merrill lynch conference
TRANSCRIPT
Merrill Lynch Conference
December, 2006
2
We have delivered a strong 2006...
Average market share
Average load factor
Aircraft utilization per day (block hour)
CASK reduction yoy
New internationalflights
Guidance 2006Guidance 2006 Sept06 YTDSept06 YTD
Market demand growth (in RPK terms)
14.7%12%-15%
47%45%
72.9%69.5%
12.51above 12
2.1%5%
• Daily to NY• Flight to London
• Since May• Since October
TAMTAM
MarketMarket
3
…and believe in a very positive 2007
Average domestic market share above 50%
Average domestic load factor at approximately 70%
Aircraft utilization per day (block hour) higher than 13 hours
Reduction of 7% in total CASK ex-fuel in BR GAAP yoyOpportunity in the international market
Third frequency to ParisInauguration of two new international long haul frequencies
Market demand growth from 10% to 15% (in RPK terms)
TAMTAM
Guidance 2007Guidance 2007
MarketMarket
4
12Non-stop city links3
44264342Daily Roundtrips3
109129124848+272Destinations3
6444.7116.894ASKs1
TAM VarigGOL
81%89%90%Operational efficiency 1
TAM has the most extensive domestic network...
1 Based on 3Q06 ANAC numbers; in million ASKs
2 27 destinations served through operational agreements with OceanAir, Pantanal, Passaredo, Total, Trip
3 Based on December, 2006 reported routes (HOTRANs)
5
...and is the leading Brazilian internationalcarrier
Longhaul marketParis 2x per day
London 1x per day
NY 2x per day
Miami 3x per day
Latin American marketBuenos Aires 7x per day
Santiago 2x per day
Assuncion 8x per day
Lima 1x per day
Montevideo 1x per day
Ciudad del Este 3x per day
Sta Cruz dl Sierra 1x per day
Cochabamba 1x per dayNote: Based on Dec 2006 network
6
The international market has huge potential for growth on the Brazilian side
53%
47%
54%
46%
72%
28%
2004 2005 20060
20
40
60
80
100%
% International traffic
Braziliancarriers
Intlcarriers
7
In 2007, we will be expanding both frequenciesand destinations...
Domestic Market 2007Domestic Market 2007 International Market 2007International Market 2007
~30% increase in ASKs
At least an additional 3 destinations
Strengthening of internationalgateways for domestic market
Guarulhos
Galeão
Increasing of frequency on maindomestic markets
Brasília
Congonhas
Confins
Implementing overhub flights: new city-pairs
~60-70% increase in ASKs
Additional daily frequency to Paris beginning in January
New flight to Milan in 1S07
Additional longhaul frequency ordestination to be disclosed
Strengthening of Latin Americanpresence, both frequencies anddestinations
8
...expanding the fleet and maintaining one of theyoungest fleets in the world
TAM will be monofleet in the domestic market by 1S08
10
64
22
3
12
88
6
4
14
103
4
16
106
4
16
112
2006 2007 2008 2009 2010
96
109121 126
132
0
50
100
150
Total Fleet
F100A319/320A330MD11B777
AverageFleet Age 7 6 5 6 7
9
In order to take advantage of the opportunity in theinternational, we have closed a deal with Boeing
Firm contract for 4 B777-300ER + 4 options
Delivery for mid 2008
“Interim” contract for 3 MD-11s
Delivery within the next 6 months
Same cost per seat as B777-300ERs
Choice for B777-300ER based on:
More attractive cost per seat
Higher technological lifespan
Creation of a “mix” of aircraft size, allowing for more gradual capacityincrease per destination
New credit line (EXIM)
10
We attained domestic leadership in 2003 andinternational leadership in 2006
TAM 51.7%
GOL 35.3%
Others 4.8%Varig 5.1%
BRA 3.2%
● To achieve unchallenged domestic leadership
Varig17.1%
TAM61.2%GOL
13.2%
Others8.4%
Domestic Market Share (Nov 06)Domestic Market Share (Nov 06) Intl Market Share (Nov 06)Intl Market Share (Nov 06)
Source: ANAC
11
RASK
LoadFactor
Yield
2002 2003 2004 2005 Jan-Sep-06
13.8
18.1
20.8 20.3 20.8
10
20
30
40
Scheduled Domestic (Yield and RASK)R$ cents
40
50
60
70
80
Load Factor
Our RASK has been increasing while yieldsdecreasing...
