As filed with the Securities and Exchange Commission on June 8, 2010 
 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 
 FORM 20‐F/A
Amendment No. 2 
  ̈
     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934ORx
     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008OR ̈
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR ̈
     SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission file number 333‐131938
     Commission file number 333‐145838‐02
     Commission file number 333‐145838‐01TAM S.A.
     TAM Capital Inc.
     TAM Linhas Aéreas S.A.(Exact name of registrant as specified in its charter)
     (Exact name of registrant as specified in its charter)
     (Exact name of registrant as specified in its charter)Not applicable
     Not applicable
     TAM Airlines S.A.(Translation of registrant name into English)
     (Translation of registrant name into English)
     (Translation of registrant name into English)The Federative Republic of Brazil
     Cayman Islands
     The Federative Republic of Brazil(State or other jurisdiction of incorporation or organization)
     (State or other jurisdiction of incorporation or organization)
     (State or other jurisdiction of incorporation or organization)4512
     4512
     4512(Primary Standard IndustrialClassification Code Number)
     (Primary Standard IndustrialClassification Code Number)
     (Primary Standard IndustrialClassification Code Number)Not applicable
     Not applicable
     Not applicable(I.R.S. Employer Identification Number)
     (I.R.S. Employer Identification Number)
     (I.R.S. Employer Identification Number)
  Av. Jurandir, 856, Lote 4, 1° andar
04072‐000, São Paulo, SP Federative Republic of Brazil(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class
     Name of each exchange on which registeredPreferred Shares issued by TAM S.A., without par value
     New York Stock Exchange*American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Preferred Share
     New York Stock Exchange
     *      Not for trading purposes, but only in connection with the trading on the New York Stock Exchange of American Depositary Shares representing those Preferred Shares. 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: TAM Capital Inc.  U.S.$300,000,000 7.375% Senior Guaranteed Notes due 2017, 
unconditionally guaranteed by
TAM S.A. and TAM Linhas Aéreas S.A. 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. 59,791,955 Common Shares
90,793,192 Preferred Shares Indicate by check mark if the registrant is a well‐known seasoned issuer, as defined in Rule 405 of the Securities Act. ̈YesxNo 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. ̈YesxNo 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.xYes ̈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. Large accelerated filer ̈
     Accelerated filerx
     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 ̈
     IFRSx
     Other ̈
  If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.xItem 17 ̈Item 18 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). ̈YesxNo


---





CONTENTS**Page**EXPLANATORY NOTE
     1INTRODUCTION
     3PRESENTATION OF FINANCIAL AND OTHER DATA
     4FORWARD‐LOOKING STATEMENTS
     5ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
     6ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE
     6ITEM 3.  KEY INFORMATION
     6A. Selected Financial Data
     6B. Capitalization and Indebtedness
     10C. Reasons for the Offer and Use of Proceeds
     10D. Risk Factors
     11ITEM 4.  INFORMATION ON THE COMPANY
     20A. History and Development of the Company
     20B. Business Overview
     22C. Organizational Structure
     49D. Property, Plant and Equipment
     50ITEM 4A.  UNRESOLVED STAFF COMMENTS
     50ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
     50A. Operating Results
     50B. Liquidity and Capital Resources
     59C.  Research and Development, Patents and Licenses, etc.
     61D.  Trend Information
     62E.  Off‐balance Sheet Arrangements
     62F.  Tabular Disclosure of Contractual Obligations
     62ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
     63A.  Directors and Senior Management
     63B.  Compensation
     66C.  Board Practices
     66D. Employees
     67E. Share Ownership
     70ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
     71A.  Major Shareholders
     71B.  Related Party Transactions
     72C.  Interests of Experts and Counsel
     73ITEM 8.  FINANCIAL INFORMATION
     73A.  Consolidated Statements and Other Financial Information
     73B. Significant Changes
     78ITEM 9.  THE OFFER AND LISTING
     79A.  Offer and Listing Details
     79B.  Plan of Distribution
     80C.  Markets
     80
  - i -




---



D.  Selling Shareholders
     86E.  Dilution
     86F.  Expenses of the Issue
     86ITEM 10.  ADDITIONAL INFORMATION
     86A.  Share Capital
     86B.  Memorandum and Articles of Association
     86C. Material Contracts
     91D. Exchange Controls
     92E. Taxation
     93F.  Dividends and Paying Agents
     99G.  Statement by Experts
     99H.  Documents on Display
     99I.  Subsidiary Information
     99ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     100ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
     101ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
     102ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
     102ITEM 15.  CONTROLS AND PROCEDURES
     102ITEM 15T. CONTROLS AND PROCEDURES
     103ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT
     104ITEM 16B.  CODE OF ETHICS
     104ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
     104ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
     105ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
     105ITEM 16F.  CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
     105ITEM 16G.  CORPORATE GOVERNANCE
     105ITEM 17.  FINANCIAL STATEMENTS
     106ITEM 18.  FINANCIAL STATEMENTS
     106ITEM 19.  EXHIBITS
     106SIGNATURES
     107 - ii -


---



Table of Contents



EXPLANATORY NOTE



This amendment ("Amendment No. 2") to our annual report on Form 20-F for the fiscal year ended December 31, 2008, which was originally filed with the U.S. Securities and Exchange Commission on June 30, 2009 (our "Original 2008 20-F"), as amended on Form 20-F/A and filed with the U.S. Securities and Exchange Commission on September 30, 2009 ("Amendment No. 1" and together with the Original 2008 20-F, the "2008 20-F"), is being filed solely for the purposes of amending our 2008 20-F to reflect a restatement of our 2008 consolidated financial statements.   We are restating our 2008 consolidated financial statements because management concluded that an error existed with respect to (i) the accumulated depreciationrecognized under "operating expenses" in our income statement after removing certain aircraft from our fleet in 2007 and (ii) the corresponding amount of accumulated depreciation reported on our balance sheet after that removal.  Our management concluded that thiserror was material and required corrections to the consolidated financial statements as of and for the year ended December 31, 2008.   Separately, and considering that our 2008 consolidated financial statements required restatement due to the error described above, our management has also corrected other errors existing in those financial statements that were not considered material, individually or in the aggregate, as more fully described in Note 2.1(b) to our consolidated financial statements.   As a result of the material error, it was necessary (i) to revise the Report of Independent Public Accounting Firm to reflect that restatement and (ii) to restate our Management's Report on Internal Control over Financial Reporting to disclose that a material weakness in our internal control over financial reporting existed as of December 31, 2008 and that we did not maintain effective internal control over financial reporting as of December 31, 2008.  The remedial action taken to remedy the identified material weakness is described in Item 15.   This Amendment No. 2 has not been updated except as required to reflect the revisions stated above. This Amendment No. 2 only amends and restates the items described below as required to reflect the revisions stated above and does not reflect events that have occurred after the June 30, 2009 filing date of the original Form 20-F, or modify or update other disclosures presented therein.   As a result of the revisions stated above, this Amendment No. 2 amends and restates the following items:   ·Part I  Item 3. Key Information  A. Selected Financial Data;   ·Part I  Item 4. Information on the Company  B. Business Overview  Competitive Advantages;   ·Part I  Item 5. Operating and Financial Review and Prospects  A. Operating Results  Carrying value of flight equipment;   ·Part I  Item 5. Operating and Financial Review and Prospects  B. Liquidity and Capital Resources;   ·Part II  Item 15. Controls and Procedures;    - 1 -


---



Table of Contents

·Part III  Item 18. Financial Statements; ·Part III  Item 19. Exhibits; and ·Our consolidated financial statements beginning on page F-1.  While the items above have been reproduced in full as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, no changes have been made to those items, except to reflect the corrections stated above, or to any other items. In addition, this Amendment No. 2 includes currently dated certifications by the Chief Executive Officer and the Chief Financial Officer as required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, attached as Exhibits 12.1 through 12.6 and 13.1 through 13.6, as well as a currently dated Consent of Engeval Engenharia de Avaliações S/C Ltda and a currently datedConsent of Independent Accounting Firm, attached as Exhibits 15.1 and 15.2 respectively.
 - 2 -


---



Table of Contents

INTRODUCTION In this annual report, "TAM S.A." refers to TAM S.A., asociedade anônima de capital abertoorganized under the laws of Brazil, "TAM Linhas Aéreas" AND "TLA" refer to TAM Linhas Aéreas S.A., asociedade anônima de capital fechadoorganized under the laws of Brazil, "TAM Viagens" refers to Fidelidade Viagens e Turismo Ltda., asociedade limitadaorganized under the laws of Brazil, "TAM Mercosur" refers to Transportes Aéreos Del Mercosur S.A., asociedade anônimade capital fechadoorganized under the laws of Paraguay, "TAM Capital" refers to TAM Capital Inc., "TAM Financial 1" refers to Tam Financial Services 1 Ltda.  and "TAM Financial 2" refers to Tam Financial Services 2 Ltda., each an exempted company incorporated with limited liability in the Cayman Islands.  The terms "we," "our" and "us" refer to the TAM S.A., its consolidated subsidiaries and its controlled subsidiaries, the companies mentioned above.  References to "preferred shares" and "ADSs" refer to the non‐voting preferred shares of TAM S.A. and the American depositary shares representing those preferred shares, respectively, except where the context otherwise requires. In this annual report, the term "ANAC" refers to the National Civil Aviation Agency orAgência Nacional de Aviação Civil, the national aviation agency.  The term "Brazil" refers to the Federative Republic of Brazil and the phrase "Brazilian government" refers to the federal government of Brazil (and includes ANAC).  The term "Central Bank" refers to the Central Bank of Brazil.  The terms "U.S. dollar" and "U.S. dollars" and the symbol "U.S.$" refer to the legal currency of the United States.  The terms "real" and "reais" and the symbol "R$" refer to the legal currency of Brazil and the term "centavos" means the 100th part of thereal. This annual report contains terms relating to operating performance within the airline industry that are defined as follows: ·"ASK" means available seat kilometers, or the product of multiplying the number of seats available in all the aircraft by the distance the seats are flown in kilometers. ·"Average tariff" means the quotient of dividing passenger transport revenue by the number of paying passengers transported. ·"BELF" means the break‐even load factor (or load factor in which revenue equals operating expenses). ·"Block hours" refers to the elapsed time between an aircraft's leaving an airport gate and arriving at an airport gate. ·"CASK" means cost per ASK, or quotient of dividing total operating expenses (excluding the fair value of fuel derivatives and revaluations of aircraft) by the number of available seat kilometers.  The result is presented in this annual report incentavosper ASK. ·"Load factor" means the percentage of aircraft occupied on flights, or quotient between RPK and ASK. ·"RASK" means revenue per ASK, or quotient of dividing net revenue by the number of available seat kilometers.  The result is presented in this annual report incentavosper ASK. ·"RPK" means revenue passenger kilometer corresponding to the product of multiplying the number of paying passengers transported by the number of kilometers flown by such passengers. ·"Yield" means the average amount paid per passenger to fly one kilometer.  - 3 -


---



Table of Contents

PRESENTATION OF FINANCIAL AND OTHER DATA We prepare our consolidated annual financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.  These consolidated financial statements are the first TAM S.A. financial statements to be prepared in accordance with IFRS.  IFRS 1  "First‐time Adoption of International Reporting Standards" has been applied in preparing these financial statements.  The financial statements are prepared under the historical cost convention unless otherwise indicated, including, for example, in respect of revaluation of flight equipment and measurement of derivative financial instruments and certain financial assets at fair value.  Until December 31, 2008, our consolidated financial statements were prepared in accordance with Generally Accepted Accounting Principles in Brazil (Brazilian GAAP).  Brazilian GAAP differs in certain respects from IFRS.  When preparing our 2008 consolidated IFRS financial statements, management has amended certain accounting, valuation and consolidation methods in the Brazilian GAAP financial statements to comply with IFRS.  The comparative figures in respect of 2007 have been restated to reflect these adjustments.  Reconciliations and descriptions of the effect of the transition from Brazilian GAAP to IFRS are given in Note 4 to the consolidated financial statements. The last consolidated financial statements available under Brazilian GAAP which were filed with: ·the United States Securities and Exchange Commission were those for the year ended December 31, 2007; and with ·the Brazilian Securities regulators ("CVM") were those for the year ended December 31, 2008. Our audited consolidated annual financial statements for the years ended December 31, 2008 and 2007, as included in this report, have been audited by our independent registered public accounting firm. We maintain our books and records inreais. All references in this annual report to numbers of our common and preferred shares reflect a share split which took place on May 16, 2005, pursuant to which holders of our existing shares received two shares of the same class and type for each share held. For ease of presentation, certain financial information contained in this annual report has been presented in U.S. dollars.  This annual report contains translations of variousrealamounts, before rounding, into U.S. dollars at specified rates solely for your convenience.  You should not construe these translations as representations by us that therealamounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated.  Unless otherwise indicated, we have translated therealamounts using a rate of R$2.3370 to U.S.$1.00, the U.S. dollar selling rate published by the Central Bank on December 31, 2008.  On June 26, 2009, the U.S. dollar selling rate published by the Central Bank was R$1.9396 to U.S.$1.00. The information contained in this annual report relating to Brazil and the Brazilian economy is based on data published by the Central Bank, government agencies and other independent sources.  Data and statistics regarding the Brazilian civil aviation markets are based on publicly available data published by ANAC.  Data and statistics regarding the international civil aviation markets are based on publicly available data published by the International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA).  We also make statements in this annual report about our competitive position and market share in, and the market size of, the Brazilian airline industry.  We have made these statements on the basis of statistics and other information from third‐party sources that we believe are reliable.  Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications. Certain figures in this document have been subject to rounding adjustments.  Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.  - 4 -


---



Table of Contents

FORWARD‐LOOKING STATEMENTS This annual report includes certain forward‐looking statements (particularly in "Item 3.  Key Information  D. Risk Factors," "Item 4.  Information on the Company  B. Business Overview" and "Item 5.  Operating and Financial Review and Prospects").  These forward‐looking statements are based principally on our current expectations and on projections of future events and financial trends that currently affect or might affect our business.  In addition to the items discussed in other sections of this annual report, there are many significant factors that could cause our financial condition and results of operations to differ materially from those set out in our forward‐looking statements, including factors such as: ·economic and political developments in both Brazil and the principal international markets in which we operate; ·our management's expectations and estimates as to future financial performance, financial plans and the impact of competition on our business, including competitive pressures on pricing; ·our level of indebtedness and other payment obligations; ·our plans relating to investments and capital expenditures; ·variations in interest rates, inflation and the exchange rate relating to thereal(with respect to both potential depreciation and appreciation of thereal); ·existing and future regulations; ·increases in fuel expenses, maintenance expenses and insurance premiums; ·changes in market prices, preferences of consumers and competitive conditions; ·cyclical and seasonal variations in our results of operations; ·defects or other mechanical problems in our aircraft; ·developments in the Brazilian civil aviation infrastructure, including air traffic control, airspace and airport infrastructure; ·the implementation of our strategies and growth plans; ·our ability to obtain financing on commercially reasonable terms; ·changes in fiscal policy and tax laws; and ·other risk factors set forth in "Item 3.  Key Information  D. Risk Factors." The words "believe," "expect," "continue," "understand," "hope," "estimate," "will," "may," "might," "should," "intend" and other similar expressions are intended to identify forward‐looking statements and estimates.  Such statements refer only to the date on which they were expressed, and we assume no obligation to publicly update or revise any such estimates resulting from new information or any other events.  As a result of the inherent risks and uncertainties involved, the forward‐looking statements included in this annual report may not be accurate and our future results of operations and performance may differ materially from those set out for a number of different reasons.  No forward‐looking statement in this annual report is a guarantee of future performance and each estimate involves risks and uncertainties. Investors are cautioned not to place undue reliance on any forward‐looking statements. - 5 -


---



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 A.           Selected Financial Data The tables below contain a summary of our financial data as of and for each of the periods indicated and were derived from our consolidated annual financial statements, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").  The information set forth in this section should be read in conjunction with our consolidated annual financial statements (including the notes thereto) and "Presentation of Financial and Other Data" and "Item 5.  Operating and Financial Review and Prospects." The summary consolidated annual financial information as of December 31, 2007 and 2008 and for each of the two years ended December 31, 2007 and 2008, prepared in accordance with IFRS, is derived from our audited consolidated annual financial statements included elsewhere in this annual report audited by our independent registered public accounting firm.  The summary consolidated annual financial information as of December 31, 2004, 2005 and 2006 and for each of the three years ended December 31, 2004, 2005 and 2006, prepared in accordance with Brazilian GAAP and U.S. GAAP, is derived from our audited consolidated annual financial statements included in our Annual Report on Form 20‐F for the year ended December 31, 2007, filed June 25, 2008, but do not contain any reconciliation of shareholders' equity or net income from Brazilian GAAP or U.S. GAAP to IFRS.  Accordingly, you may not be able to directly compare the financial information as of and for the years ended December 31, 2008 and 2007 with the financial information as of and for the years ended December 31, 2004, 2005 and 2006. For your convenience, the following tables also contain U.S. dollar translations of therealamounts presented at December 31, 2008, translated using the rate of R$1.9396 to U.S.$1.00, the U.S. dollar selling rate at June 26, 2009 published by the Central Bank on SISBACEN, using transaction PTAX 800, option 5. The tables below entitled "Operating Data Computed Using Financial Information Under IFRS" and "Additional Operating Data" also include unaudited operational and other data indicative of performance utilized by certain investors in evaluating companies operating in the global air transportation sector.  This unaudited operational data is not included in or derived from our consolidated annual financial statements.  The data corresponding to years 2006 to 2004 presented in U.S. GAAP and Brazilian GAAP were derived from our previous 20‐F. At December 31IFRS
     2008
     2008
     2007(U.S.$ millions)
     (R$ millions)Balance sheet dataCash and cash equivalents
     346
     672
     467Other financial assets
     640
     1,242
     2,140Trade account receivables
     597
     1,157
     938Total assets
     7,450
     14,451
     10,333Borrowings(1)
     207
     402
     1,068Finance lease obligations(1)
     3,324
     6,448
     2,968Debentures(1)
     273
     529
     532Advance ticket sales
     423
     820
     807Total equity
     684
     1,327
     1,909Total liabilities and equity
     7,450
     14,451
     10,333
   (1)       Refers to the total balance of current liabilities plus long‐term liabilities. - 6 -


---



Table of Contents

At December 31Brazilian GAAP
    2006
    2005
    2004(R$ millions)Balance sheet dataCash
      and banks
    123
    93
    86Financial investments
    2,331
    903
    211Customer accounts receivable
    781
    763
    553Total
      assets
    5,168
    3,311
    2,203Debt(1)
    453
    270
    151Finance lease and operating lease
      liabilities(1)
    162
    218
    261Debentures(1)
    569
    59
    75Advance ticket sales
    759
    558
    367Shareholders' equity
    1,443
    760
    191Total
      liabilities
    5,168
    3,311
    2,203
   (1)       Refers to
the total balance of current liabilities plus long‐term liabilities.  At December 31U.S. GAAP
    2006
    2005
    2004(R$ millions)Balance sheet dataCash
      and cash equivalents
    300
    93
    Marketable securities
    2,153
    903
    297Customer accounts receivable, net
    781
    763
    553Total
      assets
    7,657
    6,057
    4,989Debt(1)
    453
    270
    151Obligations under finance
      leases(1)
    2,369
    2,845
    3,172Debentures(1)
    569
    59
    75Advance ticket sales
    759
    558
    367Shareholders' equity
    1,532
    620
    (164)Total
      liabilities
    7,657
    6,057
    4,989
   (1)       Refers to
the total balance of current liabilities plus long‐term liabilities.  Year Ended December
  31IFRS
    2008
    2008
    2007(U.S. millions)(1)
    (R$ millions)(1)Revenue.
    5,420
    10,513
    8,019Operating expenses
    (5,132)
    (9,954)
    (7,698)Operating profit before movements in fair
      value of fuel derivatives and revaluation of aircraft
    288
    559
    320Movements in fair value of fuel derivatives
    (657)
    (1,274)
    130Gains/(losses) on revaluation of aircraft
      recognized in the income statement
    125
    242
    (225)Operating (loss)/profit
    (243)
    (472)
    226Finance income
    727
    1,410
    1,007Finance cost
    (1,550)
    (3,006)
    (755)(Loss) / profit before income tax and social
      contribution..
    (1,066)
    (2,068)
    478Income tax and social contribution.
    327
    634
    (146)(Loss) / profit after tax (all continuing
      operations)..
    (739)
    (1,434)
    332Attributable toMinority interest
    0.4
    0.9
    0.2Equity holders of TAM
    (739)
    (1,435)
    332Number of shares outstanding at year end,
      excluding treasury shares (in thousands of
      shares):(2)Common shares
    50,195
    50,195
    59,792Preferred shares
    100,390
    100,390
    90,793Total
    150,585
    150,585
    150,585Earnings (loss) per share (common and
      preferred)(2)Basic
    (4.92)
    (9.54)
    2.20Diluted
    (4.92)
    (9.54)
    2.19Dividends declared per share:Common shares (inreaisand U.S. dollars)
    0
    0
    0.2093Preferred shares (inreaisand U.S. dollars)
    0
    0
    0.2093Dividends declared per ADS (inreaisand U.S. dollars)
    0
    0
    0.2093
   (1)       Except
where indicated. (2)       In 2008
there was a conversion of common shares to preferred shares of a relevant
shareholder. - 7
      -


---



Table of Contents

Year Ended December
  31Brazilian GAAP
    2006
    2005
    2004(R$ millions)(1)Statement of operations
dataGross operating revenue
    7,700
    5,910
    4,744Air transportation revenues:Domestic.
    5,162
    4,192
    3,233International
    1,537
    1,034
    893Cargo.
    487
    407
    319Other
      operating revenues
    514
    277
    299Taxes
      and deductions.
    (355)
    (261)
    (224)Net operating revenue
    7,345
    5,649
    4,520Operating expenses:Fuel.
    (2,130)
    (1,695)
    (1,067)Sales
      and marketing.
    (875)
    (855)
    (656)Aircraft and flight equipment leases.
    (719)
    (627)
    (651)Personnel.
    (873)
    (669)
    (546)Maintenance
    (388)
    (356)
    (389)Services rendered by third parties
    (540)
    (374)
    (360)Landing, take‐off and navigational tariffs
    (315)
    (233)
    (186)Depreciation and amortization.
    (102)
    (85)
    (91)Aircraft insurance
    (35)
    (40)
    (53)Other.
    (372)
    (302)
    (227)Total operating expenses
    (6,348)
    (5,235)
    (4,226)Gross income (loss).
    997
    413
    294Financial income (expenses), net.
    56
    (178)
    (82)Other
      operating income (expenses), net.
    (126)
    (31)
    (14)Operating income (loss).
    927
    204
    198Non‐operating income (expenses), net.
    11
    (8)
    300Income (loss) before income tax and social
      contribution.
    938
    196
    498
  Year Ended December
  31Brazilian GAAP
    2006
    2005
    2004(R$
      millions)(1)Income tax and social contribution
    (325)
    (75)
    (156)Income (loss) before minority
      interest
    613
    122
    342Minority interest
    (1)
    
    (1)Income (loss) for the year.
    612
    122
    341Number of shares outstanding at year end,
      excluding treasury shares (in thousands of
      shares)(2):Common shares
    59,792
    59,816
    29,908Preferred shares
    90,771
    84,243
    31,457Total
    150,563
    144,059
    61,365Net income (loss) per share (inreaisand US
      dollars)(2).
    3.69
    1.30
    2.78Net income (loss) per ADS (inreaisand US
      dollars)(2)
    3.69
    1.30
    2.78Dividends declared per share:Common shares (inreaisand US
      dollars).
    0.8949
    0.2041
    Preferred shares (inreaisand US dollars).
    0.8949
    0.2041
    Dividends declared per ADS (inreaisand US dollars).
    0.8949
    0.2041
    
   (1)       
Except where indicated. (2)        A
share split took place on May 16, 2005, pursuant to which all holders of our
existing shares received two shares of the same class and type for each share
held. All periods are presented considering the share split effects. Year Ended December
  31U.S. GAAP
    2006
    2005
    2004(R$ millions)(1)Statement of operations
dataGross operating revenue
    7,686
    5,895
    4,744Air transportation revenues:Domestic
    5,162
    4,192
    3,233International.
    1,538
    1,034
    893Cargo.
    487
    407
    319Other
      operating revenues
    499
    262
    299Taxes
      and deductions.
    (356)
    (261)
    (224)Net operating revenue
    7,330
    5,634
    4,520Operating expenses:Fuel
    (2,130)
    (1,695)
    (1,067)Sales
      and marketing.
    (875)
    (855)
    (656)Aircraft and flight equipment leases.
    (381)
    (300)
    (321)Personnel.
    (878)
    (666)
    (544)Maintenance.
    (388)
    (356)
    (389)Services rendered by third parties
    (531)
    (357)
    (360)Landing, take‐off and navigational tariffs.
    (315)
    (233)
    (186)Depreciation and amortization
    (223)
    (206)
    (193)Aircraft insurance
    (35)
    (40)
    (53)Other
    (483)
    (314)
    (258)Total operating expenses
    (6,239)
    (5,022)
    (4,027)Operating income.
    1,091
    612
    493Financial income (expenses), net.
    152
    32
    137Income before income tax and social
      contribution
    1,242
    644
    630Income tax and social contribution
    (433)
    (217)
    (199)Income before minority
      interest.
    809
    427
    431Minority interest
    (1)
    
    (1)Income for the year
    808
    427
    430
 - 8
      -


---



Table of Contents

Year Ended December
  31U.S. GAAP
    2006
    2005
    2004(R$ millions)(1)Income per share basic and diluted (weighted
      average)(2):Common shares (inreaisand US dollars)
    5.42
    3.13
    3.33Previous preferred shares (inreaisand US dollars).
    
    1.35
    3.67Current preferred shares (inreaisand US
      dollars)(3).
    5.42
    1.90
    Income per ADS basic and diluted (weighted
      average) (inreaisand US dollars):
    5.42
    3.25
    3.67
    (1)       Except
where indicated. (2)       The data
relating to both our preferred and common shares has been adjusted to reflect
the share split which took place on May 16, 2005, pursuant to which all holders
of our existing shares received two shares of the same class and type for each
share held. (3)       The rights
of preferred shareholders were altered on May 16, 2005.  Previously,
preferred shares had carried the rights to a dividend 10% higher than that
distributed to holders of common shares.  From May 16, 2005 however
preferred shares carried the same dividend rights as common shares.  The
terms "Previous" and "Current" preferred shares used in the above table reflect
this change in entitlement. Year Ended December
    31,Operating Data
      Computed Using Financial Information Under IFRS
    2008
    2008
    2007(U.S.$)
    (R$) (unaudited)Operating
      dataRASK
      (cents/centavos).
    9.49
    18.41
    16.85RASK scheduled
      domestic (cents/centavos)
    8.81
    17.08
    15.51RASK scheduled
      international (cents/centavos)
    6.77
    13.13
    12.44Yield scheduled
      domestic (cents/centavos).
    13.77
    26.71
    23.42Yield scheduled
      international (cents/centavos)
    8.69
    16.86
    17.66CASK
      (cents/centavos).
    8.99
    17.44
    16.17CASK except fuel
      (cents/centavos).
    5.44
    10.56
    10.84Average tariff
      (dollars/reais).
    153.68
    298.07
    250.04
  Year Ended December
    31,Additional Operating
    Data
    2008
    2007
    2006
    2005
    2004(unaudited)Paid passengers transported (thousands)
    30,144
    27,850
    25,022
    19,571
    13,522RPK (millions).
    40,518
    33,500
    26,289
    19,797
    13,854ASK (millions).
    57,091
    47,599
    35,564
    28,024
    20,999Load factor  %
    71.0%
    70.4%
    73.9%
    70.6%
    66.0%Break‐even load factor (BELF)  %
    66.3%
    68.1%
    63.9%
    65.3%
    61.7%Block hours
    523,114
    462,380
    390,839
    323,729
    241,684Kilometers flown  km (thousands).
    309,625
    273,056
    226,344
    185,158
    139,367Liters of fuel
    2,047,756
    1,739,430
    1,336,917
    1,073,918
    820,335Number of employees
    24,389
    20,469
    13,195
    9,669
    8,215Average aircraft use during the period (hours
      per day).
    12.5
    12.6
    12.66
    11.36
    8.98Take‐offs.
    274,856
    261,171
    245,163
    209,831
    158,898Average leg (km)
    1,126
    1,046
    923
    882
    877
  - 9
      -


---



Table of Contents

Exchange
Rates Until January
1999, there were two legal foreign exchange markets in Brazil, the commercial
rate exchange market, or the Commercial Market, and the floating rate exchange
market, or the Floating Market.  The Commercial Market was reserved
primarily for foreign trade transactions and transactions that generally
required prior approval from Brazilian monetary authorities, such as the
purchase and sale of registered investments by foreign persons and related
remittances of funds abroad (including the payment of principal of and interest
on loans, notes, bonds and other debt instruments denominated in foreign
currencies and duly registered with the Central Bank).  The Floating Market
rate generally applied to specific transactions the Central Bank was not
required to approve. The Central Bank
reported both the Commercial Market rate and the Floating Market rate on a daily
basis.  In January, 1999 the Brazilian government announced the unification
of the exchange positions of the Brazilian financial institutions in the
Commercial Market and the Floating Market, leading to a convergence in the
pricing and liquidity of both markets. On March 4,
2005, theConselho Monetário Nacionalissued
Resolution No. 3,265 and Resolution No. 3,266 (each of which became
effective on March 14, 2005), which introduced several changes in the Brazilian
foreign exchange regime, including (i) the unification of the Commercial Market
and the Floating Market, and (ii) the relaxation of rules for the
acquisition of foreign currency by Brazilian residents.  It is expected
that the Central Bank will further regulate foreign exchange transactions, as
well as to payments and/or transfers of Brazilian currency between Brazilian
residents and non‐residents (such transfers being commonly known as
International Transfers ofReais), including those made
through so‐called non‐resident accounts (also known as CC5 accounts). See "Item
3.  Key Information  D. Risk Factors  Risks relating to Brazil  Exchange
rate instability may have adverse effects on the Brazilian economy, our
business, financial condition, results of operations and prospects and the
trading price of our ADSs and preferred shares." The following
tables set forth the Commercial Market rate for the purchase of U.S. dollars
expressed inreaisper U.S. dollar for the
periods and dates indicated: Exchange Rates ofReaisper U.S.
      $1.00Year
      Ended
    Low
    High
    Average(1)
    Period EndDecember 31, 2004
    2.654
    3.205
    2.926
    2.654December 31, 2005
    2.163
    2.762
    2.285
    2.341December 31, 2006
    2.059
    2.371
    2.215
    2.138December 31, 2007
    1.733
    2.156
    1.944
    1.771December 31, 2008
    1.559
    2.500
    1.837
    2.337
    (1)       Represents
the daily average rate during each of the relevant periods.Source:  Central
Bank. Exchange Rates ofReaisper U.S.
      $1.00Month
      Ended
    Low
    High
    Period EndDecember 2008
    2.337
    2.500
    2.337January 2009.
    2.189
    2.380
    2.316February 2009.
    2.245
    2.392
    2.378March 2009.
    2.238
    2.422
    2.315April 2009.
    2.170
    2.290
    2.178May 2009
    1.973
    2.148
    1.973June 2009 (through
      June 26, 2009)
    2.007
    1.930
    1.940
    (1)Source:  Central Bank. B.          
Capitalization and Indebtedness Not
applicable. C.          
Reasons for the Offer and Use of Proceeds Not
applicable.  - 10
      -


