LATAM Airlines Group S.A. — 2018 Form 20-F Summary
Business context and reporting period. Filed April 12, 2019, this audited annual report covers the fiscal year ended December 31, 2018—not standalone fourth-quarter results. LATAM is a Chilean-based passenger and cargo airline group operating across six domestic South American markets and international routes. Financial statements are prepared under IFRS in U.S. dollars.
Key financial and operating metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Operating revenue | US$9.896bn | US$9.614bn |
| Passenger revenue | US$8.709bn | US$8.495bn |
| Cargo revenue | US$1.186bn | US$1.119bn |
| Gross margin | US$1.933bn; 19.5% of revenue | US$2.172bn; 22.6% |
| Operating income | US$758.6m | US$706.8m |
| Income before tax | US$297.0m | US$374.2m |
| Net income | US$213.2m | US$200.7m |
| Net income attributable to parent shareholders | US$181.9m | US$155.3m |
| Operating cash flow | US$1.517bn | US$1.667bn |
| Cash and cash equivalents | US$1.082bn | US$1.142bn |
| Cash plus short-term marketable securities | US$1.404bn | US$1.614bn |
| Total assets | US$17.567bn | US$18.798bn |
| Total liabilities | US$13.820bn | US$14.531bn |
| Interest-bearing debt | Approximately US$7.3bn | Not stated on a directly comparable basis in the cited discussion |
- Margins and costs: Cost of sales rose 7.0% to US$7.963bn, faster than revenue. Fuel expense increased 30.1% to US$2.983bn; the filing says fuel represented 30.9% of operating expenses. Administrative expenses fell 23.2% to US$721.3m and distribution costs fell 11.5% to US$619.2m.
- Debt and liquidity: Current liabilities were US$5.569bn against current assets of US$3.306bn. LATAM reported US$1.777bn in uncommitted working-capital credit facilities, US$866.1m drawn, and a US$600m committed revolving facility that was undrawn at year-end, subject to collateral availability. Management stated working capital would be sufficient for the next 12 months.
- Commitments: Contractual obligations totaled US$17.102bn: US$7.313bn financial debt, US$3.582bn operating leases and US$6.207bn fleet commitments. The filing estimated that IFRS 16 adoption would recognize approximately US$2.512bn of right-of-use assets and US$2.820bn of lease liabilities from January 1, 2019.
- Operations: Passenger capacity (ASKs) increased 5.0%; passenger traffic (RPKs) rose 2.9%, while combined passenger load factor declined 1.7 percentage points to 83.1%. Cargo revenue increased 6.0%; cargo load factor was 55.1%.
Material changes versus the prior year
- Revenue increased 2.9%, but gross margin declined 11.0% as cost of sales—particularly fuel—rose faster than revenue.
- Net income increased 6.2%, while pre-tax income fell 20.6%. A higher foreign-exchange loss (US$157.7m versus US$18.7m in 2017) weighed on pre-tax results; lower tax expense and operating cost reductions supported reported net income.
- Operating cash flow declined 8.9% to US$1.517bn. Investing outflow increased to US$358.4m, while financing outflow was US$1.052bn. Cash declined by US$60.4m, including a US$166.7m adverse exchange-rate effect.
- Fuel costs rose as the average into-wing price increased to US$2.49 per gallon from US$2.00. Fuel consumption per 1,000 ASKs improved to 8.41 from 8.48.
- Total assets and equity declined; parent-attributable equity was US$3.667bn versus US$4.176bn, with currency translation losses a major factor in comprehensive income.
Outlook, commentary, risks and unusual items
- 2019 outlook: LATAM expected passenger ASK growth of 4%–6%, international passenger ASK growth of 3%–5%, Brazil domestic ASK growth of 2%–4%, and Spanish-speaking-country ASK growth of approximately 8%–10%. Cargo ATKs were expected to grow 1%–3%. These are management estimates, not guarantees.
- Strategy and commentary: Management emphasized continued cost reduction, higher utilization, ancillary revenue growth, network development and a simplified low-fare domestic travel model. It expected competitive pressure, including from low-cost carriers, to continue.
- Market exposures: Key risks include fuel-price volatility, foreign-exchange movements—particularly the Brazilian real and Argentine peso—floating interest rates, economic weakness, competition, labor actions, airport capacity constraints and dependence on aircraft and engine suppliers. Approximately 40.5% of debt was floating-rate after hedging, according to the risk-factor discussion.
- Operational disruption: Rolls-Royce Trent 1000 engine maintenance issues reduced Boeing 787 availability, requiring schedule changes and wet leases. Airbus A320neo delivery delays and Pratt & Whitney engine availability were also identified as risks. Strikes in Chile and Brazil disrupted 2018 operations.
- Accounting and currency: Argentina was treated as hyperinflationary under IFRS from July 1, 2018. IFRS 9 and IFRS 15 were adopted in 2018; LATAM warned that IFRS 16 would materially change lease balance-sheet and cash-flow classification. The filing’s IFRS 15 reconciliation presents alternative 2018 figures, so reported comparisons should be checked against the audited statements and accounting notes.
- Legal matters: The group reported US$308.3m in provisions, including tax, civil and labor contingencies and the European Commission cargo matter. Separately, it disclosed ongoing cargo competition litigation and tax disputes in Brazil. It expected an agreement over the Airbus/AIG arbitration related to the 2007 TAM accident to close in the first half of 2019, subject to approvals.
- Other notable developments: LATAM sold its Mexican cargo affiliate MasAir in November 2018, describing the divestiture as not material. A February 2019 US$600m bond issue bears 7.0% interest and matures in 2026. In April 2019, LATAM Brazil proposed bidding at least US$70m for an Avianca Brasil asset unit and potentially providing up to US$13m in debtor-in-possession financing; the financial effect was undetermined.
Most important facts for investors to verify
- Reconcile reported 2018 net income and the IFRS 15 reconciliation, and assess whether changes in revenue recognition affect year-over-year comparisons.
- Confirm debt, lease liabilities after IFRS 16 adoption, aircraft commitments, maturity schedule and availability conditions for credit facilities.
- Assess whether passenger yield, load factor and margins can withstand rising fuel costs and continued low-cost competition.
- Review exposure to Brazilian and Argentine currency movements, fuel prices and floating interest rates, including hedge coverage and effectiveness.
- Update the status and potential cash impact of material tax, cargo competition and accident-related legal proceedings, and the proposed Avianca Brasil transaction.
- Compare actual 2019 capacity, capital spending and lease-accounting outcomes with management’s outlook and estimates.