* Takeover paves way for one of world's biggest airlines
* Ruling sets blueprint for future Chile mergers
* Regulator says LAN must take mitigation measures (Updates with consumer group comment, market cap data)
By Alexandra Ulmer and Felipe Iturrieta
SANTIAGO, Sept 21 (Reuters) - Chile's antitrust tribunal on Wednesday approved LAN Airlines' LAN.SN multibillion-dollar takeover of Brazilian carrier TAM with conditions, paving the way for the creation of one of the world's biggest airlines.
Antitrust tribunal TDLC said the merged airline must comply with a host of mitigation measures, including ceding slots on the key Santiago to Sao Paulo route and renouncing participation in one of two global alliances.
Thomson Reuters data shows the combined market capitalizations of LAN and TAM would create the world's second largest publicly traded airline, though the deal involves a share swap that will likely dilute the merged group's overall market value.
Industry experts say the ruling will act as a blueprint for future mergers in Chile. However, they say the deal could face delays in Chile if a third party appeals the decision to the Supreme Court.
In Brazil, the deal to create the new LATAM Airlines Group has already cleared two of three anti-monopoly hurdles and is now awaiting approval from antitrust council Cade.
LAN Airlines SA's LFL.N takeover of TAM SA TAMM4.SA will create an airline giant with joint revenue of $10.4 billion, based on 2010 figures.
LAN Chief Operating Officer Ignacio Cueto said last month he believed the takeover could be completed by the end of the year.
"The mitigation measures aim to achieve effective competition in the Chilean airline sector, and if that doesn't happen, protect consumers from the effects of the merger," TDLC said in its ruling.
The measures also require LAN to modify its self-regulation and cancel and revise code-sharing agreements with airlines that do not belong to the same alliance as the newly-merged LATAM on some routes.
LAN and TAM said in a statement they were carefully studying the measures and "complex" ruling, and would comment soon, calling the decision "another step in the process."
LAN shares rallied nearly 3 percent following the ruling, then turned 0.41 percent lower. TAM shares pared gains to 0.38 percent after rising earlier. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC on LAN and TAM: link.reuters.com/jup83s FACTBOX-Chile OKs LAN takeover of TAM [ID:nS1E78J0E1] FACTBOX-Measures LAN must take for TAM takeover[ID:nS1E78K1CR] FACTBOX-World's biggest airlines by market cap [ID:nS1E78K20B] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"The ruling is positive for LAN. The conditions aren't that restrictive, except on the Santiago-Sao Paulo route," said Cristian Jadue, an analyst at Santander GBM in Santiago.
"I think an appeal (by a third party) is a possibility .... The horizon is not completely clear yet."
Consumer group Conadecus, which prompted the anti-trust probe in the first place via a complaint, said it was satisfied with the conditions imposed on the deal, and its lawyer said it would not need to appeal to the Supreme Court if consumer rights were protected.
When the planned merger was announced in August last year, the all-stock transaction was worth an estimated $2.7 billion.
LAN is widely regarded as one of Latin America's most profitable airlines due to a lucrative cargo business that sets it apart from many international carriers. LAN has been seeking to expand in Brazil -- Latin America's leading aviation market -- for years.
LAN has a strong presence in South America, including Peru and Argentina, while TAM's routes to Europe are highly profitable.
Both airlines use Airbus EAD.PA aircraft for short-haul routes and a combination of Airbus and Boeing Co (BA.N) airliners for long-haul routes -- a mix that should give the new entity considerable leverage when negotiating future purchases.
LAN and TAM expect synergies worth $400 million, but analysts have questioned those estimates in light of tougher restrictions from Chile's regulators.
LAN announced in July that its second-quarter profit fell 74 percent to $15.9 million, well below forecast, hammered by flight disruptions caused by ash from an erupting volcano.
TAM posted a profit in the second quarter of this year, reversing a net loss a year earlier, as a stronger currency helped cut debt-servicing costs, offsetting rising fuel prices. The company reported net income of 60 million reais ($38 million) in the quarter. [ID:nN1E7790RW]
TAM said in August it was reducing its planned fleet by four aircraft to control costs as demand grows more slowly than expected in Brazil's air travel market. The company said it will not renew four aircraft leases as originally planned next year. [ID:nN1E778130]
In July, LAN raised its planned fleet investment through 2014 to $5.1 billion. (Additional reporting by Simon Gardner, Antonio de la Jara, Moises Avila, Fabian Cambero in Santiago and Herbert Lash in New York; editing by Carol Bishopric)