---



Table of Contents

D.          
Risk Factors Investing in the
ADSs or our preferred shares involves a high degree of risk.  Before making
an investment decision, you should carefully consider the risks set forth
below.  Our business, financial condition and results of operations may be
materially adversely affected by any of these risks.  The trading price of
the ADSs or our preferred shares may decrease due to any of these risks, and you
may lose all or part of your investment.  The risks described below are
those that we currently believe may materially affect us. Risks relating
to Brazil The Brazilian
government has exercised, and continues to exercise, significant influence over
the Brazilian economy.  Brazilian political and economic conditions have a
direct impact on our business, financial condition, results of operations and
prospects as well as the trading price of the notes. The Brazilian
economy has been characterized by the significant involvement of the Brazilian
government, which often changes monetary, credit, fiscal and other policies to
influence Brazil's economy.  The Brazilian government's actions to control
inflation and effect other policies have involved wage and price controls,
depreciation of the real, controls over remittance of funds abroad, intervention
by the Central Bank to affect base interest rates, and other measures.  We
have no control over, and cannot predict, what measures or policies the
Brazilian government may take in the future.  Our business, financial
condition, results of operations and prospects and the trading price of the
notes may be adversely affected by changes in Brazilian government policies, as
well as general economic factors, including, without limitation: ·Brazilian economic growth; ·inflation; ·interest rates; ·variations in exchange rates; ·exchange control policies; ·fiscal policy and changes in tax laws; ·liquidity of domestic capital and lending
markets; ·government control of production activities and oil
refining; and ·other political, diplomatic, social and economic
developments in or affecting Brazil. We cannot
predict what future fiscal, monetary, social security and other policies will be
adopted by current or future Brazilian governments, or whether these policies
will result in adverse consequences to the Brazilian economy, to our business,
results of operations, financial condition or prospects, or to the trading
prices of our ADSs and preferred shares. In addition,
possible political crises may affect the confidence of investors and the public
in general, which may result in economic deceleration and affect the trading
prices of securities issued by Brazilian companies. Exchange rate
instability may have adverse effects on the Brazilian economy, our business,
financial condition, results of operations and prospects and the trading price
of our ADSs and preferred shares. As a result of
inflationary pressures, the Brazilian currency has depreciated frequently over
the past decade.  Throughout this period, the Brazilian government has
implemented various economic plans and used various exchange rate policies,
including sudden devaluations, periodic mini‐devaluations (during which the
frequency of adjustments has ranged from daily to monthly), exchange controls,
dual exchange rate markets and a floating exchange rate system.  Although
long‐term depreciation of therealis generally linked to the
rate of inflation in Brazil, depreciation of therealoccurring over
shorter periods of time has resulted in significant variations in the exchange rate
between thereal, the U.S. dollar and other
currencies.  In 2002, therealfell 34.3%
against the U.S. dollar, caused in part by political uncertainties involving the
presidential election in Brazil and the global economic recession. 
Notwithstanding the fact that therealhas appreciated
13.4%, 9.5% and 17.2% against the U.S. dollar in 2005, 2006 and 2007
respectively and as a result of the ongoing global financial crisis, since
mid-2008 therealhas depreciated 31.9%
against the U.S. Dollar over 2008 as reported by the Central Bank.  On
December 31, 2008 was R$2.337 per U.S. dollar and on June 26, 2009 was R$1.9396
per U.S. dollar.  We cannot assure you that therealwill not
continue to depreciate substantially or appreciate against the U.S. dollar in
the future. - 11
      -


---



Table of Contents

The majority of
our revenues are denominated inreais,and a
significant portion of our operating expenses (such as fuel, aircraft and engine
maintenance, aircraft leasing and insurance payments, parts and engines) are
denominated in or linked to the U.S. dollar or other foreign currencies. 
In the event that we are unable to adjust our prices or to obtain protection
through hedging transactions, a depreciation in therealwould reduce our
profit margins and/or cause operating losses as a result of increased expenses,
or having obligations denominated in or linked to the U.S. dollar (or other
foreign currencies that we have not entered into hedging transactions). 
Devaluations in therealagainst the U.S. dollar or
other foreign currencies also create inflationary pressures, which can restrict
our access to external financial markets and lead to government intervention
(including the implementation of recessionary policies to curb aggregate
demand), adversely affecting us.  Exchange rate instability may adversely
affect our business, financial condition, results of operations and the trading
price of our ADSs and preferred shares. Inflation and
certain measures by the Brazilian government to curb inflation have historically
adversely affected the Brazilian economy and Brazilian securities market, and
high levels of inflation in the future would adversely affect our business,
financial condition, results of operations and prospects and the trading price
of our ADSs and preferred shares. Brazil has
historically experienced extremely high rates of inflation.  Inflation and
some of the Brazilian government's measures taken in an attempt to curb
inflation have had significant negative effects on the Brazilian economy
generally.  Inflation, policies adopted to contain inflationary pressures
and uncertainties regarding possible future governmental intervention have
contributed to economic uncertainty and heightened volatility in the Brazilian
securities market. Since the
introduction of therealin 1994, Brazil's inflation
rate has been substantially lower than in previous periods.  However,
inflationary pressures persist.  According to the General Price Index
(Índice Geral dePreços‐Mercado, or IGP‐M), Brazilian
general price inflation rates were 1.2%, 3.8%, 7.7% and 9.8% in 2005, 2006, 2007
and 2008 respectively.  According to the National Consumer Price Index
(Índice Nacional de Preços ao Consumidor
Amplo, or IPCA), Brazilian price inflation rates were
5.7%, 3.1%, 4.5% and 5.9% in 2005, 2006, 2007 and 2008 respectively. Brazil may
experience high levels of inflation in the future.  Inflationary pressures
may lead to the Brazilian Government intervening in the economy and introducing
policies that could adversely affect our business, financial condition, results
of operations and prospects and the trading price of our ADSs and preferred
shares. In the event
that Brazil experiences high inflation in the future, we may not be able to
adjust the prices we charge our passengers to offset the impact of inflation on
our expenses, leading to decreased net income.  Inflationary pressures may
also adversely affect our ability to access foreign financial markets, leading
to adverse effects on our capital expenditure plans. Developments and
the perceptions of risks in other countries, including other emerging markets
and the United States, may adversely affect the Brazilian economy, our business,
financial condition, results of operations and prospects and the market price of
Brazilian securities, including the trading price of our ADSs and preferred
shares. The market for
securities issued by Brazilian companies is influenced by economic and market
conditions in Brazil and, to varying degrees, market conditions in other Latin
American and emerging markets, and the United States.  Although economic
conditions are different in each country, the reaction of investors to
developments in one country may have a material adverse effect on the market
value of securities of Brazilian companies.  Crises in another emerging
market country or the United States could decrease investor demand for Brazilian
securities, including our notes and preferred shares. 
This may adversely affect the trading value of our ADSs and preferred shares,
and any decline in trading value would impede our access to capital markets and
financing for our future operations. - 12
      -


---



Table of Contents

The recent
global financial crisis has had significant consequences worldwide and in
Brazil, causing stock and credit market volatility, unavailability of credit,
higher interest rates, a general economic slowdown, volatile exchange rates and
inflationary pressure, which may adversely affect the market price of Brazilian
securities, including our ADSs and preferred shares. Although the
countries of Latin America fared comparatively well at the beginning of the
global financial crisis, as of late 2008, and continuing into 2009, many of the
countries we serve, including Brazil, are experiencing either economic slowdowns
or recessions, which may cause a weakening in demand for our services and an
adverse effect on our business in the future.  If the Brazilian economy
experiences a sustained recession, or if Brazil experiences significant
political disruptions, our business, financial condition and results of
operations could be materially and adversely affected. Variations in
interest rates may have adverse effects on our business, financial condition,
results of operations and prospects and the trading price of our ADSs and
preferred shares. We are exposed
to the risk of interest rate variations, principally in relation to the Long
Term Interest Rate (Taxa de Juros de Longo Prazo, or TJLP) and
the Interbank Deposit Rate, or DI Rate, (in respect of loans denominated inreais) and the London Interbank
Offer Rate, or LIBOR, (in respect of operating and finance leases denominated in
U.S. dollars). Beginning in
2003, as inflationary pressures eased, theConselho Monetário
Nacional, the highest monetary regulatory body in the
Brazilian government, decreased the TJLP.  The TJLP at December 31, 2007
was 6.25%, where it remained until as through December 31, 2008.  However,
any increase in inflation or other macroeconomic pressures may lead theConselho Monetário Nacionalto increase the
TJLP. In addition, our
repayments under many of our operating and finance leases are linked to LIBOR,
and we are exposed to the risk of variations in LIBOR.  At December 31,
2008, the estimated future payments due on our operating and finance lease
contracts linked to LIBOR amounted to U.S.$3,840 million. If TJLP, the DI
rate or LIBOR was to increase, our loan repayments would increase, and we might
not be able to adjust the prices we charge to offset any such increased
payments.  If we are unable to adequately adjust our prices, our revenues
would not offset the increased loan expenses, adversely affecting our results of
operations.  Accordingly, interest rate increases may adversely affect our
business, financial condition, results of operations and prospects and the
trading price of our ADSs and preferred shares. Risks Relating
to our Business and the Brazilian Aviation Industry The airline
industry is particularly sensitive to changes in economic conditions and
continued negative economic conditions that would likely continue to negatively
impact our results of operations and our ability to obtain financing on
acceptable terms. Our operations
and the airline industry in general are particularly sensitive to changes in
economic conditions.  Unfavorable general economic conditions, such as
higher unemployment rates, a constrained credit market and increased business
operating expenses, can reduce spending for both leisure and business
travel.  Unfavorable economic conditions can also impact our ability to
raise fares to counteract increased fuel, labor, and other expenses.  An
increasingly unfavorable economic environment would likely negatively impact our
results of operations.  We continue to be cautious of current domestic
economic conditions. Factors such as
continued unfavorable economic conditions, a significant decline in demand for
air travel, or continued instability of the credit and capital markets could
result in pressure on our borrowing costs, operating results and financial
condition and would affect our growth and investment plans.  These factors
could also negatively impact our ability to obtain financing on acceptable terms
and our liquidity generally. - 13
      -


---



Table of Contents

The regulatory
structure of Brazilian civil aviation is undergoing change and we have not yet
been able to evaluate the results of this change on our business and results of
operations. Scheduled air
transportation services are considered public utilities in Brazil and are
subject to extensive regulation by the Brazilian government.  The Brazilian
regulatory authorities have also taken a more proactive role in monitoring the
development of the Brazilian civil aviation market.  For example, in an
effort to prevent excess supply, the authorities have established more rigorous
criteria for air transport companies to follow when creating new routes or
increasing flight frequencies.  Various legislative initiatives have taken
place, including the drafting of a bill to replace Law No. 7,565 of
December 19, 1986, or the Brazilian Aeronautics Code, the submission of a new
public policy regulation for civil aviation to the Ministry of Defense for
approval and the establishment of ANAC, the national aviation agency that has
replaced theDepartamento de Aviação Civil, or DAC, as the
principal regulatory body for Brazilian civil aviation.  See "Item 4. 
Information on the Company  B. Business Overview  Regulation of the Brazilian
Civil Aviation Industry  Rights to Operate Air Routes  Future
legislation." Operation of air
transportation services as well as airport infrastructure is exclusive to the
Brazilian government which may provide these services directly or through third
parties by means of concessions or permits.  Our concession to operate
scheduled and public passenger and cargo air transportation was obtained on
December 9, 1996, and is valid until December 9, 2011.  We cannot assure
you that we will be able to automatically renew our concession.  See "Item
4.  Information on the Company  B. Business Overview  Regulation of the
Brazilian Civil Aviation Industry  Overview  Air transportation services
concession." Our growth plans
include expanding into new markets, increasing flight frequency and expanding
our fleet, which currently consists of 132 aircraft.  ANAC has actively
monitored the developments of Brazil's airline market and has taken restrictive
measures to help restore (greater) stability in the industry.  Accordingly,
our capacity to grow is dependent on receiving the necessary authorizations from
ANAC and the Bureau of International Relations (Superintendência de
Relações Internacionais, or SRI).  We cannot assure you that we will
obtain all necessary authorizations in future and any failure to do so would
require us to re‐evaluate our strategies. The Brazilian
civil aviation structure may change significantly in the future and we may not
be able to anticipate or evaluate how this change will affect our business and
results of operations.  We cannot assure you that these or other changes in
Brazilian civil aviation regulations will not have an adverse effect on our
business or results of operations.  Any change that requires us to focus a
significant level of resources on compliance with new aviation regulations, for
example, would result in additional expenditure on compliance, consequently
adversely affecting our results of operations. In addition, our
ability to increase prices to offset an increase in our fixed expenses may be
adversely affected in the event that the Brazilian civil aviation authorities
impose any price control restrictions on air transportation services.  If
we are unable to increase prices sufficiently to offset such increases in fixed
expenses, this would adversely affect our results of operations.  Changes
in the regulations issued by the Brazilian government or the occurrence of any
of the above factors may increase our expenses, limit our capacity to expand the
number of our routes or adversely affect our business and results of
operations. Competition in
both the domestic and international civil aviation markets is increasing, and
the Brazilian government may intervene in the domestic
market. We face intense
competition in both the domestic and international markets.  The Brazilian
government has the power to authorize or deny the entry of new participants into
the domestic market in which we operate, as well as the power to assume air
transportation operations.  Accordingly, we face greater competition from
current or new participants including new low cost carries on some of our routes
in the Brazilian civil aviation market.  The air transportation sector is
highly sensitive to price discounting, particularly as a result of the arrival
of low‐cost airlines or airlines that have adopted predatory pricing
policies.  Other factors, such as flight frequency, schedule availability,
brand recognition, and quality of services offered (such as loyalty programs,
VIP airport lounges, in‐flight entertainment and other amenities) also have a
significant impact on competitiveness in the market.  In addition, the
acquisition of airline concessions in Brazil does not require significant
financial investment and, as a result, the barriers to entering the domestic
market are low.  We cannot assure you that the Brazilian government will
not assume air transport operations or that current or new competitors in our
markets will not offer prices lower than ours, offer more attractive services
than ours or increase the capacity of their routes in an effort to obtain greater market
share.  In the event that any of the foregoing events occur, we cannot
assure you that the price of our fares, passenger traffic or our profit margins
will not be negatively affected.  Any negative impact on our fares would
lead to decreased net revenues and may require us to focus on cost-saving
programs. - 14
      -


---



Table of Contents

Substantial
fluctuations in fuel prices or decreased availability of sufficient quantities
of fuel may harm the Brazilian civil aviation market and our businesses in the
events that cost increases cannot be passed on to passengers through our fares
and our fuel hedging arrangements become more expensive. Fuel expenses
represent a significant portion of operating expenses for airlines in general,
and fuel prices have risen significantly in recent periods.  For the year
ended December 31, 2008, fuel expenses represented 39.7% of our operating
expenses. Historically,
fuel prices in Brazil have been subject to significant variations in
international prices, which in turn vary as a result of global political issues
and global supply and demand.  The availability of fuel is also subject to
periods of market scarcity and surplus and is affected by the demand for
gasoline and other petroleum derivatives.  It is therefore not possible to
predict the cost and availability of fuel in the future with any degree of
certainty.  In the event that the supply of fuel is reduced for any reason,
we may need to increase our prices or reduce our scheduled services, which would
adversely affect our net revenues. Fuel prices
reached record levels during the middle of 2008, but decreased substantially in
the second half of 2008.  Jet fuel expenses have been subject to wide
fluctuations as a result of increases in demand, sudden disruptions in global
supply, as well as market speculation.  In addition, some of our
competitors may be able to obtain fuel on better terms (with respect to both
price and quality).  Significant increases in fuel expenses (or in the
relative price we pay for fuel compared to our competitors) may harm our
financial condition and results of operations in the event that it is not
possible for us to pass on price increases to passengers through our fares (or
in the event that competitors can decrease their prices relative to ours and
take market share from us). Although we
routinely hedge between 30% and 80% of our future fuel requirements (over
rolling 24‐month periods), there can be no assurance that, at any given point in
time, our hedge contracts will provide any particular level of protection
against increased fuel costs (or that our counterparties will be able to perform
under our hedge contracts, such as in the case of a counterparty's
bankruptcy).  Additionally, a deterioration in our financial condition
could negatively affect our ability to enter into new hedge contracts in the
future. By contrast, the
declines in fuel prices in the second half of 2008 also had the effect of
increasing the costs associated with our fuel hedging arrangements such that we
recorded a liability of R$1.1 billion at December 31, 2008 as a result of those
arrangements.  Due to market conditions in 2009, we also agreed to post
approximately R$240 million in collateral to cover potential amounts owed with
respect to fuel hedging arrangements that have not yet settled. Our fuel hedging
transactions and adjustments to our price margins are might not be sufficient to
protect us from fuel price variations, in which case our results of operations
could be significantly adversely effected. Airlines have
significant fixed expenses that may harm our ability to attain our strategic
goals. As is the case
with other airlines, we have high fixed expenses (arising principally from
aircraft lease agreements).  We expect to incur additional fixed expenses
and contractual debt as we lease or acquire new aircraft and other equipment to
implement our growth strategy.  As of December 31, 2008, we had firm
commitments to purchase 85 aircraft, with an aggregate manufacturer's list price
of approximately $8.4 billion.  We will require substantial capital from
external sources to meet our future financial commitments.  The continued
credit crisis and related turmoil in the global financial system has increased
and may continue to increase the costs of such financing. As a function of
our fixed expenses, we may (i) have limited ability to obtain additional
financing for working capital and other purposes, (ii) be required to dedicate a
significant part of our cash flow to fixed expenses resulting from operating and
finance leases for aircraft, (iii) incur higher interest or leasing expenses in
the event that interest rates increase, or (iv) have limited ability to plan for
or react to changes in our businesses, the civil aviation sector generally and
general macroeconomic conditions. - 15
      -


---



Table of Contents

We depend
significantly on automated systems and any breakdown in these systems may harm
our business and results of operations. We depend on
automated systems to operate our businesses, including oure‐TAM portal, automated seat
reservation system, fleet and network management system, telecommunications
system and website.  Significant or repeated breakdowns of our systems may
impede access to our products and services by passengers and travel agencies,
which may in turn lead them to purchase tickets from other airlines, adversely
affecting our net revenues.  Any interruption in our systems may result in
the loss of important information and increase our expenses, which may cause a
negative public perception of our airline and reduced demand for our
services. A failure to
implement our growth strategy may harm our results of operations and the trading
price of our ADSs and preferred shares. Our growth
strategy in the domestic and international markets and the consolidation of our
leadership in both the domestic and international markets includes, among other
objectives, increasing the number of markets we serve and increasing the
frequency of the flights we provide.  These objectives are dependent on
approvals for routes in the appropriate geographic areas and obtaining adequate
access at the airports.  Guarulhos airport in São Paulo and Juscelino
Kubitschek airport in Brasília are highly congested, and passenger utilization
is near or at maximum capacity.  In addition, Congonhas Airport in São
Paulo and Santos Dumont airport in Rio de Janeiro are subject to slot
restrictions that limit both the number of landings and take‐offs and the times
at which landings and take‐offs can take place.  Other airports may reach
maximum passenger capacity in the future or impose slot restrictions, which
would adversely affect our growth strategy.  Any factor preventing or
delaying our access to airports or routes which are vital to our growth strategy
(including any inability to maintain our current slots and obtain additional
slots at certain airports) may restrict the expansion of our operations and,
consequently, adversely affect our growth objectives. Our Insurance
expenses may increase significantly as a result of a terrorist attack, harming
our financial condition and results of operations. Insurance
companies may significantly increase insurance premiums for airlines and reduce
the amount of insurance coverage available to airlines for civil liability in
respect of damage resulting from acts of terrorism, war, or similar events, as
was the case following the terrorist attacks of September 11, 2001 in the United
States. In response to
substantial increases in insurance premiums to cover risks related to terrorist
attacks following the events of September 11, 2001 in the United States, the
Brazilian government enacted legislation, authorizing the Brazilian government
to assume civil liability to third parties for any injury to persons or goods on
the ground caused by terrorist attacks or acts of war against Brazilian airlines
operating in Brazil or abroad.  However, the Brazilian government may, at
its sole discretion, suspend the assumption of liability at any time, provided
that it gives seven days' notice of the suspension.  If the Brazilian
government suspended the assumption of liability, the Brazilian airlines are
required to reassume the liability and contract for insurance in the
market. Airline insurers
may reduce their coverage or increase their premiums in case of terrorist
attack, seizures, aircraft accident and the end of the assumption of liability
by the Brazilian government or other events affecting civil aviation in Brazil
or abroad.  If there are significant reductions in insurance coverage, our
potential liability would increase substantially.  If there are significant
increases in insurance premiums, our operating expenses would increase,
adversely affecting our results of operations. We may not
succeed in obtaining all aircraft and parts on time, which may result in a
suspension of the operations of certain of our aircraft because of unscheduled
or unplanned maintenance. At December 31,
2008, we had firm orders outstanding with Airbus for an additional 53 Airbus
A320 family aircraft, four Airbus A330 family aircraft, and 22 Airbus A350
aircraft together with an additional ten options for Airbus A350 aircraft. 
We also had firm orders outstanding with Boeing for six Boeing 777
aircraft.  Any disruption or change in the manufacturers' delivery
schedules for these new aircraft will affect our operations and would negatively
affect our financial condition and results of operations because we would not be
able to accommodate demand from additional passengers.  Our ability to
obtain these new aircraft from Airbus or Boeing may be affected by several
factors, including (i) the fact that Airbus or Boeing may refuse to, or be
financially limited in its ability to, fulfill the obligations
it assumed under the aircraft delivery contract, (ii) the occurrence of a fire,
strike or other events affecting Airbus' or Boeing's ability to fulfill its
contractual obligations in a complete and timely fashion, and (iii) any
inability on our part to obtain aircraft financing or any refusal by Airbus or
Boeing to provide financial support.  Our operations may also be affected
by any failure or inability of Airbus or Boeing (or other suppliers) to supply
sufficient replacement parts in a timely fashion, which may cause the suspension
of operations of certain aircraft because of unscheduled or unplanned
maintenance.  Any such suspension of operations would decrease passenger
revenue and adversely affect our financial condition. - 16
      -


---



Table of Contents

The reputation
and financial results of airlines may be harmed by any accident or incident
involving their aircraft. Any accident or
incident involving the aircraft of any airline may require repair or replacement
of the damaged aircraft and temporary or permanent loss of service, in addition
to significant expenses arising from indemnities payable to injured passengers
and third parties.  On July 17, 2007, TAM flight 3054 from Porto Alegre to
São PauloCongonhas had an accident during landing at Congonhas airport. 
There were no survivors aboard the aircraft and there were additional fatalities
in a TAM cargo facility where the aircraft crashed.  We believe that the
level of insurance we have contracted for accidents is consistent with market
practice.  However, we may incur losses in the event that our insurance is
insufficient to cover the damage from an accident.  Any requirement to pay
amounts not covered by our insurance may harm our business and results of
operations.  Any accident or incident involving one of our aircraft, even
if completely covered by insurance, may affect our image and generate a public
perception that we are less safe or reliable than other airlines, which would
harm consumer demand, our revenues and our market position.  In addition,
any accident or incident relating to an aircraft operated by another airline and
which involves one of the same models of aircraft as we have in our fleet may
generate a public perception that the particular model of aircraft is unsafe,
which may also harm demand for our services, revenues and, consequently, our
results of operations. Our business may
be adversely affected by downturns in the airline industry caused by terrorist
attacks, war or outbreak of disease, which may alter travel behavior or increase
expenses. Demand for air
transportation may be adversely affected by terrorist attacks, war or political
or social instability, epidemics, natural disasters and other similar events
that are out of our control.  Any of these events in the markets in which
we operate could have a material impact on our business, financial condition and
results of operations.  Furthermore, such events could have a prolonged
effect on air transportation and on certain expenses including insurance and
airport fees. For example, the
terrorist attacks in the United States on September 11, 2001 severely adversely
impacted the worldwide airline industry.  Airline traffic in the United
States fell dramatically after the attacks and decreased albeit less severely,
throughout Latin America.  Our revenues depend on the number of passengers
traveling on our flights.  Therefore, any future terrorist attacks or
threat of attacks, whether or not involving commercial aircraft, any increase in
hostilities relating to reprisals against terrorist organizations or otherwise
and any related economic impact could result in decreased passenger traffic and
materially and negatively affect our business, financial condition and results
of operations. In addition, the
escalation of military activity in the Middle East and the public concerns about
the possibility of an outbreak of disease (such as the H1N1 virus) could
negatively impact the public's willingness to travel by air.  We cannot
determine if and when such will occur and whether they will decrease demand for
air travel, and thus materially and negatively affecting our business, financial
condition and results of operations. Our operations
are often affected by factors beyond our control, including airport congestion,
weather conditions and increased safety measures. Like other
airlines, we are subject to delays caused by factors beyond our control,
including airport congestion, adverse weather conditions and increased safety
measures.  Delays have the effects of leaving passengers dissatisfied,
reducing aircraft utilization (the average number of hours per day an aircraft
is in operation) and increasing expenses, which may affect our
profitability.  Adverse weather conditions may cause cancellations of, or
significant delays in, our flights.  Cancellations or delays resulting from
airport congestion, adverse weather conditions and safety related measures may decrease
our revenues and harm our reputation as a punctual airline, which could lead to
decreased demand for our services. - 17
      -


---



Table of Contents

Problems with
air traffic control systems or other technical failures could interrupt our
operations and materially affect 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 and our reputation. Technical and
operational problems in the Brazilian air traffic control systems since the last
quarter of 2006 have led to extensive flight delays, higher than usual flight
cancellations and increased airport congestion.  This negatively affected
our punctuality and operating results.  The Brazilian government and air
traffic control authorities have taken measures to improve the Brazilian air
traffic control systems, but if the changes undertaken by the Brazilian
government and regulatory authorities do not prove successful, these air traffic
control‐related difficulties might recur or worsen, which might have a material
adverse effect on our business, our results of operations and our growth
strategy. The successful
execution of our strategy is partly dependent on us maintaining a high daily
aircraft utilization rate, making us especially vulnerable to
delays. In order to
successfully execute our strategy, we need to maintain a high daily aircraft
utilization rate, which is a measure of the number of block hours that we use
our aircraft per day.  Achieving a high daily aircraft utilization rate
allows us to maximize the amount of revenue that we generate from each aircraft
and is achieved, in part, by reducing turnaround times at airports and
developing schedules that enable us to fly more hours on average per day. 
Our aircraft utilization rate could be adversely affected by a number of factors
that we cannot control, including air traffic and airport congestion,
interruptions in the service provided by air traffic controllers, adverse
weather conditions and delays by third‐party service providers in respect of
matters such as fueling and ground handling.  In addition, 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. Risks Relating
to our ADSs and Preferred Shares We have a stable
group of principal shareholders with the power to manage our business, and the
interests of these persons may conflict with those of other
shareholders. Our principal
shareholders TEP and Nova Fronteira collectively control 89.42% of our common
stock and have the power to, among other things, (i) elect the majority of our
directors, and (ii) control the results of any proposal requiring shareholder
approval (including transactions with related parties, corporate
re‐organization, sales of assets and the timing and conditions of payment of any
future dividends, subject to the minimum mandatory dividend distribution
requirements under Brazilian corporation law).  Our principal shareholders
have the power to approve transactions that might not be in the interests of
other shareholders and may prevent or frustrate any attempts to remove our
current directors or executive officers. Our preferred
shares do not carry general voting rights. Our preferred
shares and, consequently, our ADSs do not carry general voting rights except in
relation to certain specific matters and under specific circumstances.  See
"Item 10.  Additional Information  B. Memorandum and Articles of
Association."  Our principal shareholders, who hold the majority of common
shares with voting rights and control us, are therefore able to approve
corporate measures without the approval of holders of our preferred
shares. - 18
      -


---



Table of Contents

Accordingly, you
will not have control over the approval of corporate measures such as
appointment of directors, approval of significant transactions or changes in our
capital structure. The economic
value of your investment may be diluted. In the event
that we need to obtain capital for our operations by issuing new shares, any
such issuance may be made at a value below the book value of our preferred
shares on the relevant date.  In that event, the then holders of our ADSs
and preferred shares would suffer an immediate and significant dilution of their
investment. The sale of
significant quantities of ADSs or preferred shares may cause the stock market
price of our ADSs and preferred shares to decline. In the event
that we or our shareholders elect to sell a significant number of our ADSs or
preferred shares, or in the event that the market perceives that we have the
intention of any such sale, the stock market price of our preferred shares or
ADSs could decline significantly unless there are high levels of demand to
purchase our ADSs or preferred shares. Brazilian
securities markets are relatively volatile and illiquid.  Therefore you may
not be able to sell the preferred shares underlying the ADSs at the price and
time you desire. Investing in
securities that trade in emerging markets, such as Brazil, often involves
greater risk than investing in securities of issuers in the United States, and
such investments are generally considered to be more speculative in
nature.  The Brazilian securities market is substantially smaller, less
liquid and can be more volatile than major securities markets in the United
States.  There is also significantly greater concentration in the Brazilian
securities market than in major securities markets in the United States. 
Accordingly, although you are entitled to withdraw the preferred shares
underlying the ADSs from the depository at any time, you may not be able to sell
the preferred shares underlying the ADSs at the price and time you
wish. Changes in
Brazilian tax laws may have an adverse impact on the taxes applicable to a
disposition of our preferred shares or ADSs. Law
No. 10,833 of December 29, 2003 provides that the disposition of assets
located in Brazil by a non‐resident to either a Brazilian resident or a
non‐resident is subject to taxation in Brazil, regardless of whether the
disposition occurs outside or within Brazil.  This provision results in the
imposition of income tax on the gains arising from a disposition of our
preferred shares by a non‐resident of Brazil to another non‐resident of
Brazil.  There is no judicial guidance as to the application of Law
No. 10,833 of December 29, 2003 and, accordingly, we are unable to predict
whether Brazilian courts may decide that it applies to dispositions of our ADSs
between non‐residents of Brazil.  However, in the event that the
disposition of assets is interpreted to include a disposition of our ADSs, this
tax law would result in the imposition of withholding taxes on the disposition
of our ADSs by a non‐resident of Brazil to another non‐resident of
Brazil. Because any gain
or loss recognized by a U.S. Holder (as defined in "Item 10.  Additional
Information  E. Taxation  United States") will generally be treated as a U.S.
source gain or loss unless such credit can be applied (subject to applicable
limitations) against tax due on the other income treated as derived from foreign
sources, such U.S. Holder would not be able to use the foreign tax credit
arising from any Brazilian tax imposed on the disposition of our preferred
shares. The Brazilian
government may impose exchange controls and significant restrictions on
remittances ofreaisabroad, which would
adversely affect your ability to convert and remit dividends, distributions or
the proceeds from the sale of our preferred shares and our capacity to make
dividend payments to non‐Brazilian investors and would reduce the market price
of our preferred shares or ADSs. The Brazilian
government may restrict the remittance abroad of proceeds of investments in
Brazil and the conversion of therealinto foreign
currencies.  The Brazilian government last imposed such remittance
restrictions for a brief period in 1989 and early 1990.  In the event that
the Brazilian government determines that the Brazilian foreign currency reserves
need to be maintained, it may impose temporary charges on any overseas
remittance of up to 50% of the value of the remittance.  We cannot assure
you that the Brazilian government will not take similar measures in the
future.  The return of any such restrictions would hinder or prevent your
ability to convert dividends, distributions or the proceeds from any sale of our
preferred shares into U.S. dollars and to remit U.S. dollars abroad and our
capacity to make dividend payments to non-Brazilian investors.  The
imposition of any such restrictions would have a material adverse effect on the
stock market price of our preferred shares or ADSs. - 19
      -


