##### Table of Contents

As filed with the Securities and Exchange Commission on June 25, 2009





UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008

OR

| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

OR

| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Commission File Number: 1-14728

Lan Airlines S.A.

(Exact name of registrant as specified in its charter)

|                                                |  |                                                
|----------------------------------------------- |  | -----------------------------------------------
|Lan Airlines S.A.                               |  | Republic of Chile                              
|(Translation of registrants name into English) |  | (Jurisdiction of incorporation or organization)

Presidente Riesco 5711, 20thFloor

Las Condes

Santiago, Chile

(Address of
principal executive offices)

Gisela Escobar Koch

Tel.: 56-2-565-3944  E-mail: gisela.escobar@lan.com

Presidente Riesco 5711, 20thFloor

Las Condes

Santiago, Chile

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

|                                                                                                                                          |  |                                           
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------
|Title of each class:                                                                                                                      |  | Name of each exchange on which registered:
|American Depositary Shares (as evidenced by American Depositary Receipts), each representing one share of Common Stock,
without par value |  | New York Stock Exchange                   

Securities registered or to be registered pursuant to Section 12(g) of the Act:None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the
annual report: 338,790,909.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.

Yes  x            No   ̈

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes   ̈            No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.

Yes  x            No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ̈            No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated
filer  x    Accelerated filer   ̈    Non-Accelerated filer   ̈

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

|             |  |                                                                                                          |  |         
|------------ |  | -------------------------------------------------------------------------------------------------------- |  | --------
|U.S. GAAP   ̈ |  | International Financial Reporting Standards as issued by the International Accounting Standards Board   ̈ |  | Other  x

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17   ̈            Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ̈            No  x









---

##### Table of Contents

TABLE OF CONTENTS



|                            |  |                                                                              |  |    
|--------------------------- |  | ---------------------------------------------------------------------------- |  | ---
|PRESENTATION OF INFORMATION |  | 1                                                                           
|                            | 
|FORWARD-LOOKING STATEMENTS  |  | 2                                                                           
|                            | 
|GLOSSARY OF TERMS           |  | 3                                                                           
|                           
|PART I                     
|                            |  |                                                                             
|ITEM 1.                     |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        |  | 4  
|                            |  |                                                                             
|ITEM 2.                     |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 4  
|                            |  |                                                                             
|ITEM 3.                     |  | KEY INFORMATION                                                              |  | 4  
|                            |  |                                                                             
|ITEM 4.                     |  | INFORMATION ON THE COMPANY                                                   |  | 17 
|                            |  |                                                                             
|ITEM 4A.                    |  | UNRESOLVED STAFF COMMENTS                                                    |  | 51 
|                            |  |                                                                             
|ITEM 5.                     |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 52 
|                            |  |                                                                             
|ITEM 6.                     |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 71 
|                            |  |                                                                             
|ITEM 7.                     |  | CONTROLLING SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                      |  | 78 
|                            |  |                                                                             
|ITEM 8.                     |  | FINANCIAL INFORMATION                                                        |  | 79 
|                            |  |                                                                             
|ITEM 9.                     |  | THE OFFER AND LISTING                                                        |  | 81 
|                            |  |                                                                             
|ITEM 10.                    |  | ADDITIONAL INFORMATION                                                       |  | 82 
|                            |  |                                                                             
|ITEM 11.                    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 100
|                            |  |                                                                             
|ITEM 12.                    |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 103
|                           
|PART II                    
|                            |  |                                                                             
|ITEM 13.                    |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 104
|                            |  |                                                                             
|ITEM 14.                    |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 104
|                            |  |                                                                             
|ITEM 15.                    |  | CONTROLS AND PROCEDURES                                                      |  | 104
|                            |  |                                                                             
|ITEM 16.                    |  | RESERVED                                                                     |  | 105
|                            |  |                                                                             
|ITEM 16A.                   |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 105
|                            |  |                                                                             
|ITEM 16B.                   |  | CODE OF ETHICS                                                               |  | 105
|                            |  |                                                                             
|ITEM 16C.                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 105
|                            |  |                                                                             
|ITEM 16D.                   |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 106
|                            |  |                                                                             
|ITEM 16E.                   |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 106
|                            |  |                                                                             
|ITEM 16F.                   |  | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                 |  | 106
|                            |  |                                                                             
|ITEM 16G.                   |  | CORPORATE GOVERNANCE                                                         |  | 106
|                           
|PART III                   
|                            |  |                                                                             
|ITEM 17.                    |  | FINANCIAL STATEMENTS                                                         |  | 108
|                            |  |                                                                             
|ITEM 18.                    |  | FINANCIAL STATEMENTS                                                         |  | 108
|                            |  |                                                                             
|ITEM 19.                    |  | EXHIBITS                                                                     |  | 109



i



---

##### Table of Contents

PRESENTATION OF INFORMATION

In this annual report on Form 20-F, unless the context otherwise requires, references to Lan Airlines are to Lan Airlines S.A., the
unconsolidated operating entity, and references to LAN, we, us or the Company are to Lan Airlines S.A. and its consolidated subsidiaries. All references to Chile are references to the
Republic of Chile.

This annual report contains conversions of certain Chilean peso amounts into U.S. dollars at specified rates solely for
the convenience of the reader. These conversions should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we specify
otherwise, all references to $, US$, U.S. dollars or dollars are to United States dollars, references to pesos, Chilean pesos or Ch$ are to Chilean pesos and
references to UF are to Unidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate. Unless we indicate otherwise, the U.S. dollar equivalent for
information in Chilean pesos is based on the dólar observado or observed exchange rate published by Banco Central de Chile (which we refer to as the Central Bank of Chile) on December 31, 2008, which
was Ch$629.11=US$1.00. The observed exchange rate on June 24, 2009, was Ch$533.8 =US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. See Key InformationExchange Rates under
Item 3.

Lan Airlines and the majority of our subsidiaries (including our main cargo subsidiary Lan Cargo S.A., or Lan Cargo) maintain
their accounting records and prepare their financial statements in U.S. dollars. Some of our other subsidiaries, however, maintain their accounting records and prepare their financial statements in Chilean pesos or Argentinean pesos. Our
consolidated financial statements include the results of these subsidiaries translated into U.S. dollars. Generally accepted accounting principles in Chile, or Chilean GAAP, require monetary assets and liabilities to be translated at period-end
exchange rates, non-monetary assets and liabilities to be translated at historical rates of exchange as of the date of acquisition or incurrence and revenue and expense accounts to be translated at the average monthly exchange rate for the month in
which they are recognized. As required by Chilean GAAP, the financial statements of our subsidiaries that report in Chilean pesos are adjusted to reflect changes in the purchasing power of the Chilean peso due to inflation. These changes are based
on the consumer price index published by the Chilean National Institute of Statistics.

Our consolidated financial statements are prepared
in accordance with Chilean GAAP, which differs in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP. For a description of certain significant differences between Chilean GAAP and U.S. GAAP
as they relate to us, together with a reconciliation of our net income and shareholders equity to U.S. GAAP, see Note 27 to our audited consolidated financial statements.

We have rounded percentages and certain U.S. dollar and Chilean peso amounts contained in this annual report for ease of presentation. Any discrepancies
in any table between totals and the sums of the amounts listed are due to rounding.

This annual report contains certain terms that may be
unfamiliar to some readers. You can find a glossary of these terms on page 3 of this annual report.



1



---

##### Table of Contents

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. Such statements may include words such as anticipate, estimate,
expect, project, intend, plan, believe or other similar expressions. Forward-looking statements, including statements about our beliefs and expectations, are not statements of historical
facts. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of
important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:



| |  |  | our ability to service our debt and fund our working capital requirements;
| | - |  | --------------------------------------------------------------------------



| |  |  | future demand for passenger and cargo air service in Chile, other countries in Latin America and the rest of the world;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the maintenance of relationships with customers;
| | - |  | ------------------------------------------------



| |  |  | the state of the Chilean, Latin American and world economies and their impact on the airline industry;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the effects on us from competition;
| | - |  | -----------------------------------



| |  |  | future terrorist incidents or related activities affecting the airline industry;
| | - |  | --------------------------------------------------------------------------------



| |  |  | future outbreak of diseases, or spread of already existing diseases, affecting traveling behavior and/or exports;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the relative value of the Chilean, Peruvian, Ecuadorian, Colombian, Brazilian, Mexican and Argentine currencies compared to other currencies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | inflation;
| | - |  | ----------



| |  |  | competitive pressures on pricing;
| | - |  | ---------------------------------



| |  |  | our capital expenditure plans;
| | - |  | ------------------------------



| |  |  | changes in labor costs, maintenance costs, and insurance premiums;
| | - |  | ------------------------------------------------------------------



| |  |  | fluctuation of crude oil prices and its effect on fuel costs;
| | - |  | -------------------------------------------------------------



| |  |  | cyclical and seasonal fluctuations in our operating results;
| | - |  | ------------------------------------------------------------



| |  |  | defects or mechanical problems with our aircraft;
| | - |  | -------------------------------------------------



| |  |  | our ability to successfully implement our growth strategy;
| | - |  | ----------------------------------------------------------



| |  |  | increases in interest rates; and
| | - |  | --------------------------------



| |  |  | changes in regulations, including regulations related to access to routes in which we operate.
| | - |  | ----------------------------------------------------------------------------------------------

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them, whether in light of
new information, future events or otherwise. You should also read carefully the risk factors described in Key InformationRisk Factors under Item 3.



2



---

##### Table of Contents

GLOSSARY OF TERMS

The following terms, as used in this annual report, have the meanings set forth below.



|                                                     |  |                                                                                                                                                                           
|---------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Capacity Measurements:                               |  |                                                                                                                                                                           
|                                                     | 
|available seat kilometers or ASKs                |  | The number of seats made available for sale multiplied by the kilometers flown.                                                                                           
|                                                     | 
|available ton kilometers or ATKs                 |  | The number of tons available for the transportation of revenue load (cargo) multiplied by the kilometers flown.                                                           
|                                                     | 
|systems available ton kilometers or systems ATKs |  | The number of total tons capacity for the transportation of revenue load (passenger and cargo) multiplied by the kilometers flown.                                        
|                                                     | 
|Traffic Measurements:                                |  |                                                                                                                                                                           
|                                                     | 
|revenue passenger kilometers or RPKs             |  | The number of passengers multiplied by the number of kilometers flown.                                                                                                    
|                                                     | 
|revenue ton kilometers or RTKs                   |  | The load (cargo) in tons multiplied by the kilometers flown.                                                                                                              
|                                                     | 
|systems revenue ton kilometers or systems RTKs   |  | The load (passenger and/or cargo) in tons multiplied by the kilometers flown.                                                                                             
|                                                     | 
|traffic revenue                                    |  | Revenue from passenger and cargo operations.                                                                                                                              
|                                                     | 
|Yield Measurements:                                  |  |                                                                                                                                                                           
|                                                     | 
|cargo yield                                        |  | Revenue from cargo operations divided by RTKs.                                                                                                                            
|                                                     | 
|overall yield                                      |  | Revenue from airline operations (passenger and cargo) divided by system RTKs (passenger and cargo).                                                                       
|                                                     | 
|passenger yield                                    |  | Revenue from passenger operations divided by RPKs.                                                                                                                        
|                                                     | 
|Load Factors:                                        |  |                                                                                                                                                                           
|                                                     | 
|cargo load factor                                  |  | RTKs (cargo) expressed as a percentage of ATKs (cargo).                                                                                                                   
|                                                     | 
|overall break-even load factor                     |  | Total costs (operating expenses plus net interest expense less other revenue) per system ATK divided by overall yield.                                                    
|                                                     | 
|overall load factor                                |  | RTKs (passenger and cargo) expressed as a percentage of ATKs (passenger and cargo).                                                                                       
|                                                     | 
|passenger break-even load factor                   |  | Total costs attributable to passenger operations per ASK divided by passenger yield.                                                                                      
|                                                     | 
|passenger load factor                              |  | RPKs expressed as a percentage of ASKs.                                                                                                                                   
|                                                     | 
|Other:                                               |  |                                                                                                                                                                           
|                                                     | 
|ACMI leases                                        |  | A type of aircraft leasing contract, under which the lessor provides the aircraft, crew, maintenance and insurance on a per hour basis. Also referred to as a wet
lease.
|                                                     | 
|Airbus A320-Family Aircraft                        |  | The Airbus A318, Airbus A319 and Airbus A320 models of aircraft.                                                                                                          
|                                                     | 
|block hours                                        |  | The elapsed time between an aircraft leaving an airport gate and arriving at an airport gate.                                                                             
|                                                     | 
|ton                                                |  | A metric ton, equivalent to 2,204.6 pounds.                                                                                                                               
|                                                     | 
|utilization rates                                  |  | The actual number of flight hours per aircraft per operating day.                                                                                                         



3



---

##### Table of Contents

PART I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not
applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------

Selected Financial Data

The following table presents our summary financial and other information for each of the last five fiscal years in the period ended
December 31, 2008. The summary financial information for the three fiscal years in the period ended December 31, 2008 has been derived from our audited consolidated financial statements included in this report.

You should read the information below in conjunction with our audited consolidated financial statements and the notes thereto, as well as
Presentation of Information and Operating and Financial Review and Prospects.



4



---

##### Table of Contents

Annual Financial Information



|                                                                         |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|------------------------------------------------------------------------ |  | ---------------------------------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | - |  | -------- | -
|                                                                         |  | Year ended December 31,                                    |  
|                                                                         |  | 2004                                                       |   |  | 2005     |   |  | 2006     |   |  | 2007     |   |  | 2008     |  
|                                                                         |  | (in US$ millions, except per share and capital stock data) |  
|The Company(1)(5)                                                        |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Statement of Income Data:                                                |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Chilean GAAP                                                             |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Operating revenues                                                       |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Passenger                                                                |  | 1,169.0                                                    |   |  | 1,460.6  |   |  | 1,813.4  |   |  | 2,197.2  |   |  | 2,858.9  |  
|Cargo                                                                    |  | 799.7                                                      |   |  | 910.5    |   |  | 1,072.7  |   |  | 1,154.3  |   |  | 1,527.1  |  
|Other                                                                    |  | 124.2                                                      |   |  | 135.3    |   |  | 147.9    |   |  | 173.4    |   |  | 148.2    |  
|                                                                         |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Total operating revenues                                                 |  | 2,092.9                                                    |   |  | 2,506.4  |   |  | 3,034.0  |   |  | 3,524.9  |   |  | 4,534.3  |  
|Operating expenses(2)                                                    |  | (1,920.8                                                   | ) |  | (2,364.7 | ) |  | (2,731.3 | ) |  | (3,111.6 | ) |  | (3,998.1 | )
|                                                                         |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Operating income                                                         |  | 172.1                                                      |   |  | 141.6    |   |  | 302.6    |   |  | 413.4    |   |  | 536.2    |  
|Other income (expense)                                                   |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Interest income                                                          |  | 10.8                                                       |   |  | 12.4     |   |  | 7.9      |   |  | 18.0     |   |  | 16.2     |  
|Interest expense                                                         |  | (36.5                                                      | ) |  | (39.2    | ) |  | (60.7    | ) |  | (76.2    | ) |  | (82.7    | )
|Other income-net(2)                                                      |  | 45.2                                                       |   |  | 58.2     |   |  | 37.1     |   |  | 12.6     |   |  | (68.1    | )
|Total other income (expense)                                             |  | 19.5                                                       |   |  | 31.5     |   |  | (15.7    | ) |  | (45.6    | ) |  | (134.6   | )
|Minority interest                                                        |  | 0.2                                                        |   |  | 1.8      |   |  | 1.2      |   |  | 0.3      |   |  | (1.2     | )
|Income before income taxes                                               |  | 191.8                                                      |   |  | 174.9    |   |  | 288.1    |   |  | 368.1    |   |  | 400.4    |  
|Income taxes                                                             |  | (28.3                                                      | ) |  | (28.3    | ) |  | (46.8    | ) |  | (59.8    | ) |  | (64.7    | )
|                                                                         |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Net income                                                               |  | 163.6                                                      |   |  | 146.6    |   |  | 241.3    |   |  | 308.3    |   |  | 335.7    |  
|Net income per common share(3)                                           |  | 0.51                                                       |   |  | 0.46     |   |  | 0.76     |   |  | 0.93     |   |  | 0.99     |  
|Net income per ADS(3)                                                    |  | 2.56                                                       |   |  | 2.30     |   |  | 3.78     |   |  | 0.93     |   |  | 0.99     |  
|Operational Data Computed Using Financial Information Under Chilean GAAP |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|ASKs (million)                                                           |  | 21,174.4                                                   |   |  | 23,687.3 |   |  | 26,400.0 |   |  | 31,556.1 |   |  | 35,176.2 |  
|RPKs (million)                                                           |  | 15,125.3                                                   |   |  | 17,490.8 |   |  | 19,495.5 |   |  | 24,001.2 |   |  | 26,951.6 |  
|ATKs (million)(7)                                                        |  | 3,039.8                                                    |   |  | 3,213.8  |   |  | 3,399.1  |   |  | 3,632.8  |   |  | 4,080.3  |  
|RTKs (million)                                                           |  | 2,259.4                                                    |   |  | 2,392.3  |   |  | 2,579.2  |   |  | 2,702.3  |   |  | 2,906.7  |  
|System ATKs (million)                                                    |  | 5,256.2                                                    |   |  | 5,810.8  |   |  | 6,349.8  |   |  | 7,023.1  |   |  | 7,652.2  |  
|U.S. GAAP(6)                                                             |  |                                                            |   |  |          |   |  |          |   |  |          |   |  |          |  
|Operating revenues                                                       |  | 2,092.9                                                    |   |  | 2,506.4  |   |  | 3,034.0  |   |  | 3,524.9  |   |  | 4,534.3  |  
|Operating income                                                         |  | 218.6                                                      |   |  | 150.2    |   |  | 287.0    |   |  | 419.5    |   |  | 408.0    |  
|Net income                                                               |  | 164.7                                                      |   |  | 156.5    |   |  | 201.6    |   |  | 322.0    |   |  | 316.4    |  
|Basic and diluted earnings per share(3)                                  |  | 0.52                                                       |   |  | 0.46     |   |  | 0.76     |   |  | 0.97     |   |  | 0.93     |  
|Net income per ADS(3)                                                    |  | 2.58                                                       |   |  | 2.45     |   |  | 3.16     |   |  | 0.95     |   |  | 0.93     |  

(table and footnotes continue on next page)



5



---

##### Table of Contents

|                                              |  |                                                            |  |         |  |         |  |         |  |        
|--------------------------------------------- |  | ---------------------------------------------------------- |  | ------- |  | ------- |  | ------- |  | -------
|                                              |  | At December 31,                                           
|                                              |  | 2004                                                       |  | 2005    |  | 2006    |  | 2007    |  | 2008   
|                                              |  | (in US$ millions, except per share and capital stock data)
|Balance Sheet Data:                           |  |                                                            |  |         |  |         |  |         |  |        
|Chilean GAAP                                  |  |                                                            |  |         |  |         |  |         |  |        
|Cash, time deposits and marketable securities |  | 304.6                                                      |  | 159.2   |  | 218.6   |  | 468.0   |  | 410.0  
|Miscellaneous current assets(4)               |  | 347.8                                                      |  | 417.8   |  | 487.7   |  | 621.8   |  | 941.0  
|Property and equipment                        |  | 979.0                                                      |  | 1,252.3 |  | 1,855.9 |  | 2,351.6 |  | 3,093.4
|Total other assets                            |  | 197.9                                                      |  | 314.3   |  | 366.6   |  | 460.3   |  | 460.5  
|Total assets                                  |  | 1,829.3                                                    |  | 2,143.6 |  | 2,928.8 |  | 3,901.7 |  | 4,904.9
|Long-term liabilities                         |  | 809.0                                                      |  | 955.3   |  | 1,421.9 |  | 1,785.9 |  | 2,402.1
|Shareholders equity                          |  | 434.6                                                      |  | 502.7   |  | 626.3   |  | 988.1   |  | 1,118.0
|U.S. GAAP(6)                                  |  |                                                            |  |         |  |         |  |         |  |        
|Total assets                                  |  | 1,830.0                                                    |  | 2,149.0 |  | 2,906.1 |  | 3,833.8 |  | 4,500.5
|Long-term liabilities                         |  | 796.5                                                      |  | 938.7   |  | 1,431.9 |  | 1,695.3 |  | 2,252.5
|Shareholders equity                          |  | 447.8                                                      |  | 600.5   |  | 658.3   |  | 1,010.7 |  | 863.3  
|Capital stock (millions of shares)            |  | 318.9                                                      |  | 318.9   |  | 318.9   |  | 338.8   |  | 338.8  



|(1) | For more information on the subsidiaries included in this consolidated account, see Note 2(b) to our audited
consolidated financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | To reflect operational results more clearly, fuel hedging gains or losses have been reclassified as a non-operational
item in the other income-net line in each of 2004, 2005, 2006, 2007 and 2008. We recorded a US$46.5 million fuel hedge gain in 2004, a US$51.5 million fuel hedge gain in 2005, a US$12.9 million fuel hedge gain in 2006, a US$28.2 million fuel hedge
gain in 2007, and a US$35.4 million fuel hedge gain in 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As of December 31, 2006, we had 318,909,090 common shares outstanding in each of the periods indicated, which was
equivalent to 63,781,818 American Depositary Shares (ADSs). As of December 31, 2007 we had 338,790,909 common shares outstanding, which was equivalent to 338,790,909 ADSs due to the American Depositary Receipts (ADRs)
ratio change that was implemented in August 2007. As of December 31, 2008 we had 338,790,909 common shares outstanding, which was equivalent to 338,790,909 ADSs.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Total current assets less the sum of cash, time deposits and marketable securities.
|--- | -----------------------------------------------------------------------------------

|(5) | The sums of the items may differ from the total amount due to rounding.
|--- | -----------------------------------------------------------------------

|(6) | In 2007, the Company adopted FSP AIR-1 and changed its accounting principle for heavy aircraft and engine maintenance
costs on leased aircraft from the accrual method to the cash method. For more information see Change in accounting policy for maintenance costs and adoption of FSP AIR-1 in Note 27 to our audited consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | In August 2007, the Company implemented a change in its methodology used for calculating cargo ATKs in order to better
represent the available capacity in the bellies of passenger aircraft. Cargo RTKs were not affected by this change. Historical data has been accordingly modified for comparison purposes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although most of our revenues and expenses are denominated in U.S. dollars, some are denominated in different currencies, such as the Chilean peso.
Fluctuations in foreign exchange rates could lead to changes in the value of these items in U.S. dollars. Nevertheless, the impact on our results stemming from any such fluctuations is significantly mitigated by the fact that 83% of our revenues and
63% of our operating expenses are denominated in U.S. dollars.



6



---

##### Table of Contents

In accordance with the Chilean Corporation Law, we must pay annual cash dividends equal to at least 30%
of our annual consolidated distributable net income each year (calculated in accordance with Chilean GAAP), subject to limited exceptions. As of June 24, 2009, we had declared aggregate dividends US$81.8 million with respect to income for 2004,
US$73.3 million with respect to income for 2005, US$168.9 million with respect to income for 2006, US$215.8 million with respect to income for 2007 and US$201.8 million with respect to income for 2008. Dividends for 2008 include two interim
dividends paid in August 2008 and January 2009, which are to be considered final dividends with respect to income for 2008, as approved at the annual general shareholders meeting held in April 2009. The table below sets forth the cash dividends per
common share and per ADS, as well as the number of common shares entitled to such dividends, for the years indicated. Dividends per common share amounts have not been adjusted for inflation and reflect common share amounts outstanding immediately
prior to the distribution of such dividend. On August 2007, LAN modified its ADR to common share ratio from 5:1 to 1:1.



|                   |  |                   |  |                      |  |                                          |  |                             |  |                    
|------------------ |  | ----------------- |  | -------------------- |  | ---------------------------------------- |  | --------------------------- |  | -------------------
|Dividend for year: |  | Payment date(s)   |  | Totaldividendpayment |  | Number ofcommonsharesentitled todividend |  | Cashdividendper commonshare |  | Cashdividend perADS
|                   |  |                   |  | (U.S. dollars)       |  | (in millions)                            |  | (U.S. dollars)              |  | (U.S. dollars)     
|2004               |  | August 30, 2004   |  | 39,786,605           |  | 318.91                                   |  | 0.12475                     |  | 0.62375            
|                   |  | December 29, 2004 |  | 35,000,000           |  | 318.91                                   |  | 0.10974                     |  | 0.54870            
|                   |  | May 18, 2005      |  | 6,992,865            |  | 318.91                                   |  | 0.02193                     |  | 0.10965            
|2005               |  | September 2, 2005 |  | 36,452,425           |  | 318.91                                   |  | 0.11430                     |  | 0.57150            
|                   |  | March 1, 2006     |  | 35,000,000           |  | 318.91                                   |  | 0.10975                     |  | 0.54875            
|                   |  | May 17, 2006      |  | 1,849,186            |  | 318.91                                   |  | 0.00578                     |  | 0.02890            
|2006               |  | August 24, 2006   |  | 48,061,644           |  | 318.91                                   |  | 0.15071                     |  | 0.75355            
|                   |  | January 18, 2007  |  | 67,787,211           |  | 318.91                                   |  | 0.21256                     |  | 1.06280            
|                   |  | April 25, 2007    |  | 53,059,893           |  | 318.91                                   |  | 0.16638                     |  | 0.83190            
|2007               |  | August 23, 2007   |  | 90,104,830           |  | 338.79                                   |  | 0.26596                     |  | 0.26596            
|                   |  | January 17, 2008  |  | 119,894,715          |  | 338.79                                   |  | 0.35389                     |  | 0.35389            
|                   |  | May 8, 2008       |  | 5,827,204            |  | 338.79                                   |  | 0.01720                     |  | 0.01720            
|2008               |  | August 21, 2008   |  | 96,785,787           |  | 338.79                                   |  | 0.28568                     |  | 0.28568            
|                   |  | January 15, 2009  |  | 105,001,466          |  | 338.79                                   |  | 0.30993                     |  | 0.30993            

Our board of directors has the authority to declare interim dividends. Year-end dividends, if any,
are declared by our shareholders at our annual meeting. For a description of our dividend policy, see Financial InformationOther Financial InformationDividend Policy under Item 8.

We declare cash dividends in U.S. dollars, but make dividend payments in Chilean pesos, converted from U.S. dollars at the observed exchange rate two
days prior to the day we first make payment to shareholders. Payments of cash dividends to holders of American Depositary Receipts, or ADRs, if any, are made in Chilean pesos to the custodian, which converts those Chilean pesos into U.S. dollars and
delivers U.S. dollars to the depositary for distribution to holders. In the event that the custodian is unable to convert immediately the Chilean currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADRs
may be adversely affected by a devaluation of the Chilean currency that may occur before such dividends are converted and remitted.



7



---

##### Table of Contents

Exchange Rates

The following table sets forth, for the periods indicated, the high, low, average and period-end observed exchange rate for the purchase of U.S. dollars, expressed in Chilean pesos per U.S. dollar. The rates have not
been restated in constant currency units.



|                        |  |                              |  |        |  |            |  |           
|----------------------- |  | ---------------------------- |  | ------ |  | ---------- |  | ----------
|                        |  | Daily Observed Exchange Rate
|Year Ended December 31, |  | High                         |  | Low    |  | Average(1) |  | Period-End
|                        |  | Ch$ per US$                 
|2004                    |  | 649.45                       |  | 559.21 |  | 612.13     |  | 559.83    
|2005                    |  | 592.75                       |  | 509.70 |  | 559.27     |  | 514.21    
|2006                    |  | 549.63                       |  | 511.44 |  | 531.03     |  | 534.43    
|2007                    |  | 548.67                       |  | 493.14 |  | 521.95     |  | 495.82    
|2008                    |  | 676.75                       |  | 431.22 |  | 521.57     |  | 629.11    
|December                |  | 674.83                       |  | 625.59 |  | 649.32     |  | 629.11    
|2009                    |  |                              |  |        |  |            |  |           
|January                 |  | 643.87                       |  | 610.09 |  | 623.01     |  | 612.43    
|February                |  | 623.87                       |  | 583.32 |  | 606.00     |  | 595.76    
|March                   |  | 614.85                       |  | 572.39 |  | 592.93     |  | 582.10    
|April                   |  | 601.04                       |  | 575.12 |  | 583.18     |  | 588.62    
|May                     |  | 580.10                       |  | 558.95 |  | 565.72     |  | 564.64    



Source: Central Bank of Chile



|(1) | For each year, the average of the month-end exchange rates for the relevant year. For each month, the average daily exchange rate for the relevant month.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

On June 24, 2009, the observed exchange rate was Ch$533.8 = US$1.00.



8



---

##### Table of Contents

Risk Factors

We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the Securities and Exchange Commission, among other factors,
could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with
investing in our American Depositary Shares, or ADS, that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document,
including the following risk factors.

Risks Related to our Operations and the Airline Industry

Our performance is heavily dependent on economic conditions in the countries in which we do business and negative economic conditions in those countries could have an
adverse impact on our business.

Passenger and cargo demand is heavily cyclical and highly dependant on global and local economic
growth, economic expectations and foreign exchange rate variations, among other things. In the past our business has been negatively affected by global economic recessionary conditions, weak economic growth in Chile, recession in Argentina and poor
economic performance in certain emerging market countries in which we operate. The occurrence of similar events in the future could adversely affect our business. In fact, starting as of late 2008, and continuing into 2009, many of the countries we
serve, including Chile, are experiencing economic slowdowns or recessions, which have translated into a substantial weakening of demand and could continue to adversely affect our business in the future. We plan to continue to expand our operations
based in Latin America and our performance will, therefore, continue to depend heavily on economic conditions in the region. Any of the following factors could adversely affect our business, financial condition and results of operations in the
countries in which we operate:



| |  |  | changes in economic or other governmental policies;
| | - |  | ---------------------------------------------------



| |  |  | weak economic performance, including, but not limited to, low economic growth, low consumption and/or investment rates, and increased inflation rates; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other political or economic developments over which we have no control.
| | - |  | -----------------------------------------------------------------------

We are experiencing significantly weaker demand in the cargo business driven by the severe downturn in the global economy. Many of the countries we
serve are experiencing economic slowdowns or recessions. We began to experience weakening demand in cargo late in 2008, and this weakness has continued into 2009. If the global economic downturn persists or worsens, demand in cargo may
continue to weaken and demand for air travel may commence to decrease. No assurance can be given that capacity reductions or other steps we may take will be adequate to offset the effects of reduced cargo and/or air travel demand.

The success of our business depends upon key regulatory issues and these issues may adversely affect our business and results of operations.

Our business is highly regulated and depends substantially upon the regulatory environment in the countries in which we operate or intend to operate. For
example, price controls on fares may limit our ability to effectively apply customer segmentation profit maximization techniques (passenger revenue management) (management techniques utilizing passenger demand forecasting and fare mix
optimization techniques to maximize profit for an airline) and adjust prices to reflect cost pressures. High levels of government regulation may limit the scope of our operations and our growth plans, especially in the event of deterioration of the
relations between the countries in which we operate or the public perception of foreign companies in local markets. Accordingly, regulatory issues could adversely affect our business and results of operations.

Our business, financial condition and results of operations could be adversely affected if we or certain aviation authorities (among them, those from
Argentina, Brazil, Chile, Ecuador, Mexico, Peru, Colombia and the United States) fail to maintain the required foreign and domestic governmental authorizations. In order to maintain the necessary authorizations issued by the Chilean Junta
Aeronáutica Civil, which we refer to as the JAC, and technical operative authorizations issued by the Chilean Dirección General de Aeronáutica Civil, which we refer to as the DGAC, and other
corresponding local authorities of the countries in which we operate, we must continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the
future.



9



---

##### Table of Contents

We depend on strategic alliances or commercial relationships in many of the countries in which we operate and our
business may suffer if any of our strategic alliances or commercial relationships terminates.

In many of the jurisdictions in which we operate, we have found it in our interest, to maintain a number of alliances and other commercial relationships. These alliances or commercial relationships allow us to enhance
our network and, in some cases, to offer our customers services that we could not otherwise offer. If any of our strategic alliances or commercial relationships and, in particular, with American Airlines, Iberia, Qantas or
oneworld® deteriorates, or any of these agreements are terminated, our business, financial condition and results of operations could be negatively
affected.

Our business and results of operation may suffer if we fail to obtain and maintain routes, suitable airport access, slots and other operating
permits.

Our business depends upon our access to key routes and airports. Our operations could be constrained by any delay or inability
to gain access to key routes or airports, including:



| |  |  | limitations on our ability to process more passengers;
| | - |  | ------------------------------------------------------



| |  |  | the imposition of flight capacity restrictions;
| | - |  | -----------------------------------------------



| |  |  | the inability to secure or maintain route rights in local markets or under bilateral agreements; or
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the inability to maintain our existing slots and obtain additional slots.
| | - |  | -------------------------------------------------------------------------

We operate numerous international routes, subject to bilateral agreements and also internal flights within Chile, Argentina, Peru and other countries,
subject to local route and airport access approvals. Bilateral aviation agreements as well as local aviation approvals frequently involve political and other considerations outside of our control. Recently, we faced a reduction in international
fifth freedom routes in Peru, which we do not expect to have a material adverse effect on our business, but which exemplifies the route changes to which we may be subject. See Information on the Company Business of the
CompanyRegulationRoute Rights under Item 4.

There can be no assurance that existing bilateral agreements between
the countries in which our companies are based and permits from foreign governments will continue. A modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition
and results of operations. The suspension of our permission to operate in certain airports or destinations or the imposition of other sanctions could also have a material adverse effect. We cannot assure that a change in a foreign governments
administration of current laws and regulations or that the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and results of operations.

If we are unable to obtain favorable take-off and landing authorizations at certain high-density airports, our business, financial condition and results
of operations could be adversely affected. There can be no assurance that we will be able to obtain all requested authorizations and slots in the future because, among other factors, government policies regulating the distribution of the
authorizations and slots are subject to change.

A failure to successfully implement our growth strategy would harm our business and the market value of
the ADSs and our common shares.

Our growth strategy involves increasing the frequency of flights to the markets we currently serve and
expanding our service to new markets. In order to carry out this strategy, we must be able to identify the appropriate geographic markets upon which to focus and to gain suitable airport access and route approval in these markets. There can be no
assurance that the new markets we enter or in which we are seeking to expand our operations will provide passenger and cargo traffic that is sufficient to make our operations in those new markets profitable.

The expansion of our business will also require additional skilled personnel, equipment and facilities. An inability to hire and retain skilled personnel
or secure the required equipment and facilities efficiently and cost-effectively may adversely affect our ability to execute our growth strategy. Expansion of our markets and flight frequencies may also strain our existing management resources and
operational, financial and management information systems to the point that they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas.



10



---

##### Table of Contents

Our business may be adversely affected by a downturn in the airline industry caused by exogenous events that affect
travel behavior or increase costs, such as outbreak of disease, war or terrorist attacks.

Demand for air transportation may be
adversely impacted by exogenous events, such as natural disasters, epidemics, terrorist attacks, war or political and social instability. Situations such as these in one or more of the markets in which we operate could have a material impact on our
business, financial condition and results of operations. Furthermore, these types of situations could have a prolonged effect on air transportation demand and on certain cost items.

As from the last week of April 2009, there has been an outbreak of H1N1 flu, also known as swine flu. At the time of this 20-F filing, the outbreak has
been largely concentrated in Mexico and the United States, although cases have been confirmed in, among other locations, Chile, Argentina, Canada, Costa Rica, Spain, Israel and New Zealand. At this time, H1N1 flu would primarily have an adverse
impact on our Mexican and Caribbean operations; however, the development of H1N1 flu into a regional or global pandemic and a significant spread beyond North America could have an adverse impact on all of our operations.

Terrorist attacks may also have a severe adverse impact on the airline industry. For example, the terrorist attacks in the United States on
September 11, 2001 substantially affected the airline industry, particularly foreign air carriers operating international service to and from the United States. Throughout South America, passenger traffic also decreased substantially, although
the decrease was less severe than that in the United States. The airline industry experienced increased costs following the September 11, 2001 terrorist attacks. Airlines have been required to adopt additional security measures and may be
required to comply with more rigorous security guidelines in the future.

In addition, fuel prices and supplies, which constitute a
significant cost for us, may increase as a result of any future terrorist attacks, a general increase in hostilities or a reduction in output of fuel, voluntary or otherwise, by oil-producing countries. Such increases may result in both higher
airline ticket prices and decreased demand for air travel generally, which could have an adverse effect on our revenues and results of operations.

A
significant portion of our cargo revenues comes from relatively few product types and may be impacted by events affecting their production or trade.

Our cargo demand, especially from Latin American exporters, is concentrated in a small number of product categories, such as salmon and produce exports from Chile and Peru, and fresh flowers from Ecuador and Colombia.
Events that negatively affect the production or trade of these goods may adversely affect the volume of goods that we transport and may have a significant impact on our results of operations. Some of our cargo products are sensitive to
foreign-exchange rates and, therefore, traffic volumes could be impacted by the appreciation or depreciation of local currencies.

As from
mid 2007, there was an outbreak of infectious salmon anemia virus (ISA Virus) in Chile which was temporarily contained during 2008 but continued spreading during the first quarter of 2009. The outbreak of ISA Virus has caused, and may
continue to cause, a significant decline in salmon exports and has had, and may continue to have, an adverse impact on our cargo operations as approximately 8% of our cargo business revenue during 2008 was related to salmon exports.

Our operations are subject to fluctuations in the supply and cost of jet fuel, which could negatively impact our business.

Higher jet fuel prices or a shortage in the supply of fuel could cause a reduction in our scheduled service and could have a materially negative effect on
our business, financial condition and results of operations. Jet fuel costs have historically accounted for a significant amount of our operating expenses, and accounted for 35.6% of our operating expenses in 2008. Both the cost and availability of
fuel are subject to many economic and political factors and events that we can neither control nor predict. We have entered into fuel hedging arrangements, but there can be no assurance that such arrangements will be adequate to protect us from a
significant increase in fuel prices in the near future or in the long term. Also, while these hedging arrangements are designed to limit the effect of an increase in fuel prices, some of our hedging methods may also limit our ability to take
advantage of any decrease in fuel prices. Although we have implemented measures to pass a portion of incremental fuel costs to our customers, our ability to lessen the impact of any increase using this type of mechanisms may also be limited.



11



---

##### Table of Contents

We rely on maintaining a high daily aircraft utilization rate to increase our revenues, which makes us especially
vulnerable to delays.

One of the key elements of our business strategy is to maintain a high daily aircraft utilization rate, which
measures the number of flight hours we use our aircraft per day. High daily aircraft utilization allows us to maximize the amount of revenue we generate from our aircraft and is achieved, in part, by reducing turnaround times at airports and
developing schedules that enable us to increase the average hours flown per day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including air traffic and airport congestion,
adverse weather conditions and delays by third-party service providers relating to matters such as fueling and ground handling.

Furthermore, high aircraft utilization rates increase the risk that, if an aircraft falls behind schedule, it could remain behind schedule for up to two days. Such delays could result in a disruption in our operating performance, leading to
customer dissatisfaction due to any resulting delays or missed connections.

We fly and depend upon Airbus and Boeing aircraft, and our business is at
risk if we do not receive timely deliveries of aircraft, if aircraft from these companies becomes unavailable or if the public negatively perceives our aircraft.

As our fleet has grown, our reliance on Airbus and Boeing has also grown. As of March 31, 2009, we operated a fleet of 58 Airbus and 35 Boeing aircraft. These risks include:



| |  |  | our failure or inability to obtain Airbus or Boeing aircraft, parts or related support services on a timely basis because of high demand or other factors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | the issuance of Chilean Federal Aviation Administrations (FAA) or other directives restricting or prohibiting the use of Airbus or Boeing
aircraft, or requiring time-consuming inspections and maintenance;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the adverse public perception of a manufacturer as a result of an accident or other negative publicity; or
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | delays between the time we realize the need for new aircraft and the time it takes us to arrange for Airbus and Boeing or from a third-party provider to deliver
this aircraft.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The occurrence of any one or more of these factors could restrict our ability to use aircraft to generate
profits, respond to increased demands, or could otherwise limit our operations and adversely affect our business.

We are often affected by certain
factors beyond our control, including weather conditions, which can affect our operations.

Revenues for airlines depend on the number
of passengers carried, the fare paid by each passenger and service factors, such as the timeliness of flight departures and arrivals. During periods of fog, ice, low temperatures, storms or other adverse weather conditions, some or all of our
flights may be cancelled or significantly delayed, reducing our revenues.

Losses and liabilities in the event of an accident involving one or more of
our aircraft could materially affect our business.

We are exposed to potential catastrophic losses in the event of an aircraft
accident, terrorist incident or any other similar event. There can be no assurance that, as a result of an aircraft accident or significant incident:



| |  |  | we will not need to increase our insurance coverage;
| | - |  | ----------------------------------------------------



| |  |  | our insurance premiums will not increase significantly;
| | - |  | -------------------------------------------------------



| |  |  | our insurance coverage will fully cover all of our liability; or
| | - |  | ----------------------------------------------------------------



| |  |  | we will not be forced to bear substantial losses.
| | - |  | -------------------------------------------------

Substantial claims resulting from an accident or significant incident in excess of our related insurance coverage could have a material adverse effect on our business, financial condition and results of operations.
Moreover, any aircraft accident, even if fully insured, could cause the negative public perception that our aircraft are less safe or reliable than those operated by other airlines, which could have a material adverse effect on our business,
financial condition and results of operations.



12



---

##### Table of Contents

Insurance premiums may also increase due to an accident or incident affecting one of our airline
affiliates or alliance partners or affecting other airlines.

High levels of competition in the airline industry may adversely affect our level of
operations.

Our business, financial condition and results of operations could be adversely affected by high levels of competition
within the industry, particularly the entrance of new competitors into the markets in which we operate. Airlines compete primarily over fare levels, frequency and dependability of service, brand recognition, passenger amenities (such as frequent
flyer programs) and the availability and convenience of other passenger or cargo services. New and existing airlines could enter our markets and compete with us on any of these bases. Several of our competitors are larger than us and have greater
brand recognition and greater resources than we do. Competing carriers include investor-owned, government-subsidized and national flag carriers of foreign countries as well as low-cost carriers offering discounted fares. The U.S.-Chile and other
open skies agreements may subject us to further competition from international carriers. In addition to traditional competition among airline companies, we face competition from companies that provide ground transportation, especially in our
domestic cargo and passenger businesses, as well as sea transportation for our cargo business. Competition could reduce our passenger traffic and cargo demand, forcing us to reduce our fare levels, which could have a material adverse effect on our
revenues and level of operations.

Some of our competitors may receive external support which could negatively impact our competitive position.

Some of our competitors may receive support from external sources, such as their national governments, which may be unavailable to us.
Support may include, among others, subsidies, financial aid or tax waivers. This support could place us at a competitive disadvantage and adversely affect our operations and financial performance.

If we are unable to incorporate leased aircraft into our fleet at acceptable rates and terms in the future, our business could be adversely affected.

A large portion of our aircraft are subject to long-term operating leases. Our operating leases typically run from three to twelve years from the date
of delivery. We may face more competition for, or a limited supply of, leased aircraft, making it difficult for us to negotiate on competitive terms upon expiration of our current operating leases or to lease additional capacity required for our
targeted level of operations. If we are forced to pay higher lease rates in the future to maintain our capacity and the number of aircraft in our fleet, our profitability could be adversely affected.

We are incorporating various new technologies and equipment and their phase-in may have a negative impact on our service and operating standards.

In recent years we have decided to incorporate a number of new aircraft, equipment and systems. The decision to incorporate these new elements has been
based on their potential to enhance customer satisfaction, increase efficiency and/or streamline processes. However, the phase-in of these elements may temporarily result in lower service and operating standards which could affect how our customers
perceive us and have a negative impact on our results of operations.

Our business may be adversely affected if we are unable to meet our significant
future financing requirements.

We require significant amounts of financing to meet our aircraft capital requirements and may require
additional financing to fund our other business needs. We cannot guarantee that we will have access to or be able to arrange for financing in the future on favorable terms. If we are unable to obtain financing for a significant portion of our
capital requirements, our ability to acquire new aircraft or to expand operations could be impaired and our business negatively affected.

Our business
may be adversely affected by our high degree of debt and aircraft lease obligations compared to our equity capital.

We have a high
degree of debt and payment obligations under our aircraft operating leases compared to equity capital. In order to finance our debt, we depend in part on our cash flow from operations. We cannot assure you that in the future we will be able to meet
our payment obligations. In addition, the majority of our property and equipment is subject to liens securing our indebtedness. In the event that we fail to make payments on the secured indebtedness, creditors enforcement of liens could limit
or end our ability to use the affected property and equipment to fulfill our operational needs and thus generate revenue.



13



---

##### Table of Contents

Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results
of operations.

Following the 9/11 terrorist attacks, insurance companies dramatically increased airline insurance premiums and
significantly reduced the maximum amount of insurance coverage available to airlines for liability to persons (other than passengers) for claims resulting from acts of terrorism, war or similar events. Although insurance costs decreased between 2004
and 2007, in 2008 we had an increase in insurance expenses. We cannot assure that these costs will not continue to increase.

In the event
of additional terrorist attacks, hijackings, airline crashes or other events adversely affecting the airline industry in the markets in which we operate, airline insurers could reduce their coverage or increase their premiums. Increases in insurance
costs and/or significant reductions in coverage could harm our financial condition and results of operations.

Problems with air traffic control systems
or other technical failures could interrupt our operations and have a material adverse effect on our business.

Our operations,
including our ability to deliver customer service, are dependent on the effective operation of our equipment, including our aircraft, maintenance systems and reservation systems. Our operations are also dependent on the effective operation of
domestic and international air traffic control systems and the air traffic control infrastructure in the markets in which we operate. Equipment failures, personnel shortages, air traffic control problems and other factors that could interrupt
operations could adversely affect our operations and financial results as well as our reputation.

Our financial success depends on the availability and
performance of key personnel, who are not subject to non-competition restrictions.

Our success depends to a significant extent on the
ability of our senior management team and key personnel to operate and manage our business effectively. Our employment agreements with key personnel do not contain any non-competition provisions applicable upon termination. Competition for highly
qualified personnel is intense. If we lose any executive officer, senior manager or other key employee and are not able to obtain an adequate replacement, or if we are unable to attract and retain new qualified personnel, our business, financial
condition and results of operations could be materially adversely affected.

Our business may experience adverse consequences if we are unable to reach
satisfactory collective bargaining agreements with our unionized employees.

Approximately 39% of our employees, including
administrative personnel, cabin crews, flight attendants, pilots and maintenance technicians are members of unions and have contracts and collective bargaining agreements which expire on a regular basis. Our business, financial condition and results
of operations could be materially adversely affected by a failure to reach agreement with any labor union representing such employees or by an agreement with a labor union that contains terms that are not in line with our expectations or that
prevent us from competing effectively with other airlines.

Pressure by employees could cause operating disruptions and negatively impact our business.

Certain employee groups such as pilots, flight attendants, mechanics and our airport personnel have highly specialized skills. As a
consequence, actions by these groups, such as strikes, walk-outs or stoppages, could severely disrupt our operations and negatively impact our operating and financial performance, as well as how our customers perceive us.

For example, during the third quarter of 2001, members of one of our pilot unions implemented a series of actions that disrupted our services prior to
the negotiation of their collective bargaining agreement, which had a negative impact on our operations and our profitability.



14



---

##### Table of Contents

Increases in our labor costs, which constitute a substantial portion of our total operating costs, could directly
impact our earnings.

Labor costs constitute a significant percentage of our total operating costs, and at times in our operating
history we have experienced pressure to increase wages and benefits for our employees. A significant increase in our labor costs above the assumed costs could result in a material reduction in our earnings.

We may experience difficulty finding, training and retaining employees.

Our business is labor intensive. We employ a large number of pilots, flight attendants, maintenance technicians and other operating and administrative personnel. The airline industry has, from time to time,
experienced a shortage of qualified personnel, specifically pilots and maintenance technicians. In addition, as is common with most of our competitors, we may, from time to time, face considerable turnover of our employees. Should the turnover of
employees, particularly pilots and maintenance technicians, sharply increase, our training costs will be significantly higher. We cannot assure you that we will be able to recruit, train and retain the qualified employees that we need to continue
our current operations or replace departing employees. A failure to hire and retain qualified employees at a reasonable cost could materially adversely affect our business, financial condition and results of operations.

Failure to comply with applicable environmental regulations could adversely affect our business and reputation.

Our operations are covered by environmental regulations at local, national and international levels. These regulations cover, among other things,
emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities incident to our business. Future operations and financial results may vary as a result of such regulations. Compliance with these
regulations and new or existing regulations that may be applicable to us in the future could increase our cost base and adversely affect our operations and financial results. In addition, failure to comply with these regulations could adversely
affect us in a variety of ways, including adverse effects on our reputation.

Risks Related to Chile and Other Emerging Market Countries

Developments in Latin American countries and other emerging market countries may adversely affect the Chilean economy, negatively impact our business and results of
operations and cause the market price of our common shares and ADSs to decrease.

We conduct a significant portion of our operations in
emerging market countries, particularly in Latin America. As a result, economic and political developments in these countries, including future economic crises and political instability, could impact the Chilean economy or the market value of our
securities and have a material adverse effect on our business, financial condition and results of operations. Starting as of late 2008, and continuing into 2009, many of the countries we serve, including Chile, are experiencing economic slowdowns or
recessions, which have translated in a substantial weakening of demand. Although economic conditions in other emerging market countries may differ significantly from economic conditions in Chile, we cannot assure that events in other countries,
particularly other emerging market countries, will not adversely affect the market value of, or market for, our common shares or ADSs.

Fluctuations in
the value of the Chilean peso and other currencies in the countries in which we operate may adversely affect our revenues and profitability.

Changes in the exchange rate between the Chilean peso and the U.S. dollar or other currencies in the countries in which we operate could adversely affect our business, financial condition and results of operations. We operate in numerous
countries and face the risk of variation in foreign currency exchange rates against the U.S. dollar or between the currencies of these various countries. A significant part of our indebtedness is denominated in U.S. dollars, while 17% of our
revenues and 37% of our operating expenses in 2008 are denominated in currencies other than the U.S. dollar, mainly the Chilean peso. If the value of the peso, or of other currencies in which revenues are denominated, declines against the U.S.
dollar, we will need more pesos or other local currency to repay the same amount of U.S. dollars. The Chilean peso has experienced volatility in recent years, including an average nominal appreciation of 6.6% against the U.S. dollar in 2004, an
average nominal appreciation of 8.6% against the U.S. dollar in 2005, an average nominal devaluation of 5.0% against the U.S. dollar in 2006, an average nominal appreciation of 1.7% against the U.S. dollar in 2007 and an average nominal appreciation
of 0.1% against the U.S. dollar in 2008. The exchange rate of the Chilean peso and other currencies against the U.S. dollar may fluctuate significantly in the future. Changes in Chilean and other governmental economic policies affecting foreign
exchange rates could also adversely affect our business, financial condition, results of operations and the return to our shareholders on their common shares or ADSs.



15



---

##### Table of Contents

Exchange controls in Venezuela delay our ability to repatriate cash generated from operations in
Venezuela and increase our exposure to exchange rate losses due to potential devaluations of the Venezuelan bolivar vis-à-vis the U.S. dollar during the period of time between the time we are paid in Venezuelan bolivares and the time we are
able to repatriate such revenues in U.S. dollars.

We are not required to disclose as much information to investors as a U.S. issuer is required to
disclose and, as a result, you may receive less information about us than you would receive from a comparable U.S. company.

The
corporate disclosure requirements that apply to us may not be equivalent to the disclosure requirements that apply to a U.S. company and, as a result, you may receive less information about us than you would receive from a comparable U.S. company.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The disclosure required of foreign issuers under the Exchange Act is more limited than the disclosure required of U.S. issuers.
Publicly available information about issuers of securities listed on Chilean stock exchanges also provides less detail in certain respects than the information regularly published by listed companies in the United States or in certain other
countries. Furthermore, there is a lower level of regulation of the Chilean securities markets and of the activities of investors in such markets as compared with the level of regulation of the securities markets in the United States and in certain
other developed countries.

Risks Related to our Common Shares and ADSs

Our controlling shareholders may have interests that differ from those of our other shareholders.

As
of March 31, 2009 our controlling shareholders, together, beneficially owned 51.84% of our voting common shares. These controlling shareholders are in a position to elect a majority of the members of our board of directors, direct our
management and control substantially all matters that are to be decided by a vote of shareholders, including fundamental corporate transactions. In addition, under the terms of the deposit agreement governing the ADSs, if holders of ADSs do not
provide The Bank of New York, in its capacity as depositary for the ADSs, with timely instructions on the voting of the common shares underlying their ADRs, the depositary will be deemed to have been instructed to give a person designated by the
board of directors the right to vote those common shares.

Trading of our ADSs and common shares in the securities markets is limited and could
experience further illiquidity and price volatility.

Chilean securities markets are substantially smaller, less liquid and more
volatile than major securities markets in the United States. In addition, Chilean securities markets may be materially affected by developments in other emerging markets, particularly other countries in Latin America. Accordingly, although you are
entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying ADSs in the amount and at the price and time that you wish to do so may be substantially limited. This
limited trading market may also increase the price volatility of the ADSs or the common shares underlying the ADSs.

Holders of ADSs may be adversely
affected by currency devaluations and foreign exchange fluctuations.

If the peso exchange rate falls relative to the U.S. dollar, the
value of the ADSs and any distributions made thereon from the depositary, could be adversely affected. Cash distributions made in respect of the ADSs are received by the depositary (represented by the custodian bank in Chile) in pesos, converted by
the custodian bank into U.S. dollars at the then prevailing exchange rate and distributed by the depositary to the holders of the ADRs evidencing those ADSs. In addition, the depositary will incur foreign currency conversion costs (to be borne by
the holders of the ADRs) in connection with the foreign currency conversion and subsequent distribution of dividends or other payments with respect to the ADSs.

Future changes in Chilean foreign investment controls and withholding taxes could negatively affect non-Chilean residents that invest in our shares.

Equity investments in Chile by non-Chilean residents have been subject in the past to various exchange control regulations that govern investment repatriation and earnings thereon. Although not currently in effect,
regulations of the Central Bank of Chile have in the past required, and could again require, foreign investors acquiring securities in the secondary market in Chile to maintain a cash reserve or to pay a fee upon conversion of foreign currency to
purchase such securities. Further, future changes in withholding taxes could negatively affect non-Chilean residents that invest in our shares.



16



---

##### Table of Contents

When we established our ADS facility as part of our initial public offering in 1997, there were foreign
exchange controls in Chile. At that time, in order to allow the depositary and investors to be able to enter into foreign exchange transactions to repatriate from Chile amounts they received in connection with the deposited shares of common stock
(including dividends and proceeds from the sale in Chile of the underlying shares of common stock and any rights with respect thereto), we entered into a foreign investment contract (the Foreign Investment Contract) with the Central Bank
and the depositary. The Foreign Investment Contract guaranteed ADS investors and the depositary access to the Formal Exchange Market to convert amounts from Chilean pesos into U.S. dollars and to repatriate such amounts.

In 2001, a new Compendium of Foreign Exchange Regulations (the New Compendium) removed exchange controls and many other barriers to
investment. However, even though there are no longer foreign exchange controls in Chile, all foreign investment contracts (including the Foreign Investment Contract), continue to remain in full force.

We cannot assure that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the common shares underlying ADSs or the
repatriation of the proceeds from an acquisition, a disposition or a dividend payment, will not be imposed or required in the future, nor could we make an assessment as to the duration or impact, were any such restrictions to be imposed or required.
For further information, see Item 10Additional Information Foreign Investment and Exchange Controls in Chile.

Our ADS holders
may not be able to exercise preemptive rights in certain circumstances.

The Chilean Corporation Act and Regulation thereof, Ley
sobre Sociedades Anónimas No. 18,046 and the Reglamento de Sociedades Anónimas, collectively known as the Chilean Corporation Law, provide that preemptive rights shall be granted to all shareholders whenever a company
issues new shares for cash, giving such holders the right to purchase a sufficient number of shares to maintain their existing ownership percentage. We will not be able to offer shares to holders of ADSs and shareholders located in the United States
pursuant to the preemptive rights granted to shareholders in connection with any future issuance of shares unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to such
rights and shares, or an exemption from the registration requirements of the Securities Act is available. At the time of any rights offering, we will evaluate the potential costs and liabilities associated with any such registration statement in
light of any indirect benefit to us of enabling U.S. holders of ADRs evidencing ADSs and shareholders located in the United States to exercise preemptive rights, as well as any other factors that may be considered appropriate at that time, and we
will then make a decision as to whether we will file a registration statement. We cannot assure that we will decide to file a registration statement or that such rights will be available to ADS holders and shareholders located in the United States.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

BUSINESS

Overview

We are one of the leading passenger airlines
in Latin America and the main air cargo operator in the region. We currently provide domestic and international passenger services in Chile, Peru, Ecuador and Argentina. We carry out our cargo operations through the use of belly space on our
passenger flights and dedicated cargo operations using freighter aircraft through our cargo airlines in Chile, Brazil, Colombia and Mexico. In 2007, we initiated a strategy for stimulating demand for air travel in our domestic markets by offering
lower-fare options to travelers, lowering our costs and increasing the aircraft utilization rates and efficiency of operations. For more information about our short-haul operations see Business of the Company Passenger
OperationsBusiness Model for Domestic Operations below.

As of March 31, 2009, we serviced 15 destinations in Chile, 14
destinations in Peru, 12 destinations in Argentina, 2 destinations in Ecuador, 15 destinations in other Latin American countries and the Caribbean, 3 destinations in the United States, 1 destination in Canada, 2 destinations in Europe and 4
destinations in the South Pacific. In addition, as of March 31, 2009, through our various code-share agreements, we offered service to 63 additional international destinations. We provide cargo service to all our passenger destinations and to
approximately 16 additional destinations served only by freighter aircraft. We also offer other services, such as ground handling, courier, logistics, and maintenance.



17



---

##### Table of Contents

Lan Airlines S.A. is a publicly-held stock
corporation (sociedad anónima abierta) incorporated under the laws of Chile. Our principal executive offices are located at Presidente Riesco 5711, 20thfloor, Las Condes, Santiago, Chile and our general telephone number at this location is (56-2) 565-2525.

History of
the Company

The Chilean government founded Lan Airlines (formerly Lan Chile S.A.) in 1929. Lan Airlines was a government-owned company
from 1929 until its incorporation in 1983. Lan Airlines began international service to Buenos Aires, Argentina in 1946, to the United States in 1958 and to Europe in 1970. In 1989, the Chilean government sold 51% of Lan Airlines capital stock
to Chilean investors and to Scandinavian Airlines System. In 1994, our controlling shareholders together with other major shareholders acquired 98.7% of Lan Airlines stock, including the remaining stock held by the Chilean government, in a
series of transactions. As of March 31, 2009, the controlling shareholders held 51.84% of our capital stock. For more information about our controlling shareholders, see Controlling Shareholders and Related Party
Transactions under Item 7.

In 1997 LAN was listed on the New York Stock Exchange, becoming the first Latin American airline to
trade its ADRs on this financial market.

Since this acquisition of our capital
stock in 1994 and the appointment of our current management, we have grown our revenue base and maintained our profitability every year despite significant challenges. Additionally, we have created a comprehensive network across the region by
forming, together with local partners, or acquiring, passenger affiliates in Peru, Ecuador, and Argentina and cargo affiliates in Brazil, Mexico and Colombia. In early 2004, we changed our corporate image and started using the LAN brand
in order to better reflect the common values and attributes present in all the companies forming our network. We have complemented our own network with a set of bilateral alliances with carriers such as American Airlines, Iberia and Qantas, and have
been a member of the oneworld® alliance since 2000.

Organizational Structure

LAN is a company primarily involved in the transportation of passengers and cargo. Our operations
are carried out principally by Lan Airlines and also by a number of different subsidiaries. As of March 31, 2009, in the passenger business we operated through five main airlines: Lan Airlines, Transporte Aéreo S.A. (which does business
under the name Lan Express), Lan Peru S.A. (Lan Peru), Aerolane Líneas Aéreas Nacionales del Ecuador S.A. (Lan Ecuador), and Lan Argentina S.A. (Lan Argentina, previously Aero 2000 S.A.).

In the passenger business we market our sales primarily under the LAN brand. As of March 31, 2009 we held a 99.9% stake
in Lan Express through direct and indirect interests, a 70.0% stake in Lan Peru through direct and indirect interests, a 72.0% indirect stake in Lan Ecuador and a 90.0% indirect stake in Lan Argentina.

Our cargo operations are carried out by a number of companies, including Lan Airlines and Lan Cargo, and are complemented by the operations of certain
related companies, such as Aero Transportes Mas de Carga S.A. de C.V. (MasAir), in Mexico, Aerolinhas Brasileiras S.A. (ABSA), in Brazil and Linea Aérea Carguera de Colombia S.A. (LANCO), in Colombia. As of
March 31, 2009, we held direct and indirect participations in MasAir (69.2%), ABSA (73.3%), and LANCO (100%). In the cargo business, we market ourselves primarily under the Lan Cargo brand.

In addition to our air transportation activities, we provide a series of ancillary services. We offer handling services, courier services and logistics,
small package and express door-to-door services through Lan Airlines and various subsidiaries.

Competitive Strengths

Our strategy is to maximize shareholder value by increasing revenues and profitability through leveraging the operational efficiencies between our cargo
and passenger divisions, thoroughly planning for our expansion efforts and carefully controlling costs. We plan to accomplish these goals by both focusing on our existing competitive strengths and implementing new strategies to fuel our future
growth. We believe our most important competitive strengths are:



18



---

##### Table of Contents

Leading Presence in Key South American Markets

We are one of the main international and domestic passenger airlines in Latin America, as well as the largest cargo operator in Chile and most of the
South American markets that we serve. We hold the largest market share of passenger traffic to and from Chile, Peru and Ecuador, as well as the largest market share of domestic passenger traffic in both Chile and Peru. More recently, we have also
achieved a solid and growing position in the Argentine domestic market through Lan Argentina and in the Argentine international market through Lan Argentina and our other passenger airlines. We are also strengthening our presence in the Ecuadorian
market, where we began domestic passenger operations on April 6, 2009. We are also the leading air cargo operator within, to and from South America, and we are consolidating our leadership through new cargo operations in Colombia and in the
Brazilian domestic market. Our international and domestic passenger and cargo operations have increased substantially over the past four years in terms of capacity, traffic and revenue. Since 2004, passenger, cargo and total traffic revenues have
grown 144.6%, 91.0% and 122.8%, respectively.

Diversified Revenue Base from both Passenger and Cargo Operations

We believe that one of our distinct competitive advantages is our ability to profitably integrate our scheduled passenger and cargo operations. We take
into account potential cargo services when planning passenger routes, and also serve certain dedicated cargo routes using our freight aircraft, when needed. By adding cargo revenues to our existing passenger service, we are able to increase the
productivity of our assets and maximize revenue, which has historically covered fixed operating expenses per flight, lowered break-even load factors and enhanced per flight profitability. Additionally, this revenue diversification helps offset
seasonal revenue fluctuations and reduces the volatility of our business over time. As of December 2008, passenger revenues accounted for 63.1% of total revenues and cargo revenues accounted for 33.7% of total revenues.

Attractive Cost Structure with High Utilization of our Assets and Productive Personnel

We believe that we have a highly competitive cost structure with a cost per ATK of 51.2 cents in 2008. Our cost advantage arises mainly from our
productive and committed employees, high aircraft utilization, modern and fuel-efficient fleet and cost-conscious culture. Our wages and labor costs accounted for approximately 15.2% of total costs in 2008, which we believe is a lower percentage
than that of many other U.S. and European carriers. Our itineraries and aircraft rotations are designed to maximize aircraft utilization. During 2008, our long-haul aircraft (Boeing 767-300 passenger and Airbus A340-300s) operated an average of
approximately fourteen hours per day. As a result of the implementation of our new business model for short-haul operations, which began operating in 2007, we have increased the utilization of our narrow body aircraft to reach more than ten hours by
the end of 2008. In May 2008, we completed the phase out of the B737-200 from our fleet. Our short haul fleet is now entirely composed of Airbus A320-Family Aircraft.

Strong Brand Teamed with Key Global Strategic Alliances

In March 2004 we launched our new brand, LAN, under which we operate all of our international passenger airlines. This brand commonality enables our customers to better identify with the high standards of
service and safety that are common to all of our airlines. Our new image also has improved the visibility of our brand, and the cost effectiveness and efficiency of our marketing efforts as we continue to expand in our existing and new markets.
Additionally, we are a member of the oneworld® alliance, and have also entered into bilateral agreements with strategic partners such as American Airlines,
Iberia and Qantas, among others, whose leading presence in the markets that they serve creates a truly global reach for our passengers. In December 2007 we implemented a commercial agreement with the Brazilian airline TAM Linhas Aereas
(TAM), through which we hope to improve connectivity between Brazil and the regional markets served by LAN. Our passenger alliances and commercial agreements provide our customers with approximately 700 travel destinations, a combined
reservations system, itinerary flexibility and various other benefits, which substantially enhance our competitive position within the Latin American market. On April 1, 2007, Lan Ecuador and Lan Argentina became members of the
oneworld® alliance. With these new memberships, all the companies in the LAN group are now members of this alliance.

Optimized Fleet Strategy

We make
optimal use of our fleet structure through a combination of fewer aircraft types, modern aircraft and staggered lease maturities. We carefully select our aircraft based on their ability to effectively and efficiently serve our short- and long-haul
flight needs, while still striving to minimize the number of aircraft types we operate. For short-haul flights we operate Airbus A320-Family Aircraft. As of May 18, 2008, we stopped using Boeing 737-200



19



---

##### Table of Contents

aircraft in our Chilean domestic operations. For long-haul passenger and cargo flights we operate Boeing 767-300 passenger aircraft and Boeing 767-300
Freighters, respectively. For ultra long-haul service, such as between Santiago and Madrid and between Santiago and Auckland, we use Airbus A340-300 aircraft. Having a fleet with minimal aircraft types reduces inventory costs, as fewer spare parts
are required, and reduces the need to train our pilots to operate different types of aircraft.

The average age of our fleet as of
March 31, 2009 was 5.2 years, making our fleet one of the most modern in Latin America. The phasing out of our Boeing 737-200s, our oldest aircraft, which was completed in May 2008, contributed to reducing the average age of our fleet.
Additionally, we expect that our purchase orders of additional aircraft for delivery between 2009 and 2019 will further reduce the average age of our fleet. We believe that having a younger fleet makes us more cost competitive through reduced fuel
consumption and maintenance costs. We also believe that our modern fleet has enabled us to enjoy a high degree of performance reliability.

We announced in June and July 2007 historically large orders for new passenger and freighter aircraft in order to further improve our fleet. We have scheduled four Boeing 777 Freighter aircraft (two of which will be leased and two owned) to
be delivered between 2009 and 2012. We have ordered thirty-two Boeing 787 Dreamliners (six of which will be leased and twenty-six owned) to be delivered between 2011 and 2016, although production delays might require us to change the
anticipated delivery schedule. These are the largest orders for these types of aircraft in the region and provide the basis for LANs commitment to remain a leader in commercial aviation in Latin America.

Additionally, our leased fleet is structured with staggered lease maturities over time to create the strategic flexibility to expand or reduce capacity
according to market conditions. We believe that our aircraft and the flexibility of our fleet allow us to maximize aircraft utilization by adapting rapidly to changes in passenger and cargo demand in the markets that we serve.

Strong Financial Position with Track Record of Growth and Profitability

We have historically managed our business to maintain financial flexibility and a strong balance sheet in order to accommodate our growth objectives while
being able to respond to changing market conditions. We are one of the few investment-grade rated airlines in the world. We have built our strong financial position by preserving our financial liquidity and continuing to structure long-term
financing for newly acquired aircraft. Our financial flexibility has allowed us to secure large aircraft orders, including an important part of our current re-fleeting program at attractive financing rates. In 2007, we completed a US$320 million
equity offering in the domestic and international financial markets. This equity offering further strengthened our balance sheet, reduced our leverage ratio and improved our cash position, all of which better enable us to continue financing our
fleet expansion and renewal plans. We also monitor and seek opportunities to reduce financial risks associated with currency, interest rate and jet fuel price fluctuations. Over the last four years, while much of the airline industry has faced
significant competitive and liquidity crises, we have enjoyed a 116.7% compound growth rate in our total revenues while remaining consistently profitable.

Business Strategy

The principal areas in which we plan to focus our efforts going forward are as follows:

Continue to Grow Both our Passenger and Cargo Networks

We currently intend to continue to expand our capacity over the next several years to accommodate robust long term growth in both passenger and cargo demand in the markets we target. We plan on expanding our
operations not only in the markets we currently serve but also into new South American markets where we believe demand exists for our combination of passenger and cargo services. To meet this growth,



| |  |  | as of March 31, 2009, we had an order book of fifteen latest generation Airbus 320-Family Aircraft to be delivered between 2010 and 2011 and seven Boeing
767-300 wide body passenger aircraft to be delivered between 2009 and 2012;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in 2007 we ordered four Boeing 777 Freighters, two of which have been delivered in the first months of 2009 and the other two with expected delivery in 2011 and
2012, respectively; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we also ordered thirty-two Boeing 787 Dreamliner passenger aircraft to be delivered between 2011 and 2016, but delays in the assembly line of the Boeing 787
aircraft have postponed the deliveries of those aircraft for twenty to twenty-eight months. We are currently working on a transition fleet in order to compensate for the expected delays in delivery of the Boeing B787 aircraft.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

##### Table of Contents

We will continue to leverage the benefits of combining our passenger and cargo operations. Our passenger
and cargo operations are equally important aspects of our business, and we dedicate the necessary resources, employees, facilities, management and fleet to enable both operations to provide high-quality service and to compete effectively in their
respective markets.

Enhance the Profitability of our Short-Haul Operations through Our New Business Model

We plan to continue with the implementation of the initiatives launched in 2007 to redesign our short-haul business model, specifically in the domestic
markets in Chile and Peru. A key objective of this program has been to increase the utilization of our fleet through modified itineraries that include more point-to-point and overnight flights and faster turn around times. Our Boeing 737-200 fleet
was completely phased out in May 2008 in favor of the new Airbus 320-Family Aircraft. These initiatives have increased efficiency and improved the margins of LANs short-haul operations. In addition, the new fleet allows for lower unscheduled
maintenance costs, lower fuel consumption, and operational and cost efficiencies achieved through operating fewer fleet types. Other key objectives of our new business model include a reduction in sales and distribution costs through increased
Internet penetration, reduced agency commissions, and increased self check-in service through web check-in and airport kiosks. We expect that these initiatives, together with simplifications in back-office and support functions, will continue to
allow us to expand operations while controlling fixed costs, spurring a reduction in overhead costs per ASK by year-end 2009. We have begun to pass on a portion of these operating efficiencies to consumers through fare reductions, which has
stimulated additional demand and enhanced our overall profitability.

