TAM DAY 2006Financial Overview

Cristina Betts

December 8th, 2006

2

Agenda

Breakfast

Strategic Overview

Coffee Break

Financial Overview

Lunch - MRO Overview

Regulatory Environment

Wrap up

8:00-8:30

8:30-10:00

10:00-10:30

10:30-12:00

12:00-13:00

13:00-14:00

14:00-14:30

-

Libano Barroso

-

Cristina Betts

Ruy Amparo

Josef Barat

Libano Barroso

3

TAM is a low cost company with better service at competitive prices

Low OperatingCosts

Low OperatingCosts

UndisputableBetter ServiceUndisputableBetter Service

CompetitivePrices

CompetitivePrices

Sustainable Strategyto Maintain Market

Leadershipand Profitability

4

19,2%21,8%

30,7%34,9% 33,0%

35,8%

43,5%47,0%

27,2%

1998 1999 2000 2001 2002 2003 2004 2005 Jan-Set/06

Domestic Market Share (RPK’s)

Domestic Market Share (RPK’s) – 3Q06 Domestic Market Share (RPK’s) - Nov/06

Source: ANAC

GOL ; 36,7%

TAM ; 51,1%

Others; 4,8%

BRA; 4,0%

Varig; 3,4%

TAM ; 51,7%

GOL ; 35,3%

Others; 4,8%

Varig; 5,1%

BRA; 3,2%

Undisputed domestic market leader...

5

0,1%3,8%

13,9% 12,5% 12,0%14,3%

18,8%

32,4%

7,9%

1998 1999 2000 2001 2002 2003 2004 2005 Jan-Set/06

International Market Share (RPK’s)

International Market Share (RPK’s) – 3Q06 International Market Share (RPK’s) - Nov/06

Source: ANAC

TAM 54,9%

Varig24,7%

GOL 11,3%

Others9,1% Varig

17,1%

TAM61,2%GOL

13,2%

Others8,4%

…and since July 2006, the leading Brazilian carrier in the international market

6

In retrospect, TAM was in a strong competitiveposition at the end of the ’90s

0.8

1.0

1.2

1.4

1.6

0 1 2 3 4 5

Transbrasil

TAM

VASP

Varig

Relative cost position

Network/Service/Brand

R$ 1.3B

High

Low

Low High

Note: for domestic market; Varig includes Rio Sul/Nordeste

Disadvantage

Advantage

AVERAGE 97/00

7

Increase in costs and loss of service awareness put TAM in a difficult position

Average 97-00

2002

0.8

1.0

1.2

1.4

1.6

0 1 2 3 4 5

Gol

Vasp

Vasp

TAM

TAM

Varig

Varig

Relative cost position

Network/Service/Brand

R$1,5B

High

Low

High Low

However, TAM became “squeezed” between Varig, the flagship carrier, and Gol, the new entrant

Note: for domestic market; Varig includes Rio Sul/Nordeste

8

0.8

1.0

1.2

1.4

1.6

0 1 2 3 4 5

OceanAirBRA

Varig

Gol

Vasp

TAM

TAM

Gol

Varig

Varig

TAM

Relative cost position

Network/Service/Brand

Today, TAM is “out of the squeeze” with a superior product acknowledgement and financial position

Average 97-00

2002

2006

New entrants/smallerplayers will be looking to

lower costs and serve the low end passengers

New entrants/smallerplayers will be looking to

lower costs and serve the low end passengers

9

In the past 4 years, we have improved every operational metric…

No. take-offs (K)

Load Factor

- LF Dom

- LF Int

Market Share Dom

MS/CS Domestic

Aircraft Utilization(block hrs/day)- Narrow bodies

- Wide bodies

20032003

76

147

61%

58%

71%

33%

0.97

7.6

5.8

7.3

TAM S.A.20042004

76

151

66%

64%

71%

36%

0.98

9.0

6.9

12.6

20052005

81

210

71%

70%

73%

44%

1.00

11.4

10.2

14.2

2006E2006E

96

240

75%

73%

77%

48%

1.02

12.6

12.6

15.1

No. operating aircraft

20022002

102

219

55%

53%

61%

35%

0.94

9.5

9.2

10.0

10

…resulting in an outstanding improvement in our financial metrics

Net revenues

EBITDAR

% EBITDAR

EBIT

% EBIT

Net Income

% Net Income

20022002

3,429

475

13.9%

(236)

-6.9%

(606)

-17.7%

20032003

3,667

775

21.1%

(32)

-0.9%

174

4.7%

20042004

4,520

1,038

23.0%

294

6.5%

342

7.6%

20052005

5,649

1,140

20.2%

426

7.5%

187

3.3%

Jan-Set/06Jan-Set/06

5,399

1,380

25.6%

764

14.2%

422

7.8%

BR GAAP

11

Today, we are one of the most lucrative airlines in the world…

TAM, GOL and Virgin Blue with 2006 annualized; LTM September 30, 2006 for other airlines; USGAAP1 Assumes average period exchange rates.

