NOTE 3 - FINANCIAL RISK MANAGEMENT
| 3.1. | Financial risk factors |
The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.
| (a) | Market risk |
Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk, and (iii) interest -rate risk.
The Company has developed policies and procedures for managing market risk, which aim to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.
For this, the Administration monitors the evolution of price levels, exchange rates and interest rates, and quantifies their risk exposures (Value at Risk), and develops and implements hedging strategies.
| (i) | Fuel-price risk: |
Exposition:
For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54 USGC, which is subject to the fluctuations of international fuel prices.
Mitigation:
To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible use West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and greater liquidity.
Fuel Hedging Results:
During the period ended December 31, 2017, the Company recognized gains of US $ 15.1 million for fuel net premium coverage. During the same period of 2016, the Company recognized losses of US $ 48.0 million for the same concept.
As of December 31, 2017, the market value of fuel positions amounted to US $ 10.7 million (positive). At the end of December 2016, this market value was US $ 8.1 million (positive).
The following tables show the level of hedge for different periods:
| Positions as of December 31, 2017 (*) | Maturities | |||||||||||||||
| Q118 | Q218 | Q318 | Total | |||||||||||||
| Percentage of coverage over the expected volume of consumption | 19 | % | 12 | % | 5 | % | 12 | % | ||||||||
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
| Positions as of December 31, 2016 (*) | Maturities | |||||||||||
| Q117 | Q217 | Total | ||||||||||
| Percentage of coverage over the expected volume of consumption | 21 | % | 16 | % | 18 | % | ||||||
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
Sensitivity analysis
A drop in fuel price positively affects the Company through a reduction in costs. However, also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.
The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity.
The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2018.
The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2017 and the end of December, 2016.
| Positions as of December 31, 2017 | Positions as of December 31, 2016 | |||
| Benchmark price | effect on equity | effect on equity | ||
| (US$ per barrel) | (millions of US$) | (millions of US$) | ||
| +5 | +1.8 | +3.12 | ||
| -5 | - 3.3 | -4.78 |
Given the structure of fuel coverage during 2017, considers a hedge-free portion, a vertical drop of 5 dollars in the JET reference price (considered as the monthly average), would have meant an approximate impact US $ 109.7 million of lower fuel costs. For the same period, a vertical rise of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact of approximately US $ 110.5 million of higher fuel costs.
| (ii) | Foreign exchange rate risk: |
Exposition:
The functional and presentation currency of the Financial Statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.
The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.
The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.
At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: euro, pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.
Mitigation:
The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.
FX Hedging Results:
In order to reduce the exposure to the exchange rate risk in the operational cash flows of 2017, and to ensure the operating margin, LATAM makes hedges using FX derivatives.
As of December 31, 2017, the market value of FX derivative positions amounted to US $ 4.4 million (positive). At the end of December 2016, this market value was US $ 1.1 million (negative).
During the period ended December 31, 2017, the Company recognized losses of US $ 9.7 million for FX net premium coverage. During the same period of 2016, the company recognized losses of US $ 40.3 million for this concept.
As of December 31, 2017, the Company has contracted FX derivatives for US $ 180 million for BRL. By the end of December 2016, the company had contracted FX derivatives for US $ 60 million for BRL, and US $ 10 million for GBP.
Sensitivity analysis:
A depreciation of the R $ / US $ exchange rate, negatively affects the Company's operating cash flows, however, also positively affects the value of the positions of derivatives contracted.
FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate has an impact on the market value of the derivatives, the changes of which affect the Company's net equity.
The following table shows the awareness of FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection term was defined until the end of the last contract of coverage in force, being the last business day of the second quarter of the year 2018:
| Appreciation (depreciation) | Effect at December 31, 2017 | Effect at December 31, 2016 | ||
| of R$ (*) | Millions of US$ | Millions of US$ | ||
| -10% | -10.7 | -1.02 | ||
| +10% | +9.7 | +3.44 |
(*)Both currencies (BRL and GBP) only apply period to the closing of 2016.
During 2017, the Company contracted derivative currency swaps to hedge debt issued the same year for a notional UF 8.7 million. As of December 31, 2017, the market value of derivative positions of currency swaps amounted to US$ 30.6 million (positive).
As of December 31, 2017, the Company has recorded an amount for ineffectiveness in the consolidated statement of income for this type of hedges for US $ 6.2 million (positive).
In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's Income Statement.
With the objective of reducing the impact on the Company's results caused by appreciations or depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure in US$ for TAM S.A.
The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:
| Appreciation (depreciation)* | Effect at December 31, 2017 | Effect at December 31, 2016 | ||
| of R$/US$ | Millons of US$ | Millons of US$ | ||
| -10% | +80.5 | +119.2 | ||
| +10% | -80.5 | -119.2 |
(*) Appreciation (depreciation) of US$ regard to the covered currencies.
Effects of exchange rate derivatives in the Financial Statements
The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).
Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in other comprehensive income.