Maintain Excellent Customer Satisfaction

In both our passenger and cargo businesses, we focus on delivering high quality services that are valued by our customers. In our passenger businesses we
strive to achieve high on-time performance, world class on-board service on long-haul flights, attractive and convenient pricing and quick check-in for short-haul flights, and the comfort afforded by a modern fleet. During the first half of 2009 we
completed the reconfiguration of the cabins of all our long-haul aircraft, including both the Boeing 767 and the Airbus A340 passenger aircraft, in order to incorporate our new Premium Business Class including full-flat seats, as well as
improvements in economy class which include a state-of-the-art on-board entertainment system. Our frequent flyer program, LANPASS, provides travel benefits and rewards to almost three million loyal customers in Chile, Argentina, Peru and Ecuador as
well as in other countries where we operate. In the cargo business, we focus on providing reliable service, taking advantage of our ability to handle different types of cargo as well as significant cargo volumes, and leveraging our facilities in key
gateways, such as Miami, to ensure optimal handling of our customers needs. We continually assess opportunities to incorporate service improvements in order to respond effectively to our customers needs.

Continued Emphasis on Safety

Our top
priority is safety, and we have structured our operations and maintenance to focus on safe flying. Our main maintenance facilities are certified by the FAA, DGAC and other civil aviation authorities. Our flight and maintenance safety procedures are
certified under ISO 9001-2000 standards. We have programs in place to train our crews and mechanics to world-class standards both at facilities abroad or at our training centers, which we have developed in association with high-quality partners.



21



---

##### Table of Contents

BUSINESS OF THE COMPANY

Airline Operations and Route Network

We are one of the main air transport operators in Latin
America. As of March 31, 2009, we operated passenger airlines in Chile, Peru, Ecuador and Argentina. We are also the largest air cargo operator in the region. Our international and domestic passenger and cargo operations and services have
increased substantially over the past five years in terms of capacity, traffic and revenue.

The following table sets forth our gross
traffic revenues by activity for the periods indicated.



|                         |  |                         |  |         |  |         |  |         |  |        
|------------------------ |  | ----------------------- |  | ------- |  | ------- |  | ------- |  | -------
|                         |  | Year ended December 31,
|                         |  | 2004                    |  | 2005    |  | 2006    |  | 2007    |  | 2008   
|                         |  | (in US$ millions)      
|The Company(1)           |  |                         |  |         |  |         |  |         |  |        
|Total passenger revenues |  | 1,169.0                 |  | 1,460.6 |  | 1,813.4 |  | 2,197.2 |  | 2,858.9
|Total cargo revenues     |  | 799.7                   |  | 910.5   |  | 1,072.7 |  | 1,154.3 |  | 1,527.1
|Total traffic revenues   |  | 1,968.7                 |  | 2,371.1 |  | 2,886.1 |  | 3,351.5 |  | 4,386.0



|(1) | Information provided for the Company consolidates Lan Peru beginning August 2001, Lan Ecuador beginning April 2003, Lan
Dominicana beginning June 2003 and ending in May 2004, and Lan Argentina beginning June 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Passenger Operations

General

As of March 31, 2009,
our passenger operations were performed through airlines in Chile, Peru, Ecuador and Argentina where we operate both domestic and international services. Between June 2003 and May 2004, we also operated international services to and from the
Dominican Republic through Lan Dominicana, that we subsequently suspended due to market conditions.

As of March 31, 2009, our network
consisted of 15 destinations in Chile, 14 destinations in Peru, 2 destinations in Ecuador, 12 destinations in Argentina, 15 destinations in other Latin American countries and the Caribbean, 3 destinations in the United States, 1 destination in
Canada, 2 destinations in Europe and 4 destinations in the South Pacific. Within Latin America, we have routes to and from Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, the Dominican Republic, Ecuador, Mexico, Peru, Uruguay and Venezuela. We
also fly to a variety of international destinations outside Latin America, including Auckland, Frankfurt, Los Angeles, Madrid, Miami, New York, Toronto, Papeete (Tahiti) and Sydney. In addition, as of March 31, 2009, through our various
code-share agreements, we offer service to 24 additional destinations in North America, 13 additional destinations in Europe, 25 additional destinations in Latin America and the Caribbean (including Mexico), and 1 destination in Asia.



22



---

##### Table of Contents

The following table sets forth certain of our passenger operating statistics for international and
domestic routes for the periods indicated.



|                                                          |  |                         |  |            |  |            |  |            |  |           
|--------------------------------------------------------- |  | ----------------------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|                                                          |  | Year ended December 31,
|                                                          |  | 2004                    |  | 2005       |  | 2006       |  | 2007       |  | 2008      
|The Company(1)
(2)                                        |  |                         |  |            |  |            |  |            |  |           
|ASKs (million)                                            |  |                         |  |            |  |            |  |            |  |           
|International                                             |  | 16,432.0                |  | 17,995.4   |  | 19,735.7   |  | 23,908.9   |  | 25,378.3  
|Domestic                                                  |  | 4,715.5                 |  | 5,691.9    |  | 6,664.3    |  | 7,647.1    |  | 9,797.8   
|Total                                                     |  | 21,147.4                |  | 23,687.3   |  | 26,400.0   |  | 31,556.1   |  | 35,176.2  
|RPKs (million)                                            |  |                         |  |            |  |            |  |            |  |           
|International                                             |  | 11,971.3                |  | 13,623.7   |  | 15,057.2   |  | 18,296.8   |  | 19,507.4  
|Domestic                                                  |  | 3,154.0                 |  | 3,867.1    |  | 4,438.3    |  | 5,704.4    |  | 7,444.5   
|Total                                                     |  | 15,125.3                |  | 17,490.8   |  | 19,495.5   |  | 24,001.2   |  | 26,951.6  
|Passengers (thousands)                                    |  |                         |  |            |  |            |  |            |  |           
|International                                             |  | 3,414.0                 |  | 4,359.5    |  | 4,881.6    |  | 6,135.7    |  | 8,046.4   
|Domestic                                                  |  | 3,165.0                 |  | 3,607.4    |  | 3,999.7    |  | 4,955.6    |  | 5,193.5   
|Total                                                     |  | 6,578.9                 |  | 7,966.9    |  | 8,881.3    |  | 11,091.3   |  | 13,239.9  
|Passenger yield (passenger revenues/RPKs, in US cents)(3) |  |                         |  |            |  |            |  |            |  |           
|International                                             |  | US¢ 7.29                |  | US¢   7.77 |  | US¢   8.45 |  | US¢   8.53 |  | US¢   9.96
|Domestic                                                  |  | US¢ 9.95                |  | US¢ 11.89  |  | US¢ 12.19  |  | US¢ 11.16  |  | US¢ 12.29 
|Combined yield(4)                                         |  | US¢ 7.73                |  | US¢   8.35 |  | US¢   9.30 |  | US¢   9.15 |  | US¢ 10.61 
|Passenger load factor (%)                                 |  |                         |  |            |  |            |  |            |  |           
|International                                             |  | 72.9%                   |  | 75.7%      |  | 76.3%      |  | 76.5%      |  | 76.9%     
|Domestic                                                  |  | 66.9%                   |  | 67.9%      |  | 66.6%      |  | 74.6%      |  | 76.0%     
|Combined load factor(5)                                   |  | 71.5%                   |  | 73.8%      |  | 73.8%      |  | 76.1%      |  | 76.6%     



|(1) | Information provided for the Company consolidates Lan Ecuador beginning April 2003, Lan Dominicana beginning June 2003 and ending in May 2004, and Lan Argentina
beginning June 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of this annual report, domestic passenger operations include domestic operations in Chile, Peru, and Argentina and are no longer limited to operations in Chile.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Domestic yields for 2004 and 2005 are for domestic operations in Chile only.
|--- | ----------------------------------------------------------------------------

|(4) | Aggregate of international and domestic passenger yield.
|--- | --------------------------------------------------------

|(5) | Aggregate of international and domestic passenger load factor.
|--- | --------------------------------------------------------------

International Passenger Operations

As of March 31, 2009, we operated scheduled international
services from Chile, Peru, Ecuador and Argentina through Lan Airlines, and Lan Express in Chile, Lan Peru in Peru, Lan Ecuador in Ecuador and Lan Argentina in Argentina. International passenger traffic has grown significantly in the past couple of
years due to demand growth, market share gains, increased connecting traffic to and from other Latin American countries, the launch of new routes and additional frequencies on existing routes, and expansion into new markets.



23



---

##### Table of Contents

Our international network combines our Chilean, Peruvian, Ecuadorian and Argentinean affiliates. We have
operated international services out of Chile since 1946, and we greatly expanded our flights out of Peru and Ecuador with the creation of Lan Peru and Lan Ecuador in 1999 and 2003, respectively. In August 2006, we expanded our international
operations through Lan Argentina, which until then had only been offering domestic flights. This strategy is aimed at enhancing our value proposition by offering customers more destinations and routing alternatives, maximizing aircraft utilization,
increasing load factors, leveraging complementary seasonal patterns, and optimizing our commercial efforts. We provide long-haul services out of our four main hubs in Santiago, Lima, Guayaquil and Buenos Aires. We also provide regional services from
Chile, Peru, Ecuador and Argentina. Since 2004, we have grown our intra-Latin American operations out of Lima to position it as our main regional hub. The following table sets forth the destinations served from each of the aforementioned countries
as of March 31, 2009:



|                  |  |                    |  |                      
|----------------- |  | ------------------ |  | ---------------------
|Country of Origin |  | Destination        |  | Number ofDestinations
|Chile             |  | Argentina          |  | 6                    
|                  |  | Bolivia            |  | 2                    
|                  |  | Brazil             |  | 3                    
|                  |  | Colombia           |  | 1                    
|                  |  | Cuba               |  | 1                    
|                  |  | Ecuador            |  | 1                    
|                  |  | Peru               |  | 1                    
|                  |  | Uruguay            |  | 2                    
|                  |  | Venezuela          |  | 1                    
|                  |  | Dominican Republic |  | 1                    
|                  |  | Mexico             |  | 2                    
|                  |  | United States      |  | 3                    
|                  |  | Canada             |  | 1                    
|                  |  | Spain              |  | 1                    
|                  |  | Germany            |  | 1                    
|                  |  | New Zealand        |  | 1                    
|                  |  | Falkland Islands   |  | 1                    
|                  |  | Australia          |  | 1                    
|Peru              |  | Argentina          |  | 1                    
|                  |  | Bolivia            |  | 2                    
|                  |  | Chile              |  | 1                    
|                  |  | Colombia           |  | 2                    
|                  |  | Ecuador            |  | 2                    
|                  |  | Venezuela          |  | 1                    
|                  |  | Mexico             |  | 1                    
|                  |  | United States      |  | 3                    
|                  |  | Spain              |  | 1                    
|Ecuador           |  | Argentina          |  | 1                    
|                  |  | Chile              |  | 1                    
|                  |  | United States      |  | 2                    
|                  |  | Spain              |  | 1                    
|Argentina         |  | United States      |  | 1                    
|                  |  | Brazil             |  | 1                    
|                  |  | Chile              |  | 1                    
|                  |  | Dominican Republic |  | 1                    
|                  |  | Peru               |  | 1                    



24



---

##### Table of Contents

In line with its orientation to service and permanent commitment to provide its customers with the best
products on the market, in May 2009 LAN completed the retrofit of all its long-haul fleet (including its Boeing 767 and Airbus A340 passenger aircraft) with the new Premium Business class and improved Economy class. Combining the best features of
the traditional First and Business classes, the new Premium Business includes 180 degrees recline full-flat seats which allow passengers to sleep with the maximum comfort and privacy. Premium Business also includes top-level personalized in-flight
service. Changes in Economy class include new seats with a greater recline angle, a cushion that slides forward for increased comfort and convenience, and larger individual video monitors for each seat.

During the second half of 2008 we launched a new class called Premium Economy for our Airbus 320 Family Aircraft fleet in order to better
respond to the needs of LANs business travelers flying on our regional Latin American network. We created the Premium Economy class by converting the first three rows in our short-haul Airbus fleet (which regularly have eighteen seats) into a
twelve-seat area in order to provide passengers with additional comfort and privacy. We also provide pre-boarding and on-board services of a premium class level, as well as access to VIP lounges and preferred baggage claim. We retrofitted our Airbus
fleet with convertible seats so that such aircraft may be easily converted from a full economy flight used on domestic routes to a Premium Economy / Economy flight flown on regional routes.

According to JAC data, Chilean international air passenger traffic increased 3.7% in 2008 as compared to 2007, to approximately 22,146 million RPKs.
We had a 50.8% market share in 2008, based on RPKs, compared to 50.9% in 2007. Our international operations out of Chile can be divided into four main segments: to North America, to Europe, to the rest of Latin America, and to the Pacific. As of
March 31, 2009, the other principal carriers that transport passengers between Chile and North America with direct flights included American Airlines, Delta Airlines, and Air Canada. Grupo TACA and COPA also participate in the Chile-North
American markets with stopovers in their respective Central American hubs. Our main competitors on routes between Chile and Europe were Air France-KLM, Iberia and Swiss. On regional routes our main competitors were Aerolineas Argentinas, Air Canada,
Avianca, GOL, TACA and TAM. We were the only airline operating between Chile and the South Pacific.

Based on the information provided by
the Peruvian DGAC, international traffic to and from Peru grew 17.8% between 2007 and 2008 to approximately 4.6 million passengers. Both in 2007 and 2008, we had 36.0% of the international market share. Our Peruvian international operations can
be divided into three main segments: to North America, Europe and to the rest of Latin America. As of March 31, 2009, our main competitors on direct routes to North America included American Airlines, Continental Airlines, Delta Airlines and
Spirit Airlines. Grupo TACA and COPA also participate in the Peru-North American markets with stopovers in their respective Central American hubs. On routes to Europe, our main competitors were Iberia, Air Comet and Air France-KLM. The other
principal carriers operating between Peru and the rest of Latin America as of that date included Aerolineas Argentinas, TACA Peru, Spirit, Avianca and GOL.

The Ecuadorian international market increased 3.1% to approximately 2.6 million passengers between 2007 and 2008. According to travel agency statistics (BSP) and our estimates, we had a 26.5% market
share of the Ecuadorian international market in 2008 compared to 24.9% in 2007. Our Ecuadorian international operations can be divided into three main segments: to North America, to Europe and to the rest of Latin America. As of March 31, 2009,
on direct routes to North America, our main competitors were American Airlines, Continental Airlines, Delta Airlines and Aerogal. Grupo TACA and COPA also participate in the Ecuador-North American markets with stopovers in their respective Central
American hubs. On routes to Europe, our main competitors were Air Comet, Iberia, and Air France-KLM. On regional routes, our main competitors were TACA, COPA and Avianca.



25



---

##### Table of Contents

Based on our internal estimates, the Argentinean international market increased 7.4% to approximately
7.9 million passengers between 2007 and 2008. Our estimated market share of the Argentinean international market was 16.4% in 2008 compared to 17.9% in 2007. Our Argentinean international operation consists of operations between Buenos Aires
and Miami, the Dominican Republic, Sao Paulo, Lima, Bogotá and Santiago. As of March 31, 2009, on the Miami route, our main competitors were American Airlines and Aerolineas Argentinas. TAM, Grupo TACA and COPA also participate in the
Argentina-North American markets with stopovers in their respective hubs. On the Dominican Republic route, our main competitors were COPA and Aerolineas Argentinas. On the Sao Paulo route, our main competitors were TAM, GOL and Aerolineas
Argentinas. On the Lima route, our main competitor was Grupo TACA. On the Bogotá route, our main competitor was Avianca. On the Santiago route, our main competitors were Aerolineas Argentinas and Air Canada.

Business Model for Domestic Operations

In 2007 we initiated an important project to redesign our domestic business operations with the goal of increasing efficiency and improving the margins of LANs short-haul operations, specifically with respect to our domestic
operations in Chile and Peru. The new business model was first tested in the last quarter of 2006. A key element of this project has been to significantly increase the utilization of our narrow body fleet, which we have been achieving through
modified itineraries including more point-to-point and overnight flights. We removed Boeing 737-200 aircraft from our fleet in favor of the new more efficient Airbus A320-Family Aircraft. The Airbus A320-Family Aircraft fleet utilization increased
to over ten block hours per day in 2008. The transition to a newer fleet allows for lower unscheduled maintenance costs as well as cost efficiencies achieved through operating fewer fleet types and operational efficiencies, including lower fuel
consumption.

Other key elements of our new business model are the reduction in sales and distribution costs through higher Internet
penetration and reduced agency commissions, a faster turn around time, and increased self-check-in service through web check-in and kiosks at airports. These initiatives, together with simplifications in back-office and support functions, will
continue to allow us to expand operations while controlling fixed costs, spurring a reductions in overhead costs. We have begun to pass on these operating efficiencies to consumers through significant fare reductions, which we expect will have a
strong effect of stimulating new demand.

In 2007, we implemented all aspects of this new business model in the Chilean and Peruvian
domestic markets. We launched our new short-haul business model on all domestic routes in Chile in April 2007, after a marketing campaign which began in March 2007. We launched the new model in all domestic Peruvian routes in January 2007.

As a result of the implementation of this model, we increased the number of passengers transported in all domestic markets. Between 2006
and 2008, the number of passengers transported increased 40% (from 2.5 million to 3.5 million) in Chile, 76% (from 1.7 million to 3.0 million) in Peru and 150% (from 0.6 million to 1.5 million) in Argentina.

We plan to continue with the implementation of this business model in 2009 as we look for ways to increase operational efficiency, encourage direct sales
and self check-in, and implement new sales strategies aimed at stimulating demand. Efficiency and productivity improvements are especially important in light of the current global macroeconomic scenario.

Operations within Chile

Through the
companies Lan Airlines and Lan Express we are the leading domestic passenger airline in Chile. We have operated domestic flights in Chile since the Companys creation in 1929. As of March 31, 2009, we flew to fifteen destinations within
Chile (not including Easter Island, which we consider an international destination even though it is a part of Chile, because we serve it with long-haul aircraft) as well as some seasonal destinations. Lan Airlines and Lan Express have integrated
passenger operations, including operations under the same two-letter designator reservation code, and have coordinated fare structures, scheduling and other commercial matters in order to maximize cooperative benefits and revenues for
the two carriers. Our strategy is based on providing frequent service to Chiles main destinations, offering a reliable and high quality service, and leveraging our strong brand position in Chile and abroad. We evaluate our network of domestic
routes on an ongoing basis in order to achieve optimal operational efficiency and profitability. Our strategic objective is to maintain our leadership position in our domestic routes.



26



---

##### Table of Contents

During 2008 we operated an average fleet of sixteen Airbus A320-Family Aircraft in the Chilean domestic
market, and we plan to operate an average fleet of eighteen Airbus A320-Family Aircraft in 2009. Domestic operations in Chile were positively affected by the greater utilization of the latest-generation Airbus fleet and the retirement of the Boeing
737-200s, which were completely phased-out as of May 2008. The new business model was launched nationwide within Chile in April 2007. As a result, demand and capacity expanded significantly in 2008 by 17% and 11%, respectively, leading to an
increase in load factor of three percentage points, which averaged 76% in 2008. During 2008 we continued to stimulate demand by decreasing fares even though the fuel surcharges were higher due to the record-high fuel prices reached in July 2008. We
reduced sales costs by increasing direct sales from 66% in 2007 to 72% in 2008 (with 49% of our 2008 sales done through the Internet) and by reducing agency commissions from 6% to 1% in February 2007. We also increased fleet utilization, crew
productivity and the average flight leg through schedule changes. Additionally, we simplified our processes, which helped to increase the self check-in rate from 70% in 2007 to 75% in 2008. Finally, we utilized the greater efficiency of the Airbus
aircraft to reach operational efficiencies such as reducing the turn-around time, increasing our punctuality (which reached 90% in 2008) and lowering fuel consumption. As of March 2009, we operated 100% of our ASKs with our Airbus A320-Family
Aircraft fleet

According to JAC data, the Chilean domestic market as a whole transported approximately 4.7 million passengers in 2008
and it had an increase of 14% in terms of RPK. Our domestic market share in Chile was 75% for 2008 and 81% as of March 31, 2009. During 2008, our main competitors in the domestic market were Sky Airlines and Aircomet Chile (formerly known as
Aerolineas del Sur) which terminated operations in October 2008. Sky Airlines currently operates a fleet of nine Boeing 737-200 and one Airbus A320 and flies to thirteen destinations. In addition, Principal Airlines has announced it will launch its
regular domestic operations during June 2009.

There are currently no foreign airlines participating in the Chilean domestic market. Chile
permits foreign airlines to operate in Chile if the airlines home country gives similar treatment to Chilean airlines. Additionally, there are no regulatory barriers that prevent a foreign airline from creating a Chilean subsidiary and
entering the Chilean domestic market using that subsidiary.

Operations within Peru

Lan Peru started operations in 1999 with domestic and international flights from Lima. During the past ten years, Lan Peru has expanded consistently,
consolidating its domestic operations and coverage of relevant markets.

Regarding the domestic market, Peru has a tremendous potential in
comparison to other Latin American markets based on per capita travel ratios. In 2008 the domestic market reached 3.7 million passengers and 4.0 million passengers are expected for 2009. According to data provided by the
Corporación Peruana de Aeropuertos y Aviación Comercial S.A. (CORPAC), our domestic market share in Peru was 67% for 2006, 68% for 2007 and 73% for 2008. A total of 3,027,076 passengers traveled on Lan Perus
domestic Peruvian routes in 2008, which represented an increase of 33.2% compared to 2007. As of March 31 2009, competitors included Star Peru and Taca.

During 2008, Lan Peru increased operations covering all fourteen main destinations in Peru (Piura, Chiclayo, Trujillo, Arequipa, Tacna, Juliaca, Cusco, Puerto Maldonado, Pucallpa, Tarapato, Iquitos, Lima, Cajamarca
and Tumbes) operating two or more daily flights to each city (except the newly opened destinations: Cajamarca and Tumbes). In 2009, Lan Peru expects to continue increasing daily operations and supply to the main destinations. This growth in
operations has been commercially supported with a successful demand stimulation strategy, adequate segmentation and innovative campaigns, in order to achieve high load factors.

Regarding airport services, Lan Peru has over 100 domestic daily arrivals and departures, with self-check levels growing steadily in the past years and
reaching 78% (web and kiosks) by the end of 2008.

Lan Peru has one of the most modern fleets in Latin America, operating fourteen Airbus
A319 (ten for domestic and four for regional operations). This fleet is ideal for the characteristics of Peruvian routes, as it maximizes available payload in high altitude airports with tail wind conditions. Regarding efficiency, a uniform fleet
allows for low maintenance costs, high crew productivity and operational flexibility.

In 2008, Lan Peru was voted the preferred airline by
executives in Lima and the leading company in web sales in Peru through Lan.com. In addition, Lan Peru was recognized with the Gold Effie Award in the new services category for its Lan.com Payment Options campaign.



27



---

##### Table of Contents

Regarding safety standards, in 2008 Lan Peru obtained an IATA Operational Safety Audit (IOSA)
recertification, ensuring that our operations are aligned with International Air Transport Association (IATA) norms and procedures. During the second half of 2009, Lan Peru intends to launch Area Navigation (RNAV) technology
in our domestic flights in order to improve the precision and safety of our flights, as well as fuel efficiency.

Operations within
Argentina

Lan Argentina initiated services in June 2005, covering two Argentine domestic destinations from Buenos Aires, Cordoba and
Mendoza. Between 2005 and 2007, Lan Argentina increased the number of Argentine domestic destinations to nine adding Bariloche, Iguazu, Comodoro Rivadavia, Rio Gallegos, Ushuaia, Calafate and Salta. In June 2008, Lan Argentina initiated services to
Neuquen and in September 2008 to San Juan. In April 2009, Lan Argentina initiated services to Tucuman.

From June to November 2006, Lan
Argentina replaced all its Boeing B737-200 fleet, which consisted of five aircraft, with four Airbus A320 aircraft. We use these aircraft in both domestic and regional operations. The replacement of these aircraft enabled Lan Argentina to increase
the scope, size and efficiency of its operations. By the end of December 2008, we operated a fleet of eight Airbus A320 in our domestic operations.

In the domestic Argentine market, Lan Argentina operates in a regulated environment in which fares sold to Argentine passengers are subject to minimum and maximum prices that vary per route. In August 2006, by presidential decree, both the
floor and ceiling of the regulated price range were increased by 20%. The decree delegated to the Transportation Secretary the authority to change prices, which up to then could only be done by presidential decree, and liberalized foreign ownership
of Argentinean airlines, previously capped at 49%. In April 2008, a new presidential decree increased both the floor and ceiling of the regulated price range by 18%. In May 2008, a presidential decree further lifted the floor and the ceiling of the
domestic price range by an additional 18%. Together, these two increases resulted in a rise of almost 40% in domestic fares.

Our domestic
market share in Argentina, based on our internal estimates for December 2008 amounted to 30%. Our competitors in the Argentinean market during 2008 were Aerolineas Argentinas and its affiliate Austral. Together, these two companies held
substantially the entire remaining share of the domestic Argentine market.

Operations within Ecuador

At the end of 2008, Ecuadors National Civil Aviation Council (NCAC) granted us authorization to operate domestic flights in Ecuador. In
April 2009, we started operations between Quito and Guayaquil, currently offering forty-nine weekly flights. In the near future, we will incorporate the city of Cuenca and the Galapagos Island to our domestic routes. Our competitors in the
Ecuadorian domestic market are TAME, Icaro and Aerogal.

Passenger Alliances and Commercial Agreements

The following are our passenger alliances and partnerships as of March 2009:



| |  |  | oneworld®.In June 2000, Lan
Airlines and Lan Peru were officially incorporated into the oneworld® alliance, a global marketing alliance consisting at that time of American Airlines, British
Airways, AerLingus, Cathay Pacific Airlines, Qantas, Iberia and Finnair, which, among other benefits, offers improved service to its customers. In April 2007, JAL from Japan, Royal Jordanian from Jordan and Malev from Hungary, together with Lan
Ecuador and Lan Argentina, joined the alliance, while AerLingus withdrew from the alliance. Together, these airlines are able to offer customers travel advantages, such as approximately 700 worldwide destinations, schedule flexibility and reciprocal
frequent flyer program benefits. Additionally, oneworld® is the first alliance to deploy full interline e-ticketing between its partners.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | American Airlines.Since 1997, Lan Airlines has had an agreement with American Airlines which enables Lan Airlines and American Airlines to share carrier
codes for certain flights on global reservations systems, thereby enabling American Airlines passengers to purchase seats on Lan Airlines flights and vice-versa. The Department of Transportation, or DOT, granted antitrust immunity to our arrangement
with American Airlines in October 1999. The antitrust immunity encompasses cooperation in commercial and operational areas such as pricing, scheduling, joint marketing efforts and reductions of airport and purchasing costs, as well as further
implementation of cargo synergies in areas such as handling and other airport services. For more information see RegulationU.S.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### Table of Contents

| | Aeronautical RegulationRegulatory Authorizations in Connection With Strategic Alliances below. Through this alliance, we currently offer service
to thirty additional destinations in the United States and Canada. In 2005, the DOT granted antitrust immunity to a similar agreement between Lan Peru and American Airlines. This antitrust immunity allows enhanced coordination between Lan Peru and
American Airlines, and both companies established in 2007 code-share operations between Peru and the U.S. with additional destinations in both countries.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Iberia.In January 2001, Lan Airlines initiated a code-share agreement with Iberia, pursuant to which we offer passengers between ten and fourteen non-stop
frequencies per week between Santiago and Madrid. In subsequent years, other destinations were added to the agreement, such as Alicante, Amsterdam, Barcelona, Bilbao, Brussels, London (Heathrow), Malaga, Milan, Paris, Rome and Zurich. In 2007 Lan
Ecuador and Lan Peru set up code-share agreements with Iberia for routes between Ecuador and Peru respectively, and Spain as well as four other European destinations for each.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Qantas.In July 2002, Lan Airlines initiated a code-share agreement with Qantas to operate between Santiago, Chile and Sydney, Australia with a stopover in
Auckland, New Zealand. As of March 31, 2009, this code-share agreement included daily flights operated by Lan Airlines.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | British Airways.In 2007, Lan Airlines initiated a code-share agreement with British Airways on Lan Airlines flights between Sao Paulo and Santiago to
provide service for British Airways passengers traveling from London to Santiago through a connection in Sao Paulo. This code-share agreement also includes British Airways flights between Madrid and London.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Aeromexico.In 2004, we expanded our previous alliance with Aeromexico. The new agreement includes all of our passenger airlines. Under this alliance, we
code-share in flights to Mexico from Chile and Peru, as well as to eighteen domestic destinations in Mexico. Additionally, it provides our passengers with benefits such as easier connections and reciprocal accrual and redemption of frequent flyer
program rewards.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TAM: In 2007, Lan Airlines and Lan Peru, established regional code-share agreements with TAM. Through this agreement, LAN offers twelve additional
destinations in Brazil. LAN also code shares with Transportes Aereos del Mercosur S.A. (TAM Mercosur) with respect to flights from Santiago to Asunción, Paraguay, that are operated by TAM Mercosur. These arrangements will provide
our passengers with reciprocal accrual and redemption of frequent flyer program rewards. In 2008, Lan Argentina established a code-share agreement with TAM from Buenos Aires to Sao Paulo and vice versa. The approval process for domestic operations
is in its final stage.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other alliances and partnerships:Since 2005, we have had a code-share agreement with Korean Air. Under this agreement we place our code on Korean Air
flights between Los Angeles and Seoul, while Korean Air places its code on our flights from Los Angeles to Santiago. In 2004, LAN and Mexicana signed a frequent flyer program that allows for reciprocal accrual and allowance of frequent flyer
benefits. Since 1999, Lan Airlines has been in an alliance with Alaska Airlines Inc. which permits us to provide customers with service between Chile and three destinations in the west coast of the U.S. and Canada. Reciprocal accrual and redemption
of frequent flyer program rewards is also available for LAN customers flying on Alaska Airlines flights and vice versa.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Passenger Marketing and Sales

Even though we market our services under the common LAN brand, we differentiate
our marketing strategies between our long-haul and short-haul services.

Our long-haul marketing strategy emphasizes attributes valued by
our international customers, including reliability, high quality on-board and ground service, comfort, comprehensive coverage of key South American markets and frequent service to major overseas gateways such as New York, Los Angeles, Miami, Madrid
and Sydney. In order to strengthen our market position, we have continued improving our passenger cabins and service and constantly monitor our corporate image. As such, in 2006 we launched a retrofit program for all of our Boeing B767-300 passenger
aircraft, which merges our Business and First Classes into a Premium Business Class featuring full-flat seats, new entertainment units for both Premium Business and Economy cabins, together with a new on-board service. In 2008, LAN received awards
for Best Business Class in Latin America, from Business Traveler and Global Traveler confirming the positioning achieved by the Company. Our aim is to give our long-haul



29



---

##### Table of Contents

passengers a sense of a shorter and more pleasant flight. For our Business passengers, our cabin features and on-board service aimed at providing
the passenger with more time to rest, and for our Economy Class passengers, our upgraded entertainment units aim to make the flight a more enjoyable one. The retrofit program for our Boeing 767-300 for the new configuration was completed in December
2008. From October 2008 to May 2009 we retrofitted our Airbus A340-300 fleet, merging the Business and First Classes cabins into a Premium Business Class. We invested US$126 million in this retrofit program for all our long haul passenger aircraft.

Our short-haul operations are designed to better match the customers needs in those routes, which are punctuality, reliability,
higher frequencies, modern aircraft and efficient operations. As such, these routes now feature modern planes, most with all-leather seats, increased frequencies with more point-to-point flights, improved punctuality and streamlined processes
including Internet sales, web check-in and airport self-check-in. We have already completed the phase-out of our Boeing B737-200 fleet and replaced it with modern Airbus Family Aircraft such as A320, A319 and A318.

We are constantly focused on delivering the services and flight items valued by customers in order to maintain high levels of customer satisfaction and
we continuously monitor our customers preferences through surveys and perception studies. As a result, we created the new Premium Economy class on some regional routes in response to comments made by our business travelers. The Premium Economy
program grants our customers preferential check-in and boarding, access to our VIP lounges, priority baggage claim, exclusive cabins with only twelve passengers, and personalized attention by our cabin attendants, among other benefits.

As mentioned above, we implemented a new business model initiative in the domestic Chilean and Peruvian market that seeks to make air travel
accessible to more people through discounts and the lowest fares supported by the efficiency of operations.

During 2008 and the first
quarter of 2009, LAN has received several awards confirming LANs market position. These awards included Best Airline Based in Central/South America & Caribbean (Official Airline Guide); Best Airline in South America (Skytrax); and
Best Airline in Latin America (Latin Trade magazine).

Branding

In March 2004, we launched our new LAN brand which brought together all of our passenger services that we previously operated under the local
brands such as Lan Chile, Lan Peru and Lan Ecuador. We developed our new brand and corporate image after an extensive process supported by a leading global branding agency. Our corporate image is based on two core
concepts: reliability and warmth. We expect that using a single brand will enable our customers to better understand the common service and operating standards that exist among our airlines. Additionally, we believe that our new image will improve
the visibility of our brand, enhance flexibility, and increase the efficiency of our marketing efforts.

This marketing program involved
changing our corporate image, including our logo and aircraft livery. As a result, all of our marketing efforts are now done using audiovisual elements based on the LAN brand. During 2005 and 2006, we focused on advancing the transition to our new
brand. This included the gradual repainting of our fleet, which was completed in the second quarter of 2006. Our commercial strategy, centered on exploiting the LAN alliance concept, has been widely recognized, as exemplified by Airline Business
magazines recognition of us in 2004 with its Airline Strategy Award, Marketing.

Even though we now offer different
products for our long-haul and short-haul operations, both products are marketed under the same brand, as the corporate values behind our umbrella brand encompasses attributes applicable to both operations. This decision will result in significant
savings as we only have to promote one brand, thereby increasing the efficiency of our marketing efforts.

Distribution Channels

We use direct and indirect distribution channels. In the past few years, we have focused on streamlining our distribution strategy in order
to reduce costs and enhance the effectiveness of our commercial efforts. This effort has resulted in efficiency gains, and we believe it should lead to further benefits in the future.

Travel agents conduct indirect sales that accounted for approximately 55% of passengers during 2008. We paid these travel agents standard commissions
ranging from 0% to 9% depending on the market. Consistent with our efforts to reduce commission costs, and in line with current market practices, in recent years we have reduced standard commissions in several markets. However, we are now charging a
fee to customers for sales done through our own ticket offices or call centers in most countries, leaving the Internet as the only free-of-charge distribution channel.



30



---

##### Table of Contents

Travel agents obtain airline travel information and issue airline tickets through Global Distribution
Systems, or GDSs, that enable them to make reservations on flights from a large number of airlines. We participate actively in all major international GDSs, including Sabre, Amadeus, Galileo and Worldspan. In return for access to these systems, we
pay transaction fees that are generally based on the number of reservations booked through each system.

Direct channels refer to sales by
our own ticket offices, contact-centers and website. In 2008, direct bookings accounted for approximately 45% of all of our passengers.

We
have an extensive sales and marketing network in over thirty countries consisting of more than one hundred domestic and international points-of-sale owned by us and approximately twenty general sales agents.

Our contact-centers support the growth of our operations constituting a sales and a multi-service channel. During 2008, we continued the consolidation of
our main contact-center located in Santiago (with 700 agents of which 300 are home based), and the growth of our center in Lima (with 150 agents). We complement our contact-centers operations with third-party service providers that add
approximately 350 agents who are located in Santiago, Lima and Buenos Aires. In total, all the centers handle more than 25,000 calls/contacts a day mainly originated from all the regions where we fly (South America, North America, Europe and
Australasia) and covering four languages (Spanish, English, Portuguese and German). We have continually upgraded our systems by incorporating technological advances to enhance efficiency and customer service.

Our website, www.lan.com, is an integral part of our commercial, marketing and service efforts. Together with other direct sales initiatives, our
website provides us with an important tool to reduce our distribution costs. Our Internet-related sales have increased significantly in recent years, rising 89% in 2008 compared to 2007, and amounting to US$426.3 million in 2008. We are continually
improving our website, a key element of our new short-haul model, so that the technological platform can support the expected future growth.

Besides serving as a sales channel, we have utilized our website as a tool to provide value-added services and enhance communications. We send weekly promotional e-mails to more than 1.8 million subscribers. Members of our frequent
flyer program receive their monthly balances and other information by e-mail and can access the data and redeem awards through our website. We have an active online marketing program which brings visitors to the website from search engines and
travel-related websites.

During 2008 we continued promoting our web-based check-in service for domestic flights, allowing passengers to
obtain their boarding passes from their home or office. The system allows those passengers who are not checking-in bags, to go directly to the gate, and the remaining checked-in passengers, to leave their bags at a special bag drop counter and
proceed to the gate. In addition to web-based check-in, we have self-check kiosks in 9 airports in Chile, 5 airports in Peru and 2 airports in Argentina. As of March 31, 2009, the kiosk and web check-in utilization rate had increased to 72% for
domestic routes in Chile, 71% for domestic routes in Peru and 41% for domestic routes in Argentina.

During the last two years, 75% of the
LAN Pass awards have been redeemed online, because it is easier for our customers to find available seats and no service fees are charged.

Electronic Ticketing

In 1997, we introduced electronic tickets, commonly referred to as e-tickets, and have since worked to
increase their use. E-tickets are a key element of our sales efforts through the Internet and our call centers and they also produce important simplifications in our back-office, enabling us to significantly reduce distribution costs. In 2008,
e-ticketing reached a 100% penetration in all LAN routes.

Although in mid-2005 we
completed the implementation of this feature with all of our oneworld® partners, there are still some exceptions for interline e-ticketing that are
expected to be resolved during 2009.

Advertising and Promotional Activities

Our advertisement and promotional efforts are aimed at enhancing our brand positioning and supporting specific aspects of our commercial efforts. Our
advertising and promotional activities include the use of television, print and radio advertisements as well as direct and online marketing. The utilization of a single brand among our airlines has enabled us to launch regional campaigns focused on
highlighting key attributes such as network reliability and warmth.



31



---

##### Table of Contents

During 2008, we carried out two regional campaigns. The first one was aimed at advertising our new
in-flight entertainment system on all our long haul fleet, highlighting the fact that a rich and unique entertainment experience shortens the perceived flight time. This campaign used local television and print in Argentina, Chile, Ecuador and Peru,
as well as regional media. The second campaign promoted the advantages of shopping online at www.lan.com, and was aired in Chile and Peru.

On a country-specific level, the new model for domestic operations in Chile, launched in April 2007, has benefited from the third episode of the Ventana o Pasillo (Window or Aisle) ad campaign, supported by intense
marketing efforts involving television, radio and print.

In Peru and Argentina, we
launched campaigns to enhance awareness of attributes such as reliability and service quality. Furthermore, a specific campaign was implemented in Argentina to raise awareness of the oneworld® alliance and its benefits, which included the painting of an Airbus A320 plane with the oneworld® livery. Additionally, specific
advertisement campaigns were implemented to stimulate Internet sales, web-based check-in and service redemption, and low-season travel.

In
February 2009 we launched the marketing campaign Campaña Temporada Irresistible (Irresistible Season) to aggressively stimulate traffic during the lowest season of the year. For example, LANs international passenger
business used the 2x strategy and the domestic passenger business in Chile developed the concept of Chile for little money. These campaigns finalized on May 31, 2009 and succeeded in increasing traffic.

LAN has built a comprehensive database that includes valuable information such as flying preferences, demographic and other relevant customer
information, which is used for passenger revenue management (including targeted promotions to different customer segments), thereby reducing dilution and maximizing response rates. This type of information is also a source for customer metrics and
monitoring and provides significant management information. The skills involved in profitably exploiting these resources were strengthened in 2008 with the incorporation of key teams to act locally in Peru, Argentina and the United States, in close
collaboration with the head office.

Frequent Flyer Program

Our frequent flyer program is called LANPASS. LANPASS objective is to generate incremental revenue and customer retention through customer loyalty
and targeted marketing. Worldwide, LANPASS has approximately 2.9 million members.

Customers earn kilometers in their LANPASS accounts
based on distance flown and class of ticket purchased. Based on an award schedule, customers can redeem kilometers for free tickets or upgrades. Under our current frequent flyer program, our passengers are grouped into one standard level and three
different elite levels based on each passengers flying behavior. These different groups determine which benefits customers are eligible to receive, such as free upgrades on a space-available basis, VIP lounge access and preferred boarding and
check-in.

LANPASS has highly rated partners, including other airlines, hotels, car
rental agencies, retailers, and credit card issuers from the main financial institutions in Chile, Peru, Ecuador and Argentina, which give additional kilometers to customers for using their services. As an active member of the
oneworld® alliance, we have reciprocal frequent-flyer agreements with all oneworld® carriers. In addition, we have reciprocal agreements with other carriers, such as Alaska Airlines, Aeromexico, Mexicana and TAM, that allow us to benefit from the loyalty of their customers, as they can accrue miles under their frequent
flyer program when traveling on LANs flights.

The LANPASS frequent flyer program aims to be the leading loyalty program in all of
LANs home markets. In the past couple of years, we have implemented a number of marketing initiatives to increase the penetration of the program outside Chile. In 2008, membership in LANPASS grew 27% in Peru, 73% in Ecuador and 41% in
Argentina.

Cargo Operations

General

The following table sets forth certain of our cargo operating statistics for domestic and international routes for
the periods indicated.



32



---

##### Table of Contents

|                                                     |  |                         |  |           |  |           |  |           |  |          
|---------------------------------------------------- |  | ----------------------- |  | --------- |  | --------- |  | --------- |  | ---------
|                                                     |  | Year ended December 31,
|                                                     |  | 2004                    |  | 2005      |  | 2006      |  | 2007      |  | 2008     
|The Company                                          |  |                         |  |           |  |           |  |           |  |          
|ATKs (millions)(1)                                   |  |                         |  |           |  |           |  |           |  |          
|International                                        |  | 2,948.0                 |  | 3,121.3   |  | 3,310.4   |  | 3,537.2   |  | 3,941.9  
|Domestic                                             |  | 91.8                    |  | 92.6      |  | 88.7      |  | 95.6      |  | 138.4    
|Total                                                |  | 3,039.8                 |  | 3,213.8   |  | 3,399.1   |  | 3,632.8   |  | 4,080.3  
|RTKs (millions)                                      |  |                         |  |           |  |           |  |           |  |          
|International                                        |  | 2,226.5                 |  | 2,359.4   |  | 2,548.0   |  | 2,673.6   |  | 2,880.4  
|Domestic                                             |  | 32.9                    |  | 32.8      |  | 31.2      |  | 28.8      |  | 26.3     
|Total                                                |  | 2,259.4                 |  | 2,392.3   |  | 2,579.2   |  | 2,702.3   |  | 2,906.7  
|Weight of cargo carried (thousands of tons)          |  |                         |  |           |  |           |  |           |  |          
|International                                        |  | 481.3                   |  | 504.2     |  | 540.0     |  | 581.3     |  | 641.1    
|Domestic(2)                                          |  | 25.1                    |  | 24.8      |  | 24.1      |  | 23.0      |  | 20.3     
|Total                                                |  | 506.3                   |  | 529.0     |  | 564.1     |  | 604.3     |  | 661.4    
|Total cargo yield (cargo revenues/RTKs, in US cents) |  | US¢ 35.39               |  | US¢ 38.06 |  | US¢ 41.59 |  | US¢ 42.72 |  | US¢ 52.54
|Total cargo load factor (%)                          |  | 74.3%                   |  | 74.4%     |  | 75.9%     |  | 74.4%     |  | 71.2%    



|(1) | As of August 2007, LAN modified the method for calculating cargo
ATKs to better represent available capacity in the bellies of passenger aircraft. Cargo RTKs are not affected by this change. Historical ATKs data has been modified for comparison purposes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Domestic cargo operations refer to cargo transported within Chile.
|--- | ------------------------------------------------------------------

Our cargo business generated revenues of US$910.5 million in 2005, US$1,072.7 million in 2006, US$1,154.3 million in 2007 and US$1,527.1 million in 2008.
This represented 36.3%, 35.4%, 32,7% and 33.7% of our operating revenues, respectively. Cargo revenues grew 42.4% between 2006 and 2008 primarily due to the addition of new routes and improvement in yield. Our international cargo routes to, from and
within Latin America accounted for around 97.0% of total cargo revenues for 2005, 2006, 2007 and 2008.

Our cargo business generally
operates on the same route network used by our passenger airline business, which is supplemented by freighter-only operations. Overall, it consists of eighty-four destinations (sixty-eight operated by passenger and/or freighter aircraft and
approximately sixteen operated only by freighter aircraft). We complement our own operations through coordination with our regional affiliates, MasAir in Mexico and ABSA in Brazil, which started its domestic operations in the Brazilian market in
March 2009. In addition, we launched a new cargo subsidiary in Colombia which began operations in March 2009. We carry cargo for a variety of customers, including other international air carriers, freight-forwarding companies, export oriented
companies and individual consumers. For information about our fleet, see FleetGeneral below.

We transport cargo in
four ways: (i) in the bellies of our passenger aircraft, (ii) in our own dedicated freighter fleet, (iii) in belly space that we purchase from other airlines and, (iv) in aircraft that we charter or lease pursuant to ACMI
contracts (Aircraft, Crew, Maintenance and Insurance), which are also known as wet-leases, in which the lessor operates the aircraft and provides the aircraft, crew, maintenance and insurance, pursuant to short- and medium-term
contracts.

Our international cargo operations are headquartered in Miami, whose geographical location positions it as the natural gateway
for Latin American imports and exports to and from the United States, and since 2001, are located in our 380,000 square-foot facilities within the Miami International Airport. The United States accounts for the majority of the cargo traffic to and
from Latin America. Besides being the main market for Latin American exports by air, the United States is also the main supplier of goods, such as high-tech equipment or spare parts, transported by air to Latin American countries. To complement our
own cargo operations to the United States, we have negotiated commercial agreements with American Airlines on some routes from Miami to Brazil.

We operate to three gateways in Europe: Madrid, which we serve via passenger aircraft (using our flights from Santiago, Lima and Guayaquil), Frankfurt (through both passenger flights and freighter operations since October 2002, when we
signed our partnership with Lufthansa Cargo (for more information on this agreement see Cargo Agreements below)), and Amsterdam (through freighter operations since October 2005).

In Latin America, the principal origins of our cargo are Chile, Ecuador, Peru, Argentina and Brazil, which represent a large part of our northbound
traffic. And for our southbound flights, Brazil is the main import market.



33



---

##### Table of Contents

Our international cargo traffic increased 28.6% between 2004 and 2008, from 2,259.4 million cargo
revenue ton kilometers in 2004 to 2,906.7 million cargo revenue ton kilometers in 2008. International cargo traffic increased 6.0% in 2005, 8.0% in 2006, 4.9% in 2007 and 7.7% in 2008, and accounted for around 97.0% of our total cargo revenues
during 2005, 2006, 2007 and 2008.

We believe that the primary reasons for the growth in cargo operations are:



| |  |  | increased trade throughout Latin America;
| | - |  | -----------------------------------------



| |  |  | our expansion and growing presence in new cargo markets;
| | - |  | --------------------------------------------------------



| |  |  | a worldwide trend toward greater consumption of fresh fruit, fresh fish and other fresh products;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | economic growth in Latin America, which has fueled demand for manufactured goods in the region;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | commercial agreements with other airlines; and
| | - |  | ----------------------------------------------



| |  |  | a worldwide trend towards companies reducing their inventories and shipping more frequently as part of their supply chain management.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

In general terms, cargo flows are unidirectional. This characteristic is a key determinant in the structure of cargo operations as well as in the
commercial conditions in the cargo business. This is especially relevant in markets featuring structural imbalances between inbound and outbound flows or during specific periods of such disequilibrium. Lack of demand in one particular direction may
force airlines to rely on different markets in order to maximize loads on return flights. Furthermore, demand weakness in one direction may limit the capacity that is profitable to allocate to some routes, therefore creating pressure on fares in
order to compensate for weaker revenues in one particular direction. The evolution of our international cargo operations has always been affected by the flow imbalances of the Latin American cargo markets, resulting in a dramatic shift in the
relative weight of southbound and northbound cargo flows throughout the years. From 2002 to 2003, our international operations were characterized by very strong export traffic out of Latin America, but gradual increases in import demand, as well as
the deceleration of export growth, led to more balanced cargo flows during 2004. Further extension of this trend led to excess demand on southbound routes since 2005.

We have designed our operations, route network and commercial strategies with the flexibility required to respond to changing conditions. As such, during 2003 we allocated additional capacity to northbound routes and
adjusted fares on northbound routes in response to excess demand. During 2004 we gradually adjusted our operations to leverage a more balanced demand environment by performing an increased number of direct roundtrips between key export and import
markets. However, weakness in exports since 2005 has driven us to support the northbound segment of certain routes with stop-overs in additional export markets, to reduce northbound fares to stimulate demand and to raise southbound fares.

Despite some initial challenges, during 2008 we continued a series of measures and projects that led to improved margins. Among other
things, we consolidated our new fleet model, reducing wet lease utilization in favor of a more efficient owned fleet. We reduced wetlease capacity as a percentage of total cargo capacity from 13% in 2006 to 10% in 2007. Nevertheless, during 2008,
due to strong growth in import markets, a record seed export season and the preparation for the Companys entry into new markets, we increased our wetleases to approximately 20% of our cargo capacity in order to respond to the increasing
demand. We also emphasized the most profitable routes in expanding our network. We carried out significant improvements in our information system as part of our constant search to enhance customer service. Among other initiatives, we integrated our
system with those of our major customers, and we also developed a new and improved web-based e-tracking tool. Those innovative initiatives help to differentiate the product we offer to our clients and reinforce our commitment to maintain leadership
and world-class service standards.

During the last five years, we also improved our competitive position as key operators reduced their
operations, and competitors such as UPS and FedEx either downsized their operations or exited some markets. Since mid-2004, competition increased as regional carriers added capacity, but despite this increase in competition, we have been able to
maintain solid market shares in large part because of the efficient utilization of our fleet and network. Today, on Latin America-United States routes, our main competitors are Cielos del Perú S.A., Transportes Aereos Mercantiles
Panamericanos S.A., or TAMPA, Arrow, and Polar Air, and on the Latin American-Europe routes, our main competitors are Cargolux, Lufthansa Cargo, Martinair and Air France-KLM.



34



---

##### Table of Contents

Cargo Agreements

Since 2002, Lan Cargo and Lufthansa Cargo have had a block space agreement between Europe and Latin America. As part of this agreement, Lan Cargo allocates space to Lufthansa Cargo on its flights between selected
cities in Latin America and Europe, and Lufthansa Cargo allocates space to Lan Cargo on its flights between Europe and Brazil and Argentina.

We also have agreements with Asian carriers such as Korean Airlines, JAL, China Airlines, Air China and Cathay Pacific through which Lan Cargo receives space allocations from these airlines to move our cargo from Seoul, Tokyo, Taipei,
Shanghai and Hong Kong to Los Angeles and Miami connecting with our network. In exchange, Lan Cargo provides them with space from these same two hubs in the United States to all Latin American destinations and also feeds them with westbound cargo.

Marketing and Sales

Our sales and marketing efforts are carried out either directly when we have a local office or through general sales agents. In Latin America we have our own offices in all key markets. In the United States we have our own offices in Miami,
New York and Los Angeles, and work with representatives in various other cities. In Europe we have offices in Frankfurt and Madrid and use agents in other key cities. Finally, in Asia all our sales efforts are done through general sales agents. In
total, we maintain a network of more than forty independent cargo sales agencies domestically and internationally.

Our cargo marketing
strategy emphasizes our combination of freighter and passenger aircraft cargo capacity, which allows customers to ship large, bulky freight, as well as smaller, high-density cargo, fresh products, express shipments, and other types of cargo. Our
cargo marketing strategy also emphasizes our high-quality services, scheduling flexibility and punctuality. On some routes, Lan Cargo offers special, value-added products such as Positive Flight Specific or FS, which enables the customer to choose a
specific passenger flight to transport its goods.

Cargo-Related Investigations

In February 2006 the European Commission, in conjunction with the Department of Justice of the United States (DOJ), initiated a global
investigation of a large number of international cargo airlines (among them LAN Cargo S.A., LANs cargo subsidiary) for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets. On
December 26, 2007, the European competition authorities notified LAN Cargo S.A. and LAN of the initiation of proceedings against twenty-five cargo airlines, among them LAN Cargo S.A., for allegations of anti-competitive behavior in the
airfreight business. Given the current stage of the proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy judicial process. Notwithstanding the above, in the fourth
quarter of 2007, LAN recorded, and maintains, a US$25.0 million reserve in Other Non-Operating Expenses in relation with the European investigation.

The investigation by the DOJ prompted the filing of numerous civil class actions by freight forwarding and shipping companies against many airlines, including Lan Cargo and Lan Airlines, including fifty-four in the
United States and four in Canada. The cases filed in the United States were consolidated in the United States District Court, Eastern District of New York and the original complaint was subsequently amended to include additional airlines, including
ABSA. On January 21, 2009, Lan Cargo announced that it had reached a plea agreement with the DOJ in relation to the DOJs ongoing investigation regarding price fixing of fuel surcharges and other fees for cargo shipments. Under the plea
agreement, Lan Cargo agreed to pay a fine of US$88 million. In addition, ABSA reached a plea agreement with the DOJ and agreed to pay a fine of US$ 21 million. These amounts will be paid over a five-year payment schedule and have been recorded as of
December 31, 2008, within Other Current Liabilities (US$19 million) and Other Creditors (US$90 million). It is not possible at this time to anticipate with any precision the outcome of the four civil actions that were filed in Canada against
Lan Cargo, among other airlines.

On April 5, 2008, Brazilian authorities notified ABSA of the initiation of administrative
proceedings before the Conselho Administrativo de Defesa Econômica against several cargo airlines and airline officers, among them ABSA, for allegations of anticompetitive practices regarding fuel surcharges in the air cargo business.
Given the current stage of the proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy process. This investigation and the related proceedings do not imply that ABSA has
been charged with or has engaged in any prohibited activity.



35



---

##### Table of Contents

The New Zealand Commerce Commission also initiated an investigation into potential anti-competitive
activities in the international air cargo markets and requested information and documentation from LAN, which LAN duly submitted. On December 15, 2008, the New Zealand Commerce Commission announced it would focus its investigation on ten
airlines and excluded LAN from further investigation.

In June 2008, the Korean Fair Trade Commission notified LAN of an investigation into
the air cargo industry and its non-compliance with the Monopoly Regulation and Fair Trade Act and has requested information and documentation from LAN, which LAN duly submitted. Given the current stage of the investigation, it is not possible at
this time to anticipate with any precision its outcome.

Fleet

General

As of March 31, 2009, we operated a fleet of 93 jet aircraft, comprised of 84 passenger
aircraft and 9 cargo aircraft, as set forth in the following chart.



|                         |  |                                 |  |                       |  |                    |  |                  |  |    
|------------------------ |  | ------------------------------- |  | --------------------- |  | ------------------ |  | ---------------- |  | ---
|                         |  | Number of aircraft in operation |  | Average term of lease |  | Average age(years)
|                         |  | Total                           |  | Owned                 |  | Operatinglease     |  | remaining(years) | 
|Passenger aircraft       |  |                                 |  |                       |  |                    |  |                  |  |    
|Airbus A318-100          |  | 15                              |  | 15                    |  | 0                  |  |                  |  | 1.0
|Airbus A319-100          |  | 20                              |  | 15                    |  | 5                  |  | 7.2              |  | 2.7
|Airbus A320-200          |  | 18                              |  | 8                     |  | 10                 |  | 4.2              |  | 6.1
|Boeing 767-300 ER        |  | 26                              |  | 15                    |  | 11                 |  | 2.6              |  | 7.7
|Airbus A340-300          |  | 5                               |  | 0                     |  | 5                  |  | 4.0              |  | 8.8
|Total passenger aircraft |  | 84                              |  | 53                    |  | 31                 |  | 4.1              |  | 5.1
|                         |  |                                 |  |                       |  |                    |  |                  |  |    
|Cargo aircraft           |  |                                 |  |                       |  |                    |  |                  |  |    
|Boeing 767-300 Freighter |  | 9                               |  | 8                     |  | 1                  |  | 4.7              |  | 6.8
|Total cargo aircraft     |  | 9                               |  | 8                     |  | 1                  |  | 4.7              |  | 6.8
|                         |  |                                 |  |                       |  |                    |  |                  |  |    
|Total fleet(1)           |  | 93                              |  | 61                    |  | 32                 |  | 4.1              |  | 5.2
|                         |  |                                 |  |                       |  |                    |  |                  |  |    



|(1) | Does not include 1 Boeing 767-200 passenger aircraft leased to Aeromexico and 1 Boeing 737-200 cargo and 5 Boeing
737-200 passenger aircraft leased to Sky Airline.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

The daily average hourly utilization rates of our aircraft for each of the periods indicated are set
forth below.



|                            |  |                         |  |      |  |     
|--------------------------- |  | ----------------------- |  | ---- |  | ----
|                            |  | Year ended December 31,
|                            |  | 2006                    |  | 2007 |  | 2008
|                            |  | (measured in hours)    
|Passenger aircraft          |  |                         |  |      |  |     
|Airbus A340-300             |  | 15.8                    |  | 14.7 |  | 14.6
|Boeing 767-300 ER           |  | 14.1                    |  | 14.2 |  | 13.6
|Airbus A320-Family Aircraft |  | 9.6                     |  | 10.6 |  | 10.4
|Cargo aircraft              |  |                         |  |      |  |     
|Boeing 767-300 Freighter    |  | 16.6                    |  | 16.5 |  | 16.7

We operate different aircraft types as we perform various different missions ranging from
short-haul domestic trips to long-haul trans-continental flights. We have selected our aircraft based on the ability to effectively and efficiently serve these missions while trying to minimize the number of aircraft families we operate.



| |  |  | For short-haul domestic and regional flights we operate Airbus A320-Family aircraft. In the first half of 2008 we phased out the entire B737-200 fleet. The
A320-Family Aircraft which we currently operate have been acquired pursuant to a 1999 purchase agreement with Airbus subsequently amended in 2005 and 2008, and also incorporated pursuant to operating leases. As a consequence of the amended purchase
agreement, as of March 31, 2009, we had outstanding orders for six Airbus A319 and nine Airbus A320 aircraft for delivery between 2010 and 2011. Our purchase contracts with Airbus provide for some flexibility with regard to future changes in
aircraft types and delivery dates. For more information, see Additional InformationMaterial Contracts under Item 10. We believe that our fleet of A320-Family Aircraft will allow us to provide broader service across Latin
America as well as the domestic markets that we serve given their longer range. We also believe that they will enable us to increase efficiency levels through reduced fuel consumption and maintenance costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For long-haul passenger and cargo flights we operate Boeing 767-300 passenger aircraft and Boeing 767-300 Freighters, respectively. We believe that these
aircrafts size and range provide an optimal alternative for most of our long-haul passenger and cargo routes. Additionally, the commonality between the passenger and dedicated cargo versions allows us to leverage the ensuing economies of
scale. We believe that these aircraft provide a key efficiency advantage over our peers, especially in the cargo business. The aircraft that we currently operate have been incorporated into our fleet pursuant to operating leases or have been
purchased directly from Boeing pursuant to various purchase orders since 1997. Between 2004 and 2006 we placed additional orders for eighteen Boeing 767-300 Passenger and Freighter aircraft for delivery between 2005 and 2009. The first two aircraft,
both freighters, were delivered during the second half of 2005. In 2006 and 2007, we received seven passenger aircraft featuring a new upgraded two-class configuration, and one additional dedicated freighter. Five Boeing 767-300 Passenger aircraft
were delivered during 2008 and the remaining three aircraft have been scheduled to be delivered between 2009 and 2010. Our contract with Boeing provides for certain flexibility with respect to the aircraft types to be received. In 2008, we placed an
additional order for four B767 Passenger Aircraft which will be delivered in 2012.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We operate five Airbus A340-300 aircraft for long-haul routes. Given their range and four-engine configuration, these aircraft are well-suited to perform
trans-Atlantic and trans-Pacific missions out of Santiago.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the first quarter 2009, we initiated the process of
incorporation of winglets, advanced technology devices, in all our Passenger and Freighter Boeing 767-300 aircraft. Winglets are placed on the wings of an aircraft causing a more efficient use of fuel. The reduction in usage equals approximately
450,000 tons of fuel per year which translates in approximately a 5% decrease in fuel consumption. The investment in this project amounts to approximately US$70 million and is expected to be finalized in the third quarter of 2010.

Historically, we have also utilized between one and six cargo aircraft pursuant to short-term ACMI leases. These contracts enable us to adjust capacity
on a short- to medium-term basis in order to manage the volatility of the



37



---

##### Table of Contents

demand for cargo services and increase access to certain cargo destinations resulting from increased capacity and access to destinations outside the Lan
Cargo network. As of March 31, 2009, we were utilizing two Boeing 747 Freighter under ACMI leases. Our current ACMI contracts are structured for periods of less than twelve months.

Fleet Leasing and Financing Arrangements

Our financing and leasing methods include borrowing from financial institutions and leasing under financial leases, tax leases and operating leases.

In 2000, to finance our Airbus aircraft, we entered into a US$1.3 billion umbrella credit facility with a syndicate of international financial institutions under which we borrowed in the form of separate loans in
connection with the specific financing requirements of each Airbus aircraft (including pre-delivery and long-term financing). This umbrella facility provided for guarantees from the English, French and German export credit agencies. Our repayment
profile for each aircraft financed under the facility was for a period of up to eighteen years. Under this financing package we incorporated Airbus aircraft into our fleet through operating leases, financial leases and tax leases. Even though this
facility covered the aircraft scheduled to be delivered under our 1998/9 Airbus purchase agreements through December 31, 2006, we decided to fund the 2006 deliveries with a new facility negotiated in 2006. This new facility financed the
acquisition of



| |  |  | eight Airbus A319 delivered in 2006;
| | - |  | ------------------------------------



| |  |  | five A318 and two A320 delivered in 2007;
| | - |  | -----------------------------------------



| |  |  | ten A318, two A319 and two A320 delivered in 2008; and
| | - |  | ------------------------------------------------------



| |  |  | three A319 delivered in the first quarter of 2009.
| | - |  | --------------------------------------------------

This new US$920 million facility is similar to the previous one as we drew separate loans in connection with the specific financing requirements of each Airbus aircraft. This facility is based on support guarantees
from the European export credit agencies. Under this financing package we incorporated into our fleet Airbus aircraft through operating leases, financial leases and tax leases. The facility covers 85% of the purchase price of each aircraft plus the
associated export credit agencies premium. The remaining 15% will be funded directly by us. There is no remaining availability under this facility.

Between 2004 and 2006, LAN ordered fifteen Boeing 767-300 Passenger aircraft and Freighters for delivery between 2005 and 2008. In 2004 the Company structured a new syndicated facility for US$260 million to finance the entire cost of the
two Boeing 767-300 Freighters delivered in 2005 and the first Boeing 767-300 Passenger aircraft delivered in 2006. In 2005, LAN finalized the syndicated facility to fund the purchase of four Boeing 767-300 Passenger and Freighter aircraft for
delivery in 2006. Between 2005 and 2006, LAN also finalized two additional syndicated facilities to fund the purchase of the remaining eight Boeing 767-300 Passenger aircraft. Three of these aircraft were delivered in 2007, and five were delivered
in 2008. Each loan with respect to these aircraft is guaranteed by the Ex-Im Bank with a twelve-year profile for the financing of 85% of the aircraft value.

On June 12, 2005, we made the final payment with respect to a Boeing 767-200 aircraft we held under a capital lease. We subleased this aircraft to a third party at market rate and extended this sublease until
June 2010.

In 2006, LAN structured a pre-delivery payments facility for three of the Boeing 767-300 aircraft with deliveries in 2007 and
2008. Payments under this facility were completed during 2008.

In 2006, LAN also ordered three additional Boeing 767-300 passenger
aircraft for delivery between 2009 and 2010. We plan to finance these aircraft partially by a new Ex-Im Bank guaranteed facility and partially with funds generated from operations.

In April 2007, we entered into two lease agreements with GE Commercial Aviation Services for the lease of two B777-200LR Freighters, for delivery in
2009. In October 2007, we signed a purchase agreement with the Boeing Company for two additional B777-200LR Freighters to be delivered in 2011 and 2012.

In the second half of 2007, the Company decided to acquire thirty-two new Boeing 787 Dreamliner aircraft with delivery initially scheduled between 2011 and 2016. The Company entered into a purchase agreement with the
Boeing Company for 26 of these aircraft, while the Company entered into leasing agreements with the International Lease Finance Corporation for the remaining six aircraft.



38



---

##### Table of Contents

During 2008, LAN decided to exercise fifteen options to acquire A320-Family Aircraft. We intend to
finance the exercise of such options in part through a facility similar to the facility described above, and partially with funds generated from operations. Six of these aircraft are schedule to be delivered in 2010 and the remaining nine during
2011.

As of March 31, 2009, we held thirty-two aircraft under operating leases. Under the terms of our operating leases, we are
required to return the aircraft in an agreed upon condition at the end of the lease. Although the title to the aircraft remains with the lessor, we are responsible during the lease term for the maintenance, servicing, insurance, repair and overhaul
of the aircraft. As of December 31, 2008, aggregate future minimum lease payments required under our aircraft operating leases were US$1,348.9 million. Our operating leases have terms ranging from three months to twelve years from the date of
delivery of the aircraft. For more information, see Note 18 to our audited consolidated financial statements.

For more information on our
expected future capital expenditures in connection with aircraft purchases see Capital Expenditures under Item 5.

Maintenance

Our heavy maintenance, line maintenance and component shop are equipped to service our entire fleet of Airbus and Boeing aircraft. Our
maintenance capabilities allow us flexibility in scheduling airframe maintenance, offering us an alternative to third-party maintenance providers.

Our facilities at Comodoro Arturo Merino Benítez International Airport in Santiago, Chile are among the most extensive in Latin America and have been certified according to IOSA standards and as a FAA approved repair station. Our
hangars and components shops at our Santiago repair station can service the Boeing 767, Airbus 340 and Airbus 320 Family Aircraft fleet.

In addition, we have facilities for designing and manufacturing galleys, structures and composite materials, and we have the capability to retrofit aircraft interiors, including sophisticated in-flight entertainment equipment, and blended
winglets in the Boeing 767 fleet.

Our engineering and maintenance division is supervised by the DGAC and subjected to several recurrent
external audits from civil aviation authorities and international entities such as the FAA, the Argentine Dirección Nacional de Aeronavegabilidad (DNA), the Brazilian Agencia Nacional de Aviacao Civil (ANAC), IOSA
(from IATA) and the International Civil Aviation Organization (ICAO), in order to strictly comply with applicable regulations. The audits are conducted in connection with each countrys certification procedures and enable us to
continue to perform maintenance for aircraft registered in the certificating jurisdictions. Our repair station holds FAA Part-145 certifications under these approvals.

We also rely on third-parties for certain maintenance support for our aircraft and engines. Lufthansa Technik provides our Airbus A320-Family Aircraft and A340 Aircraft component support on a power-by-the-hour basis
under a long-term contract, which runs until 2019. International Aero Engines provides the A320 and A319 engine support on a power-by-the-hour contract, which runs for twelve years once each engine is received. Pratt and Whitney provides the A318
engine support on a power-by-the-hour basis contract, which runs for ten years once an engine is received. General Electric provides the maintenance of our Airbus A340 engines under a similar contract, which also runs for twelve years once an engine
is received. General Electric, which services have been contracted until 2014, provides the maintenance of most of our Boeing 767 engines. Third-parties also provide certain additional engine maintenance services. Air France-KLM, which services have
been contracted until 2015, provides the maintenance of our Boeing 767-300 components.

We occasionally perform certain maintenance
services for other airlines. Our aircraft maintenance personnel participate in extensive training programs at the jointly-operated Lufthansa LAN Technical Training S.A., located in Santiago, Chile.

Safety and Security Corporate Direction

The Safety
and Security Corporate Direction (SSCD) is an internal division in charge of the management of security matters related to flight operations and operative and administrative buildings, and of the organization and coordination of
emergency response matters.



39



---

##### Table of Contents

The SSCD reports directly to LANs Chief Executive Officer (CEO), which reflects the firm commitment
that the Companys senior management has with its employees. The SSCD is comprised of three independent reporting management areas: safety management, security management and emergency response management.

Safety Management

We give high
priority to providing safe and reliable air service, as it is considered a fundamental asset to LAN and one of the basic pillars for the development of our Company. We have uniform safety standards and safety-related training programs that cover all
of our operations. LAN has implemented a Safety and Quality Management System (SMS) throughout the operational areas of the Company, which is certified by the Chilean DGAC. The SMS provides clear definitions of the functions and
responsibilities regarding operational safety for all persons involved, from the top to the bottom of the operational structure of the airline. It strengthens the commitment and knowledge required from everyone in the Company regarding any and all
actions that could affect safety.

The Operational Safety Director (OSD) is responsible for the Operational Safety Oversight
and the implementation of the SMS. The OSD supervises a staff of approximately twenty-one safety specialists of different backgrounds, including pilots, aeronautical engineers, aircraft maintenance engineers, a psychologist, and dangerous goods and
ground handling safety specialists.

Our corporate operational safety organization consists of four main areas:



| |  |  | Flight Safety Management:The Flight Safety Area oversees and audits our operational safety measures, investigates major incidents and programs and controls
the LOSA and FOQA Programs (as defined below). The Flight Safety Area also oversees and audits safety measures related to ground handling and cargo areas and investigates related incidents.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Maintenance Safety Management: The Maintenance Safety Area oversees and audits our maintenance safety measures and investigates maintenance-related
incidents.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Flight Data Monitoring Management: The Flight Data Monitoring Area is responsible for the maintenance and administration of the recorded flight data and
safety-related databases and softwares.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate Quality Management: The Corporate Quality Management Area is responsible for the administration of Internal Evaluation Program conducting
organization-wide audits in all operational areas.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The main safety programs, elements and procedures include:



| |  |  | Flight Operations Quality Assurance (FOQA). Since the end of 2002, LAN has been implementing a Flight Data Monitoring (FDM)
program using mainly two different analysis programs. The FDM program is fully developed for the A320-Family Aircraft, A340 and B767 fleets. The statistical information obtained has produced standard operational procedure changes and valuable inputs
to the Advance Qualification Program project. We have also fully developed a maintenance variation for the same fleets which monitors the engines, flight controls and general performance of the airplanes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mandatory Occurrence and Mandatory Reports. Our operations policy manuals define the incidents that require a mandatory report. On a voluntary basis,
personnel can provide confidential reports to the flight safety area in hard copy or electronic form.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Safety Information Management. All safety information regarding all occurrences is entered into dedicated software, where it is analyzed according to its
potential risk. Important incidents are investigated thoroughly. The relevant areas related to each particular incident implement corrective actions with the assistance of the corporate operational safety directory.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Line Operation Safety Audit (LOSA). LOSA is a program designed to survey and analyze the safety components of our equipment and operations. LOSA
observations have been conducted on the A-340, A-320 and B767 fleets. In 2007, a second LOSA observation has been applied to the A-340 fleet, which has given important information of the effectiveness of the corrective actions recommended by the
first observation conducted in 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

| |  |  | Quality Assurance and IOSA Certification Programs. Our flight and maintenance safety areas have a quality assurance system and are currently certified ISO
9001-2000. Our safety management system is based on the ISO 9001-2000 standards. We also periodically evaluate the skills, experience and safety records of our flight crews in order to maintain strict control over the quality of our flight crews.
All of our aircraft pilots participate in training programs, some of which are sponsored by aircraft manufacturers, and all are required to undergo recurrent training. LAN Airlines, and passenger subsidiaries are IOSA registered. Currently, cargo
subsidiaries IOSA audits are ongoing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also have an operational safety committee, composed of senior executives and key
operational managers, responsible for the initiation of safety-related actions.