Coherent with our strategy to offer competitive prices
12
...maintaining a 10-15% price differential due to our product features
GOL
TAM
2001 2002 2003 2004 2005 2006 YTD15
20
25
30
35
Yield scheduled domesticR$ Cents
GAP 60% 30% 18% 13% 15% 10%
Note: GOL Yield Grossed up 1.05X in order to include taxes
13
VARIGVARIG’s situation is developing
14
In retrospect, TAM was in a strong competitiveposition at the end of the ’90s
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
Transbrasil
TAM
VASP
Varig
Relative cost position
Network/Service/Brand
R$ 1.3B
High
Low
Low High
Note: for domestic market; Varig includes Rio Sul/Nordeste
Disadvantage
Advantage
AVERAGE 97/00
15
Increase in costs and loss of service awareness put TAM in a difficult position
Average 97-00
2002
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
Gol
Vasp
Vasp
TAM
TAM
Varig
Varig
Relative cost position
Network/Service/Brand
R$1,5B
High
Low
High Low
However, TAM became “squeezed” between Varig, the flagship carrier, and Gol, the new entrant
Note: for domestic market; Varig includes Rio Sul/Nordeste
16
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
OceanAirBRA
Varig
Gol
Vasp
TAM
TAM
Gol
Varig
Varig
TAM
Relative cost position
Network/Service/Brand
Today, TAM is “out of the squeeze” with a superior product acknowledgement and financial position
Average 97-00
2002
2006
New entrants/smallerplayers will be looking to
lower costs and serve the low end passengers
New entrants/smallerplayers will be looking to
lower costs and serve the low end passengers
17
Our methodology for stage length adjustments on CASK show us a 10-12% gap to Gol today…
STEP 1
Separate Narrowfrom Wide Bodies
STEP 1
Separate Narrowfrom Wide Bodies
To compare “apples to apples”, TAM removes theresults from wide bodies
Otherwise, we would be assuming that a widebody A330 would fly the shuttle service
STEP 2
StandardizeMaintenance Costs
STEP 2
StandardizeMaintenance Costs
GOL has maintenance as a “provision” on theirP&L (Phased Maintenance + SupplementalLease)TAM accounts for Maintenance only whenincurred
TAM substitutes for a provision
STEP 3
Adjustment for stagelength
STEP 3
Adjustment for stagelength
Only 2 lines require adjustments for stage lengthpurposes:
Fuel – the more take-offs, the higher the fuelburnMaintenance – the more landings, the higherwear of the aircraft
18
…which will reduce to 5% by December 2007
The 5% gap “translates” into our 7% reduction y-o-y ex-fuel
2002 2003 2004 2005 2006 YTD
20.4
15.5
19.1
15.4
20.1
16.7
18.6
16.3
18.2
15.8
12
14
16
18
20
22
CASK total (BR GAAP - R$ centavos)
TAMGOL
Gap to Gol 32% 24% 20% 14% 15%
Our domesticgap is 10-12%
YTD
Our domesticgap is 10-12%
YTD
19
Our cost targets are aggressive, but the roadmap is already laid out
Fleet and networkFleet and network Distribution costsDistribution costs OverheadOverhead
Increase of block hoursto over 13 hours per day per aircraft in 2007
6 extra seats in theA319/320 fleet
Increase in direct salesthrough:
Site improvement
Fare bundles
Call centeroutsourcing
New means ofpayment
Insourcing ofrepresentatives
Adjusting indirect salescommissions to higher% on offpeak flights
Outsourcing of non-core activities
Redefinition of servicestandards
Review of spans&layers in the hierarquy
Implementation of new automated processes
Improved sourcing capabilities
20
We are innovating in the way we offer our product, servicing the client better at a lower cost
TAM has specificproducts designed for every part of the client
spectrum (from leisure to business)
TAM has specificproducts designed for every part of the client
spectrum (from leisure to business)
21
Today, we are one of the most lucrative airlines in the world…
TAM, GOL and Virgin Blue with 2006 annualized; LTM September 30, 2006 for other airlines; USGAAP1 Assumes average period exchange rates.
TAM
GOL
Ryanair
Southwest
Virgin
West Jet
Jet Blue
Avg (ex-TAM)
EBITDAR (1)
(US$ MM)EBITDAR (1)
(US$ MM)
801
510
819
1.587
389
343
267
652
OperatingIncome (1)
(US$ MM)
OperatingIncome (1)
(US$ MM)
522
357
593
924
177
178
(9)
370
NetIncome (1)
(US$ MM)
NetIncome (1)
(US$ MM)
389
289
495
528
113
79
(60)
241
EBITDARMargin (%)EBITDAR
Margin (%)
24,5
30,2
33,0
18,0
20,9
23,4
12,3
23,0
OperatingMargin (%)OperatingMargin (%)
16,0
21,1
23,9
10,5
9,5
12,1
(4,0)
12,2
NetIncome
Margin (%)
NetIncome
Margin (%)
11,9
17,1
19,9
6,0
6,1
5,4
(2,7)
8,6
22
In 4 years, we have become one of the best in the world, with more to come
● To be the most competitive, solid and profitable airline in Latin America
Source: Public Reports, December 31, 2005
Coherent business plan
Focused and capablemanagement, deliveringresults
Quick response to marketconditions