---



Table of Contents

If you surrender
your ADSs and withdraw preferred shares, you risk losing the ability to remit
foreign currency abroad and certain Brazilian tax advantages. As an ADS
holder, you benefit from the electronic certificate of foreign capital
registration obtained by the custodian for our preferred shares underlying the
ADSs in Brazil, permitting the custodian to convert dividends and other
distributions with respect to the preferred shares into non‐Brazilian currency
and remit the proceeds abroad.  If you surrender your ADSs and withdraw
preferred shares, you will be entitled to continue to rely on the custodian's
electronic certificate of foreign capital registration for only five business
days from the date of withdrawal.  Thereafter, upon the disposition of or
distributions relating to the preferred shares, unless you obtain your own
electronic certificate of foreign capital registration, or you qualify under
Brazilian foreign investment regulations that entitle some foreign investors to
buy and sell shares on Brazilian stock exchanges without obtaining separate
electronic certificates of foreign capital registration, you would not be able
to remit abroad non‐Brazilian currency.  In addition, if you do not qualify
under the foreign investment regulations, you will generally be subject to less
favorable tax treatment of dividends and distributions on, and the proceeds from
any sale of, our preferred shares. If you attempt
to obtain your own electronic certificate of foreign capital registration, you
may incur expenses or suffer delays in the application process, which could
delay your ability to receive dividends or distributions relating to our
preferred shares or the return of your capital in a timely manner.  The
depositary's electronic certificate of foreign capital registration may also be
adversely affected by future legislative changes. If we do not
maintain a registration statement and no exemption from the Securities Act is
available, U.S. Holders of ADSs will be unable to exercise preemptive rights
with respect to our preferred shares. We will not be
able to offer our preferred shares to U.S. holders of ADSs pursuant to
preemptive rights granted to holders of our preferred shares in connection with
any future issuance of our preferred shares unless a registration statement
under the Securities Act is effective with respect to such preferred shares and
preemptive rights, or an exemption from the registration requirements of the
Securities Act is available.  We are not obligated to file a registration
statement relating to preemptive rights with respect to our preferred shares,
and we cannot assure you that we will file a registration statement.  If a
registration statement is not filed and an exemption from registration does not
exist, JPMorgan Chase Bank, N.A., as depositary, will attempt to sell the
preemptive rights, and you will be entitled to receive the proceeds of the
sale.  However, these preemptive rights will expire if the depositary does
not sell them, and U.S. holders of ADSs will not realize any value from the
granting of such preemptive rights. ITEM 4.  INFORMATION ON THE
COMPANY A.          
History and Development of the Company General TAM S.A. is a
holding company, founded in May 1997 (under the nameCIT Companhia de
Investimentos em Transportes) for the specific purpose of participating in,
managing and consolidating shareholdings in airlines.  In November 1997, we
implemented a corporate restructuring increasing TAM Marília's stake in our
capital and changing our corporate name toTAM  Companhia de
Investimentos em Transportes.  In September 2002 we again changed our
corporate name to TAM S.A.  We currently hold ownership interests in TAM
Linhas Aéreas and TAM Mercosur.  TAM Linhas Aéreas holds an ownership
interest in TAM Viagens, TAM Capital, TAM Financial 1 and TAM Financial
2. TAM S.A. is asociedade anônima de capital abertoorganized and operating under the Brazilian
law.  Our headquarters are located at Avenida Jurandir, 856, Lote 4, 1o
andar, CEP 04072‐000, São Paulo, SP, Brazil.  Our telephone number is +55
11 5582 9715. - 20
      -


---



Table of Contents

TAM Marília was
founded in January 1961 in the interior of the state of São Paulo, where the
late Captain Rolim Amaro worked as a pilot.  In 1971, Captain Rolim Amaro
became an executive partner and minority shareholder of TAM Marília.  TAM
Regionais was founded in May 1976 and was the group's first scheduled airline,
with 67% of its capital stock held by Captain Rolim Amaro.  In 1978,
Captain Rolim Amaro became the major shareholder of TAM Marília, holding 98% of
its capital stock. In 1986, Captain
Rolim Amaro incorporated TAM Linhas Aéreas, launching its operations throughBrasil‐Central Linha Aérea Regional S.A.(which was created to operate in the country's
northern and central‐western regions).  In the same year,Brasil‐Central
Linha Aérea Regional S.A.was granted a concession to operate at Guarulhos
International Airport and becameTAM Transportes
AéreosMeridionais S.A., Brazil's second‐largest
domestic airline. In 1993, we
launched the TAM Loyalty Program (the first airline loyalty program in Brazil)
in order to incentivize existing customers to fly with us more and to attract
new customers.  In 1998 we inaugurated our first international flight,
between São Paulo and Miami.  In 1999, we initiated flights to Paris
through a codeshare agreement with Air France. In 1998, we
acquiredItapemirim Transportes Aéreos Regionais(whose corporate name was changed toInterexpress Transportes AéreosRegionais
S.A.) and then acquiredHelisul Linhas Aéreas S.A.(whose corporate name was changed to TAM Express
S.A.). In 1999, TAM
Express andInterexpress Transportes Aéreos Regionaismerged into TAM Linhas Aéreas, resulting in greater
integration, operational efficiency and a consequent reduction in
expenses.  As a continuation of this restructuring process, and as a result
of the need to unify our regional, national and international operations,TAM  Transportes Aéreos RegionaisS.A.was merged into TAM Linhas Aéreas in November
2000. On February 6,
2003, we signed a protocol of understanding with Varig for code sharing
operations as a preliminary stage in a possible merger between the two
companies.  This was primarily intended to eliminate overlapping flights
and to rationalize supply in the market.  As a result of signing this
protocol of understanding, we were able to reorganize our aircraft fleet,
negotiate to return 19 Fokker 100 aircraft and to reduce our operating
expenses. On February 15,
2005, as it became clear that the proposed merger would not take place, both
parties (Varig and TAM S.A. submitted detailed plan to the CADE to cancel the
codeshare arrangement.  On February 23, 2005, the codeshare agreement was
cancelled (with the approval of the CADE) with a deadline of May 24, 2005 to
terminate codeshare operations with Varig.  We ceased all codeshare
operations with Varig on May 2, 2005. On June 17,
2005, we completed our initial equity offering of preferred shares, offering a
total of 30,190,000 preferred shares to institutional investors in the United
States and institutional and other investors elsewhere.  On July 19, 2005,
we and the selling shareholders in the equity offering issued a further 281,600
preferred shares pursuant to an over‐allotment option granted to the
underwriters in that offering. On March 15,
2006, we completed a follow‐on equity offering of preferred shares in Brazil and
our initial public offering of ADSs in the United States and elsewhere outside
Brazil.  This offering of preferred shares and ADSs was registered with the
SEC and the ADSs are listed on the New York Stock Exchange.  We became a
reporting company under the Securities Exchange Act of 1934, or the Exchange
Act.  We offered 2,660,103 ADSs and 2,339,897 preferred shares, while the
selling shareholders in that offering sold 21,209,462 ADSs and 9,408,636
preferred shares.  On April 11, 2006, we and the selling shareholders in
that offering sold an additional 1,103,000 ADSs pursuant to an over‐allotment
option granted to the underwriters in that offering. TAM Mercosur
operates scheduled air transportation operations and is headquartered in
Asunción, Paraguay.  TAM Mercosur, which operates in Paraguay, Argentina,
Brazil, Chile, Uruguay and Bolivia, and was founded in March 1993 under the nameLíneas Aéreas Paraguayas S.A.(LAPSA), with
all capital stock held by the Government of Paraguay.  The Paraguayan
government currently holds 5.02% of TAM Mercosur's capital stock.  In
January 1997, LAPSA's corporate name was changed toTransportes Aéreos del
Mercosur S.A.In September 2003, upon approval of TransAmérica's
dissolution and liquidation, we acquired all shares of TAM Mercosur held at the
time by TransAmérica (which consisted of 94.98% of its capital stock).  In
the year ended December 31, 2008, TAM Mercosur's net operating revenues represented 2.2%
of our total consolidated net operating revenues.  In 2007, we began a
project to streamline the management of TAM Mercosur by integrating key
administration and management functions with our central management in
Brazil. - 21
      -


---



Table of Contents

TAM Viagens is a
limited company (sociedade limitada) and tourism operator
controlled by TAM Linhas Aéreas.  Through TAM Viagens, we package and sell
tourism travel and corporate events in Brazil and abroad. In 2007, TAM
Linhas Aéreas incorporated TAM Capital as a wholly‐owned subsidiary, organized
under the laws of the Cayman Islands, for the purpose of issuing
U.S.$300,000,000 7.375% senior guaranteed notes due 2017 on April 25,
2007.  On December 18, 2007 we completed an exchange offer pursuant to
which holders of 99.2% of the notes issued on April 25, 2007 exchanged their
notes for new notes that were registered under the Securities Act of 1933, as
amended, and otherwise carried identical terms. In 2007, TAM
Linhas Aéreas incorporated TAM Financial 1 Limited as a wholly‐owned subsidiary,
organized under the laws of the Cayman Islands, for the purpose of raising funds
for the payment of pre‐delivery payments in respect of four Boeing 777 aircraft,
and also incorporated TAM Financial Services 2 Limited as a wholly‐owned
subsidiary, organized under the laws of the Cayman Islands, whose main
activities include aircraft acquisition and financing. In 2008, we
joined the Star Alliance, the largest global alliance in commercial aviation, in
terms of the number of members as well as geographical coverage.  During
2008, the integration process began with experts from TAM, its mentor in the
alliance, United, and the Star Alliance, teaming up to ensure we met the
requirements for the association.  These include, for example,
compatibility with StarNet  the Star Alliance's IT backbone  common guidelines
for dealing with passengers and the accumulation and redemption of loyalty
program points. Once TAM becomes
a full‐fledged member of the global alliance which is expected at the end of
2009, it will share products and services in 1,000 airports and 170 countries in
which it operates.  Services include baggage check‐in to the final
destination, easier connections and the convenience of more than 800 VIP
lounges.  Another benefit for clients will be the integration of all the
Star Alliance member companies' frequent flier programs, which will make
accumulating points easier, provide more redemption options and give priority to
service and boarding. In 2008, we
began operating our aircraft the with largest capacity, the Boeing 777‐300ER
that currently transports up to 365 passengers on our routes connecting Brazil,
Germany, England and Chile.  These Boeing aircraft were financed by a
structured deal with a financial guarantee from the Export‐Import Bank of the
United States (Ex‐Im Bank) and included the participation of four international
financial institutions:  Calyon, Natixis, Pefco (Private Export Funding
Corporation) and Société Générale.  In this same year, we finalized the
phase‐out program of 100‐seat aircraft from our fleet and returned our MD‐11s,
older and less efficient aircraft that we had used to operate some of our long
haul routes. Capital
Investments During 2008, we
invested R$637 million in fixed assets, primarily due to aircraft acquisition,
and replacement parts for our fleet and R$133 million in intangible
assets.  During 2007, we invested R$311 million in fixed assets primarily
for replacement parts for our fleet and R$37 million in intangible
assets. For more
information on our capital investments, see below "Item 5  Operating and
Financial Review and Prospects  B.  Liquidity and Capital
Resources". B.          
Business Overview Overview We provide
scheduled air transportation in both the domestic market and the international
market through our operating subsidiaries TAM Linhas Aéreas and TAM
Mercosur.  According to data provided by ANAC, we are the leading airline
in the domestic market, with a 50.3% market share in December 2008 and a 48.8%
market share in December 2007, as measured in RPKs.  We offer flights
throughout Brazil, serving the largest number of destinations in Brazil of all
Brazilian airlines, and operate scheduled passenger and cargo air transport
routes to 42 cities, in addition to 37 other domestic
destinations that we serve through regional alliances with other airlines. 
We also directly serve 18 international destinations and provide connections to
other destinations through commercial agreements with United Airlines,
Lufthansa, TAP, LAN and other airlines.  We offer convenience to our
passengers by offering frequent and direct flights to and from all major
domestic airports at competitive prices.  In 2008 we carried approximately
25.6 million passengers on domestic flights and approximately 4.5 million
passengers on international flights.  We carried approximately 24.2 million
passengers on domestic flights and 3.7 million passengers on international
flights in 2007.  In 2008, we averaged 772 take-offs per day and in 2007 we
averaged 734 take-offs per day.  In order to meet domestic demand, we
primarily cater to the business market, but also operate in the leisure and
cargo markets, which complement our primary operations and allow us to maximize
the use of our aircraft. - 22
      -


---



Table of Contents

At December 31,
2008, we operated with a fleet of 129 aircraft, consisting primarily of Airbus
models A340, A330, A321, A320 and A319, as well as Boeing models B777 and B767,
and we had 24,389 employees.  As of the same date, TAM Linhas Aéreas
consisted of 129 aircraft, as set forth in the table below, including three
Airbus A320 subleased to TAM Mercosur. Since our
incorporation, we believe that we have demonstrated a history of sustained
growth and a proven ability to adapt with the development of the civil aviation
industry in Brazil and around the world.  We believe that Brazil is
currently the fourth largest domestic aviation market in the world and has one
of the busiest shuttle services in the world (São Paulo  Rio de
Janeiro). We believe that
we have a strong corporate culture, embedded by our founder (Captain Rolim
Adolfo Amaro) that permeates all levels of our company and continues to guide
the day‐to‐day activities of our management.  In order to ensure that we
act in accordance with best practices and provide value‐added service to our
passengers, we seek to embed our culture in our employee training, and believe
that our entire staff is a product of this practice.  Our mission is to be
the people's favorite airline company, through joy, creativity, respect and
responsibility, and we consistently transmit this mission statement to our
employees. Our principal
strategic goal is to consolidate and expand our leadership in the domestic
passenger market and to attain high levels of profitability.  We will seek
to pursue this goal by offering an overall service that gives passengers
superior value for money by continuing to reduce expenses and by improving the
return on capital invested. Total at December
  31,Model
    2008
    2007
    2006Boeing 777
    4
    
    MD
      11.
    
    3
    Airbus A340.
    2
    2
    Airbus A330.
    16
    12
    10Boeing 767
    3
    
    Airbus A321.
    3
    3
    Airbus A320.
    81
    70
    50Airbus A319.
    20
    15
    14Fokker 100
    
    10
    21Total
    129
    115
    95
  Competitive
Advantages We believe that
our principal competitive advantages are: ·Value‐added service at competitive prices.We believe that we offer the best combination in
the domestic market of a network of destinations and frequent flights, with
value‐added service, high on‐time rates and competitive prices, based
on: ·broad domestic network of
destinations:  our own domestic network serves 42
destinations in Brazil, many of which are direct flights, offering greater
convenience to our clients.  Through our regional alliances withPassaredo Transportes Aéreas Ltda. (Passaredo),Total Linhas Aéreas S.A.(Total Linhas),Trip Transporte Aéreo Regional do Interior Paulista
Ltda.(Trip Transporte) andNHT Linhas Aéreas Ltda(NHT), our network extends to a further 37
destinations in Brazil; - 23
      -


---



Table of Contents

·convenient schedules with high on‐time arrival
rates:according to ANAC, we offer
more frequent flights than our domestic competitors and have achieved a high
percentage of on‐time arrivals; ·efficient network of international destinations and
supporting domestic service:we currently serve 18
profitable international destinations (ten in South America, three in North
America and five in Europe) that are in high demand by the Brazilian
public.  We also serve various other destinations in North America, Europe,
and other continents through agreements with several international
carriers; ·special services:we have
developed special services to meet specific demands and optimize the use of our
aircraft, such as night and holiday flights offered at promotional
rates. ·Focus on cost management.  We are an airline
with low operating expenses.  In 2003, we initiated the implementation of a
restructuring project that initiated a cultural change within the company,
making our employees aware of cost management.  We continuously seek
opportunities to reduce expenses focusing our efforts on reducing operating,
commercial and administrative expenses.  Our overall CASK increased from
R$16.17 in 2007 to R$17.44 in 2008 and our CASK excluding fuel decreased from
R$10.84 in 2007 to R$10.56 in 2008.  Some of our principal cost savings
arise from: ·efficient use of our aircraft:we maintained the average load factor of our
aircraft and the daily average block hours per aircraft by optimizing our
network of destinations and our fleet.  In 2008, the average load factor of
our aircraft was 71.0% and the block hours per aircraft was 12.5 hours, compared
to 70.4% and 12.6 hours in 2007; ·modern and flexible fleet:we have one of the newest fleets in the domestic
market, with an average age of 5.5 years at December 31, 2008.  Our use of
a modern fleet allows us to reduce operating and maintenance expenses.  We
primarily operate Airbus narrow‐bodied aircraft in the domestic and South
American markets and Airbus and Boeing wide‐bodied aircraft in the long haul
routes, providing us with the flexibility required to serve routes of different
passenger densities.  We believe that all of our aircraft are equipped with
the most advanced equipment and technology, ensuring greater reliability,
comfort and safety.  In 2008, we received 4 Boeing 777‐300ERs, with
further firm orders for four aircraft of the same model to be delivered in 2012
and additional 2 to be delivered in 2013; ·proprietary maintenance team:we have our own maintenance team trained to serve
all aircraft in our fleet quickly and at a labor expenses we believe is lower
than that of our competitors.  We also have our own maintenance center in
the city of São Carlos (in the interior of the state of São Paulo) which
performs all hull maintenance on our aircraft and also provides maintenance
services for other airlines in Latin America.  By using our own maintenance
center, we have been able to reduce the maintenance time of our aircraft and,
consequently, obtain more efficient use of our aircraft; and ·use of technology in operating
processes:in addition to using
globally‐renowned systems to assist in activities such as network and fleet
management, we are developing proprietary internal management systems with
innovative solutions that allow greater flexibility and skill in performing our
daily operations.  During 2005, we finalized implementation of thee‐TAM portal, which
consolidates sales made through indirect channels and provides us with greater
flexibility in decision‐making and allocating sales commissions. - 24
      -


---



Table of Contents

·Innovative services and products combined with a
strong brand and our "espírito de servir"(spirit of
service).Our corporate culture is
based on providing value‐added services to our passengers.  We consistently
seek to make travel a more convenient and comfortable experience for our
passengers and believe that we have successfully positioned our brand so as to
associate it with superior service, aircraft and technologically‐advanced
operations.  We strive to be a company that is focused on our passengers,
translating our "spirit of service" into all operations, and we believe this is
evidenced by: ·high on‐time arrival rates and frequent
flights; ·a
modern fleet equipped with interiors specifically designed to afford greater
comfort to our passengers, with the widest middle seat of all the Airbus model
aircraft; ·a
polite approach to our passengers, including the aircraft captain personally
welcoming passengers during boarding, a courteous flight crew and attendants and
our red carpet welcome for passengers at airports; ·video and audio entertainment on domestic flights,
in addition to offering in‐flight meals and magazines; ·self‐service options for check‐in in major
airports; and ·open channels of communication with our passengers
through our call center, our "Talk to the President" program and online service
chat sessions at our portal. ·TAM Loyalty Program.We were the
first airline in Brazil to offer a loyalty program, and there are currently over
5.4 million members in the TAM Loyalty Program.  We regard our loyalty
program as a strong relationship tool and believe that it is the most flexible
loyalty program in the market because it imposes no restrictions on flights or
the number of seats available when members are redeeming accumulated points in
the domestic or South American market.  Members may accumulate points
quickly and easily by flying on TAM or partner airlines, making purchases
through TAM Loyalty Program‐affiliated credit cards or using services and
products at partner establishments.  In addition, the TAM Loyalty Program
strengthens lines of communications with our passengers. ·Multiplus Fidelidade.  In 2009, we
launched a new program meant to create a network of loyalty programs, with an
attempt to maximize the full potential of customers' loyalty.  Multiplus
Fidelidade is an expansion of a loyalty program concept, a tool to assist
partner companies and capture and retain customers and increase sales.  It
is a real coalition of loyalty programs that permits the accrual of points for
redemption for products or services with different partners.  We believe
this program is a source of value generation and have dedicated a team to focus
on its development. ·An experienced management team and motivated
professionals. To further the
Company's mission, we hire and retain motivated professionals.  We consider
the talent, skill and dedication of our employees as a key competitive
edge.  We are deliberate about keeping our employees satisfied and
motivated by providing them with ongoing professional development, ensuring
their safety and adopting a people‐oriented approach to management.  In our
recruiting and selection process we deliberately look for employees with the
potential to fit in the "TAM" profile.  Persons who are hired attend an
orientation to educate them about the Company's history, the founder's
principles, and our fundamental values, mission and culture.  Management
also invests in our employees through the Commander Rolim Amaro Training
Academy, and providing opportunities for internal transfers. Some of our key
motivational tools include an: "Employee of the
Month" and "Employees of the Year" Program; Breakfasts with team managers;
Graduations for flight attendants; a Quality of Life Program; Barbecues for
technical crew.  Employees are encouraged to communicate to management
through the Chief Executive Officer Blog, which fosters a dialogue between the
Chief Executive Officer and the employees; and the TAM Ethics Channel, a medium
where employees can write their comments, suggestions or concerns and be
answered on an individual basis with total privacy. - 25
      -


---



Table of Contents

The Company's
compensation policy for executives is variable.  For all other levels the
compensation policy is profit sharing, reflecting employee needs and the market,
within the bounds of current legislation and the terms and conditions of the
Airline Ground Crew and Pilots Union's collective labor agreements. Strategy Our strategic
goal is to consolidate our leadership in the domestic and international
passenger markets and to attain high levels of profitability in both
markets.  We will seek to pursue this goal by offering an overall service
that delivers superior value to passengers by continuing to reduce expenses and
by increasing the return on capital invested.  To reach these objectives,
our strategies are: ·Continue providing superior customer service.One of our key strategies is to offer
differentiated and high‐quality service.  Relying on a strong and reliable
network, we consistently seek to make travel more convenient and comfortable for
our passengers and to perfect our service and strengthen our commitment to
passengers. ·Increase revenue with profitability, serving a
greater number of passengers at a competitive price.We will seek to
continue to provide what we believe is a service that delivers the best value to
our customers in the domestic market, offering more convenient and higher
quality services at competitive prices.  Our goal is to increase revenues
as well as profitability through: ·expansion of business traveler
market:consolidating and expanding
our traditional passenger base of business travelers, who we believe represent
approximately 75% of demand for our domestic flights, through measures focusing
on business travelers and sales channels that traditionally serve that
market; ·growth in our tourism and leisure travel
operations:we believe that the tourism
and leisure markets are complementary to our core market of business
travelers.  In order to use our fleet more efficiently, our strategy
involves capturing additional demand in the tourism and leisure market through
specific promotions for holidays and local events (for example, festivals and
city anniversaries, among others) using our scheduled operations.  We also
serve leisure travelers by (i) the operation of charter flights, and (ii)
the sale of tourism packages through TAM Viagens (an indirect subsidiary
controlled by TAM Linhas Aéreas).  We believe that we are the largest
charter operator in Brazil, with gross revenues of R$412 million and R$166
million at December 31, 2008 and December 31, 2007, respectively, representing
approximately 3.9% and 2.0% of our consolidated revenues for the same
periods.  Through our subsidiary TAM Viagens, we also own the
second‐largest tourism and leisure travel operator in the country; ·selective expansion in international
markets:in the last three years,
our international operations have consistently grown as a percentage of our
total revenues.  In the year ended December 31, 2008, international flights
represented 39% of our ASKs.  Our strategy involves maintaining our
leadership in the international market and selectively identifying new
international destinations to serve our customers; and ·expansion of our cargo business:we have focused on greater utilization of cargo
space in our aircraft to develop our cargo business line, while maintaining our
commitment to further improve service to our passengers.  Our cargo
transportation business line represented R$1,009 million or 9.3% of our
consolidated revenues at December 31, 2008 and R$777 million or 9.2% of our
consolidated revenues at December 31, 2007. - 26
      -


---



Table of Contents

·Reduce our operating expenses, optimize the use of
our fleet and streamline our processes.We believe that
successfully implement of our strategy we need to reduce expenses and improve
how we invest.  We are pursuing this strategy by: ·maintaining a standardized, efficient and flexible
fleet:we will continue to
optimize the size of our fleet, in order to keep maintenance and operating
expenses for our fleet at a low level.  In 2006, we announced our decision
to phase out our entire fleet of Fokker 100 aircraft by mid‐2008 and we met that
goal.  As a result of this decision, we have been exclusively using Airbus
A320 family aircraft in the domestic market from mid‐2008.  We maintain a
high aircraft utilization and to maintain a flexible fleet with aircraft capable
of easily adapting to the differing levels of demand from route to route;
and ·increasing productivity by redesigning operational
processes and using technology:since the
implementation of our restructuring project in 2003, we have applied a cost
reduction policy aimed at increasing our productivity through new information
technology tools, redesigning operational processes and redeployment of labor
and outsourcing activities which are not related to our core strategy.  We
also hope to obtain economies of scale by increased growth in our
operations. Products and
Services Our principal
product is the scheduled air transportation of passengers.  In addition, we
also have products targeted specifically towards the development of domestic and
international tourism.  We also provide cargo transportation
operations. We set out below
a breakdown of our gross revenues by type of service rendered for the periods
indicated: Year Ended December
    31,2008
    2007(R$
      millions)By type of service rendered:DomesticScheduled  Passengers.
    5,968
    4,682Charter  Passengers
    195
    152Cargo.
    459
    3606,622
    5,194InternationalScheduled  Passengers
    2,804
    2,109Charter  Passengers.
    19
    20Cargo
    550
    4173,372
    2,546OtherTAM Loyalty Program
    441
    144Travel and tourism agencies.
    64
    30Other (includes expired tickets)
    421
    414926
    588Total Gross.
    10,920
    8,328Sales taxes and other deductions.
    (407)
    (309)Revenue
    10,513
    8,019
  Sales and
Distribution We are
developing several direct and indirect distribution channels for ticket sales of
air fares.  We plan to increase direct sales (which at December 31, 2008
represented approximately 17.1% of our total ticket sales) through promotion of
the leisure market and by making it easier for our passengers to purchase
tickets; this principally involves direct sales through the internet and through
our call center.  We were the first airline in Latin America to sell
tickets on the internet.  Through our website, registered users may
purchase tickets online, receive customer service, make reservations up to one
hour before departure and access information relating to the TAM Loyalty
Program, for example.  As part of our plan to increase direct sales through
the internet, in 2006 we launched a new "fare profile" system for sales of
domestic tickets.  This system involves the presentation of five different
color-coded fare profiles that are intended to make
identification of fare types and related rules simpler for our passengers. 
The five fare profiles are "Promo," "Light," "Flex," "Max" and "Top."  We launched a
marketing campaign highlighting this new fare profile system at the time of
launch and recorded an increase of approximately 40% in direct sales in the
month after introduction.  In 2008, 82.9% of our sales were through travel
agencies and 17.1% were through direct channels, of which 10.3% were through the
internet. - 27
      -


---



Table of Contents

Our call center
allows passengers an alternative means to make reservations and purchase tickets
24 hours a day.  To a lesser extent, we also sell tickets through our
network of stores located in the main cities of Brazil. Indirect sales
are those made through corporate travel agencies, agencies with registrations
and pre‐approved credit and travel operators.  Currently, there are
approximately 5,000 travel agencies authorized to sell our tickets in
Brazil. We use our
proprietarye‐TAM portal to integrate
our entire sales chain, from the time of reservation to passenger boarding,
consolidating indirect sales and eliminating the GDSs (or Global Distribution
System, an electronic passenger distribution system) in our distribution
chain.  Data obtained from thee‐TAM portal
allows us to offer passengers a set of customized services, based on the
"one‐to‐one" concept.  In the last 12 months of operation, 95.8% of
indirect channel reservations made in Brazil are now made through thee‐TAM portal. We believe that
approximately 75% of our passenger traffic consists of business travelers and
employees of large and medium‐sized companies with whom we have travel
agreements.  To further develop our business relationship with our
corporate clients, we have signed agreements with hotel chains and car rental
companies to offer our customers complete corporate transportation and
accommodation packages.  Our advertisements run primarily in media vehicles
such as internet sites, radio spots, local newspaper advertisements, magazines
and outdoor billboards. Pricing Policy,
Revenue and Yield Management In general,
prices charged in the Brazilian domestic market by airlines are freely set by
the airlines, with ANAC responsible for monitoring the prices.  No
discounts greater than 65% of the total price may be granted without ANAC's
approval five days in advance of the date such discounts will be offered to
consumers.  Brazilian airlines are freely able to set their prices. 
See "Item 4.  Information on the Company  B.  Business Overview 
Regulation of the Brazilian Civil Aviation Industry  Rights to Operate Air
Routes  Prices." We believe that
our current pricing policy is dynamic.  Focusing on maximizing
profitability, we aim to define particular niches within the market to better
serve projected demand.  Pricing availability is based on traffic
projections and is accompanied by closely monitored performance
indicators.  Our pricing policy focuses specifically on our indirect
distribution channels (GDS system ande‐TAM portal) and
direct channels (our website, reservation call center and stores). We seek to
achieve the greatest possible competitiveness for each origin/destination in
relation to the competition, keeping in mind at all times our product's added
value in terms of flight frequency, schedules, the TAM Loyalty Program and our
on‐time record. We continuously
analyze market opportunities with the intention of stimulating demand for
specific routes and periods.  Lower prices are offered for one‐time
promotions (such as national or regional holidays) and as incentives to take
flights at particular times (such as night flights).  These prices
generally carry restrictions, such as the requirement to purchase a round‐trip,
a minimum stay at the destination, or the requirement that the ticket be issued
within 24 hours, and generally do not earn points for the TAM Loyalty
Program. The price a
passenger is willing to pay may vary depending upon factors such as destination,
month of the year, day of the week and departure schedule.  Revenue and
yield management is the process by which (based on historical data and
statistical projection models) airlines establish the number of seats to be
offered for each price category over time, in order to maximize total operating
revenue for each flight.  We believe that efficient yield management is the
key to success in the air transportation market in Brazil and abroad. - 28
      -