All of our B767, A320 and A340 fleets are equipped with an
enhanced ground proximity warning system, a traffic collision avoidance system, a wind shear detection system and reduced vertical separation minimum capabilities.

Since 1991, we have had no accidents involving major injury to passengers, crew or aircraft.

Security
Management

The main policy and the essential principle of the Company is to ensure an adequate security protection to all its flights,
aircraft, passengers, crew members, ground personnel, airport facilities and other services related to the commercial civil aviation against any threat or unlawful action.

The Company has implemented corporate policies and a quality management system through the operational system to detect any lack of security in its
operations. Audits and assessments are used to assign different levels of security to international and domestic operations.

The
Corporate Security Manager (CSM) has the responsibility to evaluate, analyze and assign threat levels (high, medium, low) to international and domestic operations, proposing security procedures for each scenario. The CSM leads an
organization of five security managers and approximately fifteen security specialists. The current CSM is a former police officer with more than fifteen years of experience in the civil aviation.

The corporate security organization has five main areas:



| |  |  | Domestic Security Operations: that report to a former police officer with more than seventeen years of experience in civil aviation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | International Security Operations: that report to a security specialist, with more than nineteen years of experience in civil aviation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | North America, Caribbean and Europe Security Operations: that report to a security specialist, with more than fifteen years of experience in civil aviation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Argentinean Security Operations: that report to a security specialist, with more than twenty years of experience in civil aviation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Peruvian Security Operations: that report to a former navy officer, with two years of experience in civil aviation.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Each of the five areas is subdivided in internal investigations, fraud, training, cargo security, security of facilities and quality control.

Since 2002, the Companys Corporate Security Manual unified international and domestic security procedures:



| |  |  | Manual de Gestión de Seguridad (Manual of Security Management). The basis for local security procedures.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Airport Security Plan or Airport Security Program. Approved by the DGAC for each country were we have operations. It includes procedures to prevent unlawful
conducts and procedures for a bomb threat or hijacking drill.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate Security Training Program. It includes the contents and definitions regarding security training for all areas involved in acceptance of aircraft, baggage,
cargo and passengers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



---

##### Table of Contents

| |  |  | Airport Security Inspection Program. It has the contents and definitions regarding airport inspections and identification of security issues and corrective action
plans for non compliance.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Emergency Response Management

The emergency response area is responsible for the administration of the Emergency Response Plan (ERP). It has been developed for the
effective management of accidents and serious incidents with the purpose of mitigating any impacts on the passenger, their relatives and the operations.

Our ERP consists mainly of:



| |  |  | Emergency Procedures. They are widely advertised inside the Company, approved by the DGAC and covered by the emergency response manual.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Emergency Response Centre (ERC). The ERC includes three principal areas: the Emergency Executive Committee, the Emergency Resolution Committee and the
Public Relations Monitoring Area, which are located at our offices in Santiago, Chile, and have meetings rooms, workstations, lap tops, satellite TV, conference call systems, video conference facilities, kitchens and rest rooms.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Family Assistance Team (FAT). We have an in-house family assistance program that we deploy for family assistance. We have about 720 active volunteers
for family assistance, distributed in Santiago (360 volunteers), Miami (100 volunteers), Lima (120 volunteers), Ecuador (100 volunteers), and Buenos Aires (100 volunteers). Our FAT is complemented with service providers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technical Inquiry Center. It is located in Santiago, Chile at our call-center office and has 400 agents. Toll free lines are activated for family member calls and
are published/broadcast to the media in case of emergency.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Go Team. Field team that is dispatched within 3 hours of confirmation of an emergency event involving a Lan aircraft. Our Go Team includes one director in charge, a
family and passengers assistance leader, a field investigation team leader and other representatives from the general support, security, finance, legal and maintenance departments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Logistic Area. It is activated and deployed in our head quarters and at the location of the accident.
| | - |  | -----------------------------------------------------------------------------------------------------

Fuel Supplies

Fuel costs comprise the major portion
of our operating expenses. Over the last years, our fuel consumption and operating expenses have increased due to the significant growth in our operations and to the increase in fuel prices as a result of worldwide economic and political factors. In
2008, the total fuel costs represented 35.6% of our total operating expenses explained mainly by the record high fuel prices reached in 2008. The into-wing (fuel price plus taxes and transportation costs) 2008 average final price was of 3.20 dollars
per gallon, accumulating a 39.5 % increase from the 2007 average. We can neither control nor accurately predict the volatility of fuel prices. Despite the foregoing, it is possible to partially offset the price volatility risk through our
hedging and fuel surcharge programs in place in both our passenger and cargo business. For more information, see Quantitative and Qualitative Disclosures About Market Risk Risk of Fluctuations in Jet Fuel Prices under Item 11.

The following table details our consolidated fuel consumption and operating costs (which exclude fuel costs related to charter operations
in which fuel expenses are covered by the entity that charters the flight) during the five last years.



|                                                          |  |                         |  |           |  |           |  |           |  |          
|--------------------------------------------------------- |  | ----------------------- |  | --------- |  | --------- |  | --------- |  | ---------
|                                                          |  | Year ended December 31,
|                                                          |  | 2004                    |  | 2005      |  | 2006      |  | 2007      |  | 2008     
|Fuel consumption (thousands of gallons)                   |  | 308,014.6               |  | 338,275.1 |  | 364,785.1 |  | 406,666.0 |  | 445,667.7
|ATKs (millions)                                           |  | 5,256.2                 |  | 5,810.8   |  | 6,349.8   |  | 7,023.1   |  | 7,652.2  
|Fuel consumption per ATK (thousands of gallons)           |  | 0.06                    |  | 0.06      |  | 0.06      |  | 0.06      |  | 0.06     
|Total fuel costs (US$ thousands)                          |  | 414,539                 |  | 642,696   |  | 763,951   |  | 930,208   |  | 1,423,922
|Cost per gallon (US$)                                     |  | 1.35                    |  | 1.90      |  | 2.09      |  | 2.29      |  | 3.20     
|Total fuel costs as a percentage of total operating costs |  | 21.8%                   |  | 27.2%     |  | 28.0%     |  | 29.9%     |  | 35.6%    



42



---

##### Table of Contents

We have entered into fuel contracts to serve operations to more than sixty international and domestic
destinations around the world. Contractual terms and conditions vary for each location depending on market conditions, logistics network, volume, economic and political factors, among others. In 2008, approximately 22.9% of our total fuel
consumption was originated in Chile where we maintain a long-term commercial relationship with a joint venture between Air BP and Copec, and we have entered into specific supply contracts with Exxon Mobil Aviation and Shell Aviation. We have more
than twenty additional suppliers in our network such as Repsol YPF, Cepsa, Primax, Chevron, Air Total, Q8 Aviation and Petrobras. In our secondary hubs we have the following fuel suppliers: Shell Aviation (Miami), Repsol YPF and Exxon Mobil Aviation
(Lima and Buenos Aires) and Primax (Guayaquil).

Ground Facilities and Services

Our main operations are based at the Comodoro Arturo Merino Benítez International Airport in Santiago, Chile. We also operate from various other
airports in Chile and abroad. We operate hangars, aircraft parking and other airport service facilities at the Comodoro Arturo Merino Benítez International Airport and other airports throughout Chile pursuant to concessions granted by the
DGAC. We also maintain one customs warehouse at the Comodoro Arturo Merino Benítez International Airport, additional customs warehouses in Chile (Iquique, Antofagasta, and Punta Arenas) and Argentina (Aeroparque) and operate cargo warehouses
at the Miami International Airport to service our cargo customers. Our facilities at Miami International Airport include corporate offices for our cargo and passenger operations and temperature-controlled and freezer space for imports and exports.

We have VIP lounges at the Comodoro Arturo Merino Benítez International Airport. The 7,500 square foot Neruda lounge, which
represented an investment of approximately US$550,000 in 2001, has been widely acclaimed. In 2005, Latin Trade magazine selected it as the Best Airline Lounge in Latin America.

Finally, we incur certain airport usage fees and other charges for services performed by the various airports where we operate, such as air traffic
control charges, take-off and landing fees, aircraft parking fees and fees payable in connection with the use of passenger waiting rooms and check-in counter space.

Ancillary Airline Activities

In addition to our airline operations, we generate revenues from a
variety of other activities. In 2008, LAN generated other revenues of US$148.2 million.

Our total revenue from aircraft leases (including
subleases to certain of our cargo affiliates, dry-leases, wet-leases and capacity sales to alliance partners) and charter flights amounted to US$41.5 million in 2008.

LAN also provides cargo-related services such as courier, warehousing, value-added door-to-door services and customs services, through various subsidiaries. Through our subsidiary Blue Express Intl. (formerly Lan
Courier) (Blue Express) we operate vans and trucks and offer distribution and warehouse services throughout Chile. By using tracking and Internet technology, Blue Express customers have real-time access to data regarding the status of
their parcels. During 2008, our logistics and courier businesses generated revenues of US$32.2 million. We also have storage and customs brokerage operations that generated revenues of US$25.4 million in 2008.

During 2008, we had revenues of US$8.3 million for ground services and US$15.9 million for duty-free in-flight sales. The balance of our operating
revenues, US$25.0 million in 2008, was generated by sales to third parties by Amadeus Chile CRS (computer reservation system), aircraft maintenance services to third parties, our security services business, tour operations, and other activities.
This represented a decrease with respect to 2007s revenues (which amounted to US$50.6 million) caused by the sale of our affiliates Amadeus Chile CRS (computer reservation system) and Empresa de Seguridad Aérea S.A.
(Segaer), in May and August 2008, respectively. In addition, in 2008 we received US$5.9 million compensation from Airbus related to a change in the delivery schedule for certain Airbus A318 aircraft, compared to US$18.6 million received
in 2007.

Insurance

We carry hull
insurance that includes, among other coverage, all risk, war and allied risks, spares and liability for passengers, cargo, mail, baggage and third-parties. We renew our insurance coverage yearly, and are subject to deductibles that vary
depending on the coverage type and the loss type. Our deductibles are US$1,250 for loss or damage associated with passengers baggage liabilities, US$10,000 for loss or damage associated with cargo liabilities and between US$500,000 and US$1.0
million for hull all risk insurance (depending on the aircraft type).



43



---

##### Table of Contents

Additionally, we have hull deductible coverage to reduce the net hull deductible to US$100,000 per occurrence (aircraft and/or engine).

Since December 2006, we have negotiated common terms for Hull All Risk, Aviation Legal Liabilities and Spares coverage, together with British Airways,
which allows us to obtain premium reductions and coverage improvements.

Our insurance coverage has a one-year term starting in April of
each year. The aggregate cost of our insurance coverage for the 2008 calendar year was US$ 14.5 million, which represents an 14.2% increase in insurance expenses and a 2.2% increase in average insurance rates compared to the 2007 calendar year.

Information Technology

General

We use information technology in almost every aspect of our business.

With the exception of our reservations, departure control (check-in), inventory, flight planning and baggage tracing systems, which are operated by
Amadeus, Sabre, Iberia and SITA, we operate our internal systems from two data center facilities in Santiago, Chile. In 2006, we implemented a Disaster Recovery Plan between those two sites in order to ensure the functionality of our critical
systems, with a recovery time objective of four days. The line of business infrastructure currently has a recovery time of, on average, two hours for 80% of our systems and, on average, two days for the remaining 20%.

Third-party suppliers provide us with the following technical infrastructure elements:



| |  |  | wide-area data network (provided mainly by SITA and Telefónica); and
| | - |  | --------------------------------------------------------------------



| |  |  | data centers and desktop operations and support (provided by Electronic Data Systems, or EDS).
| | - |  | ----------------------------------------------------------------------------------------------

Basic Infrastructure Operation

Since
early 2003, we have outsourced our IT infrastructure management to EDS. This service includes the administration and support of the data centers and desktop equipment. EDSs assistance has enabled us to:



| |  |  | increase the efficiency of our IT operations;
| | - |  | ---------------------------------------------



| |  |  | convert fixed costs into variable costs;
| | - |  | ----------------------------------------



| |  |  | guarantee that the service standards (such as up-time and response time) required by critical processes of our business are fulfilled;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | accelerate critical infrastructure projects while significantly reducing the resources required;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | increase the efficiency of our personnel; and
| | - |  | ---------------------------------------------



| |  |  | focus internal IT efforts on business functions, rather than basic hardware and software issues.
| | - |  | ------------------------------------------------------------------------------------------------

Telecommunications

We have used the
latest technology available with regard to our global telecommunications network. Our network has the capacity to transport voice, data, and video with the quality required by the Company, combining traditional private data channels with virtual
private networks through the Internet.

Front-End Systems

During 2002, we deployed new systems to support our sales personnel. These systems provide the employees who have a direct contact with our customers with
additional tools to improve service, enhance customer information and increase efficiency. During 2004 and 2005, we implemented these systems at our airport counters and our call centers.

Since 2005, we have favored a strategy of encouraging and facilitating self service alternatives for customers, through improving the functionality of
the www.lan.com website as well as implementing self check-in kiosks in airports.



44



---

##### Table of Contents

Enterprise Resource Planning

In 2002, we purchased an enterprise resource planning (EREP) system from SAP. This system was fully implemented in the second quarter of 2004
for Lan Airlines and almost all of its subsidiaries. This EREP system includes modules covering areas such as: finance, accounting, inventory management, human resources, business warehouse, as well as a user-friendly portal. We are currently
working in optimizing and simplifying this system, and in leveraging it to increase the efficiency of our back-office processes.

Development and Maintenance System

With respect to new development needs, our first choice is to acquire existing packaged
software, but we outsource this service when such software is not available in the market. Since early 2007, we have outsourced our IT system development to three principal vendors: TATA Consultancy Services, Everis and Indra. Thanks to this
outsourcing initiative, we have achieved:



| |  |  | a decrease in project delays;
| | - |  | -----------------------------



| |  |  | an increase in systems reliability; and
| | - |  | ---------------------------------------



| |  |  | a shift in the efforts of the internal IT department to a more business oriented perspective.
| | - |  | ---------------------------------------------------------------------------------------------

New initiatives

We are implementing
a new customized application and a new online system in order to provide the processes that our engineering, maintenance and materials (components) areas develop every day, with technological solutions. This project has allowed us to establish and
automate simple and integrated processes, standardize processes for the Company (including our subsidiaries and related companies), facilitate handling of materials and maintenance, make relevant information available in a full, unique and
consistent way to all users, and optimize distribution and execution (planned and non planned), among other benefits.

Regulation

Chilean Aeronautical Regulation

Both
the DGAC and the JAC oversee and regulate the Chilean aviation industry. The DGAC reports directly to the Chilean Air Force and is responsible for supervising compliance with Chilean laws and regulations relating to air navigation. The JAC is the
Chilean civil aviation authority. Primarily on the basis of Decree Law No. 2,564, which regulates commercial aviation, the JAC regulates the assignment of international routes, and the compliance with certain insurance requirements, and the
DGAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authority from the Chilean government to conduct flight operations,
including authorization certificates from the JAC and technical operative certificates from the DGAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry,
including any rules and regulations that may be adopted in the future.

Chile is a contracting state, as well as a permanent member, of the
ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transport. The ICAO establishes technical standards for the international aviation industry, which Chilean authorities have
incorporated into Chilean laws and regulations. In the absence of an applicable Chilean regulation concerning safety or maintenance, the DGAC has incorporated by reference the majority of the ICAOs technical standards. We believe that we are
in material compliance with all relevant technical standards.

Route Rights

Domestic Routes.Chilean airlines are not required to obtain permits in connection with carrying passengers or cargo on any domestic routes, but
only to comply with the technical requirements established by the DGAC. Non-Chilean airlines are permitted to provide domestic air service between destinations in Chile, provided that the country in which the foreign airline is based grants a
reciprocal right to Chilean airlines. There are no regulatory barriers that would prevent a foreign airline from creating a Chilean subsidiary and entering the Chilean domestic market using that subsidiary.

International Routes.As an airline providing services on international routes, Lan Airlines is also subject to a variety of bilateral civil air
transport agreements that provide for the exchange of air traffic rights between Chile



45



---

##### Table of Contents

and various other countries. There can be no assurance that existing bilateral agreements between Chile and foreign governments will continue, and a
modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.

International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Chile and foreign governments. Under such agreements, the government
of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country
destinations. In Chile, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency the JAC awards it through a public
auction for a period of five years. The JAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the JAC may
terminate its rights to that route. International route frequencies are freely transferable. In the past, we have generally paid only nominal amounts for international route frequencies obtained in uncontested auctions. In January 2008, Lan Airlines
participated in a public auction for seven frequencies between Santiago and Lima, obtaining six of them for a period of eighteen months.

In March 2007, the Chilean and Peruvian governments entered into a bilateral agreement temporarily reducing the number of flights that Peru grants to Chilean airlines using fifth freedom rights, or the rights to carry passengers
from Chile to Peru and from Peru to a third country, from fourteen weekly frequencies to eight weekly frequencies. As a result of this regulatory change. Lan Airlines reduced the number of flights that used these rights from Lima to the United
States and replaced some of these flights with direct flights from Santiago to the United States. The bilateral agreement between Chile and Peru also provides for the restoration of three fifth freedom rights frequencies in 2008 (which have already
been restored) and the three remaining additional frequencies in 2009.

In March 2007, the Venezuelan authorities revoked LAN Perus
traffic rights for flights between Caracas and Bogota. The Venezuelan authorities have granted LAN Peru traffic rights to operate in the Lima-Caracas route.

Air Fare Pricing Policy.Chilean airlines are permitted to establish their own domestic and international fares without government regulation, as long as they do not abuse any dominant market position they may
enjoy. For more information, see Antitrust Regulation below. Airlines may file complaints before the Antitrust Court with respect to monopolistic or other pricing practices by other airlines that violate Chiles antitrust laws. In
1997, the Antitrust Commission approved and imposed a specific self-regulatory fare plan for our domestic operations consistent with the Antitrust Commissions directive to maintain a competitive environment. According to this plan, we must
file notice with the JAC of any increase or decrease in standard fares on routes deemed non-competitive by the JAC and any decrease in fares on competitive routes at least twenty days in advance. We must file notice with the
JAC of any increase in fares on competitive routes at least ten days in advance. In addition, the Chilean authorities now require that we justify any modification that we make to our fares on non-competitive routes. We must also ensure
that our average yields on a non-competitive route are not higher than those on competitive routes of similar distance. As of March 31, 2009, 64% of the domestic routes that we operate had been classified as non-competitive and were
subject to the requirements described above.

Registration of Aircraft.Aircraft registration in Chile is governed by the Chilean
Aeronautical Code (CAC). In order to register or continue to be registered in Chile, an aircraft must be wholly owned by either:



| |  |  | a natural person who is a Chilean citizen; or
| | - |  | ---------------------------------------------



| |  |  | a legal entity incorporated in and having its domicile and principal place of business in Chile and a majority of the capital stock of which is owned by Chilean
nationals, among other requirements established in article 38 of the CAC.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Aeronautical Code expressly allows the
DGAC to permit registration of aircraft belonging to non-Chilean individuals or entities with a permanent place of business in Chile. Aircraft owned by non-Chileans, but operated by Chileans or by an airline which is affiliated with a Chilean
aviation entity, may also be registered in Chile. Registration of any aircraft can be cancelled if it is not in compliance with the requirements for registration and, in particular, if:



| |  |  | the ownership requirements are not met; or
| | - |  | ------------------------------------------



| |  |  | the aircraft does not comply with any applicable safety requirements specified by the DGAC.
| | - |  | -------------------------------------------------------------------------------------------



46



---

##### Table of Contents

Safety.The DGAC requires that all aircraft operated by Chilean airlines be registered either with
the DGAC or with an equivalent supervisory body in a country other than Chile, so long as that country is a member of the Warsaw Convention. All aircraft must have a valid certificate of airworthiness issued by either the DGAC or an equivalent
non-Chilean supervisory entity. In addition, the DGAC will not issue maintenance permits to a Chilean airline until the DGAC has assessed the airlines maintenance capabilities. The DGAC renews maintenance permits annually, and has approved our
maintenance operations. Only DGAC-certified maintenance facilities or facilities certified by an equivalent non-Chilean supervisory body in the country where the aircraft is registered may maintain and repair the aircraft operated by Chilean
airlines. Aircraft maintenance personnel at such facilities must also be certified either by the DGAC or an equivalent non-Chilean supervisory body before assuming any aircraft maintenance positions.

Security.The DGAC establishes and supervises the implementation of security standards and regulations for the Chilean commercial aviation
industry. Such standards and regulations are based on standards developed by international commercial aviation organizations. Each airline and airport in Chile must submit an aviation security handbook to the DGAC describing its security procedures
for the day-to-day operations of commercial aviation and procedures for staff security training. Lan Airlines has submitted its aviation security handbook to the DGAC. Chilean airlines that operate international routes must also adopt security
measures in accordance with the requirements of applicable bilateral international agreements.

Chilean Airport Policy.The DGAC
supervises and manages airports in Chile, including the supervision of take-off and landing charges. The DGAC proposes airport charges, which are approved by the JAC and are the same at all airports. Since the mid-90s, a number of Chilean airports
have been privatized, including the Comodoro Arturo Merino Benítez International Airport in Santiago. At the privatized airports, the airport administration manages the facilities under the supervision of the DGAC and JAC.

Environmental and Noise Regulation.There are no material environmental regulations or controls imposed upon airlines, applicable to aircraft, or
that otherwise affect us in Chile, except for environmental laws and regulations of general applicability. There is no noise restriction regulation currently applicable to aircraft in Chile. However, Chilean authorities are planning to pass a
noise-related regulation governing aircraft that fly to and within Chile. The proposed regulation will require all such aircraft to comply with certain noise restrictions, referred to in the market as Stage 3 standards. LANs fleet already
complies with the proposed restrictions so we do not believe that enactment of the proposed standards would impose a material burden on us.

Regional Aeronautical Regulation (Brazil, Ecuador, Mexico, Colombia, Argentina and Peru)

Our subsidiaries and affiliates
operate throughout the Latin American region under the routes granted by the relevant authorities in each jurisdiction where they are based.

International Routes. Under Brazilian, Ecuadorian, Mexican, Colombian, Argentinean and Peruvian laws, international route rights, as well as the corresponding landing rights, are granted under air transport agreements negotiated
directly between the relevant home jurisdiction and foreign governments.

Domestic Routes.Under Chilean regulation, domestic
airlines are not required to obtain permits in connection with carrying passengers or cargo on any domestic routes. Peruvian and Argentinean law requires the consent of Peruvian and Argentinean authorities to fly domestic routes. Cabotage operations
are exclusive of national airlines. Ecuadorian law requires the airline to obtain a specific concession to fly domestically. In Brazil the Comissão de Coordenação de Linhas Aéreas Regulares reviews all requests by
airlines to fly domestic routes based on economic and safety considerations.

U.S. Aeronautical Regulation

General.Flight operations between Chile and the United States by airlines licensed by either country are governed generally by the open skies air
transport agreement that Chile and the United States signed in October 1997. Under the open skies agreement, there are no restrictions on the number of destinations or flights that either a U.S. or a Chilean airline may operate between the two
countries or on the number of U.S. and Chilean airlines that may operate. Operations to the United States by non-U.S. airlines, such as Lan Airlines, are subject to Title 49 of the U.S. Code, under which the DOT and the FAA exercise regulatory
authority. The U.S. DOJ also has jurisdiction over airline competition matters under the federal antitrust laws.

Authorizations and
Licenses.The DOT has jurisdiction over international aviation with respect to the United States and related route authorities, subject to review by the President of the United States. The DOT also has



47



---

##### Table of Contents

jurisdiction with respect to unfair practices and methods of competition by airlines and related consumer protection matters. Lan Airlines is authorized by
the DOT to engage in scheduled and charter air transportation services, including the transportation of persons, property (cargo) and mail, or combinations thereof, between points in Chile and points in the United States and beyond (via intermediate
points in other countries). We hold the necessary authorizations from the DOT in the form of a foreign air carrier permit, an exemption authorization and statements of authorization to conduct our current operations to and from the United States.
Exemptions and statements of authorization are temporary in nature and are subject to renewal and therefore there can be no assurance that any particular exemption or statement of authorization will be renewed. Our foreign air carrier permit has no
expiration date, while our exemption authorization (which includes the open skies traffic rights) is set to expire on April 10, 2010. Such exemption authorization is automatically extended until such time as the DOT issues the renewal order. We
plan to request an amendment to our foreign air carrier permit to include the open skies rights, which would eliminate our need to renew the exemption authority in the future.

In the United States, we are subject to the FAAs regulation with respect to safety matters, including aircraft maintenance and operations,
equipment, aircraft noise, ground facilities, dispatch, communications, personnel, training, weather observation and other matters affecting air safety. The FAA requires each foreign air carrier to obtain certain operations specifications that
authorize it to operate to particular airports on approved international routes using specified equipment. Lan Airlines currently holds FAA operations specifications under Part 129 of the Federal Aviation Regulations. We believe that we are in
compliance in all material respects with all requirements necessary to maintain in good standing our operations specifications issued by the FAA. The FAA can amend, suspend, revoke or terminate those specifications, or can suspend temporarily or
revoke permanently our authority if we fail to comply with the regulations, and can assess civil penalties for such failure. A modification, suspension or revocation of any of our DOT authorizations or FAA operations specifications could have a
material adverse effect on our business.

The FAA also conducts safety audits and has the power to impose fines and other sanctions for
violations of airline safety regulations. We have not incurred any material fines related to operations.

Security.On
November 19, 2001, the Congress of the United States passed, and the President signed into law, the Aviation and Transportation Security Act, also referred to as the Aviation Security Act. This law federalized substantially all aspects of civil
aviation security and created the Transportation Security Administration, or TSA, which took over security responsibilities previously held by the FAA. The TSA is an agency of the U.S. Department of Homeland Security. The Aviation Security Act
requires, among other things, the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security required under the Aviation
Security Act is provided in part by a US$2.50 per segment passenger security fee, subject to a US$10 per roundtrip cap; however, airlines are responsible for costs in excess of this fee. Implementation of the requirements of the Aviation Security
Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, Congress has mandated and the TSA has implemented numerous security procedures and requirements that have imposed and will continue
to impose burdens on airlines, passengers and shippers.

Noise Restrictions.Under the Airport Noise and Capacity Act of 1990
(ANCA), and related FAA regulations, aircraft that fly to the United States must comply with certain Stage 3 noise restrictions, which are currently the most stringent FAA noise requirements. All of our aircraft that fly to the United
States meet the Stage 3 requirements.

Under the direction of the ICAO, governments are considering the creation of a new and more
stringent noise standard than that contained in the ANCA. The ICAO adopted new noise standards in 2001 that established more stringent noise requirements for aircraft manufactured after January 1, 2006. In the U.S., legislation known as the
Vision 100Century of Aviation Reauthorization Act, which was signed into law in December 2003, required the FAA to issue regulations implementing Stage 4 noise standards consistent with recommendations adopted by the ICAO. FAA
regulations require all aircraft designed and certified after January 1, 2006 to comply with Stage 4 noise restrictions.

FAA
regulations also require compliance with the Traffic Alert and Collision Avoidance System, approved airborne wind shear warning system and aging aircraft regulations. Our entire fleet meets these requirements.

Airport Slot Restrictions.Four U.S. airportsChicago OHare, LaGuardia (New York), John F. Kennedy International (New York) and Reagan
National (Washington, D.C.)have been designated by the FAA as high



48



---

##### Table of Contents

density traffic airports. Operations at these airports are or have been subject to slot restrictions during certain periods of the day. A
slot is an authorization to take off or land at a designated airport within a specified time window. Legislation passed in March 2000 resulted in the elimination of slot restrictions at Chicago OHare on July 1, 2002 and at
LaGuardia and Kennedy International on January 1, 2007. While the FAA has reinstated analogous operating slot restrictions at both Chicago OHare and LaGuardia airports, it has not imposed such restrictions at JFK airport, where we
operate. We do not currently operate in airports in which we have to obtain slots or operating authorizations. Nevertheless, government policies regulating slots and the analogous operating authorizations are affected by matters such as flight
delays, noise exposure and ground congestion, and any one or more of those factors could lead to the reinstatement of slot or analogous operating limitations at airports in which we operate.

Proposed Laws and Regulations.Additional U.S. laws and regulations have been proposed from time to time that could significantly increase the
cost of airline operations by imposing additional requirements or restrictions on airline companies. Laws and regulations have been considered from time to time that would prohibit or restrict the ownership and transfer of airline routes or slots.
There can be no assurance that laws and regulations currently enacted or enacted in the future will not adversely affect our ability to maintain our current level of operating results.

Regulatory Authorizations in Connection with Strategic Alliances

The alliance between Lan Airlines and American Airlines includes three major components: a frequent flyer agreement, a reciprocal code-share agreement and the coordination of pricing, scheduling and other functions.
The last two of these items required the approval of regulatory authorities in both Chile and the United States. With respect to the code-share agreement, the open skies agreement between Chile and the United States expressly permits code-sharing
operations by U.S. and Chilean airlines. With regard to the coordination of pricing and scheduling, Lan Airlines and American Airlines filed a joint application with the DOT in December 1997, requesting approval of their alliance agreement and
immunity from the application of all U.S. antitrust laws pursuant to Title 49 of the U.S. Code. Lan Airlines and American Airlines received approval and antitrust immunity from the DOT in September 1999, and implemented the code-share agreement in
October 1999. In accordance with the terms of the DOTs 1999 approval, Lan Airlines and American Airlines were required to resubmit their alliance agreement to the DOT for review within three years after the DOTs grant of approval. Lan
Airlines and American Airlines resubmitted the agreement in September 2002 and did not receive any comments from the DOT.

Lan Peru was
also granted antitrust immunity by the DOT on October 13, 2005 with respect to a reciprocal code-share agreement and the coordination of pricing, scheduling and other functions with Lan Airlines and American Airlines. In accordance with the
terms of the DOTs 2005 approval, Lan Airlines, Lan Peru and American Airlines are required to resubmit their alliance agreement to the DOT for review within five years after the DOTs grant of approval.

Antitrust Regulation

The Chilean
antitrust authority, which we refer to as the Antitrust Court (previously the Antitrust Commission), oversees antitrust matters, which are governed by Decree Law No. 211 of 1973, as amended, or the Antitrust Law. The Antitrust Law prohibits any
entity from preventing, restricting or distorting competition in any market or any part of any market. The Antitrust Law also prohibits any business or businesses that have a dominant position in any market or a substantial part of any market from
abusing that dominant position. An aggrieved person may sue for damages arising from a breach of Antitrust Law and/or file a complaint with the Antitrust Court requesting an order to enjoin the violation of the Antitrust Law. The Antitrust Court has
the authority to impose a variety of sanctions for violations of the Antitrust Law, including termination of contracts contrary to the Antitrust Law, dissolution of a company and imposition of fines and daily penalties on businesses. Courts may
award damages and other remedies (such as an injunction) in appropriate circumstances. Lan Airlines, Lan Express and Lan Cargo must comply with Chilean Antitrust Law that prohibits a carrier from abusing a dominant position in the market. As
described above under Route RightsAir Fare Pricing Policy, in October 1997, the Antitrust Court approved a specific self-regulatory fare plan for us consistent with the Antitrust Courts directive to maintain a competitive
environment within the domestic market and, in 2001, imposed a new obligation on us to justify any modification that we make to our fares.

At the request of the Antitrust Court, an investigating attorney was appointed to review our self-regulatory fare plan that has been in effect since 1997. The resulting report delivered to us in 2003 by the attorney was generally favorable
as to our fulfillment of our obligations under the self-regulatory fare plan, and did not find any anticompetitive behavior. While the attorney recommended that we separate our domestic cargo and domestic passenger businesses, this recommendation is
neither binding on the Antitrust Court nor on us.



49



---

##### Table of Contents

On January 30, 2004, the Antitrust Court imposed a fine of 500 Unidades Tributarias Mensuales (equal
to approximately US$30,000) on each of Lan Airlines and Lan Express for minor breaches of the self-regulatory fare plan to which they are subject. The Company had argued that such breaches were mainly caused by the impossibility of maintaining the
fare plan. Other entities also submitted amendment proposals. The Antitrust Courts pronouncement on amendments to the self-regulatory fare plan took place on July 14, 2005 and is now in force and effect. We believe we are in material
compliance with the new self-regulatory provisions.

For more recent information regarding regulatory proceedings see Other Financial
InformationLegal and Arbitration Proceedings under Item 8.

Property

Headquarters

Our main facilities are
located on approximately five acres of land near the Comodoro Arturo Merino Benítez International Airport. The complex includes approximately 150,695 square feet of office space, 32,292 square feet of conference space and training facilities,
9,688 square feet of dining facilities and mock-up cabins used for crew instruction. In 2004, we adapted part of this building to meet our expanding training needs. This process included developing new rooms for technical instruction, in-flight and
airport services.

During the fourth quarter of 2003, we moved some of our executive offices into a new building in a more central location
in Santiago, Chile, where we initially occupied a total of four floors. In the first half of 2005 we added three more floors to accommodate our growth requirements. In 2007, in order to accommodate the Companys growth, LAN leased two floors in
an adjacent building (totaling 1,700 square meters), where some of LAN staff moved in February 2008.

Maintenance Base

Our 877,258-square feet maintenance base is located on a site that we own inside the grounds of the Comodoro Arturo Merino Benítez International
Airport. This facility contains our aircraft hangar, warehouses, workshops and offices, as well as a 559,720 square feet aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We have a five-floor, 53,820 square feet
office building plus a 10,000 square feet office and workshop space. This facility is certified by several civil aviation authorities, including the United States FAA. As such, we are permitted to perform maintenance work for third parties at
the facility. The FAA periodically inspects the facility to ensure its compliance with FAA standards. In 2005, we finalized the construction of an additional hangar, as well as 75,000 square feet of aircraft parking space, for US$2.1 million. During
2006 we started a new investment plan at this facility that includes building 64,580 square feet of additional aircraft parking space, a new 15,340 square foot building for offices and maintenance shops, a new 16,680 square feet engine shop and
storage facility, and additional warehousing and external work space. The plan also included the upgrade of some of the current facilities, increasing parking space and building a new access road. Further, in 2006 we completed construction of an
engine workshop with eight work stations and capacity for thirty-six engines, for a total investment of US$820,000. We also lease from the DGAC 193,750 square feet of space inside the Comodoro Arturo Merino Benítez International Airport for
operational and service purposes.

In 2007, LAN approved a two-year capital expenditures plan earmarking approximately US$7 million for
preparing our buildings and plants for the future growth of the Company and of its fleet.

During 2008 we finalized the construction of a
4,300 square feet warehouse especially designed for the storage of oil and flammable supplies which complies with all the security standards required for its operation. We also upgraded some facilities such as bathrooms and dressing rooms in our
maintenance base increasing the total area in 15,000 square feet.

Additionally, as of today, we are constructing a new five-story building
in our maintenance base which will have a total surface of 49,500 square feet and is expected to be finalized by the end of 2009. This building will have space available for several workshops, a new food court and new offices. Also, as of today, we
have begun a new extension of our engine workshop which will allow us to have more space to store and work on the new engines for the B-777 fleet.



50



---

##### Table of Contents

Miami Facilities

We occupy a 36.3-acre site at the Miami International Airport that has been leased to us by the airport under a concession agreement. Our facilities include a 48,000 square foot corporate building, a 380,000 square
foot cargo warehouse and a 783,000 square foot aircraft parking platform, which were constructed and are now leased to us under a long-term contract by a North American developer. We began using these new facilities in September 2001 for our
passenger and cargo offices (with the exception of our reservations and ticket offices). We converted 21,528 square feet of the warehouse into fully furbished offices during 2004.

Other Facilities

We own a building
and sixteen acres of land on the west side of the Comodoro Arturo Merino Benítez International Airport that houses a flight-training center. As of March 2007, this facility features three full-flight simulators for Boeing 767, Airbus A320 and
Boeing 737 aircraft. We rent this flight-training center under a long-term lease to CAE Inc. (a leading Canadian company in the flight training business).

We own a 661,980-square foot warehouse in Santiago, which includes 91,493 square feet of space for offices and other administrative facilities and 45,000 square foot distribution center. We use this facility to
support Blue Express door-to-door cargo transport business.

In 2004, Fast Air Almacenes de Carga S.A. (Fast Air), one of our
subsidiaries which operates import customs warehouses, began utilizing an import warehouse and office building at the Comodoro Arturo Merino Benítez International Airport. This 172,000 square foot building was developed in conjunction with
two other operators.

We have also developed a recreational facility for our employees with Airbus support. The facility, denominated
Parque LAN, is located near the Comodoro Arturo Merino Benítez International Airport. Parque LAN includes amenities such as a gymnasium, synthetic fields for multiple uses and swimming pools.

During 2008, we acquired a 43,000 square feet piece of land in Chile, which represented a US$12 million investment, for the purpose of constructing our
new corporate building.

During 2008, we acquired a 161,000 square feet piece of land near the Lima airport, which will host new facilities
for the company.

In March 2009, we began the construction of a new maintenance base in Argentina. The project includes a new hangar of
26,900 square feet with 9,600 square feet of offices, 1,070 square feet of workshops and an exterior platform of 5,300 square feet. This will comprise a US$3.2 million investment and is expected to be completed by the end of 2009.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



51



---

##### Table of Contents

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

You
should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and the accompanying notes beginning on page F-5 of this annual report.

Our financial statements have been prepared in accordance with Chilean GAAP, which differs in certain respects from U.S. GAAP. A discussion of the
principal differences between Chilean GAAP and U.S. GAAP as they relate to us is described in Note 27 to our audited consolidated financial statements.

Overview

The principal and most distinctive aspect of our business model is the way in which we integrate our passenger and
cargo activities. Our sophisticated service-oriented approach to combining passenger and cargo traffic enables us to better utilize our aircraft, reduce our break-even load factors on passenger flights, and diversify our revenue streams. These
benefits have helped us maintain strong profitability and expand our operations during the period between 2006 and 2008.

97% of our
revenues are generated by our air transport activities. We generate the balance of our operating revenues from airport ground services, customs and storage brokerage operations, aircraft leases, courier services, on-board sales, tour operator
services, third-party maintenance, ground handling, storage, charter operations, credit card co-branding, CRS services and airline-related security services.

Between 2006 and 2008 our operating environment continued to be subject to certain conditions that had a mixed effect on our results. Specifically, we faced:



| |  |  | strong passenger demand;
| | - |  | ------------------------



| |  |  | strong cargo demand, together with imbalances in cargo flows; and
| | - |  | -----------------------------------------------------------------



| |  |  | external cost pressures, especially related to the price of fuel.
| | - |  | -----------------------------------------------------------------

Passenger demand grew consistently during this period, fueled by positive economic conditions in our main markets. Cargo demand also experienced strong growth, especially on southbound routes, driven by positive
economic conditions in Latin America and the strengthening of local currencies, although it continued to experience significant imbalances between northbound and southbound routes. While competition on both passenger and cargo routes has grown
gradually since 2005, changes in competitive conditions in specific markets generated opportunities for us to expand. Certain factors outside of our control, such as fuel prices that have risen consistently since 2002, reaching historically
record-high levels in mid-2008, have also generated significant cost pressures.

Our results for the period between 2006 and 2008 reflect
our efforts in recent years to expand and diversify our revenue base while maintaining an efficient cost base. We have aimed to effectively respond to the opportunities and challenges presented by the expansion and diversification of our revenue
base. This process included expanding our domestic passenger operations in Peru and supporting the launch of Lan Argentina. As a consequence, we have significantly increased our passenger capacity and redeployed our assets in response to specific
opportunities. In the cargo business, we have adjusted our routes and our capacity mix to adapt to changing cargo flows. We have also launched initiatives to enhance customer preference and increase efficiency. These initiatives have enabled us to
maintain a solid market position and to develop new mechanisms to sustain high levels of profitability despite facing unprecedented high fuel prices during 2008. As a consequence, net income amounted to US$241.3 million in 2006, US$308.3 million in
2007 and US$335.7 million in 2008.

Passenger Business

In general, our passenger revenues are driven by international and country-specific political and economic conditions, competitive activity, the attractiveness of the destinations that we serve, and the capacity we
allocate among our different routes.

Passenger demand has grown in the last years, driven by positive economic conditions in Latin
America. Economic growth and improved customer confidence have led to an expansion in both business and leisure traffic to and from Latin America. Increased interest in travel into South America from Europe and the United States has been another
factor positively impacting overall passenger traffic. As a consequence, passenger volumes in markets such as Chile, Peru, Argentina and Ecuador grew significantly between 2006 and 2008. LANs especially strong traffic



52



---

##### Table of Contents

growth during 2008, which reached 12.3%, was also based on a historical capacity expansion plan driven by the delivery of nineteen new passenger aircraft
during the year and new configurations with more seats per aircraft. Despite the global macroeconomic slowdown and the outbreak of H1N1 flu, during the first quarter of 2009 our passenger traffic registered an 8.9% increase with respect to the first
quarter of 2008.

Competitive activity on both our domestic and international passenger routes has also varied over the last several years.
On our international routes, competition gradually increased as both incumbent and new competitors expanded their operations. Nevertheless, we have maintained our market share in most of our international markets since 2005 and have gradually
increased our presence in the domestic markets of Chile and Peru, as well as in the Argentine domestic and international routes, in addition to initiating domestic operations in Ecuador in April 2009.

Overall, market conditions on the passenger business provided us with opportunities to advance on our strategic development plans and expand our
operations. We addressed these by taking advantage of our integrated business model, efficient operations, continued customer focus, and flexible capacity management. Customer focus has provided a key tool to address competitive challenges as well
as to successfully enter new markets.

We also took advantage of our flexibility to adapt capacity quickly in response to demand shocks or
market opportunities. We actively manage our capacity by transferring capacity between routes or adding new aircraft when necessary. This enabled us to rapidly respond by adding capacity in the Peruvian domestic market during 2004 and supporting the
launch of Lan Argentinas domestic operations in 2005, as well as launching the latters international operations in October 2006, and launching domestic operations in Ecuador in April 2009.

These opportunistic actions fit in with our long-term development strategy which is aimed at consolidating LAN as the preferred carrier in the Southern
Cone. This plan incorporates development of domestic, regional and intercontinental routes in the markets we serve. Continuous monitoring of demand trends and competitive activity has allowed us to identify opportunities and, as a consequence,
additional capacity has also been allocated to operations to the South Pacific, Europe and the United States, as well to specific regional routes. We also shifted capacity among our routes in order to better match seasonal patterns in flights to the
United States and to other destinations. Further refinements to our itineraries were also implemented in order to improve connectivity between our operations and those of our partners.

We have also enhanced our regional network by selectively adding new destinations and launching new routes. Since 2004, we have been developing an
intra-regional hub in Lima. We have launched several routes that enable us to effectively use Lima as a connecting point for passengers traveling between Mexico City, Bogota, Caracas, Guayaquil, Quito, Buenos Aires, La Paz, Santa Cruz, Sao Paulo and
Santiago de Chile. In 2007 we began direct service between Lima and Madrid, in 2008 we began service to Medellin, Colombia (with one stop in Quito), and in 2009 we began direct service to Cartagena de Indias, Colombia. We plan to continue growing
our operation in Lima by increasing the number of flight frequencies we operate on these routes and also by adding new destinations.

Our
domestic operations have also grown between 2006 and 2008. In both the Chilean and Peruvian domestic markets, total domestic traffic increased significantly during 2008, driven mainly by new fare structures in line with the implementation of our new
model for short haul operations. Between 2005 and 2009, Lan Argentina increased the number of Argentine domestic destinations to thirteen and, based on our internal estimates, our market share increased to approximately 30%. By the end of 2008,
Ecuadors NCAC granted the airline permission to operate domestic flights within the country. These operations started in April 2009 with flights between the cities of Quito and Guayaquil and currently offering forty-nine weekly flights.

Cargo Business

Our
cargo business depends on exports from and imports to South America and is, therefore, affected by economic conditions, foreign exchange rates, changes in international trade, the health of particular industries, competition and fuel prices (which
we usually pass on to our customers through a cargo fuel surcharge). The relative size of inbound and outbound flows to a particular market or route is a key element in cargo operations as the unidirectional nature of freight flows requires airlines
to create routes that combine origin-destination pairs that feature complementary freight flows. Changes in macroeconomic conditions may lead to major fluctuations in cargo flows to and from Latin America, therefore requiring continuous route and
capacity adjustments.

During the period between 2006 and 2008, the appreciation of local currencies such as the Brazilian real and the
Chilean peso had a significant impact on cargo flows as imports into South America exceeded exports.



53



---

##### Table of Contents

While high oil prices generated upward pressure in yields in both directions, excess demand on southbound routes caused southbound fares to rise more in
relative terms. Competition has varied between 2006 and 2008, although high oil prices limited the industrys capacity growth since high levels of efficiency were required to maintain profitability. Towards the end of 2008 and the first quarter
of 2009, our cargo business began experiencing the impact of the global macroeconomic slowdown, registering significant declines in traffic (20.1% with respect to the first quarter of 2008) that were in line with the downward trend in global air
cargo traffic.

We responded to these changing conditions in several ways. We closely monitored demand and redesigned our freighter
itineraries accordingly. The flexibility of our freighter operations enabled us to accommodate lower demand and avoid unprofitable routes by combining service to several destinations in the same trip. For instance, we increased the number of trips
we performed to and from the Atlantic coast of South America in 2003 and 2004 as exports boomed, but as they decelerated we swiftly added stopovers in export-heavy markets in the Pacific to the northbound trips. We adjusted our capacity through the
return of wet-leased freighter aircraft in order to avoid idle capacity during periods of low demand. In recent years we have also been replacing the wet-leased freighter aircraft with our own modern Boeing 767 Freighters and, since 2009, also with
our new Boeing 777 Freighters. Our expanded route network led to increased diversification and helped us, by allowing us to shift capacity across routes, to partially compensate for reductions in traffic to specific markets. Our cost-effective
operations and operating network also gave us a competitive advantage that allowed us to increase market share in certain markets as other competitors reduced the scale of their operations. Overall, these adjustments enabled us to successfully deal
with a complicated environment and ultimately led to an improved market position.

Cost Structure

Cost controls were critical to maintaining our profitability over the period from 2006 to 2008, especially as we faced record-high fuel prices during
2008. In absolute terms, the main drivers of our costs are the size of our operations, fuel prices, fleet costs and exchange rates.

As an
airline, we are subject to fluctuations in costs that are outside our control, particularly fuel prices and exchange rates. However, we manage part of our exposure to changes in fuel prices through a fuel-hedging policy and the use of pass-through
mechanisms on both the passenger and cargo businesses. For more information see Quantitative and Qualitative Disclosures About Market RiskRisk of Fluctuations in Jet Fuel Prices under Item 11. Personnel expenses are another
significant component of our overall costs. Because a significant portion of our labor costs is denominated in pesos, appreciation of the peso against the dollar as well as increases in local inflation rates can result in increased costs in dollar
terms and can negatively affect our results. However, this cost pressure is mitigated by the partial natural hedge between the currencies of denomination of our total operating revenues and expenses.

Commissions to travel and cargo agents also compose a significant cost to us. We compete with other airlines over the amount of commission we pay per
sale, particularly in connection with special programs and marketing efforts, and to maintain competitive incentives with travel agents. In February 2007 we reduced commissions paid to agents in Chile for economy class ticket sales from 6% to 1%.
Between 2007 and 2008, commissions were also reduced to 1% in Ecuador, Argentina and Peru.

Fleet related expenses, basically aircraft
rentals and depreciation, are another significant cost. These costs are mainly fixed and can be reduced on a per unit basis by achieving higher daily aircraft utilization rates.

Fuel prices rose consistently between 2006 and 2008 generating significant cost pressure. During 2008, fuel prices rose to record-high levels, which led
to US$404.5 million in additional expenses and contributed to a 20.0% rise in cost per ATK (a key industry metric). Excluding fuel costs, the rise in cost per ATK over this period was 10.5%. Please refer to GAAP/Non-GAAP Reconciliation
for further details regarding cost per ATK.

Apart from fuel costs, the main causes for the increase in cost per ATK were personnel growth,
traffic and revenue growth outpacing capacity growth and a stronger Chilean peso. Wages and benefits and training costs increased in excess of capacity growth because the expansion of our operations required the anticipated incorporation and
training of new personnel and because the Chilean peso has appreciated since 2006. Revenue and traffic growth similarly impacted commissions, distribution costs and passenger services.

Despite these challenges, our cost structure remained highly competitive due to careful cost management and more efficient asset utilization. For
example, we were able to partially offset these cost increases by implementing important reductions in passenger commissions and increasing our aircraft utilization rates.



54



---

##### Table of Contents

Higher aircraft utilization has been an important source of improved efficiency. Our long-haul passenger
and cargo aircraft are used, on average, approximately fourteen hours per day. Our utilization strategy in 2008 was designed in concert with the addition of new routes to our network, which enabled us to leverage our human and physical assets for
increased efficiency. This was especially the case in our domestic operations in Chile and Peru, where we increased aircraft utilization as a result of the itineraries of our new short haul business model, as well as due to the phasing out of the
older Boeing 737-200 aircraft on Chilean domestic routes. Utilization of our narrow body fleet of Airbus A320-Family Aircraft has increased to approximately ten block hours per day per aircraft.

We have also worked consistently to improve our cost structure. This process has included initiatives such as the modification of short-haul service
standards, which were implemented in late 2005 and modified further in 2007 as a result of the new business model on domestic routes, enabling us to reduce passenger service expenses. The key elements of this new business model have been the
reduction in sales and distribution costs through higher Internet penetration and reduced agency commissions, a faster turnaround time, and increased self check-in service through web check-in and kiosks at airports.

Outlook

Our long-term strategy is
aimed at consolidating LANs position as the main passenger and cargo airline in South America. We will continue to expand our network by further developing our existing routes, adding new destinations, developing new alliances, and entering
new markets. We expect our brand recognition and a continuous effort to improve service standards to drive increased customer preference, ultimately leading to strong market shares in the markets we serve. Our product and service design is aimed at
providing passengers and cargo customers with differentiated offerings that provide valuable solutions to the needs of each of our customer types. We also aim to have products and services that evolve together with changes in technology, market
conditions and competitive actions. We plan to maintain a highly competitive cost structure by leveraging our cost-conscious culture, incorporating new technologies and practices, and by identifying and implementing adequate cost-reduction
initiatives. We believe that a focus on flexibility will enable us to adequately react to changing market conditions. Finally, a healthy financial structure will allow us to effectively fund our growth, enhance our strategic development and
reinforce our customer appeal.

Our results will be mainly determined by the expansion of our current network, the evolution of our market
share in our main markets, our level of success in entering new markets, the continued implementation of new efficiency-related programs, the implementation of our new business model for short-haul operations, and fuel price levels.



| |  |  | We plan to increase frequencies on long-haul flights out of Chile, Peru, Ecuador and Argentina, and eventually add new destinations in the United States and Europe.
We plan to reinforce our regional network through the addition of new frequencies on our current routes and the addition of new destinations. We will also seek to enter into new alliances in both the passenger and cargo business, especially to build
up our presence in new markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Competitive activity in key markets increased gradually during 2008, and we expect it to continue doing so in the future. Nevertheless, we expect to maintain solid
market shares based on offering attractive value propositions that combine broad international and domestic networks, a strong customer focus and a competitive cost base.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are also working on increasing efficiency by streamlining our support processes, reducing commercial costs, and by continuing with the implementation of our new
business model on short-haul operations. Further enhancements should arise from economies of scale, especially as solid growth in the passenger business accompanied by controlled fixed costs will serve to dilute our fixed costs base. In both the
passenger and the cargo business, efficiencies are also expected to come from the replacement of older aircraft with new and more fuel-efficient Boeing 787 and Boeing 777 models.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our financial performance will also be highly dependent on the evolution of jet fuel prices, which rose significantly until mid-2008 and led to a sharp
rise in our fuel expenditures, but have substantially declined as from August 2008. Although we have devised and implemented a number of strategies to mitigate the impact of the volatility of fuel prices, including financial hedging and the use of
fuel surcharges, it is impossible for us to predict if we will be able to fully protect ourselves against the volatility of fuel costs.



55



---

##### Table of Contents

Overall, we believe that these initiatives will enable us to successfully respond to growth
opportunities, maintain a solid competitive position, and enhance our distinct cost performance.

Operating Results

The following table sets forth certain income statement data for Lan Airlines.



|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|------------------------------- |  | --------------- | - |  | -------------------------------- | - |  | -------- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ------ | - |  | ------ | -
|                                |  | In US$ millions |   |  | As a percentage oftotal revenues |   |  | % change |  
|                                |  | 2006            |   |  | 2007                             |   |  | 2008     |   |  | 2006  |   |  | 2007  |   |  | 2008  |   |  | 07/06  |   |  | 08/07  |  
|Revenues:                       |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Passenger                       |  | 1,813.4         |   |  | 2,197.2                          |   |  | 2,858.9  |   |  | 59.8  |   |  | 62.3  |   |  | 63.05 |   |  | 21.2   |   |  | 30.1   |  
|Cargo                           |  | 1,072.7         |   |  | 1,154.3                          |   |  | 1,527.1  |   |  | 35.4  |   |  | 32.8  |   |  | 33.7  |   |  | 7.6    |   |  | 32.3   |  
|Other                           |  | 147.9           |   |  | 173.4                            |   |  | 148.2    |   |  | 4.8   |   |  | 4.9   |   |  | 3.3   |   |  | 17.2   |   |  | (14.5  | )
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Total operating revenues        |  | 3,034.0         |   |  | 3,524.9                          |   |  | 4,534.3  |   |  | 100.0 |   |  | 100.0 |   |  | 100.0 |   |  | 16.2   |   |  | 28.6   |  
|Expenses:                       |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Wages and benefits              |  | 443.0           |   |  | 489.6                            |   |  | 608.5    |   |  | 14.6  |   |  | 13.9  |   |  | 13.4  |   |  | 10.5   |   |  | 24.3   |  
|Aircraft fuel                   |  | 763.9           |   |  | 930.2                            |   |  | 1,423.9  |   |  | 25.2  |   |  | 26.4  |   |  | 31.4  |   |  | 21.8   |   |  | 53.1   |  
|Commissions to agents           |  | 403.9           |   |  | 402.6                            |   |  | 481.9    |   |  | 13.3  |   |  | 11.4  |   |  | 10.6  |   |  | (0.3   | ) |  | 19.7   |  
|Depreciation and amortization   |  | 122.8           |   |  | 153.9                            |   |  | 183.2    |   |  | 4.0   |   |  | 4.4   |   |  | 4.0   |   |  | 25.3   |   |  | 19.0   |  
|Passenger services              |  | 56.1            |   |  | 71.8                             |   |  | 85.2     |   |  | 1.8   |   |  | 2.0   |   |  | 1.9   |   |  | 28.0   |   |  | 18.6   |  
|Aircraft rentals                |  | 157.7           |   |  | 158.9                            |   |  | 150.9    |   |  | 5.2   |   |  | 4.5   |   |  | 3.3   |   |  | 0.8    |   |  | (5.0   | )
|Aircraft maintenance            |  | 117.2           |   |  | 159.1                            |   |  | 155.6    |   |  | 3.9   |   |  | 4.5   |   |  | 3.4   |   |  | 35.8   |   |  | (2.2   | )
|Other rentals and landing fees  |  | 336.8           |   |  | 366.4                            |   |  | 450.6    |   |  | 11.1  |   |  | 10.4  |   |  | 9.9   |   |  | 8.8    |   |  | 23.0   |  
|Other operating expenses        |  | 329.9           |   |  | 379.1                            |   |  | 458.3    |   |  | 10.9  |   |  | 10.8  |   |  | 10.1  |   |  | 14.9   |   |  | 20.9   |  
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Total operating expenses        |  | 2,731.3         |   |  | 3,111.6                          |   |  | 3,998.1  |   |  | 90.0  |   |  | 88.3  |   |  | 88.2  |   |  | 13.9   |   |  | 28.5   |  
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Operating income                |  | 302.6           |   |  | 413.4                            |   |  | 536.2    |   |  | 10.0  |   |  | 11.7  |   |  | 11.8  |   |  | 36.6   |   |  | 29.7   |  
|Other income and expenses:      |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Interest income                 |  | 7.9             |   |  | 18.0                             |   |  | 16.2     |   |  | 0.3   |   |  | 0.5   |   |  | 0.4   |   |  | 127.8  |   |  | (10.1  | )
|Interest expense                |  | (60.7           | ) |  | (76.2                            | ) |  | (82.7    | ) |  | (2.0  | ) |  | (2.2  | ) |  | (1.8  | ) |  | (25.5  | ) |  | 8.5    |  
|Other income-net                |  | 37.1            |   |  | 12.6                             |   |  | (68.1    | ) |  | 1.2   |   |  | 0.4   |   |  | (1.5  | ) |  | (66.0  | ) |  | (640.0 | )
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Total other income (expense)    |  | (15.7           | ) |  | (45.6                            | ) |  | (134.6   | ) |  | (0.5  | ) |  | (1.3  | ) |  | (3.0  | ) |  | (190.5 | ) |  | 195.1  |  
|Income before minority interest |  | 286.9           |   |  | 367.8                            |   |  | 401.6    |   |  | 9.5   |   |  | 10.4  |   |  | 8.9   |   |  | 28.2   |   |  | 9.2    |  
|Minority interest               |  | 1.2             |   |  | 0.3                              |   |  | (1.2     | ) |  | 0.0   |   |  | 0.0   |   |  | 0.0   |   |  | (75.0  | ) |  | (511.1 | )
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Income before income taxes      |  | 288.1           |   |  | 368.1                            |   |  | 400.4    |   |  | 9.5   |   |  | 10.4  |   |  | 8.8   |   |  | 27.8   |   |  | 8.8    |  
|Income taxes                    |  | (46.8           | ) |  | (59.8                            | ) |  | (64.7    | ) |  | (1.5  | ) |  | (1.7  | ) |  | (1.4  | ) |  | (27.8  | ) |  | 8.2    |  
|                                |  |                 |   |  |                                  |   |  |          |   |  |       |   |  |       |   |  |       |   |  |        |   |  |        |  
|Net income                      |  | 241.3           |   |  | 308.3                            |   |  | 335.7    |   |  | 8.0   |   |  | 8.7   |   |  | 7.4   |   |  | 27.8   |   |  | 8.9    |  

2008 Compared with 2007

Net Income

Our net income increased 8.9% from US$308.3 million in 2007 to US$335.7 million in 2008.
This increase is mainly due to a 29.7% increase in operating income as compared to 2007, partially offset by a 195.1% increase in non-operating expenses.

Operating income increased to US$536.2 million in 2008 from US$413.3 million in 2007 as a 28.6% increase in operating revenues outpaced a 28.5% growth in operating expenses. Revenue growth reflected strong capacity
expansion and an improvement in demand in the passenger business, growth in import routes into South America in the cargo business, moderate competitive activity and a strong market position, the entrance into new markets, and the expansion of our
routes network. Operating costs grew mainly due to high fuel prices, capacity growth, sales growth and the appreciation of local currencies.

In 2008 we recorded a US$134.6 million non-operating expense compared to a US$45.6 million non-operating expense in 2007. This change reflected higher interest expenses due to increased debt associated with our fleet expansion plan,
partially offset by the recognition of interest related to the financing of pre-delivery payments (PDP), as a consequence of a change in the accounting policy regarding these PDPs (see Note 27(p) to the audited consolidated financial
statements of the Company). In addition, other non operating income declined 640.0% as a result of a provision of US$109 million in relation to a plea agreement signed with the DOJ regarding the cargo



56



---

##### Table of Contents

business investigation (see Item 4. Information on the Company  Business of the Company  Cargo Operations  Cargo Related
Investigations), partially offset by a US$35.4 million gain in fuel hedging and a gain of US$14.0 million derived from the recognition of interest related to the financing of PDPs for years prior to 2008, as a consequence of a change in the
accounting policy regarding these PDPs.

Finally, income tax expense increased by 8.2% to US$64.7 million in 2008, mainly as a result of
higher pre-tax income, as the effective tax rate remained at approximately 16.2%.

Revenues

Revenues in 2008 totaled US$4,534.3 million, a 28.6% increase over revenues of US$3,524.9 million in 2007. Our consolidated passenger revenues grew 30.1%
to US$2,858.9 million in 2008 from US$2,197.2 million in 2007, due to a 12.3% increase in passenger traffic, together with a 15.9% increase in yields (from US¢9.2 to US¢10.6). Passenger traffic (as measured in RPKs) increased primarily
because of higher demand at key points of sales, expansion on long-haul and regional routes, expansion in the Argentine domestic market and growth in the Peruvian and Chilean domestic market driven by the implementation of LANs new domestic
business model. Passenger yields increased 15.9% mainly due to better revenue management, nominal fare increases, higher fuel surcharges from higher West Texas Intermediate (WTI) market prices and the impact of the appreciation of the
Chilean peso on domestic fares.

Domestic passenger revenues in Chile, Peru and Argentina, which accounted for 32.0% of our total passenger
revenues in 2008 and 29.0% in 2007, increased 43.8% to US$915.1 million in 2008 from US$636.5 million in 2007. Domestic passenger traffic (as measured in RPKs) increased 30.5%, while domestic passenger capacity (as measured in ASKs) increased 28.1%,
resulting in an increase in load factor from 74.6% in 2007 to 76.0% in 2008. Domestic passenger yield increased 10.2% from US¢11.16 in 2007 to US¢12.29 in 2008, mainly due to higher fuel surcharges driven by higher fuel prices.

International passenger revenues, which accounted for 67.1% of total passenger revenues in 2008 and for 70.7% of passenger revenues in 2007, increased
21.8% to US$1,870.0 million in 2008 from US$1,535.6 million in 2007. International passenger traffic (as measured in RPKs) increased 6.6%, while passenger capacity (as measured in ASKs) increased 6.1% in 2008, resulting in an improvement in load
factor from 76.5% in 2007 to 76.9% in 2008. Total international passenger yield (based on RPKs) increased 16.8% to US¢9.96 in 2008 from US¢8.53 in 2007, driven by higher fuel surcharges and nominal fare increases.

Cargo revenues grew 32.3%, to US$1,527.1 million in 2008 from US$1,154.3 million in 2007, as traffic increased 7.6% and yields increased 23.0% to
US¢52.5 from US¢42.7. International cargo revenues accounted for nearly 98% of total cargo revenues. Cargo traffic increased mainly due to the growth of imports into Latin America. Cargo yields increased mainly due to the continued
implementation of certain revenue management strategies on southbound routes and higher fuel surcharges. Capacity during the period increased 12.3% as load factors decreased from 74.4% to 71.2%, due to the fact that volume growth in some northbound
export markets was negatively affected by stronger local currencies and higher fuel prices.

Other revenues decreased 14.5% to US$148.2
million in 2008 from US$173.4 million in 2007, as increased revenues from aircraft rentals and courier services were more than offset by lower onboard sales, lower revenues from maintenance service rendered to third-parties and lower revenue from
tours and travel services. In addition, the 2007 other revenues item included a non-recurrent US$18.6 million compensation from Airbus related to a change in the delivery schedule of certain A318 aircraft, while in 2008, this compensation decreased
to US$5.9 million.

Expenses

Expenses in 2008 totaled US$3,998.1 million, a 28.5% increase over expenses of US$3,111.6 million in 2007. System capacity, measured in system ATKs, increased 9.0% between 2007 and 2008. Excluding the impact of higher fuel prices, which
resulted in US$404.5 million of additional expenses compared to 2007, operating costs increased 9.6%. Unit costs (measured as operating costs and interest expenses minus other revenues, per ATK) increased 20.0% in 2008. Excluding fuel, unit costs
increased 10.5% in 2008. As a percentage of total revenues, consolidated expenses decreased from 88.3% in 2007 to 88.2% in 2008.

Wages and
benefits expenses grew 24.3% to US$608.5 million in 2008 from US$489.6 million in 2007, mainly driven by the impact of inflation on local currency-denominated wages and by the increase of headcount, in-line with the expansion of the Companys
operations.



57



---

##### Table of Contents

Aircraft fuel expenses in 2008 totaled US$1,423.9 million, a 53.1% increase over aircraft fuel expenses
of US$930.2 million in 2007. Fuel expenses rose due to a 39.7% increase in average fuel prices and a 9.6% increase in fuel consumption. To reflect our operational results more clearly, the gains and losses incurred due to fuel hedging activities are
classified as a non-operating item.

Commissions to agents (related to both passenger and cargo sales) increased 19.7% to US$481.9 million
in 2008 from US$402.6 million in 2007, due to a 30.9% increase in traffic revenues (passenger and cargo), which was offset by a 1.0% reduction in average commissions. This reduction was mainly related to a change in the commission structure in the
cargo business, and lower commissions in the passenger business in Chile.

Depreciation and amortization expenses increased 19.0% to
US$183.2 million in 2008 from US$153.9 million in 2007. Depreciation and amortization increased mainly due to the incorporation of 5 new Boeing 767 aircraft, 2 Airbus A320, 2 Airbus A319 and 10 Airbus A318 aircraft to LANs fleet during 2008.
For further information on depreciation policies, refer to Critical Accounting Policies below, and Note 2 to our audited consolidated financial statements.

Other rental and landing fees increased 23.0% to US$450.6 million in 2008 from US$366.4 million in 2007. This increase resulted mainly from the impact of increased operations on landing fees and handling expenses, as
well as an increase in the use of variable aircraft rentals (or ACMI leases) in the cargo business.

Passenger service expenses totaled
US$85.2 million in 2008 and US$71.8 million in 2007. This represented an 18.6% increase driven mainly by the 19.4% increase in the number of passengers transported during the period, in addition to higher costs associated with passenger
compensations.

Aircraft rental expenses decreased 5.0% to US$150.9 million in 2008 from US$158.9 million in 2007 as higher average lease
rates were offset by a decrease in the average number of leased aircraft.

Aircraft maintenance expenses decreased 2.2%, from US$159.1
million in 2007 to US$155.6 million in 2008, as additional costs resulting from increased fleet utilization and the escalation in maintenance contracts were compensated by lower maintenance provisions resulting from the phase out of the Boeing
737-200 fleet.

Other operating expenses increased 20.9% to US$458.3 million in 2008 from US$379.1 million in 2007. Other operating
expenses include sales-related expenses, training, communication, distribution and data processing costs, and banking and non-collectable account expenses. Other operating expenses increased in 2008 due to increased operations driven mainly by
higher sales and distribution costs and higher marketing and advertising expenses.

Operating Income

Operating income increased 29.7% to US$536.2 million in 2008 from US$413.4 million in 2007. Operating margins increased from 11.7% in 2007 to 11.8% in
2008 as a 28.6% increase in total operating revenues outpaced a 28.5% increase in operating expenses. For the full year, revenues per ATK (passengers and cargo) grew 20.1% (from US¢47.7 to US¢57.3), as costs per ATK increased 20.0% (from
US¢42.7 to US¢51.2).

Other Income (Expense)

Other expenses increased from US$45.6 million in 2007 to US$134.6 million in 2008. Interest income decreased 10.1% to US$16.2 million from US$18.0 million due to lower average cash balances and lower market interest
rates as compared to 2007. Interest expenses increased 8.5% to US$82.7 million in 2008 from US$76.2 million in 2007 due to increased average long-term debt related to fleet financing, offset by the recognition of interest related with the financing
of PDPs during 2008 (see Note 27(p) to the audited consolidated financial statements of the Company). Other expense/income-net decreased 640.0% to a net expense of US$68.1 million in 2008 from a net income of US$12.6 million in 2007. This was mainly
due to the fact that in 2008 this item included a US$109 million provision in relation to a plea agreement signed with the DOJ regarding the cargo business investigation (see Item 4. Information on the Company  Business of the Company
 Cargo Operations  Cargo-Related Investigations). In addition, this included a US$7.9 million foreign-exchange loss in 2008 compared to a US$15.7 million gain in 2007. This was partially offset by the fact that LAN recorded
a fuel hedging gain of US$35.4 million in 2008 compared to a US$28.2 million gain in 2007, as well as a US$ 14.0 million gain corresponding to the recognition of interest related with the financing of PDPs for years prior to 2008.



58



---

##### Table of Contents

Income Taxes

Income tax expense increased 8.2%, amounting to US$64.7 million in 2008 as compared to US$59.8 million in 2007. This was mainly the result of an 8.8% increase in pre-tax income, as the average tax rate remained at
16.2% in 2008. For more information, see Critical Accounting PoliciesDeferred Income Taxes below and Note 14 to our audited consolidated financial statements.

2007 Compared with 2006

Net Income

Our net income increased 27.8% from US$241.3 million in 2006 to US$308.3 million in 2007. This increase is mainly due to a 36.6% increase in operating
income as compared to 2006, offset by a 189.7% increase in non-operating expenses.

Operating income increased to US$413.3 million in 2007
from US$302.6 million in 2006 as a 16.2% increase in operating revenues outpaced a 13.9% growth in operating expenses. Revenue growth reflected strong capacity expansion and an improvement in demand in the passenger business, growth in import routes
into South America in the cargo business, moderate competitive activity and a strong market position, the entrance into new markets, and the expansion of our route network. Operating costs grew mainly due to capacity growth, sales growth, the
appreciation of local currencies and high fuel prices.

In 2007 we recorded a US$45.6 million non-operating expense compared to a US$15.7
million non-operating expense in 2006. This change reflected higher interest expenses due to increased debt associated with our fleet expansion plan, offset in part by higher interest income as a result of higher cash balances resulting from our
equity offering completed in June 2007. In addition, Other Non Operating Income declined 66.0% as a result of a non-recurrent pre-tax benefit of US$40.3 million recorded in 2006 due to the change in the accounting policy governing LANs
aircraft maintenance expenses.

In the fourth quarter of 2007, LAN recorded a US$25.0 million reserve in Other Non-Operating Expenses in
relation with a European investigation of cargo price-fixing. In February 2006 the European Commission, in conjunction with the DOJ, initiated a global investigation of a large number of international cargo airlines  among them LAN Cargo S.A.,
LANs cargo subsidiary  for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets. On December 26, 2007, the European competition authorities notified LAN Cargo S.A. and LAN
of the initiation of proceedings against twenty-five cargo airlines, among them LAN Cargo S.A., for allegations of anti-competitive behavior in the air freight business. Given the current stage of the European proceedings, it is not possible at this
time to anticipate with any precision their outcome, although it is expected to be a lengthy judicial process. For an update on the status of the European proceedings and the DOJs investigations, please see section 2008 Compared with
2007 above and Item 4. Information on the Company  Business of the Company  Cargo Operations  Cargo-Related Investigations.