The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:
| Appreciation (depreciation) | Effect at December 31, 2017 | Effect at December 31, 2016 | ||
| of R$/US$ | Millions of US$ | Millions of US$ | ||
| -10% | +386.62 | +351.04 | ||
| +10% | -316.33 | -287.22 |
| (iii) | Interest -rate risk: |
Exposition:
The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.
The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate ("ILC").
Mitigation:
In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 63% (63% at December 31, 2016) of the debt is fixed to fluctuations in interest rate.
Rate Hedging Results:
At December 31, 2017, the market value of the positions of interest rate derivatives amounted to US$ 6.6 million (negative). At end of December 2016 this market value was US$ 17.2 million (negative).
Sensitivity analysis:
The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible, based on current market conditions each date.
| Increase (decrease) | Positions as of December 31, 2017 | Positions as of December 31, 2016 | ||
| futures curve | effect on profit or loss before tax | effect on profit or loss before tax | ||
| in libor 3 months | (millions of US$) | (millions of US$) | ||
| +100 basis points | -29.26 | -32.16 | ||
| -100 basis points | +29.26 | +32.16 |
Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.
The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.
| Increase (decrease) | Positions as of December 31, 2017 | Positions as of December 31, 2016 | ||
| futures curve | effect on equity | effect on equity | ||
| in libor 3 months | (millions of US$) | (millions of US$) | ||
| +100 basis points | +1.9 | +3.93 | ||
| -100 basis points | -1.9 | -4.03 |
The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.
During the periods presented, the Company has no registered amounts by ineffectiveness in consolidated statement of income for this kind of hedging.
| (b) | Credit risk |
Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an obligation due or financial instrument, leading to a loss in market value of a financial instrument (only financial assets, not liabilities).
The Company is exposed to credit risk due to its operative and financial activities, including deposits with banks and financial institutions, investments in other kinds of instruments, exchange-rate transactions and the contracting of derivative instruments or options.
To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents).
As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the Company has established maximum limits for investments which are monitored regularly.
| (i) | Financial activities |
Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and other current financial assets.
In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.
The Company has no guarantees to mitigate this exposure.
| (ii) | Operational activities |
The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“IATA”) organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they are excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.
The exposure consists of the term granted, which fluctuates between 1 and 45 days.
One of the tools the Company uses for reducing credit risk is to participate in global entities related to the industry, such as IATA, Business Sales Processing (“BSP”), Cargo Account Settlement Systems (“CASS”), IATA Clearing House (“ICH”) and banks (credit cards). These institutions fulfill the role of collectors and distributors between airlines and travel and cargo agencies. In the case of the Clearing House, it acts as an offsetting entity between airlines for the services provided between them. A reduction in term and implementation of guarantees has been achieved through these entities. Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.
Credit quality of financial assets
The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater.
To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents).The bad-debt rate in the principal countries where the Company has a presence is insignificant.
| (c) | Liquidity risk |
Liquidity risk represents the risk that the Company has no sufficient funds to meet its obligations.
Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs, the Company requires liquid funds, defined as cash and cash equivalents plus other short term financial assets, to meet its payment obligations.