---



Table of Contents

We believe that
we have an efficient and accurate system for collecting data on reservations,
departures and revenue.  The system also monitors levels of overbooking and
recommends discounts for future departures.  Data relating to reservations
and departure is collected daily, forming reservation profiles for each flight
and allowing specific recommendations from flight to flight.  The system
allows our analysts to ascertain whether flights are above or below historic
reservation levels and decide whether to close the discount classes or offer
more space for passengers who generate higher revenues.  Accordingly, our
yield management practices allow us to anticipate and react quickly to market
changes. We currently
have a team of analysts dedicated to revenue and price management.  These
professionals are divided by market sector and have particular knowledge of
specific routes in order to better understand features which are specific to
each route (such as holidays, high and low season, peak schedules and days and
the competitive environment). Air
Transportation Operations Passenger
transportation Scheduled
domestic operations We currently
operate an average of 627 daily flights to 42 destinations in Brazil. 
Through our regional alliances with Passaredo, Total Linhas, Trip Transporte,
and NHT we serve an additional 37 domestic destinations. Passenger
traffic in the domestic market represented approximately 58.6% of our revenues
in 2008, 60.3% in 2007 and 65.4% of in 2006.  Our RPKs in the domestic
market increased 10.6% in 2008, 12.5% in 2007 and 31.8% in 2006.  The RPKs
in the total domestic market increased 7.4% in 2008, 11.9% in 2007 and 13.1% in
2006. In 2008,
according to data provided by INFRAERO, we recorded the highest number of
passengers transported in 27 of the 42 airports we serve.  The table below
sets forth the airports we serve in Brazil, our average number of departures per
day at those airports and the number of passengers who took our flights in
2008: Route
    Average Number of Departures per day with our
      Aircraft(1)
    Passenger Departures per
      year(2)São Paulo
      (Congonhas).
    96
    2,993,051São Paulo
      (Guarulhos)
    68
    2,285,041Rio de Janeiro
      (Galeão).
    52
    1,420,611Brasília.
    66
    1,366,203Belo Horizonte
      (Confins)
    30
    936,026Salvador.
    38
    933,068Porto Alegre
    21
    865,423Rio de Janeiro
      (Santos Dumont).
    24
    819,952Curitiba.
    27
    777,082Recife.
    26
    752,737Fortaleza.
    20
    642,564Vitória
    17
    524,231Belém.
    14
    464,390Florianópolis
    15
    436,387Natal.
    9
    343,684Manaus.
    9
    324,690Goiânia.
    11
    323,992São Luiz.
    7
    257,135Foz Do Iguaçu
    6
    253,002Cuiabá
    7
    246,157São Paulo
      (Viracopos)
    12
    220,848Campo Grande
    7
    218,528Maceió
    6
    195,465Aracaju.
    6
    192,208Londrina.
    5
    162,386João Pessoa
    4
    137,492Uberlândia
    3
    126,339São José Do
      Rio Preto.
    5
    125,666Macapá.
    3
    122,016Ribeirão
      Preto.
    4
    120,652Teresina
    4
    116,632Porto Seguro.
    6
    99,625Ilhéus.
    3
    97,596Porto Velho
    2
    97,454Navegantes.
    3
    96,222Palmas
    2
    78,049Santarém.
    3
    75,588Joinville
    3
    75,047Marabá.
    2
    65,151Boa Vista
    2
    59,424Rio Branco
    1
    47,641Imperatriz.
    2
    44,608
 (1)       Figures
relate to departures on TAM aircraft only. (2)       Figures
relate to TAM Issued tickets (and include departures on non‐TAM
aircraft). - 29
      -


---



Table of Contents

Scheduled
international operations We operate an
average of 73 daily international flights to Buenos Aires, Santiago, Asunción,
Montevideo, Lima, Ciudad del Este, Santa Cruz de la Sierra, Cochabamba,
Bariloche, Caracas, Miami, Orlando, New York, London, Paris, Frankfurt, Madrid
and Milan.  Our codeshare agreements with LAN Group, Pluna, United
Airlines, Air Canada, TAP, Lufthansa and BMI allow our passengers to make
connections to destinations in Latin America, the United States and Europe, in
addition to access to other services, such as check‐in at desks of our partner
airlines, simplified baggage shipping, access to VIP lounges and the ability to
earn points in the TAM Loyalty Program.  We also have agreements allowing
us to offer our passengers a wide range of destinations around the
world. International
scheduled passenger traffic represented 25.7% of our revenue in 2008, 25.3% in
2007 and 19.6% in 2006.  Our RPKs from international flights grew 40.2% in
2008, 70.6% in 2007 and 41.6% in 2006, successive increases that have resulted
primarily from increased capacity on selected routes that presented substantial
traffic throughout the year.  The RPKs of Brazilian carriers in the total
international market increased 25.7% in 2008, compared to a decrease of 5.1% in
2007 and 30.4% in 2006.  Our share of the international market operated by
Brazilian carriers was 75.2%, 67.5% and 60.6% in 2008, 2007 and 2006,
respectively, successive increases that have resulted primarily from a decrease
in Varig's long haul international flights as result of its
liquidation. Cargo
transportation operations We also earn
revenues through cargo transportation operations.  These operations
represented 9.2% of our total revenues in 2008, 9.3% in 2007.  TAM Cargo is
our freight business unit, reporting directly to our Commercial and Planning
Vice President.  We do not operate exclusive cargo aircraft; however, we
sell the empty space available on the belly of passenger aircraft. We are improving
our domestic cargo terminal operating structures, resulting in faster package
receiving.  By the end of the first half of 2009, we expect to implement a
new cost saving and advanced tracking system, which will allow shippers to track
in detail the entire path of their freight.  Our strategy for this division
in 2009 is to increase the freight of small packages, which usually have higher
yields. In the
international cargo segment we are improving our management systems, which will
result in quicker processing, and better revenue monitoring these improvements
will help us analyze market behavior to enhance our monitoring and decision
making with respect to the shipments.  We are entering into Special Prorate
Agreements (SPA) with several airline companies, allowing us to send shipments
worldwide.  We are also in the final phase of the Global Partners Project,
with all major International Cargo Agents, in order to increase the volume sold
and TAM Cargo's brand awareness. - 30
      -


---



Table of Contents

Travel and
tourism operations We also have a
travel and tourism operation, TAM Viagens.  In 2008 and 2007, this business
represented 3.9% and 2.1% of our total revenues respectively.  TAM Viagens
offers complete packages including air tickets, ground transportation, hotels,
tours and several tourism services.  Nowadays, it is one of the largest
tour operators in Brazil and has 68 of its own stores, and deals with 5,000
agencies all over the country, offering products to more than 600 tourist
destinations. Its main
objective is to attract passengers flying for tourism and leisure to seats that
would otherwise be empty during certain flights, either off‐peak flights, or
flights during low season  as the Brazilian market has the characteristic of
being predominantly composed by business passengers that fly during specific
periods of the day.  Our tour operator also has fundamental importance in
promoting and selling tickets for newly launched flights.  We have
commercial offices in the U.S. and Argentina, where we focus our sales efforts
on promoting trips to Brazil. In the first
half of 2009, we will promote a codeshare with our Loyalty Program, accepting
points for the sales of packages.  Recently, we also started the process of
opening TAM Viagens franchise stores, which will increase the reach of our
operations at no additional cost, improving further our margins. Marketing TAM Loyalty
Program The TAM Loyalty
Program was the first loyalty program launched by a Brazilian airline and
represents a key element in our marketing strategy.  We believe our program
is the most flexible in the market because it imposes no restrictions on flights
or the number of seats available when members are redeeming accumulated
points.  The TAM Loyalty Program has more than 5 million members and
approximately 7 million free flights have been distributed since its creation in
1993.  Members may accumulate points by flying on TAM or partner airlines,
making purchases through TAM Loyalty Program‐affiliated credit cards or using
services and products at partner establishments.  BothUnibanco  União
de Bancos BrasileirosS.A., or Unibanco andBanco Itaú S.A.offer credit cards that
allow holders to earn Loyalty Program points, and credit cards are available in
both MasterCard and Visa designations.  There are three tiers in the TAM
Loyalty Program (white, blue and red) and qualification for a particular tier is
based on miles flown.  The rate at which points are accumulated varies
depending on the tier of membership.  Blue and red cards receive extra
benefits and higher points, therefore allowing the member to accrue points that
can be redeemed for free travel more quickly. Points earned by
TAM Loyalty Program members must be redeemed for tickets within two years, and
historically approximately 32% of points expire without being redeemed. 
This two year period for redemption limits the growth in liabilities arising
from the TAM Loyalty Program, assuming a stable trend in relation to the number
of passengers we carry.  See "Item 5.  Operating and Financial Review
and Prospects  A.  Operating Results  Critical Accounting Estimates and
Judgments  Revenue Recognition". Communications
with our passengers Our "Talk to the
President" initiative was introduced to encourage passengers to give us
suggestions, compliments and complaints.  The Talk to the President
initiative involves employees responsible for receiving and forwarding thousands
of correspondences per month, including response cards, faxes, e‐mails and
telephone calls.  Our 0800 123 000 hotline number works 24 hours a day, 7
days a week.  Issues raised by passengers are surveyed, researched and
analyzed, and we seek to keep the customer informed as to the progress of their
request and/or suggestion until resolution or implementation.  In 2008, the
Talk to the President initiative received 179,564 responses from passengers
(including complaints, complements and other comments) compared to 153,978 in
2007 and 155,643 in 2006.  The Talk to the President service is also
accessible to customers in 12 of the foreign airports in which we
operate. In addition to
the Talk to the President initiative, we distribute the monthly President's
Letter on our flights and our website.  The President's Letter discusses
issues relating to TAM, in addition to others considered important to our
passengers. - 31
      -


---



Table of Contents

Fleet General Our fleet policy
focuses on achieving the highest levels of safety, quality, efficient scheduling
and high on‐time arrival rates (as well as rationalizing maintenance
expenses).  Currently, our fleet consists of advanced‐technology jet
aircraft, yielding cost benefits (such as those arising from the greater ease of
transition of technical crews from Fokker to Airbus aircraft), allowing us to
achieve high results in efficiency indices and qualifications relating to safety
standards.  See " Safety." The two Airbus
"families" operating in our fleet are the A330‐200 and the A340‐500 aircraft
(wide‐bodied aircraft used for long‐distance flights), and the A321, A320‐200
and A319‐100 aircraft (narrow‐bodied aircraft used for medium and short‐distance
flights).  The aircraft in these families differ by number of seats,
allowing us to be more flexible in making commercial decisions.  The A321,
A320 and A319 models are considered to be among the most comfortable aircraft
operating in Brazil in their category, with flexibility to operate at low cost
on routes with up to five hours of flying time.  They are also the only
Brazilian narrow‐bodied fleet to have fly‐by‐wire flight controls, with
computers receiving and analyzing each pilot command, making flying more
efficient and accurate.  Airbus family aircraft also have the benefit of
standardized maintenance and operations, allowing pilots and technicians to
transition between different models after minimum additional training.  All
our aircraft are equipped with the best and most advanced equipment and software
options offered by the manufacturer, giving us what we believe is one of the
most advanced aircraft fleets in the world. We have data
communications between our aircraft and departments, even when flying.  For
this purpose, we have developed a proprietary DMS (Datalink Management System)
that allows us to manage all information sent in real time by the ACARS
(Aircraft Communication Addressing and Reporting System) installed in our
fleet.  Using the aircraft DMS, pilots may send text messages similar to
e‐mail to any of our sectors.  Messages transmitted via satellite appear on
the DMS user screen in real time.  In addition to communicating with the
pilot, these resources also allow remote online monitoring of aviation systems,
such as computer function, landing and departure time, fuel consumption and
engine performance parameters.  As a result, any operating variance may be
analyzed by our maintenance technicians even before the aircraft arrives at its
destination.  The technology yields not only savings but also significant
improvements in efficiency and safety. The quality of
our technical services is regularly audited by the Brazilian and international
authorities, manufacturers and insurance companies.  As a result of the
requirements of our codeshare agreements with United Airlines and Lufthansa, we
also meet the maintenance and safety compliance requirements of the competent
international aviation authorities in this regard. The advantages
of modern technology, combined with excellent operating and maintenance
standards for the aircraft, are that we can yield high equipment utilization
rates with reliability levels ("technical dispatch capacity") above the industry
average for all equipment we operate.  Our fleet has maintained high
technical dispatch capacity indices according to standards defined by
IATA.  This index measures the on‐time departure capacity of aircraft
without taking into consideration external factors such as bad weather.  In
2008, we had an average technical dispatch capacity index of 98.8% (compared to
98.6% in 2007) for our fleet in operation (which is the reference point used in
auditing our technical services).  That data is audited by aircraft, engine
and equipment manufacturers according to a unified standard set by
IATA. TAM Linhas
Aéreas has RBHA (Brazilian Aviation Approval Regulation) certifications 121 and
145 for maintenance operations and services.  It also has an EASA 145
certification for maintenance services, which are performed at the São Carlos
maintenance center in São Paulo. In 1998 we
earned a U.S. Federal Aviation Regulation (FAR 129) operating certification, and
in 1999 a European certification from theDirection
Généralede L'Aviation Civile  DGAC, allowing us to
operate without restrictions in any European or U.S. city.  In addition to
the destinations to which we operate scheduled flights, such as Miami, New York,
Orlando, Paris, London, Madrid, Milan and Frankfurt, these certifications also
permit us to operate scheduled flights to Washington, Indianapolis, Lisbon,
Barcelona, Zurich, Amsterdam, and Moscow. - 32
      -


---



Table of Contents

All of these
certifications, obtained as a result of our modern equipment levels and
technical quality of our maintenance, rank us among the highest airlines in
global aviation standards.  Since 2000 we have had the Extended Twin Engine
Operations (ETOPS) certification of 180 minutes for Airbus A330 model aircraft
(the highest international level certification), proving that we are in
compliance with the most stringent global aviation standards in this
respect.  We also have state‐of‐the‐art equipment in Brazil, such as the
Future Air Navigation Systems (FANS), which increases safety in congested air
space and achieves fuel savings by using more direct routes. The following
table shows our fleet over the last three years: In Operation
    To be Returned/Out of
      Operation
    TotalDecember 31,
    December 31,
    December 31,Model
    2008
    2007
    2006
    2008
    2007
    2006
    2008
    2007
    2006Boeing 777.
    4
    
    
    
    
    
    4
    
    MD 11
    
    3
    
    
    
    
    
    3
    Airbus A340.
    2
    2
    
    
    
    
    2
    2
    Airbus A330.
    16
    12
    10
    
    
    
    16
    12
    10Boeing 767.
    3
    
    
    
    
    
    3
    
    Airbus A321.
    3
    3
    
    
    
    
    3
    3
    Airbus A320.
    81
    70
    50
    
    
    
    81
    70
    50Airbus A319.
    20
    15
    14
    
    
    
    20
    15
    14Fokker 100.
    
    5
    19
    
    5
    2
    
    10
    21Total.
    129
    110
    93
    
    5
    2
    129
    115
    95
  The TAM Airlines
(TAM Mercosur) fleet consists of three Airbus A320 aircraft (sub‐leased from TAM
Linhas Aéreas). The average age
of the TAM Linhas Aéreas fleet is one of the lowest in global aviation and is
the lowest in Brazil:  5.6 years for Airbus A319/320/321 model aircraft,
and 5.2 years for Airbus A330/340 model aircraft.  With 129 aircraft in
operation, the overall average age of our fleet was 5.5 years at the end of
2008. The following
table sets forth the historical and projected development of our operational
fleet at December 31 in each of the years indicated: 2006
    2007
    2008
    2009
    2010
    2011(Number of
      aircraft)Airbus A330/A340
    10
    14
    18
    18
    20
    22Airbus A319/A320/A321(1)
    64
    88
    104
    107
    110
    113Fokker F‐100.
    19
    5
    
    
    
    MD‐11.
    
    3
    
    
    
    Boeing 767
    
    
    3
    3
    3
    3Boeing 777
    
    
    4
    4
    4
    4Total
    93
    110
    129
    132
    137
    142
    (1)       Our fleet
projection is based on the following:  we currently have firm orders with
Airbus for 37 Airbus aircraft (31 aircraft narrow body family A320 and 6 A330)
for delivery by 2012 and 20 confirmed options for A320 family aircraft
(including A319, A320 and A321) for delivery before the end of 2014.  In
addition we have firm orders for 22 Airbus A350XWB models 800 and 900, with
options for 10 more, with delivery between 2013 and 2018.  In 2006, we
ordered 4 Boeing 777‐300ER with options for 4 additional aircraft, which were
exercised in 2007.  Upon receipt of the four aircraft in 2008, we had six
firm orders placed with Boeing for this type of aircraft, of which four are
expected to be delivered in 2012 and two in 2013. We phased out
our entire fleet of Fokker‐100 aircraft in 2008, at which point we started
operating only Airbus A320 family aircraft in the domestic market. On March 19,
1998 we entered into an agreement with Airbus pursuant to which we agreed to
lease 38 Airbus A319/A320/A321 family aircraft.  The last aircraft was
delivered in February 2008.  In November 2006, we entered into an agreement
with Airbus pursuant to which we agreed to lease 31 A319/A320/A321 family
aircraft, with 20 additional options and six A330 aircraft, with four additional
options.  On January, 2008, the options under the 2006 agreement were
converted into firm orders.  On December, 2007 we entered into an agreement
with Airbus pursuant to which we agreed to lease 22 Airbus A350‐900
aircraft.  Each Airbus A350 will be capable of carrying up to 300
passengers.  The A350 aircraft are scheduled to be delivered in 2013. 
In February 2007, we entered into an agreement with Boeing pursuant to which we
agreed to lease four Boeing 777 aircraft, with an additional four options that
were converted to firm orders in 2008.  In 2008 we also signed an agreement
for an additional two firm orders of B777, to be delivered in 2013. - 33
      -


---



Table of Contents

The following
table shows average use rates of our aircraft, in hours per day, during the
periods indicated: At December 31,Bodied
    2008
    2007
    2006Narrow‐bodied aircraft.
    12.2
    12.2
    12.3Wide‐bodied aircraft.
    14.0
    15.8
    15.1
  Leasing
agreements We currently
lease all of our aircraft (using long‐term lease agreements) through TAM Linhas
Aéreas.  Leasing gives us greater flexibility to change the composition of
our fleet relatively quickly in the event we need to. Of our total
fleet of 129 aircraft at the end of 2008, 125 of our aircraft are subject to
operating leases and four to finance leases.  However, in order to comply
with the accounting policies, 64 lease contracts are classified as finance
leases. Operating leases
require us to make periodic payments but do not include aircraft purchase
options at the end of the agreement.  Pursuant to the terms of these
agreements, aircraft are returned under the agreed conditions at the end of the
lease.  The lessor retains ownership of the aircraft, as well as the
economic benefits and risks of ownership.  We are responsible for
maintaining and contracting insurance for the aircraft during the leasing
period.  Amounts corresponding to commitments for the leased equipment are
not reflected on our balance sheet because these transactions do not include an
aircraft purchase option.  The payments are adjusted based on variations in
the U.S. dollar exchange rate and LIBOR. Finance leases
are capitalized at the lease's commencement at the lower of the fair value of
the leased property and the present value of the minimum lease payments. 
Each lease payment is allocated between the liability and finance charges. 
The corresponding lease obligations, net of finance charges, are recorded as
financial liabilities.  The interest element of the finance is recorded on
the income statement over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each
period. Maintenance We rigorously
follow the maintenance plans proposed by the aircraft manufacturers and approved
by the competent Brazilian and international aviation authorities. 
Accordingly, maintenance carried out on our aircraft may be divided into three
general categories (i) line maintenance, (ii) heavy maintenance, and (iii)
component repair and inspection.  Line maintenance includes simple
inspections up to "A checks" (the first inspection level), executed in transit
and overnight without requiring any change to our operations. Heavy
maintenance includes more complex aircraft inspections and services requiring
removal from operations for between five and eight days. Engine
maintenance contracts cover all significant engine maintenance activity. 
We pay for services rendered pursuant to our engine maintenance contracts on an
as‐incurred basis.  The basis on which maintenance expenses are considered
incurred is dependent on the nature of the services provided under our engine
maintenance contracts: ·contracts under which amounts are payable to the
maintenance provider, and are recognized in the income statement, based on
actual maintenance activities performed by the maintenance providers.  The
expenses incurred reflect the actual time of maintenance and the cost of the
materials and components used in the maintenance activities.  These
maintenance contracts are referred to as "time and materials" contracts;
and ·contracts under which maintenance expenses are
payable to the maintenance provider based on hours flown.  These
maintenance contracts are referred to as "power by the hour" contracts.  We
accrue a liability and record an expense for maintenance under these contracts
on the basis of hours flown.  These payments are made to maintenance
providers when the engines undergo a maintenance shop visit based on an agreed
hourly rate.  Our "power by the hour" contracts also provide for a
relatively small administrative fee that is paid and expensed monthly (this fee
represents
less than 5% of amounts paid under all of our "power by the hour" contracts
considered together). - 34
      -


---



Table of Contents

We have entered
into a number of agreements with suppliers and service providers in order to
assist with our maintenance requirements, of which the following are
material: ·a
general terms agreement between TAM Linhas Aéreas and GE Engine Services
Distribution, L.L.C., or GE, dated May 7, 2001, pursuant to which TAM Linhas
Aéreas has agreed to purchase certain spare engines and support equipment for
both the spare engines it has purchased from GE and certain engines that have
already been installed on its operating fleet.  The agreement also provides
that GE may provide non‐standard maintenance training courses upon request of
TAM Linhas Aéreas.  The agreement provides that GE will charge for any such
courses on an "as incurred" basis.  The agreement has no fixed termination
date; ·an
engine maintenance agreement between TAM Linhas Aéreas and MTU Motoren‐und
Turbinen‐Union München GmbH, or MTU, dated September 14, 2000, or the TAY
Agreement, pursuant to which MTU has agreed to provide certain maintenance,
refurbishment, repair and modification services with respect to approximately
105 aircraft engines.  This agreement was amended by means of a novation
and amendment between TAM Linhas Aéreas and Rolls‐Royce Brazil Ltda.  or
Rolls‐Royce, dated November 8, 2001, pursuant to which Rolls‐Royce replaced MTU
as contract counterparty.  The agreement provides that Rolls‐Royce may
subcontract services to be performed and that it will not be held liable for
damages to or losses of TAM Linhas Aéreas or third parties due to the
performance of the services contracted under the agreement, unless caused by
willful misconduct or negligence of Rolls‐Royce.  The agreement provides
that service orders placed by TAM Linhas Aéreas are to be charged based on a
fixed rate specified for each type of service and subject to an escalation
formula.  TAM Linhas Aéreas is required to make payments based on actual
services performed.  This agreement terminates on June 30, 2015; ·an
engine maintenance agreement between TAM Linhas Aéreas and MTU Maintenance
Hannover GmbH, or MTU Hannover, dated September 14, 2000, pursuant to which MTU
Hannover has agreed to provide certain maintenance, refurbishment, repair and
modification services with respect to certain V2500‐A5 engines.  The
agreement provides that MTU Hannover may subcontract to third parties and that
MTU Hannover will not be held liable for damages to or losses of TAM Linhas
Aéreas or third parties due to the performance or non‐performance of the
services contracted, unless caused by willful misconduct or negligence of MTU
Hannover.  The agreement provides that service orders placed by TAM Linhas
Aéreas will be charged on actual services performed, based on hourly rates for
engine/module repair work and on a fixed price for test runs, including fuel and
oil, subject to an escalation formula.  This agreement terminates on June
30, 2014; and ·an
engine maintenance agreement between TAM Linhas Aéreas and United Technologies
Inc., Pratt and Whitney Division, or Pratt and Whitney, dated September 14,
2000, pursuant to which Pratt and Whitney has agreed to perform maintenance,
modification and/or overhaul of engines, engine modules and their parts and
components.  Pratt and Whitney has a limited exclusivity right for
maintenance services of engines and modules pursuant to the terms of this
agreement.  This exclusivity provision requires TAM Linhas Aéreas to obtain
prior written authorization from Pratt and Whitney before sending the equipment
to another maintenance service supplier, with an exception in the case of delay
or non‐performance of services by Pratt and Whitney.  The services to be
provided by Pratt and Whitney are charged based on a fixed rate specified for
each type of service, subject to an escalation formula.  TAM Linhas Aéreas
is required to make payments based on actual services performed.  This
agreement terminates on September 14, 2010. We are certified
to conduct maintenance on all type of aircraft in our fleet.  Line
maintenance is performed all of the bases at which we operate, most importantly
at the airports of São Paulo, Congonhas and Guarulhos.  We also conduct
heavy and component maintenance at our main maintenance center, in São Carlos
(250km Northwest of São Paulo), which is approximately 4.6 million square meters
in size.  This maintenance center is fully certified by ANAC, as well as by EASA
to perform maintenance in most of our fleet (Airbus A330, A320, A319 and A321),
and over 2,500 different aeronautical parts for all Airbus and several Boeing
fleet types.  Our maintenance center is currently completing its ANAC 145
certification on Boeing 767 aircraft, with the first inspections scheduled for
2009.  Our maintenance center has currently over 800 direct employees (for
core maintenance activities) and approximately 200 indirect employees (providing
support functions, such as security, facility maintenance and cleaning). 
Line maintenance and supply chain activities include an additional approximately
1,000 employees. - 35
      -


---



Table of Contents

All maintenance
that is conducted in‐house presents significant cost savings and strategic
advantages.  As we are qualified to perform most line, heavy and component
maintenance services, we substantially eliminate the need to send aircraft and
parts overseas, decreasing downtimes and avoiding the costs of aircraft
transportation, parts logistics and import‐export taxes.  For those parts
requiring maintenance beyond what would break even economically (due to
complexity or low volume, for example, for engines), we have long‐term,
optimized maintenance agreements, where possible, with the engine
manufacturers. IATA Operational
Safety Audits (IOSA) certification also applies to maintenance, as is required
under our codesharing agreements (with, for example, Lufthansa, United, TAP, Air
Canada, LAN, among others).  Our maintenance division also has the required
certifications for each country in which our aircraft fly (for example, FAR 127
in the United States). In addition to
the manufacturers (Airbus, Boeing, Rolls Royce, GE, Pratt & Whitney), we
train our engineers and technicians, at our own training center, which is fully
certified under ANAC 147, and which uses the same equipment and software that
the manufacturers use.  We refer to our training center as the "TAM Service
Academy". We also perform
maintenance for third party aircraft and components within the ranges of our
certifications.  This includes several line maintenance support contracts
on Airbus fleet types, as well as heavy and component support for Brazilian and
foreign airlines.  This also includes a total care maintenance contract for
the President of Brazil's A319 ACJ.  Such services are consistently
growing, helping us to dilute our fixed expenses, as well as increase our
revenues. A significant
part of our aircraft and vehicle maintenance expenses are indexed to the U.S.
dollar.  For a description and analysis of the effect of exchange rate
variations on our income, including fleet maintenance expenses, see "Item
11.  Quantitative and Qualitative Disclosures about Market Risk  Exchange
rate risk." Fuel Fuel expenses
are the largest component of our expenses, representing 40% of our operating
expenses in 2008. Fuel consumed in
Brazil represents approximately 90% of our total consumption and is acquired
through the distributors of Petrobrás, Shell, Cosan (previously Esso) and Air
BP.  We purchase fuel abroad from Exxon Mobil, Chevron, J&D Oil Field,
Shell, Air BP, GALP, World Fuel Services and Repsol YPF.  Supply contracts
for fuel in Brazil are normally made for a two to three year period and we
finalized the renewal of our contracts until the end of 2010.  Supply
contracts at our international bases normally have a term of one or two
years.  The majority of our fuel is purchased under "into‐plane" terms,
meaning that the supplier is responsible for delivering the fuel directly into
the tanks of our aircraft.  The fuel prices in the contracts we sign
consist of three components (i) the price from the refinery, (ii) the supplier
differential, and (iii) airport or logistics fees and taxes.  The price of
fuel is subject to international market variations in the price of oil. 
The supplier differential is the portion charged by the supplier (which consists
of a fixed amount per volume negotiated and committed to be charged during the
contractual period) and reflects the cost of distribution, storage, and delivery
and a profit margin.  Airport taxes and fees may vary by region and by
airport.  We have a department responsible for negotiating fuel purchase
contracts and, as a result of the high volumes of fuel we purchase, we believe
that are we are normally able to obtain more favorable terms than our
competitors. To reduce our
exposure to international fuel price and exchange rate variations, in 2004 we
began to enter into arrangements intended to hedge a minimum of 30% and a
maximum of 80% of our projected fuel consumption for up to a rolling 24‐month
period.  For a description and analysis of the effect of volatility in fuel
prices on our income, see "Item 11.  Quantitative and
Qualitative Disclosures about Market Risk  Risks relating to variations in the
price of oil." Another important cost reduction initiative involving fuel is our
"fuel tanker" program pursuant to which we refuel aircraft in regions where fuel
prices are relatively low.  We have also formed a multidisciplinary work
group, involving the departments responsible for fuel, engineering, control,
operations, dispatching and financing, to develop other measures to reduce
spending and fuel consumption in our fleet. - 36
      -


---



Table of Contents

Safety We adopt the
highest safety standards in the world.  We comply with Brazilian and
foreign aviation regulations, including those issued by the ICAO (International
Civil Aviation Organization), the FAA  Federal Aviation Administration (U.S.
aviation authority) and the EASA  European Aviation Safety Agency (EASA). 
As an international air company, we are a member of the IATA, and sit on the
Regional Flight Safety Committee (RCG).  We are also a member of the Flight
Safety Foundation (the largest nongovernmental organization for flight safety)
and the Flight Safety Committee (a product of all the Brazilian
airlines). Our priority is
to provide safe air transportation.  Our founder Commander Rolim Amaro
passed down the Company's motto:  "Safety comes first to the Client."
 We are extremely devoted to flight safety.  We adopt modern standards
of organization and management; for example: ·In
2002, we were the first Brazilian company to implement the FOQA (Flight
Operations Quality Assurance) system, a system used for the systemic analysis of
flights and to prevent operating failures that may affect the safety of a
flight, which subsequently became a benchmark for other Brazilian
companies; ·In
2004, the European Union Aviation Authority granted us the EASA 145
certification for our aircraft maintenance and repair facility located in São
Carlos; ·In
July 2006, we became a member of the United Kingdom Flight Safety Committee
(UKFSC), an association of organizations and professionals dedicated to
improving flight safety standards in commercial aviation in the United
Kingdom.  In 2006, we also became a member of the Steering Committee of the
Emergency Response and Planning run in Task Force (ERPTF) of IATA; ·In
2007, we were the first company in Latin America to implement the AQD (Aviation
Quality Database) system for safety database management, used to analyze
operating risks and implement the SMS (Safety Management System), in conformity
with Brazilian and foreign regulations; ·In
January 2008, we ratified the IOSA certification that the IATA had granted us in
2007, which is the most complete and recognized international operational safety
certificate.  The IOSA consists of an independent evaluation system focused
on the evaluation of the operational management and control systems of air
companies.  The IOSA audit encompasses over 950 requirements covering eight
operational areas in an air company, such as:  organization and management
systems, flight operations, operational instructions, aircraft engineering and
maintenance, cockpit operations, ground handling (airports and ground services),
loading operations and operational safety; ·The
U.S. aviation authority (FAA) is expected to grant to us the FAR 145
certification for certification for our aircraft maintenance and repair facility
located in São Carlos by 2009. The joint
venture with Star Alliance will further enhance our operational safety, giving
us a competitive advantage over other airlines. Brazilian civil
aviation follows the highest safety standards in the world.  Brazil is
classified as Category 1 in terms of the flight safety standards established by
ICAO, which is the highest classification in existence. Insurance We maintain
insurance policies as required by law and the terms of our aircraft leasing
agreements.  The scope of these policies includes all risk coverage for
aircraft hull, including war risks and third party legal liability for passengers,
cargo, baggage and injuries to third parties on the ground.  Our current
policies, which will be in force through December 19, 2009, follow practices
adopted by the international civil aviation industry. - 37
      -


