

•Source: IATA

Net

Res

ult

(US

$bn)

Operating M

argin (%)

The Industry Worldwide is Facing Significant Losses

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

Saf

ety

Effi

cien

cy

SAFETY: AN ESSENTIAL AND NON NEGOTIABLE VALUE

Imp

rove

men

t

War

mth

LAN’s Operational Safety, Quality and Environment Policy

Motivates and requires compliance with safety standards.

Safety is everyone’s responsibility, and starts with the CEO.

Encourages safety reports.

Mistakes are an opportunity for improvement.

Safety goals and objectives are well defined, measured and rewarded.

• Industry and Internal Analysis

• Risk and Change management analysis

• LOSA (Line Operations Safety Audit)

• Operational Security audit

• A & D

• AVSIS (Aviation Safety Information System)

• Operational Security Investigations

• FAST (Fatigue Avoidance Scheduling Tool)

• FDM (Flight Data Management)

LAN's Safety Management System process

Pro

activ

eP

redi

ctiv

eR

eact

ive

Flight Data Management:Investment in Technology to monitor all flights since 2003

6th Annual FAA International Aviation Safety Forum“Safety in times of crisis, a permanent challenge”

Economic and aviation policy in Chile

Role of the authorities in the region

LAN’s business strategy

Economic crisis and its consequences

Existing safety programs

Future challenges

Future Challenges

Cooperation betweenOperators and Authorities

Operators' Creativity and Innovation

Authorities' Flexibility and Stringency

•

E

ffic

ienc

y

•

S

ervi

ce

•

S

afet

y

Aeronautical Regulation

Lan Businnes Estrategic

66thth Annual FAA International Aviation Safety Forum Annual FAA International Aviation Safety Forum

“Safety in times of crisis, a permanent challenge”

Enrique Rosende

Director of Safety, LAN Airlines September 10, 2009