The liquid funds, the future cash generation and the capacity to obtain additional funding, through bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its investment and financing future commitments.
At December 31, 2017 is US$ 1,614 million (US$ 1,486 million at December 31, 2016), invested in short term instruments through financial high credit rating levels entities.
In addition to the liquid funds, the Company has access to short term credit line. As of December 31, 2017, LATAM has working capital credit lines with multiple banks and additionally has a US$ 450 million undrawn committed credit line (US$ 325 million at December 31, 2016) subject to borrowing base availability.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
| More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
| Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||
| Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
| Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||
| 97.032.000-8 | BBVA | Chile | US$ | 75,863 | - | - | - | - | 75,863 | 75,000 | At Expiration | 2.30 | 2.30 | |||||||||||||||||||||||||||||||
| 97.032.000-8 | BBVA | Chile | UF | - | 57,363 | - | - | - | 57,363 | 55,801 | At Expiration | 3.57 | 2.77 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | 30,131 | - | - | - | - | 30,131 | 30,000 | At Expiration | 2.49 | 2.49 | |||||||||||||||||||||||||||||||
| 97.030.000-7 | ESTADO | Chile | US$ | 40,257 | - | - | - | - | 40,257 | 40,000 | At Expiration | 2.57 | 2.57 | |||||||||||||||||||||||||||||||
| 97.003.000-K | BANCO DO BRASIL | Chile | US$ | 100,935 | - | - | - | - | 100,935 | 100,000 | At Expiration | 2.40 | 2.40 | |||||||||||||||||||||||||||||||
| 97.951.000-4 | HSBC | Chile | US$ | 12,061 | - | - | - | - | 12,061 | 12,000 | At Expiration | 2.03 | 2.03 | |||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
| 97.023.000-9 | CORPBANCA | Chile | UF | 22,082 | 22,782 | 43,430 | - | - | 88,294 | 84,664 | Quarterly | 3.68 | 3.68 | |||||||||||||||||||||||||||||||
| 0-E | BLADEX | U.S.A. | US$ | - | 16,465 | 15,628 | - | - | 32,093 | 30,000 | Semiannual | 5.51 | 5.51 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | 2,040 | 3,368 | 202,284 | - | - | 207,692 | 202,284 | Quarterly | 4.41 | 4.41 | |||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF NEW YORK | U.S.A. | US$ | - | 84,375 | 650,625 | 96,250 | 772,188 | 1,603,438 | 1,200,000 | At Expiration | 7.44 | 7.03 | |||||||||||||||||||||||||||||||
| 97.030.000-7 | ESTADO | Chile | UF | - | 20,860 | 41,720 | 226,379 | 245,067 | 534,026 | 379,274 | At Expiration | 5.50 | 5.50 | |||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | 8,368 | 25,415 | 56,305 | 12,751 | - | 102,839 | 98,091 | Quarterly | 2.66 | 2.22 | |||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | 14,498 | 59,863 | 148,469 | 145,315 | 313,452 | 681,597 | 575,221 | Quarterly | 3.41 | 3.40 | |||||||||||||||||||||||||||||||
| 0-E | WELLS FARGO | U.S.A. | US$ | 30,764 | 92,309 | 246,285 | 246,479 | 245,564 | 861,401 | 808,987 | Quarterly | 2.46 | 1.75 | |||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | 32,026 | 95,042 | 253,469 | 244,836 | 676,474 | 1,301,847 | 1,034,853 | Quarterly | 4.48 | 4.48 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | 14,166 | 42,815 | 114,612 | 112,435 | 102,045 | 386,073 | 351,217 | Quarterly | 3.31 | 2.47 | |||||||||||||||||||||||||||||||
| 0-E | BTMU | U.S.A. | US$ | 3,292 | 9,997 | 26,677 | 26,704 | 14,133 | 80,803 | 74,734 | Quarterly | 2.87 | 2.27 | |||||||||||||||||||||||||||||||
| 0-E | APPLE BANK | U.S.A. | US$ | 1,611 | 4,928 | 13,163 | 13,196 | 7,369 | 40,267 | 37,223 | Quarterly | 2.78 | 2.18 | |||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | US$ | 18,485 | 55,354 | 146,709 | 145,364 | 158,236 | 524,148 | 472,833 | Quarterly | 4.00 | 2.82 | |||||||||||||||||||||||||||||||
| 0-E | DEUTSCHE BANK | U.S.A. | US$ | 4,043 | 12,340 | 32,775 | 32,613 | 32,440 | 114,211 | 96,906 | Quarterly | 4.39 | 4.39 | |||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | 18,192 | 54,952 | 129,026 | 105,990 | 166,011 | 474,171 | 413,011 | Quarterly | 3.42 | 3.40 | |||||||||||||||||||||||||||||||
| 0-E | PK AirFinance | U.S.A. | US$ | 2,375 | 7,308 | 20,812 | 18,104 | - | 48,599 | 46,500 | Monthly | 3.18 | 3.18 | |||||||||||||||||||||||||||||||