Finally, income tax expense increased by 27.6% to US$59.8 million in 2007, mainly as a result of higher pre-tax income, as the effective tax rate remained at approximately 16.2%.

Revenues

Revenues in 2007 totaled
US$3,524.9 million, a 16.2% increase over revenues of US$3,034.0 million in 2006. Our consolidated passenger revenues grew 21.2% to US$2,197.2 million in 2007 from US$1,813.4 million in 2006, due to a 23.1% increase in passenger traffic, partly
offset by a 1.6% decline in yields (from US¢9.3 to US¢9.2). Passenger traffic (as measured in RPKs) increased primarily because of higher demand at key points of sales, expansion on long-haul and regional routes, expansion in the Argentine
domestic market and growth in the Peruvian and Chilean domestic market driven by the implementation of LANs new domestic business model. Passenger yields decreased 1.6% due to fare decreases on regional and domestic routes related to the new
business model for short-haul operations, partly offset by nominal fare increases, improved passenger revenue management and fuel-related fare increases in the fourth quarter of 2007.

Domestic passenger revenues in Chile, Peru and Argentina, which accounted for 29.0% of our total passenger revenues in 2007 and 29.8% in 2006, increased
17.7% to US$636.3 million in 2007 from US$540.9 million in 2006. Domestic passenger traffic (as measured in RPKs) increased 28.5%, while passenger capacity (as measured in ASKs) increased 14.8%, resulting in an increase in load factor from 66.6% in
2006 to 74.6% in 2007. Domestic passenger yield declined 8.40% from US¢12.19 in 2006 to US¢11.16 in 2007, driven mainly by the implementation of LANs new business model in the domestic market.



59



---

##### Table of Contents

International passenger revenues, which accounted for 69.8% of total passenger revenues in 2007 and for
68.8% of passenger revenues in 2006, increased 22.9% to US$1,533.4 million in 2007 from US$1,247.7 million in 2006. International passenger traffic (as measured in RPKs) increased 21.5%, while passenger capacity (as measured in ASKs) increased 21.1%
in 2007, resulting in an improvement in load factor from 76.3% in 2006 to 76.5% in 2007. Total international passenger yield (based on RPKs) increased 0.9% to US¢8.53 in 2007 from US¢8.45 in 2006, driven by nominal fare increases, improved
passenger revenue management and fuel-price related fare increases.

Cargo revenues grew 7.6%, to US$1,154.3 million in 2007 from
US$1,072.7 million in 2006, as traffic increased 4.8% and yields increased 2.7% to US¢42.7 from US¢41.6. International cargo revenues accounted for nearly 98% of total cargo revenues. Cargo traffic increased mainly due to the growth of
imports into Latin America. Cargo traffic growth decelerated during the year mainly due to the weakening of export traffic out of South America. Cargo yields increased mainly due to strong demand on southbound routes and to the implementation of
certain passenger revenue management initiatives as well as fuel cost pass-through mechanisms.

Other revenues increased 17.3% to US$173.4
million in 2007 from US$147.9 million in 2006, driven by increased revenues from on-board sales and aircraft rentals, maintenance and storage, custom brokerage and handling services to third parties, partially offset by the sale in the second
quarter of 2007 of the subsidiaries of Lan Logistics Corp, which were not part of the Companys core airline business. In addition, the Company received US$18.6 million from Airbus related to a change in the delivery schedule of certain Airbus
A318 aircraft.

Expenses

Expenses in 2007 totaled US$3,111.6 million, a 13.9% increase over expenses of US$2,731.3 million in 2006. System capacity, measured in system ATKs, increased 10.6% between 2006 and 2007. Excluding the impact of higher fuel prices, which
resulted in US$78.5 million of additional expenses compared to 2006, operating costs increased 11.0%. Unit costs (measured as operating costs and interest expenses minus other revenues, per ATK) increased 2.8% in 2007. Excluding fuel, unit costs
increased 2.8%. As a percentage of total revenues, consolidated expenses decreased from 90.0% in 2006 to 88.3% in 2007.

Wages and benefits
expenses grew 10.5% to US$489.6 million in 2007 from US$443.0 million in 2006, mainly driven by increased headcount in line with the expansion in the Companys operations, together with the impact of stronger local currencies and inflation on
local currency-denominated wages.

Aircraft fuel expenses in 2007 totaled US$930.2 million, a 21.8% increase over 2006 aircraft fuel
expenses of US$764.0 million. Fuel expenses rose due to a 9.2% increase in average fuel prices and an 11.5% increase in fuel consumption. To reflect our operational results more clearly, the gains and losses incurred due to fuel hedging activities
are classified as a non-operating item.

Commissions to agents (related to both passenger and cargo sales) decreased 0.3% to US$402.6
million in 2007 from US$403.9 million in 2006, despite significant revenue growth, due to the fact that the 16.1% increase in traffic revenues (passenger and cargo) was offset by a 2.0 percentage point reduction in average commissions. As a
percentage of traffic revenues (passenger and cargo), commissions to agents fell from 14.0% to 12.0%. This reduction was mainly related to a change in the commission structure in the cargo business, lower commissions in the passenger business in
Chile, and a rise in passenger revenues relative to cargo revenues (average cargo commissions are higher than passenger commissions). Specifically, the weight of passenger revenues on total revenues increased from 59.8% to 62.3%.

Depreciation and amortization expenses increased 25.3% to US$153.9 million in 2007 from US$122.8 million in 2006. Depreciation and amortization increased
mainly due to the incorporation into LANs fleet of 3 new Boeing 767 aircraft, 2 Airbus A320 and 5 Airbus A318 aircraft during 2007. For further information on depreciation policies, refer to Critical Accounting Policies below, and
Note 2 to our audited consolidated financial statements.

Other rental and landing fees increased 8.8% to US$366.4 million in 2007 from
US$336.8 million in 2006. This increase resulted mainly from the impact of increased operations on landing fees and handling expenses, partially offset by lower variable aircraft rentals as a result of lower ACMI leases in the cargo business, as
well as the termination of certain cargo allotment agreements.



60



---

##### Table of Contents

Passenger service expenses totaled US$71.8 million in 2007 and US$56.1 million in 2006. This represented
a 28.1% increase driven mainly by the 24.9% increase in the number of passengers transported during the period, in addition to higher costs associated with passenger compensations.

Aircraft rental expenses increased 0.8% to US$158.9 million in 2007 from US$157.7 million in 2006 as a decrease in the average number of leased aircraft
was offset by higher average lease rates and by the incorporation of an additional Airbus A340 into LANs fleet.

Aircraft maintenance
expenses increased 35.7%, from US$117.2 million in 2006 to US$159.1 million in 2007, mainly as a result of the expansion in operations, a larger fleet and increased utilization of the fleet, as well as higher maintenance rates per hour due to an
escalation in maintenance contracts.

Other operating expenses increased 14.9% to US$379.1 million in 2007 from US$329.9 million in 2006.
Other operating expenses include sales-related expenses, training, communication, distribution and data processing costs, and banking and non-collectable account expenses. Other operating expenses increased in 2007 due to increased operations, which
resulted in increased sales and distribution costs, higher advertising and marketing expenses, and costs related to the Companys on board sales. This was partially offset by the de-consolidation of the costs related to the subsidiaries of Lan
Logistic Corp, which were sold during the second quarter of 2007.

Operating Income

Operating income increased 36.6% to US$413.4 million in 2007 from US$302.6 million in 2006. Operating margins increased from 10.0% in 2006 to 11.7% in
2007 as a 16.2% increase in total operating revenues outpaced a 13.9% increase in operating expenses. For the full year, revenues per ATK (passengers and cargo) grew 5.0% (from US¢45.5 to US¢47.7), as costs per ATK increased 2.8% (from
US¢41.5 to US¢42.7).

Other Income (Expense)

Other expenses increased from US$15.7 million in 2006 to US$45.6 million in 2007. Interest income increased 128.5% to US$18.0 million from US$7.9 million due to higher average cash balances resulting from the equity
offering completed in June 2007. Interest expenses increased 25.5% to US$76.2 million in 2007 from US$60.7 million in 2006 due to an increase in average debt related to fleet financing and higher average interest rates. Other income-net decreased
66.0% to US$12.6 million in 2007 from US$37.1 million in 2006. This was mainly due to the fact that in 2007 this item included a US$25.0 million reserve related to the ongoing investigation by the European Commission for allegations of
anti-competitive behavior in the cargo business. In 2006, this item included a US$40.3 million pre-tax, one-time gain related to a change in the Companys aircraft maintenance accounting policy, a US$6.4 million pre-tax one-time charge related
to severance payment charges and a US$8.1 million provision related to the phase-out of the Boeing 737-200 fleet. In addition, LAN recorded a fuel hedging gain of US$28.2 million in 2007 compared to a US$12.9 million gain in 2006, as well as a
US$15.7 million foreign-exchange gain compared to a US$5.5 million gain in 2006.

Income Taxes

Income tax expense increased 27.6%, amounting to US$59.8 million in 2007 as compared to US$46.8 million in 2006. This was mainly the result of a 27.8%
increase in pre-tax income, as well as a 0.1% decrease in the average tax rate which reached 16.2% in 2007 as compared to 16.3% in 2006. For more information, see Critical Accounting PoliciesDeferred Income Taxes below and
Note 14 to our audited consolidated financial statements.

U.S. Dollar Presentation and Price-Level Adjustments

General

Lan Airlines and most of our
subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. For purposes of preparing the audited consolidated financial statements, we translate monetary assets and liabilities denominated in currencies
other than U.S. dollars to U.S. dollars at the exchange rate prevailing at the applicable balance sheet date, and we translate income statement accounts at the exchange rate prevailing on the dates on which the revenues and expenses were received,
paid or accrued.

Chilean GAAP requires that financial statements prepared in Chilean pesos recognize the effects of inflation.
Accordingly, unless we indicate otherwise, we have restated all financial information of our subsidiaries that maintain their accounts in Chilean pesos to eliminate the distorting effects of changes in inflation on non-monetary assets, liabilities
and shareholders equity. We have then translated this financial information to U.S.



61



---

##### Table of Contents

dollars, as described above, for purposes of consolidating it into our audited consolidated financial statements. The general price-level gain or loss we
record in the income statement under Other Income (Expense) indicates the effect of inflation on our subsidiaries net holdings of monetary assets and liabilities during a period of inflation. We consider assets and liabilities
monetary for purposes of general price-level accounting if their amounts are fixed by contract or otherwise in terms of number of currency units, regardless of changes in specific prices or in the general price level. Examples of
monetary assets and liabilities include accounts receivable, accounts payable and cash.

Effects of Exchange Rate
Fluctuations

Our functional currency is the U.S. dollar in terms of the pricing of our products, composition of our balance sheet and
effects on our results of operations. Most of our revenues (83% in 2008) are in U.S. dollars or in prices pegged to the U.S. dollar and a substantial portion of our expenses (63% in 2008) is denominated in dollars or pegged to the U.S. dollar, in
particular fuel costs, landing and overflight fees, aircraft rentals, insurance and aircraft components and supplies. Almost all of our liabilities are denominated in U.S. dollars (93% as of December 31, 2008), including bank loans, air traffic
liabilities, and certain amounts payable to our suppliers. As of December 31, 2008, 91% of our assets were denominated in U.S. dollars, principally aircraft, cash and cash equivalents, accounts receivable and other fixed assets. Substantially
all of our commitments, including operating leases and purchase commitments for aircraft, are denominated in U.S. dollars.

Although we
generally maintain our international passenger fares and cargo prices in U.S. dollars or at prices pegged to the U.S. dollar, we are exposed to foreign exchange losses and gains due to exchange rate fluctuations. We recorded a net foreign exchange
gain of US$5.5 million in 2006, a net foreign exchange gain of US$15.7 million in 2007 and a net foreign exchange loss of US$7.9 million in 2008, which are set forth in our income statement under Other Income (Expense). For more
information, see Notes 2(e) and 22 to our audited consolidated financial statements. Our exchange gains in 2006 and 2007 were mainly associated with the appreciation of Latin American currencies, primarily that of the Chilean peso against the U.S.
dollar. The loss incurred in 2008 was mainly related to the depreciation of the Chilean peso against the U.S. dollar.

GAAP/Non-GAAP Reconciliation

We use Cost per ATK and Cost per ATK excluding fuel price variations in analyzing operating costs on a per unit
basis. ATKs (available ton kilometers) measure the number of tons of capacity available for the transportation of revenue load (passengers and/or cargo) multiplied by the kilometers flown. To obtain our unit costs, which are used by our
management in the analysis of our results, we divide our total costs by our total ATKs. Total costs are calculated by starting with operating costs as defined under Chilean GAAP and making certain adjustments for interest
costs and other revenues. The cost component is further adjusted to obtain costs per ATKs excluding fuel price variations, in order to remove the impact of changes in fuel prices for the year. Cost per ATK and Cost per
ATK excluding fuel price variations do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. They are not Chilean GAAP-based measures of performance or liquidity. These
metrics should not be considered in isolation or as a substitute for operating costs or as indicators of performance or cash flows as a measure of liquidity.



62



---

##### Table of Contents

The table below reconciles operating costs as defined by Chilean GAAP to costs used in the calculation of
Cost per ATK and Cost per ATK excluding fuel price variations.



|                                                           |  |           |  |           |  |          
|---------------------------------------------------------- |  | --------- |  | --------- |  | ---------
|                                                           |  | 2006      |  | 2007      |  | 2008     
|Cost per ATK                                               |  |           |  |           |  |          
|Operating cost (US$ thousands)                             |  | 2,731,338 |  | 3,111,552 |  | 3,998,098
|+ Interest expense (US$ thousands)                         |  | 60,739    |  | 76,224    |  | 82,690   
| Interest income (US$ thousands)                          |  | 7,897     |  | 18,043    |  | 16,212   
| Other revenues (US$ thousands)                           |  | 147,857   |  | 173,399   |  | 148,239  
|                                                           |  |           |  |           |  |          
|ATK operating costs                                        |  | 2,636,323 |  | 2,996,334 |  | 3,916,337
|                                                           |  |           |  |           |  |          
|Divided by systems ATKs (thousands)                       |  | 6,349,794 |  | 7,023,085 |  | 7,652,230
|= Cost per ATK (US$ cents)                                 |  | 41.52     |  | 42.66     |  | 51.18    
|                                                           |  |           | 
|Cost per ATK excluding fuel price variations               |  |           |  |           |  |          
|ATK operating costs (thousands)                            |  | 2,636,323 |  | 2,996,334 |  | 3,916,337
| Actual fuel expenses (US$ thousands)                     |  | 763,951   |  | 930,208   |  | 1,423,922
|+ (Gallons consumed) times (previous years fuel price)    |  | 693,062   |  | 851,660   |  | 1,019,421
|                                                           |  |           |  |           |  |          
|ATK operating costs excluding fuel price variations        |  | 2,565,434 |  | 2,917,786 |  | 3,511,836
|                                                           |  |           |  |           |  |          
|Divided by systems ATKs (thousands)                       |  | 6,349,794 |  | 7,023,085 |  | 7,652,230
|= Cost per ATK excluding fuel price variations (US$ cents) |  | 40.40     |  | 41.55     |  | 45.89    

In addition, we use revenues per ASK or ATK, as applicable, in analyzing revenues on a per unit
basis. To obtain our unit revenues, which are used by our management in the analysis of our results, we divide our passenger revenues by our total ASKs and our cargo revenues by our total ATKs. We use our revenues as defined under Chilean GAAP for
purposes of the calculation of this metric. Revenues per ASK or ATK, as the case may be, do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. It is not a Chilean GAAP-based
measure of performance or liquidity. This metric should not be considered in isolation or as a substitute for revenues or as indicators of performance or cash flows as a measure of liquidity.

The table below shows the calculation of our revenues per ASK or ATK, as applicable, in each of the periods indicated:



|                                   |  |          |  |          |  |         
|---------------------------------- |  | -------- |  | -------- |  | --------
|                                   |  | 2006     |  | 2007     |  | 2008    
|Passenger Revenues (US$ million)   |  | 1,813.4  |  | 2,197.2  |  | 2,858.9 
|ASK (million)                      |  | 26,400.0 |  | 31,556.1 |  | 35,176.2
|Passenger Revenues/ASK (US$ cents) |  | 6.9      |  | 7.0      |  | 8.1     
|Cargo Revenues (US$ million)       |  | 1,072.7  |  | 1,154.3  |  | 1,527.1 
|ATK (million)                      |  | 3,399.1  |  | 3,632.8  |  | 4,080.3 
|Cargo Revenues/ATK (US$ cents)     |  | 31.6     |  | 31.8     |  | 37.4    

Seasonality

Our operating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns. Our passenger revenues are generally higher in the
first and fourth quarters of each year, during the southern hemispheres (Chile and Argentina) spring and summer, than in the second and third quarters. Since Peru and Ecuador have different seasonal patterns, the expansion into those markets
has led to stronger passenger revenues in the second and third quarters, therefore moderating the overall seasonality of our passenger business. Our cargo revenues generally are higher in the fourth quarter, which correspond to the harvest season in
the southern hemisphere.

Critical Accounting Policies

A summary of our significant accounting policies is included in Note 2 to our audited consolidated financial statements. We believe that the consistent application of these policies enables us and our subsidiaries to
provide readers of the financial statements with more useful and reliable information about our operating results and financial condition. The preparation of financial statements requires management to make certain estimates and assumptions. The
following are the accounting policies that we believe are the most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments.



63



---

##### Table of Contents

Revenue Recognition

The amount of passenger ticket sales not yet recognized as revenue is reflected as air traffic liability. Commissions related to such unearned revenue are shown net of the air traffic liability. Air traffic liability
includes estimates of the amount of future refunds and exchanges, net of forfeitures for all unused tickets once the flight date has passed. We perform periodic evaluations of this estimated liability based on historical experiences. Any
adjustments, which can be significant, are included in the results of operations for the periods in which the evaluations are completed. These adjustments relate primarily to the differences between our estimation of certain revenue transactions and
the related sales price, as well as refunds, exchanges and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price.

Events and circumstances outside of historical fare sale activity or historical customer travel patterns can result in actual refunds, exchanges or
forfeited tickets differing significantly from estimates. We evaluate our estimates periodically. If actual refunds, exchanges or forfeitures fall outside of this range, we review our estimates and assumptions and adjust Air traffic
liability and Passenger revenue as necessary. Our estimation techniques have been consistently applied from year to year; however, as with any estimates, actual refund and exchange activity may vary from estimated amounts.
Furthermore, we believe it is unlikely that materially different estimates for future refunds, exchanges and forfeited tickets would be reported.

Property and Equipment

The key judgments we must make under the property and equipment policy include the estimation of the
useful lives of our various asset types, expected residual values, the election to utilize primarily the straight-line method for recording depreciation, managements judgment regarding appropriate capitalization or expensing of costs related
to fixed assets, and our determination that no impairment exists.

Property and equipment are stated at cost and are depreciated by the
straight-line method based on the estimated useful lives of the assets. In estimating the lives and expected residual values of our aircraft, we have primarily relied upon actual experience with the same or similar aircraft types and recommendations
from the manufacturers of the aircraft we operate. Aircraft estimated useful lives are based on the number of hours flown and cycles flown (a cycle is one take-off and landing). We have made a conversion into years based on both our historical and
anticipated future utilization of the aircraft.

We also enter into capital lease agreements relating to aircraft and certain buildings and
equipment, which have bargain purchase options at the end of each contract. These assets are not our legal property, because we cannot dispose of them until the purchase option is exercised. These assets are recorded at their fair value on the date
of the lease agreement, which is determined by discounting the amounts payable in installments and the purchase option at the interest rate implicit, or explicit, in the contract. The corresponding leasing obligations are presented under long-term
liabilities and under the current portion of long-term leasing obligations, net of the corresponding deferred interest.

Property and
equipment assets are evaluated for possible impairment, as applicable. Factors that would indicate potential impairment may include, but are not limited to, significant decreases in the market value of long-lived assets, a significant change in the
long-lived assets physical condition and operating or cash flow losses associated with the use of the long-lived asset. This process requires our estimate of future cash flows generated by each asset or group of assets. For any instance where
this evaluation process indicates impairment, the appropriate assets carrying values are written down to net realizable value and the amount of the write-down is charged against the results of continuing operations.

Expenditures that substantially improve and/or increase the useful life of facilities, engines and equipment are capitalized. Minor and other unscheduled
maintenance costs of aircraft and engines are charged to income as incurred. Costs of major programmed maintenance for leased aircraft are accrued based on the use of the aircraft and engines (flying hours). Our estimation of this accrual and the
evaluation of whether an expenditure related to property and equipment substantially improves and/or increases the useful life of an asset and is appropriately capitalized as an addition to the assets cost basis or is expensed as normal
maintenance and repair expense can significantly affect results of operations for a given period, as well as our financial position.



64



---

##### Table of Contents

Maintenance

Effective January 2006, the Company decided to change the method of accounting for heavy aircraft and engine maintenance costs related to its owned aircraft. Under the new method, these costs incurred will be
capitalized and amortized to the next overhaul while all other minor maintenance costs will be expensed as incurred. The cumulative effect of this change on net income for the year 2008 is an increase in non-operating income by US$ 40.3 million. For
more information see Notes 2(p) and 3 to our audited consolidated financial statements.

Derivative Instruments Used For Aircraft Fuel

We utilize financial derivative instruments to manage the price risk of changing aircraft fuel prices and interest rates. As a portion
of our financial derivative instruments is not traded on a market exchange, we estimate their fair values by the use of present value methods or standard option value models, with assumptions about commodity prices based on those observed in
underlying markets. In addition, as there is no reliable forward market for jet fuel, we must estimate the future prices of jet fuel in order to measure the effectiveness of the hedging instruments in offsetting changes to those prices. Forward jet
fuel prices are estimated by observing similar commodity futures prices (such as crude oil) and adjusted based on variations to those like commodities. As the majority of our fuel hedges settle within eighteen months, the variation between estimates
and actual prices are recognized in a short period of time.

Deferred Income Taxes

Effective January 1, 2000, the effects of deferred income taxes arising from temporary differences between the basis of assets and liabilities for
tax and financial statement purposes are recorded in accordance with Technical Bulletin No. 60 of the Chilean Institute of Accountants. The effects of deferred income taxes at January 1, 2000, which were not previously recorded, are
recognized in income beginning in 2000 as the temporary differences reverse. Under Technical Bulletin No. 60, deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax
asset will not be realized. In making this determination, we consider both positive and negative evidence and make certain assumptions, including projections of taxable income. Changes in these assumptions may have a material impact on results. See
Note 14(d) to our audited consolidated financial statements.

Liquidity and Capital Resources

In recent years, we have been able to meet our working capital and capital expenditure requirements through cash from our operations, proceeds of
long-term bank loans, loans from related parties and gains from financial transactions.

Our cash and cash equivalents totaled US$401.4
million as of December 31, 2008, US$445.6 million as of December 31, 2007 and US$199.5 million as of December 31, 2006. Additionally, we held US$8.6 million as of December 31, 2008, US$22.4 million as of December 31, 2007
and US$20.4 million as of December 31, 2006 in marketable securities not considered to be cash equivalents under Chilean GAAP, which consisted mainly of bonds. In 2006, 2007 and 2008 we were able to invest a portion of our cash balance in such
items. We hold significantly all of our cash and cash equivalents in U.S. dollars or U.S. dollar-based instruments. We generally only hold cash and cash equivalents in currencies other than dollars to fulfill short-term obligations that are
denominated in local currencies. The decrease in our cash and cash equivalents in 2008 as compared to 2007 was primarily due to the posting of collateral to third counterparties in order to offset our exposure to these counterparties arising from
fuel and interest rates derivatives.

As of December 31, 2008, we had a working capital deficit (that is, our current liabilities
exceeded our current assets) of US$28.0 million. As of December 31, 2007, we had a working capital deficit of US$32.8 million. In December 31, 2006, we had a working capital deficit of US$170 million. Our working capital deficit in 2008
was mainly related to our air traffic liability and accounts payable. Our air traffic liability refers to tickets that we have sold but which have not yet been used for travel. We recognize the price paid for the ticket as revenue when the tickets
are flown. Except in the case of refunds, most of our air traffic liability will not result in cash outflows. Both liabilities arise in our ordinary course of business and, although they fluctuate mainly due to seasonal factors, they are generally
proportional to our revenues. We believe this kind of working capital deficit presents no major constraint to our operations or growth strategy.

Net cash inflows from operating activities were US$729.1 million in 2008, US$707.0 million in 2007 and US$490.3 million in 2006, and are derived primarily from providing air passenger and cargo transportation to customers. Operating cash
outflows are primarily related to the recurring expenses of operating our airline. Net cash inflows increased in 2008 mainly due to an increase in the collection of trade account receivables.



65



---

##### Table of Contents

Net cash used in investing activities was US$832.1 million in 2008, US$844.3 million in 2007 and US$905.7
million in 2006. Cash capital expenditures were US$831.7 million in 2008, US$839.9 million in 2007 and US$920.4 million in 2006 mainly reflecting the partial acquisitions of property and equipment.

Our capital expenditures for 2008 were mainly composed of:



| |  |  | cash contributions for pre-delivery deposits related to aircraft that will be incorporated to our fleet in 2008, 2009 and 2010;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of 4 Boeing 767-300 passenger aircraft, 10 Airbus A318 passenger aircraft, 2 Airbus A319 and 2 Airbus A320 passenger aircraft;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financing of the 15% of the delivered aircraft; and
| | - |  | -------------------------------------------------------



| |  |  | the acquisition of aircraft spare parts and spare engines.
| | - |  | ----------------------------------------------------------

Our capital expenditures for 2007 were mainly composed of:



| |  |  | cash contributions for pre-delivery deposits related to aircraft that will be incorporated into our fleet in 2008 and 2009;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of 3 Boeing 767-300 passenger aircraft, 5 Airbus A318 passenger aircraft and 2 Airbus A320 passenger aircraft;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | the initial pre-delivery deposits for the future Boeing B787 Dreamliner and Boeing B777 Freighter aircraft to be delivered between 2011 and 2016;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financing of the 15% of the delivered aircraft; and
| | - |  | -------------------------------------------------------



| |  |  | the acquisition of aircraft spare parts and spare engines.
| | - |  | ----------------------------------------------------------

Our capital expenditures for 2006 were mainly composed of:



| |  |  | cash contributions for pre-delivery deposits related to aircraft that were and will be incorporated to our fleet in 2008 and 2009;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of 4 Boeing 767-300 passenger aircraft, 1 Boeing 767 Freighter aircraft and 8 Airbus A319 passenger aircraft;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | the financing of the 15% of the delivered aircraft (with the exception of the Boeing 767 delivered in March 2006); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of aircraft spare parts and spare engines.
| | - |  | ----------------------------------------------------------

For more information about current and future capital expenditures, see Capital Expenditures under Item 5. The difference between net cash used in investing activities and cash capital expenditures
during 2006 and 2008 relates mainly to the investment in and sale of financial instruments.

Net cash inflows from financing activities
were US$58.8 in 2008, compared to net cash provided by financing activities of US$383.4 million in 2007 and US$503.7 million in 2006. In 2008, our main uses of cash were US$102.6 million in loan payments, US$222.8 million in dividends payments and
US$177.8 mainly related to derivative contracts collateral. With respect to the said collateral, during the first and second quarter of 2009, the Company issued stand-by letters of credit for approximately US$98.0 million for the partial replacement
of the US$177.8 million cash collateral. The issuance of such letters of credit and the increase of the price of crude oil in the first and second quarters of 2009, have resulted in the Company having no cash pledged to any financial institution for
margin purposes as of May 31, 2009. In 2007, our main uses of cash were US$205.5 million in loan payments and dividends payments for a total of US$210.9 million. In 2006, our main uses of cash were US$223.4 million in loan payments and
dividends payments for a total of US$84.9 million. Net cash inflows from financing activities decreased mainly due to a higher amount of collateral related to our hedge contracts.



66



---

##### Table of Contents

We have generally been able to arrange for short-term loans with local Chilean and international banks
when we have needed to finance working capital expenditures or increase our liquidity. As of December 31, 2008, we maintained US$355 million in short-term credit lines with both local and foreign banks.

During the first quarter of 2009, the Board of Directors of the Company approved a total of US$250 million in loans with different local financial
institutions. As of March 31, 2009 the Company borrowed the equivalent of US$40 million of a Chilean peso denominated facility. In order to have U.S. dollar cash flows, the Company entered into a cross currency swap for such amount with the
same financial institution. As of April 30, 2009, the Company entered into three additional facilities with three different local banks for a total amount of US$152 million (of which US$50 million are U.S. dollar denominated and US$102 million
are denominated in Chilean pesos with a corresponding cross currency swap).

We have contractual obligations and commitments primarily
related to the payment of debt, lease arrangements and for the future incorporation of aircraft to our fleet. As of December 31, 2008 we have financed the acquisition of fourteen Boeing 767-300 passenger aircraft and eight Boeing 767-300
Freighters through syndicated loans provided by international financial institutions with the support of partial guarantees issued by the Ex-Im Bank with repayment profiles of either twelve or fifteen years. The Ex-Im Bank guarantees support 85% of
the net purchase price and are secured with a first priority mortgage on the aircraft in favor of a security trustee on behalf of Ex-Im Bank. The documentation for each loan follows standard market forms for this type of financing, including
standard events of default. We have financed the remaining 15% of the net purchase price with commercial loans or with our own funds. Our Ex-Im Bank supported financings amortize on a quarterly basis, are denominated in U.S. dollars and, while some
have fixed interest rates, others bear interest at a floating rate linked to U.S. dollar LIBOR. Through the use of interest rate swaps, we have effectively converted almost all of our floating rate debt under these loans into fixed rate debt.
Between 2004 and 2008, LAN sold its ownership in the entities borrowing some of these loans and they were therefore reclassified as financial leases. As of December 31, 2008, the total amount outstanding under our Ex-Im Bank-supported
financings totaled US$1,148.5 million. See Quantitative and Qualitative Disclosures About Market RiskRisk of Fluctuations in Interest Rates under Item 11 for more information.

In 2000, to finance our Airbus aircraft, we entered into a US$1.3 billion umbrella credit facility with a syndicate of international financial
institutions under which we borrowed in the form of separate loans in connection with the specific financing requirements of each Airbus aircraft (including pre-delivery and long-term financings). This umbrella facility provided for guarantees from
the English, French and German export credit agencies and contained customary terms for the industry, including standard events of default. Loans under the facility were denominated in U.S. dollars and bore interest at floating rates linked to
LIBOR. The majority of these loans were converted into fixed rate loans through interest rate swaps. All the aircraft acquired under this facility were delivered by the end of 2005. In late 2005, we decided to negotiate a US$920 million facility to
finance the acquisition of the 32 Airbus A320-Family Aircraft that were received in 2006, 2007 and in the first quarter of 2009. The new facility, arranged in early 2006, provided us with guarantees from the export credit agencies for 85% of the net
purchase price of each aircraft. The remaining 15% of the net purchase price was funded internally. As of March 31, 2009, all the aircraft acquired under this new facility have been delivered and there are no remaining availabilities
thereunder.

Our total long-term debt (including capital leases) as of December 31, 2008 was US$2,055 million compared to US$1,646
million in 2007. The increase in long-term debt during 2008 relates mainly to the incorporation of debt-financed fixed assets. We have minimum lease payment obligations primarily associated with our aircraft leases. As of December 31, 2008, we
had thirty-two aircraft under operating leases, and we had minimum lease payment obligations of US$1,348.9 million compared to US$676.2 million as of December 31, 2007. Minimum lease payment obligations increased as the effect of the
incorporation of new aircraft under lease agreements and the extension of several lease contracts was offset by the consumption of one year of lease-payments. The average interest rate of our long-term debt was 5.24% as of December 31, 2008.
96.2% of our debt effectively accrues interest at a fixed rate (either through a stated fixed interest rate or through our use of interest rate swap agreements) or is subject to interest rate caps. As of March 31, 2009, we also had purchase
obligations for



| |  |  | 6 Airbus A319, 9 Airbus A320s;
| | - |  | ------------------------------



| |  |  | 7 Boeing 767-300 Passenger aircraft;
| | - |  | ------------------------------------



| |  |  | 2 Boeing 777-200 Freighters; and
| | - |  | --------------------------------



67



---

##### Table of Contents

| |  |  | 26 Boeing 787 Passenger aircraft;
| | - |  | ---------------------------------

amounting to a combined total of US$5,052.3 million, with delivery between 2009 and 2019.

The following table sets forth our
material expected obligations and commitments as of December 31, 2008.



|                        |  |                                                 |  |       |  |       |  |         |  |       |  |       |  |           
|----------------------- |  | ----------------------------------------------- |  | ----- |  | ----- |  | ------- |  | ----- |  | ----- |  | ----------
|                        |  | Payments due by period, as of December 31, 2008
|                        |  | Total                                           |  | 2009  |  | 2010  |  | 2011    |  | 2012  |  | 2013  |  | Thereafter
|                        |  | (in US$ millions)                              
|Principal debt payments |  | 1,794.0                                         |  | 134.1 |  | 142.1 |  | 149.2   |  | 156.0 |  | 158.4 |  | 1,054.2   
|Interest debt payments  |  | 550.7                                           |  | 82.4  |  | 70.4  |  | 66.4    |  | 61.3  |  | 55.1  |  | 215.1     
|Capital leases(1)       |  | 277.8                                           |  | 74.9  |  | 65.0  |  | 57.7    |  | 29.7  |  | 18.7  |  | 31.8      
|Operating leases(2)     |  | 1,349.0                                         |  | 161.5 |  | 159.9 |  | 149.3   |  | 136.6 |  | 89.6  |  | 652.1     
|Purchase obligations    |  | 5,097.3                                         |  | 306.3 |  | 550.1 |  | 606.0   |  | 309.4 |  | 196.2 |  | 3,129.3   
|                        |  |                                                 |  |       |  |       |  |         |  |       |  |       |  |           
|Total                   |  | 9,068.8                                         |  | 759.2 |  | 987.5 |  | 1,028.6 |  | 693.0 |  | 518.0 |  | 5,082.5   
|                        |  |                                                 |  |       |  |       |  |         |  |       |  |       |  |           



|(1) | Includes interests.
|--- | -------------------

|(2) | Includes aircraft leases and other non-cancelable leases.
|--- | ---------------------------------------------------------

Trend Information

During 2009, we expect our
operating environment to continue to be subject to certain conditions that will substantially affect our results. Specifically, we expect to face:



| |  |  | Continued and stable growth rates in the passenger business, although with lower yields. Yields declined 14.1% during the first quarter 2009 mainly as a result of
lower fuel surcharges and lower nominal fares on certain routes. Traffic continued to show solid growth driven mainly by domestic operations in Chile, Argentina, Peru, and Ecuador (the latter, as of April 2009). During the first quarter 2009,
traffic as measured in RPKs grew 8.9% while ASK growth reached 12.2%, driven by a 35.1% growth in the domestic markets of Chile, Argentina, and Peru, as well as a 4.1% increase in international traffic. Although load factors suffered a decline of
2.3 points in the first quarter 2009, our overall passenger load factor remains at very healthy levels, reaching 78.0%. During April and May 2009, we have continued to observe similar trends, with RPKs growing 19.9% in April 2009 and 11.4% in May
2009, as compared to the same periods in 2008. We also continue to observe declines in yields due to lower fuel surcharges as well as due to certain price promotions offered in the passenger business. For 2009, we expect capacity growth in the
passenger business to reach approximately 10%, which should continue to be driven especially by expansion in domestic markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decline in cargo demand mainly driven by the global and regional macroeconomic slowdown, imbalances in cargo flows and a substantial reduction of Chilean salmon
exports due to the ISA Virus outbreak. During the first quarter 2009, cargo demand as measured in RTKs decreased 20.1% and capacity as measured in ATKs decreased 11.1%. Yields decreased 15.3%, reflecting lower fuel surcharges and lower fares
compared with the first quarter of 2008. During April and May 2009, RTKs have continued to decline, falling 25.4% in April 2009 and 17.4% in May 2009, as compared to the same periods in 2008. For 2009, we expect to reduce cargo capacity by
approximately 5%, although this figure may be adjusted downward. We continue to anticipate a substantial traffic and capacity decline during the third quarter of 2009, although we expect such decline to be partially offset by expansion of our
operations during the fourth quarter of 2009; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Volatility in fuel prices. During the first quarter 2009, the decline in fuel prices generated a US$99.6 million decrease in fuel costs, including the impact of a
US$57.9 million fuel hedging loss recognized during such period. During the second quarter of 2009, fuel prices have increased substantially, although we expect they will remain significantly below 2008 levels.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2009, we expect to continue expanding and diversifying our revenue base through the expansion of our network by further developing our existing
routes, adding new destinations, developing new alliances, and entering new markets. For example, in the first quarter of 2009, we received a total of three A319 aircraft designated for passenger domestic and regional operations and we expect to
receive two additional passenger aircraft (both Boeing 767s designated for long-haul passenger operations) during the fourth quarter of 2009. In addition, in April 2009 we initiated operations in the domestic market of Ecuador.



68



---

##### Table of Contents

In the cargo business, we will continue adjusting our routes and our capacity mix to adapt to changing
cargo flows. We intend to closely monitor demand and redesign our freighter itineraries accordingly. The flexibility of our freighter operations will enable us to accommodate lower demand and avoid unprofitable routes by combining service to several
destinations in the same trip. During 2009 we expect to continue benefiting from our expanded route network to increase diversification and shift capacity across routes, to partially compensate for reductions in traffic to specific markets. For
example, in March 2009, we started operations in LANCO, our new Colombian affiliate, and ABSA, our Brazilian affiliate, began domestic cargo operations within Brazil covering the route between Sao Paulo and Manaus.

We continue to have a significant amount of flexibility to adjust the size of our fleet. Between 2009 and 2011, we will have three operating lease
expirations each year, which can be exercised without cost, and in 2010, we will begin to have part of our Boeing 767 fleet fully paid for, providing us with additional flexibility.

We also intend to lower our cost structure and offset reductions in demand through careful cost management and more efficient asset utilization and we
aim at increasing efficiency by streamlining our support processes, reducing commercial costs, and by continuing with the implementation of our new business model for short-haul operations.

We expect jet fuel prices will continue to be volatile in 2009 and expect to continue using fuel hedging programs and fuel surcharge mechanisms in both
the passenger and cargo businesses, to help protect us against short term movements in crude oil prices. For instance, we have hedged approximately 44% of our estimated fuel requirements for the second quarter 2009, 39% for the third quarter, and
48% for the fourth quarter, as well as 10% of our estimated fuel requirements for the first quarter of 2010. These hedging instruments are zero-cost collars with a floor between US$92 and US$104 per barrel and a ceiling of US$140 per barrel. In
addition, for the third and fourth quarters of 2009, we also acquired call options with a strike price of US$70.

Capital Expenditures

Over the last three years our cash capital expenditures were US$920.4 million in 2006, US$839.9 million in 2007 and US$831.7 million in 2008, which
mainly reflect our acquisition of aircraft and aircraft-related equipment, IT equipment and support infrastructure, and the funding of pre-delivery deposits.

The following chart sets forth our estimate, as of March 31, 2009, of our future capital expenditures for 2009, 2010, 2011, 2012 and 2013:



|                         |  |                                            |   |  |      |  |      |  |      |   |  |     
|------------------------ |  | ------------------------------------------ | - |  | ---- |  | ---- |  | ---- | - |  | ----
|                         |  | Expenditures by year, as of March 31, 2009
|                         |  | 2009                                       |   |  | 2010 |  | 2011 |  | 2012 |   |  | 2013
|                         |  | (in US$ millions)                         
|Expenditures on aircraft |  | 356                                        |   |  | 408  |  | 599  |  | 528  |   |  | 31  
|PDPs                     |  | (50                                        | ) |  | 142  |  | 7    |  | (219 | ) |  | 165 
|Purchase Obligations     |  | 306                                        |   |  | 550  |  | 606  |  | 309  |   |  | 196 
|                         |  |                                            |   |  |      |  |      |  |      |   |  |     
|Other expenditures(1)    |  | 165                                        |   |  | 124  |  | 109  |  | 84   |   |  | 54  
|Total                    |  | 471                                        |   |  | 674  |  | 715  |  | 393  |   |  | 250 



|(1) | Includes expenditures on spare engines and parts, information technology and other expenditures.
|--- | ------------------------------------------------------------------------------------------------

The expenditures set out in the table above reflect payments for purchases and other fleet-related items, as well as for
information technology and other items. See Business of the Company  Fleet under Item 4 above. Principally, we have projected our capital expenditures based on:



| |  |  | the delivery of 3 Airbus A320-Family Aircraft in 2009, 6 in 2010 and 9 in 2011;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the delivery of 3 Boeing B767-300 passenger aircraft in 2009, 1 in 2010 and 4 in 2012
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the delivery of 1 Boeing B777-Freighter aircraft in 2011 and 1 in 2012; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the improvements to our buildings and plants as part of the two-year capital expenditure plan earmarked in 2007 (and totaling approximately US$7 million).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



69



---

##### Table of Contents

We expect that cash generated from operations, short-term credit-lines and the long-term syndicated loans
already negotiated with various banks will be sufficient to meet our cash requirements in the foreseeable future, although events that materially affect our operating results could also have a negative impact on our liquidity.

Credit Card Receivables Securitization

We have
raised a total of US$100.0 million through two similar transactions involving the private placement of certificates backed by our credit card receivables. In these transactions, we sold our right to receive certain present and future U.S. dollar
payment obligations, referred to as future credit card receivables, arising from the purchase of passenger tickets and related services in the United States through American Express, Diners Club, Discover, Visa and MasterCard to Pelican Finance Ltd.
(Pelican). In the first transaction, completed in March 1999, we sold US$60.0 million of our future credit card receivables to Pelican which then issued notes to a United States trust, backed by payments received on these payment
obligations, which in turn issued trust certificates, backed by payments received on the notes, to investors. This transaction had a term of seven years and our sale of these receivables authorized Pelican to collect payments on them until March
2006. Final payment for this transaction was made in June 2006. In August 2002, we entered into a similar sale of future credit card receivables to Pelican for an additional US$40.0 million. This transaction has a term of seven years, with a four
year grace period on principal payments. Our sale of these receivables authorizes Pelican to collect payments on them until the earlier of the date the notes issued by Pelican are fully redeemed and August 2009. Final payment for this transaction is
expected to be made on June 30, 2009.

Off-Balance Sheet Arrangements

We record payments made under operating leases as expenses, and none of our operating lease obligations are reflected on our balance sheet. We are
responsible for all maintenance, insurance and other costs associated with operating these aircraft. We have not made any residual value or similar guarantees to our lessors. We have made certain guarantees and indemnities to other unrelated parties
that are not reflected on our balance sheet, but we believe that these will not have a significant impact on our results of operations or financial condition.

We have no other off-balance sheet arrangements. See Notes 1 and 23 to our audited consolidated financial statements for a more detailed discussion of contingencies, including guarantees.

Differences between Chilean GAAP and U.S. GAAP

Our
audited consolidated financial statements are prepared in accordance with Chilean GAAP, which differs in certain significant respects from U.S. GAAP. See Note 27 to our audited consolidated financial statements for a discussion of these differences
and their effect on our results of operations.

Our net income determined under U.S. GAAP would have been US$316.4 million in 2008,
US$322.0 million in 2007 and US$201.6 million in 2006, as compared with net income under Chilean GAAP of US$335.7 million in 2008, US$308.3 million in 2007 and US$241.3 million in 2006. These differences could be material to the financial
information presented in accordance with Chilean GAAP. The main differences affecting the determination of net income include the different treatment of expenses for amortization of goodwill, adjustments for differences in the deferred tax provision
as calculated under U.S. GAAP, the ineffectiveness of certain derivative instruments resulting in additional adjustments under Chilean GAAP; and, certain expenses related to derivative instruments that do not qualify as hedging relationships under
U.S. GAAP. In 2008, the main difference affecting the determination of net income was the effect of adjusting the capitalization of interest related with the financing of PDPs.

Shareholders equity determined under U.S. GAAP would have been US$863.3 million as of December 31, 2008, US$1,010.7 million as of
December 31, 2007 and US$658.3 million as of December 31, 2006 as compared with shareholders equity under Chilean GAAP of US$1,118.0 million as of December 31, 2008, US$988.0 million as of December 31, 2007 and US$626.3
million as of December 31, 2006, principally due to differences in purchase accounting adjustments, adjustments for the provision for deferred income taxes, and goodwill amortization.



70



---

##### Table of Contents

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------

Directors and Senior
Management

The administration of Lan Airlines is conducted by its board of directors which, in accordance with Lan Airlines
by-laws, consists of nine directors who are elected every two years for two-year terms at annual regular shareholders meetings, and may be re-elected. The board of directors may appoint replacements to fill any vacancies that occur during
periods between elections. Scheduled meetings of the board of directors are held once a month and extraordinary board of directors meetings are called when summoned by the chairman of the board of directors and two other directors, or when
requested by a majority of the directors.

The current board of directors was elected at the annual shareholders meeting held on
April 10, 2008. Its term expires in April 2010. The following are Lan Airlines directors and senior management as of March 31, 2009:



|                             |  |                                                                    
|---------------------------- |  | -------------------------------------------------------------------
|Directors                    |  | Position                                                           
|Jorge Awad Mehech(1)         |  | Director / Chairman                                                
|Darío Calderón González      |  | Director                                                           
|José Cox Donoso              |  | Director                                                           
|Juan José Cueto Plaza(2)     |  | Director                                                           
|Juan Cueto Sierra(2)         |  | Director                                                           
|Ramón Eblen Kadis(3)         |  | Director                                                           
|Bernardo Fontaine Talavera   |  | Director                                                           
|Andrés Navarro Haeussler     |  | Director                                                           
|Ignacio Guerrero Gutiérrez   |  | Director                                                           
|                             | 
|Senior Management            |  | Position                                                           
|Enrique Cueto Plaza(2)       |  | Chief Executive Officer                                            
|Ignacio Cueto Plaza(2)       |  | President and Chief Operating Officer                              
|Alejandro de la Fuente Goic  |  | Chief Financial Officer                                            
|Armando Valdivieso Montes    |  | Chief Executive Officer-Passenger                                  
|Cristián Ureta Larraín       |  | Chief Executive Officer-Cargo                                      
|Roberto Alvo Milosawlewitsch |  | Senior Vice President, Strategic Planning and Corporate Development
|Cristian Toro Cañas          |  | Senior Vice President, Legal                                       
|Enrique Elsaca Hirmas        |  | Senior Vice President, Operations                                  
|Emilio del Real Sota         |  | Senior Vice President, Human Resources                             
|Eduardo Opazo Preller        |  | Senior Vice President, Corporate Affairs                           



|(1) | Mr. Jorge Awad Mehech was re-elected chairman of the board of directors in May 2008.
|--- | ------------------------------------------------------------------------------------

|(2) | Messrs. Ignacio, Juan José and Enrique Cueto Plaza are brothers, and Mr. Juan Cueto Sierra is their father. All four are members of the Cueto Group (as
defined in Item 7), one of the Controlling Shareholders.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Ramón Eblen Kadis is a member of the Eblen Group, which is defined in Item 7 as a Principal Shareholder.
|--- | ----------------------------------------------------------------------------------------------------------------

Biographical Information

Set forth below are brief biographical descriptions of Lan Airlines directors and senior management.

Directors

Mr. Jorge Awad Mehech, 63 years old, has served as chairman and member of Lan Airlines board of directors since July
2001. Mr. Awad had previously served as chairman of our board of directors from 1994 to October 2000. Mr. Awads current term as chairman ends on the date of the annual shareholders meeting to be held in 2010. He held the
position of Senior Vice President of Fast Air from 1979 to 1993. Mr. Awad currently serves on the boards of directors of several other Chilean companies, including Banco de Chile, Envases del Pacifico S.A., Edyce S.A. and Universidad de Talca.
He is also a board member of ICARE (Instituto Chileno de Administracion Racional de Empresas), a Chilean organization seeking to promote private enterprise. As of March 31, 2009, according to shareholder registration data in Chile,
Mr. Awad shared in the beneficial ownership of Lan Airlines, through Inversiones y Asesorías Fabiola S.A., of 201,784 common shares (0.06% of Lan Airlines outstanding shares).

Mr. Darío Calderón González, 62 years old, has served on Lan Airlines board of directors since 1994.
Mr. Calderóns term as a director ends on the date of the annual shareholders meeting to be held in 2010. Mr. Calderón



71



---

##### Table of Contents

has been a partner in Calderón y Cía., a Chilean law firm, since 1970. Mr. Calderón currently serves on the board of directors of
other Chilean companies, including Integramedica S.A., Imprenta A Molina Flores S.A., Inmobiliaria Cumbres S.A., and Calzados Gino S.A.

Mr. José Cox Donoso, 54 years old, has served on Lan Airlines board of directors from April 1994 to June 1995 and from September 1995 to the present. Mr. Coxs term as a director ends on the date of the
annual shareholders meeting to be held in 2010. Mr. Cox has also served as chairman of the board of directors of Lan Cargo since September 1995. In addition, Mr. Cox has served on the board of directors of another Chilean company,
CMB-Prime Asset Managing Corp., since September 1993. Mr. Cox is also chairman of the Chilean Electronic Stock Exchange. As of March 31, 2009, according to shareholder registration data in Chile, Mr. Cox shared in the beneficial
ownership of Lan Airlines, through Asesorías e Inversiones Ilihue Limitada, 2,654,324 common shares of Lan Airlines (0.78% of Lan Airlines outstanding shares).

Mr. Juan José Cueto Plaza, 49 years old, has served on Lan Airlines board of directors since 1994. Mr. Cuetos term as
a director ends on the date of the annual shareholders meeting to be held in 2010. Mr. Cueto currently serves as Executive Vice President of Inversiones Costa Verde S.A., a position he has held since 1990, and serves on the boards of
directors of Forestal Copihue S.A. and Minera Michilla S.A. Mr. Cueto is the son of Mr. Juan Cueto Sierra, a director of Lan Airlines, and the brother of Messrs. Enrique and Ignacio Cueto Plaza, Chief Executive Officer and Chief Operating
Officer of Lan Airlines, respectively. Mr. Cueto is a member of the Cueto Group (one of Lan Airlines Controlling Shareholders). As of March 31, 2009, Mr. Cueto shared in the beneficial ownership of 86,383,567 common shares of
Lan Airlines (25.5% of Lan Airlines outstanding shares) held by the Cueto Group. For more information see Item 7. Controlling Shareholders and Related Party Transactions.

Mr. Juan Cueto Sierra, 79 years old, was one of the founders of Fast Air in 1978 and has served on Lan Airlines board of directors
since 1998. Mr. Cuetos term as a director ends on the date of the annual shareholders meeting to be held in 2010. Mr. Cueto has wide experience in a range of business activities. Mr. Cueto is the father of Messrs. Juan
José, Enrique and Ignacio Cueto Plaza, Director, Chief Executive Officer and Chief Operating Officer of Lan Airlines, respectively. As of March 31, 2009, Mr. Cueto shared in the beneficial ownership of 86,383,567 common shares of
Lan Airlines (25.5% of Lan Airlines outstanding shares) held by the Cueto Group. For more information see Item 7. Controlling Shareholders and Related Party Transactions.

Mr. Ramón Eblen Kadis, 64 years old, has served on Lan Airlines board of directors since June 1994. Mr. Eblens term
as a director ends on the date of the annual shareholders meeting to be held in 2010. Mr. Eblen has served as President of Comercial Los Lagos Ltda., Inversiones Santa Blanca S.A., and TJC Chile S.A. Mr. Eblen is a member of the
Eblen Group (a major shareholder of Lan Airlines). As of March 31, 2009, Mr. Eblen shared in the beneficial ownership of 31,778,049 common shares of Lan Airlines (approximately 9.38% of Lan Airlines outstanding shares) held by the
Eblen Group. For more information see Item 7. Controlling Shareholders and Related Party Transactions.

Mr. Andrés Navarro Haeussler, 60 years old, joined Lan Airlines board of directors in April 2004. Mr. Navarros term as a director ends on the date of the annual shareholders meeting to be held in
2010. Mr. Navarro holds a Civil Engineering degree from Universidad Católica de Chile. He is the president and founder of Sonda S.A., a leading IT services provider in Latin America, which has operations in eleven Latin American
countries, including Mexico, Brazil, Argentina, Chile and Colombia. This company had its IPO during 2006 and is listed in the Santiago Stock Exchange. He is also the Chairman of the Board of Clínica Las Condes and of Inmobiliaria y
Constructora Aconcagua S.A. and member of the board of Fundación Teleton, a non-profit organization.

Mr. Ignacio Guerrero
Gutiérrez, 56 years old, joined Lan Airlines board of directors in April 2008. Mr. Guerreros term ends on the date of the annual shareholders meeting to be held in 2010. Mr. Guerrero holds an MBA degree from
Harvard Business School and an Economics degree from Catholic University in Santiago, Chile. Mr. Guerrero has extensive experience in the banking and financial fields, having worked as a commercial banker for Banco de Chile and as an investment
banker for Citibank N.A. and for NMB Bank, New York. From 1990 to 1994, he served as CFO of Codelco Chile, one of the largest copper mining companies in the world. Mr. Guerrero is currently a partner at CMB Chile, an investment company focused
on asset management and private equity.

Bernardo Fontaine Talavera, 44 years old, has served on Lan Airlines board of
directors since April 2005. Mr. Fontaines term ends on the date of the annual shareholders meeting to be held in 2010. Mr. Fontaine has held various responsibilities on the financial services branch of Falabella, a major
Chilean retailer, and served as Executive Director of CMR Falabella and Vice-Chairman of the Board of Banco Falabella. Mr. Fontaine also served



72



---

##### Table of Contents

as head of the M&A Corporate Finance division of Citicorp-Citibank Chile. Mr. Fontaine currently serves on the boards of Almagro S.A.,
Loginsa S.A. and Polygon S.A. He is also the general manager of Tres Mares S.A., which owned, together with other related holding companies, as of March 31, 2009, 7,222,593 shares of Lan Airlines S.A. (2.1% of Lan Airlines outstanding
shares).

Senior Management

Mr. Enrique Cueto Plaza, 50 years old, is Lan Airlines Chief Executive Officer,
and has held this position since 1994. From 1993 to 1994, Mr. Cueto served on Lan Airlines board of directors. From 1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. Mr. Cueto has in-depth
knowledge of passenger and cargo airline management, both in commercial and operational aspects, gained during his 22 years in the airline industry. Mr. Cueto is an active member of the oneworld® Alliance Governing Board, the IATA (International Air Transport Association) Board of Governors. He is also member of the Board of the Federation of Chilean Industry (SOFOFA) and of the Board of the Endeavor
foundation, an organization dedicated to the promotion of entrepreneurship in Chile. Mr. Cueto is the son of Mr. Juan Cueto Sierra, a member of the board of Lan Airlines, and the brother of Messrs. Juan José and Ignacio Cueto Plaza,
member of the board and President and Chief Operating Officer of Lan Airlines, respectively. Mr. Cueto is also a member of the Cueto Group (one of Lan Airlines Controlling Shareholders). As of March 31, 2009, Mr. Cueto shared in
the beneficial ownership of 86,383,567 common shares of Lan Airlines (25.5% of Lan Airlines outstanding shares) held by the Cueto Group. For more information see Item 7. Controlling Shareholders and Related Party Transactions.

Mr. Ignacio Cueto Plaza, 45 years old, is Lan Airlines President and Chief Operating Officer. Until being promoted to
his current position in 2005, Mr. Cueto served as Chief Executive Officer-Passenger Business, a position he assumed in 1999. Mr. Cueto served on the board of directors of Lan Airlines and Ladeco from 1995 to 1997 and from 1994 to 1997,
respectively. In addition, Mr. Cueto served as Chief Executive Officer of Fast Air from 1993 to 1995 and as President of the LanCargo Group from 1995 to 1998. Between 1985 and 1993, Mr. Cueto held several positions at Fast Air, including
Service Manager for the Miami sales office, Director of Sales for Chile and Vice President of Sales and Marketing. Mr. Cueto is the son of Mr. Juan Cueto Sierra, director of Lan Airlines, and the brother of Messrs. Juan José and
Enrique Cueto Plaza, Director and Chief Executive Officer of Lan Airlines, respectively. Mr. Cueto is also a member of the Cueto Group (one of Lan Airlines Controlling Shareholders). As of March 31, 2009, Mr. Cueto shared in the
beneficial ownership of 86,383,567 common shares of Lan Airlines (25.5% of Lan Airlines outstanding shares) held by the Cueto Group. For more information see Item 7. Controlling Shareholders and Related Party Transactions.

Mr. Alejandro de la Fuente Goic, 50 years old, is Lan Airlines Chief Financial Officer, and has held this position since
October 1995. Mr. de la Fuente joined Lan Airlines in April 1995. Prior to joining Lan Airlines, Mr. de la Fuente served as Chief Financial Officer of Chiquita Frupac Ltd., a subsidiary of Chiquita Brands Inc., beginning in 1992. As of
March 31, 2009, Mr. de la Fuente owned 37,383 common shares of Lan Airlines (0.01% of Lan Airlines outstanding shares).

Mr. Armando Valdivieso Montes, 46 years old, is Lan Airlines Chief Executive Officer-Passenger, a position he assumed in 2006. Between 1997 and 2005 he served as Chief Executive Officer-Cargo Business. From 1994 to 1997,
Mr. Valdivieso was President of Fast Air. From 1991 to 1994, Mr. Valdivieso served as Vice President, North America of Fast Air Miami. As of March 31, 2009, according to shareholder registration data in Chile, Mr. Valdivieso
owned 59,704 common shares of Lan Airlines (0.02% of Lan Airlines outstanding shares).

Mr. Cristian Ureta Larrain, 46
years old, is Lan Airlines Chief Executive Officer-Cargo, a position he assumed in 2005. Mr. Ureta has an Engineering degree from Pontificia Universidad Catolica and a Special Executive Program from Stanford University. Between 2002 and
2005 Mr. Ureta served as Production Vice President for Lan Cargo. Between 1998 and 2002 he was Lan Cargos Planning and Development Vice President. Prior to that, Mr. Ureta served as General Director and Commercial Director at MAS
Air, and as Service Manager for Fast Air.

Mr. Roberto Alvo Milosawlewitsch,40 years old, is Lan Airlines Senior
Vice-president Strategic Planning and Development, a position he assumed in 2008. Prior to holding his current position, Mr. Alvo served as CFO of Lan Argentina from 2005 until 2008, as Vice-president of Development of Lan Airlines from 2003
until 2005 and Vice-president of Treasury of Lan Airlines from 2001 until 2003. Before 2001 Mr. Alvo held various positions at Sociedad Química y Minera de Chile S.A., a leading non-metallic Chilean mining company. Mr. Alvo is a
civil engineer and obtained an MBA from IMD in Lausanne, Switzerland.



73



---

##### Table of Contents

Mr. Cristian Toro Cañas,38 years old, is Lan Airlines Senior Vice President,
Legal, a position he assumed in January 2008. Mr. Toro has a law degree from Pontificia Universidad Catolica de Chile (1993), as well as a masters law degree (MCJ 97) from New York University. Prior to joining Lan Airlines,
Mr. Toro served as General Counsel for Citibank Chile, where he worked and held various positions from 1997 until 2007. He also worked as an international trainee at Shearman & Sterling in New York (1999).

Mr. Enrique Elsaca Hirmas, 41 years old, is Lan Airlines Senior Vice President, Strategic Planning, a position he assumed in July 2004.
Mr. Elsaca has a degree in industrial engineering from Pontificia Universidad Catolica de Chile, as well as a Master in Business Administration from Massachusetts Institute of Technology. Prior to joining Lan Airlines, Mr. Elsaca served as
Real Estate and Development Manager of Cencosud, Chiles second largest retail group. From 1997 to 1999, Mr. Elsaca worked at Booz Allen & Hamilton in Latin America, and from 1991 to 1995, Mr. Elsaca held various
positions in Esso Chile, a subsidiary of Exxon.

Mr. Emilio del Real Sota, 44 years old, is Lan Airlines Senior Vice
President Human Resources, a position he assumed in August 2005. Mr. del Real has a Psychology degree from Universidad Gabriela Mistral. Between 2003 and 2005, Mr. del Real was the Human Resource Manager of DYS, a Chilean retail company.
Between 1997 and 2003 Mr. del Real served in various positions in Unilever, including Human Resource Manager for Chile, and Training and Recruitment Manager and Management Development Manager for Latin America.

Mr. Eduardo Opazo Preller,57 years old, is Lan Airlines Senior Vice President, Corporate Affairs, a position he assumed in June 2008.
Mr. Opazo has a degree in Business Administration from IPEVE, as well as an MBA from University Adolfo Ibáñez and AMP IESE. Prior to joining Lan Airlines, Mr. Opazo served as Head of Global Internal Communications for
Santander Group, Madrid. From 1987 to 2008, Mr. Opazo worked at Santander Group.

Compensation

For the year ended December 31, 2008, the aggregate amount of compensation we paid to all executives and senior managers was US$53.8 million, which
did not include US$12.0 million paid as bonuses. Our variable compensation plan is based on our corporate profits, and team and individual performance.

Under Chilean law, Lan Airlines must disclose in its annual report details of all compensation paid to its directors during the relevant fiscal year, including any amounts that they received from Lan Airlines for
functions or employment other than serving as a member of the board of directors, including amounts received as per diem stipends, bonuses and, generally, all other payments. Additionally, pursuant to regulations of the Superintendencia de
Valores y Seguros (the SVS), the annual report must also include the total compensation and severance payments received by managers and principal executives, and the terms of and the manner in which board members and executive
officers participate in any stock option plans.

Lan Airlines directors are paid 24 UF per meeting (56 UF for the chairman of the
board). Lan Airlines also provides certain benefits to its directors and executive officers, such as free and discounted airline tickets and health insurance. We do not have contracts with any of our directors to provide benefits upon termination of
employment.

On April 5, 2007, the extraordinary shareholders meeting approved a capital increase of 22,090,910 shares. The same
meeting designated 10% of the approved capital increase (2,209,091 shares) for purposes of a proposed employee stock option compensation plan. The shareholders meeting authorized our board of directors to elaborate the compensation plan.



74



---

##### Table of Contents

As set forth in further detail in the following table, in 2008 the members of our board of directors
currently in office received fees and salaries in the aggregate amount of US$132,415.03.



|                           |  |              
|-------------------------- |  | -------------
|Board Members              |  | Fees (US$)(1)
|Jorge Awad Mehech          |  | 37,257.64    
|Ramón Eblen Kadis          |  | 20,407.95    
|José Cox Donoso            |  | 22,425.40    
|Darío Calderón González    |  | 11,124.19    
|Andrés Navarro Haeussler   |  | 9,382.64     
|Juan José Cueto Plaza      |  | 10,108.79    
|Juan Cueto Sierra          |  | 4,605.39     
|Bernardo Fontaine Talavera |  | 10,108.79    
|Ignacio Guerrero Gutiérrez |  | 6,994.24     
|                           |  |              
|Total                      |  | 132,415.03   
|                           |  |              



|(1) | Includes fees paid to members of the board of directors committee, as described below.
|--- | ---------------------------------------------------------------------------------------

As required by Chilean law, Lan Airlines makes obligatory contributions to the privatized pension fund system on behalf
of its senior managers and executives, but it does not maintain any separate program to provide pension, retirement or similar benefits to these or any other employees.

Board of Directors Committee and Audit Committee

Pursuant to Chilean Corporation Law, as
amended by Law No. 19705, Lan Airlines must have a board of directors committee composed of no less than three board members. Lan Airlines has established a three-person committee of its board of directors, which, among other duties, is
responsible for:



| |  |  | examining the reports of Lan Airlines external auditors, the balance sheets and other financial statements submitted by Lan Airlines administrators to
the shareholders, and issuing an opinion with respect thereto prior to their presentation to the shareholders for their approval;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | proposing external auditors and rating agencies to the board of directors;
| | - |  | --------------------------------------------------------------------------



| |  |  | evaluating and proposing external auditors and rating agencies;
| | - |  | ---------------------------------------------------------------



| |  |  | reviewing internal control reports pertaining to related party transactions;
| | - |  | ----------------------------------------------------------------------------



| |  |  | examining and reporting on all related-party transactions; and
| | - |  | --------------------------------------------------------------



| |  |  | reviewing the pay scale of Lan Airlines senior management.
| | - |  | -----------------------------------------------------------

Under Chilean law we are required, to the extent possible, to appoint a majority of independent directors to the board of directors committee. The corresponding independence requirements are set forth in Chilean
Corporation Law, as amended by Law No. 19705, and relate to the relationship between the directors and the shareholders that control a corporation. A director is considered independent when he or she can be elected regardless of the voting of
the controlling shareholders.

Pursuant to U.S. regulations, we are required to have an audit committee of at least three board members,
which complies with the independence requirements set forth in Rule 10A-3 under the Securities Exchange Act of 1934. Given the similarity in the functions that must be performed by our Board of Directors Committee and the audit committee, our
Board of Directors Committee serves as our Audit Committee for purposes of Rule 10A-3 under the Securities Exchange Act of 1934.

As
of March 31, 2009, all of the members of our Board of Directors Committee, which also serves as our Audit Committee, were independent under Rule 10A-3 of the Securities Exchange Act of 1934. As of March 31, 2009, the committee
members were Mr. Jorge Awad Mehech, Mr. José Cox Donoso and Mr. Ramón Eblen Kadis. We pay each member of the committee 24 UFs per meeting.



75



---

##### Table of Contents

Employees

General

The following table sets forth the number of employees in various positions at Lan Airlines, Lan Cargo and our
other subsidiaries.



|               |  |                    |  |        |  |       
|-------------- |  | ------------------ |  | ------ |  | ------
|               |  | As of December 31,
|Employees(1)   |  | 2006               |  | 2007   |  | 2008  
|Administrative |  | 2,928              |  | 3,247  |  | 3,181 
|Sales          |  | 1,906              |  | 2,014  |  | 2,276 
|Maintenance    |  | 1,892              |  | 1,922  |  | 2,147 
|Operations     |  | 4,826              |  | 4,940  |  | 4,784 
|Cabin crew     |  | 2,043              |  | 2,494  |  | 2,587 
|Cockpit crew   |  | 1,029              |  | 1,180  |  | 1,346 
|               |  |                    |  |        |  |       
|Total          |  | 14,624             |  | 15,797 |  | 16,321
|               |  |                    |  |        |  |       



|(1) | In 2008, approximately 61% of our employees worked in Chile, 37% in other Latin American countries and 2% in the rest of
the world.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

We have a performance-related pay structure for our administrative, management and flight personnel (such as
cabin crew members, airport and sales agents, call-center employees, and some back office employees) including performance-based bonuses and pay scales that reward foreign language proficiency among counter, technical and administrative personnel.
During 2008, over 90% of our employees were eligible to receive performance related bonus payments that are linked to personal, team and corporate performance.

We provide our employees with medical insurance complementary to the coverage of the private health system, and also grant other benefits, such as free and discounted airline tickets, to our permanent employees. In
2008, a stock option compensation plan was offered to key senior executives. For a detailed description of the stock option compensation plan, please see Note 19(g) to our audited consolidated financial statements for the fiscal year ended
December 31, 2008.

As required by Chilean law, we make obligatory contributions to the privatized pension fund system on behalf of
our employees, but we do not maintain any separate program to provide pension, retirement or similar benefits to these or any other employees. However, the pilots ́ collective bargaining agreement includes a clause that permits resignation with
severance payment, in case a pilot reaches a certain age and is still providing services to the company.

One of our main goals for 2008
was to complete the first stage of the communication of our four principal values (safety and security, achievement, efficiency and warmth) to our employees. The campaign included internal training sessions, internal memoranda and posters to explain
the meaning of each value and how employees can further these values in their daily work.

Training

Some of our populations, such as the flight operations, maintenance and customer ground operations personnel undergo training when they join the Company
and throughout their employment with us. We invested US$7.1 million in 2006, US$8.0 in 2007 and US$12.5 million in 2008. We generally recruit our pilots from the Academia de Ciencias Aeronáuticas (at the Universidad Técnica Federico
Santa María), aeroclubs and the armed forces. Before being promoted to the position of captain, first officers must have logged at least 4,000 flight hours and received the approval of a special pilots committee. We provide
ground-school training in Santiago, as well as in Lima and Quito for our Peruvian and Ecuadorian crews. We maintain an agreement with CAE (a Canadian firm specializing in flight simulators and training centers) to develop a pilot training center in
Santiago de Chile. This training center includes 2 Airbus A320 and 1 Boeing 767 Full Flight simulators plus 1 MFTD A320/340 simulator. Our pilot staff also receives simulator training at sites in the United States and Brazil.

Our pilots are rated for only one aircraft type by local aeronautical authorities, and they are not cross-qualified between two or more aircraft types.
Chilean regulations require pilots to be licensed as commercial pilots for a first officer position and as an airline transport pilot for a captain position, with specific type, function and special ratings for each aircraft to be flown, and to be
medically certified as physically fit. Licenses and medical



76



---

##### Table of Contents

certifications are subject to periodic reevaluation, including flight simulator recurrent training, ground recurrent training, annual emergency procedures
training, safety and security training and recent flying experience. Our pilots receive a variety of training, such as lectures, simulations and gaming and computer based training. Cabin crew must have initial and periodic competency fitness
training.

Aircraft mechanics and maintenance supervisory personnel must be licensed by the DGAC and other corresponding authorities in
other countries in which we operate. We train our technicians (Mechanics, Specialists, Inspectors and Maintenance Supervisors) in all programs required by both local authority (DGAC) and international authorities and aviation associations, such as
the FAA, the European Aviation Safety Agency (EASA), IATA rules and regulations, those required by aircraft manufacturers and the training needs that we identify during our annual reviews. The program of study contains initial and
continuing training. Initial training is level III ATA SPEC 104 and lasts forty to fifty days depending on the aircraft types and continuing training lasts up to five to six days.

During 2008, we continued training sales and administrative personnel in areas such as service and sales quality. We also continued delivering learning
programs to develop leadership skills and others with different methodologies including e-learning.

Labor Relations

We have negotiated longer-term labor contracts with the labor unions in anticipation of their scheduled expirations, which under Chilean law are limited
to a period of four years. In general, the expiration of our labor agreements with the several unions that represent our pilots and other personnel are staggered in a way that we avoid being in the position of having to renegotiate contract terms
with substantially all of our pilots or other personnel at the same time.

The collective bargaining agreement between Lan Express and its
pilots union was renewed in November 2008. Three collective contracts are in place between Lan Airlines and its pilots (either through a union or employee groups). These contracts were negotiated in February 2009 and expire between August 2012
and January 2013. Lan Cargo is also a party to an employment agreement with its pilots that expires in November 2012.

Lan Airlines has
also entered into collective bargaining agreements covering the majority of its flight attendants that expire at various times, ranging from August 2009 to October 2011. Lan Airlines renewed the collective bargaining agreements with its maintenance
personnel in June 2008 for a period of four years. The collective bargaining agreement with maintenance personnel working for Lan Express, one of our Chilean subsidiaries, will expire in 2011. The agreement with the union representing our
administrative personnel from Lan Airlines expires in August 2009.