---



Table of Contents

We have also
contracted for asset insurance against the risk of theft, fire, flood,
electrical damage and similar matters for equipment and buildings we own or for
which we are responsible, including airport areas where we have
operations.  Similarly, we have contracted for vehicle insurance against
the risk of robbery, theft, fire and civil liability against third parties for
all vehicles we own or for which we are responsible. We have also
contracted liability insurance in respect of our directors and officers, the
current term of which is due to expire on April 23, 2010. Information
Technology We have a policy
of investing significant amounts in information technology systems that enhance
our operating processes, allowing us to provide higher quality services to our
passengers, in addition to giving us greater flexibility and speed in our
operations. In 2004 we
introduced thee‐TAM portal, a tool that
integrates our entire sales chain, from the time of reservation to passenger
boarding.  Moreover, data obtained from thee‐TAM portal
allows us to offer passengers a set of customized services.  All of our
domestic reservations are made through the portal environment.  The use of
thee‐TAM portal allows us to
reduce the cost of reservations and ticket issuance by consolidating the GDSs
previously used for almost all our reservations.  Currently, GDS is used
only for tickets issued abroad. As discussed in
"Item 4.  Information on the Company  A.  History and development of
the company  Capital Investments," we entered into a loan agreement with BNDES
on November 10, 2005 and are using the proceeds from such loan to invest in the
software used in oure‐TAM portal and the
software we use for cost control and managing spare parts and
supplies. We were the
first Brazilian airline to develop and install self‐service check‐in kiosks in
airports.  With over 100 units operating in Brazil's major airports, the
kiosks allow passengers who purchasee‐tickets to
check‐in and select their seat in less than ten seconds, reducing lines in the
check‐in halls and on boarding of the aircraft.  In 2006, 2007 and 2008
approximately 742,871, 2,009,900 and 5,888,474 passengers respectively checked
in through the self‐service kiosks. In October 2003,
we signed a general services agreement with Sabre Travel International Limited,
pursuant to which we were granted a license (relating to the provision of
maintenance services) for electronic reservation technology and database backup,
allowing us to better utilize our fleet and network.  This agreement will
remain in force until October 2013, unless previously cancelled by either
party. The TAM Loyalty
Program and "special services" system are also important tools for obtaining
profile information on our passengers.  The TAM Loyalty Program allows us
to monitor the activity of passengers registered with the program, recording
information on each passenger flight in addition to personal information and
preferences (such as preferred seat, special meal requests and other data
obtained through our contacts or customer surveys).  The "special services"
system allows the crew to input data on preferences of our passengers directly
to our database.  This data is also used to study passengers, offer
promotions and new services and define our advertising message. Our DOV‐line
tracing system monitors all aircraft baggage and cargo, following the location
of items inside the aircraft, for proper weight balancing.  A balanced
aircraft is critical for a safe flight and has the added benefit of reducing
fuel consumption.  The DOV‐line tracing system also manages crew
distribution. Seasonality The Brazilian
passenger air transportation market is subject to seasonality, as there is
always higher demand for air transportation services in the second half of the
year.  In this regard, we are impacted to a similar extent as the rest of
the market, though this is mitigated by the fact that we have a higher
concentration of business travel than the market average (and business travel
is less sensitive to seasonality).  Our other operations do not vary
significantly as a result of seasonality. - 38
      -


---



Table of Contents

Competition Domestic Airlines in
Brazil compete primarily in terms of routes, price, flight frequency, service
reliability, brand recognition and benefits offered to passengers, such as
loyalty programs and customer service.  We believe our market leadership
and the TAM Loyalty Program enhance our competitive performance in many of these
areas. Our competitors,
both actual and potential, include Brazilian airlines, airlines operating on
regional air routes and new participants in the market, who operate primarily on
regional transportation networks.  Our principal competitor is Gol. 
In previous years, Varig had been one of our major competitors.  However,
Varig filed for bankruptcy protection in Brazil and the United States in June
2005.  Varig's assets and operations were sold to various investors over
the course of 2006 and, on December 14, 2006, Varig ceased operations
altogether.  On December 15, 2006, a new company, VRG Linhas Aéreas S.A.,
initiated operations on some of the routes previously used by Varig.  On
March 24, 2007 Gol announced that it had entered into an agreement to
acquire VRG Linhas Aéreas S.A.  In compliance with applicable CADE
requirements, Gol and Varig operated as separate airlines until final approval
from CADE of the acquisition, which was obtained in June 25, 2008 and integrated
the route networks of both companies on October 19, 2008. To a much lesser
degree, we also face competition from a number of significantly smaller airlines
operating in the domestic market.  At December 31, 2008, 15 different
airlines together had a share of the 7.2% of the domestic market that is not
served by TAM and Gol/VRG (who together had a share of approximately 92.8% of
the domestic market). ANAC's
resolution provides that 80% of new slots are distributed to existing airlines,
with these slots being divided evenly (without regard to market shares). 
New slots are only available to airlines that have a history of punctuality, no
pending proceedings with ANAC and a positive shareholders' equity.  The
remaining 20% of slots are available to new entrants.  See " Regulation of
the Brazilian Civil Aviation Industry  Rights to Operate Air Routes  Policy on
slots." The graph below
shows the history of market participation on domestic routes, calculated by
reference to RPKs, for the major Brazilian airlines, for the periods indicated
(based on data provided by ANAC):  ______________________ Source:  ANAC. - 39
      -


---



Table of Contents

Some of our
competitors have significant levels of debt and their financial condition and
prospects are uncertain.  If our competitors in financial difficulty
succeed in restructuring their debt and strengthening themselves in the market,
they may be able to offer cheaper fares on the routes we operate, or compete
with us in other ways (even if our operations are more efficient). We also face
competition, albeit to a lesser degree, from land transportation companies such
as road transport companies. International The
international market is substantially more competitive than the domestic market,
with large international airlines that are more experienced and larger than we
are.  To ensure increased competitiveness, airlines are dependent on
partnerships and codeshare agreements with regard to their international
operations. On international
routes, airlines compete primarily on the basis of routes, services, price and
mileage and frequent flyer programs.We offer 73 international
daily flights to Buenos Aires, Santiago, Asunción, Montevideo, Ciudad del Este,
Santa Cruz de la Sierra, Cochabamba, Bariloche, Punta del Este, Caracas, Lima,
Miami, New York, Orlando, London, Paris, Frankfurt, Madrid and Milan.Our
codeshare agreements with United Airlines and Lufthansa allow our passengers to
make connections to destinations in Latin America, the United States and
Europe.  We also have other agreements allowing us to offer our passengers
a wide range of destinations around the world.  On October 7, 2008, we
announced our joining Star Alliance, the largest global alliance in commercial
aviation. In the
international market, our main competition is from major international airlines
that serve the markets in which we currently operate.  Our average
international market share in 2008 was 75.2% (measured by RPK).  According
to ANAC, Brazilian airlines were responsible for approximately 29% of
international passengers transported in 2007, with the remainder offered by
non‐Brazilian airlines.  We believe that in 2008, Brazilian airlines
transported 33% of the passengers to and from Brazil.  The graph below
shows the history of market participation on international routes, calculated by
reference to RPKs, among only the Brazilian airlines, for the periods indicated
(based on data provided by ANAC):  ______________________ Source:  ANAC. - 40
      -


---



Table of Contents

Overview of the
Industry General According to
IATA, Brazil is the fourth largest domestic aviation market in the world,
covering a vast area (greater than the continental United States) and in 2007
had a population of approximately 184 million people (according to the Brazilian
Geography and Statistics Institute Instituto Brasileiro de
Geografia e Estatística, or IBGE).  We believe that the São Paulo 
Rio de Janeiro shuttle route is one of the busiest shuttle routes in the world
(according to ANAC approximately 3 million passengers were transported in this
route in 2008).  Growth of the Brazilian commercial aviation industry is
closely related to growth of Brazilian GDP.  Also according to ANAC, the
Brazilian commercial aviation industry transported more than 46 million
passengers in the domestic market in 2008. Brazilian civil
aviation follows the highest established standards of flight safety in the
world.  Brazil is classified as Category 1 under the flight safety
standards established by the International Civil Aviation Organization, the same
classification as the United States and Canada. Airlines
operating in the Brazilian commercial aviation market can be divided into the
following four categories: ·domestic airlines, which provide public
transportation service on a scheduled basis within Brazil and operate mainly
with large aircraft between the major cities of Brazil; ·regional airlines, which provide public
transportation service on a scheduled basis within Brazil, generally connecting
between smaller cities and bigger cities in Brazil.  Typically, regional
airlines operate with smaller aircraft, such as turbo-props; ·charter airlines, which provide transportation
service on a non‐scheduled basis; and ·international airlines, which provide international
transportation services on a scheduled basis to and from Brazil. The market for
scheduled airline service in Brazil includes two main types of passengers: 
those traveling on business and those traveling for leisure.  Business
passengers generally place more importance on factors such as frequency of
flights, reliability, availability of direct flights, extent of area served and
value‐added services (and are becoming increasingly sensitive to price). 
Leisure passengers generally place more importance on price and tend to be more
flexible regarding the scheduling of their trips. The business
travel sector is the largest and most profitable segment of the air transport
industry in Brazil.  We believe that business trips represented
approximately 68% of total demand in Brazil for domestic flights in 2008, a
number we believe is significantly greater than the proportion of domestic
business trips in the international civil aviation sector.  In Brazil,
small and medium‐sized companies (which comprise a large proportion of our
customer base) place significant importance on receiving good service from their
airline, while maintaining a balance between quality, frequency of flights and
low prices. In 2007, the
eleven busiest airports accounted for 72.1% of all domestic traffic in terms of
departures and arrivals, according to ANAC's annual report. The domestic
civil aviation market is principally served by TAM and Gol/VRG who together
represented 92.8% of all domestic routes in December 2008, in terms of
RPK.  According to ANAC, in December 2008, our share of the domestic market
was 49.1%, while that of Gol/VRG was 42.4%. The remaining
approximately 7.2% share was served by 15 different airlines.  This market
profile is consistent with the historical make‐up of the domestic market, which
has traditionally seen a small number of airlines holding the vast majority of
domestic market share and a much larger number of airlines (the identity of whom
has continuously changed over the years as different airlines have entered and
left the market) holding the remaining portion. - 41
      -


---



Table of Contents

On June 17, 2005
Varig became the first Brazilian company to file (for an in‐court reorganization
under Law No. 11,101 of February 9, 2005 (which we refer to as the New
bankruptcy law)) in the Courts of the State of Rio de Janeiro.  Previously,
the Brazilian Aeronautical Code provided that concessionaires of air public
transportation were not allowed to apply for an in‐court reorganization. 
During this period of in‐court reorganization, Varig faced a drastic
deterioration in its financial and operational condition.  It ceased
operation of several flights and withdrew from important domestic and
international markets.  On December 18, 2005, the creditors' assembly of
Varig approved its in‐court reorganization plan but this was amended by the
creditors on May 9, 2006 in order to permit a judicial disposal of Varig's
flight operating unit.  On July 17, 2006, the flight operating unit of
Varig was sold in a public bid process held by the Judiciary of the State of Rio
de Janeiro to VarigLog Linhas Aéreas S.A., a former subsidiary of Varig that was
also sold on November 11, 2005 pursuant to the in‐court reorganization
plan).  On March 24, 2007 VarigLog and Gol announced that Gol had
entered into an agreement to acquire VRG Linhas Aéreas S.A., which is VarigLog's
subsidiary that operates Varig's routes.  In compliance with applicable
CADE requirements, Gol and Varig operated as separate airlines until October 19,
2008 when they integrated their networks, after the final approval from CADE for
the acquisition obtained in July 25, 2008. Trends In the
Domestic Market In the past 35
years, the domestic market has generally grown in terms of RPK, except during
times of significant economic recession (such as the oil crisis, the
debt‐moratorium crisis in the 1980s and the economic recession and political
instability of the early 1990s). Since the year
2000, the annual air‐traffic passenger growth rate, in terms of RPK, was 9%,
compared to an annual available capacity growth rate in terms of ASK, of
7%.  The average load factor in the period was 64%.  Domestic
passenger traffic and available capacity rates for the period between 2000 and
2008 are set out in the following table: 2000
    2001
    2002
    2003
    2004
    2005
    2006
    2007
    2008(in millions, except
      percentages)ASKs
    41,562
    45,314
    47,013
    41,851
    42,756
    48,740
    55,257
    62,895
    72,841Change in ASKs(1).
    
    9%
    4%
    11%
    2%
    14%
    13%
    14%
    16%RPKs
    24,479
    26,527
    26,711
    25,196
    27,962
    34,147
    39,261
    42,773
    47,723Change in RPKs(1).
    
    8%
    1%
    6%
    11%
    22%
    15%
    9%
    12%Load factor.
    59%
    59%
    57%
    60%
    65%
    70%
    71%
    68%
    66%
    (1)       Percentages
refer to percentage change from previous year. Source: 
Anuário DAC/ANAC (2000 to 2007) and Dados Comparativos Avançados ANAC
(2008). Historically,
growth in domestic civil aviation demand has generally exceeded growth in
GDP.  From 2000 to 2008, domestic civil aviation RPK grew 9% per year,
while the annual GDP growth rate in the same period was 4%, according to ANAC
and IBGE. The variable
factors that have the greatest influence on the commercial aviation market are
the price of fuel and variations in exchange rates, because fuel is the most
important element of expenses for airlines, and most elements of the market
(including fuel) are tied to the U.S. dollar. The influence of
the Brazilian government on the industry, through industry regulations, has also
had a significant impact on the performance of airlines operating in the
market.  From 1986 to 1993, the Brazilian government imposed more rigid
control over local civil aviation activities because of high inflation levels
which led to a series of economic crises in Brazil during that entire
period.  The Brazilian government mainly monitored airline air fares and
supervised the use and expansion of their routes.  In 1994, after
successful efforts to control inflation and stabilize the Brazilian economy, the
Brazilian government (acting through the aviation authorities) began to
deregulate civil aviation activities, principally by gradually reducing
government control over the airlines' local activities.  Even though
Brazilian civil aviation is still a regulated sector, ANAC's current rules are
significantly more flexible than the regulations which were previously in
effect.  Further, the relevant authorities have frequently issued basic and
essential regulations in order to harmonize the Brazilian regulatory environment
with international, more modern models. We believe the
current regulatory regime has favored the financial performance of Brazilian
civil aviation.  As a result of imposing a more rational supply of services
and ending implicit subsidies to less competitive airlines, we believe that the
Brazilian government has enabled more competitive airlines such as TAM and Gol
to better utilize their aircraft in an environment of healthy competition, which
in turn has led to improved average returns in the domestic market.  Such
regulatory system is undergoing certain structural changes.  See "Item
3.  Key Information  D.  Risk Factors  Risks Relating to the Civil
Aviation Industry and our Business  The regulatory structure of Brazilian civil
aviation is undergoing change and we have not yet been able to evaluate the
results of this change on our business and results of operations" and "
Regulation of the Brazilian Civil Aviation Industry  Rights to Operate Air
Routes  Future legislation." - 42
      -


---



Table of Contents

Regulation of
the Brazilian Civil Aviation Industry Overview Scheduled air
transportation services are considered public services in Brazil and,
accordingly, are subject to extensive regulation by the High Command of
Aeronautics of the Ministry of Defense, or the High Command of Aeronautics,
CONAC and ANAC.  Scheduled air transportation services are also regulated
by the Brazilian federal constitution and by the Brazilian Aeronautical
Code. The Brazilian
Aeronautical Code sets out the principal rules relating to airport
infrastructure and operations, flight protection and safety, certification of
airlines, aircraft leasing structure, liability, transfers, registration and
licensing, training of crews, concessions, inspection and control of airlines,
public and private air cargo transport services, airlines' civil liability and
penalties for violations. CONAC is the
Brazilian President's advisory body.  Its board of advisors includes the
Minister of Defense, the Minister of Civil Affairs, the Minister of Finance, the
Minister of Development, Industry and Foreign Trade, the Minister of Foreign
Relations, the Minister of Tourism and the Command of the High Command of
Aeronautics.  CONAC has the authority to establish policies for the
Brazilian civil aviation industry that are adopted and carried out by the High
Command of Aeronautics and ANAC.  CONAC establishes general rules related
to adequate representation of Brazil in treaties, conventions and other matters
related to international air transportation, airport infrastructure, the
granting of additional funds to be used to benefit airlines and airports (based
on strategic, economic and leisure considerations), the coordination of civil
aviation operations, air safety, concessions for the operation of airline
services and permits for the provision of related commercial
services. ANAC is the main
civil aviation authority in Brazil and reports directly to the Ministry of
Defense.  ANAC is an independent regulatory agency associated with, but not
under the control of, the Ministry of Defense and operates as an independent
agency for an indefinite term.  ANAC principally has the authority to: (i)
regulate, inspect and supervise services rendered by airlines operating in
Brazil, (ii) grant concessions, permits and authorizations for air transport
operations and airport infrastructure services, (iii) represent the Brazilian
government before international civil aviation organizations, (iv) control,
register and inspect civil aircraft, and (v) ensure that air transportation
services are provided under free market principles. The Brazilian
government has recognized and approved the three main international conventions
related to world commercial air transportation operations:  the Chicago
Convention of 1944, the Geneva Convention of 1948 and the Montreal Convention of
1999. Recently, in
February 2009, the Federal Government approved the new Civil Aviation National
Policy (Política Nacional de Aviação Civil or "PNAC").  Although the PNAC
does not establish any immediate measure, it contains the main guidelines for
the national civil aviation system.  It encourages the Ministry of Defense,
CONAC and ANAC to issue regulations on strategic matters such as safety,
competition, environmental, and consumers' issues, as well as to inspect, review
and valuate the activities of all operating companies. Air
transportation services concession The Brazilian
federal constitution grants the Brazilian government the exclusive authority to
explore air transportation services and airport infrastructure and provides that
the government can render these services either directly or indirectly through
third parties (by means of concessions or permits).  According to the
Brazilian Aeronautical Code and regulations issued by the High Command of
Aeronautics, any operation of scheduled air transportation services requires a
concession granted by the High Command of Aeronautics.  The terms of each
concession
must be formalized by means of a concession agreement entered into with
ANAC.  Any company seeking a concession must meet certain economic,
financial, technical, operational and administrative requirements established by
ANAC.  In addition, all companies seeking a concession must (i) be legal
entities constituted in Brazil, (ii) obtain a valid Air Operation Approval
Certification (CHOA)  corresponding to the former Air Transport Operation
Approval Certification (CHETA), and (iii) comply with certain restrictions
regarding ownership of its shares or quotas.  See " Rights to Operate Air
Routes  Restrictions against the ownership of shares in airlines operating
under concessions." - 43
      -


---



Table of Contents

ANAC has the
authority to revoke a concession in the event of any failure by an airline to
comply with the rules of the Brazilian Aeronautical Code, supplemental laws and
regulations and the terms of the applicable concession agreement. Article 122 of
Law No. 8,666 of June 21, 1993 provides that concessions must be regulated
by specific procedures stipulated in the Brazilian Aeronautical Code.  The
Brazilian Aeronautical Code and the regulations issued by ANAC do not expressly
establish any bidding procedures in relation to concessions.  Accordingly,
it is not currently necessary to conduct bidding prior to awarding concessions
for the operation of air transportation services (such as ours), as would be
required in the case of other public services generally regulated by laws
applicable to public concessions. Our concession
to operate scheduled air transportation of passengers, cargo and mail at a
national level was obtained on December 9, 1996 through the issuance of
Ordinance 816/GM5 and the execution of the relevant concession agreement, which
will remain valid until December 9, 2011.  Although we can offer no
guarantee that we will be able to renew our concession, we do not currently
foresee any problems in relation to this renewal. Aircraft
registration The registration
of aircraft in Brazil is governed by the Brazilian Aeronautical Code.  The
Brazilian Aeronautical Code provides that no aircraft is authorized to fly in
Brazilian airspace or to land in or take‐off from Brazilian territory without
being duly registered.  In order to remain registered with a Brazilian
registration number, an aircraft must have both a certificate of registration
and an airworthiness certificate (certificado
denavegabilidade), each of which is issued
by RAB after a technical inspection by ANAC.  The certificate of
registration issued by ANAC attributes Brazilian nationality to the aircraft and
proves for its enrollment with the proper authorities.  The airworthiness
certificate is generally valid for six years from the date on which ANAC
conducted its inspection of the aircraft and provided authorization for it to
fly over Brazilian airspace (subject to continued compliance with certain
technical requirements and conditions).  The registration of any aircraft
can be cancelled in the event that the authorities verify that such aircraft is
not in compliance with the requirements for registration (in particular any
failure to adapt the aircraft to any safety requirements specified by ANAC or by
the Brazilian Aeronautical Code). All agreements
relating to aircraft registered in Brazil, including sale and purchase
agreements, financial commercial leasing agreements, mortgages (and amendments
to any such agreements) must be submitted to the Brazilian Aeronautical Registry
(RAB) for the purpose of publishing the transactions contemplated thereby and
updating aircraft registration. Rights to
Operate Air Routes Domestic
routes ANAC has the
authority to grant Brazilian airlines the right to operate any new route. 
Any airline seeking to operate a new route must submit studies proving both the
technical and economic feasibility of the proposed route (in form satisfactory
to ANAC) and must fulfill certain conditions in relation to the awarding of
those routes.  In respect of awarding any new route or approving any change
to existing routes, ANAC evaluates the infrastructure capacity of the airports
from which the route will be operating and the increase in demand and
competition between airlines.  In addition, approval for operation of a
route is made subject to the condition that the route must be operated on a
scheduled basis.  The operation of a route by any airline can be cancelled
in the event that the airline (i) fails to initiate operation of the route
within 15 days of receiving authorization, (ii) fails to maintain at least 75%
of the flights established in the respective National Air Transport Schedule
(hotran) for a period of 90 days,
or (iii) suspends operations for more than 30
days.  ANAC's approval of new routes or changes to existing routes is given
in the course of an administrative proceeding and does not require any amendment
to the applicable concession agreement. - 44
      -


---



Table of Contents

Once awarded,
the routes must be immediately reflected in thehotran(the report of
the itinerary of all routes an airline operates), which will then become an
integral part of each airline's database at ANAC.  Thehotrannot only establishes the routes but also the
arrival and departure times at certain airports, none of which can be changed
without the prior approval of ANAC.  Brazilian civil aviation laws and
regulations provide that an airline may not sell or transfer routes to another
airline. Recently, ANAC
has imposed schedule restrictions to several Brazilian airports from which we
operate.  Operating restrictions, including the prohibition of
international flights' operations and the prohibition of civil aircraft's
operation after 11:00 p.m. and before 6:00 a.m, were imposed for Congonhas
Airport, one of the busiest Brazilian airports and the most important airport
for our operations.  No assurance can be given that these or other
government measures will not have a material adverse effect on our business and
results of operations. International
routes International
airlines are those with points of departure in Brazilian territory and points of
arrival in foreign territory, operated by Brazilian companies previously
designated by the Brazilian government and operated in accordance with the terms
of bilateral agreements with foreign governments.  The rights to
international routes between major cities (as well as the corresponding landing
rights) are derived from bilateral air transportation agreements negotiated
between the government of Brazil and foreign governments.  Pursuant to the
terms of those agreements, each government grants the other the right to
designate one or more domestic airlines to operate scheduled service between
certain destinations in each country. Requests for new
international routes or changes in existing routes must be submitted by each
interested Brazilian airline to SRI, which evaluates each request based on the
provisions of the applicable bilateral agreement, the availability of existing
routes between the two countries and the general policies of the Brazilian
aviation authorities.  Following such evaluation, SRI may take any steps
required in relation to qualification of the international route. Ordinance
No. 569/GC5 of September 5, 2000 provides that international air
transportation services may be cancelled in the event that such services are (i)
not implemented or operated for more than six months, (ii) the airline is proven
to be incapable of performing the service, or (iii) the airlines fails to comply
with the agreements, laws and regulations of the High Command of
Aeronautics. Any airline's
international route frequency rights may be terminated if the airline fails to
maintain at least 80% of flights provided for in its air transportation schedule
HOTRAN for any 180‐day period or suspends its operation for a period exceeding
180 days. Policy on
slots Eachhotranrepresents the
authorization for an airline to land and take off at certain airports within a
predetermined space of time.  That space of time is known as an airport
slot and establishes that an airline can operate in a specific airport at the
times contained in thehotran. Brazilian law
provides that a slot is an ANAC concession reflected in an airline'shotran.  As is in the case
with routes, a slot is not owned by the airline and may not be transferred to
another airline. The more
congested Brazilian airports are subject to traffic restrictions via slot
allocation policies.  On July 3, 2006, ANAC issued Resolution
No. 2 which set forth the new rules to the distribution of domestic
slots.  This resolution establishes that 20% of the available slots of a
restricted airport will be distributed among new entrants and 80% of the
available slots will be distributed among existing airlines.  In addition,
ANAC requires that any airline applying for a slot must have a record of
punctuality, have no pending proceedings with ANAC and have a positive
shareholders' equity.  Although we comply with all conditions and
requirements to apply for new slots, we can offer no guarantee that new slots
will be allocated to us. - 45
      -


---



Table of Contents

TheDepartmento de Controle do Espaço
Aéreo, or DECEA, is responsible for coordinating and
inspecting the infrastructure support facilities of airports.  DECEA,
acting jointly with ANAC and INFRAERO, also conducts studies at all Brazilian
airports to determine the maximum operating capacity of each airport. 
Congonhas airport in São Paulo currently has slot restrictions. 
Investments currently being made in Brazilian aviation infrastructure are
expected to enable an increase in aircraft operations at congested airports and,
consequently, the granting of new slots to airlines. Aviation
infrastructure and the airport system The Brazilian
Federal Constitution grants the Brazilian government the exclusive authority to
operate air transportation services and airport infrastructure and provides that
the government can render these services either directly or indirectly through
third parties (by means of concessions or permits).  The installation and
operation of any aviation infrastructure services inside or outside an airport
will always require the prior authorization of the aviation authority, which
will also supervise them. Ground
structures are required for the operation of air navigation systems.  Any
surface structure which is intended to meet the needs of air navigation is
included under the category of aviation infrastructure.  Accordingly,
aviation infrastructure is broadly defined and includes all ground
organizations, assets and facilities that support the development of air
navigation.  Aviation infrastructure is made up of the group of ground
agencies, facilities or structures that support air navigation in relation to
safety, schedules and efficiency, including (i) the airport system, (ii) the
flight protection and safety system, (iii) the Brazilian Aviation Registration
system; (iv) the air accident investigation and prevention system, (v) the
system of air transport safety and coordination facilities, (vi) the system of
personnel training and education for the air navigation and aviation
infrastructure, (vii) the aviation industry's system of coordination, and (viii)
the aviation infrastructure coordination system. The airport
system consists of all Brazilian landing fields (military and civilian, private
and public) used for domestic aviation and international flights.  Airports
are public landing fields equipped with installations and facilities to support
aircraft operations and the departure and arrival of passengers and cargo. 
The construction, administration, and operation of airports are subject to the
rules, instructions, coordination and control of the aviation authority. 
Airports include areas intended for airport administration, public agencies that
function on a mandatory or optional basis in the airports (such as those
relating to the Federal Revenue Service (customs), the Ministry of Justice
(federal police), the Ministry of Health (health supervision), and the Ministry
of Agriculture (agricultural inspection)).  In addition to these
administrative areas, airports contain areas for passenger, baggage and cargo
service and movement and for the general public (including vehicle parking
facilities).  Airports are open to traffic and the public by means of the
approval of the aviation authorities.  Airports may be built, maintained
and operated directly by the Brazilian government or through concessions,
authorizations or permits.  Airports may also be operated by specialized
quasi‐public enterprises under the Brazilian government or its subsidiaries,
reporting to the High Command of Aeronautics (such as INFRAERO), by Brazilian
states or Municipalities and by legal entities considered technically,
economically and financially qualified by the aviation authorities. INFRAERO, a
government company reporting to the Ministry of Defense, has the function of
managing, operating, and controlling most Brazilian federal airports (including
their control towers and airport safety operations).  Smaller airports and
regional airports may belong to state or municipal governments and, in such
cases, are frequently managed by local government agencies.  INFRAERO
performs safety activities at most Brazilian airports, including the
verification of passengers and baggage, cargo safety and general airport safety
measures. The use of areas
within federal airports (such as hangars and check‐in counters) is subject to a
concession‐for‐use granted by INFRAERO.  Where there is more than one
candidate to use a certain airport area, INFRAERO may institute a bidding
process. Prices Brazilian
airlines are freely able to set their prices for domestic routes but must
register the prices with ANAC for monitoring purposes.  ANAC constantly
monitors airfares and may intervene in the market and in scheduled air service
concessions to prevent acts against economic order and to protect the interests
of consumers.  Airlines may establish price discounts or follow other
promotional strategies.  Airlines must submit any promotional passenger
fare discounts greater than 65% of ANAC's reference rate per kilometer to ANAC
at least five business days in advance.  Reference rates are
established by ANAC based on Brazilian civil aviation's average operating
expenses. - 46
      -


---



Table of Contents

International
prices are established in accordance with bilateral agreements.  Since
1993, fares from all companies selling international flights originating in
Brazil were required to exceed a floor.  On April 22, 2009, ANAC approved a
gradual phasing out of the floor (for flights to destination other than South
America) through discounts of up to 20% until July, 2009, 50% until October,
2009, and 80% until April, 2010, when the phase‐out will end.  For
international flights with destinations to South America, the floor was removed
in September 2008. Civil
liability The Brazilian
Aeronautical Code and the Montreal Convention of 1999 limit an aircraft
operator's liability for damage to third parties caused by ground or air
operations, or for damage resulting from persons or objects being thrown from
aircraft.  The Brazilian National Congress approved the Montreal Convention
of 1999 by means of Legislative Decree No. 59 of April 18, 2006 and Decree
No. 5,910 of September 27, 2006.  The Montreal Convention replaced the
Warsaw Convention of 1929 and will have the effect of increasing the liability
limits for civil aircraft operators.  The Brazilian courts, however, have
occasionally disregarded the liability limits set forth in both the Warsaw
Convention of 1929 and its successor, the Montreal Convention of 1999, and have
granted compensation based on the Civil Code and Consumer Defense Code (which do
not expressly set out maximum liability limits). In response to
the substantial increase in insurance premiums to cover damage from terrorist
attacks after the September 11, 2001 attacks in the United States, the Brazilian
government introduced a law authorizing it to assume responsibility for damage
caused to third parties as a result of terrorist attacks or acts of war against
aircraft pertaining to Brazilian airlines.  See "Item 4.  Information
on the Company  B.  Business Overview  Insurance." Environmental
legislation and regulations Brazilian
airlines are subject to various federal, state and municipal environmental
protection laws, including those relating to the disposal of materials and
chemical substances and noise pollution generated by aircraft.  These laws
and regulations are applied by the state and municipal governmental authorities,
which can impose administrative sanctions following violations, in addition to
liability in the civil and criminal courts for any party violating the laws and
regulations.  For example, according to a ANAC ordinance, the operation of
scheduled commercial flights departing from or arriving at Congonhas Airport is
subject to a noise ban from 11:00 P.M. to 6:00 A.M.  because of the
airport's proximity to residential areas in the city of São Paulo. Restrictions
against the ownership of shares in airlines operating under
concessions The Brazilian
Aeronautical Code provides that, in order to be entitled to a concession to
operate scheduled service, and subject to the carve‐outs described below, 80% of
an airline's voting capital must be held directly or indirectly by Brazilian
citizens and certain management positions must be held only by Brazilian
citizens. The Brazilian
Aeronautical Code sets out certain restrictions against transferring the capital
of scheduled airlines operating under concessions (such as our subsidiary, TAM
Linhas Aéreas) including the following restrictions: ·shares with voting rights must be registered, and
the company's by‐laws must prohibit the conversion of preferred shares with no
voting rights into shares with voting rights; ·ANAC's prior approval of any share transfer,
regardless of the investor's nationality, which would result in (i) a change in
the company's control, (ii) the concessionaire's ownership of more than 10% of
the company's capital, or (iii) a transfer of more than 2% of the company's
capital stock; ·the
company must submit to ANAC in the first month of each six‐month period a
detailed chart of shareholder participation, including a list of shareholders
and a list of all share transfers that occurred during the six‐month period;
and - 47
      -