| 0-E | KFW IPEX-BANK | Germany | US$ | 2,570 | 7,111 | 16,709 | 1,669 | - | 28,059 | 26,888 | Quarterly | 3.31 | 3.31 | |||||||||||||||||||||||||||||||
| 0-E | AIRBUS FINANCIAL | U.S.A. | US$ | 2,033 | 6,107 | 15,931 | - | - | 24,071 | 22,925 | Monthly | 3.19 | 3.19 | |||||||||||||||||||||||||||||||
| 0-E | INVESTEC | England | US$ | 1,930 | 11,092 | 26,103 | 26,045 | 11,055 | 76,225 | 63,378 | Semiannual | 6.04 | 6.04 | |||||||||||||||||||||||||||||||
| Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | US$ | 1,757 | 5,843 | 246,926 | - | - | 254,526 | 241,287 | At Expiration | 3.38 | 3.38 | |||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | ING | U.S.A. | US$ | 5,890 | 12,076 | 28,234 | - | - | 46,200 | 42,957 | Quarterly | 5.67 | 5.00 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | US$ | 12,699 | 38,248 | 91,821 | 51,222 | 2,880 | 196,870 | 184,274 | Quarterly | 3.78 | 3.17 | |||||||||||||||||||||||||||||||
| 0-E | PEFCO | U.S.A. | US$ | 13,354 | 34,430 | 23,211 | - | - | 70,995 | 67,783 | Quarterly | 5.46 | 4.85 | |||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | US$ | 13,955 | 35,567 | 50,433 | 2,312 | - | 102,267 | 98,105 | Quarterly | 3.66 | 3.25 | |||||||||||||||||||||||||||||||
| 0-E | WELLS FARGO | U.S.A. | US$ | 12,117 | 38,076 | 98,424 | 66,849 | 21,253 | 236,719 | 221,113 | Quarterly | 3.17 | 2.67 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | US$ | 6,049 | 18,344 | 48,829 | 47,785 | 3,156 | 124,163 | 117,023 | Quarterly | 2.51 | 1.96 | |||||||||||||||||||||||||||||||
| 0-E | RRPF ENGINE | England | US$ | 370 | 3,325 | 8,798 | 8,692 | 9,499 | 30,684 | 25,983 | Monthly | 4.01 | 4.01 | |||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CITIBANK (*) | U.S.A. | US$ | 25,783 | 77,810 | 206,749 | - | - | 310,342 | 285,891 | Quarterly | 6.00 | 6.00 | |||||||||||||||||||||||||||||||
| Derivatives of coverage | ||||||||||||||||||||||||||||||||||||||||||||
| - | Others | - | US$ | 5,656 | 6,719 | 6,228 | - | - | 18,603 | 17,407 | - | 0.00 | 0.00 | |||||||||||||||||||||||||||||||
| Total | 535,352 | 960,284 | 3,010,385 | 1,630,990 | 2,780,822 | 8,917,833 | 7,633,613 | |||||||||||||||||||||||||||||||||||||
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
| More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
| Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||
| Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NEDERLANDSCHE | |||||||||||||||||||||||||||||||||||||||||||
| CREDIETVERZEKERING MAATSCHAPPIJ | Holland | US$ | 176 | 497 | 1,332 | 722 | - | 2,727 | 2,382 | Monthly | 6.01 | 6.01 | ||||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | US$ | 4,248 | 7,903 | 23,141 | 71,323 | - | 106,615 | 99,036 | Quarterly / Semiannual | 5.59 | 5.59 | |||||||||||||||||||||||||||||||
| 0-E | WACAPOU LEASING S.A. | Luxembourg | US$ | 837 | 2,411 | 6,509 | 3,277 | - | 13,034 | 12,047 | Quarterly | 3.69 | 3.69 | |||||||||||||||||||||||||||||||
| 0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | US$ | 11,735 | 32,230 | 204,836 | - | - | 248,801 | 244,513 | Quarterly | 4.87 | 4.81 | |||||||||||||||||||||||||||||||
| 0-E | BANCO IBM S.A | Brazil | BRL | 34 | - | - | - | - | 34 | 21 | Monthly | 6.89 | 6.89 | |||||||||||||||||||||||||||||||
| 0-E | SOCIÉTÉ GÉNÉRALE | France | BRL | 161 | 12 | - | - | - | 173 | 109 | Monthly | 6.89 | 6.89 | |||||||||||||||||||||||||||||||
| Total | 17,191 | 43,053 | 235,818 | 75,322 | - | 371,384 | 358,108 | |||||||||||||||||||||||||||||||||||||
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
| More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||||
| Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||||
| Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||
| Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||||||
| - | OTHERS | OTHERS | ThUS$ | 566,838 | - | - | - | - | 566,838 | 566,838 | - | - | - | |||||||||||||||||||||||||||||||||
| CLP | 165,299 | - | - | - | - | 165,299 | 165,299 | - | - | - | ||||||||||||||||||||||||||||||||||||
| BRL | 315,605 | - | - | - | - | 315,605 | 315,605 | - | - | - | ||||||||||||||||||||||||||||||||||||
| Other currencies | 290,244 | 11,215 | - | - | - | 301,459 | 301,459 | - | - | - | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||||||||||||||
| 78.997.060-2 | Viajes Falabella Ltda. | Chile | CLP | 534 | - | - | - | - | 534 | 534 | - | - | - | |||||||||||||||||||||||||||||||||
