TEXT-Fitch cuts LATAM Airlines to 'BB+', upgrades TAM to 'BB'

June 22 - Fitch Ratings has downgraded LATAM Airlines Group S.A.'s (LATAM;
formerly known as LAN Airlines S.A. ) foreign currency IDR to 'BB+' from
'BBB'. Fitch has also affirmed LATAM's national equity rating at Level 2
(Primera Clase Nivel 2). In addition Fitch has also upgraded TAM S.A.'s
(TAM) foreign and local currency IDRs to 'BB' from 'B+' and its
National long-term rating to 'A+(bra)' from 'BBB+(bra)'.

The rating actions follow the completion of the LATAM and TAM combination after
the closing of the exchange offer for TAM shares occurred today. This has
resulted in LATAM acquiring indirectly substantially all of the economic rights
and 20% of the voting rights in TAM, now an affiliate company of LATAM.

Fitch has also upgraded the following ratings:

Tam Linhas Aereas S.A.
--Foreign currency to 'BB' from 'B+';
--Local currency IDR to 'BB' from 'B+'.

Tam Capital Inc.
--Foreign currency IDR to 'BB' from 'B+';
--Local currency IDR to 'BB' from 'B+';
--USD300 million senior unsecured note due 2017 to 'BB' from 'B+/RR4'.

Tam Capital Inc. 2
--Foreign currency IDR to 'BB' from 'B+';
--Local currency IDR to 'BB' from 'B+'; --USD300 million senior unsecured note
due to 2020 to 'BB' from 'B+/RR4'.

Tam Capital Inc. 3:
--Foreign currency IDR to 'BB' from 'B+';
--Local currency IDR to 'BB' from 'B+';
--USD500 million senior unsecured note due to 2021 to 'BB' from 'B+/RR4'.

Fitch has also assigned the following ratings:

Tam Linhas Aereas S.A.
--National long-term rating 'A+(bra)'
--BRL600 million debentures due 2017 'A+(bra)'..

Fitch has also withdrawn the ratings for TAM S.A's BRL500 million debentures as
this security has been fully paid off.

The Rating Outlook is Stable for all ratings.

LATAM's ratings incorporate its diversified business model, strong regional
market position, its credit profile on a standalone basis with high EBITDAR
margins above the average in the industry, high gross adjusted leverage, and low
liquidity. During the latest twelve months (LTM) March 2012 period, LATAM's
EBITDAR and EBITDAR margins were USD1.1 billion and 18.5%, respectively. LATAM's
gross adjusted leverage was 4.7x.

Also incorporated in the ratings is LATAM's track record of maintaining a
relatively stable credit profile through the economic cycle during the last
several years as well as the deterioration in its credit metrics during the 24
months period ended in March 2012, this has been driven primarily by the
implementation of its strategic fleet plan.

TAM's ratings reflect its strong market position, business diversification,
volatility in operational results through the economic cycle, and its credit
profile on a standalone basis. TAM is the leader in Brazil, which represents
approximately 50% of Latin America's total traffic. TAM's market shares in terms
of available seat kilometers (ASKs) stand at approximately 41% and 86% of the
Brazilian domestic and international segments, respectively.

During the LTM March 2012 period TAM's EBITDAR, EBITDAR margin and gross
adjusted leverage were USD1.2 billion, 15.6% and 5.7x, respectively. By the end
of March 2012, TAM's cash position was adequate at USD1 billion, representing
13.4% of its total LTM revenues.

The ratings of LATAM and TAM also incorporate the strong credit linkage between
both entities, after the completion of the proposed combination, reflecting the
legal, operational and strategic ties existing between the two companies.
LATAM's ratings incorporate - on a combined basis - its new competitive
position, business diversification, cost structure and expectations on its
credit profile and future financial performance through the economic cycle.

Post-closing, cross guarantees and cross default clauses related to the aircraft
financing for both entities are expected to be in place or start to be actively
incorporated during the first year of combined operations. Different
jurisdictions are not expected to be an impediment to enforce cross default and
guarantee clauses. Dividends and/or intercompany loan restrictions are not
anticipated to exist between both entities and substantially all dividend flow
generated by TAM is expected to be oriented to LATAM through its non-voting
shares in TAM.