TAM

GOL

Ryanair

Southwest

Virgin

West Jet

Jet Blue

Avg (ex-TAM)

EBITDAR (1)

(US$ MM)EBITDAR (1)

(US$ MM)

801

510

819

1.587

389

343

267

652

OperatingIncome (1)

(US$ MM)

OperatingIncome (1)

(US$ MM)

522

357

593

924

177

178

(9)

370

NetIncome (1)

(US$ MM)

NetIncome (1)

(US$ MM)

389

289

495

528

113

79

(60)

241

EBITDARMargin (%)EBITDAR

Margin (%)

24,5

30,2

33,0

18,0

20,9

23,4

12,3

23,0

OperatingMargin (%)OperatingMargin (%)

16,0

21,1

23,9

10,5

9,5

12,1

(4,0)

12,2

NetIncome

Margin (%)

NetIncome

Margin (%)

11,9

17,1

19,9

6,0

6,1

5,4

(2,7)

8,6

12

…in an under penetrated market which continues to grow domestically…

Source: ANAC, IBGE and Brazilian Central Bank (“BACEN”)(1) GDP 2005 growth estimate published by the BACEN, based on market consensus

Growth of Brazilian Domestic Market

2000 2001 2002 2003 2004 2005

138.7RPK

100.0

110.1

116.1

100.0

111.4109.1

103.4103.2101.3

108.8103.7

GDP

Annual Trips / Person

1.70

1.85

2.32

0.62

0.60

0.55

0.50

0.82

Germany

Japan

US

Argentina

Chile

Mexico

Russia

Brazil

Boardings per capita

Boardings per capita, adjusted by GDP per capita at PPP

Source: World Bank Data, Credit Suisse Research

13

…and internationally

International market dynamics have been influenced by trade flows and exchange rate trends over the past five years

Since 2003 the Brazilian international market has been showing significant increase

International market has been growing ~6-8% p.a. including international carriers

2000 2001 2002 2003 2004 2005

100.0

91.2

98.0

104.6

90.4

94.0

RPK

Source: ANAC and IBGE(1) Defined as total exports plus total imports

Growth of Brazilian International Market

14.0%14.0% 2.6%2.6% (5.4)%(5.4)% 12.8%12.8% 31.2%31.2% 20.4%20.4%Annual

Trade Flow (1)

Growth

14

The international market has huge potential for growth on the Brazilian side

53%

47%

54%

46%

72%

28%

2004 2005 20060

20

40

60

80

100%

% International traffic

Braziliancarriers

Intlcarriers

15

There are “spaces” in the bilateral agreementswhich Brazil is not fulfilling

Opportunity for increasing frequencies to high traffic destinations

USA

U. Kingdom

France

Italy

Germany

Spain

Portugal

Mexico

Total FreqTotal Freq OperatedFreq - IntlOperatedFreq - Intl

AlocatedFreq - BrazAlocated

Freq - Braz

105

14

28

14

22

37

62

16

88

7

21

7

7

30

50

7

56

14

28

7

7

14

14

7

* December 2006

Non Exhaustive

OperatedFreq - BrazOperated

Freq - Braz

35*

7

14

-

7

1

1

-

“Spaces” onBraz Freq

“Spaces” onBraz Freq

49

-

-

7

15

23

48

9

16

We have delivered a strong 2006...