| 0-E | Inversora Aeronáutica Argentina | Argentina | ThUS$ | 4 | - | - | - | - | 4 | 4 | - | - | - | |||||||||||||||||||||||||||||||||
| 0-E | Consultoría Administrativa Profesional S.A. de C.V. | Mexico | MXN | 210 | - | - | - | - | 210 | 210 | - | - | - | |||||||||||||||||||||||||||||||||
| 78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 12 | - | - | - | - | 12 | 12 | - | - | - | |||||||||||||||||||||||||||||||||
| Total | 1,338,746 | 11,215 | - | - | - | 1,349,961 | 1,349,961 | |||||||||||||||||||||||||||||||||||||||
| Total consolidated | 1,891,289 | 1,014,552 | 3,246,203 | 1,706,312 | 2,780,822 | 10,639,178 | 9,341,682 | |||||||||||||||||||||||||||||||||||||||
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
| More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
| Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||
| Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
| Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||
| 97.032.000-8 | BBVA | Chile | ThUS$ | 75,212 | - | - | - | - | 75,212 | 75,000 | At Expiration | 1.85 | 1.85 | |||||||||||||||||||||||||||||||
| 97.032.000-8 | BBVA | Chile | ThUS$ | - | 52,675 | - | - | - | 52,675 | 50,381 | At Expiration | 5.23 | 4.43 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | ThUS$ | 30,193 | - | - | - | - | 30,193 | 30,000 | At Expiration | 2.39 | 2.39 | |||||||||||||||||||||||||||||||
| 97.030.000-7 | ESTADO | Chile | ThUS$ | 40,191 | - | - | - | - | 40,191 | 40,000 | At Expiration | 1.91 | 1.91 | |||||||||||||||||||||||||||||||
| 97.003.000-K | BANCO DO BRASIL | Chile | ThUS$ | 72,151 | - | - | - | - | 72,151 | 70,000 | At Expiration | 3.08 | 3.08 | |||||||||||||||||||||||||||||||
| 97.951.000-4 | HSBC | Chile | ThUS$ | 12,054 | - | - | - | - | 12,054 | 12,000 | At Expiration | 1.79 | 1.79 | |||||||||||||||||||||||||||||||
| Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
| 97.023.000-9 | CORPBANCA | Chile | UF | 20,808 | 61,112 | 63,188 | 16,529 | - | 161,637 | 153,355 | Quarterly | 4.06 | 4.06 | |||||||||||||||||||||||||||||||
| 0-E | BLADEX | U.S.A. | ThUS$ | - | 14,579 | 31,949 | - | - | 46,528 | 42,500 | Semiannual | 5.14 | 5.14 | |||||||||||||||||||||||||||||||
| 0-E | DVB BANK SE | U.S.A. | ThUS$ | 145 | 199 | 28,911 | - | - | 29,255 | 28,911 | Quarterly | 1.86 | 1.86 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | ThUS$ | 1,497 | 4,308 | 160,556 | - | - | 166,361 | 158,194 | Quarterly | 3.55 | 3.55 | |||||||||||||||||||||||||||||||
| Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BANK OF NEW YORK | U.S.A. | ThUS$ | - | 36,250 | 72,500 | 518,125 | - | 626,875 | 500,000 | At Expiration | 7.77 | 7.25 | |||||||||||||||||||||||||||||||
| Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | ThUS$ | 11,728 | 30,916 | 65,008 | 33,062 | 3,760 | 144,474 | 138,417 | Quarterly | 2.21 | 1.81 | |||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | ThUS$ | 13,805 | 56,324 | 142,178 | 141,965 | 376,894 | 731,166 | 628,118 | Quarterly | 2.97 | 2.96 | |||||||||||||||||||||||||||||||
| 0-E | WELLS FARGO | U.S.A. | ThUS$ | 35,896 | 107,830 | 287,878 | 288,338 | 411,076 | 1,131,018 | 1,056,345 | Quarterly | 2.37 | 1.68 | |||||||||||||||||||||||||||||||
| 0-E | WILMINGTON TRUST COMPANY | U.S.A. | ThUS$ | 25,833 | 79,043 | 206,952 | 200,674 | 733,080 | 1,245,582 | 967,336 | Quarterly | 4.25 | 4.25 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | ThUS$ | 20,224 | 61,020 | 164,077 | 166,165 | 184,053 | 595,539 | 548,168 | Quarterly | 2.72 | 1.96 | |||||||||||||||||||||||||||||||
| 97.036.000-K | SANTANDER | Chile | ThUS$ | 5,857 | 17,697 | 47,519 | 48,024 | 26,448 | 145,545 | 138,574 | Quarterly | 1.98 | 1.44 | |||||||||||||||||||||||||||||||
| 0-E | BTMU | U.S.A. | ThUS$ | 3,163 | 9,568 | 25,752 | 26,117 | 27,270 | 91,870 | 85,990 | Quarterly | 2.31 | 1.72 | |||||||||||||||||||||||||||||||
| 0-E | APPLE BANK | U.S.A. | ThUS$ | 1,551 | 4,712 | 12,693 | 12,891 | 13,857 | 45,704 | 42,754 | Quarterly | 2.29 | 1.69 | |||||||||||||||||||||||||||||||
| 0-E | US BANK | U.S.A. | ThUS$ | 18,563 | 55,592 | 147,357 | 146,045 | 230,747 | 598,304 | 532,608 | Quarterly | 3.99 | 2.81 | |||||||||||||||||||||||||||||||
| 0-E | DEUTSCHE BANK | U.S.A. | ThUS$ | 6,147 | 18,599 | 31,640 | 31,833 | 48,197 | 136,416 | 117,263 | Quarterly | 3.86 | 3.86 | |||||||||||||||||||||||||||||||