---



Table of Contents

·based on the information in the chart described
above, ANAC may determine that subsequent transfers must be subject to its prior
approval. Our corporate
purpose is the management of corporate participation in airlines.  We hold
shares representing the shareholding control of TAM Linhas Aéreas, which, in
turn, is a company operating under a concession for the operation of scheduled
air transportation services.  The Brazilian Civil Aviation code provides
that the restrictions against share transfers described above apply only to
companies operating under concessions for the operation of scheduled air
transportation service and, accordingly, do not apply to us. Future
legislation On
March 28, 2001, CONAC published for public consultation a draft of a bill
to replace the Brazilian Aeronautical Code and modernize the basic laws and
regulations relating to the industry.  In general, this draft deals with
matters related to civil aviation, including airport concessions, consumer
protection, increased foreign shareholding participation in airlines, limitation
of airlines' civil liability, compulsory insurance and fines.  However, at
the date of this annual report there are no relevant discussions or developments
in respect of this draft bill. Federal
intervention The executive
branch of the government may intervene in Brazilian civil aviation companies
whenever their operations or financial situations jeopardize the continuation,
efficiency and safety of Brazilian air transportation services.  The
purpose of federal intervention is to re‐establish normal service by the company
and the intervention may last as long as necessary to achieve this purpose,
though it may not exceed a period of two years.  In the event that a
technical inspection conducted before or after the decree of federal
intervention demonstrates that the re‐establishment of normal service would be
impractical, the federal intervention can be converted to extra‐judicial
liquidation, provided at least half the company's debts can be liquidated by
means of a sale of its assets.  In the event that the company's assets are
not sufficient to pay at least half of the company's debts (or in the event that
there is evidence of fraud), the federal intervention or extra‐judicial
liquidation must be converted to bankruptcy. New bankruptcy
law On February 9,
2005, the President of Brazil sanctioned the New Bankruptcy Law.  The New
Bankruptcy Law became effective on June 9, 2005 and replaced the current
bankruptcy law (Decree‐Law No. 7,661/45), and introduced significant
innovations in the Brazilian bankruptcy system.  In general, the New
Bankruptcy Law creates new processes of extra‐judicial recovery and judicial
recovery (the latter being a replacement for current bankruptcy protection) and
introduces other relevant changes in the bankruptcy process.  Business
owners and business partnerships are subject to the New Bankruptcy Law,
including those whose purpose is to operate air services or aviation
infrastructure of any kind, and those who are currently prevented from filing
for bankruptcy protection. Through the
extra‐judicial recovery process, a debtor may ask the judiciary to approve
agreements with one or more classifications of creditors or with groups of
creditors of the same classification with similar payment terms.  The plan
may not include credits of a labor or tax nature or those derived from future
exchange contracts, leasing agreements or fiduciary agreements.  Once
approved, the plan will apply to all creditors who adhered to it and will be
binding on all creditors included in its scope, even those who did not sign the
plan, provided that the debtor obtained the approval of at least three‐fifths of
the creditors of each class of creditors. The judicial
recovery process consists of judicial action intended to remedy the debtor's
financial problems and enable it to continue its operations (provided that the
economic feasibility of continuing operations can be proven).  Unlike the
current Brazilian bankruptcy protection system, which merely covers
unauthenticated credits, the judicial recovery process obliges all prior
creditors to go to court to recover credits, including labor creditors, except
credits of a labor or tax nature or those derived from future exchange
contracts, leasing agreements or fiduciary agreements.  The recovery plan
submitted by the debtor must present a proposal for the payment of debts,
indicating the means of recovery to be utilized.  In the event that a
creditor objects to the plan proposed by the debtor, the judge must call a
meeting of the creditors to decide whether to accept or refuse the plan. 
In the case of refusal, the judge must declare the debtor bankrupt.  In the
case of acceptance and subsequent granting of judicial recovery, the original
obligations of the debtor will be novated. - 48
      -


---



Table of Contents

The principal
innovations introduced by the New Bankruptcy Law include (i) the requirement of
a minimum amount of credit necessary for the creditor to request the debtor's
bankruptcy; (ii) elimination of suspensive bankruptcy protection, (iii) the
possibility of a rapid sale of assets (with priority given to sales of blocks of
assets), and (iv) an alteration in the order of credit
classification. In the case of
judicial recovery and bankruptcy of airlines, the exercise of rights derived
from commercial aircraft leasing agreements (or parts thereof) will not be
suspended. C.          
Organizational Structure We currently
have 150,585,147 shares, divided into 50,195,049 common shares and 100,390,098
preferred shares.  TAM's main shareholders are TAM Empreendimentos e
Participações S.A. (TEP) and Agropecuária Nova Fronteira Ltda., which hold
46.25% of the capital stock of TAM and which belong to the Amaro family. 
See "Item 17  Related Shareholders and Transactions." We have a
53.75% free float.  The organization chart below summarizes TAM's ownership
structure.  The following organizational chart sets out, in summary form,
our shareholder structure and subsidiaries at the date of this annual
report:  TAM S.A. ("TAM"
or "Company") is a joint stock company incorporated on May 12, 1997, whose main
corporate purpose is holding direct ownership interests in the capital of
companies in the air transportation industry.  The Company holds ownership
interests in: ·TAM
Linhas Aéreas S.A. ("TLA"), a passenger and cargo transport company with routes
in Brazil and internationally; ·Loyalty Program; ·MRO ·TAM
Cargo ·Transportes Aéreos del Mercosur S.A. ("Mercosur"),
an airline headquartered in Asunción, Paraguay, which operates in Paraguay,
Argentina, Brazil, Chile, Uruguay and Bolivia. - 49
      -


---



Table of Contents

·TP
Participações Ltda. ("TP Participações"), whose corporate purpose is holding
ownership interests in other companies, but which has remained inactive since
its inception. In April 2007,
two wholly‐owned finance subsidiaries of TLA were incorporated TAM Capital Inc.
("TAM Capital") and TAM Financial Services 1 Limited ("TAM Financial 1"), and in
October, 2007 TAM Financial Services 2 Limited ("TAM Financial 2") was
incorporated, both being headquartered in the Cayman Islands, whose activities
are related to the purchase and financing of aircraft.  Debt issued by
these wholly‐owned companies is wholly and unconditionally guaranteed by
TAM. TLA consolidates
financial results of TAM Viagens, whose corporate purpose is to provide travel
and tourism activities. D.          
Property, Plant and Equipment In 2001, we
inaugurated our maintenance center in São Carlos, in the interior of the state
of São Paulo, which occupies an area of approximately 4.6 million square meters,
with 50,000 square meters of building area.  At this center, we perform
maintenance on aircraft and components of TAM as well as other Latin American
airlines. The TAM Service
Academy is located in an eight‐story building in São Paulo (close to Congonhas
Airport) and covers an area of 12,000 square meters.  The TAM Service
Academy is the largest and most modern aviation training center in Latin America
and is dedicated to training pilots, flight attendants, customer service and
administrative staff.  The TAM Service Academy has the capacity to
accommodate over 750 persons for training each day. We have entered
into concession agreements with management of different airports for the use of
areas to provide services in passenger terminals, including check‐in halls,
passenger sales areas in airports and operational support areas.  These
agreements provide for periodic adjustments in the renewal conditions and
amounts paid for the concessions.  We also have a concession for the use of
hangars and cargo terminals in airports throughout Brazil. ITEM 4A.  UNRESOLVED STAFF
COMMENTS None. ITEM 5.  OPERATING AND FINANCIAL REVIEW AND
PROSPECTS The following
discussion should be read in conjunction with our consolidated annual financial
statements and the notes thereto, which are included elsewhere in this annual
report and have been prepared in accordance with IFRS.  See "Presentation
of Financial and Other Data" for a discussion of our adoption of IFRS as of and
for the year ended December 31, 2008. A.  Operating Results Principal
Factors Affecting Our Financial Condition and Results of
Operations Brazilian
macroeconomic conditions Our revenues and
profitability are affected by conditions in the Brazilian economy in
general. According to
ANAC, growth in the Brazilian civil aviation market showed a close correlation
with growth in Brazilian GDP.  In terms of RPKs, the Brazilian domestic
flight market increased 19.4% in 2005, 12.3% in 2006, 11.9% in 2007 and 7.4% in
2008.  We believe that Brazilian GDP is an important factor in determining
our capacity for future growth and our results of operations. Inflation levels
are now within the target range imposed by the Brazilian Central Bank on both a
current and a 12‐month basis.  The Central Bank has changed the base
interest rate several times in order to maintain inflation within the
target.  For the year ended December 31, 2007 the average base interest
rate was 11.9% and the GDP growth for that year was 5.4%.  For the year
ended December 31, 2008 the average base interest rate was 15.1% and the GDP
growth for that year was 5.1%. - 50
      -


---



Table of Contents

Effects of
exchange rate variations and inflation on our financial condition and results of
operations Our financial
condition and results of operations have been historically affected by
variations in exchange rates and the rate of Brazilian inflation.  Our
expenses (such as fuel expenses, lease obligations, aircraft insurance, engine
maintenance and related expenses) are principally denominated in U.S. dollars or
are linked to the U.S. dollar.  In 2008 and 2007, approximately 54% and
50%, respectively, of our operating expenses were either denominated in or
linked to the U.S. dollar.  By contrast, most of our revenues are received
inreais.  We are therefore
exposed to fluctuations in the U.S. dollar/realexchange
rate.  In 2008, 35% of our revenues were denominated in U.S. dollars,
compared to 32% in 2007.  We have a policy of hedging changes in fuel
prices by means of derivative transactions covering a minimum of 30% and a
maximum of 80% of our projected fuel consumption for up to a rolling 24‐month
period.  In addition, we have also a policy in respect of our exposure to
the depreciation of therealagainst the U.S. dollar,
to hedge covering 30 to 80% of the cash flow exposure for a period of 24
months. Inflation has
historically had an impact on our financial conditions and results of operations
and it continues to do so.  Our suppliers of services and certain products
related to our operating expenses generally utilize the IPCA index to adjust
their prices for inflation.  Approximately 46% and 50% of our operating
expenses were linked to inflation in 2008 and 2007 respectively.  A
substantial increase in inflation could adversely affect the levels of our
expenses. The table below
sets forth certain data relating to inflation, real GDP growth rates, thereal/U.S. dollar exchange rate
and oil prices for the periods indicated: Year Ended December
    31,2008
    2007
    2006Real growth in GDP
    5.1%
    5.4%
    3.7%Inflation (IGP‐M).
    9.8%
    7.7%
    3.8%Inflation (IPCA)
    5.9%
    4.5%
    3.1%DI
      Rate(1).
    15.1%
    11.92%
    15.23%LIBOR(2).
    1.43%
    4.70%
    5.36%Appreciation (depreciation) of the Brazilian
      real in relation to the dollar.
    (24.2)%
    17.2%
    9.5%Rate of exchange at end of period  U.S.$1.00
    R$     
      2.337
    R$     
      1.7713
    R$     
      2.1380Average exchange rate(3)  U.S.$1.00
    R$     
      1.83
    R$     
      1.9441
    R$     
      2.1761Increase in West Texas Intermediate oil price
      (per barrel)
    (53.5)%
    57.2%
    0.02%West Texas Intermediate oil (per barrel) (end
      of period)
    U.S.$ 44.60
    U.S.$ 95.98
    U.S.$ 61.05West Texas Intermediate oil (per barrel)
      (average price over period)
    U.S.$ 99.75
    U.S.$ 72.41
    U.S.$
66.07
    (1)       The DI Rate
corresponds to the average overnight interest rate for the interbank market in
Brazil (cumulative to the end of the monthly period, annualized). (2)       Quarterly
LIBOR for dollar deposits relative to last day of period. (3)       Represents
average daily exchange rates in period. Sources: 
Getúlio Vargas Foundation (Fundação Getúlio Vargas, or FGV), Brazilian Geography
and Statistics Institute (Instituto Brasileiro de Geografia e Estatística, or
IBGE), Central Bank and Bloomberg. Role of
ANAC ANAC can
influence our capacity for growth and our ability to generate future
revenues.  ANAC has the authority to grant Brazilian airlines the right to
operate new domestic routes, increase the frequency of flights serving existing
routes, award slots, purchase or lease aircraft and approve the entry of new
companies into the domestic civil aviation market. Revenues Our revenues
arise principally from passenger transportation.  In the years ended
December 31, 2008 and December 31, 2007, our operating revenues were derived
from the following sources: ·82.3% and 83.5%, respectively, from passenger
transportation service; ·9.2% and 9.3%, respectively, from cargo service;
and ·8.5% and 7.2%, respectively, from services and
maintenance of aircraft operated by other airlines, receipt of fines and fees in
relation to re‐pricing of air fares and sub‐leasing, together with revenue from credit card
companies that purchase TAM Loyalty Program points to pass on to their
customers. - 51
      -


---



Table of Contents

Revenue from
passenger transportation is driven by the number of paying passengers we
transport, measured in revenue passenger kilometers, or RPKs, and the price
those passengers pay, measured in thecentavosprice paid for
each RPK, or yield.  RPKs increase either as a function of increased
capacity, measured in ASKs, or an increase in load factor, measured as increased
RPK in relation to available ASKs. Our competitors'
activities, such as the reduction in the number of flights operated by Varig
throughout the year can also present market opportunities to generate
revenue.  New airlines entering the market and the ticket pricing policies
employed by our competitors can also affect our revenues.  Accordingly, we
are constantly evaluating the number of flights we offer and the size of our
fleet. We have
succeeded in increasing our revenue in the past three years by better utilizing
our fleet and optimizing our network of destinations, thus increasing ASKs in
the last three years and load without increasing the size of our fleet.  In
addition, in 2005 to 2007, the airline industry in Brazil has experienced an
increase in demand as a result of the increase in Brazilian GDP, reduced fares
and increased capacity as measured by Brazilian domestic ASKs.  We have
been able to capture a significant share of that increase in demand. The following
table sets forth our supply and demand, load factor and scheduled domestic yield
for the periods indicated: Year Ended December
    31,2008
    2007
    2006ASKs
      (millions).
    57,091
    47,599
    35,564RPKs
      (millions).
    40,518
    33,500
    25,022Load
      factor
    71.0%
    70.4%
    73.9%Scheduled domestic yield in centavos
    26.71
    23.42
    29.05Scheduled international yield in centavos
    16.86
    17.66
    21.28
  We use RASK
(revenue per ASK) as one of our key performance indicators because we believe it
enables us to evaluate the balance between load factor and yield and thereby
allows us formulate our strategy regarding pricing more accurately. Sales taxes and
other deductions We deduct the
following taxes and tariffs: PIS and
COFINS ThePrograma de Integração Social(Social
Integration Program, or PIS) and theContribuição para o
Financiamento de Seguridade Social(Contribution for the
Financing of Social Security, or COFINS) taxes are federal social contribution
taxes assessed on gross operating revenues.  In respect of passenger
transportation revenues, the applicable rates of PIS and COFINS are 0.65% and
3%, respectively.  In respect of cargo transportation and other revenues
(except financial income), the applicable rates of PIS and COFINS are 1.65% and
7.60%, respectively (increased from 0.65% and 3% respectively in January 2003
and February 2004).  International revenues are exempt from PIS and
COFINS. Separately, TAM
Mercosur is required to pay 1% of its revenues arising from on‐line ticket sales
and cargo sales under a Paraguayan tax referred to as the "assumed income"
tax. ICMS TheImposto sobre Operações Relativas à Circulação de
Mercadorias e sobreServiços de Transporte Interestadual e
Intermunicipal e de Comunicação, aindaque as Operações se Iniciem
no Exterior(Tax on the Circulation of Merchandise and
Services, or ICMS) is a value‐added state tax on gross operating revenues from
the transportation of cargo.  ICMS is charged for each stage in the chain
of production and sale of products, at rates varying from 4% to 12% (depending
on the product and the state where the service is rendered). - 52
      -


---



Table of Contents

ISS TheImposto Sobre Serviços(Tax on Services, or ISS)
is a municipal tax assessed at rates varying from 2 to 5% of our gross operating
service revenues.  We are required to pay ISS. Tariff
surcharge We are subject
to a specific civil aviation industry contribution, referred to as a "tariff
surcharge" that the government collects (but for which we have only made
provisions, and not paid, since 2001) monthly at the rate of 1.0% of our
domestic revenues.  We have filed an injunction to suspend our obligation
to pay this tariff surcharge. Operating
expenses The principal
components of our operating expenses include fuel, selling and marketing,
leasing of aircraft, engine and equipment, personnel, maintenance, services
rendered by third parties, take‐off, landing and navigational aid charges,
depreciation and amortization, aircraft insurance and other expenses. Fuel expenses
vary depending on the international petroleum market and the size and
utilization of our fleet.  From January 1, 2003 to December 31, 2007, the
price of West Texas Intermediate oil, the reference price used internationally
to price oil, quoted in dollars, increased 201.4%, from U.S.$31.85 per barrel to
U.S.$95.98 per barrel.  From January 1, 2008 to December 31, 2008, the
price of West Texas Intermediate oil, the reference price used internationally
to price oil, quoted in dollars, decreased 53.5% from U.S.$95.98 per barrel to
U.S.$44.60 per barrel, but increased up to U.S.$150 during the year.  As a
result of the fact that the price of oil is quoted in U.S. dollars, our fuel
expenses are also affected by exchange rate variations.  In past years, we
have succeeded in passing on the increase in fuel prices and exchange rate
variations to passengers by increasing our ticket prices, albeit with a delay of
several months.  However, prevailing market conditions may lead to our
having greater difficulties in adjusting our prices.  We have entered into
derivative transactions to hedge against certain oil price and exchange rate
variations.  See "Item 11.  Quantitative and Qualitative Disclosures
About Market Risk." We have also
implemented a fuel tanker program, to reduce expenses by obtaining fuel at lower
prices at certain airport destinations.  In the case of domestic
destinations, the price variances arise principally because different states in
Brazil apply different rates of value‐added tax to fuel (which is not passed on
to end consumers).  In the case of international destinations, the price
variances reflect movements in the cost of oil on the international petroleum
markets (which is itself driven by international commodity price variances),
logistic costs and airport taxes on fuel.  In both cases, we believe that
the factors highlighted will continue to drive fuel price variances in the
future and, accordingly, that the fuel tanker program will continue to reduce
expenses. Our fuel tanker
policy operates as follows:  if the airport of origin has fuel available at
a lower price than at the airport where the flight is traveling, we purchase
more fuel at the point of origin, minimizing uplift at the airports where fuel
is more expensive.  Before making a decision as to whether we proceed with
fuel tanker on a given flight, we also factor in the increased fuel expenses
that arise as a result of the additional weight that an aircraft carrying
additional fuel must fly with.  Our systems allow us to calculate the
reduction in expenses on a daily basis. The principal
components of our selling and marketing expenses are:  commission for
travel and cargo agents, as compensation for the sale of tickets, and cargo
shipping (paid directly to the relevant agencies); and other selling and
marketing expenses, principally credit card administration fees. The expenses
incurred in the leasing of aircraft engine and equipment are denominated in
foreign currencies and increase in proportion to the size of our fleet. 
These expenses are affected by variations in the exchange rate and in
LIBOR.  See "Item 11.  Quantitative and Qualitative Disclosures About
Market Risk." Personnel
expenses vary with the number of employees, our salary policy, collective
bargaining agreements and profit‐sharing programs, as well as the number of
hours flown by all crew members.  The base date relating to renegotiations
of the collective bargaining agreements with our employees is December of each
year.  Accordingly, any salary adjustments will be almost completely
reflected in the following year. - 53
      -


---



Table of Contents

Maintenance and
repairs expenses consist of corrective and preventive work performed on our
aircraft and flight equipment and include spare parts for aircraft, which are
posted in the accounts as operating expenses as such parts are utilized. 
Maintenance expenses vary according to the level of utilization of the
fleet. Expenses
relating to third party services include airport ground‐support services, GDS
(or Global Distribution System, an electronic passenger distribution system)
expenses and airport‐utilization concession expenses.  Third‐party expenses
vary mainly according to the volume of our operations.  Since
implementation of thee‐TAM portal in September
2004, our GDS utilization expenses have been substantially reduced in relation
to domestic reservations.  At December 31, 2008, domestic reservations made
via thee‐TAM portal accounted for
approximately 95.1% of all domestic reservations, compared to approximately
94.9% at December 31, 2007. Take‐off,
landing and navigational aid charges include aircraft parking and overflight
fees and vary according to the volume of our operations and airfare adjustments
established by the Brazilian Federal Airport Infrastructure Company, or
INFRAERO, state and international authorities.  These expenses are also
affected by variations in the exchange rate because international tariffs are
charged in foreign currencies. Depreciation and
amortization expenses principally relate to aircraft, engines, systems and spare
parts and vary depending on the useful life of these components. Aircraft
insurance expenses increase in proportion to the size of our fleet, the number
of passengers we transport and the number of landings we perform (in addition to
the classification of our fleet risk by our insurers).  These expenses are
also affected by variations in the exchange rate, because we purchase insurance
in foreign currency.  Our operating and finance lease agreements require us
to keep the relevant aircraft insured. Other expenses
include those relating to the provision of in‐flight services, which vary
principally as a function of the volume of passengers we carry on domestic and
international flights, and general administrative expenses. Movements in
fair value of fuel derivatives In this line the
changes in the fair value of fuel derivative instruments are recognized. 
While we use derivatives to mitigate the economic effects of international
petroleum prices, we do not apply hedge accounting. Gains / (losses)
on revaluation of aircraft recognized in the income statement In this
line the changes in the fair value of flight equipment are recognized.  The
valuations are based on observable market prices for flight equipment and
audited on an annual basis. Net finance
results Our finance
costs are mainly impacted by the exchange rate variation as most of our
liabilities is in foreign currency.  The interest expense, another
component of the financial expenses, increase according to our outstanding
liabilities.  TheContribuição Provisória sobre Movimentação ou
Transmissão de Valores ede Créditos e Direitos de Natureza Financeira(Provisional Contribution to the Movement or
Transfer of Securities and Financial Credits and Rights, or CPMF) included in
our financial expenses was a 0.38% federal tax levied on every debit transaction
occurring in a bank account.  However, as of January 1, 2008, CPMF was no
longer in force, as the Brazilian Senate did not approve the Constitutional
Amendment which would extend the term of CPMF collection.  Therefore, CPMF
should not be levied on any debit to bank accounts carried out after such
date. Taxes IRPJ and
CSLL We are subject
to theImposto de Renda Pessoa Jurídica(Income Tax, or
IRPJ) and theContribuição Social Sobre Lucro Líquido(Social Contribution on Net Income, or CSLL), which
together can require us to pay up to 34% of our adjusted net income (referred to
as real income).  These taxes are divided up as follows (i) applicable
income tax of 15%, (ii) additional income tax of 10% (applicable to that portion
of our results that exceeds R$240,000 per year), and (iii) CSLL, which requires
that we pay 9% of our taxable income. - 54
      -


---



Table of Contents

Minority
Interests The government
of Paraguay holds a 5.02% equity interest in TAM Mercosur's capital stock. 
TAM Mercosur was acquired by us in September 2003.  The amounts
corresponding to the minority interest held by the Paraguayan government vary as
a function of TAM Mercosur's results. Critical
Accounting Estimates and Judgments Estimates and
judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances.  Accounting estimates will, by
definition, seldom equal the related actual results.  The estimates and
assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are
discussed below. Revenue
recognition Tickets that are
sold are posted under advance ticket sales, in current liabilities, due to our
obligation to transport passengers.  Flight revenue (passenger and cargo
transportation) is recognized when the transportation services are effectively
rendered.  Other revenue is recognized for tickets unused within 12 months
of the original scheduled travel date.  These tickets are cancelled in
accordance with IATA regulations and revenue is recognized at that
point. Revenue in
respect to TAM Loyalty Program  frequent flyer program  is deferred based on
the estimated fair value of the points awarded to passengers.  The fair
value is determined based on a weighted average of the value of points sold to
commercial partners, and the value of free tickets awarded to passengers. 
Revenue deferral also depends on the number of points estimated to be forfeited
when they expire after two years, and this is based on historical forfeiture
rates. Deferred
taxes TAM recognizes
deferred income tax assets and liabilities based on the differences between the
carrying amounts shown in the financial statements and the tax basis of the
assets and liabilities, using prevailing tax rates.  TAM regularly reviews
deferred tax assets for recoverability, taking into account historical income
generated and projected future taxable income based on a study of technical
viability.  The accounting losses recognized in 2008 relate in large part
to fair value movements of the WTI (West Texas Intermediate crude oil)
derivatives due to the decrease in the cost of fuel during the year. Provisions TAM is currently
involved in various judicial and administrative proceedings.  Provisions
are recognized for all contingencies in judicial proceedings that represent
probable losses.  In evaluating the probability of loss is evaluated based
on the available evidence, including the views of internal and external legal
counsel.  TAM believes that these contingencies are properly recognized in
the financial statements. Financial
instruments used to mitigate the risks of variations in jet fuel
prices TAM records the
financial instruments used to mitigate the risks of variations in jet fuel
prices at their fair market value based on market quotations for similar
instruments.  Derivative financial instruments are used in order to
mitigate the risk against variations in fuel prices. TAM does not
apply hedge accounting to its derivatives.  If TAM were to apply hedge
accounting, it would affect the timing of recognition of gains and losses in the
income statement, but would not affect the underlying economic effects of the
derivative contracts. Carrying value
of flight equipment TAM's flight
equipment is included in the financial statements at fair value based on
valuations.  The valuations are based on observable market
prices. - 55
      -


---



Table of Contents

The carrying
value is further affected by the aircraft and engines' estimated useful economic
lives, which is based on expected usage and current technology and environmental
regulations. The figures set
forth in the tables below are expressed in both millions ofreaisandcentavosand have been
subject to rounding adjustments.  Accordingly, additions or divisions of
certain figures may not be an arithmetic aggregation of the totals and the
actual sum of percentage variations may differ from those indicated. Year ended
December 31, 2008 compared to year ended December 31, 2007 Year ended December
    31,% Net Operational
    IncomeIFRS
    2008
    2007
    Variation (%)
    2008
    2007
    Variation (%)
    2008(in cents of R$ per ASK)
    (in millions of R$)Domestic.
    10.79
    10.16
    6.2
    6,162.5
    4,833.9
    27.5
    58.6International.
    4.94
    4.47
    10.5
    2,822.6
    2,129.7
    32.5
    26.8Cargo.
    1.77
    1.63
    8.6
    1,009.1
    776.8
    29.9
    9.6Other.
    1.62
    1.23
    31.7
    926.0
    587.6
    57.6
    8.9Sales
      taxes and other deductions
    (0.71)
    (0.65)
    9.2
    (407.1)
    (309.3)
    31.6
    (3.9)Revenue
    18.41
    16.85
    9.3
    10,513.1
    8,018.7
    31.1
    100.0Operating expensesFuel.
    (6.88)
    (5.33)
    29.1
    (3,927.9)
    (2,536.4)
    54.9
    (37.4)Selling and marketing
    (1.73)
    (2.05)
    (15.6)
    (988.6)
    (975.1)
    1.4
    (9.4)Leasing of aircraft, engine and equipment.
    (0.78)
    (1.05)
    (25.7)
    (443.4)
    (501.1)
    (11.5)
    (4.2)Personnel.
    (3.12)
    (2.75)
    13.5
    (1,782.0)
    (1,309.7)
    36.1
    (17.0)Maintenance and repairs (except personnel).
    (0.91)
    (0.94)
    (3.2)
    (518.3)
    (445.8)
    16.3
    (4.9)Third
      party services
    (1.23)
    (1.15)
    7.0
    (701.8)
    (549.0)
    27.8
    (6.7)Take‐off, landing and navigation aid charges
    (0.87)
    (0.88)
    (1.1)
    (495.4)
    (421.0)
    17.7
    (4.7)Depreciation and amortization.
    (0.81)
    (0.52)
    55.8
    (460.7)
    (249.5)
    84.7
    (4.4)Aircraft insurance.
    (0.08)
    (0.07)
    14.3
    (47.8)
    (33.6)
    42.3
    (0.5)Other.
    (1.03)
    (1.42)
    (27.5)
    (588.1)
    (677.3)
    (13.2)
    (5.6)Total operating expenses.
    (17.44)
    (16.17)
    7.9
    (9,954.1)
    (7,698.5)
    29.3
    (94.7)Operating profit before movements in fair
      value of fuel derivatives and revaluation of aircraft
    0.98
    0.67
    46.3
    558.9
    320.3
    74.5
    5.3Movements in fair value of fuel derivatives.
    (2.23)
    0.27
    N.A.
    (1,273.5)
    130.4
    (1076.6)
    (12.1)Gains/(losses) on revaluation of aircraft
      recognized in the income statement.
    0.42
    (0.47)
    N.A.
    242.4
    (224.7)
    N.A.
    2.3Operating (loss)/profit.
    (0.83)
    0.47
    N.A.
    (472.2)
    226.1
    N.A.
    (4.5)Finance income
    2.47
    2.12
    16.5
    1,410.4
    1,006.9
    40.1
    13.4Finance costs
    (5.27)
    (1.59)
    231.4
    (3,006.2)
    (755.2)
    298.1
    (28.6)(Loss) / profit before income and social
      contribution.
    (3.62)
    1.00
    N.A.
    (2,068.0)
    477.7
    N.A.
    (19.7)Income tax and social contribution.
    1.11
    (0.31)
    N.A.
    634.2
    (145.9)
    N.A.
    6.0(Loss) / profit after tax (all continuing
      operations).
    (2.51)
    0.70
    N.A.
    (1,433.8)
    331.8
    N.A.
    (13.6)Attributable to Minority interest.
    0.00
    0.00
    N.A.
    0.9
    0.2
    350.0
    0.0Equity holders of TAM.
    (2.51)
    0.70
    N.A.
    (1,434.6)
    331.6
    N.A.
    0.0
  Domestic Domestic
passenger business increased by 28% to R$6,163 million in 2008, compared to
R$4,834 million in 2007.  A 15% increase in availability of ASKs, compared
to only an 11% increase in demand for our domestic flights, as measured in RPKs,
resulted in a 2.3 percentage point decrease in our domestic load factor, from
70.3% in 2007 to 68.1% in 2008.  This increase in demand was combined with
a 14% increase in our scheduled domestic yield to 26.71centavosin 2008 from 23.42centavosin 2007, due to
less intense price competition in the domestic market. International International
passenger business increased by 33% to R$2,823 million in 2008, compared to
R$2,130 million in 2007.  This was caused by a 29% increase in
availability of ASKs and a 38% increase in demand for our international flights,
as measured by RPKs.  This increase in RPKs was a result of our aggressive
expansion taking advantage of the market opportunities resulting from the
significant decrease in international operations by our main Brazilian
competitor.  This increase was partially offset by a decrease in our
scheduled international yield, which decreased 5% percentage point to 16.86centavosin 2008 from 17.66centavosin 2007, offset by a 5%
increase in our international load factor, which increased from 70.5% in 2007 to
75.5% in 2008.  Expressed in U.S. dollars, our scheduled international
yield decreased by 24.3% from 9.52 cents in 2007 to 7.21 cents in
2008. - 56
      -