The majority of Lan Argentinas employees belong to industry-wide
unions. Currently, labor relations are stable. In 2005, Lan Argentina hired employees from another airline and agreed to maintain their employment conditions and labor stability. The conditions and labor relations that Lan Argentina had to maintain
expired on September 2008, a situation that did not generate any conflict for the company. During 2009, we expect to renew the collective agreements with pilots and maintenance personnel; the negotiations have already started with a fluid dialogue
between the parties.

We believe we generally have good relations with our employees and the unions, and expect to continue to enjoy good
relations with our employees and the unions in the future. We also believe that we have built a solid base among our employees that will support and facilitate our growth plans. We can provide no assurance, however, that our employee compensation
arrangements may not be subject to change or modification after the expiration of the contracts currently in effect, or that we will not be subject to labor-related disruptions due to strikes, stoppages or walk-outs.



77



---

##### Table of Contents

|ITEM 7. | CONTROLLING SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------------

Controlling Shareholders

Pursuant to agreements signed in July 2004, two shareholder groups control the Company. These shareholder groups
are:



| |  |  | the Cueto Group, which includes Mr. Juan Cueto Sierra, Mr. Juan José Cueto Plaza, Mr. Ignacio Cueto Plaza, Mr. Enrique Cueto Plaza and
certain members of their family; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Piñera Group, which includes Mr. Sebastián Piñera Echenique and certain members of his family.
| | - |  | --------------------------------------------------------------------------------------------------

We collectively refer to these shareholder groups as Controlling Shareholders. As of March 31, 2009, our Controlling Shareholders owned
51.84% of our voting common shares. While the common shares owned by the Controlling Shareholders do not have different voting rights than the common shares owned by our other shareholders, these Controlling Shareholders are entitled to elect a
majority of the members of our board of directors and are in a position to direct our management and to control substantially all matters that are to be decided by a vote of shareholders.

The agreements signed by our Controlling Shareholders provide for a joint-action agreement and a right of first refusal agreement in connection with
45.0% of our common shares. Under the joint-action agreement, the Controlling Shareholders agreed to coordinate their actions on all matters pertaining to the Companys management, both at shareholders meetings and meetings of the board
of directors. Under the right of first refusal agreement between the groups, the shares included under this agreement are subject to reciprocal rights of first refusal in connection with any future sale to a third-party.

As of March 31, 2009, a third shareholder group, which includes our director Ramón Eblen Cadiz, owned 9.38% of our common shares. Because
this group can influence our management, we have classified this group as a Principal Shareholder.

The table below sets forth
the beneficial ownership of common shares as of March 31, 2009, broken down between our Controlling Shareholders, other principal shareholder, and minority shareholders.



|                                                                      |  |                                                   |  |                                            
|--------------------------------------------------------------------- |  | ------------------------------------------------- |  | -------------------------------------------
|                                                                      |  | Beneficial ownership(as of March 31,
2009)       
|                                                                      |  | Number of sharesof common stockbeneficially owned |  | Percentage ofcommon stockbeneficially owned
|Shareholder                                                           |  |                                                   |  |                                            
|Cueto Group                                                           |  |                                                   |  |                                            
|Inversiones Costa Verde Limitada y Compañía en Comandita por Acciones |  | 77,445,407                                        |  | 22.9%                                      
|Inversiones Mineras del Cantábrico                                    |  | 8,554,095                                         |  | 2.5%                                       
|Costa Verde Aeronáutica S.A.                                          |  | 400,000                                           |  | 0.1%                                       
|                                                                      |  |                                                   |  |                                            
|Total                                                                 |  | 86,399,502                                        |  | 25.5%                                      
|Piñera Group                                                          |  |                                                   |  |                                            
|Inversiones Santa Cecilia S.A.                                        |  | 24,767,920                                        |  | 7.3%                                       
|Axxion S.A.                                                           |  | 64,477,874                                        |  | 19.0%                                      
|                                                                      |  |                                                   |  |                                            
|Total                                                                 |  | 89,245,794                                        |  | 26.3%                                      
|Principal Shareholder                                                 |  | 31,778,049                                        |  | 9.4%                                       
|Others                                                                |  | 131,367,564                                       |  | 38.8%                                      
|                                                                      |  |                                                   |  |                                            
|Total                                                                 |  | 338,790,909                                       |  | 100.00%                                    
|                                                                      |  |                                                   |  |                                            

On January 10 and January 11, 2007, the SVS publicly announced the initiation of an
administrative investigation to determine whether the purchase of shares of LAN on July 24, 2006 made by Juan José Cueto, through Inversiones Mineras del Cantábrico S.A., and by Sebastian Piñera Echenique, through
Inversiones Santa Cecilia S.A., respectively, had breached an obligation not to acquire shares of LAN until the financial statements became publicly available. The Company was not a party to these investigations. On July 6, 2007, the SVS fined
Sebastian Piñera Echenique 19,470 UF (approximately US$690,000) and fined Juan José Cueto 1,620 UF (approximately US$58,000) for allegedly violating, through certain affiliates, Article 165, paragraph 1 of the Securities Market Law.
The SVS ruled that, though neither Mr. Piñera nor Mr. Cueto had used any privileged information, the Companys financial statements should be considered to be privileged information per se and thus created a duty to abstain
from trading the securities prior to the disclosure of the financial statements.



78



---

##### Table of Contents

As of March 31, 2009, investors outside of Chile held 9.28% of our capital stock in the form of
ADSs, and other minority investors held 29.52% in the form of common shares. It is not practicable for us to determine the number of ADSs or common shares beneficially owned in the United States. As of March 31, 2009, we had 1,217 record
holders of our common shares. It is not practicable for us to determine the portion of shares held in Chile or the number of record holders in Chile.

Related Party Transactions

General

We have engaged in a variety of transactions with our affiliates, including entities owned or controlled by certain of our controlling shareholders. It is our policy not to engage in any transaction with or for the
benefit of any shareholder or member of the board of directors, or any entity controlled by such a person or in which such a person has a substantial economic interest, unless the transaction is related to our business and the price and other terms
are at least as favorable to us as those that could be obtained on an arms-length basis from a third party.

In the ordinary course
of our business we render to and receive from related companies services of various types, including aircraft leases, aircraft interchanges, freight transportation and reservation services. Such transactions, none of which is individually material,
are summarized in Note 15 to our audited consolidated financial statements for the fiscal year ended December 31, 2008.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

Consolidated Financial Statements

See Item 18, Financial Statements and pages F-1 through F-69.

Other Financial Information

Legal and Arbitration
Proceedings

We were involved in routine litigation and other proceedings relating to the ordinary course of our business. On
July 30, 1997, the Chilean Antitrust Commission imposed a fine on us of US$345,000 in connection with a complaint filed by DAP Airlines, or DAP, alleging that we employed anti-competitive tactics by reducing our prices on certain of our routes
and refusing to perform maintenance services on DAP aircraft. On January 8, 1998, DAP filed a demand for indemnification against Lan Airlines, National Airlines and Lan Cargo, jointly and severally, in the amount of Ch$6.4 billion (US$10.2
million according to the observed exchange rate as of December 31, 2008). In June 2000, the courts ruled in favor of DAP and we appealed the decision before the Supreme Court of Justice. The Supreme Court confirmed the first ruling in favor of
DAP in an amount of Ch$500 million (US$0.8 million according to the observed exchange rate as of December 31, 2008). We appealed the amount fixed by the Supreme Court, contending that the amount was based on certain miscalculations and
requested a final amount of Ch$650 million (US$1.0 million according to the observed exchange rate as of December 31, 2008). DAP simultaneously appealed and contended that the final amount should be Ch$2 billion (US$3.2 million
according to the observed exchange rate as of December 31, 2008). While both appeal processes were pending, on November 20, 2008 DAP filed a suit in an ordinary court in order to obtain the payment of the total amount decided by the
Supreme Court. On December 22, 2008, the parties reached an extrajudicial settlement which established that Lan Airlines and Lan Cargo would pay to DAP the total amount of Ch$650 million (US$1.0 according to the observed exchange rate as
of December 31, 2008). This litigation has concluded.

In February 2006, the European Commission, in conjunction with the DOJ,
initiated a global investigation of a large number of international cargo airlines  among them LAN Cargo S.A., LANs cargo subsidiary  for possible price fixing of cargo fuel surcharges and other fees in the European and United
States air cargo markets. On December 26, 2007, the European competition authorities notified LAN Cargo S.A. and LAN of the initiation of proceedings against twenty-five cargo airlines, among them LAN Cargo S.A., for allegations of
anti-competitive behavior in the airfreight business. Given the current stage of the European proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy judicial process.
Notwithstanding the above, in the fourth quarter of 2007, LAN recorded, and maintains, a US$25.0 million reserve in relation with the European investigation.



79



---

##### Table of Contents

The investigation by the DOJ prompted the filing of numerous civil class actions by freight forwarding
and shipping companies against many airlines, including Lan Cargo and Lan Airlines, including fifty-four in the United States and four in Canada.

The cases filed in the United States were consolidated in the United States District Court, Eastern District of New York and the original complaint was subsequently amended to include additional airlines, including ABSA. On January 21,
2009 Lan Cargo announced that it had reached a plea agreement with the DOJ in relation to the DOJs ongoing investigation regarding price fixing of fuel surcharges and other fees for cargo shipments. Under the plea agreement, Lan Cargo agreed
to pay a fine of US$88 million. In addition, ABSA reached a plea agreement with the DOJ and agreed to pay a fine of US$21 million. These amounts will be paid over a five-year payment schedule and have been recorded as of December 31, 2008
within Other current liabilities (US$19 million) and Other creditors (US$90 million).

On April 5, 2008, Brazilian authorities
notified ABSA of the initiation of administrative proceedings before the Conselho Administrativo de Defesa Econômica against several cargo airlines and airline officers, among them ABSA, for allegations of anticompetitive practices regarding
fuel surcharges in the air cargo business. Given the current stage of the proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy process. This investigation and the
related proceedings do not imply that ABSA has been charged with or has engaged in any prohibited activity.

The New Zealand Commerce
Commission initiated an investigation into potential anti-competitive activities in the international air cargo markets and requested information and documentation from LAN, which LAN duly submitted. On December 15, 2008, the New Zealand
Commerce Commission announced that it would focus its investigations on ten airlines and excluded LAN from further investigation.

In June
2008, the Korean Fair Trade Commission notified LAN of an investigation into the air cargo industry and its non-compliance with the Monopoly Regulation and Fair Trade Act and requested information and documentation from LAN, which LAN duly
submitted. Given the current stage of the investigation, it is not possible at this time to anticipate with any precision their outcome.

In January 2007 we announced that we had provided, through our wholly owned subsidiary, Atlantic Aviation Investments LLC (AAI), a total of US$17.1 million in financing to Brazilian company VRG LINHAS AEREAS S.A. (New
Varig), convertible into shares of New Varig. On March 28, 2007, GOL announced that it was acquiring 100% of the equity participation in New Varig. Pursuant to the terms of the relevant loan agreements, upon the sale of New Varig to GOL,
we sought repayment of the principal of the loans plus interest from Varig Logistica S.A. (VarigLog), the parent company of New Varig. VarigLog failed to respond to our demands for repayment and we subsequently filed a lawsuit in New
York State court on August 29, 2007, seeking repayment of the outstanding principal plus interest. On October 10, 2008, the Court granted summary judgment in our favor for the full principal amount of the loans, US$17.1 million and entered
a final judgment on December 1, 2008. The Court also held that AAI was entitled to collect the interest due under the loan agreement along with reasonable attorneys fees, which a special referee has recommended be approved by the Court in
the amount of US$1.9 million. Final determination by the New York court is still pending. On March 3, 2009, VarigLog filed an insolvency proceeding (recuperação judicial) before the bankruptcy court in Brazil, and on
March 31, 2009, VarigLog filed a Chapter 15 petition in bankruptcy court in Florida seeking recognition of its Brazilian filing. The Florida court has entered an order, based upon AAIs stipulation with VarigLog pursuant to which there
would be no stay against the continuation and commencement of legal actions by AAI against VarigLog and any of its affiliates but AAI would not be able take any action against two discreet VarigLog assets located in the United States. AAI continues
its enforcement efforts to recover the amounts owed to it by VarigLog under the loan agreements.

Dividend Policy

In accordance with Chilean law, Lan Airlines must distribute cash dividends equal to at least 30% of its annual consolidated net income calculated in
accordance with Chilean GAAP, unless otherwise decided by a unanimous vote of the holders of all issued shares and unless and except to the extent it has accumulated losses. If there is no net income in a given year, Lan Airlines can elect but is
not legally obligated to distribute dividends out of retained earnings. The board of directors may declare interim dividends out of profits earned during such interim period. Pursuant to Lan Airlines by-laws, the annual cash dividend is
approved by the shareholders at the annual ordinary shareholders meeting held between February 1 and April 30 of the year following the year with respect to which the dividend is proposed. All outstanding common shares are entitled
to share equally in all dividends declared by Lan Airlines.



80



---

##### Table of Contents

Holders of ADSs will be entitled to receive dividends on the underlying common shares to the same extent
as holders of common shares. Holders of ADRs on the applicable record dates will be entitled to receive dividends paid on the common shares represented by the ADSs evidenced by such ADRs. Dividends payable to holders of ADSs will be paid by us to
the depositary in Chilean pesos and remitted by the depositary to such holders net of foreign currency conversion fees and expenses of the depositary and will be subject to Chilean withholding tax currently imposed at a rate of 35% (subject to
credits in certain cases as described under Chilean TaxationCash Dividends and Other Distributions under Item 10). Owners of the ADSs will not be charged any dividend remittance fee by the depositary with respect to cash
dividends.

Chilean law requires that holders of shares of Chilean companies that are not residents of Chile register as foreign investors
under one of the foreign investment regimes established by Chilean law in order to have dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market (Mercado Cambiario
Formal). Under our Foreign Investment Contract, the depositary, on behalf of ADS holders, will be granted access to the Formal Exchange Market to convert cash dividends from pesos to U.S. dollars and to pay such U.S. dollars to ADS holders
outside Chile.



|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

Stock Price History

The principal trading market for our common shares is the Santiago Stock Exchange. The common shares have been listed on the Santiago Stock Exchange under
the symbol LAN since 1989, and the ADSs have been listed on The New York Stock Exchange under the symbol LFL since November 7, 1997. The common shares also trade on the Bolsa de Valores de Valparaísoand
the Bolsa Electrónica de Chile. The outstanding ADSs are identified by the CUSIP number 501723100. The following table sets forth, for the periods indicated, the high and low closing sale prices on the Santiago Stock Exchange for the
common shares and the high and low closing prices on The New York Stock Exchange for the common shares represented by ADSs. The information set forth in the table below reflects actual historical amounts and has not been restated in constant Chilean
pesos.



|                        |     |                      |      |             |     |       |      |      
|----------------------- | --- | -------------------- | ---- | ----------- | --- | ----- | ---- | -----
|Year ended December 31, |     | Ch$ per Common Share |      | US$ per ADS
|                        | Low |                      | High |             | Low |       | High
|2004                    |     | 2,010.00             |      | 3,650.00    |     | 16.85 |      | 32.90
|2005                    |     |                      |      |             |     |       |      |      
|First Quarter           |     | 3,420.00             |      | 4,170.00    |     | 30.25 |      | 35.98
|Second Quarter          |     | 3,885.00             |      | 4,370.00    |     | 33.54 |      | 38.05
|Third Quarter           |     | 3,240.00             |      | 4,280.00    |     | 30.69 |      | 37.55
|Fourth Quarter          |     | 3,346.90             |      | 3,845.90    |     | 31.31 |      | 37.55
|2006                    |     |                      |      |             |     |       |      |      
|First Quarter           |     | 3,780.00             |      | 4,250.00    |     | 36.24 |      | 40.85
|Second Quarter          |     | 3,470.00             |      | 4,149.90    |     | 31.37 |      | 39.76
|Third Quarter           |     | 3,250.40             |      | 4,120.00    |     | 29.85 |      | 38.55
|Fourth Quarter          |     | 4,155.00             |      | 5,867.00    |     | 38.60 |      | 55.34
|2007                    |     |                      |      |             |     |       |      |      
|First Quarter           |     | 5,839.90             |      | 8,300.00    |     | 54.90 |      | 75.25
|Second Quarter          |     | 7,400.00             |      | 8,950.00    |     | 69.58 |      | 84.15
|Third Quarter(1)        |     | 7,200.00             |      | 8,997.00    |     | 13.72 |      | 17.13
|Fourth Quarter          |     | 6,501.00             |      | 8,350.00    |     | 13.03 |      | 16.64
|2008                    |     |                      |      |             |     |       |      |      
|First Quarter           |     | 4,710.00             |      | 7,095.00    |     | 9.30  |      | 14.80
|Second Quarter          |     | 5,095.00             |      | 6,580.00    |     | 9.92  |      | 14.87
|Third Quarter           |     | 4,350.00             |      | 6,520.00    |     | 8.71  |      | 13.17
|Fourth Quarter          |     | 4,420.00             |      | 6,850.00    |     | 6.90  |      | 11.55
|2009                    |     |                      |      |             |     |       |      |      
|Monthly Prices          |     |                      |      |             |     |       |      |      
|January, 2009           |     | 5,000.00             |      | 5,700.00    |     | 7.88  |      | 9.07 
|February, 2009          |     | 4,900.00             |      | 5,470.00    |     | 7.97  |      | 9.06 
|March, 2009             |     | 4,400.00             |      | 5,110.00    |     | 7.08  |      | 8.77 
|April, 2009             |     | 4,810.00             |      | 5,500.00    |     | 8.20  |      | 9.61 
|May, 2009               |     | 5,272.00             |      | 6,280.00    |     | 8.78  |      | 11.18



Source: Santiago Stock Exchange and the New York Stock Exchange.



|(1) | In August 2007, the ADR to common share ratio was changed from
5:1 to 1:1.
|--- | --------------------------------------------------------------------------



81



---

##### Table of Contents

As of March 31, 2009, a total of 338,790,909 common shares were outstanding, including 31,439,633
common shares represented by ADSs.

Trading

The Chilean stock market, which is regulated by the SVS under Law 18,045 of October 22, 1981, as amended, which we refer to as the Securities Market Law, is one of the most developed among emerging markets, reflecting the particular
economic history and development of Chile. The Chilean governments policy of privatizing state-owned companies, implemented during the 1980s, led to an expansion of private ownership of shares, resulting in an increase in the importance of
stock markets. Privatization extended to the social security system, which was converted into a privately managed pension fund system. These pension funds have been allowed, subject to certain limitations, to invest in stocks and are currently major
investors in the stock market. Some market participants, including pension fund administrators, are highly regulated with respect to investment and remuneration criteria, but the general market is less regulated than the U.S. market with respect to
disclosure requirements and information usage.

The Santiago Stock Exchange is Chiles principal exchange and accounts for
approximately 86.8% of securities traded in Chile. Approximately 12.8% of equity trading is conducted on the Chilean Electronic Stock Exchange, an electronic trading market created by banks and non-member brokerage houses. The remaining equity
trading is conducted on the Valparaíso Stock Exchange.

Equities, closed-end funds, fixed-income securities, short-term and money
market securities, gold and U.S. dollars are traded on the Santiago Stock Exchange. In 1991, the Santiago Stock Exchange initiated a futures market with two instruments: U.S. dollar futures and Selective Shares Price Index, or IPSA, futures.
Securities are traded primarily through an open voice auction system; a firm offers system or daily auctions. Trading through the open voice system occurs on each business day between 9:30 a.m. to 4:30 p.m. The Santiago Stock Exchange has an
electronic system of trade, called Telepregón, which operates continuously for stocks trading in high volumes from 9:30 a.m. to 4:30 p.m. The Chilean Electronic Stock Exchange operates continuously from 9:30 a.m. to 4:30 p.m. (or 5:30
p.m., depending on the period of the year) on each business day. In February 2000, the Santiago Stock Exchange Off-Shore Market began operations. In the Off-Shore Market, publicly offered foreign securities are traded and quoted in U.S. dollars.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

Memorandum and Articles of Association

Set forth below is information concerning our share capital and a brief summary of certain significant provisions of our by-laws and
Chilean law. This description contains all material information concerning the common shares but does not purport to be complete and is qualified in its entirety by reference to our by-laws, the Chilean Corporation Law and the Securities Market Law,
each referred to below. For additional information regarding the common shares, reference is made to our by-laws, a copy of which is included as Exhibit 1.1 to this annual report on Form 20-F.

Organization and Register

Lan
Airlines is a publicly held stock corporation (sociedad anónima abierta) incorporated under the laws of Chile. Lan Airlines was incorporated by a public deed dated December 30, 1983, an abstract of which was published in the
Chilean Official Gazette (Diario Oficial de la República de Chile) No. 31.759 on December 31, 1983, and registered on page 20,341, No. 11,248 of the Chilean Real Estate and Commercial Registrar (Registro de Comercio
del Conservador de Bienes Raices y Comercio de Santiago) for the year 1983. Our corporate purpose, as stated in our by-laws, is to provide a broad range of transportation and related services, as more fully set forth in Article Four thereof.

General

Shareholders rights in a Chilean company are generally governed by the companys by-laws. Article 22 of the Chilean Corporation Law states that the purchaser of shares of a company implicitly accepts its by-laws and any



82



---

##### Table of Contents

agreements adopted at shareholders meetings. Additionally, the Chilean Corporation Law regulates the government and operation of corporations
(sociedades anónimas, or S.A.) and provides for certain shareholder rights. Article 137 of the Chilean Corporation Law provides that the provisions of the Chilean Corporation Law take precedence over any contrary provision
in a corporations by-laws. The Chilean Corporation Law and our by-laws also provide that all disputes arising among shareholders in their capacity as such or between us or our administrators and the shareholders may either be submitted to
arbitration in Chile or to the courts of Chile at the election of the plaintiff initiating the action. Finally, Decree-Law 3500, which allows pension funds to invest in the stock of qualified corporations, indirectly affects corporate governance and
prescribes certain rights of shareholders. The Chilean Corporation Law sets forth the rules and requirements for establishing publicly held corporations. Article 2 of the Chilean Corporation Law defines publicly held corporations as corporations:



| |  |  | with 500 or more shareholders;
| | - |  | ------------------------------



| |  |  | in which 100 or more shareholders own at least 10% of the subscribed capital (excluding any direct or indirect individual holdings exceeding 10%); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | which have voluntary registered their shares in the Security Register of the SVS.
| | - |  | ---------------------------------------------------------------------------------

The framework of the Chilean securities market is regulated by the Chilean exchange entity, the SVS, under the Securities Market Law and the Chilean
Corporation Law, which imposes certain disclosure requirements, restricts insider trading, prohibits price manipulation and protects minority investors. Both the Chilean Corporation Law and the Securities Market Law state rules and requirements for
establishing publicly held corporations. In particular, the Securities Market Law establishes requirements for public offerings, stock exchanges and brokers and outlines disclosure requirements for corporations that issue publicly offered
securities.

Ownership Restrictions

Under Article 12 of the Securities Market Law and Circular 585 of the SVS, certain information regarding transactions in shares of publicly held corporations must be reported to the SVS and the Chilean stock exchanges
on which the shares are listed. Since the ADRs are deemed to represent the shares underlying the ADSs, transactions in ADRs will be subject to those reporting requirements. Among other matters, beneficial owners of ADSs will be required to report to
the SVS and the Chilean stock exchanges within two stock exchange business days:



| |  |  | any direct or indirect acquisition or sale of shares that results in the holders acquiring or disposing, directly or indirectly, of 10% or more of the
corporations total subscribed shares; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a holder of 10% or more of a publicly held
corporations total subscribed shares, or if made by a director, liquidator, principal officer, general manager or manager of such corporation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, majority shareholders must state in their report whether their purpose is to acquire control of the company or if they are making a financial investment.

Under Article 54 of the Securities Market Law and under SVS regulations, persons or entities that intend to acquire control, whether directly or
indirectly, of a publicly traded company, must follow certain notice requirements, regardless of the acquisition vehicle or procedure or whether the acquisition will be made through direct subscriptions or private transactions. The potential
acquiror must first send a written communication to the target corporation, any companies controlling or controlled by the target corporation, the SVS and the Chilean stock exchanges on which the securities are listed, stating, among other things,
the person or entity purchasing or selling and the price and conditions of any negotiations.

The potential acquiror must also inform the
public of its planned acquisition at least ten business days prior to the date on which the transaction is to close, and in any event, as soon as negotiations regarding the change of control begin (i.e., when information and documents
concerning the target are delivered to the potential acquiror). Notice is made through a filing with the SVS, the relevant Chilean stock exchanges and any companies controlling or controlled by the target corporation and through a notice published
in two Chilean newspapers, and must also state, among other things, the person or entity purchasing or selling and the price and conditions of any negotiations.

In addition to the foregoing, Article 54A of the Securities Market Law requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a publicly traded
company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.



83



---

##### Table of Contents

A beneficial owner of ADSs intending to acquire control of Lan Airlines will be subject to the foregoing
reporting requirements.

The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender
or exchange offer.

Title XXV of the Securities Market Law on tender offers and SVS regulations provide that the following transactions
shall be carried out through a tender offer:



| |  |  | an offer which allows a person to take control of a publicly traded company, unless the shares are being sold by a controlling shareholder of such company at a
price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an offer for all the outstanding shares of a publicly traded company upon acquiring two-thirds or more of its voting shares (this offer must be made at a price not
lower than the price at which appraisal rights may be exercised, that is, book value if the shares of the company are not actively traded or, if the shares of the company are actively traded, the weighted average price at which the stock has been
traded during the two months immediately preceding the acquisition); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an offer for a controlling percentage of the shares of a listed operating company if such person intends to take control of the company (whether listed or not)
controlling such operating company, to the extent that the operating company represents 75.0% or more of the consolidated net assets of the holding company.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Article 200 of the Securities Market Law prohibits any shareholder that has taken control of a publicly traded company from acquiring, for a period of
twelve months from the date of the transaction that granted it control of the publicly traded company, a number of shares equal to or higher than 3.0% of the outstanding issued shares of the target without making a tender offer at a price per share
not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on the floor of a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher
percentage of shares, if so permitted by the regulations of the stock exchange.

Title XV of the Securities Market Law sets forth the basis
for determining what constitutes a controlling power, a direct holding and a related party.

Capitalization

Under Chilean law, the shareholders of a company, acting at an extraordinary shareholders meeting, have the power to authorize an increase in the
companys share capital. When an investor subscribes for issued shares, the shares are registered in that investors name, even without payment therefore, and the investor is treated as a shareholder for all purposes except with regard to
receipt of dividends and return of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends of distribution of capital. The investor becomes eligible to receive dividends once it has paid for
the shares, or, if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro rata portion of the dividends declared with respect to such shares, unless the companys by-laws provide otherwise. If an investor
does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the company is entitled under Chilean law to auction the shares on the appropriate stock exchange, and it has a cause of action against the investor
to recover the difference between the subscription price and the price received for the sale of those shares at auction. However, until such shares are sold at auction, the investor continues to exercise all the rights of a shareholder (except the
right to receive dividends and return of capital). Shares issued but not paid for within the period determined by the extraordinary shareholders meeting for their payment (which in any case cannot exceed three years from the date of such
shareholders meeting which authorizes the increase in capital) will be canceled and will no longer be available for issuance by us. Fully paid shares are not subject to further calls or assessments or to liabilities of Lan Airlines.

As of March 31, 2009, our share capital consisted of 338,790,909 common shares, all of which were subscribed and fully paid. Chilean
law recognizes the right to issue common and preferred shares. To date, we have issued and are authorized by our shareholders to issue only common shares. Each share of stock is entitled to one vote.



84



---

##### Table of Contents

Preemptive Rights and Increases in Share Capital

The Chilean Corporation Law requires Chilean companies to offer existing shareholders the right to purchase a sufficient number of shares to maintain
their existing percentage of ownership in a company whenever that company issues new shares for cash. Under this requirement, any preemptive rights will be offered by us to the depositary as the registered owner of the common shares underlying the
ADSs, but holders of ADSs and shareholders located in the United States will not be allowed to exercise preemptive rights with respect to new issuances of shares by us unless a registration statement under the Securities Act is effective with
respect to those common shares or an exemption from the registration requirements thereunder is available.

We intend to evaluate at the
time of any preemptive rights offering the costs and potential liabilities associated with the preparation and filing of a registration statement with the Securities and Exchange Commission, as well as the indirect benefits of enabling the exercise
by the holders of ADSs and shareholders located in the United States of preemptive rights and any other factors we consider appropriate at the time. No assurances can be given that any registration statement would be filed. If preemptive rights are
not made available to ADS holders, the depositary may sell those holders preemptive rights and distribute the proceeds thereof if a secondary market for such rights exists and a premium can be recognized over the cost of such sale. In the
event that the depositary does not sell such rights at a premium over the cost of any such sale, all or certain holders of ADRs may receive no value for the preemptive rights. The inability of holders of ADSs to exercise preemptive rights in respect
of common shares underlying their ADSs could result in a change in their percentage ownership of common shares following a preemptive rights offering.

Under Chilean law, preemptive rights are exercisable, freely transferable or waived by shareholders during a thirty-day period commencing upon publication of the official notice announcing the start of the preemptive
rights period in the newspaper designated by the shareholders. The preemptive right of the shareholders is the pro rata amount of the shares registered in their name in the shareholders registry as of the fifth business day prior to the date
of publication of the notice announcing the start of the preemptive rights period. During such thirty-day period (except for shares as to which preemptive rights have been waived), Chilean companies are not permitted to offer any newly issued common
shares for sale to third-parties. For that thirty-day period and an additional thirty-day period, Chilean publicly held corporations are not permitted to offer any unsubscribed common shares for sale to third-parties on terms that are more favorable
to the purchaser than those offered to shareholders. At the end of such additional thirty-day period, Chilean publicly held corporations are authorized to sell non-subscribed shares to third-parties on any terms, provided they are sold on a Chilean
stock exchange.

Directors

Our by-laws provide for a board of nine directors. Compensation to be paid to directors must be approved by vote at the annual shareholders meeting. We hold elections for all positions on the board of directors every two years. Under
our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion his or her votes among any number of nominees. These voting provisions
currently ensure that a shareholder owning more than 10% of our outstanding shares is able to elect at least one representative to our board of directors.

Under the Chilean Corporation Law, transactions in which a director is interested (including a transaction in which a director has an indirect interest) must be conducted on an arms-length basis and must satisfy
certain disclosure requirements. These transactions include transactions involving a directors spouse or close relatives, transactions involving other companies on whose board such director also serves or transactions with other companies
where the director controls 10% of such company (directly or indirectly). Corporations may enter into transactions in which a director is interested if the transaction has been previously approved by the board of directors (which must be disclosed
at the next shareholders meeting) and is consistent with standards of fairness similar to those that normally prevail in the market. Transactions which do not meet these conditions are valid and enforceable, but each director who approved the
transaction is jointly and severally liable for damages suffered by the company, the shareholders or any interested third-parties, and the director who directly or indirectly benefits from the transaction must pay all benefits received from such
transaction to the corporation. The directors are also subject to fines and administrative sanctions.

Whenever a transaction in which a
director is interested exceeds 1% of the net worth of the company and exceeds the equivalent of 2,000 UF (approximately US$78,000 as of the date of this annual report) or whenever such a transaction exceeds 20,000 UF, the board of directors of the
company must determine whether the transaction



85



---

##### Table of Contents

complies with arms-length conditions similar to those prevailing in the market. If the board of directors is unable to determine those conditions, the
board, without the vote of the interested director, may approve or reject the transaction or may appoint two independent experts to provide an opinion. The experts reports must indicate the terms of the transaction and in the case of non-cash
assets, must indicate the planned method of payment. Experts valuation reports must be made available to the shareholders and to the board of directors for a period of twenty business days. The board of directors may decide to approve or
reject the proposed transaction only after this twenty-day period has expired. If shareholders representing 5% of the voting shares determine, within the twenty-day period, that the transaction is not favorable to the corporations interests or
that the reports of the experts are substantially different, those shareholders may require the board of directors to call an extraordinary shareholders meeting. Approval of the transaction then requires the affirmative vote of two-thirds of
the voting shares of the company.

Shareholders Meetings and Voting Rights

The Chilean Corporation Law requires that an ordinary annual meeting of shareholders be held within the first four months of each year (generally they are
held in April, but in any case following the preparation of our financial statements, including the report of our auditors, for the previous fiscal year). Lan Airlines by-laws further provide that the ordinary annual meeting of shareholders
must take place between February 1 and April 30. The shareholders at the ordinary annual meeting approve the annual financial statements, including the report of our auditors, the annual report, the dividend policy and the final dividend
on the prior years profits, elect the board of directors (in our case, every two years or earlier if a vacancy occurs) and approve any other matter that does not require an extraordinary shareholders meeting. The most recent ordinary
annual meeting of our shareholders was held on April 17, 2009. Extraordinary shareholders meetings may be called by the board of directors, if deemed appropriate, and ordinary or extraordinary shareholders meetings must be called by
the board of directors when requested by shareholders representing at least 10% of the issued voting shares or by the SVS.

Notice to
convene the ordinary annual meeting or an extraordinary meeting is given by means of three notices which must be published in a newspaper of our corporate domicile (currently Santiago, Chile) designated by the shareholders at their annual meeting
and, if the shareholders fail to make such designation, the notice must be published in the Chilean Official Gazette pursuant to legal requirements. The first notice must be published not less than fifteen days and not more than twenty days in
advance of the scheduled meeting. Notice also must be mailed not less than fifteen days in advance of the meeting to each shareholder and to the SVS and the Chilean stock exchanges. Currently, we publish our official notice in the newspaper La
Tercera.

The quorum for a shareholders meeting is established by the presence, in person or by proxy, of shareholders
representing a majority of our issued common shares. If a quorum is not present, the meeting can be reconvened, and at a second meeting the shareholders present are deemed to constitute a quorum regardless of the percentage of the common shares that
they represent.

Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and
vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his proxy to attend and vote on his behalf. Proxies addressed to us that do not designate a person to exercise the proxy are taken into account in
order to determine if there is a sufficient quorum to hold the meeting, but the shares represented thereby are not entitled to vote at the meeting. Every shareholder entitled to attend and vote at a shareholders meeting has one vote for every
share subscribed.

The following matters can only be considered at an extraordinary shareholders meeting:



| |  |  | our dissolution;
| | - |  | ----------------



| |  |  | a merger, transformation, division or other change in our corporate form or the amendment of our by-laws;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | the issuance of bonds or debentures convertible into shares;
| | - |  | ------------------------------------------------------------



| |  |  | the conveyance of 50% or more of our assets or 50% or more of our liabilities;
| | - |  | ------------------------------------------------------------------------------



| |  |  | granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless to secure or guarantee the obligations of a
subsidiary, in which case only the approval of the board of directors will suffice; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



86



---

##### Table of Contents

| |  |  | other matters that require shareholder approval according to Chilean law or the by-laws.
| | - |  | ----------------------------------------------------------------------------------------

The matters referred to in the first four items listed above may only be approved at a meeting held before a notary public, who shall certify that the
minutes are a true record of the events and resolutions of the meeting.

The by-laws establish that resolutions are passed at
shareholders meetings by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting. However, under the Chilean Corporation Law, the vote of a two-thirds majority of the outstanding voting shares
is required to approve any of the following actions:



| |  |  | a change in our corporate form, division or merger with another entity;
| | - |  | -----------------------------------------------------------------------



| |  |  | amendment to our term of existence, if any;
| | - |  | -------------------------------------------



| |  |  | our early dissolution;
| | - |  | ----------------------



| |  |  | change in our corporate domicile;
| | - |  | ---------------------------------



| |  |  | decrease of our capital stock;
| | - |  | ------------------------------



| |  |  | approval of contributions and the assessment thereof whenever consisting of assets other than money;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | any modification of the authority reserved for the shareholders meetings or limitations on the powers of the board of directors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | decrease in the number of members of the board of directors;
| | - |  | ------------------------------------------------------------



| |  |  | the conveyance of 50% or more our assets, either including or not including our liabilities, or the submittal of, or changes to, any business plan that contemplates
the conveyance of assets in an amount that exceeds the percentage mentioned above;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the form that dividends are paid in;
| | - |  | ------------------------------------



| |  |  | granting a security interest or a personal guarantee in each case to secure obligations of third parties that exceeds 50% of our assets, unless to secure or
guarantee the obligations of a subsidiary, in which case only approval of the board of directors will suffice;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of our own shares, when, and on the terms and conditions, permitted by law;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | all other matters provided for in the by-laws; and
| | - |  | --------------------------------------------------



| |  |  | the correction of any formal defect in our incorporation or any amendment to our by-laws that refers to any of the matters indicated in the first thirteen items
listed above.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amendments to the by-laws that have the effect of establishing, modifying or eliminating any special
rights pertaining to any series of shares require the consenting vote of holders of two-thirds of the shares of the affected series.

In
general, Chilean law does not require a publicly held corporation to provide the level and type of information that the U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies.
However, shareholders are entitled to examine the books of the company and its subsidiaries within the fifteen-day period before the scheduled meeting. No later than the first notice summoning an ordinary shareholders meeting, the board of
directors of a publicly held corporation shall send to every shareholder a copy of the annual report and the financial statements of the company. However, the SVS may authorize companies that have a large number of shareholders to limit the sending
of such documents only to those shareholders who have a number of shares exceeding a certain number, and, in any case, to any shareholder that has required of the company such sending. Shareholders who do not fall into this category but who request
it must be sent a copy of our annual report. In addition to these requirements, we regularly have provided, and currently intend to continue to provide, together with the notice of shareholders meeting, a proposal for the final annual dividend
for shareholder approval. See Dividend and Liquidation Rights below.

The Chilean Corporation Law provides that, whenever
shareholders representing 10% or more of the issued voting shares so request, a Chilean companys annual report must include such shareholders comments and proposal in relation to the companys affairs. Similarly, the Chilean
Corporation Law provides that whenever the



87



---

##### Table of Contents

board of directors of a publicly held corporation convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes
information supporting its decisions or other similar material, it is obligated to include as an annex to its annual report any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the companys voting
shares who have requested that such comments and proposals be included.

Dividend and Liquidation Rights

In accordance with Chilean Law, Lan Airlines must distribute an annual cash dividend equal to at least 30% of its annual net income calculated in
accordance with Chilean GAAP, unless otherwise decided by a unanimous vote of the holders of all issued shares, and unless and except to the extent it has accumulated losses. If there is no net income in a given year, Lan Airlines can elect but is
not legally obligated to distribute dividends out of retained earnings. All outstanding common shares are entitled to share equally in all dividends declared by Lan Airlines.

Lan Airlines may grant an option to its shareholders to receive any dividend in excess of 30% of net income in cash, in its own shares or in shares of
publicly held corporations held by it. Shareholders who do not expressly elect to receive a dividend other than in cash are legally presumed to have decided to receive the dividend in cash. A U.S. holder of ADSs may, in the absence of an effective
registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash. See Preemptive Rights and Increases in Share Capital
above.

Dividends that are declared but not paid within the appropriate time period set forth in the Chilean Corporation Law (as to minimum
dividends, thirty days after declaration; as to additional dividends, the date set for payment at the time of declaration) are adjusted to reflect the change in the value of the UF. The UF is a daily indexed, Chilean peso-denominated accounting unit
designed to discount the effect of Chilean inflation and it is based on the previous months inflation rate as officially determined. Such dividends also accrue interest at the then-prevailing rate for UF-denominated deposits during such
period. The right to receive a dividend lapses if it is not claimed within five years from the date such dividend is payable. After that period, the amount not claimed is given to a non-profit organization, the Junta Nacional de Cuerpos de
Bomberos de Chile, or the National Corporation of Firefighters.

In the event of Lan Airlines liquidation, the holders of fully
paid common shares would participate pro rata in the distribution of assets remaining after payment of all creditors. Holders of shares not fully paid will participate in such distribution in proportion to the amount paid.

Approval of Financial Statements

The
board of directors is required to submit our consolidated financial statements to the shareholders for their approval at the annual ordinary shareholders meeting. If the shareholders reject the financial statements, the board of directors must
submit new financial statements not later than sixty days from the date of that meeting. If the shareholders reject the new financial statements, the entire board of directors is deemed removed from office and a new board is elected at the same
meeting. Directors who approved such financial statements are disqualified for re-election for the ensuing period.

Right of Dissenting
Shareholders to Tender Their Shares

The Chilean Corporation Law provides that, upon the adoption at an extraordinary meeting of
shareholders of any of the resolutions enumerated below, dissenting shareholders acquire the right to withdraw and to compel the company to repurchase their shares, subject to the fulfillment of certain terms and conditions. However, such right
shall be suspended if we are declared bankrupt or are subject to a creditors agreement pursuant to Title XII of Book IV of the Commerce Code. In the case of holders of ADRs, however, in order to exercise such rights, holders of ADRs would be
required to first withdraw the common shares represented by the ADRs pursuant to the terms of the deposit agreement. Such holders of ADRs would need to perfect the withdrawal of the common shares on or before the fifth business day prior to the date
of the meeting.

Dissenting shareholders are defined as those who attend a shareholders meeting and vote against a
resolution which results in the withdrawal right, or, if absent at such a meeting, those who state in writing to the company their opposition to such resolution within the following thirty days. Dissenting shareholders must perfect their withdrawal
rights by tendering their stock to the company within thirty days after adoption of the resolution.



88



---

##### Table of Contents

The price paid to a dissenting shareholder of a publicly held corporation is the weighted average of the
sales prices for the shares as reported on the Chilean stock exchanges on which the shares are quoted for the two-month period preceding the event giving rise to the withdrawal right. If, because of the volume, frequency, number and diversity of the
buyers and sellers, the SVS determines that the shares are not shares actively traded on a stock exchange (acciones de transaccion bursátil), the price paid to the dissenting shareholder is the book value. Book value for this purpose
equals paid capital plus reserves and profits, less losses, divided by the total number of subscribed shares (whether entirely or partially paid). For the purpose of making this calculation, the last annual balance sheet is used and adjusted to
reflect inflation up to the date of the shareholders meeting that gave rise to the withdrawal right.

The resolutions that result in
a shareholders right to withdraw are the following:



| |  |  | the transformation of the company into an entity that is not a publicly held corporation governed by the Chilean Corporation Law;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the merger of the company with or into another company;
| | - |  | -------------------------------------------------------



| |  |  | the conveyance of 50% or more of the assets of the company, whether or not such sale includes the companys liabilities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the creation of preferential rights for a class of shares or an amendment or reduction to those already existing, in which case the right to withdraw only accrues
to the dissenting shareholders of the class or classes of shares adversely affected;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the correction of any formal defect in the incorporation of the company or any amendment to the companys by-laws that grants the right to withdraw;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the granting of security interests or personal guarantees to secure or guarantee third parties obligations exceeding 50% of the companys assets, except
with regard to subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | resolutions of the shareholders meeting approving the decision to make private a public corporation in the case the requirements set forth in
General cease to be met; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such other causes as may be established by the companys by-laws (no such additional resolutions currently are specified in our by-laws).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

In addition, shareholders of publicly held corporations have the right to withdraw if a person acquires two-thirds or
more of the outstanding shares of such corporation with the right to vote (except as a result of other shareholders not having subscribed and paid a capital increase) and does not make a tender offer for the remaining shares within thirty days after
acquisition.

Under Article 69(bis) of the Chilean Corporation Law, the right to withdraw also is granted to shareholders (other than
pension funds that administer private pension plans under the national pension law), under certain terms and conditions, if a company were to become controlled by the Chilean government, directly or through any of its agencies, and if two
independent rating agencies downgrade the rating of its stock from first class because of certain actions specified in Article 69(bis) undertaken by the company or the Chilean government that affect negatively and substantially the earnings of the
company. Shareholders must perfect their withdrawal rights by tendering their shares to the company within thirty days of the date of the publication of the new rating by two independent rating agencies. If the withdrawal right is exercised by a
shareholder invoking Article 69(bis), the price paid to the dissenting shareholder shall be the weighted average of the sales price for the shares as reported on the stock exchanges on which the companys shares are quoted for the six-month
period preceding the publication of the new rating by two independent rating agencies. If, as previously described, the SVS determines that the shares are not actively traded on a stock exchange, the price shall be the book value calculated as
described above.

There is no legal precedent as to whether a shareholder that has voted both for and against a proposal (such as the
depositary) may exercise withdrawal rights with respect to the shares voted against the proposal. As such, there is doubt as to whether holders of ADRs who have not surrendered their ADRs and withdrawn common shares on or before the fifth business
day prior to the shareholder meeting will be able to exercise withdrawal rights either directly or through the depositary with respect to the shares represented by ADRs. Under the provisions of the deposit agreement the depositary will not exercise
these withdrawal rights.



89



---

##### Table of Contents

Registration and Transfers

The Depósito Central de Valores, or the DCV, acts as Lan Airlines registration agent. In the case of jointly owned common shares, an
attorney-in-fact must be appointed to represent the joint owners in dealings with us.

Material Contracts

On March 31, 2006, we entered into supplemental agreement No. 22, to purchase agreement No. 2126 dated as of January 30, 1998
(Purchase Agreement No. 2126), whereby we agreed to purchase a total of three Boeing 767-300 aircraft. Five passenger aircraft were delivered in 2008 pursuant to Purchase Agreement No. 2126. We had the option to convert
some of the orders from the passenger version to the freighter version or vice versa with certain notice. The estimated gross value (at list prices) of the Boeing aircraft for which we had firm commitments to take delivery under this contract was
US$0.5 billion.

On December 14, 2006, we entered into a supplemental agreement No. 23 to purchase agreement No. 2126 dated
as of January 30, 1998 (Purchase Agreement No. 2126) for the acquisition of three additional Boeing 767-300 passenger aircraft. Delivery is scheduled to take place in 2009 and 2010.

On March 6, 2007, we entered into amendment No. 3 to the First A340 purchase agreement with Airbus S.A.S. for the cancellation of two A340 aircraft,
and amendment No. 3 to the Second A320-Family purchase agreement with Airbus S.A.S. for the conversion of fifteen options to purchase aircraft into firm orders. The net increase in capital expenditures related to these agreements is
US$315 million.

On April 30, 2007, we also entered into an Aircraft Lease Common Terms Agreement with GE Commercial Aviation
Services Limited and two Aircraft Lease Agreements with Wells Fargo Bank Northwest N.A., as owner trustee, for the lease of two Boeing B777-200LRF aircraft.

On July 3, 2007, we entered into a purchase agreement with the Boeing Company for the acquisition of two Boeing 777-Freighter aircraft. Delivery is scheduled to take place in 2011 and 2012.

On October 29, 2007, we entered into a purchase agreement with the Boeing Company for the acquisition of twenty-six Boeing 787-8 and 787-9 aircraft
to be delivered between 2012 and 2016. This purchase agreement provides us with the option of purchasing ten additional aircraft to be delivered in 2017 and 2018.

Finally, on November 10, 2008, we entered into a supplemental agreement to the purchase agreement entered into with the Boeing Company for the acquisition of four additional Boeing 767-300 passenger aircraft.
Delivery is scheduled to take place in 2012. The estimated gross value (at list prices) of these aircraft is US$636 million.

For more
information, see Information on the CompanyFleetFleet Leasing and Financing Arrangements under Item 4.

Foreign Investment
and Exchange Controls in Chile

The Central Bank of Chile is responsible, among other things, for monetary policies and exchange
controls in Chile. Equity investments, including investments in shares of stock by persons who are non-Chilean residents, have been generally subject in the past to various exchange control regulations restricting the repatriation of their
investments and the earnings thereon.

Article 47 of the Central Bank Act and Chapter XXVI of the Central Bank Foreign Exchange Regulations
regulated the foreign exchange aspects of the issuance of ADSs by a Chilean company until April 2001. According to Chapter XXVI, the Central Bank of Chile and the depositary had to enter into an agreement in order to gain access to the formal
exchange market. The issuers of the shares underlying the ADSs and the custodian could also be parties to these agreements and we are party to such agreement.

On April 16, 2001, the Central Bank of Chile agreed that, effective April 19, 2001:



| |  |  | prior foreign exchange restrictions would be eliminated: and
| | - |  | ------------------------------------------------------------



| |  |  | a new Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) would be applied.
| | - |  | -------------------------------------------------------------------------------------------------------------------

The main objective of these amendments, as declared by the Central Bank of Chile, is to facilitate movement of capital in and out of Chile and to
encourage foreign investment.



90



---

##### Table of Contents

In connection with the change in policy, the Central Bank of Chile eliminated the following restrictions:



| |  |  | a reserve requirement with the Central Bank of Chile for a period of one year (this mandatory reserve was imposed on foreign loans and funds brought into Chile to
purchase shares other than those acquired in the establishment of a new company or in the capital increase of the issuing company; the reserve requirement was gradually decreased from 30% of the proposed investment to 0%);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the requirement of prior approval by the Central Bank of Chile for certain operations;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | mandatory return of foreign currencies to Chile; and
| | - |  | ----------------------------------------------------



| |  |  | mandatory conversion of foreign currencies into Chilean pesos.
| | - |  | --------------------------------------------------------------

Under the new regulations, only the following limitations apply to these operations:



| |  |  | the Central Bank of Chile must be provided with information related to certain operations; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | certain operations must be conducted with the Formal Exchange Market.
| | - |  | ---------------------------------------------------------------------

The Central Bank of Chile also eliminated Chapter XXVI of the Compendium of Foreign Exchange Regulations, which regulated the establishment of an ADR
facility by a Chilean company. Pursuant to the new rules, it is no longer necessary to seek the Central Bank of Chiles prior approval in order to establish an ADR facility nor to enter into a foreign investment contract with the Central Bank
of Chile. The establishment of an ADR facility is now regarded as an ordinary foreign investment, and simply requires that the Central Bank of Chile be informed of the transaction pursuant to Chapter XIV of the Compendium of Foreign Exchange
Regulations and that the transaction be conducted exclusively through the Formal Exchange Market.

However, all contracts executed under
the provisions of Chapter XXVI (including the foreign investment contract among Lan Airlines, the Central Bank of Chile and the ADS depositary, or the Foreign Investment Contract), remain in full force and effect and continue to be governed by the
provisions, and continue to be subject to the restrictions, set forth in Chapter XXVI at the time of its abrogation. Our Foreign Investment Contract guarantees ADS investors access to the Formal Exchange Market to convert amounts from Chilean pesos
into U.S. dollars and repatriate amounts received with respect to deposited common shares or common shares withdrawn from deposit or surrender of ADRs (including amounts received as cash dividends and proceeds from the sale in Chile of the
underlying common shares and any rights arising from them).

The guarantee of access to the Formal Exchange Market under the Foreign
Investment Contract requires compliance of the following conditions:



| |  |  | the funds to purchase the common shares underlying the ADSs are brought into Chile and converted into Chilean pesos through the Formal Exchange Market;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the purchase of the underlying common shares is made on a Chilean stock exchange; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | within five business days from conversion of the funds into Chilean pesos, the Central Bank of Chile is informed that the conversion funds were used to purchase the
underlying common shares.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a summary of material provisions of the Foreign Investment Contract, a form
of which was filed as an exhibit to the registration statement on Form F-1 (File No. 333-7750) that we filed on October 10, 1997 in connection with our November 6, 1997 offering. This summary is not complete and is qualified in its
entirety by reference to Chapter XXVI and the Foreign Investment Contract.

Under Chapter XXVI and the Foreign Investment Contract, the
Central Bank of Chile agreed to grant to the depositary, on behalf of ADR holders, and to any investor not residing or domiciled in Chile who withdraws common shares upon surrender of ADRs, access to the Formal Exchange Market to convert Chilean
pesos into U.S. dollars (and to remit those dollars outside Chile) in respect of common shares represented by ADSs or withdrawn shares, including amounts received as:



| |  |  | cash dividends;
| | - |  | ---------------



| |  |  | proceeds from the sale in Chile of withdrawn shares or from shares distributed as a result of a liquidation, merger or consolidation of Lan Airlines (subject to
receipt by the Central Bank of Chile of a certificate from the holder of the withdrawn shares or the distributed shares (or from an institution
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



91



---

##### Table of Contents

| | authorized by the Central Bank of Chile) that the holders residence and domicile are outside of Chile, and a certificate from a Chilean stock exchange
(or from a brokerage or securities firm established in Chile) that the withdrawn shares or the distributed shares were sold on a Chilean stock exchange);
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | proceeds from the sale in Chile of preemptive rights to subscribe for additional common shares;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | proceeds from the liquidation, merger or consolidation of Lan Airlines;
| | - |  | -----------------------------------------------------------------------



| |  |  | proceeds from the sale in Chile of common shares received as a dividend; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | other distributions, including those in respect of any recapitalization resulting from holding common shares represented by ADSs or withdrawn shares.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Chapter XXVI provides that access to the Formal Exchange Market in connection with dividend payments is conditioned on
our certifying to the Central Bank of Chile that a dividend payment has been made and that any applicable tax has been withheld. We agreed to provide this certification. Chapter XXVI also provides that access to the Formal Exchange Market in
connection with the sale of withdrawn shares, or distribution on them, is conditioned upon receipt by the Central Bank of Chile of a certification by the depositary or custodian, as the case may be, that the common shares have been withdrawn in
exchange for delivery of the appropriate ADRs and receipt of a waiver of the benefit of the Foreign Investment Contract with respect to them (except in connection with the proposed sale of the common shares) until the withdrawn shares are
redeposited.

Chapter XXVI and the Foreign Investment Contract provide that a person who brings foreign currency into Chile to purchase
common shares pursuant to the Foreign Investment Contract must convert that foreign currency into Chilean pesos on the date of entry into Chile, and must invest in common shares within five banking business days in order to receive the benefits of
the Foreign Investment Contract. If a person does not invest in common shares within that period, that person can access the Formal Exchange Market to reacquire foreign currency, provided that the request is presented to the Central Bank of Chile
within seven banking business days of the initial conversion into pesos. Common shares acquired as described above may be deposited in exchange for ADRs and will receive the benefits of the Foreign Investment Contract, subject to:



| |  |  | receipt by the Central Bank of Chile of a certificate from the depositary that the common shares have been deposited and that the related ADRs have been issued; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | receipt by the custodian of a declaration from the person making the deposit waiving the benefits of the Foreign Investment Contract with respect to the deposited
common shares.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Access to the Formal Exchange Market under any of the circumstances described above is not automatic.
Pursuant to Chapter XXVI, such access required approval of the Central Bank of Chile based on a request presented through a banking institution established in Chile. The Foreign Investment Contract provides that if the Central Bank of Chile has
not acted on the request within seven banking days, the request is deemed approved.

Under current Chilean law, the Foreign Investment
Contract cannot be changed unilaterally by the Central Bank of Chile. We cannot guarantee, however, that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the common shares underlying ADSs or the repatriation of
the proceeds from an acquisition, a disposition or a dividend payment, will not be imposed or required in the future, nor could we make an assessment as to the duration or impact, were any such restrictions to be imposed or required. On
March 15, 2007, the Council of the Central Bank of Chile agreed to grant the Chilean companies that increased their capital stock between the date of the agreement and August 31, 2007 the option to request, on a one-time only basis, the
application of Chapter XXVI to those shares issued and actually paid before August 31, 2008 (assuming prior fulfillment of the requirements of the Central Bank of Chile).

Voting Rights

Holders of our common shares may instruct the depositary to vote the shares underlying
their ADRs. If we ask holders for instructions, the depositary will notify such holders of the upcoming vote and arrange to deliver our voting materials to such holders. The materials will describe the matters to be voted on and explain how holders
may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as they direct by a specified date. For instructions to be valid, the depositary must receive them on or before the date specified. The depositary
will try, as far as practical, subject to Chilean law and the provisions of our by-laws, to vote or to have its agents vote the shares or other deposited securities as holders instruct. Otherwise, holders will not be able to



92



---

##### Table of Contents

exercise their right to vote unless they withdraw the shares. However, holders may not know about the meeting far enough in advance to withdraw the shares.
We will use our best efforts to request that the depositary notify holders of upcoming votes and ask for their instructions.

If the
depositary does not receive voting instructions from a holder by the specified date, it will consider such holder to have authorized and directed it to give a discretionary proxy to a person designated by our board of directors to vote the number of
deposited securities represented by such holders ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions to be voted upon unless we notify the depositary that:



| |  |  | we do not wish to receive a discretionary proxy;
| | - |  | ------------------------------------------------



| |  |  | we think there is substantial shareholder opposition to the particular question; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | we think the particular question would have an adverse impact on our shareholders.
| | - |  | ----------------------------------------------------------------------------------

The depositary will only vote or attempt to vote as such holder instructs or as described above.

We cannot assure holders that they receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. This means
that holders may not be able to exercise their right to vote and there may be nothing they can do if their shares are not voted as they requested.

Exchange Rates

Prior to 1989, Chilean law permitted the purchase and sale of foreign exchange only in those cases
explicitly authorized by the Central Bank of Chile. The Central Bank Act liberalized the rules that govern the ability to buy and sell foreign currency. The Central Bank Act empowers the Central Bank of Chile to determine that certain purchases and
sales of foreign currency specified by law must be carried out exclusively in the Formal Exchange Market, which is made up of the banks and other entities authorized by the Central Bank of Chile. All payments and distributions with respect to the
ADSs must be conducted exclusively in the Formal Exchange Market.

For purposes of the operation of the Formal Exchange Market, the Central
Bank of Chile sets a reference exchange rate (dólar acuerdo). The Central Bank of Chile resets the reference exchange rate monthly, taking internal and external inflation into account, and adjusts the reference exchange rate daily to
reflect variations in parities between the Chilean peso, the U.S. dollar, the Japanese yen and the European euro.

The observed exchange
rate (dólar observado) is the average exchange rate at which transactions were actually carried out in the Formal Exchange Market on a particular day, as certified by the Central Bank of Chile on the next banking day.

Prior to September 3, 1999, the Central Bank of Chile was authorized to buy or sell dollars in the Formal Exchange Market to maintain the observed
exchange rate within a specified range above or below the reference exchange rate. On September 3, 1999, the Central Bank of Chile eliminated the exchange band. As a result, the Central Bank of Chile may buy and sell foreign exchange in the
Formal Exchange Market in order to maintain the observed exchange rate at a level the Central Bank of Chile determines.

Purchases and
sales of foreign exchange may be effected outside the Formal Exchange Market through the Informal Exchange Market (Mercado Cambiario Informal) established by the Central Bank in 1990. There are no limits on the extent to which the rate of
exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate.

Although our results of operations have
not been significantly affected by fluctuations in the exchange rates between the peso and the U.S. dollar because our functional currency is the U.S. dollar, we are exposed to foreign exchange losses and gains due to exchange rate fluctuations.
Even though the majority of our revenues are denominated in or pegged to the U.S. dollar, the Chilean governments economic policies affecting foreign exchange and future fluctuations in the value of the peso against the U.S. dollar could
adversely affect our results of operations and an investors return on an investment in ADSs.

Chilean Taxation

The following discussion relates to Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean
Internal Revenue Service (Chilean IRS) and other applicable regulations and rulings, all of which are subject to change. The discussion summarizes the principal Chilean income tax



93



---

##### Table of Contents

consequences of an investment in the ADSs or common shares by a person who is neither domiciled in, nor a resident of, Chile or by a legal entity that is not
organized under the laws of Chile and does not have a branch or a permanent establishment located in Chile (such an individual or entity is referred to herein as a Foreign Holder). For purposes of Chilean tax law, an individual holder is a resident
of Chile if such person has resided in Chile for more than six consecutive months in one calendar year or for a total of six months, whether consecutive or not, in two consecutive tax years. In addition, an individual is considered domiciled in
Chile in case he or she resides in Chile with the actual or presumptive intent of staying in the country. The discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investors particular
tax situation.

Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of
taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities enact rulings and regulations of either general or specific
application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations and interpretations, but Chilean tax authorities may change these
rulings, regulations and interpretations prospectively. There is no income tax treaty in force between Chile and the United States.

Cash Dividends and Other Distributions.

Cash dividends we pay with respect to the ADSs or common shares held by a Foreign
Holder will be subject to a 35% Chilean withholding tax, which we withhold and pay over to the Chilean tax authorities and which we refer to as the Withholding Tax. A credit against the Withholding Tax is available based on the level of corporate
income tax we actually paid on the income to be distributed (referred to herein as the First Category Tax); however, this credit does not reduce the Withholding Tax on a one-for-one basis because it also increases the base on which the Withholding
Tax is imposed. If we register net income but taxable losses, no credit against the Withholding Tax will be available. In addition, if we distribute less than all of our distributable income, the credit for First Category Tax we pay is
proportionately reduced. Currently, the First Category Tax rate is 17%. In general, the example below illustrates the effective Withholding Tax burden on a cash dividend received by a Foreign Holder, assuming a Withholding Tax rate of 35%, an
effective First Category Tax rate of 17% the actual payment of such First Category Tax at that 17% rate and a distribution of 30% of the consolidated net income of the Company after payment of the First Category Tax:



|                                                                                         |  |        |  
|---------------------------------------------------------------------------------------- |  | ------ | -
|The Companys taxable income                                                             |  | 100.00 |  
|First Category Tax (17% of Ch$100)                                                       |  | (17    | )
|Net distributable income                                                                 |  | 83.00  |  
|Dividend distributed (30% of net distributable income)                                   |  | 24.9   |  
|First category increase                                                                  |  | 5.1    |  
|Withholding Tax (35% of the sum of Ch$24.9 dividend plus Ch$5.1 First Category Tax paid) |  | (10.5  | )
|Credit for 17% of First Category Tax                                                     |  | 5.1    |  
|Net tax withheld                                                                         |  | (5.4   | )
|Net dividend received                                                                    |  | 19.5   |  
|Effective dividend withholding rate                                                      |  | 21.69  | %

In general, the effective dividend Withholding Tax rate, after giving effect to the credit for the
First Category Tax, can be calculated using the following formula:

(Withholding Tax rate)  (First Category Tax effective rate)

1  (First Category Tax effective rate)

Under Chilean income tax law, dividends generally are assumed to have been paid out of our oldest retained profits for purposes of determining the level of First Category Tax that we paid. The effective rate of
Withholding Tax to be imposed on dividends we pay will vary depending upon the amount of First Category Tax we paid (if any) on the earnings to which the dividends are attributed, according to the Companys Taxable Profit Fund. The Effective
Withholding Tax rate for dividends attributed to earnings from 1991 until 2001, for which the First Category Tax rate was 15%, will be 23.5%. For 2002, the First Category Tax rate was 16.0%, which results in an effective rate of 22.62%. In 2003, the
First Category Tax rate was 16.5%, which results in an effective rate of 22.16%, and from 2004 onwards, the First Category Tax rate is 17%, which results in an effective rate of Withholding Tax of 21.69%.



94



---

##### Table of Contents

For dividends attributable to our profits during years when the First Category Tax was 10% (before 1991),
the effective rate will be 27.8%. However, whether the First Category Tax is 10%, 15%, 16%, 16.5% or 17%, the effective overall combined tax rate imposed on our distributed profits will be 35%. In the event that profits from previous years are not
sufficient to cover a particular dividend, and the dividend is attributable to the current year, we will generally withhold tax from the dividend at the full 35% rate. If as of December 31 of the year in which the dividend is paid, the
withholding is determined to be excessive taking into account First Category Tax, holders may file for a refund.

Dividend distributions
made in property would be subject to the same Chilean tax rules as cash dividends based on the fair market value of such property. Stock dividends and the distribution of preemptive rights are not subject to Chilean taxation.

Capital Gains

Gain from the sale or
other disposition by a Foreign Holder of ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.

Gain recognized on a sale or disposition of common shares (as distinguished from sales or exchanges of ADRs evidencing ADSs representing such common
shares) may be subject to both the First Category Tax and the Withholding Tax (the former being creditable against the latter) if:



| |  |  | the Foreign Holder has held the common shares for less than one year since exchanging ADSs for the Shares;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the Foreign Holder acquired and disposed of the common shares in the ordinary course of its business or as a habitual trader of shares; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Foreign Holder and the purchaser of the common shares are related parties or has an interest in the latter within the meaning of Article 17, Number
8, of the Chilean Income Tax Law.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In all other cases, gain on the disposition of common shares will be subject only to a
flat capital gains tax which is assessed at the same rate as the First Category Tax as sole income tax (currently imposed at a rate of 17%) and no withholding tax will apply. The sale of shares of common stock by a Foreign Holder to an individual or
entity resident or domiciled in Chile is subject to a provisional withholding. Such a provisional withholding will be equal to (i) 5% of the total (sale price) amount, without any deduction, paid to, credited to, account for, put at the
disposal of, or corresponding to, the Foreign Holder if the transaction is subject to the First Category Tax, as a sole tax. Unless the gain subject to taxation can be determined, case in which the withholding is equal to 17% on the gain, or
(ii) 20% of the total amount (the sale price without any deduction, paid to, credited to, account for, put at the disposal of, or corresponding to, the Foreign Holder if the transaction is subject to the general tax regime, that is, the First
Category Tax, and the Withholding Tax, with a credit of the First Category Tax already paid. The Foreign Holder would be entitled to request a tax refund for any amounts withheld in excess of the taxes actually due, in April of the following year
upon filing its corresponding tax return. Gain recognized in the transfer of common shares that have a high presence in the stock exchange, however, is not subject to capital gains tax in Chile, provided that the common shares are transferred in a
local stock exchange, in other authorized stock exchanges or within the process of a public tender of common shares governed by the Securities Market Law.

Chiles Internal Revenue Service Ruling No224 (issued on January 30, 2008) confirmed that capital gains stemming from the sale of shares with high stock-market presence acquired through the exchange of
American Depositary Receipts (ADRs) for shares is not subject to capital gains tax in Chile. Such exemption is applicable provided that the purchase of such ADR certificates has been made at stock exchanges duly authorized by SVS (which includes the
New York Stock Exchange).

The common shares must also have been acquired either in a stock exchange, within the process of a public tender
of common shares governed by the Securities Market Law, in an initial public offer of common shares resulting from the formation of a corporation or a capital increase of the same, or in an exchange of convertible bonds. Shares are considered to
have a high presence in the stock exchange when they:



| |  |  | are registered in the Securities Registry;
| | - |  | ------------------------------------------



| |  |  | are registered in a Chilean Stock exchange; and
| | - |  | -----------------------------------------------



95



---

##### Table of Contents

| |  |  | have an adjusted presence equal to or above 25%.
| | - |  | ------------------------------------------------

To calculate the adjusted presence of a particular share, the aforementioned regulation first requires a determination of the number of days in which the operations regarding the stock exceeded, in Chilean pesos, the
equivalent of 200 UF (US$7,200 as of March 31, 2009) within the previous 180 business days of the stock market. That number must then be divided by 180, multiplied by 100, and expressed in a percentage value. This tax regime does not apply if
the transaction involves an amount of shares that would allow the acquirer to take control of the publicly traded corporation, in which case the ordinary tax regime referred to in the previous paragraph will apply, unless the transfer is part of a
tender offer governed by the Securities Market Law or the transfer is done on a Chilean stock exchange, without substantially exceeding the market price.

Capital gains obtained in the sale of shares that are publicly traded and have a high presence in a stock exchange are also exempt from capital gains tax in Chile when the sale is made by foreign institutional
investors such as mutual funds and pension funds, provided that the sale is made in a stock exchange or in accordance with the provisions of the Securities Market Law, or in any other form authorized by the SVS. To qualify as a foreign
institutional investor, an entity must be formed outside of Chile, not have a domicile in Chile, and must be at least one of the following:



| |  |  | a fund that offers its common shares or quotas publicly in a country with investment grade public debt, according to a classification performed by an international
risk classification entity registered with the SVS;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a fund registered with a regulatory agency or authority from a country with investment grade public debt, according to a classification performed by an
international risk classification entity registered with the SVS, provided that its investments in Chile constitute less than 30% of the share value of the fund, including deeds issued abroad representing Chilean securities, such as ADRs of Chilean
companies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a fund whose investments in Chile represent less than 30% of the share value of the fund, including deeds issued abroad representing Chilean securities, such as
ADRs of Chilean companies, provided that not more than 10% of the share value of the fund is directly or indirectly owned by Chilean residents;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a pension fund that is formed exclusively by natural persons that receive pensions out of an accumulated capital in the fund;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | a Foreign Capital Investment Fund, as defined in Law No. 18,657, in which case all quota holders shall be Chilean residents or domestic institutional
investors; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any other foreign institutional investor that complies with the requirements set forth in general regulations for each category of investor or prior information
from the SVS and the Chilean IRS.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The foreign institutional investor must not directly or indirectly participate in the
control of the corporations issuing the shares it invests in, nor possess or participate in 10% or more of the capital or the profits of such corporations.

Another requirement for the exemption is that the foreign institutional investor must execute a written contract with a bank or a stock broker incorporated in Chile. In this contract, the bank or stock broker must
undertake to execute purchase and sale orders, verify the applicability of the tax exemption or tax withholding and inform the Chilean IRS of the investors it works with and the transactions it performs. Finally, the foreign institutional investor
must register with the Chilean IRS by means of a sworn statement issued by such bank or stock broker.

The tax basis of common shares
received in exchange for ADRs will be the acquisition value of the common shares on the date of exchange duly adjusted for local inflation. The valuation procedure set forth in the deposit agreement, which values common shares which are being
exchanged at the highest price at which they trade on the Santiago Stock Exchange on the date of the exchange, will determine the acquisition value for this purpose. Consequently, the surrender of ADRs for common shares and the immediate sale of the
common shares for the value established under the Deposit Agreement will not generate a capital gain subject to taxation in Chile, provided that the sale of the common shares is made on the same date on which the exchange of ADRs for common shares
is recorded, or if the price of the common shares at the exchange date, as determined above, is higher than the price at which the common shares are sold.



96



---

##### Table of Contents

The exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation.
Any gain on the sale of preemptive rights relating to the common shares will be subject to both the First Category Tax and the Withholding Tax (the former being creditable against the latter).

Other Chilean Taxes

There are no
Chilean inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of ADSs by a Foreign Holder, but such taxes generally will apply to the transfer at death or by gift of the common shares by a Foreign Holder. There
are no Chilean stamp, issue, registration or similar taxes or duties payable by Foreign Holders of ADSs or common shares.

Withholding
Tax Certificates

Upon request, we will provide to Foreign Holders appropriate documentation evidencing the payment of the Withholding
Tax (net of the applicable First Category Tax).

United States Federal Income Tax Considerations

The following is a summary of certain U.S. federal income tax considerations that may be relevant to the purchase, ownership and disposition of our common
shares and ADSs by a beneficial owner that is: (i) a citizen or resident of the United States; (ii) a U.S. domestic corporation; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or
(iv) a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust (or otherwise if the trust has a
valid election in effect under current Treasury regulations to be treated as a U.S. person). For purposes of this discussion, we refer to these owners of common shares and ADSs as U.S. Holders. If a partnership holds common shares or ADSs, the tax
treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of a partnership holding our common shares or ADSs should consult its own tax advisor.

