081016 Citi
Transcript of 081016 Citi
Non deal Road Show
CitigroupNew York and Boston, October 16 - 17, 2008
2
Information and Projection
This notice may contain estimates for future events. These estimates merely reflect the expectations
of the Company’s management, and involve risks and uncertainties. The Company is not responsible
for investment operations or decisions taken based on information contained in this communication.
These estimates are subject to changes without prior notice.
This material has been prepared by TAM S.A. (“TAM“ or the “Company”) includes certain forward-
looking statements that are based principally on TAM’s current expectations and on projections of
future events and financial trends that currently affect or might affect TAM’s business, and are not
guarantees of future performance. They are based on management’s expectations that involve a
number of business risks and uncertainties, any of each could cause actual financial condition and
results of operations to differ materially from those set out in TAM’s forward-looking statements. TAM
undertakes no obligation to publicly update or revise any forward looking statements.
This material is published solely for informational purposes and is not to be construed as a solicitation
or an offer to buy or sell any securities or related financial instruments. Likewise it does not give and
should not be treated as giving investment advice. It has no regard to the specific investment
objectives, financial situation or particular needs of any recipient. No representation or warranty, either
express or implied, is provided in relation to the accuracy, completeness or reliability of the information
contained herein. It should not be regarded by recipients as a substitute for the exercise of their own
judgment.
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PreviousPeriod
CurrentPeriod
J F MAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A S80859095
100105110115120125130
Domestic Market - Variation(vs previous period)
The domestic market grew 10% from January to September 2008
Source: ANAC
Accum. market growth 2006
12%
Accum. market growth 2005
19%
Accum. market growth 2007
12%
Accum. market growth 2008
10%
20072005 2006 2008
4
PreviousPeriod
Market
TAM
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A S40
60
80
100
120
140
160
180
200
International Market - Variation(vs previous period)
The international market (among Brazilian carriers) is recovering and grew 36% …
Source: ANAC
Accum. Marketgrowth 2008
36%
Acum TAM 200641%
Acum TAM 2007 71%
Acum TAM 200540%
Acum TAM 2008 44%
Accum. market growth 2005
7%
Accum. market decrease 2006
30%
Accum. market decrease 2007
5%
20072005 2006 2008
5
…with higher growth anticipated for Brazilian carriers due to the unbalance in the bilateral agreements…
Source: ANAC annual report
* estimates
58.2%
41.8%
57.7%
42.3%
66.9%
33.1%
71.2%
28.8%
66.5%
33.5%
2004 2005 2006 2007 Jan - Sep2008*
0
20
40
60
80
100%
% international passenger
BrazilianCarriers
IntlCarriers
6
…observed in many countries, as the example between Brazil and USA
77
107
147
2821
357
10542
I taly
England
Germany
France
Spain
USA
1414
1414
2121
3030
5151
126*126*
150 100 50 0 50 100 150
Weekly Frequencies
* 21 frequencies limited to the cities in the north, northeast and central west regions of Brazil and/or Belo Horizonte
Brazilian Carriers Foreign Carriers
Available space on bilateral Operated by Brazilian Carriers Operated by Foreign Carriers
7
We are both domestic and international market leaders
TAM’s Domestic Market Share*TAM’s Domestic Market Share*
Source: ANAC
* RPK – Revenue passenger kilometer
TAM’s International Market Share* – Among Brazilian carriersTAM’s International Market Share* – Among Brazilian carriers
33,0%35,8%
48,0% 48,9% 50,2% 52,4% 52,8%
43,5%
2003 2004 2005 2006 2007 Jan - Sep 2008 3Q08 Sep/08
12,0% 14,3%
37,5%
67,5%72,4% 75,8%
82,1%
18,8%
2003 2004 2005 2006 2007 Jan - Sep 2008 3Q08 Sep/08
8
Our mix of international revenue reduced due to the appreciation of Real and increase of domestic yield
34%
66%
31%
69%
2Q07 2Q080
20
40
60
80
100%
Revenue(Passenger + Cargo)
Dollarexchangerate
DomesticInternational
1.926
63%37%
1.592
62%38%
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
-17%
ASK proportion
International(Dollar denominated)
Domestic(Real denominated)
9
... total RASK increased 9.5%...
RASK total ¹ ²
RASK scheduled domestic²
Domestic load factor - %
Yield scheduled domestic³
RASK scheduled international²
International load factor - %
Yield scheduled international³
Yield scheduled international³ (USD cents)
2Q072Q07 1Q081Q08 2Q08 vs 2Q07
2Q08 vs 2Q07
2Q08 vs 1Q08
2Q08 vs 1Q08
R$ Cents
1 Includes charter. cargo and Other revenues. net of taxes2 Net of taxes3 Gross of taxes
16.80
15.26
71.9
22.25
12.30
69.1
17.83
9.26
16.38
15.37
69.9
23.09
11.39
76.9
14.82
8.47
18.40
17.66
68.1
27.23
11.48
73.4
15.64
9.82
9.5
15.7
-3.9 p.p.