| 0-E | NATIXIS | France | ThUS$ | 14,779 | 44,826 | 116,809 | 96,087 | 206,036 | 478,537 | 422,851 | Quarterly | 2.60 | 2.57 | |||||||||||||||||||||||||||||||
| 0-E | PK AirFinance | U.S.A. | ThUS$ | 2,265 | 6,980 | 19,836 | 25,610 | 3,153 | 57,844 | 54,787 | Monthly | 2.40 | 2.40 | |||||||||||||||||||||||||||||||
| 0-E | KFW IPEX-BANK | Germany | ThUS$ | 2,503 | 7,587 | 18,772 | 9,178 | - | 38,040 | 36,191 | Quarterly | 2.55 | 2.55 | |||||||||||||||||||||||||||||||
| 0-E | AIRBUS FINANCIAL | U.S.A. | ThUS$ | 1,982 | 5,972 | 16,056 | 7,766 | - | 31,776 | 30,199 | Monthly | 2.49 | 2.49 | |||||||||||||||||||||||||||||||
| 0-E | INVESTEC | England | ThUS$ | 1,880 | 10,703 | 25,369 | 25,569 | 23,880 | 87,401 | 72,202 | Semiannual | 5.67 | 5.67 | |||||||||||||||||||||||||||||||
| Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | ThUS$ | 1,501 | 4,892 | 268,922 | - | - | 275,315 | 256,860 | At Expiration | 2.85 | 2.85 | |||||||||||||||||||||||||||||||
| Financial leases | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | ING | U.S.A. | ThUS$ | 5,889 | 17,671 | 34,067 | 12,134 | - | 69,761 | 63,698 | Quarterly | 5.62 | 4.96 | |||||||||||||||||||||||||||||||
| 0-E | CREDIT AGRICOLE | France | ThUS$ | 1,788 | 5,457 | - | - | - | 7,245 | 7,157 | Quarterly | 1.85 | 1.85 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK | U.S.A. | ThUS$ | 6,083 | 18,250 | 48,667 | 14,262 | - | 87,262 | 78,249 | Quarterly | 6.40 | 5.67 | |||||||||||||||||||||||||||||||
| 0-E | PEFCO | U.S.A. | ThUS$ | 17,558 | 50,593 | 67,095 | 3,899 | - | 139,145 | 130,811 | Quarterly | 5.39 | 4.79 | |||||||||||||||||||||||||||||||
| 0-E | BNP PARIBAS | U.S.A. | ThUS$ | 13,744 | 41,508 | 79,165 | 22,474 | - | 156,891 | 149,119 | Quarterly | 3.69 | 3.26 | |||||||||||||||||||||||||||||||
| 0-E | WELLS FARGO | U.S.A. | ThUS$ | 5,591 | 16,751 | 44,615 | 44,514 | 1,880 | 113,351 | 103,326 | Quarterly | 3.98 | 3.54 | |||||||||||||||||||||||||||||||
| 0-E | DVB BANK SE | U.S.A. | ThUS$ | 4,773 | 9,541 | - | - | - | 14,314 | 14,127 | Quarterly | 2.57 | 2.57 | |||||||||||||||||||||||||||||||
| 0-E | RRPF ENGINE | England | ThUS$ | - | - | 8,248 | 8,248 | 12,716 | 29,212 | 25,274 | Monthly | 2.35 | 2.35 | |||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | BOEING | U.S.A. | ThUS$ | 163 | 320 | 26,214 | - | - | 26,697 | 26,214 | At Expiration | 2.35 | 2.35 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK (*) | U.S.A. | ThUS$ | 25,802 | 77,795 | 207,001 | 103,341 | - | 413,939 | 370,389 | Quarterly | 6.00 | 6.00 | |||||||||||||||||||||||||||||||
| Hedging derivatives | ||||||||||||||||||||||||||||||||||||||||||||
| - | OTROS | - | ThUS$ | 7,364 | 15,479 | 7,846 | - | - | 30,689 | - | - | 0.00 | 0.00 | |||||||||||||||||||||||||||||||
| - | Total | 508,683 | 944,749 | 2,476,840 | 2,002,850 | 2,303,047 | 8,236,169 | 7,257,368 | ||||||||||||||||||||||||||||||||||||
(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.
Clases de pasivo para el análisis del riesgo de liquidez agrupado por vencimiento al 31 de diciembre de 2016
Nombre empresa deudora: TAM S.A. y Filiales, Rut 02.012.862/0001-60, Brasil.
| Más de | Más de | Más de | ||||||||||||||||||||||||||||||||||||||||||
| País de | Descripción | Hasta | 90 días | uno a | tres a | Más de | Total | |||||||||||||||||||||||||||||||||||||
| Rut empresa | empresa | de la | 90 | a un | tres | cinco | cinco | Total | Valor | Tipo de | Tasa | Tasa | ||||||||||||||||||||||||||||||||
| acreedora | Nombre empresa acreedora | acreedora | moneda | días | año | años | años | años | Valor | nominal | amortización | efectiva | nominal | |||||||||||||||||||||||||||||||
| MUS$ | MUS$ | MUS$ | MUS$ | MUS$ | MUS$ | MUS$ | % | % | ||||||||||||||||||||||||||||||||||||
| Préstamos bancarios | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ | Holanda | US$ | 179 | 493 | 1,315 | 1,314 | 54 | 3,355 | 2,882 | Mensual | 6.01 | 6.01 | |||||||||||||||||||||||||||||||
| 0-E | CITIBANK | E.E.U.U. | US$ | 1,528 | 203,150 | - | - | - | 204,678 | 200,000 | Al Vencimiento | 3.39 | 3.14 | |||||||||||||||||||||||||||||||
| Obligaciones con el Público | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | THE BANK OF NEW YORK | E.E.U.U. | US$ | - | 352,938 | 83,750 | 562,813 | - | 999,501 | 800,000 | Al Vencimiento | 8.17 | 8.00 | |||||||||||||||||||||||||||||||