This summary is not a comprehensive discussion of all of the tax considerations that may be relevant to your decision to purchase ADSs or
common shares. In particular, this discussion is directed only to U.S. Holders that will hold ADSs or common shares as capital assets and it does not address any special U.S. federal income tax consequences that may be applicable to U.S. Holders
that are subject to special treatment under the U.S. Internal Revenue Code of 1986, as amended, commonly referred to as the Code, such as banks, brokers or dealers in securities or currencies, traders in securities electing to mark to
market, financial institutions, life insurance companies, tax exempt entities, holders that own or are treated as owning 10% or more of our voting common shares, persons holding common shares or ADSs as part of a hedging or conversion transaction or
a straddle, or persons whose functional currency is not the U.S. dollar. Prospective purchasers are advised to satisfy themselves as to the overall U.S. federal, state and local tax consequences of their ownership of ADSs or common shares by
consulting their own tax advisers.

The statements of U.S. federal income tax laws set out below are based on the laws in force as of the
date hereof and may be subject to changes in U.S. federal income tax law occurring after that date, including changes that may have retroactive effect.

ADRs

In general, if you are a U.S. Holder of ADRs evidencing our ADSs, you will be treated, for U.S.
federal income tax purposes, as the beneficial owner of the underlying common shares that are represented by those ADSs and evidenced by those ADRs.

Taxation of Dividends

If you are a U.S. Holder, distributions of cash or property (other than common
stock, if any, distributed pro rata to all of our shareholders, including holders of ADSs) paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) with respect to common shares or ADSs,
including the net amount of the Chilean Withholding Tax withheld on the distribution (after taking into account the credit for the First Category Tax), will be includible in your gross income as ordinary income on the day on which you receive the
dividends, in the case of common shares, or the date the depositary receives the dividends, in the case of common



97



---

##### Table of Contents

shares represented by ADSs, and will not be eligible for the dividends-received deduction allowed to corporations under the Code. If you are a U.S. Holder,
dividends paid in pesos generally will be includible in your gross income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day you receive the dividends, in the case of common shares, or the date the depositary
receives the dividends, in the case of common shares represented by ADSs. U.S. Holders should consult their own tax advisers regarding the treatment of foreign currency gain or loss, if any, on any pesos received which are converted into U.S.
dollars after they are received. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits as determined for U.S. federal income tax purposes, such excess amounts will be treated first as a nontaxable
return of capital to the extent of such U.S. Holders tax basis in the common shares or ADSs and, thereafter, as capital gain.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if
the dividends are qualified dividends. Dividends paid on the ADSs will be treated as qualified dividends if:



| |  |  | the ADSs are readily tradable on an established securities market in the United States; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment
company (PFIC).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on
an established securities market in the United States so long as they are so listed. Moreover, based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC, for U.S. federal income
tax purposes with respect to our 2006 or 2007 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market
and shareholder data, we do not anticipate becoming a PFIC for our 2008 taxable year. However, there can be no assurance in this regard because the PFIC determination is made annually and is based on the portion of our assets (including goodwill)
and income that is characterized as passive under the PFIC rules.

Based on existing guidance, it is not clear whether dividends received
with respect to the common shares will be treated as qualified dividends, because the common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which U.S.
Holders of ADSs or common shares and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet
been issued, it is not clear whether we will be able to comply with them. Holders should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Subject to generally applicable limitations and conditions under the Code, Chilean Withholding Tax withheld from dividends (after taking into account the
credit for the First Category Tax, when it is available) will be treated as a foreign income tax eligible for credit against a U.S. Holders U.S. federal income tax liability. If the amount of Chilean Withholding Tax initially withheld from a
dividend is determined to be excessive, however (as described above under TaxationChilean TaxationCash Dividends and Other Distributions), the excess tax will not be creditable. For purposes of calculating the foreign tax
credit, dividends paid on the common shares will generally constitute foreign source passive income. U.S. Holders are not allowed foreign tax credits for withholding taxes imposed in respect of certain short-term or hedged positions in
securities and may not be allowed foreign tax credits in respect of arrangements in which their expected economic profit is insubstantial. U.S. Holders should consult their own advisers concerning the implications of these rules in light of their
particular circumstances.

U.S. Holders that receive distributions of additional common shares or rights to subscribe for common shares as
part of a pro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax in respect of the distributions.

Taxation of Capital Gains or Losses

If you are a U.S. Holder, gain or loss realized on the sale, exchange or other taxable
disposition of ADSs or common shares, generally will be capital gain or loss and generally will be long-term capital gain or loss if the ADSs or common shares have been held for more than one year. Long-term capital gain realized by an individual
U.S. Holder generally is subject to a maximum tax rate of 15%. The deductibility of capital losses is subject to significant limitations.



98



---

##### Table of Contents

Any gain or loss a U.S. Holder realizes on such a sale, exchange or other taxable disposition will
generally be treated as U.S. source income or loss for U.S. foreign tax credit purposes. Consequently, in the case of a disposition of common shares (which, unlike a disposition of ADSs, could be taxable in Chile), a U.S. Holder generally would not
be able to utilize foreign tax credits in respect of any Chilean tax imposed on the disposition (see TaxationChilean TaxationCapital Gains) unless the U.S. Holder has other income from foreign sources, in the appropriate
category, for purposes of the foreign tax credit limitation rules. U.S. Holders should consult their own tax advisers regarding the application of the foreign tax credit limitation rules to their investment in, and disposition of, the ADSs and
common shares.

Deposits and withdrawals of common shares by U.S. Holders in exchange for ADSs will not result in the realization of gain
or loss for U.S. federal income tax purposes.

Backup Withholding and Information Reporting

Dividends paid on, and proceeds from the sale or other disposition of, the ADSs or common shares to a U.S. Holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup withholding unless the U.S. Holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holders U.S. federal income tax liability and may entitle the U.S. Holder to a
refund, provided that certain required information is timely furnished to the U.S. Internal Revenue Service.

A holder that is a foreign
corporation or a non-resident alien individual may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.

HOLDERS AND/OR PROSPECTIVE PURCHASERS OF ADSs OR COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE CHILEAN, U.S. FEDERAL INCOME OR OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR COMMON SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY NON-U.S., STATE OR LOCAL TAX LAWS.

Documents on Display

We are subject to the information requirements of the Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file reports, including annual reports on Form 20-F and other information with the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SECs
public reference rooms in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. In addition, some of our SEC filings, including those filed on and after February 19, 2002, are also
available to the public through the SECs website at www.sec.gov.



99



---

##### Table of Contents

|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

General

We face market risk exposure in three main areas:



| |  |  | jet fuel price fluctuations;
| | - |  | ----------------------------



| |  |  | interest rate fluctuations; and
| | - |  | -------------------------------



| |  |  | exchange rate fluctuations.
| | - |  | ---------------------------

We
periodically review our exposure to risks arising from these fluctuations and determine at the level of senior management how to hedge these risks. We manage jet fuel price fluctuation risk through hedging transactions in the foreign derivatives
market. We have also entered into hedging transactions with respect to interest rates and exchange rates in order to control our exposure to fluctuations in interest rates and the relative values of foreign currencies, respectively. We do not enter
into forward contracts, swaps, collars or other derivatives for speculative purposes. The derivative instruments we hold are not leveraged, and we hold them only for purposes of offsetting market exposure.

Risk of Fluctuations in Jet Fuel Prices

Jet fuel price fluctuations are largely dependent on supply and demand for crude oil in the world, OPEC decisions, refinery capacities, stock levels of crude oil and global political factors. In order to minimize the risk of jet fuel price
fluctuations, we enter into hedging contracts in the jet fuel market or in the WTI market. Our decision to enter into these contracts, whether in the jet fuel market or in the WTI market, depends on the relative price of each commodity at the trade
date.

We enter into swap contracts to hedge our exposure to fluctuations in fuel prices that allow us to fix the price of future jet fuel
purchases. We also purchase call options, which allow us to purchase fuel at a predetermined price. Additionally, we use combinations of call and put options that allow us to establish a range of prices, also known as a costless collar, in which the
price that we pay for jet fuel is limited by a minimum and maximum price.

Under costless collar contracts, for any price that is above the
predetermined ceiling price, we receive the difference between the market price and the ceiling price for a given quantity of jet fuel. For any price below the predetermined floor price, we pay the difference between the market price and the floor
price. Pursuant to swap contracts, we pay or receive, depending on the case, the difference between the agreed fixed price and the floating market price calculated on the notional amounts of such contracts.

We are exposed to fuel hedging transaction losses if the other parties to our hedging contracts fail to perform. To manage this credit risk, we select
counterparties based on their credit ratings and limit our exposure to each counterparty based on defined guidelines. We also monitor our relative market position with each counterparty periodically. For more information see Our
operations are subject to fluctuations in the supply and cost of jet fuel which could materially impact our business under Item 3.

During 2006, 2007 and 2008 we entered into a mix of costless collar contracts, call option contracts and jet fuel swap contracts with investment banks and other financial entities for notional fuel purchases of 148.5 million gallons,
124.9 million gallons and 218.5 million gallons respectively (which represent 40.7%, 30.3% and 40.0% respectively, of our total fuel consumption). The combined result of these contracts was a gain of US$12.9 million in 2006, a gain of
US$28.2 million in 2007, a gain of US$35.4 million in 2008, and a loss of US$57.9 million in the first quarter of 2009. The fair value of our outstanding fuel related derivative contracts was estimated at negative US$4.2 million as of
December 31, 2006, at positive US$4.4 million as of December 31, 2007, at negative US$170.3 million as of December 31, 2008, and at negative US$114.3 million as of March 31, 2009.



|                                                    |  |                                             |   |  |       |   |  |       |   |  |       |   |  |        |  
|--------------------------------------------------- |  | ------------------------------------------- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ------ | -
|                                                    |  | Fair value by quarter, as of March 31, 2009 |  
|                                                    |  | 2Q09                                        |   |  | 3Q09  |   |  | 4Q09  |   |  | 1Q10  |   |  | Total  |  
|                                                    |  | (in US$ millions)                           |  
|Fair value of outstanding fuel derivative contracts |  | (63.5                                       | ) |  | (21.2 | ) |  | (19.6 | ) |  | (10.0 | ) |  | (114.3 | )



100



---

##### Table of Contents

Gains and losses on the hedging contracts referred to above are recognized as a non-operating item (on
the other income-net line) in our income statement when the underlying fuel being hedged is consumed. Premiums paid to enter into hedging contracts are recorded as prepaid expenses and are amortized and included in our results of operations over the
respective contract periods.

According to Chilean GAAP, the positive fair value of these jet fuel derivatives is reflected in the balance
sheet as other short-term assets and the negative fair value is reflected in other short-term liabilities.

Risk of Fluctuations in
Interest Rates

The major interest rate risk we face is a rise in the London Interbank Offered Rate, or LIBOR, because we had, as of
December 31, 2008, US$2,034 million in principal amount of LIBOR-based interest-bearing long-term debt outstanding, which has been hedged as explained below. As of December 31, 2008, 3.8% of our long-term banking debt was exposed to
interest rate fluctuations.

In May 2001, we entered into six swap contracts in order to hedge our floating rate-exposure on US$331 million
of our debt. Pursuant to these contracts, we pay or receive, depending on the case, the difference between the agreed fixed rate and the floating rate, calculated on the notional amount of each contract. In October 2005, the Company entered into two
interest rate swap contracts in order to hedge the LIBOR exposure of the financing of two Airbus A319 aircraft delivered in 2005.

In July
2003, we purchased four interest rate cap contracts for a total notional amount of US$127.7 million. These caps are intended to limit the Companys exposure arising from variable-rate debt. Under Chilean and U.S. GAAP, these contracts qualify
as cash flow hedges with no ineffectiveness associated to them due to the fact that all critical terms of the debt and the caps match perfectly. The fair value of these contracts has been estimated at US$492.9 thousand.

Also in July 2003, the Company purchased an additional two interest rate cap contracts. These caps are intended to limit the exposure of LIBOR-linked
operational lease payments on aircraft received during 2004. The fair value of these contracts at year-end amounted to US$374.0 thousand.

In April 2004, the Company purchased an additional two interest rate Cap contracts. These caps are intended to limit the exposure of LIBOR-linked operational lease payments on aircraft received during 2005. The fair value of these contracts
at year-end amounted to US$377.0 thousand.

In 2005, the Company purchased three additional interest rate Cap contracts. These contracts
are intended to limit the exposure of LIBOR-linked financing on aircraft delivered in 2005 and 2006. The fair value of these contracts at year-end amounted US$68.0 thousand.

The premium on the caps was allocated to individual caplets and is recognized in the income statement throughout the term of each contract for Chilean
and U.S. GAAP purposes. Under FAS 133, these derivatives qualify as cash flow hedges even though some ineffectiveness exists as the notional amount over which some caps are calculated is different from the one used to determine the interest and
lease payments on the aircraft. For U.S. GAAP purposes, there was no amount of ineffectiveness recorded in earnings because the change in fair value of the perfect hypothetical option was greater then the change in the fair value of the
Companys option. Under Chilean GAAP, the caps are accounted for as cash flow hedges and no ineffectiveness was determined.

In
the first half of 2006, the Company also entered into ten receive-floating, pay-fixed interest rate swap contracts in order to hedge the variable interest payments on existing debt of approximately US$46.7 million related to the unhedged portion of
existing financing. Additionally, in May 2006 the Company entered into thirty-two forward starting interest rate swap contracts in order to hedge the LIBOR exposure of the financing of thirty-two A320-Family Aircraft to be delivered in 2006, 2007,
2008 and 2009. Of these thirty-two contracts, twenty-five were contracted directly with the debt provider and therefore may be converted into fixed interest rate debt, while the remaining seven swaps were contracted with a different institution. As
of December 2008, twenty-eight of those aircraft have already been delivered to the Company. Of those twenty-eight aircraft, twenty-four were converted into fixed interest rate debt, and four remain as variable interest rate debt, hedged with an
interest rate swap. The fair value at the delivery date will be reclassified from other comprehensive income to the income statement over the term of the loan.



101



---

##### Table of Contents

In June 2006 the Company entered into eleven forward starting interest rate swap contracts in order to
hedge the LIBOR exposure of the financing of eleven B767-300 ER aircraft to be delivered in 2006, 2007, 2008 and 2009. Ten of those aircraft have already been received by the Company, and the corresponding derivatives have been converted into fixed
rate debt. The fair value at the delivery date will be reclassified from other comprehensive income to the income statement over the term of the loan. As of December 2008, the remaining contract was still forward starting interest rate swaps.

In August 2007 the Company entered into three forward starting interest rate swaps contracts in order to hedge the LIBOR exposure of the
financing of three B767-300 ER aircraft to be delivered in 2009. In September 2007 the Company entered into another three forward starting interest rate swaps contracts in order to hedge the LIBOR exposure of the financing of three Airbus
A320-Family Aircraft to be delivered in 2010.

In June 2008, the Company entered into fourteen forward starting interest rate swaps
contracts in order to hedge the LIBOR exposure of the financing of twelve A320-Family Aircraft to be delivered in 2010 and 2011 and two Boeing 777-F aircraft to be delivered in 2011 and 2012.

As of December 31, 2008, the fair value of all the aforementioned interest rate swaps was estimated to be a negative US$154.8 million.

According to Chilean GAAP, the positive fair value of these interest rate swaps is reflected in the balance sheet as other long-term assets and the
negative fair value of these agreements is reflected as other long-term liabilities.

The utilization of the aforementioned hedging
instruments, combined with fixed interest rate financing for two Boeing 767-300 F aircraft delivered in 2001, 14 Boeing 767-300 Passenger and Freighter aircraft delivered in 2005, 2006, 2007 and 2008 and 28 Airbus A320-Family Aircraft delivered in
2006, 2007 and 2008, has enabled us to limit the impact that interest rate fluctuation might otherwise have on 96.2% of our interest-bearing long-term debt.

As of December 2008, the average interest of all of our outstanding interest-bearing long-term debt rate is 5.236%

The following
table summarizes our principal payment obligations on our interest-bearing long-term debt and capital leases as of December 31, 2008 and the related average interest rates. The average interest rates for U.S. dollar liabilities are calculated
based on the prevailing interest rate on December 31, 2008 for each loan.



|             |  |                                                               |   |  |       |  |       |  |       |  |       |  |       |  |           
|------------ |  | ------------------------------------------------------------- | - |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----------
|             |  | Principal payment obligations by year of expected maturity(1)
|             |  | (in US$ millions)                                            
|Liabilities  |  | Averageinterestrate(2)                                        |   |  | 2009  |  | 2010  |  | 2011  |  | 2012  |  | 2013  |  | Thereafter
|U.S. dollars |  | 5.236                                                         | % |  | 192.1 |  | 189.8 |  | 186.7 |  | 183.8 |  | 179.8 |  | 1,101.9   





|(1) | At cost, which approximates market value.
|--- | -----------------------------------------

|(2) | Average interest rate means the average prevailing interest rate on December 31, 2008 on our debt.
|--- | --------------------------------------------------------------------------------------------------

Risk of Variation in Foreign Currency Exchange Rates

During 2008, 83% of our operating revenues and 63% of our operating expenses were denominated in U.S. dollars, creating a partial natural hedge with one
another. However, because we conduct business in local currencies in several countries, we face the risk of variations in foreign currency exchange rates. For more information, see Note 24 to our audited consolidated financial statements. A
depreciation of the Chilean peso, the Brazilian real, the Argentine peso, the Mexican nuevo peso, the Peruvian nuevo sol or the European euro against the U.S. dollar could have a material adverse effect on us because we have revenues and receivables
denominated in those currencies. As a part of our risk management policy, we regularly monitor our exposure to variations in the exchange rates of these different currencies. In order to reduce the impact of foreign exchange rate fluctuations, we
enter into foreign exchange hedging contracts from time to time. As of December 31, 2008 we had foreign exchange forward contracts for a notional amount of US$40 million with a market value as of December 31, 2008 of a negative US$1.8
million.



102



---

##### Table of Contents

In March 2009, the Company entered into foreign exchange swaps for a notional amount of US$156 million in
order to hedge future cash flows of euros and Chilean pesos. For accounting purposes, the market value of this position was reflected as a non operating cost, with a market value of negative US$6.4 million.

Our foreign currency exchange exposure pertaining to our balance sheet as of December 31, 2008 was as follows:



|                                           |  |           |  |           |  |              |  |           |  |                 |  |           |  |          
|------------------------------------------ |  | --------- |  | --------- |  | ------------ |  | --------- |  | --------------- |  | --------- |  | ---------
|                                           |  | USdollars |  | % oftotal |  | Chileanpesos |  | % oftotal |  | Othercurrencies |  | % oftotal |  | Total    
|Current assets                             |  | 961,642   |  | 71.18     |  | 203,664      |  | 15.07     |  | 185,725         |  | 13.75     |  | 1,351,031
|Other assets                               |  | 3,513,443 |  | 98.86     |  | 8,308        |  | 0.23      |  | 32,079          |  | 0.9       |  | 3,553,830
|                                           |  |           |  |           |  |              |  |           |  |                 |  |           |  |          
|Total assets                               |  | 4,475,085 |  | 91.24     |  | 211,972      |  | 4.32      |  | 217,804         |  | 4.44      |  | 4,904,861
|Current liabilities                        |  | 1,257,931 |  | 91.22     |  | 49,782       |  | 3.61      |  | 71,314          |  | 5.17      |  | 1,379,027
|Long-term liabilities                      |  | 2,393,122 |  | 99.62     |  | 6,339        |  | 0.26      |  | 2,674           |  | 0.11      |  | 2,402,135
|                                           |  |           |  |           |  |              |  |           |  |                 |  |           |  |          
|Total liabilities and shareholders equity |  | 4,774,752 |  | 97.35     |  | 56,121       |  | 1.14      |  | 73,988          |  | 1.51      |  | 4,904,861



|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not applicable.



103



---

##### Table of Contents

PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

Not applicable.



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

Not applicable.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

(a) Controls and
Procedures. We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2008. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer
concluded that the disclosure controls and procedures, as of December 31, 2008, were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management including our Chief Executive Officer and Chief
Financial Officer as appropriate to allow timely decisions regarding required disclosure.

(b) Managements annual report on
internal control over financial reporting.

Lan Airlines management, including the Chief Executive Officer and the Chief
Financial Officer, has assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2008 based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such criteria, Lan Airlines management has concluded that, as of December 31, 2008, the Companys internal control over financial reporting
is effective.

The Company acknowledges that its management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act, as amended.

The
Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate. The Companys internal control over financial reporting effectiveness as of
December 31, 2008 has been audited by PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, an independent registered public accounting firm, as stated in their report which appears herein.

(c) Attestation report of the registered public accounting firm. See page F-3 of our audited consolidated financial statements.



104



---

##### Table of Contents

(d) Changes in internal control over financial reporting. There has been no change in our internal
control over financial reporting during 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 16. | RESERVED
|-------- | --------



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

Our Board of
Directors has designated Mr. José Cox Donoso, an independent director as required by the Chilean Corporation Law and applicable New York Stock Exchange listing standards, as an audit committee financial expert within the
meaning of this Item 16A. See Item 6. Directors, Senior Management and EmployeesDirectors.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

We have adopted a code of ethics,
as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our senior management, including our chief executive officer, our chief financial officer and our chief accounting officer, as well as to other employees.
Upon request, in writing or orally, by telephone or by e-mail, to the following address: Lan Airlines S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, Piso 20, Comuna Las Condes, Santiago, Chile,
telephone (56-2) 565-3944, email: gisela.escobar@lan.com, we will provide any person with a copy of our code of ethics without charge. If we amend the provisions of our code of ethics that apply to our senior management or to other persons
performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at www.lan.com.



|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

Audit
and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, PricewaterhouseCoopers, during the
fiscal years (ended December 31) 2006, 2007 and 2008:



|                   |  |                              |  |         |  |        
|------------------ |  | ---------------------------- |  | ------- |  | -------
|                   |  | Year ended December 31,     
|                   |  | 2006                         |  | 2007    |  | 2008   
|                   |  | (in thousands of US dollars)
|Audit fees         |  | 900.7                        |  | 1,069.5 |  | 1,323.2
|Audit-related fees |  | 93.8                         |  | 0.0     |  | 0.0    
|Tax fees           |  | 81.5                         |  | 8.3     |  | 3.8    
|Other fees         |  | 0.0                          |  | 107.7   |  | 158.8  
|                   |  |                              |  |         |  |        
|Total fees         |  | 1,076.0                      |  | 1,185.5 |  | 1,485.8
|                   |  |                              |  |         |  |        

Audit fees in the above table are the aggregate fees billed by PricewaterhouseCoopers in
connection with the audit of our annual consolidated financial statements, as well as the review of other filings and fees related to the audit of the effectiveness of the Companys internal controls over financial reporting required by the
Sarbanes-Oxley Act of 2002.

Audit-related fees in the above table are fees billed by PricewaterhouseCoopers mainly for due diligence
services related to potential acquisitions and mergers.

Tax fees in the above table are fees billed by PricewaterhouseCoopers for tax
advice and tax planning services.

Other fees in the above table are fees billed by PricewaterhouseCoopers primarily for training services
in International Financial Reporting Standards (IFRS).

Board of Directors Committee Pre-Approval Policies and Procedures

Since January 2004, LAN complies with the SEC regulation regarding what type of additional services PriceWaterhouseCoopers is authorized to
offer to us. In addition to this, our Board of Directors Committee decided to automatically authorize those accepted services for an amount of up to 10% of the fees charged by the auditing firm, and for an amount of up to 50% when adding all
those services together. In case the amount is larger than that, then it will need the approval of the Board of Directors Committee.



105



---

##### Table of Contents

|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------

Not applicable.



|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ----------------------------------------------------------------------

Neither we nor any affiliated purchaser has engaged in share repurchases during the year ended December 31, 2008.



|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
|--------- | --------------------------------------------

Not applicable.



|ITEM 16G. | CORPORATE GOVERNANCE
|--------- | --------------------

New York Stock Exchange Corporate
Governance Comparison

Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary
of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards. We are a Chilean corporation with shares listed on the Santiago Stock Exchange, the Bolsa
Electrónica de Chile and the Valparaiso Stock Exchange and ADSs on The New York Stock Exchange. Our corporate governance practices are governed by our bylaws, the Chilean Corporation Law and the Ley de Mercado de Valores
No. 18,045, or the Securities Market Law.

The table below discloses the significant differences between our corporate governance
practices and the NYSE standards.



|                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                                                        |  | Our Corporate Governance Practice                                                                                                                                                                                                          
|Director Independence. Majority of board of directors must be independent. §303A.01                                                                                                                                                                   |  | Under Chilean law, we are not required to have a majority of independent directors on our board.                                                                                                                                           
|                                                                                                                                                                                                                                                      | 
|                                                                                                                                                                                                                                                      |  | Our board of directors committee (all of whom are members of our board of directors) is composed of three directors, two of whom must be independent if we have a sufficient number of
independent directors on our board.                
|                                                                                                                                                                                                                                                      | 
|                                                                                                                                                                                                                                                      |  | The definition of independence applicable to us pursuant to the Chilean Corporation Law differs in certain respects from the definition applicable to U.S. issuers under the NYSE
rules.                                                   
|                                                                                                                                                                                                                                                      | 
|                                                                                                                                                                                                                                                      |  | Under the Chilean Corporation Law, a director is deemed to be independent if such member would have been elected as a Director at the Shareholders Meeting after excluding the votes of any
controlling shareholder or party related to it.
|                                                                                                                                                                                                                                                      | 
|Executive Sessions. Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a
year. §303A.03                                             |  | There is no similar requirement under our bylaws or under applicable Chilean law.                                                                                                                                                          
|                                                                                                                                                                                                                                                      | 
|Audit committee. Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and the more stringent requirements
under the NYSE standards is required. §§303A.06, 303A.07 |  | We are in compliance with Rule 10A-3. We are not required to satisfy the NYSE independence and other audit committee standards that are not prescribed by Rule 10A-3.                                                                      



106



---

##### Table of Contents

|                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                                                                |  | Our Corporate Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Nominating/corporate governance committee. Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and
evaluation procedures of the committee. § 303A.04             |  | We are not required to have, and do not have, a nominating/corporate governance committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                              | 
|Compensation committee. Compensation committee of independent directors is required, which must approve executive officer compensation. The committee must have a charter specifying the
purpose, duties and evaluation procedures of the committee. §303A.05 |  | We are not required to have a compensation committee. Pursuant to the Chilean Corporation Law, our board of directors committee must approve our senior managements
compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                              | 
|Equity compensation plans. Equity compensation plans require shareholder approval, subject to limited exemptions.                                                                                                                                             |  | Under the Chilean Corporation Law, equity compensation plans require shareholder approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                              | 
|Code of Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. §303A.10                                                                            |  | We have adopted a code of ethics applicable to our senior management, including our chief executive officer, our chief financial officer and our chief accounting officer, as well as to other
employees. Our code of ethics is available upon request, in writing, by telephone or by e-mail, to the following address: Lan Airlines S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, Piso 20, Comuna
Las Condes, Santiago, Chile, telephone (56 2) 565-3944, email: gisela.escobar@lan.com. We are required by Item 16B of Form 20-F to disclose any waivers granted to our chief executive officer, chief financial officer, principal accounting officer and
persons performing similar functions.

The disclosure of the significant ways in which our corporate governance practices differ from those required for
U.S. companies under the New York Stock Exchange listing standards is also posted on our website and can be accessed at www.lan.com.



107



---

##### Table of Contents

PART III



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

Our financial statements have
been prepared in accordance with Item 18 hereof.



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

In accordance with SVSs
regulations, Chile is moving to adopt IFRS for all public companies with significant market presence over a three-year period from 2009 to 2011, as follows:



| |  |  | January 1, 2009: major listed (open) companies are required to report under IFRS (i.e. 2009 financial statements will have to be prepared using IFRS and will
have to include 2008 comparative information using IFRS). However, IFRS reporting may be postponed until 2010 so long as a supplemental pro forma disclosure of expected impact of moving to IFRS is provided;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | January 1, 2010: smaller listed (open) companies, insurance companies, mutual funds, pension funds, stock brokers and dealers, insurance agents, companies that
issue publicly traded debt securities, and large listed (open) companies that were unable to move to IFRSs in 2009;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | January 1, 2011: other entities registered with the SVS (non-issuers who have voluntarily registered).
| | - |  | ------------------------------------------------------------------------------------------------------

We have adopted, and have started reporting under, IFRS as of January 1, 2009.

See pages F-1 through F-69, incorporated herein. The following is an index of the financial statements.

Consolidated Financial Statements for Lan Airlines S.A. and Subsidiaries



|                                                                                           |  |     
|------------------------------------------------------------------------------------------ |  | ----
|                                                                                           |  | Page
|Audited Consolidated Financial Statements                                                  |  |     
|Managements Report on Internal Controls over Financial Reporting                          |  | F-2 
|Report of Independent Registered Public Accounting Firm                                    |  | F-3 
|Consolidated Balance Sheets at December 31, 2007 and 2008                                  |  | F-5 
|Consolidated Statement of Income for the years ended December 31, 2006, 2007 and 2008      |  | F-6 
|Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008 |  | F-7 
|Notes to Consolidated Financial Statements at December 31, 2008                            |  | F-9 



108



---

##### Table of Contents

|ITEM 19. | EXHIBITS
|-------- | --------

Documents filed as exhibits to this
annual report:



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|1.1         |  | By-laws of Lan Airlines S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|2.1         |  | Amended and Restated Deposit Agreement among LanChile S.A., The Bank of New York, and all registered holders from time to time of any American Depositary Receipts, including the form of American
Depositary Receipt (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on June 14, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|2.2         |  | Foreign Investment Contract among the Central Bank of Chile, LanChile S.A. and Citibank, N.A., as depositary, relating to the foreign exchange treatment of holders of ADSs (incorporated by
reference to our annual report on Form 20-F (File No. 001-14728) filed on June 14, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|2.3         |  | Foreign Investment Contract Assignment Agreement among the Central Bank of Chile, LanChile S.A., Citibank N.A., as assignor, and The Bank of New York, as assignee, relating to the foreign
exchange treatment of holders of ADSs (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on June 14, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|2.4         |  | Right of First Refusal Agreement among Inversiones Santa Cecilia S.A., Bancard S.A., Inversiones Costa Verde, S.A., Inmobiliaria e Inversiones Asturias S.A., Inversiones Aéreas CGP S.A.,
Inversiones Aéreas CGP DOS S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on June 14, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|2.5         |  | Supplement to Right of First Refusal Agreement among Inversiones Costa Verde Limitada y Compañía en Comandita por Acciones, Inversiones Santa Cecilia S.A., Axxion S.A., Inversiones
Aéreas CGP S.A. and Inversiones Aéreas CGP DOS S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on June 30, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|2.6         |  | Joint Action Agreement among Inversiones Costa Verde Limitada y Compañía en Comandita por Acciones, Inversiones Santa Cecilia S.A., and Axxion S.A. (incorporated by reference to
our annual report on Form 20-F (File No. 001-14728) filed on June 30, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|4.1         |  | Purchase Agreements between LanChile S.A. and Airbus Industrie relating to Airbus A320-Family Aircraft and Airbus A340 series aircraft (incorporated by reference to our annual report on Form
20-F (File No. 001-14728) filed on June 24, 2001 and portions of which have been omitted pursuant to a request for confidential treatment).                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|4.1.1       |  | Amendment No. 2 dated as of October 4, 2005, to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, and Amendment No. 3 dated as of October 4, 2002, to
the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, Letter Agreements No. 1, 2, 3, 4, 5, 6A, 6B, 7, 8 to Amendment No. 2, Side Letters to Amendment No. 2 and Side Letter to Amendment No. 3, between Lan
Airlines S.A. (formerly known as LanChile S.A.) and Airbus S.A.S. (as successor to Airbus Industrie) (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728) filed on May 7, 2007 and portions of which have been
omitted pursuant to a request for confidential treatment).
|            | 
|4.1.2       |  | Amendment No. 3 dated as of March 6, 2007, to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between Lan Airlines S.A. and Airbus S.A.S.
(incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728) filed on April 23, 2007 and portions of which have been omitted pursuant to a request for confidential treatment).                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|4.2         |  | Purchase Agreement No. 2126 dated as of January 30,1998, between LanChile S.A. and The Boeing Company as amended and supplemented, relating to Model 767-316ER, Model 767-38EF, and Model 767-316F
Aircraft (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728) filed on December 21, 2004 and portions of which have been omitted pursuant to a request for confidential treatment).                                                                                                                                                                                                                                                                                                                                           



109



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2.1 |  | Supplemental Agreements No. 16, 17, 18, 19, 20, 21 and 22 (dated as of November 11, 2004, January 21, March 10, April 1, April 28, and July 20,
2005, and March 31, 2006, respectively) to the Purchase Agreement No. 2126 dated January 30, 1998, between Lan Airlines S.A. (formerly known as LanChile S.A.) and The Boeing Company, relating to Model 767-316ER, Model 767-38EF, and Model
767-316F Aircraft, (incorporated by reference to our amended annual report filed on Form 20-F (File No. 001-14728) filed on May 7, 2007 and portions of which have been omitted pursuant to a request for confidential treatment).
|      | 
|4.2.2 |  | Supplemental Agreement No. 23 dated as of March 6, 2007, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between Lan Airlines S.A. and The Boeing Company (incorporated by
reference to our amended annual report on Form 20-F (File No. 001-14728) filed on April 23, 2007 and portions of which have been omitted pursuant to a request for confidential treatment).                                                                                                                                                                                                                                        
|      | 
|4.2.3 |  | Supplemental Agreement No. 24 dated as of November 10, 2008, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between Lan Airlines S.A. and The Boeing Company. Portions of this
document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.                                                                                                                                                                                                                                                    
|      | 
|4.3   |  | Aircraft Lease Common Terms Agreement between GE Commercial Aviation Services Limited and Lan Cargo S.A., dated as of April 30, 2007, and Aircraft Lease Agreements between Wells Fargo Bank
Northwest N.A., as owner trustee, and Lan Cargo S.A., dated as of April 30, 2007 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728) filed on May 7, 2007 and portions of which have been omitted pursuant to a
request for confidential treatment).                                                                                                                                         
|      | 
|4.4   |  | Purchase Agreement No 3194 between The Boeing Company and Lan Airlines S.A. relating to Boeing Model 777-Freighter aircraft dated as of July 3, 2007 (incorporated by reference to our amended
annual report on Form 20-F (File No. 001-14728) filed on June 25, 2008 and portions of which have been omitted pursuant to a request for confidential treatment.                                                                                                                                                                                                                                                                 
|      | 
|4.5   |  | Purchase Agreement No. 3256 between The Boeing Company and Lan Airlines S.A. relating to Boeing Model 787-8 and 787-9 aircraft dated as of October 29, 2007 (incorporated by reference to our
amended annual report on Form 20-F (File No. 001-14728) filed on June 25, 2008 and portions of which have been omitted pursuant to a request for confidential treatment).                                                                                                                                                                                                                                                         
|      | 
|8.1   |  | List of subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | 
|12.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      | 
|12.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      | 
|13.1  |  | Certifications of Chief Financial Officer and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      | 
|15.1  |  | Consent of PricewaterhouseCoopers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



110



---

##### Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.



LAN AIRLINES S.A./s/ Alejandro de la Fuente GoicName:

Alejandro de la Fuente GoicTitle:

Chief Financial Officer


Date: June 25, 2009



111



---

##### Table of Contents

LAN AIRLINES S.A.

Consolidated financial statements

December 31, 2008

CONTENTS

Managements Report on Internal
Controls over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated balance sheets

Consolidated statements of income

Consolidated statements of cash flows

Notes to the consolidated financial statements



|      |  |   |  |                                                                                                                                                 
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|Ch$   |  |  |  | Chilean pesos                                                                                                                                   
|US$   |  |  |  | United States dollars                                                                                                                           
|ThUS$ |  |  |  | Thousands of United States dollars                                                                                                              
|UF    |  |  |  | The UF is a Chilean inflation-indexed, peso-denominated monetary unit which is set daily in advance based on the previous months inflation rate



F-1



---

##### Table of Contents

Managements Report on Internal Control over Financial Reporting

The management of Lan Airlines S.A. (Lan Airlines or the Company), including the Chief Executive Officer and the Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15f under the Securities Exchange Act of 1934, as amended.

The Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the
effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.

Lan Airlines management, including the Chief Executive Officer and the Chief Financial Officer, has assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and, based on such criteria, Lan Airlines management has concluded that, as of December 31, 2008, the Companys internal control over financial reporting is effective.

The Companys internal control over financial reporting effectiveness as of December 31, 2008 has been audited by PricewaterhouseCoopers Consultores, Auditores y Companía Limitada, an independent
registered public accounting firm, as stated in their report which appears herein.



|   |  |                            
|-- |  | ---------------------------
|By |  | Enrique Cueto Plaza        
|   |  | Chief Executive Officer    
|   | 
|   |  | Alejandro de la Fuente Goic
|   |  | Chief Financial Officer    

March 12, 2009



F-2



---

##### Table of Contents

LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of LAN Airlines S.A.

In our
opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and of cash flows present fairly, in all material respects, the financial position of LAN Airlines S.A. and its subsidiaries at December 31,
2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in Chile. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the Managements Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on these financial statements and on the Companys
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.

Accounting principles generally accepted in Chile vary in certain significant respects from accounting principles generally accepted in the
United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Note 27 to the consolidated financial statements.

As discussed in Note 3, effective January 1, 2008, the Company changed its method of accounting for financing expenses related to the acquisition of aircraft. Also, during 2006, the Company changed its method of
accounting for heavy aircraft and engine maintenance costs associated with its owned aircraft.

A companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



|                          
|--------------------------
|/s/ PricewaterhouseCoopers
|Santiago, Chile           
|March 12, 2009            



F-3



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                |  |                       |  |          
|--------------------------------------------------------------- |  | --------------------- |  | ---------
|                                                                |  | At December 31,      
|                                                                |  | 2008                  |  | 2007     
|                                                                |  | (In thousands of US$)
|ASSETS                                                          |  |                      
|                                                                |  |                      
|CURRENT ASSETS                                                  |  |                       |  |          
|Cash                                                            |  | 15,707                |  | 11,506   
|Time deposits                                                   |  | 255,881               |  | 308,585  
|Marketable securities (Note 4)                                  |  | 138,426               |  | 147,952  
|Trade accounts receivable and other, net (Note 5)               |  | 438,569               |  | 468,301  
|Notes and accounts receivable from related companies (Note 15)  |  | 1,117                 |  | 226      
|Inventories (Note 6)                                            |  | 50,609                |  | 54,022   
|Prepaid and recoverable taxes                                   |  | 72,013                |  | 68,623   
|Prepaid expenses (Note 7)                                       |  | 13,346                |  | 12,949   
|Deferred income tax assets (Note 14)                            |  | 6,545                 |  | 4,624    
|Other current assets (Note 8)                                   |  | 358,818               |  | 13,040   
|                                                                |  |                       |  |          
|                                                                |  |                      
|Total current assets                                            |  | 1,351,031             |  | 1,089,828
|                                                                |  |                       |  |          
|                                                                |  |                      
|PROPERTY AND EQUIPMENT (net) (Note 9)                           |  | 3,093,368             |  | 2,351,605
|                                                                |  |                       |  |          
|                                                                |  |                      
|OTHER ASSETS                                                    |  |                       |  |          
|Investments in related companies (Note 10)                      |  | 1,187                 |  | 1,482    
|Goodwill (Note 10)                                              |  | 32,412                |  | 36,022   
|Notes and accounts receivable from related companies (Note 15)  |  | 251                   |  |         
|Long-term accounts receivable (Note 5)                          |  | 11,200                |  | 12,171   
|Advances for purchases of aircraft and other deposits (Note 11) |  | 209,215               |  | 316,443  
|Other (Note 12)                                                 |  | 206,197               |  | 94,191   
|                                                                |  |                       |  |          
|                                                                |  |                      
|Total other assets                                              |  | 460,462               |  | 460,309  
|                                                                |  |                       |  |          
|                                                                |  |                      
|Total assets                                                    |  | 4,904,861             |  | 3,901,742
|                                                                |  |                       |  |          

The accompanying Notes 1 to 27 form an integral part of these Consolidated Financial Statements.



F-4



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                           |  |                       |  |           |  
|---------------------------------------------------------- |  | --------------------- |  | --------- | -
|                                                           |  | At December 31,       | 
|                                                           |  | 2008                  |  | 2007      |  
|                                                           |  | (In thousands of US$) | 
|LIABILITIES AND SHAREHOLDERS EQUITY                       |  |                       | 
|                                                           |  |                      
|CURRENT LIABILITIES                                        |  |                       |  |           |  
|Current portion of long-term loans from                    |  | 151,247               |  | 102,153   |  
|financial institutions (Note 16)                           |  |                       |  |           |  
|Current portion of long-term leasing obligations (Note 18) |  | 63,654                |  | 61,960    |  
|Securitization obligation (Note 17)                        |  | 6,753                 |  | 12,826    |  
|Dividends payable                                          |  | 105,330               |  | 120,073   |  
|Accounts payable                                           |  | 361,620               |  | 322,897   |  
|Notes and accounts payable to related companies (Note 15)  |  | 303                   |  | 357       |  
|Air traffic liability and other unearned income            |  | 329,742               |  | 325,669   |  
|Other current liabilities (Note 13)                        |  | 360,378               |  | 176,670   |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|Total current liabilities                                  |  | 1,379,027             |  | 1,122,605 |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|LONG-TERM LIABILITIES                                      |  |                       |  |           |  
|Loans from financial institutions (Note 16)                |  | 1,654,947             |  | 1,228,650 |  
|Securitization obligation (Note 17)                        |  |                      |  | 6,752     |  
|Other creditors                                            |  | 247,469               |  | 52,400    |  
|Provisions (Note 13)                                       |  | 92,593                |  | 94,441    |  
|Obligations under capital leases (Note 18)                 |  | 178,894               |  | 233,768   |  
|Deferred income tax liabilities (Note 14)                  |  | 228,232               |  | 169,885   |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|Total long-term liabilities                                |  | 2,402,135             |  | 1,785,896 |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|MINORITY INTEREST                                          |  | 5,721                 |  | 5,189     |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|COMMITMENTS AND CONTINGENCIES (Note 23)                    |  |                       |  |           |  
|                                                           |  |                      
|SHAREHOLDERS EQUITY (Note 19)                             |  |                       |  |           |  
|Common stock (338,790,909 shares)                          |  | 453,444               |  | 453,444   |  
|Reserves                                                   |  | 1,749                 |  | (52       | )
|Retained earnings                                          |  | 662,785               |  | 534,660   |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|Total shareholders equity                                 |  | 1,117,978             |  | 988,052   |  
|                                                           |  |                       |  |           |  
|                                                           |  |                      
|Total liabilities and shareholders equity                 |  | 4,904,861             |  | 3,901,742 |  
|                                                           |  |                       |  |           |  

The accompanying Notes 1 to 27 form an integral part of these Consolidated Financial Statements.



F-5



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



|                                         |  |                                  |   |  |            |   |  |            |  
|---------------------------------------- |  | -------------------------------- | - |  | ---------- | - |  | ---------- | -
|                                         |  | For the years ended December 31, |  
|                                         |  | 2008                             |   |  | 2007       |   |  | 2006       |  
|                                         |  | (In thousands of US$)            |  
|REVENUES                                 |  |                                  |   |  |            |   |  |            |  
|Passenger                                |  | 2,858,937                        |   |  | 2,197,201  |   |  | 1,813,373  |  
|Cargo                                    |  | 1,527,106                        |   |  | 1,154,323  |   |  | 1,072,730  |  
|Other (Note 20)                          |  | 148,239                          |   |  | 173,399    |   |  | 147,857    |  
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|Total operating revenues (Note 25)       |  | 4,534,282                        |   |  | 3,524,923  |   |  | 3,033,960  |  
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|EXPENSES                                 |  |                                  |   |  |            |   |  |            |  
|Wages and benefits (Note 21)             |  | (608,510                         | ) |  | (489,550   | ) |  | (442,967   | )
|Aircraft fuel                            |  | (1,423,922                       | ) |  | (930,208   | ) |  | (763,951   | )
|Commissions to agents                    |  | (481,934                         | ) |  | (402,577   | ) |  | (403,899   | )
|Depreciation and amortization            |  | (183,207                         | ) |  | (153,852   | ) |  | (122,802   | )
|Passenger services                       |  | (85,168                          | ) |  | (71,844    | ) |  | (56,077    | )
|Aircraft rentals                         |  | (150,891                         | ) |  | (158,917   | ) |  | (157,681   | )
|Aircraft maintenance                     |  | (155,612                         | ) |  | (159,063   | ) |  | (117,206   | )
|Other rentals and landing fees           |  | (450,592                         | ) |  | (366,418   | ) |  | (336,821   | )
|Other operating expenses                 |  | (458,262                         | ) |  | (379,123   | ) |  | (329,934   | )
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|Total operating expenses                 |  | (3,998,098                       | ) |  | (3,111,552 | ) |  | (2,731,338 | )
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|Operating income                         |  | 536,184                          |   |  | 413,371    |   |  | 302,622    |  
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|OTHER INCOME AND EXPENSES                |  |                                  |   |  |            |   |  |            |  
|Interest income                          |  | 16,212                           |   |  | 18,043     |   |  | 7,897      |  
|Interest expense                         |  | (82,690                          | ) |  | (76,224    | ) |  | (60,739    | )
|Other (expense) / income - net (Note 22) |  | (68,089                          | ) |  | 12,619     |   |  | 37,113     |  
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|Total other income (expense)             |  | (134,567                         | ) |  | (45,562    | ) |  | (15,729    | )
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|Income before minority interest          |  | 401,617                          |   |  | 367,809    |   |  | 286,893    |  
|Minority interest                        |  | (1,188                           | ) |  | 289        |   |  | 1,244      |  
|                                         |  |                                  |   |  |            |   |  |            |  
|Income before income taxes               |  | 400,429                          |   |  | 368,098    |   |  | 288,137    |  
|Income taxes (Note 14)                   |  | (64,690                          | ) |  | (59,775    | ) |  | (46,837    | )
|                                         |  |                                  |   |  |            |   |  |            |  
|                                         |  |                                  |  
|NET INCOME                               |  | 335,739                          |   |  | 308,323    |   |  | 241,300    |  
|                                         |  |                                  |   |  |            |   |  |            |  

The accompanying Notes 1 to 27 form an integral part of these Consolidated Financial Statements.



F-6



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                     |  |                                  |   |  |            |   |  |            |  
|---------------------------------------------------- |  | -------------------------------- | - |  | ---------- | - |  | ---------- | -
|                                                     |  | For the years ended December 31, |  
|                                                     |  | 2008                             |   |  | 2007       |   |  | 2006       |  
|                                                     |  | (In thousands of US$)            |  
|CASH FLOWS FROM OPERATING ACTIVITIES                 |  |                                  |   |  |            |   |  |            |  
|Collection of trade accounts receivable              |  | 4,648,591                        |   |  | 3,535,542  |   |  | 2,951,595  |  
|Interest income                                      |  | 10,969                           |   |  | 15,150     |   |  | 6,358      |  
|Other income received                                |  | 101,386                          |   |  | 37,698     |   |  | 24,936     |  
|Payments to suppliers and personnel                  |  | (3,822,991                       | ) |  | (2,743,171 | ) |  | (2,371,090 | )
|Interest paid                                        |  | (81,421                          | ) |  | (73,633    | ) |  | (60,107    | )
|Income tax paid                                      |  | (26,994                          | ) |  | (16,316    | ) |  | (14,581    | )
|Other expenses paid                                  |  | (26,113                          | ) |  | (12,231    | ) |  | (11,592    | )
|Value-added tax and similar payments                 |  | (74,298                          | ) |  | (36,021    | ) |  | (35,265    | )
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|Net cash provided by operating activities            |  | 729,129                          |   |  | 707,018    |   |  | 490,254    |  
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|CASH FLOWS FROM FINANCING ACTIVITIES                 |  |                                  |   |  |            |   |  |            |  
|Loans obtained                                       |  | 574,874                          |   |  | 495,324    |   |  | 821,324    |  
|Dividend payments                                    |  | (222,803                         | ) |  | (210,868   | ) |  | (84,910    | )
|Loans repaid                                         |  | (102,644                         | ) |  | (205,536   | ) |  | (223,415   | )
|Issuance of stock                                    |  |                                 |   |  | 319,141    |   |  |           |  
|Issuance of stock expenses                           |  |                                 |   |  | (2,672     | ) |  |           |  
|Other                                                |  | (190,667                         | ) |  | (11,970    | ) |  | (9,282     | )
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|Net cash provided by financing activities            |  | 58,760                           |   |  | 383,419    |   |  | 503,717    |  
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|CASH FLOWS FROM INVESTING ACTIVITIES                 |  |                                  |   |  |            |   |  |            |  
|Acquisitions of property and equipment               |  | (831,701                         | ) |  | (839,851   | ) |  | (920,429   | )
|Proceeds from sales of property and equipment        |  | 6,625                            |   |  | 219        |   |  | 7,620      |  
|Sale of financial instruments and other investments  |  | 21,219                           |   |  | 14,105     |   |  | 28,057     |  
|Other investments                                    |  | (698                             | ) |  | (94        | ) |  | (2.238     | )
|Investments in financial instruments                 |  | (2,607                           | ) |  | (16,343    | ) |  |           |  
|Other                                                |  | (24,908                          | ) |  | (2,354     | ) |  | (18,756    | )
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|Net cash used in investing activities                |  | (832,070                         | ) |  | (844,318   | ) |  | (905,746   | )
|                                                     |  |                                  |   |  |            |   |  |            |  
|                                                     |  |                                  |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  | (44,181                          | ) |  | 246,119    |   |  | 88,225     |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR       |  | 445,615                          |   |  | 199,496    |   |  | 111,271    |  
|                                                     |  |                                  |   |  |            |   |  |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR             |  | 401,434                          |   |  | 445,615    |   |  | 199,496    |  
|                                                     |  |                                  |   |  |            |   |  |            |  

The accompanying Notes 1 to 27 form an integral part of these Consolidated Financial Statements.



F-7



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES



|                                                                                 |  |                                 |   |  |         |   |  |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                 |  | For the years endedDecember 31, |  
|                                                                                 |  | 2008                            |   |  | 2007    |   |  | 2006    |  
|                                                                                 |  | (In thousands of US$)           |  
|NET INCOME FOR THE YEAR                                                          |  | 335,739                         |   |  | 308,323 |   |  | 241,300 |  
|                                                                                 |  |                                 |  
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES |  |                                 |   |  |         |   |  |         |  
|Depreciation                                                                     |  | 174,905                         |   |  | 143,796 |   |  | 115,939 |  
|(Gain) Loss on sales of investments                                              |  | (3,886                          | ) |  | (1,128  | ) |  | 29      |  
|(Gain) Loss on sales and retirements of property and equipment                   |  | (1,382                          | ) |  | (1,203  | ) |  | (1,133  | )
|Proportional share of results of equity method investments                       |  | (948                            | ) |  | 5,086   |   |  | (598    | )
|Amortization of goodwill                                                         |  | 3,018                           |   |  | 2,994   |   |  | 3,318   |  
|Minority interest                                                                |  | 1,188                           |   |  | (289    | ) |  | (1,244  | )
|Write-offs and provisions                                                        |  | 21,451                          |   |  | 7,689   |   |  | 20,902  |  
|Foreign exchange gains                                                           |  | 6,988                           |   |  | (16,714 | ) |  | (5,675  | )
|Other                                                                            |  | 141,403                         |   |  | 1,120   |   |  | (51,574 | )
|                                                                                 |  |                                 |  
|CHANGES IN ASSETS AND LIABILITIES                                                |  |                                 |   |  |         |   |  |         |  
|(Increase) decrease in accounts receivable  trade                               |  | 4,231                           |   |  | 8,770   |   |  | (47,099 | )
|(Increase) decrease in inventories                                               |  | 4,803                           |   |  | (9,345  | ) |  | (9,175  | )
|(Increase) decrease in other assets                                              |  | (23,644                         | ) |  | 101,628 |   |  | 36,640  |  
|(Decrease) increase in accounts payable                                          |  | 21,151                          |   |  | 111,382 |   |  | 160,734 |  
|(Decrease) increase in other liabilities                                         |  | 44,112                          |   |  | 44,909  |   |  | 27,890  |  
|                                                                                 |  |                                 |   |  |         |   |  |         |  
|Net cash provided by operating activities                                        |  | 729,129                         |   |  | 707,018 |   |  | 490,254 |  
|                                                                                 |  |                                 |   |  |         |   |  |         |  

The accompanying Notes 1 to 27 form an integral part of these Consolidated Financial Statements.



F-8



---

##### Table of Contents

LAN AIRLINES S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AT DECEMBER 31, 2008

NOTE 1 - THE COMPANY

LAN Airlines S.A. (LAN or the Company) is one of the leading passenger airlines in Latin America. The Company and its affiliates serve more than 60 destinations around the world through an extensive network that
offers full connectivity within Latin America, while also linking the region with North America, Europe and the South Pacific, as well as 58 additional international destinations through its various alliances. LAN Airlines S.A. and its affiliates
have a leading position in their respective domestic markets of Chile and Peru as well as an important presence in the Argentinean domestic market.

Currently, LAN Airlines S.A. and its affiliates operate one of the most modern fleets in the world, with 81 passenger aircraft, and its cargo subsidiary, LAN CARGO and its respective cargo affiliates, operate 9 dedicated freighters. The
Company recently completed its short haul fleet renovation process by acquiring new aircraft from the Airbus A320 family, enabling LAN to improve its efficiency and to reduce significantly its CO2 emissions. The fleet renovation is part of the
Companys commitment to the protection of the environment.

The Company is a Chilean corporation (Sociedad Anónima Abierta) whose
common stock is listed on the Santiago Stock Exchange, the Chilean Electronic Stock Exchange, and the Valparaiso Stock Exchange and whose American Depositary Receipts are traded on the New York Stock Exchange. Accordingly, the Company is
subject to the regulations of both the Chilean Superintendency of Securities and Insurance (the Superintendency) and the U.S. Securities and Exchange Commission (the SEC).

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES



|a) | Presentation
|-- | ------------

The Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles in Chile, which include the accounting standards of the Superintendency. The preparation of financial statements in accordance with generally accepted accounting principles in
Chile (Chilean GAAP) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

The Company has issued its statutory Consolidated Financial Statements in Spanish and in conformity with Chilean GAAP, which include certain notes and additional
information required by the Superintendency for statutory purposes. Management believes that these additional notes and information are not essential for the complete understanding of the Consolidated Financial Statements and, accordingly, these
notes and additional information have been excluded from the accompanying Consolidated Financial Statements.



F-9



---

##### Table of Contents

|b) | Consolidation
|-- | -------------

The Consolidated Financial Statements for the years
2008, 2007 and 2006 include the following subsidiaries:



|                                                                      |  |             |  |        |  |       
|--------------------------------------------------------------------- |  | ----------- |  | ------ |  | ------
|                                                                      |  | December 31
|                                                                      |  | 2008        |  | 2007   |  | 2006  
|Percentage of direct and indirect ownership:                          |  |             |  |        |  |       
|Lan Perú S.A.                                                         |  | 70.00       |  | 70.00  |  | 70.00 
|Inversiones Lan S.A. and subsidiaries                                 |  | 99.71       |  | 99.71  |  | 99.71 
|Lan Cargo S.A. (formerly Lan Chile Cargo S.A.) and subsidiaries       |  | 99.90       |  | 99.90  |  | 99.90 
|Inmobiliaria Aeronáutica S.A.                                         |  | 100.00      |  | 100.00 |  | 100.00
|Comercial Masterhouse S.A.                                            |  | 100.00      |  | 100.00 |  | 100.00
|Sistemas de Distribución Amadeus Chile S.A.                           |  |            |  | 100.00 |  | 100.00
|Lan Card S.A.                                                         |  |            |  | 100.00 |  | 100.00
|Lan Pax Group S.A. and subsidiaries                                   |  | 100.00      |  | 100.00 |  | 100.00
|Lan Cargo Inversiones S.A. (formerly Línea Aérea Nacional Chile S.A.) |  |            |  | 100.00 |  | 100.00
|Lan Chile Investments Limited and subsidiaries                        |  | 100.00      |  | 100.00 |  | 100.00

The effects of significant transactions between the subsidiaries and subsidiaries with the holding company have
been eliminated in the consolidation and the participation of minority shareholders is shown in these Consolidated Financial Statements as minority interest in the Consolidated Balance Sheets and Consolidated Statements of Income.



|c) | Use of estimates
|-- | ----------------

The preparation of the Consolidated Financial
Statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent liabilities. Management makes its best estimate of
the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is
typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could differ from amounts estimated include: impairment assessments on long-lived
assets (including goodwill), inventory obsolescence, engine overhaul provisions, tax liabilities and the associated deferred tax effects, contingent liabilities and other liabilities.



|d) | Price-level restatements
|-- | ------------------------

The financial statements of certain
subsidiaries have been restated through the application of monetary correction rules in accordance with Chilean GAAP to show the effects of changes in the purchasing power of the Chilean peso, using indicators published by the Chilean National
Institute of Statistics.



F-10



---

##### Table of Contents

|e) | Foreign currency transactions
|-- | -----------------------------

LAN and certain subsidiaries are
authorized to maintain their accounting records and prepare their Consolidated Financial Statements in US dollars. Because the US dollar is the functional and reporting currency, assets and liabilities denominated in other currencies are remeasured
to US dollars at the exchange rates prevailing on December 31 of each year except for inventory, property and equipment, other assets and air traffic liability, which are remeasured at historical exchange rates. Revenues and expenses are
generally translated at the exchange rates on the dates of the transactions.

Foreign currency transaction gains and losses are included in the
Consolidated Statements of Income in Other income (expense)net. The Company recorded a net foreign currency loss of ThUS$ 7,866 for the year ended 2008 and the Company recorded a net foreign currency gain of ThUS$ 15,700 and ThUS$ 5,536 for
the years ended 2007 and 2006, respectively.



|f) | Time deposits
|-- | -------------

Time deposits are stated at cost plus accrued
interest at year-end.



|g) | Marketable securities
|-- | ---------------------

Marketable securities include investments in
bonds and mutual funds. Bonds are stated at the lower of cost plus accrued interest or market value plus accrued interest and mutual funds are stated at market value based on year-end quoted values.



|h) | Allowance for bad debts
|-- | -----------------------

The Company maintains an allowance for bad
debts based on an analysis of the aging of the outstanding balances as well as other relevant information. Other relevant information includes detailed analysis of our customers payment history, an analysis of the current economic and
commercial environment and all relevant available public information regarding our clients and the current business environment. Our policy for determining past due accounts focuses on the aging of the receivable balance and the different forms of
payment used by debtos. Receivable balances are written off against the allowance for bad debts once they are deemed uncollectible and all collection efforts and available legal measures have been exhausted.



|i) | Inventories
|-- | -----------

Inventories represent spare parts and materials that
are expected to be consumed and used either by the Company or through third-party maintenance services within one year. Inventories are stated at the lower of cost (determined by the average cost method) or market.



|j) | Other current assets
|-- | --------------------

Other current assets include primarily the
fair value of hedged forecasted jet fuel derivative contracts in unrealized loss positions and restricted funds associated with aircraft leases. At December 31, 2008 the balance also includes deposits serving as collateral for derivative
positions.



F-11



---

##### Table of Contents

|k) | Property and equipment
|-- | ----------------------

Property and equipment are stated at cost
and are depreciated by the straight-line method to their estimated residual values based on the estimated useful lives of the assets. Aircraft and engines are depreciated based on estimated useful life ranging from 10 to 20 years and utilizing a
salvage value based on a residual value percentage of the cost of the asset.

The residual values and basis of depreciation used for the principal asset
classifications are:



|                                      |  |                    |  |                                  
|------------------------------------- |  | ------------------ |  | ---------------------------------
|Asset classification                  |  | Residual Value (%) |  | Basis of depreciation            
|Boeing 767-300 F aircraft             |  | 36                 |  | Useful life (15 years)           
|Boeing 767-300 ER aircraft            |  | 36                 |  | Useful life (15 years)           
|Boeing 737-200 ADV aircraft           |  | 15                 |  | Useful life (until June 30, 2011)
|Boeing 767-200 ER aircraft            |  | 36                 |  | Useful life (15 years)           
|Airbus A-320                          |  | 20                 |  | Useful life (20 years)           
|Airbus A-319                          |  | 20                 |  | Useful life (20 years)           
|Airbus A-318                          |  | 20                 |  | Useful life (20 years)           
|Engines 767                           |  | 36                 |  | Useful life (15 years)           
|Engines 737                           |  | 15                 |  | Useful life (until June 30, 2011)
|Engines Airbus A-318                  |  | 20                 |  | Useful life (20 years)           
|Engines Airbus A-320                  |  | 20                 |  | Useful life (20 years)           
|Engines Airbus A-340                  |  | 36                 |  | Useful life (15 years)           
|Rotating parts                        |  | 20                 |  | Useful life (15 years)           
|Buildings                             |  |                   |  | Useful life (10-50 years)        
|Communications and computer equipment |  |                   |  | Useful life (5-10 years)         
|Furniture and office equipment        |  |                   |  | Useful life (3-10 years)         

Inventories of materials and spare parts, net of provisions for obsolescence, included under other fixed assets
within Property and equipment, are stated at their average cost.

The Company has entered into capital lease agreements related to eight aircraft and
certain buildings and equipment which have bargain purchase options at the end of each contract. These assets are not the legal property of the Company, because it cannot dispose of them until the purchase option is exercised. The assets are
recorded at their fair value on the date of the lease agreement.

The corresponding leasing obligations are presented under long-term liabilities and under
the current portion of long-term leasing obligations.

Impairment losses on long-lived assets used in operations are recorded when events and circumstances
indicate that the assets may be impaired and the undiscounted future cash flows estimated to be generated by these assets are less than the assets' net book value. If an impairment occurs, the loss is measured by comparing the fair value of the
asset to its carrying amount. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.



F-12



---

##### Table of Contents

Under Chilean GAAP, spare parts which are not anticipated to be consumed within the next 12 months are included in
property and equipment. Spare parts are not depreciated, irrespective of whether they are included in fixed assets or inventory and they are expensed upon their usage in maintenance. All spare parts are recorded at the lower of cost or market value.

Spare parts included in the Consolidated Balance Sheet are classified as follows:



|                       |  |                       |  |        |  |       
|---------------------- |  | --------------------- |  | ------ |  | ------
|                       |  | At December 31,      
|                       |  | 2008                  |  | 2007   |  | 2006  
|                       |  | (In thousands of US$)
|Inventories            |  | 50,542                |  | 49,612 |  | 39,734
|Property and equipment |  | 16,026                |  | 21,536 |  | 18,466
|                       |  |                       |  |        |  |       
|Total                  |  | 66,568                |  | 71,148 |  | 58,200
|                       |  |                       |  |        |  |       



|l) | Investments in related companies
|-- | --------------------------------

Investments in related companies
are included in Other assets using the equity method when they represent between 20% and 50% of the voting stock of the investee, or when a Company has a significant influence in the operations of the investment. Accordingly, the Companys
proportional share in the net income (or loss) of each investee is recognized on an accrual basis, after eliminating any unrealized profits or losses from transactions with the investees in Other income (expense)net in the Consolidated
Statements of Income.



|m) | Goodwill
|-- | --------

Under Chilean GAAP, effective January 1, 2004,
Technical Bulletin N° 72 (TB 72) requires the determination of goodwill and negative goodwill based on the fair value of the acquired company. Prior to January 1, 2004, goodwill included the excess of the purchase price of
companies acquired over their net book value; negative goodwill was established when the net book value exceeded the purchase price of companies acquired. Goodwill and negative goodwill also arise from the purchase of investments accounted for by
the equity method.

Goodwill and negative goodwill are amortized over 20 years considering the expected period of return of the investment. The Company
evaluates the recoverability of goodwill on a periodic basis.



|n) | Sale leaseback
|-- | --------------

Gains on sale leaseback transactions are deferred
and recognized over the terms of the lease agreements.



|o) | Air traffic liability and revenue recognition policy
|-- | ----------------------------------------------------

Passenger
ticket sales are recorded as a current liability when sold as air traffic liability in the Consolidated Balance Sheets. Air traffic liability at December 31, 2008 and 2007 amounted to ThUS$ 328,337 and ThUS$ 323,078, respectively.



F-13



---

##### Table of Contents

Passenger and cargo revenues are recognized when the transportation service is provided, which, in the case of passenger
revenues reduces the air traffic liability. Commissions payable related to such unearned earnings are shown net of the air traffic liability. Other revenues include aircraft leases, courier, logistic and ground services, duty free sales, and storage
and customs brokering. These other revenues are recognized when services are provided.



|p) | Aircraft and engine maintenance costs
|-- | -------------------------------------

For owned aircraft, costs
incurred for heavy aircraft and engine maintenance are capitalized and amortized to the next overhaul. For leased aircraft, provisions are accrued in advance based on lease terms and technical reviews considering the aircraft and engines use
expressed in cycles and total flight hours of an aircraft.



|q) | Lease Aircraft Return Costs
|-- | ---------------------------

The majority of leased aircraft return
costs are maintenance and overhaul costs. The airframe and engine overhaul expenses associated with leased aircraft are accrued as part of our overhaul provision included in Other liabilities and reflected in provisions in the Consolidated Balance
Sheet. Such provisions are based on the flight hours incurred by the leased aircraft and also take into consideration the lease terms and the date of incorporation of the aircraft into our fleet. The actual direct costs of physically returning the
planes and related administration costs are expensed when incurred.



|r) | Deferred income tax
|-- | -------------------

Effective January 1, 2000, the effects of
deferred income taxes arising from temporary differences between the basis of assets and liabilities for tax and financial statements purposes are recorded in accordance with Technical Bulletin No. 60 of the Chilean Institute of Accountants and
based on the enacted income tax rate which will be in effect when the temporary differences reverse. The effects of deferred income taxes at January 1, 2000 which were not previously recorded are recognized in income beginning in 2000 as the
temporary differences reverse.

In order to mitigate the effects of recording deferred income taxes that under the prior income tax accounting standard
were not expected to be realized, Technical Bulletin No. 60 provided for a period of transition. Under this transition period, the full effect of using the liability method is not recorded in income at the same time the deferred taxes are
recorded in the balance sheet. Under this transitional provision, a contra asset or liability account (complementary accounts) have been recorded offsetting the effects of the deferred tax assets and liabilities not recorded prior to
January 1, 2000. Such complementary accounts are amortized to income over the estimated average reversal periods corresponding to underlying temporary differences to which the deferred tax asset or liability relates.

Deferred income tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred income tax asset to an amount that is more likely than not to be realized.



|s) | Lan Pass awards and Lan Corporate
|-- | ---------------------------------

The estimated incremental cost
of providing free travel awards under the Lan Pass and Lan Corporate programs are accrued based on the accumulated kilometers for each passenger at the end of each year and by the conditions established by the program and are included in Other
current liabilities in the Consolidated Balance Sheets.



F-14



---

##### Table of Contents

|t) | Employee vacations
|-- | ------------------

The cost of employee vacations is recognized as
an expense on an accrual basis as the vacations are earned by employees and are included in Other current liabilities in the Consolidated Balance Sheets.



|u) | Derivative instruments
|-- | ----------------------

The Company enters into hedging contracts
including interest rate swap agreements, interest rate cap agreements, forward exchange contracts, jet fuel swap agreements, and jet fuel options. The contracts are accounted for in accordance with Technical Bulletin No. 57, Accounting
for Derivative Contracts (TB 57) of the Chilean Institute of Accountants. Under TB 57 all derivative instruments are recognized on the consolidated balance sheet at their fair value. Derivative instruments are accounted for as
follows:

Hedge forecasted transaction:

The derivative
instrument is stated at its fair value on the consolidated balance sheet and any change in the fair value is recognized on the consolidated balance sheet as an unrealized gain or loss in other assets, other liabilities, current or long term, as
applicable. When the contract is settled, the unrealized gain or loss on the instrument is recognized in earnings in Other income (expense)net in the Consolidated Statements of Income.

Firm commitments hedging contracts:

The hedged item and derivative
instrument are measured at fair value on the consolidated balance sheet. Unrealized gains and losses are recorded in earnings in Other income (expense)net in the Consolidated Statements of Income if the net effect is a loss and deferred and
recognized when the contract is settled if it is a gain. The unrecognized gains associated with the derivative instrument are included in other liabilities, current or long term, as applicable.

Investment contracts:

Contracts not accounted for as hedge are
recorded at their fair value through profit and loss.



|v) | Cash and cash equivalents
|-- | -------------------------

The Company considers all short-term,
highly-liquid investment securities with original maturities of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows:



|                                   |  |                       |  |         |  |        
|---------------------------------- |  | --------------------- |  | ------- |  | -------
|                                   |  | At December 31,      
|                                   |  | 2008                  |  | 2007    |  | 2006   
|                                   |  | (In thousands of US$)
|Cash                               |  | 15,707                |  | 11,506  |  | 9,565  
|Time deposits                      |  | 255,881               |  | 308,585 |  | 148,663
|Marketable securities (see Note 4) |  | 129,846               |  | 125,524 |  | 39,654 
|Other current assets               |  |                      |  |        |  | 1,614  
|Total                              |  | 401,434               |  | 445,615 |  | 199,496

Under Chilean GAAP, certain assets (specifically, bonds as of December 31, 2008, 2007 and 2006) are
classified as marketable securities in the Consolidated Balance Sheet, but are not considered cash and cash equivalents for purposes of the consolidated statements of cash flows.



F-15



---

##### Table of Contents

|w) | Capitalized interest
|-- | --------------------

Interest paid on borrowings used to acquire
new aircraft is capitalized as an additional cost of the related assets until the aircraft is received. Interest is capitalized based on the Companys weighted-average interest rate on long-term debt, or if applicable, the interest rate related
to specific borrowings. Interest capitalization ends when the property or equipment is ready for service or its intended use. The Company capitalized ThUS$ 8,407, ThUS$ 4,560 and ThUS$ 2,193 of interest during 2008, 2007 and 2006, respectively.



|x) | Advertising costs
|-- | -----------------

The Company expenses advertising costs as Other
operating expenses in the period incurred. Advertising expense totaled ThUS$ 42,069, ThUS$ 37,532 and ThUS$ 23,459 during 2008, 2007 and 2006, respectively.



|y) | Stock issuance costs
|-- | --------------------

Stock issuance costs are those incurred by
the parent company, which are related to the issuance and placement of unsubscribed shares, including placement fees, legal counseling, accounting advice, financial consulting, printing and recording or registration fees. Such costs have been
recorded in the Stock issuance and placement cost account, as part of Shareholders equity under the Other reserves caption.

Stock issuance and placement
costs have been recorded pursuant to Circular Letters No. 1736 and 1370, issued by the Superintendency.



|z) | Stock options plans
|-- | -------------------

Effective January 1, 2007 the Company
accounts for stock-based compensation plans in accordance with the International Financial Reporting Standard No. 2 Share-based payment, showing the effect of recording the fair value of the options granted as wages and benefits on a
straight-line basis over the period between the date of granting of these options to the date that these become vested.



|aa) | Intangibles
|--- | -----------

Disbursements for the development of internal use
software are charged to the results of operations as incurred. External direct costs of materials and services rendered in developing an enterprise resource planning system (an SAP R/3 system) and interest costs incurred during development are
capitalized. Payroll related costs were not significant and have been expensed. Training costs and data conversion costs are expensed as incurred.