In addition, TAM's operations are viewed as integral to LATAM's core business.
TAM will represent more than 50% of the combined operations in terms of revenues
and EBITDAR. Fitch believes that a strong operational tie will exist between
both entities. That view is further supported by the expectation that the
financial strategy related to the combined capex plan will be primarily oriented
to acquire aircraft assets through LATAM. Thus, the entities can take advantage
of tax benefits existing in Chile's legislation, and then sub-lease them to TAM.

Another positive factor in the ratings is the company business position (after
the completion of LATAM and TAM combination) as the largest carrier in Latin
America region with annual levels of revenues and transported passengers around
USD13.6 billion and 60 million, respectively, by the end of March 2012. The new
scale is expected to allow the company to leverage on economy of scale and
access to joint hubs, network efficiency, and negotiation power with suppliers
and international carriers looking for access to South America to complement its
international operations. LATAM and TAM have complementary networks with only 3%
overlap which should facilitate the integration process and achieve important
synergies during the next few years.

The Stable Outlook incorporates the view that LATAM (on a combined basis) will
maintain a relatively stable credit profile in the short to medium term. Fitch's
base case considers LATAM's combined annual revenues during the 2012-13 period
would be approximately USD15 billion, with EBITDAR margins in the 17% to 19%
range.

The ratings also incorporate the expectation that the company will reduce its
combined adjusted gross leverage to levels around 4.5x coupled with adequate
liquidity levels (cash plus unused committed credit lines) in the 10% to 15%
range over LTM revenues by the end of December 2013. The company's free cash
flow (FCF) margin is expected to remain negative in single digits during the
2012-13 period driven primarily by its fleet capex plan. Fitch's FCF calculation
considers total cash flow from operations after interest paid less capex and
paid dividends.

Rating Drivers: A negative rating action could be triggered by a deterioration
of the company's credit protection measures due to sizeable negative FCF funded
with additional debt. Expectations by Fitch of total adjusted debt to EBITDAR to
remain consistently at or beyond 5x coupled with liquidity deterioration by the
end of 2013 will likely result in a negative rating action.

Conversely, Fitch may take a positive rating action if a combination of the
following factors takes place:

--Improvement in the company's gross adjusted leverage at or below 3.5x;
--Solid liquidity reflected in cash position plus revolving committed facilities
consistently around 25% of the company's LTM revenues;
- Coverage above 2.0x times the company's debt payments due during the next 24
months; and
--Improving FCF generation trending to neutral to positive levels.

Synergies Target Realizable: The company is managing the target to reach
synergies of the USD600 million to USD700 million over the next four years.
Participations at levels of 40%, 40% and 20% are likely to come from passenger
revenues, cost, and cargo revenues, respectively. Fitch views the company's
expected synergies as attainable. However, Fitch also acknowledges the risk of
delay in the integration process due to current slowing macro economy
environment affecting the Brazilian economy and the cargo operations.

Also a factor is a potential further depreciation of the Real versus the US
dollar. This may reduce profitability from the Brazilian operations in USD
terms. Additionally, the increasing competition in Brazil's domestic market
resulting in operating margin trending negative during the last quarters despite
relative healthy traffic. The ratings incorporate Fitch's view that
approximately 60% of the company's synergies target could be reached during the
2012-2014 period. One-time combination costs of approximately USD170 million,
the bulk of which are expected to be incurred during the first 12 months, should
offset synergies during the first year of operations.

Business Diversification Offers Operational Flexibility: On a combined basis,
LATAM will likely benefit from enhanced revenue diversification reflected in its
capacity to adjust its exposure to individual markets. This will likely be
accomplished through fleet reassignments as needed to adjust for demand
fluctuations. The company's portfolio business diversification includes the
international passengers, Brazilian domestic, other regional domestic
passengers, cargo, and the loyalty program businesses, which represent
approximately 34%, 27%, 11%, 17%, and 6%, respectively, of the company's total
revenues.