---



Table of Contents

Cargo Cargo business
increased by 30% to R$1,009 million in 2008, compared to R$777 million in 2007,
due to the increase in cargo capacity as a result of the increase in
international destinations in our network and more availability of capacity for
cargo due to the addition of Boeing 777 type equipment to our fleet, which has
large belly‐space for cargo. Other Other business
increased by 58% to R$926 million in 2008, compared to R$588 million in 2007,
primarily due to an increase in income from our TAM Loyalty Program net of
revenue deferred. Revenue Our revenue
increased by 31% to R$10,513 million in 2008, compared to R$8,019 million in
2007 due to a 28% increase in passenger revenues, to a 30% increase in cargo
revenues and a 54% increase in other operating revenues.  The total RASK
increased by 9% to R$18.41 in 2008, as a result of a combination of the decrease
in load factor and an increase in yields.  Our scheduled domestic RASK
increased 10% to R$17.08 in 2008 from R$15.51 in 2006.  Our scheduled
international RASK increased by 6%, from R$12.44 in 2007 to R$13.13 in
2008. Sales taxes and
other deductions Sales taxes and
other deductions increased by 32% to R$407 million in 2008, compared to R$309
million in 2007, due to the increase in the revenues that are the basis for tax
calculation. Operating
expenses Our operating
expenses increased by 29% to R$9,954 million in 2008, compared to R$7,698
million in 2007.  This increase is primarily due to an increase in expenses
from fuel, aircraft insurance, personnel, depreciation and amortization and
third party services as further described below.  Our operating expenses
per ASK (CASK) increased by 8% from R$16.17 in 2007 to R$17.44 in 2008,
primarily due to an increase in expenses for fuel, aircraft insurance,
personnel, depreciation and amortization and third party services and the 24%
depreciation of therealagainst the U.S. dollar
during that period, the effect of which was an approximate increase of R$1,348
million in expenses. Fuel expenses
increased by 55% to R$3,928 million in 2008 compared to R$2,536 million in 2007,
due to the depreciation of therealagainst the
U.S. dollar, the effect of which was an approximate increase of
R$951.3 million in expenses and an increase by 18% in our fuel consumption
due to an increase in take‐offs and capacity.  Oil prices, despite of the
fact that they decreased 54% in the year, remained at very high levels until the
third quarter, therefore also negatively impacting our fuel expenses.  The
average fuel price over the year increased by 38% from U.S.$71.42 to U.S.$99.75
per barrel. Selling and
marketing expenses increased by 1% to R$989 million in 2008 compared to R$975
million in 2007.  This increase primarily resulted from increased revenues
derived from increased sales in the international market (from both passengers
and cargo).  As a result of this increase in sales, we incurred higher
costs for commissions paid to travel agencies in the international market, which
is dollar denominated.  The effect of the depreciation of therealagainst the U.S. dollar of
24% was an expense of R$ 62 million.  This was partially offset by a
reduction in the levels of commissions we paid in the domestic market as a
result of revisions to our commercial policy for dealing with domestic travel
agencies.  Selling and marketing expenses represented 9.4% of our total net
revenue in 2008 compared to 12.2% in 2007, a reduction of 2.8 percentage
points. Leasing of
aircraft, engine and equipment expenses decreased by 12% to R$443 million in
2008, compared to R$501 million in 2007, primarily due to our fleet under
operating leases decreasing from 68 to 65 aircraft and a decrease in the
LIBOR.  The decrease in aircraft and flight equipment lease expenses was
partially offset by a 24% depreciation of therealagainst the U.S.
dollar which impacted us because our aircraft lease agreements are denominated
in U.S. dollars, the effect of which was an increase of R$107 million. 
Leasing of aircraft, engine and equipment expenses per ASK decreased by
26%. - 57
      -


---



Table of Contents

Personnel
expenses increased by 36% to R$1,782 million in 2008, compared to R$1,310
million in 2007, primarily due to an increase in the number of employees by 19 %
to 24,389 mainly due to the addition of new types of aircraft in our fleet that
require dedicated crew and technical resources.  Personnel expenses per ASK
increased by 14%. Maintenance and
repairs (except personnel) expenses increased by 16% to R$518 million in 2008,
compared to R$446 million in 2007, primarily due to an increase of 13% in our
total flown hours, an increase in our fleet of 14 additional aircraft, and by
the 24% depreciation of therealagainst the U.S. dollar in
this period, the effect of which was an approximate increase of R$114 million in
expenses.  Maintenance and repairs per ASK decreased by 3% Third party
services expenses increased by 28% to R$702 million in 2008, compared to R$549
million in 2007, primarily due to the increase in distribution costs from
international operations (the majority of which are reservation and ticketing
costs and third party airport costs) and the depreciation of therealagainst the U.S. dollar in the period by 24%, the
effect of which was an approximate increase of R$63 million in expenses. 
Third party services per ASK increased by 7%. Take‐off,
landing and navigation charges increased by 18% to R$495 million in 2008,
compared to R$421 million in 2007, primarily due to the 5% increase in the
number of take‐offs and the 13% increase in kilometers flown per aircraft mainly
in international flights, which are more expensive in domestic flights and were
impacted by a 24% depreciation of therealagainst the
U.S. dollar, the effect of which was an approximate increase of
R$39 million in expenses.  Take‐off, landing and navigation charges
per ASK decreased by 1%. Depreciation and
amortization expenses increased by 85% to R$461 million in 2008, compared to
R$250 million in 2007, primarily due to new additions of ground equipment,
aircraft and intangible assets to our fixed assets in the amount of R$770
million, as a result of the growth in our fleet and operations during the
period.  Expenses from depreciation and amortization per ASK increased by
56%. Aircraft
insurance expenses increased by 41% to R$48 million in 2008, compared to R$34
million in 2007, primarily due to a net increase inreal‐denominated
insurance premiums caused by a 24% depreciation of therealagainst the U.S. dollar
over the period, which caused an approximate increase of R$12 million in
expenses, and an increase in transported passengers of 8% in 2008. Other expenses
decreased by 13% to R$588 in 2008, compared to R$677 million in 2007, primarily
due to the expenses incurred in the year 2007 due to the phase out of our Fokker
100 aircraft.  This decrease was partially offset by a 8% growth in our
transported passengers in the period.  Other operating expenses per ASK
decreased by 28%. In line with our
strategy of increasing productivity, our intention is to offset fixed expenses
through more efficient use of aircraft, and redesign of internal processes (an
example of which we integrated the management of TAM Mercosur with our central
management in Brazil) in order to achieve a resulting improved RASK minus CASK
spread.  In addition, future changes in commercial policies in the
international market should either decrease selling and marketing expenses or
increase the quality of our revenue stream.  We are still susceptible to
fluctuations in fuel prices, which remain the key challenge to sustaining and
improving our results in future.  In addition, recently there has been a
trend to U.S. dollars to change value against thereal.  In the
case the U.S. dollar strengthens against thereal,our results
would be negatively impacted. Movements in
fair value of fuel derivatives Fuel derivatives
gains (losses) was a loss of R$1,274 million in 2008, compared to a gain of
R$130 million in 2007, mainly due to the mark to market of our fuel derivative
positions at an oil price lower than the strike prices of our positions,
magnified by the depreciation of therealagainst the
U.S. Dollar towards the end of the year. Gains (losses)
on the revaluation of aircraft recognized in the income
statement At December 31,
2007 revaluations resulted in an expense of R$225 million for aircraft whose
revalued amount was lower than their cost.  At December 31, 2008 the
revaluations resulted in a gain being recognized in the income statement of R$242
million for aircraft for which revaluation decreases had previously been
recognized in the income statements. - 58
      -


---



Table of Contents

Net finance
income / (costs) Our net finance
income / (costs) was an expense of R$1,596 million in 2008, compared to income
of R$252 million in 2007, principally due to the increase in our debt, and
the 24% depreciation of therealagainst the U.S. dollar,
which generated financial losses related to our lease payment
obligations. Interest income
from financial investments decreased 27% to R$193 million in 2008, compared to
R$263 million in 2007, principally as a result of the reduction of our
financial investments.  As of December 31, 2008 our financial
investments amounted to R$1,242 million, compared to R$2,140 million as of
December 31, 2007. Exchange
variation was an expense of R$1,258 million in 2008, compared to a gain of R$393
million in 2007, principally due to an increase in thereal/U.S. dollar exchange rate
from R$1.7713 per U.S. dollar in 2007 to R$2.3370 per U.S. dollar on December
31, 2008.  This impacted us because at December 31, 2008 we had a liability
of R$8,856 million in respect of U.S.‐dollar prepayment obligations for new
aircraft, compared to R$4,338 million at December 31, 2007.  This was
partially offset by the effect of a R$667 million portion of our investments
being offshore. Interest
expenses increased 24% to R$582 million in 2008, compared to R$469 million in
2007, principally due to the increase in our debt as a result of an increase in
our fleet. Income tax and
social contributions Income tax and
social contributions increased to R$634 million in 2008, compared to a loss of
R$146 million in 2007, principally due to the fiscal benefit received as a
result of our payment of interest on our own capital in 2007.  Our
effective rate of income tax and social contributions was 30.5% in 2007,
compared to 30.7% in 2008. (Loss) / profit
after tax As a result of
the factors discussed above, principally due to a significant loss in our fuel
derivatives to R$1,434 million, we recorded a loss after tax (all continuing
operations) of R$1,392 million in 2008, compared to a profit of R$332 million in
2007.  In addition, we were adversely affected from the depreciation of therealagainst the dollar by 24%,
which impact was an approximate increase or R$1,247 million in our
costs. B.  Liquidity and Capital
Resources We believe that
our liquidity position exceeds the minimum required to sustain our business
adequately, and our working capital is sufficient for our present
requirements.  We also believe that additional sources of liquidity are
available to us, if they are needed, through bank facilities. We decreased our
current liquidity ratio by 33% between December 31, 2007 and December 31, 2008,
primarily due to the accounting of the mark to market of our derivative
instruments of fuel.  Our liquidity ratio is calculated by dividing current
assets by current liabilities. In order to
manage our liquidity, we take into account our cash and financial investments,
accounts receivable and short term borrowings.  Our accounts receivable are
affected by the timing of receipt of credit card revenues and of invoicing
travel agencies.  Customers purchasing tickets using credit cards have the
option of purchasing tickets and paying in installments, typically over a 70 day
period.  We do not take credit risk on customers' credit card receivables
because pursuant to the terms of the arrangements between the credit card
companies and us, the credit card companies are required to pay us based on the
customer's installments schedules (regardless of whether the customer had paid
the bank  the credit risk remains with the bank that issued the credit
card).  At the current terms and conditions of our arrangements with the
credit card companies, our accounts receivable are not materially impacted by
the timing of receipt of credit card revenues and of invoicing tourist
agencies.  At December 31, 2008, we had R$1,914 million in cash and cash
equivalents and financial investments and R$1,157 million in accounts receivable,
compared to R$2,607 million in cash and financial investments and R$938 million
in accounts receivable at December 31, 2007. - 59
      -


---



Table of Contents

At December 31,
2008, our current borrowings to finance our working capital needs totaled R$192
million.  Our current borrowings include the portion of our long‐term
borrowings (meaning borrowings that mature within twelve months of the balance
sheet date).  Of our borrowings, 85% is denominated in foreign currencies,
including our Import Financing (FINIMP) and financing of pre‐delivery
payments. At December 31,
2008 our Industrial Funding (FINEM) agreements were denominated inreaisand represented 13% of our
total borrowings.  At December 31, 2008 our Import Financing (FINIMP)
agreements represent 42% of our borrowings.  They are denominated in
dollars and bear interest at a fixed spread above LIBOR on an annual basis
only. Net cash
generated from operating activities Net cash
generated from our operating activities was R$ 1,543 million for the year ended
December 31, 2008, compared to R$ 373 million for the corresponding period in
2007.  Beginning with a net loss after tax (all continuing operations) of
R$ 1,392 million, and adjusting for non‐cash items, mainly the positive
adjustment for the fair value of derivatives of R$ 1,192 million and the
exchange rate impact on operating activities of R$ 1,664 million, in
addition to other non‐cash adjustments, our cash generated from operating
activities was R$ 1,427 million, adding and additional R$898 million in
cash increases due to a withdrawal of current financial assets that under IFRS
rules are not considered cash or cash equivalents, offset mainly by the increase
in trade and other receivables of R$217 million, the increase in other assets of
R$302 million and by the interest paid in the amount of R$ 304
million. Net cash used in
investing activities We invested
R$643 million in the year ended December 31, 2008, compared to R$438 million in
the corresponding period in 2007.  The cash invested in 2008 was mainly
used to purchase flight equipment and aircraft parts in R$637 million and
intangible assets in R$134 million. Net cash used in
financing activities Net cash used in
financing was R$694 million for the year ended December 31, 2008, compared to a
generation of R$233 million for 2007.  The net use in 2008 was mainly due
to our payment of finance leases in R$340 million due to the increase in our
fleet and the net repayment of borrowings of R$263 million. Sources of
financing We typically
finance our leased aircraft through operating lease financing.  Although we
believe that debt and/or operating lease financing should be available for our
future aircraft deliveries, we cannot assure you that we will be able to secure
financing on terms that are attractive to us, if at all.  To the extent
that we cannot secure financing, we may be required to modify our aircraft
acquisition plans or incur higher financing costs.  We expect to continue
to require working capital investment due to credit card receivables.  We
expect to meet our operating obligations as they become due through available
cash and internally generated funds, supplemented as necessary by short‐term
credit lines. Indebtedness At December 31,
2008, our total indebtedness was R$13,124 million, consisting of R$4,238 million
in short‐term debt (of which R$1,106 million deferred income, R$1,022 million
derivative financial instruments, R$968 million trade and other payables, R$910
million financial liabilities, R$149 million other current liabilities and R$83
million current income tax liabilities) and R$8,886 million in long‐term debt
(of which R$7,179 million was represented by financial liabilities, R$948
million from provisions, R$369 million was represented by deferred income, R$107
million was represented by derivative financial instruments, and R$283 million
was represented by other non current liabilities). - 60
      -


---



Table of Contents

We have three
FINIMP‐type lines of credit with financial institutions.  At December 31,
2008, the outstanding balance of our FINIMP‐type contracts was R$167 million
with guarantees of promissory notes in the amount of U.S.$23.6
million. We have finance
lease agreements for the leasing of aircraft, engines and computer
equipment.  At December 31, 2008, the outstanding balance of such finance
lease agreements was R$6,448 million. TAM Linhas
Aéreas has a U.S.$50 million credit facility with the International Finance
Corporation, or IFC.  U.S.$33 million of the principal amount is guaranteed
by TAM S.A.  We record amounts drawn down under this facility inreais.  As of December 31,
2008, we had R$52 million outstanding under this facility. TAM Linhas
Aéreas also has an outstanding government financing for machinery and equipment
(FINEM) in the aggregate amount of approximately R$51 million with theBanco Nacional de Desenvolvimento
Econômicoe Social(National Bank of Economic
and Social Development, or BNDES).  The guarantees provided are mortgages
of assets and accounts receivables. In 2006, we
became the first Brazilian airline to register a program for the issuance of
debentures with the CVM.  In August 2006, we offered R$500 million in
principal amount of debentures pursuant to this program.  The final
maturity date of these debentures is in August 2012, with one third of the
aggregate principal amount amortizing in each of 2010, 2011 and 2012.  The
terms of the debentures provide that we must pay interest semi‐annually in an
amount equal to 104.5% of CDI. In April 2007,
TAM Capital issued U.S.$300 million 7.375% senior notes due 2017.  The
notes are unconditionally guaranteed, on a senior unsecured basis, by TAM S.A.
and TAM Linhas Aéreas and are listed on the Euro MTF market of the Luxembourg
Stock Exchange.  On December 18, 2007 we completed an exchange offer
pursuant to which holders of 99.2% of the notes issued on April 25, 2007
exchanged their notes for new notes that were registered under the United States
Securities Act of 1933, as amended, and otherwise carried identical
terms. In May 2007, our
subsidiary TAM Financial Services 1 Limited entered into a facility agreement
with certain financial institutions pursuant to which it borrowed U.S.$331
million to finance certain pre‐delivery payments due to Boeing in respect of our
orders for four Boeing 777 aircraft.  On December 31, 2008 the balance of
this loan was R$356 thousand. The interest
rates related to our real‐denominated indebtedness are typically indexed to TJLP
or CDI, and the interest rates related to our U.S.‐dollar denominated
indebtedness are typically indexed to LIBOR.  For a more detailed
description of the interest rates associated with our indebtedness, see note 15
of our consolidated annual financial statements for the years ended December 31,
2008 and 2007. C.  Research and Development, Patents and
Licenses, etc. We hold or have
filed registration applications for 228 trademarks before theInstituto
Nacional da Propriedade Industrial, or INPI, the body with
jurisdiction for registering trademarks and patents in Brazil, and two
trademarks before the bodies with jurisdiction for registering trademarks in
other countries in the Americas and Europe in which we operate.  Currently,
we are facing no third‐party challenges to these applications. TAM Marília
owned the "TAM" trademark from its incorporation until September 2004 when TAM
Marília underwent a spin‐off which resulted in the creation ofTaxi Aéreo,
Representações, Marcas e Patentes S.A.(TAM Milor).  TAM's
trademark (and other trademarks related thereto) were transferred to TAM
Milor.  Both TAM Marília and TAM Milor are companies controlled by the
Amaro Family.  Until March 10, 2005, the relationship we and our
subsidiaries TAM Viagens and TAM Mercosur had with TAM Milor did not provide for
any compensation for our use of TAM trademark and was subject to revision at any
time.  In order to protect the use of TAM's trademark on an appropriate
legal and commercial basis, on March 10, 2005, TAM S.A., TAM Milor, TAM Linhas
Aéreas, TAM Viagens and TAM Mercosur entered into a License for Use of Trademark
Agreement, pursuant to which TAM Milor granted the other parties a license to
use the "TAM" trademark in exchange for a monthly compensation or royalty
payment. - 61
      -


---



Table of Contents

The terms of
this agreement provide that it may be terminated in the event of (i) bankruptcy,
judicial composition with creditors or winding‐up of either party, (ii) one
party failing to comply with any of its obligations and failing to remedy such
non‐compliance within 15 days of receiving notice of such non‐compliance, or
(iii) we and/or our subsidiaries TAM Viagens and TAM Mercosur utilizing TAM's
trademark in a manner other than that set forth in the agreement.  The
current expense we and our subsidiaries TAM Viagens and TAM Mercosur record on a
monthly basis for the use of the trademark is R$1.2 million.  This amount
is adjusted annually by reference to the IGP‐M.  This agreement is
effective until December 9, 2011, following which, provided that TAM Linhas
Aéreas' concession is itself renewed, the license to use the trademark will
automatically be renewed for an equivalent period.  The recording of the
transfer of ownership of TAM trademarks from TAM Marília to TAM Milor and the
License for Use of Trademark Agreement are already registered with the
INPI.  The intention of recording both the transfer and the registration of
the License for Use of Trademark Agreement before the INPI is to provide third
parties with notice of the existence of such rights. The license for
use was granted exclusively in relation to the classes of the activities we
currently perform.  TAM Milor may grant a license to use TAM's trademark to
other parties for different activities that do not involve the scheduled
transportation of passengers. We have also
internally developed oure‐TAM portal, a tool that
integrates our entire sales chain, from the time of reservation until boarding
of the aircraft.  Additionally, such contract does not impose any
limitation on TAM Milor's right to dispose of or pledge the trademarks that are
subject to the License for use of Trademark Agreement to third parties and TAM
Milor may enter into such transactions without our prior knowledge or
consent.  In addition, the terms of the License for Use of Trademark
Agreement grant us an exclusive license for the use of TAM's trademark as a
symbol for securities traded on stock exchanges. D.  Trend Information Assuming that
demand for our services continues to increase in line with recent periods, we
anticipate that our RPKs would increase as a result.  In terms of ASKs, we
believe the international market presents the greatest opportunity for growth
because we already have significant penetration of domestic routes in our
network.  However, we believe ASKs for the domestic market will also
increase in 2009, albeit at a lesser rate of growth compared to the
international market.  In the international market, we continue to examine
opportunities for selective expansion of routes and recently announced plans to
operate a direct flight from São Paulo to Johannesburg, South Africa.  In
the event that projected demand for new routes and/or more frequent flights on
existing routes meets our expectations, we have contracted sufficient capacity
to meet such demand (as evidenced by the fact that we currently have firm orders
with Airbus to lease an additional 53 Airbus A320 family aircraft, four Airbus
A330 family aircraft, 22 Airbus A350 aircraft and a firm order with Boeing to
lease six Boeing 777 aircraft).  The addition of these aircraft to our
fleet will increase our ASKs, and we are able to exercise ten options in respect
of Airbus A350 aircraft.  Although demand has decreased as a consequence of
the global economic environment, we have decided to maintain our fleet expansion
plan, in the case that a recovery starts as early as 2010.  In order to
support this decision, we continue implementing cost saving measures such as our
renegotiations with international travel agencies that will result in
eliminating the commission we used to pay these travel agencies and other cost
saving initiatives. We expect jet
fuel prices will continue to be volatile in 2009 and expect to continue
evaluating fuel hedging to protect us against movements in the commodity
price. E.  Off‐balance Sheet
Arrangements Our operating
lease obligations are not reflected in our balance sheets.  We have no
other off‐balance sheet arrangements. F.  Tabular Disclosure of Contractual
Obligations The table below
analyses TAM's financial liabilities into relevant maturity groupings based on
the remaining period at the balance sheet to the contractual maturity
date.  The amounts disclosed in the table are the contractual undiscounted
cash flows and include interest, apart from the net settled derivatives, for
which the fair value is disclosed. - 62
      -


---



Table of Contents

Non‐derivative financial
      liabilities
    Less than 1 year
    Between 1 and 2 years
    Between 3 and 5 years
    More than 5 years
    Total
    Effect of discounting
    Carrying valueAt December 31, 2008Finance lease obligations
    961,373
    1,764,576
    1,751,910
    3,751,912
    8,229,771
    (1,781,291)
    6,448,480Borrowings
    239,402
    228,621
    8,310
    12,468
    488,801
    (87,233)
    401,568Debentures.
    51,464
    333,333
    166,667
    
    551,464
    (22,922)
    528,542Senior notes.
    51,562
    103,269
    103,412
    882,215
    1,140,458
    (430,022)
    710,436Trade and other payables.
    967,553
    
    
    
    967,553
    
    967,553At December 31, 2007Finance lease obligations.
    456,065
    821,927
    800,005
    1,781,126
    3,859,123
    (890,909)
    2,968,214Borrowings
    944,414
    237,340
    35,601
    10,217
    1,227,572
    (159,725)
    1,067,847Debentures
    57,393
    218,131
    333,333
    
    608,857
    (76,698)
    532,159Senior notes.
    39,408
    78,162
    78,380
    707,854
    903,804
    (365,338)
    538,466Trade and other payables.
    804,670
    
    
    
    804,670
    
    804,670
  We believe that
our operational cash generation and lines of credit with financial institutions
and leasing agents will enable us to honor our contractual and financial
commitments.  We believe that prudent liquidity risk management should
entail maintaining sufficient cash and marketable securities, the availability
of funding through an adequate amount of committed credit facilities and the
ability to close out market positions.  Due to the dynamic nature of our
businesses, Our treasury maintains flexibility in funding by maintaining
availability under committed credit lines. ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES A.  Directors and Senior
Management In accordance
with our by‐laws and Brazilian corporation law, we are managed by ourConselho de Administração(board of
directors), made up of eight members and ourDiretoria(board of
executive officers), made up of at least four and no more than eight
members.  We do not currently have aConselho
Fiscal(fiscal council). Board of
Directors Our board of
directors provides our general strategic management guidelines and is
responsible for, among other things, setting general commercial policies and
electing the executive officers (as well as for supervising their
management).  Our board of directors meets every month or whenever
requested by the chairman, vice‐chairman, or by any two members of the board of
directors. Brazilian
corporation law provides that members of a company's board of directors must be
shareholders in that company (although there is no specified minimum number of
shares that such members must hold) and must be elected at a shareholders'
meeting.  Members, who may reside or be domiciled in Brazil or abroad, are
elected for a period of one year and re‐election is permitted.  The terms
of office of the current members of our board of directors end on April 30, 2010
unless they are re‐elected.  Our by‐laws do not specify an age limit for
mandatory retirement of members of our board of directors. Brazilian
corporation law together with Article 24 of our by‐laws provides that members of
our management may only enter into contracts with us under reasonable and
equitable terms, either identical to those prevailing in the market or to those
pursuant to which we would ordinarily contract with third parties.  Such
transactions must also be approved by at least five of our directors at a board
meeting and any director may request an independent expert to evaluate whether
such agreement does in fact contain arm's length terms.  Brazilian
corporation law also prevents such persons from voting at any shareholders'
meeting or intervening in any corporate action in respect of which there is a
conflict of interest between their interests and ours. The following
table sets forth the name, position and election date of the current terms of
office of each member of our board of directors. Name
    Position
    Election dateMaria
      Cláudia Oliveira Amaro
    Chairman
    09/18/2003Maurício
      Rolim Amaro
    Vice‐Chairman
    12/20/2004Luiz Antônio
      Corrêa Nunes Viana Oliveira
    Board Member
    06/27/2003Adalberto
      de Moraes Schettert
    Board Member
    08/31/2005Maria
      Cláudia Oliveira Amaro
    Chairman
    09/18/2003Waldemar
      Verdi Júnior
    Board Member
    01/23/2006Pedro
      Pullen Parente
    Board Member
    04/27/2007Noemy
      Almeida Oliveira Amaro
    Board Member
    04/30/2009Alexandre
      Goncalves Dias
    Board Member
    04/30/2008
 - 63
      -


---



Table of Contents

Summary
biographical information for each member of our board of directors is set out
below: Maria Cláudia
Oliveira Amaro, Chairman of the Board of Directors.Mrs.Amaro has been a
member of our board of directors since September 2003 and Chairman since April
2007.  Mrs. Amaro is the daughter of Mrs. Noemy Almeida Oliveira Amaro
and holds the position of executive director of TEP.  Mrs. Amaro formerly
served as executive director of TAM Linhas Aéreas and is currently also a member
of the board of directors of Aerosystem and TAM Marília.  Mrs. Amaro has a
degree in Business Administration. Maurício Rolim
Amaro, Vice‐Chairman of the Board of Directors.Mr.Amaro has been a
member of our board of directors since December 2004 and Vice‐Chairman since
April 2007.  Mr. Amaro is the son of Mrs. Noemy Almeida Oliveira Amaro and
holds the position of executive director of TEP.  He is also currently a
member of the board of directors of Aerosystem and TAM Marília.  Mr. Amaro
has a degree in Business Administration and Aviation Administration from Broward
Community College, located in Florida, United States of America. Luiz Antônio Correa
Nunes Viana Oliveira, Board Member.Mr.Oliveira has been a member of our board of
directors since June 2003.  He has a degree in Mechanical
Engineering.  Mr. Oliveira has worked for IBM,Banco
Denasa,BNDESandIFCand was also an executive
director inGrupo Ultra,Grupo Pão de
Açúcar,Petrobrás Distribuidora
S.A, andNET Serviços de Comunicação
S.A.In addition, he was a member of the boards of
directors ofAracruz,Arafertil,Copesul,Riocell,Perdigão,Pão de AçúcarandABTA. Adalberto de
Moraes Schettert, Board Member.Mr.Schettert has been a member of our board of
directors since August 2005.  He has a degree in Chemical Engineering and
Business Administration.  Before joining us he worked forUnibanco,Crefidata 
Processamento de Dados do Banco Crefisul S.A., thePrefeitura
Municipal de Porto Alegre, andBanco Industrial de
Investimento doSul S.A.In addition, during his
time atUnibancohe occupied several
executive positions, including the position of vice president.  Mr.
Schettert worked as a professor atUniversidade Federal do Rio
Grande do Sul,Universidade
Católicade PelotasandInstituto
Educacional São Judas Tadeu.  He was also formerly a member of the board
of directors ofCompanhia Siderúrgica Tubarão. Waldemar Verdi
Júnior, Board Member.Mr.Verdi Júnior has
been a member of our board of directors since January 2006.  He has a
bachelor's degree in law and has taken extension courses in business
administration at the University of Southern California (1977) and INSEAD (1982
and 2004).  Mr. Verdi Júnior is a member of the shareholders committee ofGRUPO VERDI  GV Holding S.A., and a member
of the boards of directors ofBanco Rodobens,Companhia
HipotecáriaUnibanco  Rodobens,Centro das
Indústrias do Estado de São Paulo  CIESP,Associação
Comercial de São Paulo, COMGÁS  Companhia de Gás de São PauloandCDES  Conselho do Desenvolvimento Econômico e
Social do Presidente Luiz InácioLula da
Silva.  Before joining us, Mr. Verdi Júnior worked
forASSOBENS Associação Brasileira dos
Distribuidores Mercedes‐Benz,ABRAD 
AssociaçãoBrasileira das Administradoras de Consórico dos
Distribuidores de VeículosAutomotoresandFENABRAVE 
Federação Nacional da Distribuição de VeículosAutomotores. Pedro Pullen
Parente, Board Member.Mr.Parente has been
a member of our board of directors since April 2007.  Currently, he is the
vice‐president ofRede Brasil Sul.  He was a chief
minister for the Civil House and Executive of the Brazilian Ministry of Finance
in the period between 1994 and 2002.  He was also a consultant for the IMF
(International Monetary Fund). Noemy Almeida
Oliveira Amaro, Board Member.  Mrs. Amaro has been a member of TAM's board
of directors since October 2008 and is the widow of its former chairman, the
late Mr. Rolim Adolfo Amaro.  Mrs. Amaro was previously a
teacher.  She is currently a director of TAM's controlling entity,
TEP. Alexandre
Gonçalves Silva, Board Member.Mr.Silva has been a member of our Board of Directors
since April 2008.  Mr. Silva received a bachelor's degree in Mechanical
Engineering from the Pontifícia Universidade Católica do Rio de Janeiro
(PUC-Rio).  He is currently a member of the Consulting Board of GWI,
Advisor in Brazil for Global Infrastructure Partners, headquartered in London,
and board member at GE Hydro Inepar and at Alupar.  Before joining TAM, he
occupied the position of CEO and National Executive of GE Brasil and worked in
companies such as Celma, Motortec & Votec, in addition to other companies of
the aviation sector.  In addition, he worked at the Brazilian General
Command for Aerospace Technology (CTA), related to the Aeronautics Command, as
Project Manager of Feasibility Studies in the Aerospace Research
Center. - 64
      -


