May 24, 2013 / 9:52 PM / 4 years ago

LATAM Airlines eyes better results this year, 2015 investment grade recovery

Executive Vice President of Lan Airlines Enrique Cueto answers a question during a Reuters Summit interview at Santiago, May 24, 2013.Ivan Alvarado

SANTIAGO (Reuters) - Measures to overhaul LATAM Airlines Group SA LAN.SN will boost the year-old carrier's results in the latter half of 2013 and should help it recoup its coveted investment grade credit rating in 2015, the airline's executive vice president said on Friday.

Latin America's largest carrier, formed by Chilean LAN's takeover of Brazil's TAM in June, should be on good footing for 2014 due to measures that include scaling back weak routes to Europe and retiring old planes, Enrique Cueto said.

"We're very pleased with the merger's progress ... We think that in the second half of the year we're going to start improving our results significantly," Cueto told the Reuters Latin America Investment Summit.

LATAM's net profit dived 96.6 percent in 2012 to $10.96 million, hammered by takeover costs and higher taxes in Chile.

Targets for synergies of $600 million to $700 million are on track to be met, Cueto said, although exchange rate fluctuations in Brazil, a soft cargo business and patchy international demand have dragged on the airline.

"Realistically, we think we'll recover (our) investment grade at the end of 2015 (or) in mid-2015," Cueto said from the company's Santiago headquarters, which is decorated with miniature planes and LAN memorabilia. "The agencies are going to ask for a good, complete full-year and a second year of progress," he said.

On the day the takeover was completed, Fitch Ratings lowered LATAM's ratings on global debt to BB-plus from BBB, citing the carrier's high debt levels and constrained cash holdings after the combination.

Since then, shares of the company, which has domestic operations in Argentina, Brazil, Chile, Colombia, Ecuador and Peru, have lost nearly 32 percent.

This year's focus on revamping the airline is bearing fruit, Cueto said. The cargo business has started turning around, domestic operations in Brazil are stabilizing and passenger occupancy rates are climbing, he said. One of this year's aims is to make Brazilian domestic operations profitable.

"We're in a super important transformation process this entire year," said Cueto. "This will allow us to start 2014 with an orderly fleet internationally, the adequate number of planes in Brazil, cargo improving, and other domestic business functioning well," he said.

CAPITAL INCREASE TO BOOST FLEET OVERHAUL

Executive Vice President of Lan Airlines Enrique Cueto answers a question during a Reuters Summit interview at Santiago, May 24, 2013.Ivan Alvarado

The Cueto family will subscribe its proportional stake of a planned $1 billion capital increase and will study the possibility of subscribing to more, he said. Chile's Cueto family and Brazil's Amaro family control the airline. Enrique's brother Ignacio is LAN's chief executive.

New financial players could enter the company via the capital increase, he said, citing interest from funds. The roadshow is due to include stops in Chile, Brazil, the United States and Europe.

The main aim of the capital hike is to fund a major overhaul of the company's fleet, he said.

"In the next three years we're going to push forward a very big transformation of our fleet, by bringing in 787s and A350s," Cueto said. "These planes are much more efficient."

Fleet investment will total $2.047 billion this year, $1.993 billion next year and $806 million in 2015, LATAM has said.

LATAM is sticking to its planned total order of 32 Boeing Co (BA.N) 787 Dreamliners despite battery problems that had grounded the plane. LATAM's three Dreamliners took to the sky again last week on short routes, Cueto said.

LATAM will issue a roughly $450 million bond in the short-term but Cueto said he hopes not to need to tap markets again until the carrier recovers its investment grade.

One of LATAM's "dreams" is to turn Sao Paulo into a big international hub, Cueto said, adding that LATAM was working to achieve that with the Brazilian government and the airport.

The company is committed to its long-term investment in Argentina, despite having to halt its operations there last week for a day after problems with a state provider, Cueto said.

"We're going to have clouds, sun, and clouds, as in many parts, perhaps here a little more, but we believe in Argentina," Cueto said. "Hopefully they'll let us add more planes. For now they've frozen the number of planes we can have."

Shares in LATAM fell 1.51 percent on Friday, before the interview was published, compared with a 0.94 percent drop on Santiago's blue-chip .IPSA stock exchange.

Reporting by Antonio de la Jara and Alexandra Ulmer; Writing by Alexandra Ulmer; Editing by Bill Trott

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