The new company will maintain a unique business position. This is based on
broader connectivity in the region resulting from the combination of its strong
presence in domestic markets (intra South America routes) and the international
passenger segment. The carrier's market position is anticipated to become very
attractive not only to its regional customer base, but also to global carriers
looking for a regional partner to complement its international routes.

Strategic Capex Plan Incorporated: Overcapacity risk will increase during the
next years as the company maintains a strategic capex plan that will limit its
FCF generation during the next two years ended in December 2013.
Counterbalancing this risk is the company's positive track record to properly
anticipate demand and focus on profitability instead of market share, as well as
LATAM's flexibility to adjust fleet size as a result of the staggered expiration
of operating and financial leases and to reassign aircraft to different markets
adjusting for demand trends. LATAM's capex related to aircraft equipment during
2012-2014 periods is expected to reach a total net amount around USD7.9 billion.
Capex annual levels should come in between USD2.5 billion and USD2.9 million
during the period. LATAM has already secured certain long-term financing
(12-year tenor on average) from financial institutions.

By the end of December 2011, on a combined basis, LATAM's consolidated capacity
in the passenger and cargo businesses were 125 billion and 5.1 billion of
available seat kilometers (ASKs) and available tone kilometers (ATKs),
respectively. The ratings consider the company plans to increase capacity at a
growth rate of approximately 7% to 9% per year during the 2012 - 2014 period for
the passenger segment. In the cargo segment, the company's capacity is expected
to increase significantly during 2013 and 2014. Also, 2012 cargo combined
capacity is expected to grow (albeit moderately) as the company has recently
revised its 2012 target.

High Combined Gross Adjusted Leverage, Expected to Improve by the end of 2013:
The ratings incorporate the company's combined high gross leverage and the
expectation that its leverage metrics will improve to the end of 2013. On a
proforma basis, LATAM's combined gross adjusted leverage, measured by the total
adjusted debt to EBITDAR ratio, was 5.2x by the end of March 2012.

Fitch expects to see deterioration in the company's gross adjusted leverage
during second half-2012 reaching levels in the 5.5x to 6x range. The 2012 capex
plan should be supported with incremental debt. The company's combined adjusted
gross leverage metrics are expected to improve toward the end of 2013, trending
to levels around 4.5x driven primarily by higher cash flow generation, measured
as EBITDAR, as expected synergies start to be realized.

On a proforma basis, the company reached combined revenues, EBITDAR, and EBITDAR
margin of USD13.6 billion, USD2.3 billion, and 16.8% during the LTM March 2012
period. In addition, the company had approximately USD12 billion in adjusted
total debt by the end of March 2012. This debt consists primarily of USD9
billion of on-balance-sheet debt, most of which (approximately 70%) is secured,
and an estimated USD3 billion of off-balance-sheet debt associated with lease
obligations with total combined rentals payments around USD441 million during
the period.

Liquidity, Low Cash Position Compensated by Alternative Sources of Liquidity:
Fitch views the company's combined cash position as low for the rating category
and partially compensated by alternative sources of liquidity. On a combined
basis, the company maintains a cash position of USD1.3 billion and USD208
million in unused committed credit lines by the end of March 2012. This level of
liquidity, cash plus committed unused credit lines, represents 11.2% over the
company's LTM revenues and 0.9x of its total short term debt of USD1.7 billion
by the end of March 2012.

Additionally, the company maintains as an additional source of liquidity the
alternative to obtain financing from its aircraft pre-delivery deposit payments
(PDP) own funds of approximately USD800 million by the end of March 2012. Fitch
does not expect to see the company improve its cash position during the next 18
months (ended in December 2013). The company's FCF generation is anticipated to
be limited considering the capex plan being implemented. The company's
liquidity, measured by cash plus committed credit lines, is expected to remain
in the 10% to 15% during the near to medium term.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Parent Subsidiary Rating Linkage' (Aug. 12, 2011);
--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
National Ratings Criteria