Average market share

Average load factor

Aircraft utilization per day (block hour)

CASK reduction yoy

New internationalflights

Guidance 2006Guidance 2006 Sept06 YTDSept06 YTD

Market demand growth (in RPK terms)

14.7%12%-15%

47%45%

72.9%69.5%

12.51above 12

2.1%5%

• Daily to NY• Flight to London

• Since May• Since October

TAMTAM

MarketMarket

17

…and believe in a very positive 2007

Average domestic market share above 50%

Average domestic load factor at approximately 70%

Aircraft utilization per day (block hour) higher than 13 hours

Reduction of 7% in total CASK ex-fuel in BR GAAP yoyOpportunity in the international market

Third frequency to ParisInauguration of two new international long haul frequencies

Market demand growth from 10% to 15% (in RPK terms)

TAMTAM

Guidance 2007Guidance 2007

MarketMarket

18

In the domestic market, we will keep our yield differential, while matching load factors

GOL

TAM

2002 2003 2004 2005 2006 YTD20

25

30

35

Yield scheduled domesticR$ Cents

30% 18% 13% 15% 10%

Maintenance of a superior RASK, stimulating demand via competitive pricing

GOLTAM

2002 2003 2004 2005 2006YTD

50.0

60.0

70.0

80.0%

Domestic load factors

GAP 9% 6% 7% 3% 1%

19

Meanwhile, our international expansion is clear

Passengerrevenue

2002 2003 2004 2005 2006* 2007

587

679

896

1,034

1,466

500

1,000

1,500

International Passenger Revenues (R$M)

0

5,000

10,000

15,000

20,000

International ASKs

* Annualized

20

Cargo revenues will grow stronger with the international expansion

61

176

83

156

123

184

130

277

149

310

2002 2003 2004 2005 2006*

237 239

307

407

458

0

100

200

300

400

500

International Passenger Revenues (R$M)

DomesticIntl

CAGR

15%

25%

* Annualized

21

Frequent flier revenues have demonstrated in 2006 untapped potential for future growth

4123

44

24

29

57

47

31

58

126

56

58

53

65

73

85

121

41

115

145

2002 2003 2004 2005 2006*

132164

298276

422

0

100

200

300

400

500

Other Revenues (R$M)

Frequent FlierExpired TicketsSub-leasesOther

CAGR

57%

27%

15%

31%

22

Our methodology for stage length adjustments on CASK show us a 10-12% gap to Gol today…

STEP 1

Separate Narrowfrom Wide Bodies

STEP 1

Separate Narrowfrom Wide Bodies

To compare “apples to apples”, TAM removes theresults from wide bodies

Otherwise, we would be assuming that a widebody A330 would fly the shuttle service

23

Our methodology for stage length adjustments on CASK show us a 10-12% gap to Gol today…

STEP 1

Separate Narrowfrom Wide Bodies

STEP 1STEP 1STEP 1

SeparateSeparateSeparate NarrowNarrowNarrowfromfromfrom WideWideWide BodiesBodiesBodies

To compare To compare To compare “““applesapplesapples to to to applesapplesapples”””, TAM removes , TAM removes , TAM removes thethetheresultsresultsresults fromfromfrom widewidewide bodiesbodiesbodies

OtherwiseOtherwiseOtherwise, , , wewewe wouldwouldwould bebebe assumingassumingassuming thatthatthat a a a widebodywidebodywidebody A330 A330 A330 wouldwouldwould flyflyfly thethethe shuttleshuttleshuttle serviceserviceservice

STEP 2

StandardizeMaintenance Costs

STEP 2

StandardizeMaintenance Costs

GOL has maintenance as a “provision” on theirP&L (Phased Maintenance + SupplementalLease)

TAM accounts for Maintenance only whenincurred

TAM substitutes for a provision

24

Our methodology for stage length adjustments on CASK show us a 10-12% gap to Gol today…

STEP 1

Separate Narrowfrom Wide Bodies

STEP 1

Separate Narrowfrom Wide Bodies

To compare To compare To compare “““applesapplesapples to to to applesapplesapples”””, TAM removes , TAM removes , TAM removes thethetheresultsresultsresults fromfromfrom widewidewide bodiesbodiesbodies

OtherwiseOtherwiseOtherwise, , , wewewe wouldwouldwould bebebe assumingassumingassuming thatthatthat a a a widebodywidebodywidebody A330 A330 A330 wouldwouldwould flyflyfly thethethe shuttleshuttleshuttle serviceserviceservice

STEP 2

StandardizeMaintenance Costs

STEP 2

StandardizeMaintenance Costs

GOL GOL GOL hashashas maintenancemaintenancemaintenance as a as a as a “““provisionprovisionprovision””” ononon theirtheirtheirP&L (P&L (P&L (PhasedPhasedPhased MaintenanceMaintenanceMaintenance + + + SupplementalSupplementalSupplementalLeaseLeaseLease)))

TAM TAM TAM accountsaccountsaccounts for for for MaintenanceMaintenanceMaintenance onlyonlyonly whenwhenwhenincurredincurredincurred