F-16



---

##### Table of Contents

|ab) | Reclassifications
|--- | -----------------

Certain 2006 and 2007 amounts in the
accompanying Consolidated Financial Statements have been reclassified to conform to the 2008 presentation. The reclassifications had no significant effect on the previously reported presentation of consolidated net income or shareholders
equity.



|ac) | Future accounting change
|--- | ------------------------

As previously informed, Chile is
committed to develop a plan of conversion to adopt International Financial Reporting Standars (IFRS). In conformity with this plan, Lan Airlines S.A. and its related companies, must adopt such standards as of January 1, 2009. Because of this
accounting change, shareholders equity and consolidated net income will be affected. In the same way, the Consolidated Financial Statements at December 31, 2008, that will be also prepared in accordance with IFRS for comparison purposes,
could differ from these.

NOTE 3 - ACCOUNTING CHANGES

Effective January 1, 2008, the Company began capitalizing interest expense related to the financing of pre delivery payments (PDP ́s) for the acquisition of aircraft (interest during the construction period).

The cumulative effect of this accounting change at January 1, 2008, increased nonoperating income by ThUS$ 13,963, as described in Note 22. For
the fiscal year 2008, this change resulted in a ThUS$ 12,576 reduction to Interest expenses in the Consolidated Statements of Income.

Effective
January 1, 2006, the Company changed its method of accounting for heavy aircraft and engine maintenance costs associated with its owned aircraft. Previously, the Company accrued a liability for these costs in its consolidated balance sheet
under the caption Provisions for both short and long  term. Such privision was established based on the total cycles and flight hours flown by an aircraft since its incorporation into the Companys fleet, or since its last
repair. Under the new method, the costs incurred in heavy owned aircraft and engine maintenance are capitalized and amortized to the next overhaul.

The
cumulative effect of this accounting change at January 1, 2006, increased non-operating income by US$40.3 million, as it is described in Note 22. For the accounting year 2006, this change resulted in a ThUS$3,121 reduction to Operating expenses
in the Consolidated Statement of Income.

NOTE 4 - MARKETABLE SECURITIES

Marketable securities include the following:



|                          |  |                       |  |        
|------------------------- |  | --------------------- |  | -------
|                          |  | At December 31,      
|                          |  | 2008                  |  | 2007   
|                          |  | (In thousands of US$)
|Bonds                     |  | 8,580                 |  | 22,428 
|Defined-term mutual funds |  | 129,846               |  | 125,524
|                          |  |                       |  |        
|Total                     |  | 138,426               |  | 147,952
|                          |  |                       |  |        



F-17



---

##### Table of Contents

Bonds recorded at December 31, 2008 are summarized as follows:



|              |  |            |  |               |  |                      |  |                       |  |      
|------------- |  | ---------- |  | ------------- |  | -------------------- |  | --------------------- |  | -----
|              |  |            |  |               |  | At December 31, 2008
|              |  | Date of    |  | Interest rate |  | Carryingamount       |  | Marketvalue          
|              |  | Purchase   |  | Maturity      |  |                      | 
|              |  |            |  |               |  | %                    |  | (In thousands of US$)
|Chilean bonds |  | 06/08/2004 |  | 12/01/2009    |  | 4.66                 |  | 283                   |  | 336  
|Foreign bonds |  | 01/05/2007 |  | 10/25/2009    |  | 7.95                 |  | 8,297                 |  | 8,681
|              |  |            |  |               |  |                      |  |                       |  |      
|Total         |  |            |  |               |  |                      |  | 8,580                 |  | 9,017
|              |  |            |  |               |  |                      |  |                       |  |      

NOTE 5 - ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

Short-term



|                                         |  |                       |  |        
|---------------------------------------- |  | --------------------- |  | -------
|                                         |  | At December 31,      
|                                         |  | 2008                  |  | 2007   
|                                         |  | (In thousands of US$)
|Accounts receivable  passenger services |  | 133,892               |  | 97,232 
|Accounts receivable  cargo services     |  | 154,789               |  | 163,758
|Advances for purchases of aircraft       |  | 93,399                |  | 120,906
|Other accounts receivable                |  | 56,489                |  | 86,405 
|                                         |  |                       |  |        
|Total                                    |  | 438,569               |  | 468,301
|                                         |  |                       |  |        

Accounts receivable are shown net of an allowance for bad debts of ThUS$ 22,758 at December 31, 2008 and
ThUS$ 21,946 at December 31, 2007.



|                        |  |                |  |                       |  |            |   |  |               
|----------------------- |  | -------------- |  | --------------------- |  | ---------- | - |  | --------------
|Allowance for bad debts |  | Openingbalance |  | Chargedto expenses    |  | Deductions |   |  | Closingbalance
|                        |  |                |  | (In thousands of US$) |  |            |  
|December 31, 2008       |  | 21,946         |  | 7,680                 |  | (6,868     | ) |  | 22,758        
|December 31, 2007       |  | 28,364         |  | 7,244                 |  | (13,662    | ) |  | 21,946        
|December 31, 2006       |  | 25,800         |  | 6,424                 |  | (3,860     | ) |  | 28,364        

Included in short term accounts receivable as of December 31, 2008 are a total of approximately US$
18.6 million from the Brazilian company VRG LINHAS AEREAS S.A. and a total of US$ 1.8 million from Florida West International Airways INC.- reclassified from balances with related companies since the participation that the subsidiary Lan Cargo
S.A. had, was sold in December 2007. See Note 10.

Long-term

Long-term accounts receivable at December 31, 2008 and 2007 amounted to ThUS$ 11,200 and ThUS$ 12,171, respectively.



F-18



---

##### Table of Contents

NOTE 6 - INVENTORIES

Inventories are summarized as follows:



|                                               |  |                       |  |       
|---------------------------------------------- |  | --------------------- |  | ------
|                                               |  | At December 31,      
|                                               |  | 2008                  |  | 2007  
|                                               |  | (In thousands of US$)
|Spare parts and materials used for maintenance |  | 50,542                |  | 49,612
|Duty-free inventories                          |  | 67                    |  | 4,410 
|                                               |  |                       |  |       
|Total                                          |  | 50,609                |  | 54,022
|                                               |  |                       |  |       

NOTE 7 - PREPAID EXPENSES

Prepaid expenses include the following:



|                                                                   |  |                       |  |       
|------------------------------------------------------------------ |  | --------------------- |  | ------
|                                                                   |  | At December 31,      
|                                                                   |  | 2008                  |  | 2007  
|                                                                   |  | (In thousands of US$)
|Prepaid insurance on aircraft and others                           |  | 5,374                 |  | 4,475 
|Prepaid rentals on aircraft and costs of receiving leased aircraft |  | 5,147                 |  | 6,715 
|Prepaid advertising services                                       |  | 1,757                 |  | 708   
|Other                                                              |  | 1,068                 |  | 1,051 
|                                                                   |  |                       |  |       
|Total                                                              |  | 13,346                |  | 12,949
|                                                                   |  |                       |  |       

Costs of receiving aircraft include all costs incurred by the Company and its subsidiaries in order for them to be
operational. Such costs are deferred and amortized to operating expenses over the term of the specified contract. Costs of returning leased aircraft, excluding maintenance and overhaul, are expensed as incurred.

NOTE 8 - OTHER CURRENT ASSETS

Other current assets consist of the
following:



|                                                                                  |  |                       |  |       
|--------------------------------------------------------------------------------- |  | --------------------- |  | ------
|                                                                                  |  | At December 31,      
|                                                                                  |  | 2008                  |  | 2007  
|                                                                                  |  | (In thousands of US$)
|Restricted funds associated with aircraft leases and purchases and other deposits |  | 208                   |  | 3,634 
|Fair value of derivative contracts                                                |  | 178,234               |  | 6,280 
|Collateral deposits on derivative contracts(1)                                    |  | 177,840               |  |      
|Other                                                                             |  | 2,536                 |  | 3,126 
|                                                                                  |  |                       |  |       
|Total                                                                             |  | 358,818               |  | 13,040
|                                                                                  |  |                       |  |       



|(1) | The collaterals are included in Other cash flows from financing activities in the Consolidated Statements of Cash Flows.
|--- | ------------------------------------------------------------------------------------------------------------------------



F-19



---

##### Table of Contents

NOTE 9 - PROPERTY AND EQUIPMENT AND FLEET COMPOSITION



|a) | Property and equipment
|-- | ----------------------

Property and equipment are summarized as
follows:



|                                        |  |                       |   |  |           |  
|--------------------------------------- |  | --------------------- | - |  | --------- | -
|                                        |  | At December 31,       |  
|                                        |  | 2008                  |   |  | 2007      |  
|                                        |  | (In thousands of US$) |  
|Flight equipment:                       |  |                       |   |  |           |  
|Boeing 767 aircraft under capital lease |  | 642,861               |   |  | 638,534   |  
|Boeing 737  200ADV aircraft            |  | 4,755                 |   |  | 13,836    |  
|Boeing 767  300ER aircraft             |  | 1,053,999             |   |  | 678,159   |  
|Boeing 767  300F freighter aircraft    |  | 273,645               |   |  | 273,343   |  
|Airbus A-318 aircraft                   |  | 441,917               |   |  | 140,900   |  
|Airbus A-319 aircraft                   |  | 414,243               |   |  | 342,147   |  
|Airbus A-320 aircraft                   |  | 312,504               |   |  | 225,980   |  
|Engines and rotating parts              |  | 387,030               |   |  | 397,764   |  
|Spare parts                             |  | 16,026                |   |  | 21,536    |  
|Other                                   |  | 61,345                |   |  | 43,694    |  
|Land and buildings:                     |  |                       |   |  |           |  
|Land                                    |  | 26,397                |   |  | 14,424    |  
|Buildings                               |  | 64,582                |   |  | 64,313    |  
|Other installations                     |  | 40,741                |   |  | 40,164    |  
|Construction in progress                |  | 3,035                 |   |  | 1,513     |  
|Other fixed assets:                     |  |                       |   |  |           |  
|Communication and computer equipment    |  | 73,135                |   |  | 74,588    |  
|Furniture and office equipment          |  | 17,261                |   |  | 16,270    |  
|Other                                   |  | 63,122                |   |  | 63,159    |  
|                                        |  |                       |   |  |           |  
|Property and equipment (gross)          |  | 3,896,598             |   |  | 3,050,324 |  
|Less: Accumulated depreciation          |  | (803,230              | ) |  | (698,719  | )
|                                        |  |                       |   |  |           |  
|Property and equipment (net)            |  | 3,093,368             |   |  | 2,351,605 |  
|                                        |  |                       |   |  |           |  



F-20



---

##### Table of Contents

Included in Property and equipment at December 31, 2008 and 2007, are ThUS$ 642,861 and ThUS$ 638,534 of
equipment under capital leases with accumulated depreciation aggregating ThUS$ 255,824 and ThUS$ 236,007, respectively.

Depreciation expense for the
years ended December 31, 2008, 2007 and 2006, amounted to ThUS$ 174,905, ThUS$ 143,796 and ThUS$ 115,939, respectively.

The balance of spare parts is
presented net of a provision for obsolescence amounting to ThUS$ 10,246 at December 31, 2008 and ThUS$ 9,646 at December 31, 2007.

As of
December 31, 2008, Property and equipment is shown net of a provision for retirement of ThUS$ 1,716 for Boeing 737 aircraft (ThUS$ 5,400 at December 31, 2007).



|b) | Fleet composition
|-- | -----------------

At December 31, 2008, the fleet of the
Company consists of 96 aircraft, of which 63 aircraft are owned by, or under capital lease to, the Company and 33 aircraft are leased under operating leases.

Aircraft owned:



|                |  |        |  |           |  |      |  |     
|--------------- |  | ------ |  | --------- |  | ---- |  | ----
|Aircraft        |  | Model  |  | Use       |  | 2008 |  | 2007
|Boeing 737 (*)  |  | 200ADV |  | Passenger |  | 4    |  | 5   
|Boeing 737 (*)  |  | 200ADV |  | Freight   |  | 1    |  | 1   
|Boeing 767      |  | 300ER  |  | Passenger |  | 14   |  | 10  
|Boeing 767      |  | 300F   |  | Freight   |  | 8    |  | 8   
|Boeing 767 (**) |  | 200ER  |  | Passenger |  | 1    |  | 1   
|Airbus A-318    |  | 100    |  | Passenger |  | 15   |  | 5   
|Airbus A-319    |  | 100    |  | Passenger |  | 12   |  | 10  
|Airbus A-320    |  | 200    |  | Passenger |  | 8    |  | 6   
|                |  |        |  |           |  |      |  |     
|Total owned     |  |        |  |           |  | 63   |  | 46  
|                |  |        |  |           |  |      |  |     



|(*) | Leased to Sky Services S.A.
|--- | ---------------------------



|(**) | Leased to Aerovías de México S.A.
|---- | ---------------------------------

Leased aircraft under
operating leases:



|                       |  |        |  |           |  |      |  |     
|---------------------- |  | ------ |  | --------- |  | ---- |  | ----
|Aircraft               |  | Model  |  | Use       |  | 2008 |  | 2007
|Boeing 767             |  | 300ER  |  | Passenger |  | 12   |  | 12  
|Boeing 767             |  | 300F   |  | Freight   |  | 1    |  | 1   
|Boeing 737             |  | 200ADV |  | Passenger |  |     |  | 6   
|Airbus A 319           |  | 100    |  | Passenger |  | 5    |  | 5   
|Airbus A 320           |  | 200    |  | Passenger |  | 10   |  | 11  
|Airbus A 340           |  | 300    |  | Passenger |  | 5    |  | 5   
|                       |  |        |  |           |  |      |  |     
|Total leased           |  |        |  |           |  | 33   |  | 40  
|                       |  |        |  |           |  |      |  |     
|Total owned and leased |  |        |  |           |  | 96   |  | 86  
|                       |  |        |  |           |  |      |  |     



F-21



---

##### Table of Contents

NOTE 10 - INVESTMENTS IN RELATED COMPANIES AND GOODWILL



|a) | Investments in related companies
|-- | --------------------------------

Investments in related companies
accounted for by the equity method are summarized as follows:



|                                        |  |                         |  |                         |  |                                    |  |       |  |       |  |                       |   |  |        |   |  |     
|--------------------------------------- |  | ----------------------- |  | ----------------------- |  | ---------------------------------- |  | ----- |  | ----- |  | --------------------- | - |  | ------ | - |  | ----
|                                        |  | Percentage of ownership |  | Book value ofinvestment |  | Proportional Shareof income (loss)
|Company                                 |  | 2008                    |  | 2007                    |  | 2006                               |  | 2008  |  | 2007  |  | 2008                  |   |  | 2007   |   |  | 2006
|                                        |  | %                       |  | %                       |  | %                                  |  |       |  |       |  | (In thousands of US$)
|Concesionaria Chucumata S.A.            |  | 16,7                    |  | 16,7                    |  | 16,7                               |  | 7     |  | 119   |  | 21                    |   |  | 123    |   |  | 135 
|Lufthansa Lan Chile Technical           |  |                         |  |                         |  |                                    |  |       |  |       |  |                       |   |  |        |   |  |     
|Training S.A.                           |  | 50                      |  | 50                      |  | 50                                 |  | 580   |  | 702   |  | 176                   |   |  | 224    |   |  | 196 
|Austral Sociedad Concesionaria S.A.     |  | 20                      |  | 20                      |  | 20                                 |  | 600   |  | 661   |  | 376                   |   |  | 257    |   |  | 173 
|Florida West International              |  |                         |  |                         |  |                                    |  |       |  |       |  |                       |   |  |        |   |  |     
|Airways Inc.(1)                         |  |                        |  |                        |  | 25                                 |  |      |  |      |  |                      |   |  | (497   | ) |  | 76  
|Lanlogistics, Corp(2)                   |  |                        |  |                        |  |                                   |  |      |  |      |  |                      |   |  | (5,193 | ) |  |    
|Choice Air Courier del Perú S.A.(1)     |  |                        |  |                        |  | 50                                 |  |      |  |      |  |                      |   |  |       |   |  | 18  
|Sistema de Distribución Amadeus S.A.(3) |  |                        |  |                        |  |                                   |  |      |  |      |  | (162                  | ) |  |       |   |  |    
|Sociedad de Seguridad Aérea S.A.(3)     |  |                        |  |                        |  |                                   |  |      |  |      |  | 194                   |   |  |       |   |  |    
|Lan Card S.A.(3)                        |  |                        |  |                        |  |                                   |  |      |  |      |  | 345                   |   |  |       |   |  |    
|Trinery S.A.(4)                         |  |                        |  |                        |  |                                   |  |      |  |      |  | (2                    | ) |  |       |   |  |    
|                                        |  |                         |  |                         |  |                                    |  |       |  |       |  |                       |   |  |        |   |  |     
|Total                                   |  |                         |  |                         |  |                                    |  | 1,187 |  | 1,482 |  | 948                   |   |  | (5,086 | ) |  | 598 
|                                        |  |                         |  |                         |  |                                    |  |       |  |       |  |                       |   |  |        |   |  |     



|(1) | During 2007, these entities were sold.
|--- | --------------------------------------

|(2) | During 2007, this entity was dissolved.
|--- | ---------------------------------------

|(3) | During 2008, these entities were sold
|--- | -------------------------------------

|(4) | During 2008, this entity was dissolved
|--- | --------------------------------------



|b) | Goodwill and negative goodwill
|-- | ------------------------------

The changes in Goodwill and
negative goodwill during the years 2008 and 2007 were as follows:



|                                                                |  |                       |  |                        |   |  |              |   |  |                        
|--------------------------------------------------------------- |  | --------------------- |  | ---------------------- | - |  | ------------ | - |  | -----------------------
|Company                                                         |  | BalanceJanuary 1,2008 |  | Additionsanddeductions |   |  | Amortization |   |  | BalanceDecember 31,2008
|                                                                |  | (In thousands of US$)
|Goodwill on purchase of:                                        |  |                       |  |                        |   |  |              |   |  |                        
|Lan Cargo S.A.                                                  |  | 17,194                |  |                       |   |  | (1,810       | ) |  | 15,384                 
|Prime Airport Service Inc.                                      |  | 369                   |  |                       |   |  | (35          | ) |  | 334                    
|Mas Investment Limited                                          |  | 2,363                 |  |                       |   |  | (181         | ) |  | 2,182                  
|Air Cargo Limited                                               |  | 553                   |  | (553                   | ) |  |             |   |  |                       
|Promotora Aérea Latinoamericana S.A.                            |  | 1,211                 |  |                       |   |  | (84          | ) |  | 1,127                  
|Inversiones Aéreas S.A. (purchase of interest in Lan Perú S.A.) |  | 4,002                 |  |                       |   |  | (294         | ) |  | 3,708                  
|Aerolinheas Brasileiras S.A.                                    |  | 2,014                 |  |                       |   |  | (143         | ) |  | 1,871                  
|H.G.A. Rampas y Servicios A. de Guayaquil S.A.                  |  | 33                    |  |                       |   |  | (2           | ) |  | 31                     
|H.G.A. Rampas del Ecuador S.A.                                  |  | 32                    |  |                       |   |  | (2           | ) |  | 30                     
|Inversora Cordillera S.A.                                       |  | 7,617                 |  |                       |   |  | (422         | ) |  | 7,195                  
|Lan Argentina S.A.                                              |  | 634                   |  | (39                    | ) |  | (45          | ) |  | 550                    
|                                                                |  |                       |  |                        |   |  |              |   |  |                        
|Total Goodwill                                                  |  | 36,022                |  | (592                   | ) |  | (3,018       | ) |  | 32,412                 
|                                                                |  |                       |  |                        |   |  |              |   |  |                        



F-22



---

##### Table of Contents

|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        
|--------------------------------------------------------------- |  | --------------------- | - |  | ---------------------- | - |  | ------------ | - |  | -----------------------
|Company                                                         |  | BalanceJanuary 1,2007 |   |  | Additionsanddeductions |   |  | Amortization |   |  | BalanceDecember 31,2007
|                                                                |  | (In thousands of US$)
|Goodwill on purchase of:                                        |  |                       |   |  |                        |   |  |              |   |  |                        
|Lan Cargo S.A.                                                  |  | 19,004                |   |  |                       |   |  | (1,810       | ) |  | 17,194                 
|Prime Airport Service Inc.                                      |  | 405                   |   |  |                       |   |  | (36          | ) |  | 369                    
|Mas Investment Limited                                          |  | 2,544                 |   |  |                       |   |  | (181         | ) |  | 2,363                  
|Air Cargo Limited                                               |  | 595                   |   |  |                       |   |  | (42          | ) |  | 553                    
|Promotora Aérea Latinoamericana S.A.                            |  | 1,295                 |   |  |                       |   |  | (84          | ) |  | 1,211                  
|Inversiones Aéreas S.A. (purchase of interest in Lan Perú S.A.) |  | 4,296                 |   |  |                       |   |  | (294         | ) |  | 4,002                  
|Aerolinheas Brasileiras S.A.                                    |  | 2,157                 |   |  |                       |   |  | (143         | ) |  | 2,014                  
|Skyworld International Couriers, Inc.(1)                        |  | 3,826                 |   |  | (3,826                 | ) |  |             |   |  |                       
|Lan Box, Inc.(1)                                                |  | 1,796                 |   |  | (1,796                 | ) |  |             |   |  |                       
|SkyBox Services Corp.(1)                                        |  | 639                   |   |  | (639                   | ) |  |             |   |  |                       
|H.G.A. Rampas y Servicios A. de Guayaquil S.A.                  |  | 35                    |   |  |                       |   |  | (2           | ) |  | 33                     
|H.G.A. Rampas del Ecuador S.A.                                  |  | 34                    |   |  |                       |   |  | (2           | ) |  | 32                     
|Inversora Cordillera S.A.                                       |  | 6,226                 |   |  | 1,754                  |   |  | (363         | ) |  | 7,617                  
|Lan Argentina S.A.                                              |  | 688                   |   |  | (17                    | ) |  | (37          | ) |  | 634                    
|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        
|Total Goodwill                                                  |  | 43,540                |   |  | (4,524                 | ) |  | (2,994       | ) |  | 36,022                 
|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        
|Negative goodwill on purchase of:                               |  |                       |   |  |                        |   |  |              |   |  |                        
|Choice Air Courier del Perú S.A.(1)                             |  | (71                   | ) |  | 71                     |   |  |             |   |  |                       
|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        
|Total Negative Goodwill                                         |  | (71                   | ) |  | 71                     |   |  |             |   |  |                       
|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        
|Total                                                           |  | 43,469                |   |  | (4,453                 | ) |  | (2,994       | ) |  | 36,022                 
|                                                                |  |                       |   |  |                        |   |  |              |   |  |                        



|(1) | During 2007 these entities were sold.
|--- | -------------------------------------



|c) | Acquisitions and other information
|-- | ----------------------------------

LanLogistics, Corp.

On May 16, 2007, Lan Logistic Corp. (an affiliate of Lan Cargo S.A.) sold all its stake in Skyworld International Couriers Inc. and Lanbox Inc.
Previously, Lan Logistic Corp. had sold its stake in All Cargo Net on April 30, 2007. All such operations resulted in a loss after sale amounting to ThUS$ 4,252.

Due to the aforementioned, the negative goodwill which Lan Logistics Corp. had recorded in the purchase of such investments was included in the determination of the loss on the sale of such investment.

On December 20, 2007, the Corporate Division of the State of Delaware authorized the dissolution of Lan Logistics Corporation (a LAN Cargo S.A. affiliate).

Lan Pax Group S.A.

On August 28, 2007, the Lan
Pax Group S.A. affiliate took part in the capital increase at Inversora Cordillera S.A. for an amount of ThUS$ 18,526, increasing its stake from 80% to 90.52% Such operation generated negative goodwill amounting to ThUS$ 1,755.



F-23



---

##### Table of Contents

On December 20, 2007, an agreement was reached at the Extraordinary Shareholders Meeting to reduce the capital of
the Lan Argentina S.A. affíliate. Such reduction was made proportional to each shareholders stake. The capital, which was originally made up by 11,068,484 nominal shares, was reduced to 6,176,253 nominal shares.

On December 16, 2008, an agreement was reached at the Shareholders Meeting to reduce the capital of the Lan Argentina S.A. affiliate in the mount of ThUS$ 15,562,
absorbing part of its retained earnings. The new capital of LAN Argentina S.A. amounts to ThUS$ 4,389 at December 31, 2008.

Lan Cargo S.A.

On December 20, 2007, the Air Cargo Limited Corporation, an affiliate of Lan Cargo Overseas Limited, sold all its stake in Florida West International
Airways Inc., an operation that generated profits amounting to ThUS$ 1,128.

On January 2, 2008, the Lan Cargo S.A. and Inversiones Lan S.A.
affiliates sold all their stake at Terminal de Exportación Internacional S.A. (International Export Terminal Corporation), generating profits amounting to ThUS$ 1,636.

On May 7, 2008, Lan Courier S.A, an affiliate of Lan Cargo S.A. changed its legal name to Blue Express Intl. S.A.

On
July 2, 2008, Lan Cargo S.A. announced that it received authorization for the creation of a new cargo affiliate airline in Colombia. Lan Cargo S.A. estimated that the operational and technical certification process would take approximately six
months to complete, which means that the new Colombian operations should be launched during the first quarter 2009.

On July 24, 2008, Sociedad
Línea Aérea Carguera de Colombia S.A. was incorporated, where Lan Cargo Inversiones S.A., an affiliate of Lan Cargo S.A., has an ownership of 94.9%, equivalent to ThUS$ 664, Fast Air Almacenes de Carga S.A. has an ownership of 1.6%
equivalent to ThUS$ 11 and Transporte Aéreo S.A. has an ownership of 0.3% equivalent to ThUS$ 2.

On August 7, 2008, Lan Cargo S.A. and
Inversiones Lan S.A. sold all their stake at Sociedad de Seguridad Aérea S.A. (Segaer S.A.), an operation that generated profits amounting to ThUS$ 133.

On December 31, 2008, the agreement of the dissolution of South Florida Air Cargo Inc., an affiliate of Lan Cargo S.A., was reached. There were no accounting effects in the Consolidated Statements of Income due
to this dissolution.

Lan Perú S.A.

In May
2008, Lan Perú S.A. made a capital increase for an amount of ThUS$ 611, as a capitalization of its retained earnings.

Sistemas de
Distribución Amadeus Chile S.A.

On May 6, 2008, Lan Airlines S.A. and its indirect affiliate, Transporte Aéreo S.A., sold all their
stake in Sociedad Sistemas de Distribución Amadeus Chile S.A. This operation resulted in a gain amounting to ThUS$ 1,082.



F-24



---

##### Table of Contents

Lan Cargo Inversiones S.A. (Ex - Línea Aérea Nacional S.A.)

On April 22, 2008, the indirect affiliate, Línea Aérea Nacional S.A. changed its legal name to Lan Cargo Inversiones S.A.

Lan Chile Investments Limited

On December 31, 2008, the
agreement of the dissolution of Sociedad Líneas Aéreas de Navegación Dominicana S.A., was reached. There were no accounting effects in the Consolidated Statements of Income due to this dissolution.

In October 2008, the Superintendency of Companies of Guayaquil authorized the dissolution of the affiliate Trinery S.A.

NOTE 11 - ADVANCES FOR PURCHASES OF AIRCRAFT AND OTHER DEPOSITS

Advances for purchases of aircraft and other deposits are summarized as follows:



|                                   |  |                       |  |        
|---------------------------------- |  | --------------------- |  | -------
|                                   |  | At December 31,      
|                                   |  | 2008                  |  | 2007   
|                                   |  | (In thousands of US$)
|Advances for purchases of aircraft |  | 193,325               |  | 300,094
|Deposits on aircraft leases        |  | 13,681                |  | 13,781 
|Other deposits                     |  | 2,209                 |  | 2,568  
|                                   |  |                       |  |        
|Total                              |  | 209,215               |  | 316,443
|                                   |  |                       |  |        

NOTE 12 - OTHER ASSETS

Other assets are summarized as follows:



|                                             |  |                       |  |       
|-------------------------------------------- |  | --------------------- |  | ------
|                                             |  | At December 31,      
|                                             |  | 2008                  |  | 2007  
|                                             |  | (In thousands of US$)
|Unrealized losses on derivative contracts(1) |  | 154,602               |  | 57,177
|Spare parts for sale(2)                      |  | 4,701                 |  | 1,645 
|Aircraft for sale(2)                         |  | 1,179                 |  | 2,430 
|Intangibles and other                        |  | 45,715                |  | 32,939
|                                             |  |                       |  |       
|Total                                        |  | 206,197               |  | 94,191
|                                             |  |                       |  |       



|(1) | The corresponding fair value derivative contract liability is
recorded in Other current liabilities and in Other creditors long term.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(2) | Spare parts for sale and aircraft for sale are shown net of a provision for market value adjustment of ThUS$ 13,007 at
December 31, 2008 (ThUS$ 2,186 at December 31, 2007).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25



---

##### Table of Contents

NOTE 13 - OTHER LIABILITIES AND PROVISIONS

Other liabilities and provisions are summarized as follows:



|a) | Other current liabilities
|-- | -------------------------



|                                                                     |  |                       |  |        
|-------------------------------------------------------------------- |  | --------------------- |  | -------
|                                                                     |  | At December 31,      
|                                                                     |  | 2008                  |  | 2007   
|                                                                     |  | (In thousands of US$)
|Engine overhaul provision                                            |  | 60,830                |  | 65,921 
|Withholdings on employee salaries                                    |  | 9,337                 |  | 9,552  
|Employee vacations                                                   |  | 16,612                |  | 16,684 
|Lan Pass awards and Lan Corporate liability (frequent flyer mileage) |  | 7,983                 |  | 8,906  
|Income taxes payable                                                 |  | 1,537                 |  | 8,101  
|Boarding fees                                                        |  | 51,734                |  | 48,527 
|Fair value of derivative contracts                                   |  | 178,145               |  | 4,722  
|Others                                                               |  | 34,200                |  | 14,257 
|                                                                     |  |                       |  |        
|Total                                                                |  | 360,378               |  | 176,670
|                                                                     |  |                       |  |        



|b) | Provisions (long-term)
|-- | ----------------------



|                                                                                 |  |                       |  |       
|-------------------------------------------------------------------------------- |  | --------------------- |  | ------
|                                                                                 |  | At December 31,      
|                                                                                 |  | 2008                  |  | 2007  
|                                                                                 |  | (In thousands of US$)
|Engine overhaul provision                                                        |  | 55,641                |  | 48,544
|Reserve for loss related to the ongoing investigation by the European Commission |  | 25,000                |  | 25,000
|Employee vacations                                                               |  | 6,204                 |  | 7,934 
|Others                                                                           |  | 5,748                 |  | 12,963
|                                                                                 |  |                       |  |       
|Total                                                                            |  | 92,593                |  | 94,441
|                                                                                 |  |                       |  |       



F-26



---

##### Table of Contents

NOTE 14 - INCOME TAX



|a) | Charges arising from income tax amount to ThUS$ 10,309, ThUS$ 13,995 and ThUS$ 14,123 in 2008, 2007 and 2006 respectively, and have been determined based on current local tax
legislation.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) | Deferred income taxes
|-- | ---------------------

At December 31, 2008, the accumulated
balances from deferred taxes originating from temporary differences were as follows:



|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|----------------------------------------- |  | --------------------- | - |  | ------------------------ | - |  | ---------- |  | --------- | -
|                                          |  | Deferred tax Assets   |   |  | Deferred tax Liabilities |  
|                                          |  | Short-term            |   |  | Long-term                |   |  | Short-term |  | Long-term |  
|                                          |  | (In thousands of US$) |  
|Allowance for doubtful accounts           |  | 5,213                 |   |  | 236                      |   |  |           |  |          |  
|Provision for obsolescence of spare parts |  | 2,020                 |   |  |                         |   |  |           |  |          |  
|Provision for vacations                   |  | 2,509                 |   |  | 1,109                    |   |  |           |  |          |  
|Tax loss carry forwards                   |  | 3                     |   |  | 14,374                   |   |  |           |  |          |  
|Others                                    |  | 7,312                 |   |  | 36,196                   |   |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Gross deferred tax assets                 |  | 17,057                |   |  | 51,915                   |   |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Prepaid expenses                          |  |                      |   |  |                         |   |  | 8,857      |  | 735       |  
|Unearned income                           |  |                      |   |  |                         |   |  |           |  | 30,883    |  
|Property and equipment                    |  |                      |   |  |                         |   |  | 7          |  | 215,538   |  
|Others                                    |  |                      |   |  |                         |   |  |           |  | 38,684    |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Gross deferred tax liabilities            |  |                      |   |  |                         |   |  | 8,864      |  | 285,840   |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Less: Complementary accounts              |  |                      |   |  |                         |   |  |           |  | (8,169    | )
|Deferred tax assets valuation allowance   |  | (1,648                | ) |  | (2,476                   | ) |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Total                                     |  | 15,409                |   |  | 49,439                   |   |  | 8,864      |  | 277,671   |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  



F-27



---

##### Table of Contents

At December 31, 2007, the accumulated balances from deferred taxes originating from temporary differences were as
follows:



|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|----------------------------------------- |  | --------------------- | - |  | ------------------------ | - |  | ---------- |  | --------- | -
|                                          |  | Deferred tax Assets   |   |  | Deferred tax Liabilities |  
|                                          |  | Short-term            |   |  | Long-term                |   |  | Short-term |  | Long-term |  
|                                          |  | (In thousands of US$) |  
|Allowance for doubtful accounts           |  | 4,444                 |   |  | 141                      |   |  |           |  |          |  
|Provision for obsolescence of spare parts |  | 2,935                 |   |  |                         |   |  |           |  |          |  
|Provision for vacations                   |  | 2,511                 |   |  | 1,402                    |   |  |           |  |          |  
|Tax loss carry forwards                   |  | 34                    |   |  | 23,320                   |   |  |           |  |          |  
|Others                                    |  | 2,058                 |   |  | 22,927                   |   |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Gross deferred tax assets                 |  | 11,982                |   |  | 47,790                   |   |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Prepaid expenses                          |  |                      |   |  |                         |   |  | 3,547      |  | 1,264     |  
|Unearned income                           |  |                      |   |  |                         |   |  |           |  | 17,781    |  
|Property and equipment                    |  |                      |   |  |                         |   |  |           |  | 161,114   |  
|Others                                    |  |                      |   |  |                         |   |  | 2,163      |  | 27,787    |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Gross deferred tax liabilities            |  |                      |   |  |                         |   |  | 5,710      |  | 207,946   |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Less: Complementary accounts              |  |                      |   |  |                         |   |  |           |  | (8,407    | )
|Deferred tax assets valuation allowance   |  | (1,648                | ) |  | (18,136                  | ) |  |           |  |          |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  
|Total                                     |  | 10,334                |   |  | 29,654                   |   |  | 5,710      |  | 199,539   |  
|                                          |  |                       |   |  |                          |   |  |            |  |           |  



|c) | Effect on results
|-- | -----------------



|                            |  |                                  |   |  |         |   |  |         |  
|--------------------------- |  | -------------------------------- | - |  | ------- | - |  | ------- | -
|                            |  | For the years ended December 31, |  
|                            |  | 2008                             |   |  | 2007    |   |  | 2006    |  
|                            |  | (In thousands of US$)            |  
|Current income tax expense  |  | (10,309                          | ) |  | (13,995 | ) |  | (14,123 | )
|Deferred income tax expense |  | (56,426                          | ) |  | (44,810 | ) |  | (32,545 | )
|Other tax expense           |  | 2,045                            |   |  | (970    | ) |  | (169    | )
|                            |  |                                  |   |  |         |   |  |         |  
|Total                       |  | (64,690                          | ) |  | (59,775 | ) |  | (46,837 | )
|                            |  |                                  |   |  |         |   |  |         |  



|d) | At December 31, 2008, 2007 and 2006, deferred tax assets valuation allowance are as follows:
|-- | --------------------------------------------------------------------------------------------



|                    |  |                       |  |                    |  |            |   |  |               
|------------------- |  | --------------------- |  | ------------------ |  | ---------- | - |  | --------------
|Valuation allowance |  | Openingbalance        |  | Chargedto expenses |  | Deductions |   |  | Closingbalance
|                    |  | (In thousands of US$)
|December 31, 2008   |  | 19,784                |  |                   |  | (15,660    | ) |  | 4,124         
|December 31, 2007   |  | 15,302                |  | 4,482              |  |           |   |  | 19,784        
|December 31, 2006   |  | 10,988                |  | 4,314              |  |           |   |  | 15,302        



F-28



---

##### Table of Contents

NOTE 15 - BALANCES AND TRANSACTIONS WITH RELATED COMPANIES



|a) | Accounts receivable and payable with related parties are summarized as follows:
|-- | -------------------------------------------------------------------------------

Current assets

Notes and accounts receivable from related companies:



|                                  |  |                        |  |                       |  |    
|--------------------------------- |  | ---------------------- |  | --------------------- |  | ---
|Company                           |  | Relationship           |  | At December 31,      
|                                  |  | 2008                   |  | 2007                 
|                                  |  |                        |  | (In thousands of US$)
|Soc. de Seguridad Aérea S.A.      |  | Related to shareholder |  | 905                   |  |   
|Claudia Urrutia Urrutia           |  | Related to shareholder |  | 139                   |  |   
|San Alberto S.A. and subsidiaries |  | Common ownership       |  | 29                    |  | 29 
|Concesionaria Chucumata S.A.      |  | Equity method investee |  | 3                     |  |   
|Other                             |  | Common ownership       |  | 41                    |  | 197
|                                  |  |                        |  |                       |  |    
|Total                             |  |                        |  | 1,117                 |  | 226
|                                  |  |                        |  |                       |  |    

Current liabilities

Notes and accounts payable to related companies:



|                                      |  |                        |  |                       |  |    
|------------------------------------- |  | ---------------------- |  | --------------------- |  | ---
|Company                               |  | Relationship           |  | At December 31,      
|                                      |  | 2008                   |  | 2007                 
|                                      |  |                        |  | (In thousands of US$)
|Lufthansa Lan Technical Training S.A. |  | Equity method investee |  | 255                   |  | 259
|Concesionaria Chucumata S.A.          |  | Equity method investee |  |                      |  | 4  
|Austral Sociedad Concesionaria S.A.   |  | Equity method investee |  | 2                     |  | 33 
|Sociedad Concesionaria Aerosur S.A.   |  | Equity method investee |  |                      |  | 51 
|Other                                 |  | Common ownership       |  | 46                    |  | 10 
|                                      |  |                        |  |                       |  |    
|Total                                 |  |                        |  | 303                   |  | 357
|                                      |  |                        |  |                       |  |    

Long-term assets

Notes and accounts receivable from related companies:



|                        |  |                        |  |                       |  |  
|----------------------- |  | ---------------------- |  | --------------------- |  | -
|Company                 |  | Relationship           |  | At December 31,      
|                        |  | 2008                   |  | 2007                 
|                        |  |                        |  | (In thousands of US$)
|Claudia Urrutia Urrutia |  | Related to shareholder |  | 251                   |  | 
|                        |  |                        |  |                       |  |  
|Total                   |  |                        |  | 251                   |  | 
|                        |  |                        |  |                       |  |  



F-29



---

##### Table of Contents

|b) | The main transactions with related entities are summarized as follows:
|-- | ----------------------------------------------------------------------



|                                            |  |                                     |      |                                           |      |        |      |                        |  |       
|------------------------------------------- |  | ----------------------------------- | ---- | ----------------------------------------- | ---- | ------ | ---- | ---------------------- |  | ------
|Company                                     |  | Relationship                        |      | Description of transaction                |      | Amount
|                                            |  |                                     | 2008 |                                           | 2007 |        | 2006
|                                            |  |                                     |      |                                           |      |        |      | ( In thousands of US$)
|Florida West International Airways Inc. (1) |  | Equity method investee Lan owns 25% |      | Aircraft rents received                   |      |       |      | 30,267                 |  | 40,695
|                                            |  |                                     |      | Line aircraft maintenance received        |      |       |      | 3,022                  |  | 1,885 
|                                            |  |                                     |      | Aircraft rents provided                   |      |       |      | 32,882                 |  | 31,401
|                                            |  |                                     |      | Others transactions provided and received |      |       |      | 8,448                  |  | 10,757
|                                            |  |                                     |      | Jet fuel payments                         |      |       |      | 129                    |  | 9,282 
|                                            |  |                                     |      | Interline collection                      |      |       |      | 4,509                  |  | 7,292 
|                                            |  |                                     |      | Other payments                            |      |       |      | 3,022                  |  | 3,826 
|Lufthansa Lan Technical Training S.A.       |  | Equity method investee Lan owns 50% |      | Training received                         |      | 1,073  |      | 999                    |  | 708   
|                                            |  |                                     |      | Prepaid training hours                    |      | 38     |      | 471                    |  | 477   
|                                            |  |                                     |      | Other payments                            |      | 252    |      | 256                    |  | 19    
|Inmobiliaria Parque San Luis Uno S.A.       |  | Common ownership                    |      | Fixed assets purchase                     |      | 11,895 |      |                       |  |      
|Claudia Urrutia Urrutia                     |  | Related to shareholder              |      | Sale of Segaer S.A.                       |      | 382    |      |                       |  |      
|Sociedad de Seguridad Aérea S.A.            |  | Related to shareholder              |      | Security services received                |      | 1,842  |      |                       |  |      
|                                            |  |                                     |      | Other payments                            |      | 1,493  |      |                       |  |      



|(1) | This investment was sold in 2007.
|--- | ---------------------------------

The Companys objective is to
transact business with its related companies or individuals at prices and at terms equivalent to those used in transacting business with unrelated parties.

NOTE 16 - LOANS FROM FINANCIAL INSTITUTIONS (LONG-TERM)

Long-term loans from financial institutions are summarized as follows:



|                       |  |                          |      |                                   |      |                        |  |          
|---------------------- |  | ------------------------ | ---- | --------------------------------- | ---- | ---------------------- |  | ---------
|                       |  | Payable during the years |      | Interest rate atDecember 31, 2008 |      | At December 31,       
|                       |  |                          | 2008 |                                   | 2007
|                       |  |                          |      | %                                 |      | ( In thousands of US$)
|Loan in US dollars     |  | 2002 - 2014 (quartely)   |      | LIBOR+0.9733                      |      | 103,026                |  | 110,551  
|Loan in US dollars     |  | 2005 - 2012 (quarterly)  |      | LIBOR+1.25                        |      | 15,868                 |  | 19,529   
|Loan in US dollars     |  | 2005 - 2017 (quarterly)  |      | LIBOR+0.9635                      |      | 53,407                 |  | 58,087   
|Loan in US dollars     |  | 2005 - 2017 (quarterly)  |      | 4.68                              |      | 122,470                |  | 133,365  
|Loan in US dollars     |  | 2006 - 2008 (quarterly)  |      | LIBOR+0.4                         |      |                       |  | 76,630   
|Loan in US dollars     |  | 2006 - 2013 (quarterly)  |      | LIBOR+0.0387                      |      | 63,853                 |  | 70,127   
|Loan in US dollars     |  | 2006 - 2018 (quarterly)  |      | 4.98                              |      | 438,047                |  | 471,876  
|Loan in US dollars     |  | 2007 - 2019 (quarterly)  |      | 5,30                              |      | 303,810                |  | 323,891  
|Loan in US dollars     |  | 2007 - 2019 (quarterly)  |      | LIBOR-0,02                        |      | 62,404                 |  | 66,747   
|Loan in US dollars     |  | 2008 - 2019 (quarterly)  |      | 5,09                              |      | 582,753                |  |         
|Loan in US dollars     |  | 2008 - 2019 (quarterly)  |      | LIBOR-0,02                        |      | 60,556                 |  |         
|                       |  |                          |      |                                   |      |                        |  |          
|Total                  |  |                          |      |                                   |      | 1,806,194              |  | 1,330,803
|                       |  |                          |      |                                   |      |                        |  |          
|Less  current portion |  |                          |      |                                   |      | 151,247                |  | 102,153  
|                       |  |                          |      |                                   |      |                        |  |          
|Long  term portion    |  |                          |      |                                   |      | 1,654,947              |  | 1,228,650
|                       |  |                          |      |                                   |      |                        |  |          



F-30



---

##### Table of Contents

All of our loans from financial institutions are collateralized and thus they are secured by the same asset that is
subject of the financing. These include nine Boeing aircraft, fourteen Airbus aircraft, spare engines and our corporate building. There are no additional collateral arrangements in connection with these financings.

Information with respect to restrictive covenants is detailed under the heading Covenants in Note 23 to the financial statements.

Scheduled payments of long-term loans from financial institutions at December 31, 2008 are as follows:



|                                             |  |                      
|-------------------------------------------- |  | ---------------------
|Payments during the years ended December 31, |  | (In thousands of US$)
|2010                                         |  | 147,378              
|2011                                         |  | 154,586              
|2012                                         |  | 161,502              
|2013                                         |  | 164,095              
|2014  2018                                  |  | 845,064              
|2019                                         |  | 182,322              
|                                             |  |                      
|Total                                        |  | 1,654,947            
|                                             |  |                      

NOTE 17 - SECURITIZATION OBLIGATION

On August 22, 2002, the Company signed a securitization contract with Pelican Finance Ltd. The contract securitizes future credit card receivables aggregating ThUS$ 40,000. The terms of this contract are for the
years between 2006 and 2009 with an annual financial cost of 6.96% At December 31, 2002, the Company had received the entire proceeds of ThUS$ 40,000 which were reported as a securitization obligation on the balance sheet.

The principal is payable as follows:



|                       |  |                      
|---------------------- |  | ---------------------
|                       |  | (In thousands of US$)
|Current portion  2009 |  | 6,753                
|Total                  |  | 6,753                

NOTE 18 - LEASING OBLIGATIONS

As indicated in Note 9, at December 31, 2008, the Company financed thirty three jet aircraft pursuant to operating leases and eight jet aircraft pursuant to a capital lease. The Company also leases maintenance
facilities, other airport facilities, computer equipment and vehicles pursuant to capital leases.



F-31



---

##### Table of Contents

The future minimum lease payments required under capital leases, together with the present value of such minimum lease
payments and future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2008, were as follows:



|                                            |  |                            |  |                |  
|------------------------------------------- |  | -------------------------- |  | -------------- | -
|Payable during the year ending December 31, |  | Operating leases(aircraft) |  | Capital leases |  
|                                            |  | (In thousands of US$)      | 
|2009                                        |  | 161,458                    |  | 74,852         |  
|2010                                        |  | 159,926                    |  | 65,034         |  
|2011                                        |  | 149,306                    |  | 57,709         |  
|2012                                        |  | 136,578                    |  | 29,742         |  
|2013                                        |  | 89,559                     |  | 18,691         |  
|2014  2018                                 |  | 440,301                    |  | 31,810         |  
|2019  2022                                 |  | 211,775                    |  |               |  
|                                            |  |                            |  |                |  
|Total minimum lease payments                |  | 1,348,903                  |  | 277,838        |  
|                                            |  |                            |  |                |  
|Less: Amount representing interest          |  |                            |  | (35,290        | )
|                                            |  |                            |  |                |  
|Present value of minimum lease payments     |  |                            |  | 242,548        |  
|Less: Current portion of obligation         |  |                            |  | (63,654        | )
|                                            |  |                            |  |                |  
|Long-term portion of leasing obligations    |  |                            |  | 178,894        |  
|                                            |  |                            |  |                |  

Aircraft operational lease expenses recorded in the Consolidated Statements of Income amounted to ThUS$ 150,891,
ThUS$ 158,917 and ThUS$ 157,681 for the years ended December 31, 2008, 2007 and 2006, respectively.



F-32



---

##### Table of Contents

NOTE 19 - SHAREHOLDERS EQUITY



|a) | Changes in Shareholders equity
|-- | -------------------------------

The changes in
shareholders equity during 2006, 2007 and 2008 were as follows:



|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|-------------------------------------- |  | ---------------------- |  | ----------- |  | -------- | - |  | ------------------- | - |  | ---------------- | - |  | ---------------------- | - |  | --------- | -
|                                       |  |                        |  |             |  |          |   |  | Retained earnings   |   |  |                  |  
|                                       |  | Numberof shares        |  | Commonstock |  | Reserves |   |  | AccumulatedEarnings |   |  | Interimdividends |   |  | Net incomefor the year |   |  | Total     |  
|                                       |  | ( In thousands of US$) | 
|Balances at December 31, 2005          |  | 318,909,090            |  | 134,303     |  | 2,620    |   |  | 290,640             |   |  | (71,451          | ) |  | 146,601                |   |  | 502,713   |  
|Transfer of net income from prior year |  |                       |  |            |  |         |   |  | 146,601             |   |  |                 |   |  | (146,601               | ) |  |          |  
|Final dividends paid                   |  |                       |  |            |  |         |   |  | (73,294             | ) |  | 71,451           |   |  |                       |   |  | (1,843    | )
|Interim dividends                      |  |                       |  |            |  |         |   |  |                    |   |  | (115,850         | ) |  |                       |   |  | (115,850  | )
|Net income for the year 2006           |  |                       |  |            |  |         |   |  |                    |   |  |                 |   |  | 241,300                |   |  | 241,300   |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|Balances at December 31, 2006          |  | 318,909,090            |  | 134,303     |  | 2,620    |   |  | 363,947             |   |  | (115,850         | ) |  | 241,300                |   |  | 626,320   |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|Transfer of net income from prior year |  |                       |  |            |  |         |   |  | 241,300             |   |  |                 |   |  | (241,300               | ) |  |          |  
|Final dividends paid                   |  |                       |  |            |  |         |   |  | (168,910            | ) |  | 115,850          |   |  |                       |   |  | (53,060   | )
|Stock issuance                         |  | 19,881,819             |  | 319,141     |  | (2,672   | ) |  |                    |   |  |                 |   |  |                       |   |  | 316,469   |  
|Interim dividends                      |  |                       |  |            |  |         |   |  |                    |   |  | (210,000         | ) |  |                       |   |  | (210,000  | )
|Net income for the year 2007           |  |                       |  |            |  |         |   |  |                    |   |  |                 |   |  | 308,323                |   |  | 308,323   |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|Balances at December 31, 2007          |  | 338,790,909            |  | 453,444     |  | (52      | ) |  | 436,337             |   |  | (210,000         | ) |  | 308,323                |   |  | 988,052   |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|Transfer of net income from prior year |  |                       |  |            |  |         |   |  | 308,323             |   |  |                 |   |  | (308,323               | ) |  |          |  
|Final dividends paid                   |  |                       |  |            |  |         |   |  | (215,827            | ) |  | 210,000          |   |  |                       |   |  | (5,827    | )
|Stock options                          |  |                       |  |            |  | 1,801    |   |  |                    |   |  |                 |   |  |                       |   |  | 1,801     |  
|Interim dividends                      |  |                       |  |            |  |         |   |  |                    |   |  | (201,787         | ) |  |                       |   |  | (201,787  | )
|Net income for the year 2008           |  |                       |  |            |  |         |   |  |                    |   |  |                 |   |  | 335,739                |   |  | 335,739   |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  
|Balances at December 31, 2008          |  | 338,790,909            |  | 453,444     |  | 1,749    |   |  | 528,833             |   |  | (201,787         | ) |  | 335,739                |   |  | 1,117,978 |  
|                                       |  |                        |  |             |  |          |   |  |                     |   |  |                  |   |  |                        |   |  |           |  



|b) | Capital
|-- | -------

An agreement was reached at the Parent Companys
Extraordinary Shareholders Meeting held on April 5, 2007, to increase the corporate capital by issuing 22,090,910 unsubscribed shares (equivalent to existing shares), of which 19,881,819 had been subscribed and paid for by December 31,
2007 for an amount of MUS$ 319,141.

The authorized and paid-in capital of the Company is ThUS$ 453,444 at December 31, 2008 and 2007 and
corresponds to 338,790,909 shares without par value.

The authorized and paid-in capital of the Company is ThUS$ 134,303 at December 31, 2006
and corresponds to 318,909,090 shares without par value.



F-33



---

##### Table of Contents

|c) | Other reserves
|-- | --------------

Reserves at December 31 of each year were as
follows:



|                                                                 |  |                       |   |  |        |  
|---------------------------------------------------------------- |  | --------------------- | - |  | ------ | -
|                                                                 |  | At December 31,       |  
|                                                                 |  | 2008                  |   |  | 2007   |  
|                                                                 |  | (In thousands of US$) |  
|Reserve for adjustment of the value of fixed assets              |  | 2,556                 |   |  | 2,556  |  
|Reserve for adjustment of the value of leased fixed assets       |  | 64                    |   |  | 64     |  
|Reserve for caption called stock issuance and placement expenses |  | (2,672                | ) |  | (2,672 | )
|Reserve for stock options plan                                   |  | 1,801                 |   |  |       |  
|                                                                 |  |                       |   |  |        |  
|Total                                                            |  | 1,749                 |   |  | (52    | )
|                                                                 |  |                       |   |  |        |  



|d) | Dividends
|-- | ---------

At the Annual General Meeting held on April 28,
2006, the shareholders agreed to distribute a final dividend amounting to US$ 0.22983 per share after deducting the interim dividends distributed during August 2005 and January 2006 amounting to US$ 0.11430 per share and US$
0.10975 per share, respectively. A remaining balance of US$ 0.00578 per share was paid during May 2006.

At a meeting of the Board of Directors
held on July 24, 2006, the directors agreed to distribute an interim dividend of US$ 0,15071 per share with respect to net income for 2006.

At a
meeting of the Board of Directors held on December 26, 2006, the directors agreed to distribute an interim dividend of US$ 0.21256 per share with respect to net income for 2006. These dividends will be paid during January, 2007 and they
are classified in Dividends Payable at December 31, 2006.

An agreement was reached at the Parent Companys Ordinary Shareholders Meeting held on
April 5, 2007, to distribute final dividends based on the results of fiscal year 2006 (amounting to US$ 0.52965 per share), after deducting the interim dividends that had been distributed in July and December, 2006 (equivalent to US$
0.15071 and US$ 0.21256 per share respectively). The outstanding balance of US$ 0.16638 per share was paid in April 2007.

At a meeting of the
Board of Directors held on July 31, 2007, the directors agreed to distribute an interim dividend of US$ 0,26596 per share with respect to net income for 2007.

At a meeting of the Board of Directors held on December 21, 2007, the directors agreed to distribute an interim dividend of US$ 0.35389 per share with respect to net income for 2007. These dividends are classified in Dividends
Payable at December 31, 2007.

An agreement was reached at the Parent Companys Ordinary Shareholders Meeting held on April 10, 2008, to
distribute final dividends based on the results of fiscal year 2007 (amounting to US$ 0.63705 per share), after deducting the interim dividends that had been distributed in July and December, 2007 (equivalent to US$ 0.26596 and US$ 0.35389 per
share respectively). The outstanding balance of US$ 0.01720 per share was paid in May 2008.

An agreement was reached at the Parent Companys
Ordinary Board of Directors Meeting, held on July 29, 2008, to distribute an interim dividend of US$ 0.28568 per share, based on the results of fiscal year 2008. Such dividends were paid in August 2008.



F-34



---

##### Table of Contents

At the Parent Companys Ordinary Board of Directors Meeting held on December 23, 2008, it was agreed to
distribute an interim dividend amounting to US$ 0.30993 per share, based on the results of fiscal year 2008. On December 31, 2008 such amount was recorded under Dividends payable, which shall be paid in January 2009.



|e) | Major shareholders
|-- | ------------------

The major shareholders of the Company at
December 31, 2008, were as follows:



|                                                                   |  |                       
|------------------------------------------------------------------ |  | ----------------------
|                                                                   |  | Percentage ofOwnership
|                                                                   |  | %                     
|Inversiones Costa Verde Ltda. y Compañía en Comandita por Acciones |  | 22.86                 
|Axxion S.A.                                                        |  | 19.03                 
|The Bank of New York. (on behalf of ADR holders)                   |  | 10.99                 
|                                                                   |  |                       
|Total                                                              |  | 52.88                 
|                                                                   |  |                       

In July 2004, Inversiones Costa Verde Ltda. y Compañía en Comandita por Acciones, Axxion S.A. and
Inversiones Santa Cecilia S.A. (shareholder with 7.31% ownership) entered into a management and control agreement. At December 31, 2008, this agreement is still in effect.



|f) | Stock issuance and placement expenses
|-- | -------------------------------------

The detail of the stock
issuance and placement expenses incurred by the Company at December 31, 2008 is the following:



|                                |  |                       |  |      
|------------------------------- |  | --------------------- |  | -----
|                                |  | At December 31, 2008 
|                                |  | 2008                  |  | 2007 
|                                |  | (In thousands of US$)
|Placement fees                  |  | 1,671                 |  | 1,671
|Legal counseling                |  | 547                   |  | 547  
|Accounting fees                 |  | 176                   |  | 176  
|Financial consulting            |  | 129                   |  | 129  
|Printing & other expenses       |  | 100                   |  | 100  
|Registration and recording fees |  | 49                    |  | 49   
|                                |  |                       |  |      
|Total                           |  | 2,672                 |  | 2,672
|                                |  |                       |  |      

These costs are recorded in an equity account and classified under the Other reserves caption called Stock
issuance and placement costs.

Pursuant to Circular Letter No. 1736 of the Superintendency of Securities and Insurance, the Stock issuance and
placement expenses shall be discounted from the Capital at the next Extraordinary Shareholder Meeting to be held by the parent company.



F-35



---

##### Table of Contents

|g) | Stock option plans
|-- | ------------------

At the Extraordinary Shareholders Meeting
held on April 5, 2007, a stock-option compensation plan was agreed to for the Companys executives and 10% of the capital shares increase was authorized to be issued for this purpose.

On May 17, 2007, the Board of Directors granted a group of executives an option to subscribe for a total of 2,209,091 shares at a price of USD 16.11208 per
share (this price is indexed to US CPI until the date of exercise). This was formalized during December 2007 through the signing of the first group of share subscription contracts in accordance to the following vesting calendar:



|           |  |                     
|---------- |  | --------------------
|Percentage |  | Period              
|%          |  |                     
|30         |  | as of July 1st, 2009
|30         |  | as of July 1st, 2010
|40         |  | as of July 1st, 2011

The stock-option compensation contracts consider the following terms:

The beneficiary must be an employee of the Company on the date the right to exercise the option begins, i.e. July 1, 2009, 2010 and 2011, respectively.

The executive will not be able to exercise any option before July 2009.

When the options become available, the option may be exercised for all or part of the shares and must be paid for in cash.

The executive is not
compelled to make use of the right to exercise his options and, if he wishes to do so, can wait to exercise such options, in all or part, at the end of the plan whose deadline is on September 30, 2011.

Each exercise shall exceed 10% of the total stock option package.

The
stock options given to each executive in accordance to this plan may not be sold or assigned under any circumstance, but shares purchased under this plan shall be owned by the executive with the same rights any other shareholder has and they may be
sold immediately or whenever the executive deems convenient.

In case the executive resigns or gets laid off, he will just be able to exercise his rights
for the options that may be in effect (i.e. those which have vested), losing the right to exercise the options that have not vested. In addition, the executive who resigns or gets laid off will have up to 30 calendar days (as of the date of his
resignation or termination) to exercise the options that have vested, provided such term does not exceed the deadline set for the options package.

In the
event of the death of the executive, the option to exercise his full stock package shall be given to his or her beneficiaries, who shall have up to 180 days to exercise the options as of the date of his decease. In the event of permanent impairment,
the executive shall keep his complete option plan coupled to the same original vesting calendar.



F-36



---

##### Table of Contents

As described in Note 2z), these shares have been valued and recorded according to the fair value of the options when
granted, which amounted to ThUS$ 4,202 at December 31, 2008 (ThUS$ 3,516 at December 31, 2007), and was calculated using the Black-Sholes-Merton method. As of December 31, 2008, 1.604.000 options have been granted (1,235,000 in 2007).

Volatility has been estimated historically as it is not possible to estimate implicitly in the absence of a market for these options.

The fair value determined is recorded as a charge to wages and benefits and credit to Other reserves and is amortized on a straight-line basis over the period between
the granting of the options and the date that these become vested. During the year ended December 31, 2008, ThUS$ 1.801 has been recorded regarding these options.

NOTE 20 - OTHER OPERATING REVENUES

The Other revenues were comprised of the following:



|                              |  |                                 |  |         |  |        
|----------------------------- |  | ------------------------------- |  | ------- |  | -------
|                              |  | For the year ended December 31,
|                              |  | 2008                            |  | 2007    |  | 2006   
|                              |  | ( In thousands of US$)         
|Aircraft leases               |  | 41,468                          |  | 37,232  |  | 30,991 
|Logistics and couriers        |  | 32,156                          |  | 29,263  |  | 44,381 
|Ground services               |  | 8,347                           |  | 9,285   |  | 19,968 
|Duty free                     |  | 15,906                          |  | 22,241  |  | 16,701 
|Storage and customs brokerage |  | 25,380                          |  | 29,546  |  | 10,925 
|Others                        |  | 24,982                          |  | 45,832  |  | 24,891 
|                              |  |                                 |  |         |  |        
|Total                         |  | 148,239                         |  | 173,399 |  | 147,857
|                              |  |                                 |  |         |  |        

NOTE 21 - OPERATING EXPENSES

Wages and benefits are summarized as follows:



|                                       |  |                        |  |         |  |        
|-------------------------------------- |  | ---------------------- |  | ------- |  | -------
|                                       |  | At December 31,       
|                                       |  | 2008                   |  | 2007    |  | 2006   
|                                       |  | ( In thousands of US$)
|Flight personnel                       |  | 200,339                |  | 153,201 |  | 134,542
|Maintenance personnel                  |  | 68,054                 |  | 56,869  |  | 51,242 
|Ground personnel                       |  | 129,843                |  | 110,779 |  | 69,905 
|Administrative and corporate employees |  | 210,274                |  | 168,701 |  | 187,278
|                                       |  |                        |  |         |  |        
|Total                                  |  | 608,510                |  | 489,550 |  | 442,967
|                                       |  |                        |  |         |  |        

Other operating expenses include general and administrative expenses such as rents, insurance and other expenses
of ThUS$ 181,514 in 2008, ThUS$ 197,942 in 2007 and ThUS$ 139,942 in 2006.

Other operating expenses also include advertising, promotional, and marketing
expenses of ThUS$ 42,069 in 2008, ThUS$ 37,532 in 2007 and ThUS$ 23,459 in 2006.



F-37



---

##### Table of Contents

NOTE 22 - OTHER INCOME (EXPENSE) - NET

Other income (expense) - net for each year are summarized as follows:



|                                                                                    |  |                                 |   |  |         |   |  |         |  
|----------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                    |  | For the year ended December 31, |  
|                                                                                    |  | 2008                            |   |  | 2007    |   |  | 2006    |  
|                                                                                    |  | ( In thousands of US$)          |  
|Non-operating income:                                                               |  |                                 |   |  |         |   |  |         |  
|Effect of accounting change mentioned in Note 3, year 2006                          |  |                                |   |  |        |   |  | 40,344  |  
|Effect of accounting change mentioned in Note 3, year 2008                          |  | 13,963                          |   |  |        |   |  |        |  
|Jet fuel swap contracts                                                             |  | 35,405                          |   |  | 28,190  |   |  | 12,903  |  
|Foreign currency transactions (net)                                                 |  |                                |   |  | 15,700  |   |  | 5,536   |  
|Earnings on investments (equity method)                                             |  | 1,112                           |   |  | 604     |   |  | 598     |  
|Other                                                                               |  | 7,505                           |   |  | 4,626   |   |  | 3,988   |  
|                                                                                    |  |                                 |   |  |         |   |  |         |  
|Total                                                                               |  | 57,985                          |   |  | 49,120  |   |  | 63,369  |  
|                                                                                    |  |                                 |   |  |         |   |  |         |  
|Non-operating expenses:                                                             |  |                                 |   |  |         |   |  |         |  
|Plea agreement with the Department of Justice of the United States(1)               |  | (109,000                        | ) |  |        |   |  |        |  
|Reserve for loss related to the ongoing investigation by the European Commission(2) |  |                                |   |  | (25,000 | ) |  |        |  
|Amortization of goodwill                                                            |  | (3,018                          | ) |  | (2,994  | ) |  | (3,318  | )
|Losses on investments (equity method)                                               |  | (164                            | ) |  | (5,690  | ) |  |        |  
|Foreign currency transactions (net)                                                 |  | (7,866                          | ) |  |        |   |  |        |  
|Non-recurring indemnities paid to employees(3)                                      |  |                                |   |  |        |   |  | (11,747 | )
|Provision for retirement of Boeing 737 Aircraft(4)                                  |  |                                |   |  |        |   |  | (8,100  | )
|Other                                                                               |  | (6,026                          | ) |  | (2,817  | ) |  | (3,091  | )
|                                                                                    |  |                                 |   |  |         |   |  |         |  
|Total                                                                               |  | (126,074                        | ) |  | (36,501 | ) |  | (26,256 | )
|                                                                                    |  |                                 |   |  |         |   |  |         |  
|Other income (expense)  net                                                        |  | (68,089                         | ) |  | 12,619  |   |  | 37,113  |  
|                                                                                    |  |                                 |   |  |         |   |  |         |  



|(1) | Plea agreement reached with the Department of Justice of the United States (DOJ) in relation to the
DOJs ongoing investigation regarding price fixing of fuel surcharges and other fees for cargo shipments (see Note 26).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The reserve for loss regarding Air Freight investigation is
provided at the estimated amount of contingent losses which are expected to be incurred as a result of the investigation by the European Commission (see Note 26).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During 2006, the Company made the decision to restructure its operations and processes reducing its workforce. This
restructuring resulted in non-operating expenses of ThUS$ 11,747 due to the payment of indemnities to terminated employees. The Company does not anticipate any further costs associated with this restructuring.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-38



---

##### Table of Contents

|(4) | With regard to these Boeing 737 aircraft, it was determined that
it is more likely than not that such aircraft will be disposed of prior to the end of their useful life. Accordingly, a provision was established. See also Notes 9 and 12. The Company performed an impairment test on these aircraft as events and
circumstances indicated that the assets may be impaired and undiscounted cashflows estimated to be generated were less than the book values.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 23 - COMMITMENTS AND CONTINGENCIES

At December 31, 2008 and 2007, the Company had granted the following mortgages, liens and
guarantees:

Direct Guarantees:



|                               |  |                              |  |                                         |  |           |  |          
|------------------------------ |  | ---------------------------- |  | --------------------------------------- |  | --------- |  | ---------
|                               |  | Assets Pledged as Collateral |  | Amount outstandingat Balance sheet date
|Type of Guarantee              |  | Type                         |  | Book Value                              |  | 2008      |  | 2007     
|                               |  | ( In thousands of US$)      
|Mortgage, and pledge guarantee |  | Aircraft and motors          |  | 2,135,282                               |  | 1,806,194 |  | 1,184,504
|Mortgage                       |  | Building                     |  |                                        |  |          |  | 7,706    
|Pledge                         |  | Spare parts                  |  | 331                                     |  |          |  |         

Commitments

On July 20, 2005, the Company entered into a purchase agreement for an additional 3 Boeing 767-300 ER aircraft. Two of these aircraft were received during 2008 and the remaining aircraft is expected to be delivered during first quarter
of 2009. The estimated maximum cost for the remaining aircraft is ThUS$ 150,000.

On October 4, 2005, the Company agreed with Airbus Industries to a
new modification with respect to the purchase agreement signed on March 20, 1998. This amendment relates to the purchase of thirty two new Airbus A320 family aircraft (with an option to purchase an additional fifteen aircraft in the future).
Eight of this aircraft were received during 2006, seven were received during 2007, fourteen were received during 2008 and the remaining three aircraft are expected to be delivered during 2009. The estimated cost for the remaining
aircrafts is approximately ThUS$ 120,000.

On March 31, 2006, the Company entered into a purchase agreement for three Boeing 767-300 aircraft. One of
these aircraft was received during 2007 and the two remaining aircraft were received during 2008.

On December 14, 2006, the Company entered into a
purchase agreement for three Boeing 767-300 aircraft for a total of ThUS$ 450,000. These aircraft are scheduled for delivery during 2009.

On March 6,
2007, the Company exercised call option for the additional fifteen Airbus A320 family aircrafts related to the purchase agreement signed on October 4, 2005. These aircrafts are scheduled for delivery during 2010 and 2011. The estimated cost for
these fifteen aircrafts is ThUS$ 600,000.

On July 3, 2007, the Company entered into a purchase agreement for two Boeing 777 freighter aircraft for a
total of ThUS$ 500,000. These aircraft are scheduled for delivery during 2011 and 2012.

On October 29, 2007, the Company entered into a purchase
agreement for twenty six Boeing 787 aircraft (with the option to purchase an additional fifteen aircraft). The estimated cost of these twenty six aircraft is ThUS$ 3,500,000. These aircraft are scheduled for delivery between 2014 and 2019.



F-39



---

##### Table of Contents

On November 10, 2008, the Company entered into a purchase agreement for four (4) new Boeing 767-316ER aircraft
(with the option to purchase additional two aircraft). The estimated cost of these four aircraft is ThUS $636,000 (listed price). These aircraft are scheduled for delivery in 2012.

Contingencies

As mentioned in Note 26, on January 21, 2009 Lan Cargo announced that it reached a plea agreement
with the Department of Justice of the United States (DOJ) in relation to the DOJs ongoing investigation regarding price fixing of fuel surcharges and other fees for cargo shipments. Under the plea agreement, Lan Cargo agreed to pay
a fine of US$88 million. In addition, the air freight company Aerolinhas Brasileiras S.A. (ABSA), in which Lan Cargo has an ownership stake, also reached a plea agreement with the DOJ for a fine of US$ 21 million.

On December 26, 2007, the Directorate-General for Competition of the European Commission notified LAN Cargo S.A. and LAN of the initiation of proceedings against 25
cargo airlines, among them LAN Cargo S.A., for allegations of anti-competitive behavior in the air freight business. LAN maintains a provision amounting to US$ 25.0 million in relation with this investigation.

The investigation by the U.S. Department of Justice prompted the filing of numerous civil class actions against many airlines, including Lan Cargo and Lan Airlines in
the United States. A total of 54 civil actions naming numerous carriers were filed in the United States. These cases have since been consolidated in the United States District Court, Eastern District of New York. The Magistrate Judge assigned to the
case has recommended a dismissal of the original complaint and a final ruling from the District Judge on the dismissal is expected shortly. In the event that the District Judge dismisses the original complaint, it is likely that Plaintiffs will be
provided an opportunity to file an amended complaint and pursue the action. In addition, four civil class actions have been filed in Canada that include Lan Cargo as a defendant. It is not possible at this time to anticipate with any precision the
outcome of these proceedings.

At December 31, 2008, the Company was a defendant in a number of commercial lawsuits of the type normally associated
with the Companys business and involving claims for damages for insignificant amounts. The Company has made no provision for these amounts because management believes that most of the resulting judgments will be favorable and any losses
incurred will not result in any material liability to the Company.