22.4
-6.7
4.3 p.p.
-12.3
6.1
12.3
14.9
-1.8 p.p.
17.9
0.8
-3.5 p.p.
5.5
16.0
6.39 6.51 7.21 12.9 10.7 RASK scheduled
international² (USD cents)
2Q082Q08
10
...and the total CASK increased 8.4%...
CASK
CASK excl-fuel
2Q07 2Q08
16.5217.91
0
5
10
15
20
Total CASKBR GAAP - R$ cents
2Q08 vs 2Q07
-3.4%
8.4%
11
2Q07 2Q08
69
92
0
20
40
60
80
100EBIT - R$ M
...improving our margins and earnings
Margin over net revenue
2Q07 2Q08
33
67
0
20
40
60
80EBIT - R$ M
2Q07 2Q08
-29
50
-40
-20
0
20
40
60Net Income - R$ M
BR GAAP
US GAAP
2Q07 2Q08
69
214
0
50
100
150
200
250Net Income - R$ M
2Q07 2Q08
0.46
1.42Earnings per share - R$
2Q07 2Q08
-0.19
0.33Earnings per share - R$
103%
2%3%
-1%
2%
34%
3% 4%
4%
9%
209% 209%
12
BR GAAP Leasing IncomeTaxes
Others US GAAP
50
261
-84 -13214
0
100
200
300
400
Net Profit Reconciliation to US GAAP
46 aircrafts are reclassified as capital
leases as per SFAS nº 13
46 aircrafts are reclassified as capital
leases as per SFAS nº 13
The main difference between BR and US GAAP is the accounting treatment of aircraft leasing
13
Our balance sheet remains solid
R$ million - BRGAAP 2008* 2007 2006 2005 2004
Cash (1) 2.009 2.607 2.453 995 297
Short-Term Debt (2) 837 1.005 363 216 204
Long-Term Debt (3) 1.301 1.345 895 425 399
Total Debt (A) = (2) + (3) 2.138 2.350 1.258 641 603
Shareholder's Equity (4) 1.539 1.527 1.449 760 191
Capitalization (B) = (3 + 4) 2.839 2.872 2.344 1.185 590
Aircraft and flight equipment leases** (5) 6.193 5.976 5.032 4.389 4.557
Total Debt Adjusted (C) = (A + 5) 8.331 8.326 6.290 5.030 5.160
Total Capitalization Adjusted (D) = (3 + 4 + 5) 9.032 8.848 7.376 5.574 5.147
Debt / Capitalization (A / B) 75% 82% 54% 54% 102%
Adjusted Debt / Adjusted Capitalization (C / D) 92% 94% 85% 90% 100%
Adjusted Net Debt / Adjusted Capitalization (C - 1) / (D) 70% 65% 52% 72% 94%
* LTM
** Aircraft and flight equipment leases of the last twelve months x 7
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Debt deals
Debentures – R$ 500 million (September 2006)
Subscription of 50,000 nominative, registered, non convertible debentures with a nominal unit value of R$ 10 thousand
6 years term with the first payment in 2010
Bonds – US$ 300 million (April 2007)
7.375% Senior Notes due 2017
Loan agreements to finance pre-delivery payment
Calyon and other banks to finance up to US$ 331 million for 4 B777-300ERs
BNP Paribas to finance up to US$ 117 million for 30 Airbus aircraft until 2010
Guaranties to support the financing of aircraft
Ex-Im Bank for the Boeing fleet
ECAs for the Airbus fleet
15
We are beginning to evaluate new potential business units in the company
TAM Linhas AéreasTAM Linhas Aéreas
MRO(São Carlos)
MRO(São Carlos)
Loyalty ProgramLoyalty
Program HandlingHandlingCargoCargo
Already structured as a business unit with focus in maximizing assets
None or little focus on selling services to third-parties
Not structured as business units
16
TAM has its own maintenance center since 2001 and has invested R$ 185 million
2001/2002 – Acquisition, construction, environment licenses and DAC
(ANAC) certifications
2003/2004 – Nationalization of services
2005 – Increase in services selling
2006 – EASA qualification for A319/A320 and development of
qualification for third part services
2008 – Full EASA certification (A330 and A321 included)
- A340, B767 and B777 components certification
- FAA initial audits
2009 – FAA certification targeted and B767 airframe certification
2010 – Construction of a new hangar for B777-300 and A350
17
We are organized to provide a full range of services…
MaintenanceTAM
EngineeringCTMMCC
Line Maintenance
HEAVYMAINTENANCE In-house Shops
Supply & LogisticsExternalSuppliers
External Shops
MRO SÃO CARLOS
CENTER
ComponentsConsumables
Engine and Component Repair
ComponentsConsumables
ConsumablesRotable Repair
REPAROROTABLES
Check A
Check C / D
Inventory Mgmt
SupplySão Carlos
ComponentsConsumables
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…and well positioned to capture new opportunities Employees are trained to provide several services