TAM TAM TAM substitutessubstitutessubstitutes for a for a for a provisionprovisionprovision

STEP 3

Adjustment for stagelength

STEP 3

Adjustment for stagelength

Only 2 lines require adjustments for stage lengthpurposes:

Fuel – the more take-offs, the higher the fuelburnMaintenance – the more landings, the higherwear of the aircraft

25

…which will reduce to 5% by December 2007

The 5% gap “translates” into our 7% reduction y-o-y ex-fuel

2002 2003 2004 2005 2006 YTD

20.4

15.5

19.1

15.4

20.1

16.7

18.6

16.3

18.2

15.8

12

14

16

18

20

22

CASK total (BR GAAP - R$ centavos)

TAMGOL

Gap to Gol 32% 24% 20% 14% 15%

Our domesticgap is 10-12%

YTD

Our domesticgap is 10-12%

YTD

26

Our cost targets are aggressive, but the roadmap is already laid out

Fleet and networkFleet and network Distribution costsDistribution costs OverheadOverhead

27

Our cost targets are aggressive, but the roadmap is already laid out

Fleet and networkFleet and network Distribution costsDistributionDistributionDistribution costscostscosts OverheadOverheadOverheadOverhead

Increase of block hoursto over 13 hours per day per aircraft in 2007

6 extra seats in theA319/320 fleet

28

Our cost targets are aggressive, but the roadmap is already laid out

Fleet and networkFleetFleetFleet andandand networknetworknetwork Distribution costsDistribution costs OverheadOverheadOverheadOverhead

IncreaseIncreaseIncrease ofofof blockblockblock hourshourshoursto over 13 to over 13 to over 13 hourshourshours per per per daydayday ppper aircrafter aircrafter aircraft in 2007in 2007in 2007

6 extra 6 extra 6 extra seatsseatsseats in in in thethetheA319/320 A319/320 A319/320 fleetfleetfleet

Increase in direct salesthrough:

Site improvementFare bundlesCall centeroutsourcingNew means ofpayment

Insourcing ofrepresentatives

Adjusting indirect salescommissions to higher% on offpeak flights

29

Our cost targets are aggressive, but the roadmap is already laid out

Fleet and networkFleetFleetFleet andandand networknetworknetwork Distribution costsDistributionDistributionDistribution costscostscosts OverheadOverhead

IncreaseIncreaseIncrease ofofof blockblockblock hourshourshoursto over 13 to over 13 to over 13 hourshourshours per per per daydayday ppper aircrafter aircrafter aircraft in 2007in 2007in 2007

6 extra 6 extra 6 extra seatsseatsseats in in in thethetheA319/320 A319/320 A319/320 fleetfleetfleet

IncreaseIncreaseIncrease in in in directdirectdirect salessalessalesthroughthroughthrough:::

Site Site Site improvementimprovementimprovement

FareFareFare bundlesbundlesbundles

CallCallCall centercentercenteroutsourcingoutsourcingoutsourcing

New New New meansmeansmeans ofofofpaymentpaymentpayment

InsourcingInsourcingInsourcing ofofofrepresentativesrepresentativesrepresentatives

AdjustingAdjustingAdjusting indirectindirectindirect salessalessalescommissionscommissionscommissions to to to higherhigherhigher% % % ononon offpeakoffpeakoffpeak flightsflightsflights

Outsourcing of non-core activities

Redefinition of servicestandards

Review of spans&layers in the hierarquy

Implementation of new automated processes

Improved sourcing capabilities

30

We have aligned management with the correct incentives

Main KPIs:EBITComparable CASKPassenger andemployee satisfaction

Variableincentives basedon KPIs, reachingup to 70% of total compensation

Variableincentives basedon KPIs, reachingup to 70% of total compensation

Stock optionprogram for top

management

Stock optionprogram for top

management

Specificincentives for

salesforce

Specificincentives for

salesforce

Alignment with increaseof direct sales channels

Long term incentive for driving correct “trade-offs”

31

Sustainedcompetitive

position

Sustainedcompetitive

position

We are at our best ever competitive position, with more to deliver

Superior productBest value-price

Product bundles

Cash reserves5X monthlyrevenues in cash

Rating by Fitch andS&P (Global BB)

Decreasing financial expenses

Fleet planPositioned withAirbus and Boeing for future deliveries

Flexible fleet plan

Decreasing costsAggressive costreduction programapproved and beingimplemented

32

TAM: one of the best airline companies in the world!