TAM DAY - Strategy

TAM DAY 2007 “Unlocking

Value”

Strategy

Overview

Marco Bologna

November 12, 2007

22“Unlocking value”“Unlocking value”

2007 has

been

a year

of

many

challenges...

Macro Economy

Airline Industry

Airlines Brazil

TAM

High volatility (e.g. subprime crisis)

Fuel prices

Scarcity of aircraft, seats, etc due to overall growth in the sector

Conclusion of the “Varig” questionmarkChanges in the governing structure of theindustryCollapse of BRA

Impact of infrastructure on operations

Accident


...and, as in the

past

31 years, TAM has

shown

its ability

to grow

and

adapt

Our purpose today...

We will be discussing our actions in 2007

...demonstrating what we have done differently

...and what we are going to do in the future


We

have

not

only

continued

to be

the

leading domestic

carrier...

14.4

20.3

42.4

20.7

8.5

14.5

40.3

30.6

13.5

38.9

11.7

34.6

12.2

33.6

19.4

33.0

8.8

31.1

22.3

35.8

25.5

25.9

41.3

10.3

34.0

47.8

39.2

48.8

2000 2001 2002 2003 2004 2005 2006 Jan-Oct2007

0

20

40

60

80

100%

Domestic Market Share (RPKs)

TAMGOLVARIGVASPTRANSBRASILBRAOther


...but

have

become

the

leading

Brazilian

carrier

in the international

market...

75.0

7.4

82.1

13.9

87.4

12.5

87.9

12.0

85.4

14.5

77.0

18.4

50.4

7.3

37.3

6.2

12.5

14.7

66.6

2000 2001 2002 2003 2004 2005 2006 Jan-Oct2007

0

20

40

60

80

100%

Domestic Market Share (RPKs)

TAMGOLVARIGVASPTRANSBRASILOther


...and

the

only

Brazilian

carrier

with

consistent international

deployment

and

growth...

ParisMiamiNew YorkLondonMilanFrankfurt¹Madrid²Buenos Aires

Santiago Montevideo Caracas

TAM's Weekly Frequencies

2121147777

49

777

Since

03/199903/199811/200510/200603/200711/200712/200703/2001

12/200411/200709/2007

Competitors

Air France (17)AA

(28)

AA (7), Delta (7), Continental (7) and

JAL (7)British Airways (7) and Varig

(7)

Alitalia (7)Lufthansa (7) and Varig (7)Iberia (14)Aerolineas (56), GOL (49), BA (4),

Lufthansa (7), LAN (7)GOL (14), LAN (5) and SwissPluna and GOL (14)Varig (7)

¹

As of

November

30²

As of

December

21


…with a dedicated focus to intra-regional flights in South America through TAM Mercosur

Buenos Aires Santiago

Assuncion1

Montevideo Ciudad del EsteSta Cruz dl Sierra

Cochabamba

Cordoba

Weekly Frequencies

377

56

7

35

7

7

7

Since

09/199609/1996

09/1996

09/1996

09/1996

09/1996

09/1996

03/2007

1 Includes

21 frequencies

to São Paulo


We

are strengthening

our

product

in the

international market

through

fleet

and

network...

Increased widebody fleet plan for the next 10 years, substitutingolder aircraft

2 A340s (delivered in 2007)8 B777-300ERs (4 in 2008, 4 in 2012)22 A350s (as of 2013)New A330 reducing fleet average ageComplete phase-out of F100 (impact on intra South American routes)

Expansion of network through additional destinations andfrequencies

New full code share agreements at each major country

Focus on South American coverage – integration of TAM Mercosul activities


...as well

as retrofitting

our

entire

network

in 2008

180º flat beds with shell

In seat power

AVOD controls for in-flightentertainment

New colour schemeFirst ClassFirst Class

BusinessBusiness


We have changed from only a high end premium customer focus to serving the full spectrum

TAM

Premium / Business

Commodity / Leisure

Reg

iona

lInternational

First classFirst class

Business class

Business class

Economy class

Economy class

Commercial

agreements

with

regional

carriers

Commercial

agreements

with

regional

carriers

TAM’s OriginTAM’s Origin

TAM up

to 1998TAM up

to 1998


As Brazil

becomes

“stable”, the

leisure

segment will

become

increasingly

more important

Leis

ure

Bus

ines

s

2000 2001 2002 2003 2004 2005 2006 2007E

17.9

26.6 27.025.2

28.2

35.4

39.843.5

0

10

20

30

40

50

Domestic Market Passenger Mix (RPK M)

CAGR

11%

21%

Travelling

is one

of

the

top

“desire”

items

for consumption

* TAM Estimates


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


...increasing capillarity of sales through our new methods of payments... Launched new methods of payment in May 2007

Payment at lottery storesApproximately 9,000 stores in Brazil

Already functioning as bank correspondent

Billing slipsAutomatic debit Financing for passengers via direct consumer credit with the main retail banks