| Arrendamiento Financiero | ||||||||||||||||||||||||||||||||||||||||||||
| 0-E | AFS INVESTMENT IX LLC | E.E.U.U. | US$ | 2,733 | 7,698 | 20,522 | 8,548 | - | 39,501 | 35,448 | Mensual | 1.25 | 1.25 | |||||||||||||||||||||||||||||||
| 0-E | DVB BANK SE | E.E.U.U. | US$ | 120 | 165 | - | - | - | 285 | 282 | Mensual | 2.50 | 2.50 | |||||||||||||||||||||||||||||||
| 0-E | GENERAL ELECTRIC CAPITAL CORPORATION | E.E.U.U. | US$ | 3,852 | 5,098 | - | - | - | 8,950 | 8,846 | Mensual | 2.30 | 2.30 | |||||||||||||||||||||||||||||||
| 0-E | KFW IPEX-BANK | Alemania | US$ | 592 | 1,552 | - | - | - | 2,144 | 2,123 | Mensual/Trimestral | 2.80 | 2.80 | |||||||||||||||||||||||||||||||
| 0-E | NATIXIS | Francia | US$ | 4,290 | 7,837 | 22,834 | 40,968 | 41,834 | 117,763 | 107,443 | Trimestral/Semestral | 4.90 | 4.90 | |||||||||||||||||||||||||||||||
| 0-E | WACAPOU LEASING S.A. | Luxemburgo | US$ | 833 | 2,385 | 6,457 | 6,542 | - | 16,217 | 14,754 | Trimestral | 3.00 | 3.00 | |||||||||||||||||||||||||||||||
| 0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italia | US$ | 11,875 | 32,116 | 85,995 | 171,553 | - | 301,539 | 279,335 | Trimestral | 4.18 | 4.11 | |||||||||||||||||||||||||||||||
| 0-E | BANCO IBM S.A | Brasil | BRL | 380 | 1,161 | 35 | - | - | 1,576 | 1,031 | Mensual | 13.63 | 13.63 | |||||||||||||||||||||||||||||||
| 0-E | HP FINANCIAL SERVICE | Brasil | BRL | 225 | - | - | - | - | 225 | 222 | Mensual | 10.02 | 10.02 | |||||||||||||||||||||||||||||||
| 0-E | SOCIÉTÉ GÉNÉRALE | Francia | BRL | 146 | 465 | 176 | - | - | 787 | 519 | Mensual | 13.63 | 13.63 | |||||||||||||||||||||||||||||||
| Total | 26,753 | 615,058 | 221,084 | 791,738 | 41,888 | 1,696,521 | 1,452,885 | |||||||||||||||||||||||||||||||||||||
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
| More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||||
| Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||||
| Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||
| Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||
| Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||||||
| - | OTHERS | OTHERS | ThUS$ | 549,897 | 21,215 | - | - | - | 571,112 | 571,112 | - | - | - | |||||||||||||||||||||||||||||||||
| CLP | 48,842 | (30 | ) | - | - | - | 48,812 | 48,812 | - | - | - | |||||||||||||||||||||||||||||||||||
| BRL | 346,037 | 27 | - | - | - | 346,064 | 346,064 | - | - | - | ||||||||||||||||||||||||||||||||||||
| Others currencies | 140,471 | 11,467 | - | - | - | 151,938 | 151,938 | - | - | - | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||||||||||||||
| 0-E | Consultoría Administrativa Profesional S.A. de C.V. | Mexico | MXN | 170 | - | - | - | - | 170 | 170 | - | - | - | |||||||||||||||||||||||||||||||||
| 78.997.060-2 | Viajes Falabella Ltda. | Chile | CLP | 46 | - | - | - | - | 46 | 46 | - | - | - | |||||||||||||||||||||||||||||||||
| 0-E | TAM Aviação Executiva e Taxi Aéreo S.A. | Brazil | BRL | 28 | - | - | - | - | 28 | 28 | - | - | - | |||||||||||||||||||||||||||||||||
| 65.216.000-K | Comunidad Mujer | Chile | CLP | 13 | - | - | - | - | 13 | 13 | ||||||||||||||||||||||||||||||||||||
| 78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 6 | - | - | - | - | 6 | 6 | ||||||||||||||||||||||||||||||||||||
| 79.773.440-3 | Transportes San Felipe S.A. | Chile | CLP | 4 | - | - | - | - | 4 | 4 | - | - | - | |||||||||||||||||||||||||||||||||
| 0-E | Inversora Aeronáutica Argentina | Argentina | ThUS$ | 2 | - | - | - | - | 2 | 2 | - | - | - | |||||||||||||||||||||||||||||||||
| Total | 1,085,516 | 32,679 | - | - | - | 1,118,195 | 1,118,195 | |||||||||||||||||||||||||||||||||||||||
| Total consolidated | 1,620,952 | 1,592,486 | 2,697,924 | 2,794,588 | 2,344,935 | 11,050,885 | 9,828,448 | |||||||||||||||||||||||||||||||||||||||
The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.
At the end of 2016, the Company provided US$ 30.2 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2017, the Company had provided US$ 16.4 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate and interest rates.
| 3.2. | Capital risk management |
The Company’s objectives, with respect to the management of capital, are (i) to comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.
The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.
Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.