Covenants

As a result of the various contracts entered into by the Company to finance the Boeing 767 aircraft that are financed by the Export - Import Bank of the United States, the Company is required to comply with certain
restrictions regarding shareholder composition and disposal of assets.

As a result of the various contracts entered into by the Company to finance the
Airbus A320 aircraft that are guaranteed by various European export credit agencies, the Company is required to comply with certain restrictions regarding shareholder composition and disposal of assets.

As a result of the securitization contract with Pelican Finance Ltd. in August 2002, there are certain restrictions on the use of the future cash flows which have been
securitized.

As of December 31, 2008, the Company was in compliance with all covenants.



F-40



---

##### Table of Contents

Other

At
December 31, 2008, the Company had approved credit lines in the amount of ThUS$ 355,000, which have not been drawn These credit lines are used mainly to cover (a) stand-by credit letters issued in favor of aircraft lessors and airports in
the United States of America and other countries, (b) bank credit letters issued in favor of the local air administration or the Chilean Government and (c) stand-by letters of credit in favor of foreign financial institutions to grant
credit lines for interest rate and fuel derivative contracts.

NOTE 24 - FOREIGN CURRENCIES

Foreign currency assets and liabilities at December 31 of each year are summarized as follows:



|                            |  |                       |  |        
|--------------------------- |  | --------------------- |  | -------
|                            |  | At December 31,      
|                            |  | 2008                  |  | 2007   
|                            |  | (In thousands of US$)
|Assets denominated in:      |  |                       |  |        
|Chilean pesos               |  | 211,972               |  | 233,848
|Other currencies            |  | 217,804               |  | 155,015
|                            |  |                       |  |        
|Total                       |  | 429,776               |  | 388,863
|                            |  |                       |  |        
|Liabilities denominated in: |  |                       |  |        
|Chilean pesos               |  | 56,121                |  | 86,174 
|Other currencies            |  | 73,988                |  | 74,888 
|                            |  |                       |  |        
|Total                       |  | 130,109               |  | 161,062
|                            |  |                       |  |        

NOTE 25 - SEGMENT REPORTING

The Company reports segment information in accordance with Statement of Financial Accounting Standard No. 131, Disclosures About Segments of an Enterprise and Related Information
(SFAS 131). SFAS 131 establishes standards for reporting information about operating segments in annual financial statements as well as related disclosures about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate financial statement information is available that is evaluated regularly by the chief operating decision maker in making decisions about allocating resources and assessing
performance. The Company considers that it has one reportable segment.



F-41



---

##### Table of Contents

The Companys operating revenues by geographic region are summarized below:



|                                |  |                         |  |           |  |          
|------------------------------- |  | ----------------------- |  | --------- |  | ---------
|                                |  | Year ended December 31,
|                                |  | 2008                    |  | 2007      |  | 2006     
|                                |  | ( In thousands of US$) 
|Domestic (Chile)                |  | 559,928                 |  | 521,406   |  | 414,587  
|North America                   |  | 1,250,803               |  | 1,179,229 |  | 1,336,548
|South America (excluding Chile) |  | 2,075,325               |  | 1,252,963 |  | 867,620  
|Europe                          |  | 415,924                 |  | 337,793   |  | 266,660  
|Pacific                         |  | 232,302                 |  | 233,532   |  | 148,545  
|                                |  |                         |  |           |  |          
|Total                           |  | 4,534,282               |  | 3,524,923 |  | 3,033,960
|                                |  |                         |  |           |  |          

The Company attributes operating revenues to the geographical area in which the relevant overseas point of the
flight lies. The Companys tangible assets consist primarily of flight equipment which is mobile across geographic markets and, therefore, has not been allocated.

NOTE 26 - SUBSEQUENT EVENTS

On January 21, 2009 Lan Cargo announced that it reached a plea agreement with the
Department of Justice of the United States (DOJ) in relation to the DOJs ongoing investigation regarding price fixing of fuel surcharges and other fees for cargo shipments. This investigation reportedly involves more than 30
international airlines operating in the air freight business. Under the plea agreement, Lan Cargo agreed to pay a fine of US$88 million. In addition, the air freight company Aerolinhas Brasileiras S.A. (ABSA), in which Lan Cargo has a majority
ownership stake, also reached a plea agreement with the DOJ for a fine of US$ 21 million. These amounts will be paid over a 5 year payment schedule and have been recorded as of December 31, 2008 within Other current liabilities (ThUS$ 19,000)
and Other creditors (ThUS$ 90,000).

The Company has no knowledge of any other subsequent events that would have a significant effect on the balances or
interpretation of these financial statements.



F-42



---

##### Table of Contents

NOTE 27 - DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Accounting principles generally accepted in Chile (Chilean GAAP) vary in certain important respects from accounting principles generally accepted in the
United States (US GAAP). Such differences involve certain methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.

Differences in measurement methods

The principal methods applied in
the preparation of the accompanying financial statements, which have resulted in amounts which differ from those that would have otherwise been determined under US GAAP, are as follows:



|a) | Deferred income tax
|-- | -------------------

As discussed in Note 14, effective
January 1, 2000, the Company began applying Technical Bulletin No. 60 of the Chilean Institute of Accountants concerning deferred income taxes. Technical Bulletin No. 60 requires the recognition of deferred income taxes for all
temporary differences arising after January 1, 2000, whether recurring or not, using an asset and liability approach. For US GAAP purposes, the Company has always applied Statement of Financial Accounting Standard (SFAS)
No. 109, Accounting for Income Taxes, whereby income taxes are also recognized using substantially the same asset and liability approach. Deferred income tax assets and liabilities established for temporary differences between the
financial reporting basis and tax basis of the Companys assets and liabilities are based on enacted rates at the dates that the temporary differences are expected to reverse. The effect of changes in tax rates is included in income for the
period that includes the enactment date.

After the year ended December 31, 1999, Chilean GAAP and US GAAP differ due to the recognition for
US GAAP purposes of the reversal of deferred income taxes included in the US GAAP reconciliations in years prior to 2000.

Prior to the
implementation of Technical Bulletin No. 60, no deferred income taxes were recorded under Chilean GAAP if the related timing differences were expected to be offset in the year that they were projected to reverse by new timing differences of a
similar nature.

Furthermore, deferred income tax assets under both Chilean and US GAAP should be reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred income tax asset to an amount that is more
likely than not to be realized.

The effect of providing for deferred income taxes for the differences between the amounts shown for assets and liabilities
in the balance sheet and the tax basis of those assets and liabilities is included in paragraph 1 q) below and certain disclosures required under FAS 109 are set forth under paragraph 2 c) below.



|b) | Goodwill
|-- | --------

Until December 31, 2003, under Chilean GAAP, the
excess of cost over the net book value of a purchased company was recorded as goodwill (the book value purchase method), which was then amortized to income over a maximum period of twenty years. Amortization of goodwill may be accelerated if the
acquired company generates sufficient income to absorb the additional amortization in any given year. The excess of net book value over the cost of an investment was considered to be negative goodwill under Chilean GAAP and is also amortized to
income over a maximum period of twenty years. The amortization of negative goodwill may be accelerated if the acquired company sustains losses.



F-43



---

##### Table of Contents

Under US GAAP, goodwill and other intangibles are accounted for under SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and prohibits the use
of the pooling-of-interests method of accounting after this date. With respect to the purchase method of accounting, the cost of an investment is assigned to the tangible and identified intangible assets acquired and liabilities assumed on the basis
of their fair values at the date of acquisition. Any excess of cost over the fair value of net assets acquired is recorded as goodwill. If an excess of acquired net assets over cost arises, the excess is allocated to reduce proportionally the values
assigned to noncurrent assets (except long-term investments in marketable securities) in determining their fair values. If the allocation reduces the noncurrent assets to zero value, the remainder of the excess over cost (negative goodwill) is
written off immediately as an extraordinary gain. SFAS No. 141 establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an
extraordinary gain (instead of being deferred and amortized).

SFAS No. 142, Goodwill and Other Intangible Assets establishes the
following:



| |  |  | The accounting for a recognized intangible asset is based on its useful life to the reporting entity. An intangible asset with a finite useful life is amortized
over the life of the asset, but goodwill and other intangible assets with indefinite useful lives are not amortized.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The remaining useful lives of intangible assets being amortized are evaluated each reporting period to determine whether events and circumstances warrant a revision
to the remaining period of amortization. If the estimate of an intangible assets remaining useful life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Goodwill and other intangible assets with indefinite useful lives that are not subject to amortization are tested for impairment at least annually.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All goodwill must be assigned to a reporting unit, which is defined as an operating segment or one level below an operating segment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

SFAS No. 142 became effective for years beginning after December 15, 2001. Accordingly, goodwill amortization ceased for US GAAP purposes beginning in
2002.

As discussed in Note 10, the Company has made a number of acquisitions. Acquisitions made prior to December 31, 2003, were recorded pursuant to
the book value purchase method for Chilean GAAP purposes. For these acquisitions there were no significant differences in the allocation of the purchase price or the determination of goodwill between the book value purchase method in accordance with
Chilean GAAP and the purchase accounting method required pursuant to SFAS No. 141 in accordance with US GAAP. For acquisitions after December 31, 2003 the fair value purchase method is used for both Chilean GAAP and US GAAP. However,
under Chilean GAAP certain differences may occur in the identification of intangible assets and goodwill.

The companies acquired since January 1,
2004 are not material to the consolidated financial position of the Company and therefore adjustments to the purchase price allocation and pro forma financial statements showing the effect on operations as if the acquisitions had been completed at
the beginning of the period are not presented.

For US GAAP purposes, the reversal of amortization of goodwill from the purchases made by the Company
and the purchase accounting adjustments of conforming business acquisitions prior to June 30, 2001 to US GAAP are shown in paragraph 1 q) below. As a result of the annual impairment tests performed by the Company, no adjustment to the book
value of goodwill was deemed necessary.



F-44



---

##### Table of Contents

Under Chilean GAAP, the cost of an equity method investment is separated into an investment component (based on the
purchase of the proportionate share of equity according to book values) and a goodwill component (based on the difference between the amount paid and the proportional book value of the investment). Under US GAAP, these components are combined
in one balance sheet caption as an investment, and goodwill is determined in a manner similar to a consolidated subsidiary based on proportionate ownership. No disclosure has been presented for the effect of the reclassification between goodwill as
determined under Chilean GAAP for equity method investments and goodwill determined under US GAAP as the effect of this reclassification is not significant.

The effects of reclassifying negative goodwill for the acquisitions prior to December 31, 2003 as determined under Chilean GAAP to proportionately reduce the values assigned to the non-current assets acquired in accordance with
US GAAP are not significant.



|c) | Revaluation of property and equipment
|-- | -------------------------------------

As mentioned in Note 2 k),
certain property and equipment are valued in the Consolidated Financial Statements at amounts determined in accordance with a technical appraisal. The revaluation of property and equipment is an accounting principle that is not generally accepted in
the United States. Assets that were subjected to appraisals have been fully depreciated or are no longer owned by the Company. Accordingly, there is no impact on US GAAP results and no adjustments recorded.



|d) | Minimum dividend
|-- | ----------------

As required by the Chilean Companies Act unless
otherwise decided by the unanimous vote of the issued and subscribed shares, an open stock corporation must distribute a cash dividend in an amount equal to at least 30% of the companys net income for each year adjusted for the deficit under
developing period as determined in accordance with Chilean GAAP. Under Chilean GAAP, even though the minimum dividend is a legal requirement, the dividend is not recorded until it is declared by the Company. For 2008, 2007 and 2006, the full amount
of the required dividend was declared as interim dividends and recorded by the Company, therefore, no adjustment is necessary.



|e) | Equity method of accounting and Consolidation
|-- | ---------------------------------------------

As mentioned in Note
2 l), for Chilean GAAP purposes, beginning in 2005, investments in related companies are accounted for pursuant to the equity method when the companys investment represents between 20% and 50% of the voting stock of the investee. Prior to
2005, when investments in related companies represented between 10% and 50% of voting rights the equity method was used. For US GAAP purposes prior to February 1, 2003, investments in related companies required the use of the equity method
of accounting for investments which give the investor the ability to exercise significant influence over operating and financial policies of the investee. For those companies which were determined to be controlled through the Companys
investment (generally, ownership of over 50% of the outstanding voting shares), US GAAP required consolidation. Subsequent to February 1, 2003, US GAAP requires the determination of whether an entity should be consolidated in
accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which focused on identifying entities for which a controlling financial interest is achieved through means other that
voting rights. Under this interpretation, a variable interest entity must be consolidated if certain consolidation requirements are met. An enterprise should consolidate an entity if that enterprise has a variable interest in the entity that will
absorb a majority of the entity ́s expected losses, receive a majority of the entitys expected residual returns, or both. FIN 46, as revised by FIN 46R, was effective on February 1, 2003 for new transactions and effective for
reporting periods after March 15, 2005 for transactions entered into prior to February 1, 2003.

Relative to the Companys investments
in related companies, there are no differences in the application of the equity method or consolidation between Chilean GAAP and US GAAP.



F-45



---

##### Table of Contents

|f) | Monetary correction of subsidiaries
|-- | -----------------------------------

As indicated in Note 2 d), the
Chilean peso financial statements of certain of the Companys Chilean subsidiaries are restated through the application of price-level restatements in accordance with Chilean GAAP to show the effects of changes in the purchasing power of the
Chilean peso, using indicators published by the National Institute of Statistics. The financial statements of such Chilean subsidiaries are then remeasured to US dollars at the exchange rates prevailing on December 31 of each year.

The inclusion of price-level restatements when the US dollar is the reporting currency is not permitted under US GAAP. However, in the case of the Company, the
effects of including price-level restatement at the subsidiary level are not significant and accordingly the effects of reversing the price-level restatement are not included in the reconciliation of net income and net equity accounts to
US GAAP in paragraph 1 q) below.



|g) | Investment securities
|-- | ---------------------

Under Chilean GAAP, investments in bonds
held by the Company are carried at the lower of cost plus accrued interest or market value. Under Chilean GAAP, mutual funds are stated at market value based on year-end quoted values and unrealized gains and losses are recorded in the current year
Consolidated Statement of Income. Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, investment securities, which include debt and certain equity securities, are accounted for as follows:



| |  |  | Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are reported at amortized
cost.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are
reported at fair value, with unrealized gains and losses included in earnings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt and equity securities not classified as either held-to-maturity or trading securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Companys investments in bonds are classified as available for sale securities for the purposes of SFAS No. 115. The effect of the difference between Chilean GAAP and US GAAP in accounting for the Companys investment in bonds is
included in the reconciliation of reported Net income to Comprehensive income in accordance with US GAAP in paragraph 1 q) below. There is no difference between Chilean GAAP and US GAAP for the Companys investments in mutual funds as
they are classified as trading securities for the purpose of SFAS No. 115.



|h) | Presentation in Statement of cash flows
|-- | ---------------------------------------

Under Chilean GAAP,
payments of leasing obligations subsequent to the date of purchase are treated in the Consolidated Statements of Cash Flows as additions of property and equipment and classified as cash outflows from investing activities. Under US GAAP,
incurring directly-related debt to the seller of property and equipment is a financing transaction and subsequent payments of principal on that debt are thus considered to be cash outflows from financing activities.

Payments of collateral funds as guarantees for derivative contracts have been presented within financing activities. Under US GAAP these must be presented as
operating activities.



F-46



---

##### Table of Contents

As a result of these differences, the Consolidated Statements of Cash Flows under Chilean GAAP would have to be adjusted
as follows to present the statement in accordance with US GAAP:



|                                                                       |  |                                  |   |  |          |   |  |          |  
|---------------------------------------------------------------------- |  | -------------------------------- | - |  | -------- | - |  | -------- | -
|                                                                       |  | Increase (decrease) in cash flow |  
|                                                                       |  | 2008                             |   |  | 2007     |   |  | 2006     |  
|                                                                       |  | (In thousands of US$)            |  
|Net cash provided by (used in) financing activities under Chilean GAAP |  | 58,760                           |   |  | 383,419  |   |  | 503,717  |  
|Collateral deposits on derivative contracts                            |  | 177,840                          |   |  |         |   |  |         |  
|Loans repaid                                                           |  | (52,386                          | ) |  | (46,824  | ) |  | (33,559  | )
|                                                                       |  |                                  |   |  |          |   |  |          |  
|Net cash provided by (used in) financing activities under US GAAP      |  | 184,214                          |   |  | 336,595  |   |  | 470,158  |  
|                                                                       |  |                                  |   |  |          |   |  |          |  
|Net cash provided by (used in) investing activities under Chilean GAAP |  | (830,545                         | ) |  | (844,254 | ) |  | (905,746 | )
|Acquisitions of property and equipment                                 |  | 52,386                           |   |  | 46,824   |   |  | 33,559   |  
|                                                                       |  |                                  |   |  |          |   |  |          |  
|Net cash provided by (used in) investing activities under US GAAP      |  | (778,159                         | ) |  | (797,430 | ) |  | (872,187 | )
|                                                                       |  |                                  |   |  |          |   |  |          |  
|Net cash provided by (used in) operating activities under Chilean GAAP |  | 729,129                          |   |  | 707,018  |   |  | 490,254  |  
|Collateral deposits on derivative contracts                            |  | (177,840                         | ) |  |         |   |  |         |  
|                                                                       |  |                                  |   |  |          |   |  |          |  
|Net cash provided by (used in) operating activities under US GAAP      |  | 551,289                          |   |  | 707,018  |   |  | 490,254  |  
|                                                                       |  |                                  |   |  |          |   |  |          |  



F-47



---

##### Table of Contents

Net cash and cash equivalents at the end of year under US GAAP is as follows:



|                                                              |  |                       |  |         |  |        
|------------------------------------------------------------- |  | --------------------- |  | ------- |  | -------
|                                                              |  | At December 31,      
|                                                              |  | 2008                  |  | 2007    |  | 2006   
|                                                              |  | (In thousands of US$)
|Cash                                                          |  | 15,707                |  | 11,506  |  | 9,565  
|Time deposits                                                 |  | 255,881               |  | 308,585 |  | 148,663
|Defined-term mutual funds (included in Marketable Securities) |  | 129,846               |  | 125,524 |  | 39,654 
|Other current assets                                          |  |                      |  |        |  | 1,614  
|                                                              |  |                       |  |         |  |        
|Total                                                         |  | 401,434               |  | 445,615 |  | 199,496
|                                                              |  |                       |  |         |  |        

There are no significant non-cash investing or financing transactions in the three years ended December 31,
2008. The Company made cash payments for interest of ThUS$ 81,421, ThUS$ 73,633 and ThUS$ 60,107 for the years ended 2008, 2007 and 2006, respectively. The Company made tax payments of ThUS$ 101,292, ThUS$ 52,337 and ThUS$ 49,846 for the years
ended 2008, 2007 and 2006, respectively.

For the year ended December 31, 2008, within the caption Other in the statement of
reconciliation of net income to net cash provided by operating activities is included ThUS$ 109,000 related to the accrued liability for the plea agreement signed with the DOJ.



|i) | Classification of income and expenses
|-- | -------------------------------------

Under Chilean GAAP, the
following income and expenses arising during the years 2008, 2007 and 2006 are classified as Other income (expense) - net whereas under US GAAP they would be recorded within operating income:



|                                                                                                                                              |  |                         |  |        |  |       
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ------ |  | ------
|                                                                                                                                              |  | Year ended December 31,
|                                                                                                                                              |  | 2008                    |  | 2007   |  | 2006  
|                                                                                                                                              |  | (In thousands of US$)  
|Non-operating income:                                                                                                                         |  |                         |  |        |  |       
|Effect of accounting change 2008(1)                                                                                                           |  | 13,963                  |  |       |  |      
|Effect of accounting change 2006(1)                                                                                                           |  |                        |  |       |  | 40,344
|Jet fuel swap contracts                                                                                                                       |  | 35,405                  |  | 28,190 |  | 12,903
|                                                                                                                                              |  |                         |  |        |  |       
|Total                                                                                                                                         |  | 49,368                  |  | 28,190 |  | 53,247
|                                                                                                                                              |  |                         |  |        |  |       
|Non-operating expenses:                                                                                                                       |  |                         |  |        |  |       
|Plea agreement in relation to the DOJs ongoing investigation regarding Price fixing of fuel surcharges and other fees for cargo
shipments(2) |  | 109,000                 |  |       |  |      
|Reserve for loss related to the ongoing investigation by the European Commission(2)                                                           |  |                        |  | 25,000 |  |      
|Provision for retirement of Boeing 737 Aircraft                                                                                               |  |                        |  |       |  | 8,100 
|Non-recurring indemnities paid to employees                                                                                                   |  |                        |  |       |  | 11,747
|                                                                                                                                              |  |                         |  |        |  |       
|Total                                                                                                                                         |  | 109,000                 |  | 25,000 |  | 19,847
|                                                                                                                                              |  |                         |  |        |  |       



|(1) | The Company recorded ThUS$ 13,963 and ThUS$ 40,344 as cumulative
effect for a change in accounting principles as Non-operating income in 2008 and 2006 for Chilean GAAP, respectively. These are adjusted for and included in the US GAAP reconciliation in Note 1 q).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-48



---

##### Table of Contents

|(2) | See Note 22.
|--- | ------------



|j) | Internal use software
|-- | ---------------------

As mentioned in Note 2 aa), under Chilean
GAAP all disbursements for the development of internal use software are charged to the results of operations as incurred. Under US GAAP, certain costs related to internal use software are capitalized while others are charged to the results of
operations. External direct costs of materials and services consumed in developing or obtaining internal use computer software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal use
computer software project and interest costs incurred while developing internal use computer software are capitalized. Maintenance, training, data conversion and reengineering costs are charged to the results of operations as incurred. However, in
the case of the Company, the costs relating to internal use software are not significant and accordingly, these costs are not included in the reconciliation to US GAAP of net income and net equity accounts in paragraph 1 q) below.



|k) | Recognition of tax loss carryforwards
|-- | -------------------------------------

At December 31, 2000,
Lan Perú had tax loss carryforwards of ThUS$ 7,590 resulting in a deferred tax asset of ThUS$ 2,326. A valuation allowance of ThUS$ 2,326 was provided to offset the entire deferred tax asset because at that time it appeared unlikely that
these tax losses would be utilized in future years. Lan Perú was an equity method investee at December 31, 2000 and during 2001 the Company acquired an additional 21% ownership interest and Lan Perú became a consolidated
subsidiary. No deferred tax asset was recognized under Chilean GAAP on the date of purchase. During 2001, Lan Perú had taxable income and utilized ThUS$ 1,673 of the deferred tax asset, leaving a balance of ThUS$ 653 which expired without
being utilized. In accordance with US GAAP, when tax loss carryforwards that were not recognized at the acquisition date are recognized in a subsequent period, they first reduce to zero any positive goodwill related to the acquisition; then
they reduce to zero all other noncurrent intangible assets; and finally, they reduce income tax expense. For Chilean GAAP purposes, the tax loss was used to reduce income tax expense without first reducing existing goodwill. As a result, the
US GAAP reconciliation in paragraph 1 q) below includes an adjustment to decrease goodwill on the purchase of Lan Perú in 2001 by ThUS$ 488 and increase the current income provision by the same amount. The adjustment is based on the
acquired ownership interest of 21% applied to the deferred tax asset of ThUS$ 2,326 recognized in 2001.



|l) | Derivative financial instruments
|-- | --------------------------------

The Company uses interest rate
swap and cap agreements to reduce its exposure from variable interest bearing liabilities and commitments. It also enters into commodity (jet fuel and West Texas Intermediate) swap and call contracts to fix the price for a given quantity of the
aforementioned commodity, and costless collars which are a combination of call and put options so as to ensure a price range for jet fuel. In order to reduce the impact of foreign exchange rate fluctuations, the Company enters into
foreign exchange hedge contracts.



F-49



---

##### Table of Contents

Under Chilean GAAP, derivatives are accounted for in accordance with Technical Bulletin 57, Accounting for
Derivative Contracts (TB 57). Under TB 57, all derivative financial instruments should be recognized on the balance sheet at their fair value. In addition, TB 57 requires that derivative financial instruments be classified as non-hedging
(investment) instruments and hedging instruments, the latter further divided into those covering recognized assets or liabilities or an unrecognized firm commitment and those covering forecasted transactions.

Contracts to cover recognized assets or liabilities or an unrecognized firm commitment act as hedging instruments against the risk of a change in the fair value of a
hedged item. The differences resulting from the changes in the fair value of both the hedged item and the derivative instrument should be accounted for as follows:



| | a) | If the net effect is a loss, it should be recognized in earnings in the period of change.
| | -- | -----------------------------------------------------------------------------------------



| | b) | If the net effect is a gain, it should be recognized when the contract is closed and accordingly deferred on the balance sheet.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



| | c) | If the net effect is a gain and net losses were recorded on the transaction in prior years, a gain should be recognized in earnings in the current period up to the amount of net
losses recorded previously.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | If the effect is a net loss and net gains were recorded (as a deferred revenue) on the transaction in prior years, the gain should be utilized to offset the net loss before
recording the remaining loss in the results of operations for the year.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contracts to cover forecasted transactions are those that have the
objective of protecting cash flow risks of a transaction expected to occur in the future (a cash flow hedge). The hedging instrument should be recorded at its fair value and the changes in fair value should be stated on the balance sheet as
unrealized gains or losses. When the contract is closed, the unrealized gains or losses on the derivative instrument should be recognized in earnings without affecting the cost or sales price of the asset acquired or sold in the transaction.
However, probable losses arising from purchase commitments should not be deferred.

Under Chilean GAAP, the Company includes unrealized losses related to
derivative contracts amounting to ThUS$ 178,234 (ThUS$ 6,280 at December 31, 2007) under Other current assets and ThUS$ 154,602 (ThUS$ 57,177) under Other assets. Under US GAAP, such unrealized losses would be presented within Other
Comprehensive Income.

Non-hedging (investment) instruments should also be presented at their fair value, with changes in fair value reflected in the
earnings of the period in which the change in fair value occurs.

For US GAAP reconciliation purposes only, the Company has adopted SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities as amended, on the same matter (collectively referred to herein as SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the Consolidated Balance Sheet and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction or to the variability of the cash flows that are to be received or paid in connection with a recognized asset or liability or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, a foreign-currency-denominated forecasted transaction or a recognized asset or liability.



F-50



---

##### Table of Contents

As indicated below in paragraph 2 f), the accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.

The effect of the differences in accounting for derivative financial instruments under
Chilean and US GAAP is included in paragraph 1 q) below. Additional information concerning derivative financial instruments that is required to be disclosed under SFAS 133 is set forth below in paragraph 2 f).



|m) | Change in accounting policy for maintenance costs and adoption of FSP AIR-1
|-- | ---------------------------------------------------------------------------

As mentioned in the Financial Statements as of December 31, 2006, the Company changed its method of accounting for heavy aircraft and engine maintenance costs associated with its owned aircraft for both Chilean and US GAAP, from
the accrual method to the built-in overhaul method, effective January 1, 2006. This change in accounting principle for Chilean and US GAAP was preferable, and in line with industry practice. The effect of this change was recorded
prospectively under Chilean GAAP and resulted in an approximate US$ 40.3 million increase in Non-operating income for 2006.

In the FASB Staff
Position No. AUG AIR-1 (FSP AIR-1), the FASB also eliminated the use of the accrual method for US GAAP, effective January 1, 2007. Therefore, for US GAAP only, the Company adopted FSP AIR-1 and changed its accounting
principle for heavy aircraft and engine maintenance costs on leased aircraft from the accrual method to the cash method (record maintenance expenses as incurred), effective January 1, 2007.

For US GAAP reporting purposes, the Company has retrospectively applied the use of the built-in overhaul method and the cash method for owned and leased aircraft,
respectively, to prior periods financial statements.

In the case of heavy aircraft and engine maintenance costs associated with the owned aircraft,
the cumulative effect of the accounting change on periods prior to the fiscal year ended December 31, 2004 was reflected in the carrying amounts of assets and liabilities as of January 1, 2004. An offsetting adjustment was made to the
opening balance of retained earnings as of January 1, 2004. The effects of this change in accounting policy are shown below and under paragraph 1 q). The effect of this change on the 2006 US GAAP results was a decrease in net income of
approximately US$ 40.3 million. The cumulative effect on the 2004 beginning Shareholders ́equity balance was an increase of US$ 38.7 million.

The effect of this change on the 2008 US GAAP results was a decrease in net income of approximately US$ 2.8 million (increase of US$ 32.9 million in 2007). The cumulative effect on the 2005 beginning Shareholders ́equity
balance was an increase of US$ 88 million.



|n) | Late delivery fees
|-- | ------------------

Under Chilean GAAP, contractual payments made
to the Company by the aircraft or equipment manufacturer due to the nondelivery of an aircraft or equipment by a stated delivery date, are accounted for as revenue. These payments are generally specified in the asset purchase agreement and are
negotiated to represent compensation for an airlines lost revenue associated with the delay in the delivery of an aircraft or equipment. As of December 31, 2008, a total of ThUS$ 5,950 was recorded as Other Income in Operating revenues
due to a change in the delivery schedule of certain Airbus A318 aircraft (US$ 18.9 million in 2007).

For US GAAP reporting, the Company has
adopted Technical Practice Aid (TPA) Technical Questions and Answers (TIS) section 2210.28, Accounting for Certain Liquidated Damages (AICPA, Technical Practice Aids), under which late delivery fees are typically recorded as a reduction
of the cost of the asset and, therefore, reduce depreciation on a prospective basis. The effect of the differences in accounting for liquidated damages under Chilean and US GAAP is included in paragraph 1 q) below.



F-51



---

##### Table of Contents

|o) | Stock option plans
|-- | ------------------

As of January 1, 2007, the Company adopted
SFAS No. 123(R) Accounting for Stock-Based Compensation for USGAAP reporting purposes. This standard requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based
on their fair values estimated at the date of the grant (with limited exceptions). Because as of the date of transition there were no shares outstanding from previous plans, FAS 123(R) had no effect on the Companys result of operations or
financial position upon adoption.

In May 17, 2007, the Board of Directors agreed to issue to a group of executives stock options for a total of
2,209,091 shares as mentioned in Note 19 to the Financial Statements. The Share Subscription Agreement (Agreement) dated December, 2007 sets the exercise price at USD 16.11208 per share, indexed to US CPI. As of December 31,
2008, 1,604,000 stock options have been granted under the Agreement.

For Chilean GAAP, the Company recognizes a charge to compensation cost and a credit
to other reserves on a straight-line basis over the period between the date of grant and the date the options are vested.

The Company determined the fair
value of the options granted, representing total compensation expense, using the Black-Scholes-Merton option valuation model and the assumptions noted in the following table. Expected volatility is based on historical volatility of the
Companys stock and other factors. LAN estimated the expected term of awards granted based on the vesting and expiration terms of the awards. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time the
valuation is made. The dividend yield is assumed to be 30% based on the Companys history and expectation of dividend payments.



|                                                        |  |                     
|------------------------------------------------------- |  | --------------------
|                                                        |  | At December 31, 2008
|Exercise price (US$) (As adjusted by forecasted US CPI) |  | 16.0999             
|Expected volatility (%)                                 |  | 52                  
|Expected dividends (minimum required) (%)               |  | 30                  
|Risk free rate (%)                                      |  | 0.97                
|Expected term (years)                                   |  | 2.8                 

Total compensation cost as determined above amounts to ThUS$ 1,402 at December 31, 2008 (ThUS$ 3,516 at
December 31, 2007). Of this amount, ThUS$ 584 has been recognized within the income statement under compensation expense for the year ended December 31, 2008 (ThUS$ 0 in 2007). The balance is expected to be recognized within the income
statement throughout the remaining term of the grant (approximately 2.8 years).



F-52



---

##### Table of Contents

Option vesting:



|    |  |              |  |                   
|--- |  | ------------ |  | ------------------
|    |  | From         |  | Until             
|30% |  | July 1, 2009 |  | September 30, 2011
|30% |  | July 1, 2010 |  | September 30, 2011
|40% |  | July 1, 2011 |  | September 30, 2011

A summary of stock option activity, and changes during the year ended December 31, 2008 is presented below:



|                                  |  |                  
|--------------------------------- |  | -----------------
|                                  |  | Number of options
|Outstanding at January 1, 2008    |  | 1,235,000        
|Granted                           |  | 369,000          
|Vested                            |  |                 
|Forfeited or expired              |  |                 
|Outstanding at December 31, 2008  |  | 1,604,000        
|Excercisable at December 31, 2008 |  |                 

Treatment under Chilean GAAP, which is in accordance with International Financial Reporting Standard No. 2
Share-based payments, considers these stock options as equity awards. SFAS 123(R) requires that an award which is indexed to a factor that is not a market, performance, or service condition be classified as a liability. For US GAAP, the Company
records a liability and compensation expense. The liability is measured based on the awards fair value remeasured at each reporting date until the date of settlement and on the percentage of requisite service rendered at the reporting date.
Changes in fair value are also recognized as compensation expense. The effect of the differences in accounting for stock options plan under Chilean and US GAAP is included in paragraph 1 q) below.



|p) | Financing of pre-delivery payments
|-- | ----------------------------------

As indicated in Note 3,
effective January 1, 2008, the Company began capitalizing interest expense related to the financing of pre delivery payments for the adquitition of aircraft (interest during the construction period).

Under US GAAP, the Company will maintain its policy of not capitalizing interest cost associated with financing of PDPs.

As of December 31, 2008, a total of ThUS$ 26,539 was recorded in the consolidated statement of income due to this change. The effect of the differences in
accounting for financing of PDPs under Chilean and US GAAP is included in paragraph 1 q) below.



F-53



---

##### Table of Contents

|q) | Effects of conforming to US GAAP
|-- | --------------------------------

The adjustments to reported
net income required to conform with US GAAP are as follows:



|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                                                            |  | For the year ended December 31, |  
|                                                                                                                            |  | 2008                            |   |  | 2007    |   |  | 2006    |  
|                                                                                                                            |  | (In thousands of US$)           |  
|Net income in accordance with Chilean GAAP financial statements                                                             |  | 335,739                         |   |  | 308,323 |   |  | 241,300 |  
|Deferred income tax provision (par. 1 a)                                                                                    |  | 9,379                           |   |  | (2,626  | ) |  | 10,386  |  
|Purchase accounting adjustments of property and equipment on Lan Cargo S.A (Ex Lan Chile Cargo S.A.) acquisition (par. 1 b) |  | (64                             | ) |  | (64     | ) |  | (64     | )
|Fair value of derivative not considered to be a hedge (par. 1 l and par. 2 f)                                               |  | 1,521                           |   |  | (1,641  | ) |  | 120     |  
|Ineffectiveness of cash flow hedges of forecasted jet fuel purchases (par. 1 l and par. 2 f)                                |  |                                |   |  |        |   |  | (2,080  | )
|Ineffectiveness of cash flow hedges of interest rates cap contracts (par. 1 l and par. 2 f)                                 |  |                                |   |  | 890     |   |  | (890    | )
|Ineffectiveness of cash flow hedges of forecasted securitization (net of amortization) (par. 1 l and par. 2 f)              |  | 59                              |   |  | 59      |   |  | 59      |  
|Reversal of goodwill and its amortization (par. 1 b)                                                                        |  | 2,853                           |   |  | 2,994   |   |  | 3,318   |  
|Effect of change in accounting policy (par. 1 m)                                                                            |  |                                |   |  |        |   |  | (40,344 | )
|Effect of adoption FSP AIR-1 (par. 1 m)                                                                                     |  | (2,802                          | ) |  | 32,934  |   |  | (10,239 | )
|Changes in Stock options fair value (par. 1 o)                                                                             |  | 1,217                           |   |  |        |   |  |        |  
|Effect of the recognition of interest related with the financing of pre-delivery payments (PDPs) (par. 1 p)                 |  | (26,539                         | ) |  |        |   |  |        |  
|Effect of late delivery fees (par. 1 n)                                                                                     |  | (4,946                          | ) |  | (18,852 | ) |  |        |  
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|Net income in accordance with US GAAP                                                                                       |  | 316,417                         |   |  | 322,017 |   |  | 201,566 |  
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|Comprehensive income (loss):                                                                                                |  |                                 |   |  |         |   |  |         |  
|Fair value of cash flow hedges:                                                                                             |  |                                 |   |  |         |   |  |         |  
|Interest rate contracts (par. 1 l and par. 2 f)                                                                             |  | (134,534                        | ) |  | (36,188 | ) |  | (11,259 | )
|Jet fuel swaps (par. 1 l and par. 2 f)                                                                                      |  | (174,648                        | ) |  | 7,739   |   |  | (12,454 | )
|Treasury rate lock (par. 1 l and par. 2 f)                                                                                  |  | 471                             |   |  | 471     |   |  | 471     |  
|Unrealized gain on investment securities (par. 2 b)                                                                         |  | (31                             | ) |  | 264     |   |  | (8,205  | )
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|Other comprehensive income (loss) before taxes                                                                              |  | (308,742                        | ) |  | (27,714 | ) |  | (31,447 | )
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|Income tax (expense) benefit related to items of other comprehensive income (par. 1 a)                                      |  | 52,486                          |   |  | 4,711   |   |  | 5,346   |  
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  
|Comprehensive income in accordance with US GAAP                                                                             |  | 60,161                          |   |  | 299,014 |   |  | 175,465 |  
|                                                                                                                            |  |                                 |   |  |         |   |  |         |  



F-54



---

##### Table of Contents

The adjustments required to conform Total Shareholders equity to US GAAP are as follows:



|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - |  | --------- | - |  | ------- | -
|                                                                                                                                       |  | For the year ended December 31, |  
|                                                                                                                                       |  | 2008                            |   |  | 2007      |   |  | 2006    |  
|                                                                                                                                       |  | (In thousands of US$)           |  
|Total Shareholders Equity in accordance with Chilean GAAP financial statements                                                        |  | 1,117,978                       |   |  | 988,052   |   |  | 626,320 |  
|Deferred income tax provision (par. 1 a)                                                                                               |  | (21,209                         | ) |  | (30,588   | ) |  | (27,962 | )
|Purchase accounting adjustments of property and equipment arising from Lan Cargo S.A. (Ex Lan Chile Cargo S.A.) acquisition (par. 1
b) |  | 300                             |   |  | 364       |   |  | 428     |  
|Reversal of utilization of tax loss carryovers in Perú (par. 1 k)                                                                      |  | (488                            | ) |  | (488      | ) |  | (488    | )
|Fair value of derivative not considered to be a hedge (par. 1 l and par. 2 f)                                                          |  |                                |   |  | (1,521    | ) |  | 120     |  
|Ineffectiveness of cash flow hedges of forecasted interest rates (par. 1 l and par. 2 f)                                               |  |                                |   |  |          |   |  | (890    | )
|Ineffectiveness of cash flow hedge of forecasted securitization (net of amortization) (par. 1 l and par. 2 f)                          |  | (29                             | ) |  | (88       | ) |  | (147    | )
|Difference in purchase accounting adjustments (par. 1 b)                                                                               |  | (20,814                         | ) |  | (20,814   | ) |  | (20,814 | )
|Amortization of goodwill basis differences pre-SFAS 141 (par. 1 b)                                                                     |  | 8,201                           |   |  | 8,201     |   |  | 8,201   |  
|Reversal of amortization of goodwill under chilean gaap subsequent to implementation of SFAS 141 (par. 1 b)                            |  | 21,932                          |   |  | 19,079    |   |  | 16,085  |  
|Effect of the recognition of interest related with the financing of pre-delivery payments (PDPs) (par. 1 p)                            |  | (26,539                         | ) |  |          |   |  |        |  
|Changes in Stock options fair value (par. 1 o)                                                                                        |  | (584                            | ) |  |          |   |  |        |  
|Effect of adoption FSP AIR-1 (par. 1 m)                                                                                                |  | 109,226                         |   |  | 112,028   |   |  | 79,094  |  
|Effect of late delivery fees (par. 1 n)                                                                                                |  | (23,798                         | ) |  | (18,852   | ) |  |        |  
|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  
|Shareholders Equity in accordance with US GAAP                                                                                        |  | 1,164,176                       |   |  | 1,055,373 |   |  | 679,947 |  
|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  
|Beginning accumulated other comprehensive loss                                                                                         |  | (44,633                         | ) |  | (21,630   | ) |  | 4,471   |  
|Other comprehensive income (loss), net of income tax                                                                                   |  | (256,256                        | ) |  | (23,003   | ) |  | (26,101 | )
|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  
|Accumulated other comprehensive income (loss) in accordance with US GAAP                                                               |  | (300,889                        | ) |  | (44,633   | ) |  | (21,630 | )
|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  
|Total shareholders equity in accordance with US GAAP including accumulated other comprehensive income (loss)                          |  | 863,287                         |   |  | 1,010,740 |   |  | 658,317 |  
|                                                                                                                                       |  |                                 |   |  |           |   |  |         |  



F-55



---

##### Table of Contents

The changes in Total Shareholders equity determined under US GAAP are summarized as follows:



|                                                                |  |                     |  
|--------------------------------------------------------------- |  | ------------------- | -
|                                                                |  | In thousands of US$ |  
|Balance at December 31, 2005                                    |  | 600,545             |  
|Distribution of final 2005 dividend                             |  | (1,843              | )
|Distribution of interim 2006 dividend                           |  | (115,850            | )
|Other comprehensive income:                                     |  |                     |  
|Loss from fair value of cash flow hedges                        |  | (23,242             | )
|Unrealized gain on investment                                   |  | (8,205              | )
|Income tax expense related to items of other comprehensive loss |  | 5,346               |  
|Net income for the year                                         |  | 201,566             |  
|                                                                |  |                     |  
|Balance at December 31, 2006                                    |  | 658,317             |  
|                                                                |  |                     |  
|Balance at December 31, 2006                                    |  | 658,317             |  
|Issuance of stock                                               |  | 319,141             |  
|Issuance of stock expenses                                      |  | (2,672              | )
|Distribution of final 2006 dividend                             |  | (53,060             | )
|Distribution of interim 2007 dividend                           |  | (210,000            | )
|Other comprehensive income:                                     |  |                     |  
|Loss from fair value of cash flow hedges                        |  | (27,978             | )
|Unrealized gain on investment                                   |  | 264                 |  
|Income tax expense related to items of other comprehensive loss |  | 4,711               |  
|Net income for the year                                         |  | 322,017             |  
|                                                                |  |                     |  
|Balance at December 31, 2007                                    |  | 1,010,740           |  
|                                                                |  |                     |  
|Balance at December 31, 2007                                    |  | 1,010,740           |  
|Distribution of final 2007 dividend                             |  | (5,827              | )
|Distribution of interim 2008 dividend                           |  | (201,787            | )
|Other comprehensive income:                                     |  |                     |  
|Loss from fair value of cash flow hedges                        |  | (308,711            | )
|Unrealized loss on investment securities                        |  | (31                 | )
|Income tax expense related to items of other comprehensive loss |  | 52,486              |  
|Net income for the year                                         |  | 316,417             |  
|                                                                |  |                     |  
|Balance at December 31, 2008                                    |  | 863,287             |  
|                                                                |  |                     |  



F-56



---

##### Table of Contents

|2. | Additional US GAAP disclosure requirements
|-- | ------------------------------------------

The information
set forth below is required under US GAAP but not under Chilean GAAP.



|a) | Earnings per share
|-- | ------------------

The following disclosure of earnings per share
information is not generally required for presentation in financial statements under Chilean GAAP but is required under US GAAP:



|                                                                                                                      |  |                         |  |         |  |        
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ------- |  | -------
|                                                                                                                      |  | Year ended December 31,
|                                                                                                                      |  | 2008                    |  | 2007    |  | 2006   
|                                                                                                                      |  | (US$)                  
|Earnings per share under Chilean GAAP                                                                                 |  | 0.99                    |  | 0.93    |  | 0.76   
|Basic and diluted earnings per share under US GAAP                                                                    |  | 0.93                    |  | 0.97    |  | 0.63   
|Weighted-average number of shares of common stock outstanding for basic and diluted earnings per share (in thousands) |  | 338,791                 |  | 330,460 |  | 318,909

The earnings per share data shown above is determined by dividing net income for both Chilean GAAP and
US GAAP purposes by the weighted-average number of shares of common stock outstanding during each year.

As of December 31, 2007 and 2008,
1,235,000 and 1,604,000 stock options respectively that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive for the present period.



|b) | Investment securities
|-- | ---------------------

Shown below are the cost, gross unrealized
gain and losses and approximate fair value of marketable securities under US GAAP (see paragraph 1g):



|                                    |  |                       |  |                      |  |                       |  |            |  |      |  |      |  |       |  |       
|----------------------------------- |  | --------------------- |  | -------------------- |  | --------------------- |  | ---------- |  | ---- |  | ---- |  | ----- |  | ------
|                                    |  | Cost                  |  | Grossunrealizedgains |  | Grossunrealizedlosses |  | Fair Value
|                                    |  | 2008                  |  | 2007                 |  | 2008                  |  | 2007       |  | 2008 |  | 2007 |  | 2008  |  | 2007  
|                                    |  | (In thousands of US$)
|Bonds                               |  | 8,580                 |  | 22,428               |  | 437                   |  | 468        |  |     |  |     |  | 9,017 |  | 22,896
|                                    |  |                       |  |                      |  |                       |  |            |  |      |  |      |  |       |  |       
|Total securities available for sale |  | 8,580                 |  | 22,428               |  | 437                   |  | 468        |  |     |  |     |  | 9,017 |  | 22,896
|                                    |  |                       |  |                      |  |                       |  |            |  |      |  |      |  |       |  |       



F-57



---

##### Table of Contents

|c) | Income tax
|-- | ----------

The provision for income taxes charged to the results
of operations under US GAAP was as follows:



|                              |  |                         |   |  |         |   |  |         |  
|----------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                              |  | Year ended December 31, |  
|                              |  | 2008                    |   |  | 2007    |   |  | 2006    |  
|                              |  | (In thousands of US$)   |  
|Current income tax expense    |  | (10,309                 | ) |  | (13,995 | ) |  | (14,123 | )
|Deferred income tax expense   |  | (45,002                 | ) |  | (48,406 | ) |  | (22,328 | )
|                              |  |                         |   |  |         |   |  |         |  
|Total provision under US GAAP |  | (55,311                 | ) |  | (62,401 | ) |  | (36,451 | )
|                              |  |                         |   |  |         |   |  |         |  

Deferred tax assets (liabilities) are summarized as follows:



|                                           |  |                         |   |  |          |   |  |          |  
|------------------------------------------ |  | ----------------------- | - |  | -------- | - |  | -------- | -
|                                           |  | Year ended December 31, |  
|                                           |  | 2008                    |   |  | 2007     |   |  | 2006     |  
|                                           |  | (In thousands of US$)   |  
|Unearned income                            |  | (30,883                 | ) |  | (17,781  | ) |  | (16,198  | )
|Prepaid expenses                           |  | (9,592                  | ) |  | (4,811   | ) |  | (6,363   | )
|Property and equipment                     |  | (256,974                | ) |  | (197,679 | ) |  | (156,405 | )
|Others                                     |  | (18,775                 | ) |  | (19,044  | ) |  | (13,446  | )
|                                           |  |                         |   |  |          |   |  |          |  
|Gross deferred tax liabilities             |  | (316,224                | ) |  | (239,315 | ) |  | (192,412 | )
|                                           |  |                         |   |  |          |   |  |          |  
|Allowance for doubtful accounts            |  | 5,449                   |   |  | 4,585    |   |  | 4,494    |  
|Tax loss carryforwards                     |  | 14,377                  |   |  | 23,354   |   |  | 32,968   |  
|Provision for vacations                    |  | 3,618                   |   |  | 3,913    |   |  | 3,302    |  
|Provisions for obsolescence of spare parts |  | 2,020                   |   |  | 2,935    |   |  | 2,960    |  
|Other                                      |  | 113,616                 |   |  | 37,604   |   |  | 20,007   |  
|                                           |  |                         |   |  |          |   |  |          |  
|Gross deferred tax assets                  |  | 139,080                 |   |  | 72,391   |   |  | 63,731   |  
|                                           |  |                         |   |  |          |   |  |          |  
|Deferred tax assets valuation allowance    |  | (4,124                  | ) |  | (19,784  | ) |  | (15,302  | )
|                                           |  |                         |   |  |          |   |  |          |  
|Net deferred tax liabilities               |  | (181,268                | ) |  | (186,708 | ) |  | (143,983 | )
|                                           |  |                         |   |  |          |   |  |          |  



F-58



---

##### Table of Contents

The provision for income taxes differs from the amount of income tax determined by applying the applicable Chilean
statutory income tax rates of 17% to pretax accounting income on a US GAAP basis as a result of the following differences:



|                                                         |  |                         |   |  |         |   |  |         |  
|-------------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                         |  | Year ended December 31, |  
|                                                         |  | 2008                    |   |  | 2007    |   |  | 2006    |  
|                                                         |  | (In thousands of US$)   |  
|Provision for income taxes at statutory Chilean tax rate |  | (63,194                 | ) |  | (65,351 | ) |  | (40,463 | )
|Increase (decrease) in rates resulting from:             |  |                         |   |  |         |   |  |         |  
|Non-taxable income                                       |  | 12,962                  |   |  | 13,012  |   |  | 5,618   |  
|Non-deductible items                                     |  | (11,280                 | ) |  | (2,203  | ) |  | (1,371  | )
|Change in valuation allowance                            |  | 14,137                  |   |  | (9,735  | ) |  | (4,314  | )
|International income tax differences                     |  | (7,684                  | ) |  | 2,067   |   |  | 3,022   |  
|Other                                                    |  | (252                    | ) |  | (191    | ) |  | 1,057   |  
|                                                         |  |                         |   |  |         |   |  |         |  
|Provision for income taxes at effective tax rates        |  | (55,311                 | ) |  | (62,401 | ) |  | (36,451 | )
|                                                         |  |                         |   |  |         |   |  |         |  

No reserves for uncertain income tax positions have been recorded pursuant to FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48).

In accordance with
Chilean law, the Company and each of its subsidiaries compute and pay taxes on a separate return basis and not on a consolidated basis.

Inversora
Cordillera S.A. and its subsidiary have tax loss carryforwards aggregating ThUS$ 29,033 at December 31, 2008 which have an expiration date of five years beginning in the first year that a loss is incurred. The related deferred tax asset was
ThUS$ 10,162 at December 31, 2008.

Lan Chile Investment Limited and its subsidiaries have tax loss carryforwards aggregating ThUS$ 3,396 at
December 31, 2008 which have expiration dates of five years after the year of the loss. The related deferred tax asset is ThUS$ 849 and a 100% valuation allowance has been provided because at the present time it appears unlikely that these tax
losses will be utilized in future years

Aerolinheas Brasileiras has tax loss carryforwards aggregating ThUS$ 3,304 at December 31, 2008 which have no
expiration date. However, a 100% valuation allowance has been provided against the related deferred tax asset of ThUS$ 1,123 because at the present time it appears unlikely that these tax losses will be utilized in future years.



|d) | Fair value of financial instruments
|-- | -----------------------------------

In September 2006, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial instruments. Although
the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.



F-59



---

##### Table of Contents

In October 2008, the FASB issued FASB Staff Position FAS 157-c, Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active, which was effective immediately. FSP FAS 157-c clarifies the application of Statement 157 in cases where the market for a financial instrument is not active and provides an example to illustrate
key considerations in determining fair value in those circumstances. The Company has also considered the guidance provided by FSP FAS 157-c in its determination of estimated fair values during 2008.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions.

Assets and Liabilities that are Measured at Fair Value on a Recurring
Basis:

As of December 31, 2008, the Company held certain items that are required to be measured at fair value on a recurring basis. These
included:



|(i) | Investments in short term mutual funds (cash equivalents),
|--- | ----------------------------------------------------------



|(ii) | Bonds (available for sale securities),
|---- | --------------------------------------



|(iii) | Interest rate derivative contracts,
|----- | -----------------------------------



|(iv) | Fuel derivative contracts, and
|---- | ------------------------------



|(v) | Foreign exchange swaps.
|--- | -----------------------

The following table provides information by level
for assets and liabilities that are measured at fair value, as defined by SFAS 157, on a recurring basis:



|                                      |  |                               |  |                                                   |  |           |  |  
|------------------------------------- |  | ----------------------------- |  | ------------------------------------------------- |  | --------- |  | -
|Description                           |  | Fair value atDecember 31,2008 |  | Fair value measurementsUsing inputs considered
as
|                                      |  | Level I                       |  | Level II                                          |  | Level III
|                                      |  | (In thousands of US$)        
|Assets                                |  |                               |  |                                                   |  |           |  |  
|Short term mutual funds               |  | 129,846                       |  | 129,846                                           |  |          |  | 
|Bonds                                 |  | 9,017                         |  | 9,017                                             |  |          |  | 
|Interest rate derivative asset        |  | 477                           |  |                                                  |  | 477       |  | 
|Liabilities                           |  |                               |  |                                                   |  |           |  |  
|Interest rate derivative liability    |  | 157,468                       |  |                                                  |  | 157,468   |  | 
|WTI derivative liability              |  | 170,262                       |  | 170,262                                           |  |          |  | 
|Foreign exchange derivative liability |  | 1,345                         |  |                                                  |  | 1,345     |  | 

Investments in short term mutual funds are valued using publicly available year end quotes, therefore, they have
been classified as Level I.

Bonds are investments in corporate bonds for which the fair value is determined using the market quotes. Due to this, we
classified these investments as Level 1 under SFAS 157.

Interest rate derivative are related to the Companys attempts to hedge LIBOR exposure. These
contracts consist mainly of OTC transactions such as long term interest rate swaps, forward starting swaps and interest rate call options. All of them are contracted with high rating US counterparties.



F-60



---

##### Table of Contents

Fuel derivative contracts are related to the Companys attempts to hedge fuel costs and are denominated in WTI which
has a high correlation (more than 95%) with the monthly average price of Jet Fuel paid by the Company to different suppliers.

Foreign Exchange Swaps are
mainly related to the attempt to have a synthetic US dollar denominated deposit or Chilean Central Bank Obligation which are denominated in Chilean peso.

The fair value of WTI options are traded on US national exchanges and, therefore, have readily available public quotes. Because of this, they have been classified as Level I.

Fair values of all other derivative instruments and options are determined using either pricing valuation models that utilize market observable inputs or broker quotes. The valuation models consider projected
discounted cash flows, relevant swap curves and appropriate implied volatilities. Taking that into consideration, we classified these derivatives as Level 2 under SFAS 157.

Assets and Liabilities that are not measured at Fair Value on a recurring basis:

The estimated fair values of the
Companys financial instruments not measured at fair value on a US GAAP basis are as follows:



|                                               |  |                       |  |                      |  |                       |  |           
|---------------------------------------------- |  | --------------------- |  | -------------------- |  | --------------------- |  | ----------
|                                               |  | At December 31, 2008  |  | At December 31, 2007
|                                               |  | US GAAPCarryingamount |  | Fair Value           |  | US GAAPCarryingamount |  | Fair Value
|                                               |  | (In thousands of US$)
|Cash                                           |  | 15,707                |  | 15,707               |  | 11,506                |  | 11,506    
|Time deposits                                  |  | 255,881               |  | 255,881              |  | 308,585               |  | 308,585   
|Current portion of long-term loans             |  | 151,247               |  | 213,205              |  | 102,153               |  | 148,102   
|Current portion of other long-term obligations |  | 70,407                |  | 61,364               |  | 74,786                |  | 79,085    
|Bank loans (long-term)                         |  | 1,654,947             |  | 1,831,466            |  | 1,228,650             |  | 1,146,267 
|Other liabilities (long-term)                  |  | 178,894               |  | 187,606              |  | 240,520               |  | 239,385   



|e) | Concentration of credit risk
|-- | ----------------------------

The Companys accounts
receivable are generated primarily from airline ticket and cargo service sales to individuals and various commercial enterprises that are economically and geographically dispersed, and the accounts receivable are generally short-term in duration.
Accordingly, the Company does not believe that it is subject to any significant concentration of credit risk.



|f) | Financial instruments
|-- | ---------------------

Accounting for Derivatives and Hedging
Activities

All derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it
designates the derivative as (1) a hedge of (a) the fair value of a recognized asset or liability or (b) an unrecognized firm commitment (a fair value hedge); (2) a hedge of (a) a forecasted transaction or
(b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a cash flow hedge); (3) a foreign currency fair value or cash flow hedge (a foreign currency
hedge); (4) a hedge of a net investment in a foreign operation; or (5) an instrument that is held for trading or non-hedging purposes (a trading or non-hedging instrument). Changes in the fair value of a derivative
that is highly effective as, and that is designated and qualifies as, a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains
on firm



F-61



---

##### Table of Contents

commitments), are recorded in current period earnings. Changes in the fair value of a derivative that is highly effective as, and that is designated and
qualifies as, a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g., until periodic settlements of a
variable rate asset or liability are recorded in earnings).

Any hedge ineffectiveness (which represents the amount by which the changes in the fair value
of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a
foreign currency hedge is recorded in either current period earnings or other comprehensive income, depending on whether the hedging relationship satisfies the criteria for a fair value or cash flow hedge.

If, however, a derivative is used as a hedge of a net investment in a foreign operation, the changes in the derivatives fair value, to the extent that the
derivative is effective as a hedge, are recorded in the cumulative translation adjustment account within other comprehensive income. Changes in the fair value of derivative trading and non-hedging instruments are reported in current period earnings.

Upon purchasing a financial instrument, the Company must determine whether a derivative instrument is embedded therein and if so, it must
assess the economic characteristics of the embedded derivative to determine if they are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a
separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not
clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host
contract, carried at fair value, and designated as either (1) a fair value, cash flow, or foreign currency hedge or (2) a trading or non-hedging derivative instrument. The Company, according to SFAS No. 155, Accounting for
Certain Hybrid Financial Instruments, can elect the fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation under SFAS No 133, Accounting for
Derivative Instruments and Hedging Activities. Such election would eliminate the need to separate the instrument into a host contract and a derivative instrument and allow fair value accounting for the instrument in its entirety.

The Company documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to (1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted
probable transactions. The Company also formally assesses (both at the hedges inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair
value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.

The Company discontinues
hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted
transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging
instrument is no longer appropriate.



F-62



---

##### Table of Contents

Derivative instruments and hedging activities

The Company uses interest-rate-related derivative instruments and commodity derivatives to manage its exposure on its variable-rate obligations and jet fuel price fluctuations. The Company does not enter into interest
rate and commodity derivative instruments for any purpose other than cash-flow-hedging purposes. By using derivative financial instruments to hedge exposures to changes in interest rates and commodity prices, the Company exposes itself to credit
risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When
the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterpartys credit risk in those circumstances. The Company minimizes counterparty credit risk in
derivative instruments by entering into transactions with high-quality counterparties.

The Company faces market risk only to the unhedged portion of the
Libor-linked obligations, and of the unhedged portion of the volume of jet fuel.

Financial instruments: fuel price risk management

Jet fuel price fluctuations are largely dependent on supply and demand for crude oil in the world, OPEC decisions, refinery capacities, stock levels of crude and global
political factors. In order to minimize the risk of jet fuel price fluctuations, the Company enters into swap and option contracts in the jet fuel market or the West Texas Intermediate (WTI) market. The decision to enter into hedge contracts in the
jet fuel or WTI market depends on the relative price of each commodity at the supposed trade date.

The Company enters into swap, costless collars and
purchased call option contracts in order to fix or limit (depending on the case) the market price at a certain level for a given quantity of the above mentioned commodities. Pursuant to such contracts, the Company pays or receives, depending on the
case, the difference between the agreed fixed price and the floating market price calculated on the notional amounts of such contracts. These contracts are classified as cash flow hedges for US GAAP purposes and as forecasted transactions for
Chilean GAAP purposes.

As of December 31, 2008 and 2007, the Company had some ineffectiveness with regard to its cash flow hedges of forecasted
purchases of jet fuel outstanding as of year end, however this amount was not recorded in the US GAAP reconciliation because it was immaterial.

The
notional fuel hedged, the realized results on such contracts and the fair value for the years ending December 31, 2008, 2007 and 2006 are as follows:



|                                          |  |          |   |  |        |  |        |  
|----------------------------------------- |  | -------- | - |  | ------ |  | ------ | -
|                                          |  | 2008     |   |  | 2007   |  | 2006   |  
|Hedged Gallons (million gallons)          |  | 237      |   |  | 125    |  | 149    |  
|Gain on fuel hedge contracts (ThUS$)      |  | 35,405   |   |  | 28,190 |  | 12,903 |  
|Fair value of fuel hedge contacts (ThUS$) |  | (170,262 | ) |  | 4,385  |  | (4,244 | )

For Chilean GAAP purposes, gains and losses on the hedging contracts referred to above are recognized as a
component of Other income (expense)-net when the underlying fuel being hedged is consumed. For US GAAP purposes, such gains and losses would be classified as Operating expenses under the caption Aircraft fuel when the fuel being hedged is
consumed.



F-63



---

##### Table of Contents

Financial instruments: Interest rate risk management

The Company is exposed to the fluctuations of the LIBOR interest rates, due to the financing of certain aircraft. In order to reduce this exposure, the Company decided to hedge a high percentage of its debt through
the use of interest rate swaps and interest rate options.

The Company maintains risk management control systems to monitor interest rate cash flow risk
attributable to both the Companys outstanding or forecasted debt obligations as well as the Companys offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow
sensitivity analysis, to estimate the expected impact of changes in interest rates on the Companys future cash flows.

Before 2006 the Company uses a
mix of fixed rate debt and variable-rate (London Interbank Offered Rate - LIBOR) debt to finance its aircraft. All of these debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company
believes that it is prudent to limit the variability of the majority of its interest payments. To meet this objective, the Company entered into LIBOR based interest rate swap agreements and interest rate call options to manage fluctuations in cash
flows resulting from changes in the LIBO rate. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives LIBOR based variable interest rate
payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged.

After
2006, the Company uses only fixed rate obligations to finance its aircraft. For that purpose, the company entered into LIBOR based forward starting swap agreements to fix the rate of the future obligation before the delivery of a certain aircraft.
Under the term of these contracts, the company offset the market risk for future obligations of having a different rate than the approved by management committees. When the forward starting swaps are terminated and the Company enters into
fixed rate loans at the time an aircraft is received, the Company, for Chilean GAAP purposes, records the fair value on such derivatives net of the associated debt. Under US GAAP, such fair value remains in other comprehensive income and is
recognized in earnings over the term of the debt which is also recorded at its fair value at the time an aircraft is received. Under US GAAP as of December 31, 2008, USD 35 million of deferred loss on derivative instruments
accumulated in other comprehensive income are expected to be reclassified to earnings during the next 12 years approximately.

Changes in the fair value of
interest rate swaps designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations are reported in accumulated other comprehensive income. These amounts subsequently
are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.



F-64



---

##### Table of Contents

The fair value and the losses of these swap contracts for the years ending December 31, 2008, 2007 and 2006, are as
follows:



|                                                   |  |          |   |  |         |   |  |         |  
|-------------------------------------------------- |  | -------- | - |  | ------- | - |  | ------- | -
|                                                   |  | 2008     |   |  | 2007    |   |  | 2006    |  
|Losses on interest rate swap contracts (ThUS$)     |  | (6,085   | ) |  | (285    | ) |  | (1,138  | )
|Fair value of interest rate swap contracts (ThUS$) |  | (154,752 | ) |  | (54,749 | ) |  | (18,538 | )

Under FAS 133, the aforementioned derivative contracts (swaps and options) qualify as cash flow hedges even though
some ineffectiveness exists as the notional amount over which some caps are calculated is different from the one used to determine the interest and lease payments on the aircraft. However, for US GAAP purposes, there was no amount of
ineffectiveness recorded in earnings because the change in fair value of the perfect hypothetical option was greater than the change in fair value of the Companys option. Under Chilean GAAP, the caps are accounted for as cash flow hedges and
no ineffectiveness was determined.

The premium on the caps was allocated to individual caplets and is recognized in the income statement throughout the
term of each contract for Chilean and US GAAP purposes.

In April 2002, the Company entered into a Treasury rate lock for a notional amount of ThUS$
45,000 in order to hedge the variability in the cash proceeds attributable to changes in the benchmark interest rate to be received from the forecasted securitization of future credit card receivables. The forecasted transaction occurred on
August 22, 2002. For Chilean GAAP purposes, the loss amounting to ThUS$ 3,622 arising from the settlement of the derivative was deferred and is amortized to the Consolidated Statements of Income over the term of the securitization. Under
US GAAP, the derivative was accounted for as a cash flow hedge, and ThUS$ 3,219 was deferred in Other comprehensive income and subsequently amortized to the Consolidated Statements of Income, while ineffectiveness of ThUS$ 402 was recognised
within the Consolidated Statements of Income as of that date. The effect of recording the amortization and the ineffectiveness in accordance with US GAAP is included in paragraph 1 q) above.

As a result of those hedging activities, the Company has 96% of its interest rate exposure hedged.

Financial instruments: foreign currency exchange rates

The Company conducts business in local currencies in several
countries and accordingly faces the risk of variation in foreign currency exchange rates. A depreciation of the Chilean peso, the Brazilian real, Argentine peso, Mexican nuevo peso, Peruvian nuevo sol or the European euro against the U.S.
dollar could have a material adverse effect on the Company because it has revenues and receivables denominated in those currencies. As a part of its risk management policy, the Company regularly monitors its exposure to variations in the
exchange rates of these different currencies. In order to reduce the impact of the foreign exchange rate fluctuations, the Company enters from time to time into foreign exchange hedging contracts. Under these forward contracts, for any rate above or
below the fixed rate, the Company receives or pays the difference between the spot rate and the fixed rate for the given amount at the settlement date.

As
of and during the year ended December 31, 2008 and 2007, the Company has no outstanding exchange forward contracts for hedging purposes.

In order to
have a better yield on its investments in 2008 and 2007, the Company entered into bank deposits in Chilean Peso together with a US dollar-Chilean pesos foreign exchange swap in order to receive US dollars at maturity. The mark to market value of
these foreign exchange swaps amounted to a loss of US$ 1.35 million and is recorded in earnings under both Chilean and US GAAP.



F-65



---

##### Table of Contents

Other information on derivative instruments

By using derivative financial instruments to hedge exposures to changes in exchange rates, interest rates, and jet fuel prices, the Company exposes itself to credit risk and market risk.

Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes the Company, which creates repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, does not assume repayment
risk. The Company minimizes its credit (or repayment) risk in derivative instruments by (1) entering into transactions with high-quality counterparties (2) limiting the amount of its exposure to each counterparty, and (3) monitoring
the financial condition of its counterparties. The Company also maintains a policy of requiring that derivative contracts be governed by an ISDA Master Agreement. Market risk is the risk that the value of a financial instrument might be adversely
affected by a change in interest rates, currency exchange rates, or jet fuel prices. The Company manages the market risk associated with interest rate, jet fuel price, and foreign-exchange contracts by establishing and monitoring parameters that
limit the types and degree of market risk that may be undertaken.



|g) | Comprehensive income (loss)
|-- | ---------------------------

Comprehensive income (loss) is the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The fair value of cash flow hedges were considered to be Other comprehensive income during 2008, 2007 and 2006 and
the unrealized gain on available for sale securities has been included in 2008 and 2007.



|h) | Recent Accounting Pronouncements not yet implemented
|-- | ----------------------------------------------------

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parents
equity.

The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income
statement. SFAS 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Other than the presentation of minority interest within equity, the Company does not expect the adoption of
SFAS 160 will have an effect on its consolidated financial statements.



F-66



---

##### Table of Contents

In December 2007, the FASB issued FASB Statements No. 141 (revised 2007), Business Combinations. In this
statement, the FASB retained the fundamental requirements of Statement No. 141 to account for all business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business
combinations. However, the fair value principles in the revised Statement are a major change from Statement No. 141s cost allocation process, together with other revisions from past practice. Among other changes, Statement
No. 141(R) requires the acquiring entity in a business combination to:



| |  |  | Recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of
that date, with limited exceptions
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Expense acquisition-related costs, such as legal and due diligence costs, when incurred
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Recognize any restructuring costs that the acquiring entity expects to incur with respect to the acquired business as an expense, rather than capitalize as part of
the acquisition
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

The statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of FAS141(R) to have and effect on its consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. The
objective of the FSP is to provide guidance on accounting for a transfer of a financial asset and repurchase financing. The FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same
arrangement (linked transaction) under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. FSP FAS
140-3 is effective for annual and interim periods beginning after November 15, 2008 and early adoption is not permitted. The Company is currently evaluating the provisions of this standard, but does not expect adoption to have a material impact
on its financial position and results of operations.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activitiesan amendment of FASB Statement No. 133 (Statement 161). Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for
using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives
located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. Statement 161 is effective for fiscal
years and interim periods beginning after November 15, 2008. Earlier adoption is permitted. The Company currently provides an abundance of information about its hedging activities and use of derivatives, including many of the disclosures
contained within Statement 161. Thus, the Company does not expect the adoption of Statement 161 will have a material impact on the disclosures already provided.



F-67



---

##### Table of Contents

In April 2008, the FASB issued FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible
Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement 142. FSP FAS 142-3 is effective for fiscal
years beginning after December 15, 2008. The Company is currently evaluating the impact, if any, of adopting FSP FAS 142-3 on its financial position and results of operations.

In June 2008, the FASBs Emerging Issues Task Force reached a consensus on EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
This EITF Issue provides guidance on the determination of whether such instruments are classified in equity or as a derivative instrument. The Company will adopt the provisions of EITF 07-5 on January 1, 2009 and the common stock call options
will be subject to that guidance. The Company is currently evaluating the impact, if any, of adopting EITF 07-5 on its financial position and results of operations.

In October 2008, the FASB issued Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP 157-3). FSP 157-3 clarifies the application
of SFAS 157, which the Company adopted as of January 1, 2008, in cases where a market is not active. The Company has considered the guidance provided by FSP 157-3 in its determination of estimated fair values as of December 31, 2008,
and the impact was not material.

In November 2008, the FASBs Emerging Issues Task Force reached a consensus on EITF Issue No. 08-6,
Equity Method Investment Accounting Considerations. ITF 08-6 continues to follow the accounting for the initial carrying value of equity method investments in APB Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock, which is based on a cost accumulation model and generally excludes contingent consideration. EITF 08-6 also specifies that other-than-temporary impairment testing by the investor should be performed at the investment level and that a
separate impairment assessment of the underlying assets is not required. An impairment charge by the investee should result in an adjustment of the investors basis of the impaired asset for the investors pro-rata share of such
impairment. In addition, EITF 08-6 reached a consensus on how to account for an issuance of shares by an investee that reduces the investors ownership share of the investee. An investor should account for such transactions as if it had sold a
proportionate share of its investment with any gains or losses recorded through earnings. EITF 08-6 also addresses the accounting for a change in an investment from the equity method to the cost method after adoption of Statement 160. EITF 08-6
affirms the existing guidance in APB 18, which requires cessation of the equity method of accounting and application of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, or the cost method under APB 18,
as appropriate. EITF 08-6 is effective for transactions occurring on or after December 15, 2008. The Company does not anticipate that the adoption of EITF 08-6 will materially impact the Companys financial position or results of
operations.



F-68