Focus

on

leisure/lower

income

segments


...optimizing

the

utilization

of

our

aircraft

on

off

peak hours

* Average

day

in past

month

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2350

55

60

65

70

75

80%

Domestic load factor per hour

Off

Peak Off

Peak Off

PeakPeakPeak


We

continue to deliver

more efficient

processes in order

to focus

on

what

the

customer

wants

Become preferred airline

carrier

Become preferred airline

carrier

Focus on customer needs

Focus on customer needs

Translate into actions

Translate into actions

Efficient Delivery Efficient Delivery

To be

efficient means

not

only

reduce

costs

but also increase

the

proportional benefits

To be

efficient means

not

only

reduce

costs

but also increase

the

proportional benefits


We continue to be committed to a high level of corporate governance and transparency

Info

rmat

ion Free-float

Board 100%

tag-

alon

g

Investors

BR GAAP and US GAAP simultaneous, in Portuguese and English, with high level of disclosed information

CVM and SEC simultaneous

At least 4 local analyst meetings and 4 investor/analyst visits abroad per year

Professional Board

3 members of the family

5 independent members

Audit Committee

Certified Sarbanes-Oxley in May 2007

Two classes maintained due to regulatory reasons

Same conditions concerning the sale of the company for both classes of shares

54% Free Float

1% ADTV


On the top level of the company, we have new members in our team…

CEOMarco Antonio Bologna

CEOMarco Antonio Bologna

CommercialWagner Ferreira

CommercialWagner Ferreira

CFOLibano Barroso

CFOLibano Barroso

TechnicalRuy Amparo

TechnicalRuy Amparo

OperationsDavid Barioni

OperationsDavid Barioni

HRGuilherme Cavalieri

HRGuilherme Cavalieri

Network PlanningPaulo Castello Branco

Network PlanningPaulo Castello Branco

TAM MercosurAlberto Fajermann

TAM MercosurAlberto Fajermann

Optimal mix between non-airline expertise and airline experience (over 120 years of accumulated airline experience)


...but also streamlining the structure of the company

Spans & layers revision in Nov 2006 effectively implemented in 2007 20% of the directors and 10% of the managers dismissed

Insourcing of the national stationsCommercial, check-in and handling activities

Headcount increase of ~5,500 employees

Decrease in commercial costs

Standardization of human resources and governance policies

Better compliance

Transfer of employees from the scheduling to the airports to improve communication flow and responsiveness to network last minute modifications


We are beginning to evaluate new potential business units in the company

TAM Linhas AéreasTAM Linhas Aéreas

MRO(São Carlos)

MRO(São Carlos)

Loyalty Program

Loyalty 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


●

To be differentiated in the service of air transportation through the “spirit of serving”

Finally, we reviewed our vision and mission statement in order to better reflect our aspirations and values

●

To achieve unchallenged domestic leadership

●

To be the most competitive, solid and profitable airline in Latin America

●

To work with the “Commitment to Service”, making people happier

●

To be people’s preferred airline company, with happiness, creativity, respect and responsibility


We have gone through waves of development…

Turnaround process (2002 -2003)

Overcapacity

Loss of founder

High costs

Low operational efficiency

Surviving

Assets optimization (2004 – 2007)

Increase in domestic load factor

Better aircraft utilization

Access to financial markets (equity and debt)

Compliance with SOX

IOSA certificate

Growing Profitability


…but we have seen new and compelling horizons…

All companies compete in the same market…

Exploiting demand…

Making the value-cost trade-off…

Aligning the whole system of the company’s activities with either differentiation or low cost

Blue

Ocean

StrategyBlue

Ocean

Strategy

Red Ocean is where...

Company creates an uncontested marketplace…

…Creating and capturing new demand…

Breaking the value-cost trade-off…

Aligning the whole system in pursuit of differentiation and low cost

Blue Ocean is where...


…resulting in a new third wave

Unlocking Value

Opportunities for value generation (future)

New passenger segmentation

Cargo

Loyalty Program

Maintenance

Turnaround process (2002 -2003)

Overcapacity

Loss of founder

High costs

Low operational efficiency

Surviving

Assets optimization (2004 – 2007)

Increase in domestic load factor

Better aircraft utilization

Access to financial markets (equity and debt)

Compliance with SOX

IOSA certificate

Growing Profitability


So why “unlocking value”? (1/2)

The “assets optimization” wave will continue to generate less and less value

In the past 5 years, TAM has reestablished its ability to grow profitably

The company has transitioned into a professionally run company

Cost consciousness has been established and continues to be permeated as part of the ongoing culture in the company

There is a new wave of growth which can be better exploited In our core business

Becoming both domestic and international leader has led the company to a broader definition of its original focus


So why “unlocking value”?

(2/2)

There are hidden assets in the company which can be used as adjacencies to our core business which will add to the company’s efficiency and value

Going back to our fundamental values but with a modern and fresh outlook will re-guide our focus on customer needs


This

is how

we

have

been

describing

our

strategy

Low Operating

Costs

Low Operating

Costs

UndisputableBetter ServiceUndisputableBetter Service

CompetitivePrices

CompetitivePrices

Sustainable Strategyto Maintain Market

Leadershipand Profitability


TAM: the

best

fitting

product

for the

customer

(and stakeholders) based

on

efficienct

delivery

Low Operating

Costs

Low Operating

Costs

UndisputableBetter ServiceUndisputableBetter Service

CompetitivePrices

CompetitivePrices

Sustainable Strategyto Maintain Market

Leadershipand Profitability

TAM DAY - Strategy

Business

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