Aribus aircraft (first check D in A330 in Americas) and F100 Line maintenance, checks C and D Components: hard-time, on-condition e condition monitoring Certifying for Boeing
We have the necessary certifications to support credibility EASA IOSA ISO14001 in implementation FAA in implementation
Our facilities accommodate increase in services Hangars for 4 narrow body aircraft simultaneously Painting shop Large area in the surroundings – allowing 24h tests
19
Future market for MRO is promising
Fleet size will grow in the coming years but MRO facilities may not increase proportionally Main manufactures with
record orders in the last two years
Main markets continue with strong demand for aircraft
More demand for outsourced services Airlines seeking lower unit
costs Global consolidation taking
place 2006 20160
10,000
20,000
30,000
Air Transport Fleet Forecast
CAGR 4.3%
CAGR 4.3%
Source: AeroStrategy
20
Our focus is to leverage the MRO potential
Sales force and marketing structure dedicated
Comprehensive solution – technological condominium (Goodrich )
Highly profitable MRO operations with high skilled and low cost labor availability
Aggressiveness in selling heavy and component maintenance
Establish long term contracts for line maintenance with international carriers
21
Maintain leadership in both domestic and international markets
ASK growth of
Domestic 14%
International 40%
Average load factor at approximately 70% overall
Reduction of 7% in total CASK ex-fuel in BR GAAP yoy
Three additional international destinations or frequencies in 2008
Domestic market demand growth from 8% to 12% (in RPK terms)
2008 Guidance2008 Guidance
We have a positive outlook for 2008
TAMTAM
MarketMarket
Jan – Sep 2008Jan – Sep 2008
10.2%
50.2% dom72.4% intl
14.2%
32.2%
72.1%
-4.5%*
* Accumulated from January to June, 2008** In final approval phase by ANAC
Brasília – Buenos Aires
Rio de Janeiro – Miami
São Paulo – Lima Rio de Janeiro – NY** São Paulo –
Orlando**
22
Our growth plan is supported by a flexible fleet plan
3
14
88
10
44
16
101
44
18
104
44
20
110
44
22
113
84
22
115
2007 2008 2009 2010 2011 2012
115125
130138
143149
0
50
100
150
Total fleet
B777 MD11 Airbus wide-body Airbus narrow-body F100
Since dec/07 we
are monofleet in
domestic operations
Since dec/07 we
are monofleet in
domestic operations
B767
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High concentration of passengers in 11 airports
Source: ANAC
Important barrier to
entry for newcomers
Limited ability for other
competitors to grow
11 main airports in
Brazil carry 72% of all
passenger traffic
TAM has in aggregate
~40% of all slots
available in these
airports
% TAM slots
43%
34%
39%
32%
44%
42%
27%
26%
40%
32%
46% Fortaleza
Rio de Janeiro4
Recife
Curitiba
Porto Alegre
Belo Horizonte
Salvador
Rio de Janeiro³
Brasília
São Paulo²
São Paulo¹
% Total Domestic Passengers Boarded
0% 5% 10% 15% 20%
20062007
1 Congonhas2 Guarulhos3 Galeão4 Santos Dumont
24
As Brazil becomes “stable”, the leisure segment will become increasingly more important
Leis
ure
Busi
nes
s
2000 2001 2002 2003 2004 2005 2006 2007
17.9
26.6 27.025.2
28.2
35.4
39.7
44.4
0
10
20
30
40
50
Domestic Market Passenger Mix (RPK M)
CAGR
11%
22%
Traveling is one of the top “desire” items for consumption
* TAM Estimates
25
...optimizing the utilization of our aircraft on off peak hours
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2355
60
65
70
75
80%
Load Factor per hour
2Q08Oct 2007
Off Peak Peak Off Peak Peak Off Peak
26
We will be expanding our fare bundle strategy for the domestic market in 2008...
Addition of extra features in the segmented bundles
Ability to “sell up” categories
Potential for further revenue increase
Harmonization of the fare bundle strategy to TAM Fidelidade growth
27
...increasing capillarity of sales through our new methods of payments... Launched new methods of payment in May 2007
Payment at lottery stores Approximately 9,000 stores in Brazil
Already functioning as bank correspondent
Billing slips
Automatic debit
Financing for passengers via direct consumer credit with the main retail banks
Focus on leisure/lower income segments
28