The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2017 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with stable outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.
| 3.3. | Estimates of fair value. |
At December 31, 2017, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:
| 1. | Hedge Instruments: |
This category includes the following instruments:
| - | Interest rate derivative contracts, |
| - | Fuel derivative contracts, |
| - | Currency derivative contracts. |
| 2. | Financial Investments: |
This category includes the following instruments:
| - | Investments in short-term Mutual Funds (cash equivalent), |
| - | Private investment funds. |
The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.
The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.
The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:
| As of December 31, 2017 | As of December 31, 2016 | |||||||||||||||||||||||||||||||
| Fair value measurements using values | Fair value measurements using values | |||||||||||||||||||||||||||||||
| considered as | considered as | |||||||||||||||||||||||||||||||
| Fair value | Level I | Level II | Level III | Fair value | Level I | Level II | Level III | |||||||||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 29,658 | 29,658 | - | - | 15,522 | 15,522 | - | - | ||||||||||||||||||||||||
| Short-term mutual funds | 29,658 | 29,658 | - | - | 15,522 | 15,522 | - | - | ||||||||||||||||||||||||
| Other financial assets, current | 536,001 | 473,653 | 62,348 | - | 548,402 | 536,991 | 11,411 | - | ||||||||||||||||||||||||
| Fair value derived interest rate | 3,113 | - | 3,113 | - | - | - | - | - | ||||||||||||||||||||||||
| Fair value of fuel derivatives | 10,711 | - | 10,711 | - | 10,088 | - | 10,088 | - | ||||||||||||||||||||||||
| Fair value derived from foreign currency | 48,322 | - | 48,322 | - | 1,259 | - | 1,259 | - | ||||||||||||||||||||||||
| Interest accrued since the last payment date of Cross Currency Swap | 202 | - | 202 | - | 64 | - | 64 | - | ||||||||||||||||||||||||
| Private investment funds | 472,232 | 472,232 | - | - | 536,991 | 536,991 | - | - | ||||||||||||||||||||||||
| Domestic and foreign bonds | 1,421 | 1,421 | - | - | - | - | - | - | ||||||||||||||||||||||||
| Other financial assets, not current | 519 | - | 519 | - | - | - | - | - | ||||||||||||||||||||||||
| Fair value derived from foreign currency | 519 | - | 519 | - | - | - | - | - | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Other financial liabilities, current | 12,200 | - | 12,200 | - | 24,881 | - | 24,881 | - | ||||||||||||||||||||||||
| Fair value of interest rate derivatives | 8,919 | - | 8,919 | - | 9,579 | - | 9,579 | - | ||||||||||||||||||||||||
| Fair value of foreign currency derivatives | 2,092 | - | 2,092 | - | 13,155 | - | 13,155 | - | ||||||||||||||||||||||||
| Interest accrued since the last payment date of Currency Swap | 1,189 | - | 1,189 | - | 2,147 | - | 2,147 | - | ||||||||||||||||||||||||
| Other financial liabilities, non current | 2,617 | - | 2,617 | - | 6,679 | - | 6,679 | - | ||||||||||||||||||||||||
| Fair value of interest rate derivatives | 2,617 | - | 2,617 | - | 6,679 | - | 6,679 | - | ||||||||||||||||||||||||
Additionally, at December 31, 2017, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:
| As of December 31, 2017 | As of December 31, 2016 | |||||||||||||||
| Book | Fair | Book | Fair | |||||||||||||
| value | value | value | value | |||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
| Cash and cash equivalents | 1,112,346 | 1,112,346 | 933,805 | 933,805 | ||||||||||||
| Cash on hand | 8,562 | 8,562 | 8,630 | 8,630 | ||||||||||||
| Bank balance | 330,430 | 330,430 | 255,746 | 255,746 | ||||||||||||
| Overnight | 239,292 | 239,292 | 295,060 | 295,060 | ||||||||||||
| Time deposits | 534,062 | 534,062 | 374,369 | 374,369 | ||||||||||||
| Other financial assets, current | 23,918 | 23,918 | 164,426 | 164,426 | ||||||||||||
| Other financial assets | 23,918 | 23,918 | 164,426 | 164,426 | ||||||||||||
| Trade debtors, other accounts receivable and Current accounts receivable | 1,214,050 | 1,214,050 | 1,107,889 | 1,107,889 | ||||||||||||
| Accounts receivable from entities related, current | 2,582 | 2,582 | 554 | 554 | ||||||||||||
| Other financial assets, not current | 87,571 | 87,571 | 102,125 | 102,125 | ||||||||||||
| Accounts receivable, non-current | 6,891 | 6,891 | 8,254 | 8,254 | ||||||||||||
| Other current financial liabilities | 1,288,749 | 1,499,495 | 1,814,647 | 2,022,290 | ||||||||||||
| Accounts payable for trade and other accounts payable, current | 1,695,202 | 1,695,202 | 1,593,068 | 1,593,068 | ||||||||||||
| Accounts payable to entities related, current | 760 | 760 | 269 | 269 | ||||||||||||
| Other financial liabilities, not current | 6,602,891 | 6,738,872 | 6,790,273 | 6,970,375 | ||||||||||||
| Accounts payable, not current | 498,832 | 498,832 | 359,391 | 359,391 | ||||||||||||
The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.
The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end.