---



Table of Contents

None of our
directors has service contracts with us or any of our subsidiaries providing for
any compensation or benefits on the termination of their employment. Executive
Officers The executive
officers are responsible for our daily management and representation.  The
executive officers exercise the individual responsibilities provided in our
by‐laws and by our board of directors.  Our board of executive officers is
currently made up of four members, but can be made up of at least four and no
more than eight members, shareholders or otherwise, residing in
Brazil. Executive
officers are elected by our board of directors for a three‐year term of office,
with re‐election permitted.  Any member of our board of executive officers
may be removed by the board of directors before his or her term of office
ends.  The current term of office of each member of our board of executive
officers ends on April 30, 2012 unless re‐elected. Our Investor
Relations Office is located at Avenida Jurandir, 856, Lote 4, 1° andar, CEP
04072‐000, São Paulo, SP, Brazil.  The person responsible for our Investor
Relations Office is Mr. Líbano Miranda Barroso, elected director of finance and
investor relations at a meeting of our board of directors held on May 17,
2004.  The telephone number of our Investor Relations Office is +55 11 5582
9715 and the fax number is +55 11 5581 8149.  The e‐mail address of our
Investor Relations Office is invest@tam.com.br. The following
table sets forth the name, position and election date of the current terms of
office of each member of our board of executive officers: Name
    Position
    Election dateDavid Barioni Neto
    Chief Executive Officer
    09/10/2007Líbano Miranda Barroso
    Chief Financial Officer
    05/17/2004Fernando Sporleder Júnior
    Technical‐Operational Officer
    09/10/2007Paulo Cezar Bastos Castello
    Branco
    Commercial and Planning Officer
    10/18/2004
  Summary
biographical information for each member of our board of executive officers is
set out below: David Barioni
Neto, Chief Executive Officer.Captain David Barioni Neto
has been our CEO since November 2007.  Mr. Barioni has been working in the
aviation industry for 30 years, holding executive positions and acting in flight
and technical operations areas.  He flies Boeing, Airbus and MD‐11 aircraft
and checks Boeing 737 NG.  Mr. Barioni is a flight security agent
certified by the Brazilian Aeronautical Accident Prevention and Investigation
Center (CENIPA) and has expertise in special and dangerous cargo and also in
crisis management (IATA). Líbano Miranda
Barroso, Chief Financial Officer.  Mr. Barroso has
been our chief financial officer, Management and IT Director since May
2004.  Mr. Barroso held executive positions at major financial
institutions, includingBanco Nacional S.A.,Banco Real
S.A., andBanco Safra S.A.He was also Executive Officer atCompanhia de
ConcessõesRodoviárias.  Mr. Barroso holds a
degree in Economics, an Executive MBA in Finance from IBMEC Business School, and
a post‐graduate degree in business law from Getúlio Vargas Foundation
(Fundação Getúlio Vargas, or FGV). Fernando
Sporleder Júnior, Technical‐Operational Officer.  Mr.Sporleder has
been our Technical‐Operational Director since November 2007.  Mr. Sporleder
was appointed by TEP in accordance with the shareholders' agreement.  He
joined us in 2007 and has been working in the air transport industry since 1982,
holding
executive positions and acting in flight and technical operations areas. 
He flies Boeing and MD-11 aircrafts and he is a Certified Examiner by
ANAC.  He currently holds an executive position at TAM Linhas Aéreas. 
Mr. Sporleder has a degree in Business Administration from Universidade
Ibirapuera (UNIB). - 65
      -


---



Table of Contents

Paulo Cezar
Bastos Castello Branco, Commercial and Planning Officer.  Mr.Castello Branco has been the Commercial and
Planning Director since August 2008.  He joined us as Institutional
Relations Officer in October 2004 and currently holds an executive position at
TAM Linhas Aéreas.  Before joining us, he held various management
positions, including:  planning and logistics director ofVarig
Logística, vice‐president ofECT  Empresa Brasileira de
Correios eTelégrafos, financial and
administration director ofCasa da Moeda do Brasiland commercial department
chief ofINFRAERO  Empresa Brasileira deInfra‐Estrutura
Aéroviária.  Mr. Castello Branco has a degree in
Business Administration fromUniversidade Federal do Rio de Janeiro(UFRJ) and an MBA in Airport Administration and
Logistics Extensions from Nevada University in the United States. Fiscal
Council According to
Brazilian corporation law, each company's fiscal council must be an independent
body that is separate from the company's management and external auditors (and
may or may not be permanent).  The fiscal council is installed to act
during a given year at the request of shareholders representing at least 10% of
the voting shares or 5% percent of non‐voting shares.  The fiscal council's
principal function is to oversee the activities of management and to examine and
provide its opinion in regard to the financial statements and certain proposals
of management submitted to shareholders' meetings. Our by‐laws
provide for a non‐permanent fiscal council, which can be installed by a
shareholders' meeting.  We do not currently have a fiscal council.  We
have an audit committee that satisfies the audit committee requirements of the
SEC and the NYSE. B.  Compensation Brazilian
corporation law and our by‐laws provide that our shareholders are responsible
for setting the total compensation to be paid every year to our board of
directors and board of executive officers.  Only if the shareholders set a
global figure for the total compensation to be paid, is the board of directors
then solely responsible for distributing that compensation individually, in
accordance with the terms of our by‐laws. The key
management personnel of TAM include the members of the Board of Directors, the
president, vice presidents and statutory directors.  Their remuneration was
as follows: 2008
    2007Salaries
    9,031
    9,262Profit
      share and bonuses.
    7,326
    18,197Share‐based
      payment.
    3,033
    604Other
      long‐term benefits
    476
    28019,866
    28,343
  Our executive
management fees represent total compensation paid to the members of our board of
directors and executive officers.  Executive management fees were lower in
2008 compared to 2007 because in 2007 we paid higher bonuses to certain
executives. Our officers
participate in our regular share purchase option plan.  See "Item 6. 
Directors, Senior Management and Employees  E.  Share Ownership  Share
Option Purchase Plan." C.  Board Practices Currently, our
board of directors is comprised of eight members.  The terms of office of
our current directors will expire in April 30, 2010.  See "Item 6. 
Directors, Senior Management and Employees  A.  Directors and Senior
Management  Board of directors." - 66
      -


---



Table of Contents

Swearing‐In of
Members of Our Board of Directors, Board of Executive Officers and Fiscal
Council The members of
our board of directors, board of executive officers and fiscal council (i) take
office upon signing our corporate register, which is itself conditional on them
signing BM&FBOVESPA's agreement in respect of companies listed on the Level
2 segment of BM&FBOVESPA, and (ii) must notify BM&FBOVESPA, immediately
after they are sworn in, as to how many securities issued by us they own
(directly or indirectly) and the characteristics of such securities (including
derivatives). Audit
Committee Our audit
committee reports to our board of directors.  Its main functions are
to:  assist the board of directors in monitoring, on behalf of our
shareholders, the analysis of our financial statements; ensure that our
executive officers develop reliable internal control mechanisms; ensure the
adequate performance of internal audit; appoint external independent auditors
when necessary; monitor any potential conflicts of interest in relation to our
external auditors; ensure that our ethics code is being followed; monitor
changes in our principal financial indicators, particularly focusing on our cash
flow position; at times working with the Ethics Committee, establish receipt,
retention and complaint procedures regarding accounting, internal control and
audit matters and create policies for the confidential, anonymous treatment of
employee concerns regarding accounting or auditing matters and review our
capital, debt and cost structure.  The audit committee is comprised of
three members of our board of directors, elected by the board of directors for a
one‐year term, subject to re‐election.  The current members of our audit
committee are:  Adalberto de Moraes Schettert, Alexandre Gonçalves Silva
and Luiz Antônio Corrêa Nunes Viana Oliveira.  Our audit committee
satisfies the audit committee requirements of the SEC and the NYSE, including
the membership and independence requirements thereof.  Adalberto de Moraes
Schettert is an audit committee "financial expert" within the meaning of the
rules adopted by the SEC relating to the disclosure of financial experts on
audit committees in periodic filings pursuant to the U.S. Securities Exchange
Act of 1934. Ethics
Committee Our ethics
committee is responsible for setting ethics policies & procedures and
filtering complaints, including whistleblower complaints.  The ethics
committee filters all complaints, following up on simpler ones and forwarding
more involved ones to the audit committee for consideration. Human Resources
Committee Our human
resources committee is responsible for defining strategies for the management
and development of our employees.  It supports the board of directors in
evaluating the results and performance of the main executives and determining
their remuneration.  The human resources committee is comprised of three
members, elected by the board of directors.  The human resources committee
is comprised of three members of our board of directors. Strategic
Committee Our strategic
committee is responsible, among other things, for determining the principles,
policies and strategies that will assist us to achieve our corporate objectives
and incentivizing the accompanying increase in our efficiency and
productivity.  The strategic committee is comprised of five members of our
board of directors. Risk Management
Committee Our risk
management committee is responsible for approving policies, processes and
activities to manage the liquidity, credit, legal, fiscal and operational risks
inherent in the operation of our business.  The risk management committee
is comprised of eight of our officers. D.  Employees We believe our
growth potential is directly linked to our ability to attract and retain the
best professionals available in our sector.  For this reason, we assign
high priority to selecting and developing people with potential who can add
value to our operations and who we believe can adapt to our corporate
culture. - 67
      -


---



Table of Contents

The value
proposal of TAM's Human Resources Management and Information area is to
contribute to the Company's sustainable growth and competition by anticipating
any needs and providing long‐term solutions in order to attract, train and
retain professionals with Passion to Fly and Serve. One of the key
roles of any such area is to disseminate TAM's values and principles of the
Passion to Serve by encouraging our employees' desire to become highly qualified
professionals and conscientious citizens.  The aspiration to build a safe,
healthy and sustainable work environment is also part of the Company's path
towards an even more professional and efficient organization. Amongst some
measures adopted by such area in 2008, we point out the following:  the
Business Partner model, the area of Management of Sustainability and Culture,
Training (by the Commander Rolim Amaro Service Academy), Development and
Compensation. Business
Partners This model,
which is very common in the human resources structures adopted by large
companies in the market, aims at actively supporting the managers for purposes
of attainment of goals by individuals by making available Human Resources
Management resources and tools that support the business strategy. The area was
originally established in May 2008 in TAM and has gained strength before the
Company's management in order to ensure that the structures, processes and
professionals are in line and prepared to deal with TAM's current needs and
future challenges.  Furthermore, the area develops processes that ensure
the excellence in connection with human resources management and the delivery of
high‐quality services to employees and managers. Sustainability
and Culture Management We believe that
working with the Passion to Serve makes people happier.  This is one of the
principles that encompass the spirit of TAM's brand, which elected
sustainability as one of its principles.  Accordingly, we seek to
permanently include sustainability in our day‐to‐day activities and corporate
practices. The
Sustainability and Culture Management area was created in 2008 to strengthen our
strategic sustainable position.  This area seeks to attract professionals
with different backgrounds, including environmental background, and the
activities performed by this area are coordinated directly by the executive of
Human Resources Management and Information.  This area, responsible for the
submission of policies and the synergic coordination of various activities we
perform, actively monitors any and all actions and works towards expanding
employees' awareness. The
Sustainability Executive Committee was also created, consisting of senior
executive officers from the Company's various areas.  This Committee is
responsible for the monitoring of the Company's social and environmental
projects.  This Committee also participated in the creation of TAM's vision
on the matter.  Accordingly, we perceive sustainability as a profound
cultural change that should permeate the manner in which each person sees the
world and the business as well as our relationships with any and all
stakeholders (persons with which the Company has relationships).  We wish
to be amongst the first global air companies to incorporate the sustainability
concept in the Company's activities and contribute to the creation of a
sustainability culture in our society. For purposes of
dissemination of the sustainability strategy, we implemented an awareness
program targeted at our internal audience.  One large education, awareness
and culture generation program was implemented in the second six‐month period of
2008, with the participation of over 23 thousand employees, encompassing
officers, directors, managers and the operational staff.  The educational
campaign included a descriptive brochure, a website on the matter, a quiz with
questions and answers and the distribution of a sustainability kit. 
Concurrently, internal communication actions were adopted by means of the
information board, corporate portal, e‐mails and articles in the internal
magazine.  Mappings and proposals in connection with a sustainability
strategy by means of a meta‐model of actions on the matter were also adopted by
the middle management. - 68
      -


---



Table of Contents

Qualification
and Training We are
especially focused on the qualification and growth of our employees, which
constitute the Company's key operating asset.  Our management of the human
capital, which represents a significant illustration of the wealth, complexity
and diversity of Brazilian society, is a key item of our strategic
planning. Our training
area, by means of the Commander Rolim Amaro Service Academy, seeks to contribute
to the development and qualification of the staff.  The Company's
investments in educational and qualification programs grow every
year. In 2008,
approximately R$28 million was invested, a value 64% greater than the value
invested in the previous year.  Over 100 thousand employees participated in
training held throughout Brazil.  This training was largely attended in
person or by electronic means (e‐learning)  available via the Internet or
Intranet.  The Company held lectures for employees at the management level
to strengthen the leadership principles. In 2008,
together with Fundação Dom Cabral, TAM's management duties were defined. 
The first four levels of our management were evaluated based thereupon. 
Taking into consideration the individual performance, a succession plan for our
three senior levels was established thereby ensuring continuity in the
management of the business in the event of unexpected changes.  This
process will continue to be implemented in 2009 and should include the
supervisory levels, and subsequently, all lower levels in our organizational
structure. Compensation and
Benefits ·Profit Sharing and Results The values
distributed in 2008 recorded a significant increase at the percentage rate of
20% as compared to 2007.  The Net Promoter Score (NPS) was introduced and
its ambitious goal was attained due to the outstanding measures adopted to
improve services in any and all points of contact with the clients. The calculation
of any such profit sharing is usually carried out at the end of the year, at
which time the value could be measured by the Company in the most reliable
manner. The employees
were granted a different way to participate in this year, by means of a
committee, for purposes of evaluation and monitoring of the results. ·Private Pension Obligations We have defined
contribution plans, which contributions are transferred to the public or private
pension plans on a mandatory, contractual or voluntary basis.  To the
extent that contributions are made, we have no obligation relating to any
additional payments.  Regular contributions comprise the net periodic
expenses for the period in which any such contributions are due and are included
in administrative expenses. ·Stock Option Plan We offer stock
options plans to employees, officers and directors, based on our shares,
pursuant to which the Company receives services in exchange for the stock
options.  The fair value of the stock options granted is recognized as an
expense, during the period in which the right is vested (period during which the
specific terms and conditions for vesting of rights should be complied
with).  As of the balance sheet date, we review the estimates relating to
the number of options which rights should be vested based on the terms and
conditions.  We recognize the impact of the review of the original
estimates, if any, in the statement of income, recorded against the
shareholders' equity on future basis. - 69
      -


---



Table of Contents

At December 31,
2008 we had 24,389 employees, compared to 20,469 employees at December 31, 2007,
and 13,195 employees at December 31, 2006.  Our personnel expenses in 2008
totaled R$1,782 million.  The following table shows the number of employees
at December 31, 2008, 2007 and 2006 for the operations and locations
indicated: December 31, 2008
    December 31, 2007
    December 31, 2006TAM Linhas AéreasAssistants, secretaries and dispatchers.
    10,762
    9,056
    4,647Analysts and assistants
    2,779
    2,499
    1,532Supervisors/coordinators.
    844
    715
    412Chairman, vice chairmen, directors and
      managers
    320
    302
    176Mechanics, electricians and technicians.
    1,858
    1,522
    1,271Attendants
    5,025
    3,755
    2,929Captains and co‐pilots
    2,043
    1,665
    1,343Interns.
    74
    60
    34Total
    23,705
    19,574
    12,344
  December 31, 2008
    December 31, 2007
    December 31, 2006TAM ViagensAssistants/receptionists/secretaries/interns.
    33
    42
    29Analysts/assistants/secretaries
    66
    46
    50Attendants, promoters/issuers/salesreps.
    109
    83
    81Attorneys/coordinators/leaders/supervisors
    21
    17
    17Directors/managers/advisors.
    13
    15
    15Total
    242
    203
    192TAM MercosurParaguay.
    413
    516
    493Chile.
    0
    65
    61Argentina
    0
    31
    32Uruguay
    0
    32
    23Bolivia
    28
    44
    46São Paulo
    1
    4
    4Total
    442
    692
    659Grand Total.
    24,389
    20,469
    13,195
  At the end of
2008, we had 24,315 employees, of which 22,945 were in Brazil and 1,370 were
abroad.  We also had 74 trainees and 461 outsourced employees.  In
2007, we recorded an 18% staff increase. Our staff
largely consists of young men and women, where 49% are between the ages of 18
and 29, 33% are between 30 and 39 years and 17% are above 40 years. Internal Social
Indicators TAM's internal
social indicators provides an overview of the volume of resources allocated to
the employees, in addition to the fixed compensation.  This group includes
items, such as the total value invested in food, private pension, health,
occupational safety and medicine, education, training and qualification of
employees. E.  Share Ownership The following
table sets forth the class, number and percentage of shares held by our
directors at the date of this annual report: Number of Common Shares
      Held
    Number of Preferred Shares
      HeldMaria
      Cláudia Oliveira Amaro.
    1
    104,100Maurício Rolim Amaro
    1
    104,100Noemy
      Almeida Oliveira Amaro.
    1
    208,200Luiz Antônio Corrêa Nunes Viana Oliveira.
    1
    Waldemar Verdi Júnior
    1
    Adalberto de Moraes Schettert.
    
    1Pedro Pullen Parente
    1
    Alexandre Gonçalves Silva
    
    1Stock
      Option Plan
    
    2,311
 - 70
      -


---



Table of Contents

We have
implemented a preferred share purchase option plan for our and our controlled
companies' officers and employees, as approved at our shareholders' meeting held
on September 29, 2005.  Other than in respect of the first grant of options
(described below), the strike price per preferred share is the amount equal to
80% of the average market price of our preferred shares in the month preceding
the granting of the option, adjusted for inflation.  We granted 715,255
options to purchase our preferred shares in December 2005, with an exercise
price of R$14.40 per preferred share.  On June 26, 2006, our board of
directors granted the release of 239,750 preferred shares as a second award to
be used as options under the plan, with an exercise price of R$43.48 per
preferred share.  On December 14, 2007, our board of directors granted the
release of 780,311 preferred shares as a third award to be used as options under
the plan, with an exercise price of R$ 39.67 per preferred share.  On
September 27, 2007, our board of directors granted the release of 230,000
preferred shares as an extraordinary granting, with an exercise price of R$
38.36 per preferred share. The share
purchase options will be granted on annual basis in accordance with our board of
directors' resolution as long as the maximum amount of 2% of dilution of the
participation of current shareholders is not exceeded, and certain annual
value‐added goals are reached.  The participants of our share purchase
option plan may exercise their options within seven years as of the date of the
relevant grant.  The vesting term will last five years and will comprise
three annual installments, due on the third, fourth and fifth year,
respectively.  Our share purchase option plan is effective until September
29, 2010. ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS A.  Major Shareholders The following
table shows the shareholdings of each shareholder holding 5% or more of our
common or preferred shares and of the members of our board of directors as of
June 26, 2009, being the most recent practicable date. Shares Beneficially
    OwnedCommon Shareholders
    Number
    PercentTAM  Empreendimentos e Participações
      S.A.(1)
    44,804,238
    89.26%Agropecuária Nova Fronteira
      Ltda.(2)
    79,516
    0.16%Maria
      Cláudia Oliveira Amaro
    1
    0.00%Maurício Rolim Amaro.
    1
    0.00%Noemy
      Almeida Oliveira Amaro.
    1
    0.00%Luiz Antônio Corrêa Nunes Viana Oliveira.
    1
    0.00%Waldemar Verdi Júnior.
    1
    0.00%Pedro Pullen Parente.
    1
    0.00%Amaro & Aviation Participações S.A
    5,295,149
    10.55%Other
    16,140
    0.03%Total
    50,195,049
    100.00%
  Shares Beneficially
    OwnedPreferred
Shareholders
    Number
    PercentTAM  Empreendimentos e Participações
      S.A.(1)
    24,768,755
    24.67%Maria
      Cláudia Oliveira Amaro
    104,100
    0.10%Maurício Rolim Amaro.
    104,100
    0.10%Noemy
      Almeida Oliveira Amaro.
    208,200
    0.21%Adalberto de Moraes Schettert
    1
    0.00%Alexandre Gonçalves Silva.
    1
    0.00%Treasury shares
    402,311
    0.40%Minority Shareholders:T.Rowe
    8,582,266
    8.55%Wellington Management.
    5,123,386
    5,10%BlackRock
    5,050,395
    5.03%Other
    56,046,583
    55.83%Total
    100,390,098
    100.00%
    (1)       TAM 
Empreendimentos e Participações S.A., is owned by the Amaro family and has its
principal offices at Avenida Monsenhor Antonio Pepe, 331, São Paulo, SP,
Brazil.  Noemy Almeida Oliveiro Amaro whose business address is at Avenida
Monsenhor Antonio Pepe, 331, São Paulo, SP, Brazil; Maria Claudia Oliveira Amaro
whose business address is at Avenida Monsenhor Antonio Pepe, 397, São Paulo, SP,
Brazil; Maurcio Rolim Amaro whose business address is at Avenida Monsenhor
Antonio Pepe, São Paulo, SP, Brazil; and João Francisco Amaro whose business
address is at Avenida Monsenhor Antonio Pepe, 397, São Paulo, SP, Brazil own all
of the shares in the company and exercise all of the voting rights and
investment power. (2)      
Agropecuária Nova Fronteira Ltda.  is owned by the Amaro family and has it
principal offices at Fazenda Jaguarundy, Rodovia BR 463‐KM 109, Ponta Porá, Mato
Grosso do Sul, Brazil.  Noemy Almeida Oliveiro Amaro whose business address
is at Avenida Monsenhor Antonio Pepe, 397, São Paulo, SP, Brazil; Maria Claudia
Oliveira Amaro whose business address is at Avenida Monsenhor Antonio Pepe, 397,
São Paulo, SP, Brazil; and Maurcio Rolim Amaro whose business address is at
Avenida Monsenhor Antonio Pepe, 397, São Paulo, SP, Brazil; own all of the
quotes in the company and exercise all of the voting rights and investment
power. - 71
      -


---



Table of Contents

On June 17,
2005, we completed our initial equity offering of preferred shares, pursuant to
which we (and the selling shareholders in that offering) offered a total of
30,190,000 preferred shares to institutional investors in the United States and
institutional and other investors elsewhere.  On July 19, 2005, we and the
selling shareholders in the equity offering described above issued a further
281,600 preferred shares pursuant to an over‐allotment option granted to the
underwriters in that offering. On March 15,
2006, we completed a follow‐on equity offering of preferred shares in Brazil and
our initial public offering of ADSs in the United States and elsewhere outside
Brazil.  This offering of preferred shares and ADSs and was registered with
the SEC, and the ADSs are listed on the New York Stock Exchange.  We became
a reporting company under the Securities Exchange Act of 1934, or the Exchange
Act.  We offered 2,660,103 ADSs and 2,339,897 preferred shares, and the
selling shareholders in that offering sold 21,209,462 ADSs and 9,408,636
preferred shares.  On April 11, 2006, we and the selling shareholders in
that offering sold an additional 1,103,000 ADSs pursuant to an over‐allotment
option granted to the underwriters in that offering. All shareholders
within a class of our shares have the same voting rights. B.  Related Party Transactions We believe that
all of the relevant transactions we entered into with the related parties
described below were performed on terms that reflected the market rate for such
transactions. License For Use
of Trademark TAM Marília
owned the "TAM" trademark from its incorporation until September 2004 when TAM
Marília underwent a spin‐off which resulted in the creation of TAM Milor. 
TAM's trademark (and other trademarks related thereto) were transferred to TAM
Milor.  Both TAM Marília and TAM Milor are companies controlled by the
Amaro Family.  Until March 10, 2005, the relationship we and our
subsidiaries TAM Viagens and TAM Mercosur had with TAM Milor did not provide for
any compensation for our use of TAM trademark and was subject to revision at any
time.  In order to protect the use of TAM's trademark on an appropriate
legal and commercial basis, on March 10, 2005, TAM S.A., TAM Milor, TAM Linhas
Aéreas, TAM Viagens and TAM Mercosur entered into a License for Use of Trademark
Agreement, pursuant to which TAM Milor granted the other parties a license to
use the "TAM" trademark in exchange for a monthly compensation or royalty
payment.  The terms of this agreement provide that it may be terminated in
the event of (i) bankruptcy, judicial composition with creditors or winding‐up
of either party, (ii) one party failing to comply with any of its obligations
and failing to remedy such non‐compliance within 15 days of receiving notice of
such non‐compliance, or (iii) we and/or our subsidiaries TAM Viagens and TAM
Mercosur utilizing TAM's trademark in a manner other than that set forth in the
agreement.  The current expense we and our subsidiaries TAM Viagens and TAM
Mercosur record on an annual basis for the use of the trademark is R$15.4
million.  This amount is adjusted annually by reference to the IGP‐M
inflation index.  This agreement is effective until December 9, 2011,
following which, provided that TAM Linhas Aéreas' concession is itself renewed,
the license to use the trademark will automatically be renewed for an equivalent
period.  The recording of the transfer of ownership of TAM trademarks from
TAM Marília to TAM Milor and the License for Use of Trademark Agreement are
currently in the process of review and registration, respectively, with the
INPI.  The intention of recording both the transfer and the registration of
the License for Use of Trademark Agreement before the INPI is to provide third
parties with notice of the existence of such rights. The license for
use was granted exclusively in relation to the classes of the activities we
currently perform.  TAM Milor may grant a license to use TAM's trademark to
other parties for different activities that do not involve the scheduled
transportation of passengers.  In addition, the agreement does not impose
any limitation on the right of TAM Milor to dispose of or pledge the trademarks
subject to the agreement to third parties and TAM Milor may enter into such
transactions without our prior knowledge or consent.  In addition, the
terms of the License for Use of Trademark Agreement grant us an exclusive
license for the use of TAM's trademark as a symbol for securities traded on
stock exchanges. - 72
      -


---



Table of Contents

Service
Agreement  TAM Marília In September
2002, we entered into a service agreement with TAM Marília for the sharing of
our general management activities, relating mainly to human resources,
purchasing and procurement, marketing and information technology systems. 
Pursuant to the terms of this service agreement, we received payments from TAM
Marília in the amounts of R$130,000 in the year ended December 31, 2008 and
R$820,000 in the year ended December 31, 2007. On 11 May 2007,
TLA and TAM Marília agreed to share the use of a hangar located near Congonhas
airport São Paulo, for a period of 10 years.  TLA paid R$15,500 up front to
TAM Marília and is entitled to use the facilities and the infra‐structure of the
hangar, providing the same cargo services as those previously provided in the
cargo terminal.  The total amount was established based on valuation
reports performed by independent companies, reflecting the premium benefit to
our cargo division from the use of such a location.  The amount recognized
in our income statement for the year ended December 31, 2008 totaled
R$1,550. C.  Interests of Experts and
Counsel Not
applicable. ITEM 8.  FINANCIAL INFORMATION A.  Consolidated Statements and Other
Financial Information See "Item
3.  Key Information  A.  Selected Financial Data" and "Item 18. 
Financial Statements." Legal
Proceedings We are involved
in various judicial and administrative proceedings arising from the normal
course of our businesses.  We have established provisions for all amounts
in dispute that represent a probable loss in the view of our legal advisors and
in relation to those disputes that are covered by laws, administrative decrees,
decrees or court rulings that have proven to be unfavorable.  The table
below sets forth the total estimated value of amounts claimed, provisions for
contingencies and court deposits at December 31, 2008: Total Estimated Amount Claimed December 31,
      2008
    Provision for Contingencies December 31,
      2008
    Court Deposits December 31,
      2008(R$
      thousands)
    (R$
      thousands)
    (R$
      thousands)Tax
      proceedings.
    2,439,142
    945,027
    59,901Labor
      proceedings
    221,703
    24,181
    15,758Civil
      proceedings
    71,351
    63,520
    9,267Total
    2,732,196
    1,032,728
    84,926
  We believe that
our results of operations and financial condition would not be significantly
affected by any unfavorable single decision in such lawsuits because we have
established provisions in respect of the amounts at risk in the tax and civil
proceedings and because any future cash disbursement we may be liable for in
respect of any unfavorable decisions in tax proceedings may be paid in
installments over a long period. Proceedings
filed against us Civil
proceedings We are party to
approximately 9,900 civil proceedings arising from the normal course of our
business and the total amount claimed in these proceedings as at December 31,
2008 was estimated at R$71.3 million.  The vast majority of these
proceedings involve minor cases relating to customer relations.  The more
significant actions relate to civil liability and disputes resulting from
cancellation of agreements to provide services and commercial
representation.  At December 31, 2008, we had established provisions to
address the potential liability from the civil proceedings classified with
"probable risk" in the total amount of R$63.5 million. - 73
      -


---



Table of Contents

Damage claims
relating to accidents TAM Linhas
Aéreas is party to 15 actions filed by relatives of victims of the accident that
occurred in October 1996 involving one of our Fokker 100 aircraft which crashed
during departure, in addition to 49 actions filed by residents of the region of
the accident's location, who are claiming pain and suffering.Unibanco Seguros S.A.is party to all of these
actions because any damages resulting from the aforementioned legal claims are
covered by the civil liability guarantee provided for in our insurance policy
with them.  We believe that the cap of U.S.$400 million in that
insurance policy is sufficient to cover any penalties and judicial or
extrajudicial agreements arising as a result of this matter. The insurance
coverage related to the risks and liabilities from the accident that occurred in
July 2007 with an Airbus A320 aircraft has, as of December 31, 2008, been
sufficient, with settlements being made directly between the insurance company
and the victims' families.  As of December 31, 2008, approximately 160
settlements had been made and others were under negotiation with the insurance
company.  As of June 2009, we have made 188 settlements.  Our
management believes that the insurance coverage is adequate and that we did not
incur any expenses that were not contemplated by the scope of the insurance
policy that would result in TAM's obligation to pay. Tax
proceedings We are party to
various administrative proceedings or court actions in which we are claiming
non‐application of a specific tax or reimbursement of taxes paid improperly, or
in which we are contesting the charging of specific taxes resulting from the
normal course of our business; the total amount claimed in these proceedings as
at December 31, 2008 was estimated at R$2,439 million.  We cannot guarantee
that we will succeed in obtaining these tax credits or securing a favorable
outcome in respect of the application of those taxes.  At December 31,
2008, we had established provisions totaling R$945 million for tax proceedings
involving probable loss to us, including those listed below.  In respect of
certain proceedings, we have made court deposits, while in respect of others we
have court protection that allows us to dispute the cases without need for
partial payments or judicial deposits.  In the event there is a difference
between the amounts we have paid and deposited and the timing of payments
required to satisfy the obligation recorded, we have the ability to fund any
difference using cash from our operations and to the extent necessary, we are
prepared to liquidate our financial investments to pay any such
obligation. PIS and
COFINS We are
challenging the constitutionality of the change in tax basis of the PIS and the
increase in the contribution and basis of calculation of COFINS, introduced
under Law No. 9,718/98.  On November 9, 2005, the Supreme Court of
Justice ruled that the change in the tax basis of the PIS was
unconstitutional.  During 2006, we were successful in obtaining one
favorable ruling which enabled us to partially reverse a provision of R$46 that
we had established.  At December 31, 2008, we had five pending claims in
respect of the change in tax basis of the PIS and the increase in the
contribution and basis of calculation of COFINS pending. Tariff
surplus We have filed a
court injunction aimed at suspending payment of the tariff supplement, which is
collected monthly at the rate of 1.0% of our domestic revenues.  Currently,
the case is awaiting a ruling on the appeal filed by the Brazilian government
against the judgment handed down on the injunction that we filed, which
suspended application of the taxes.  The approximate value of that
proceeding at December 31, 2008 was R$420 million.  In the opinion of our
legal advisors, the chance of loss in this proceeding is considered
probable.  On the basis that payment of this tariff is supported by both
Presidential Decree and ANAC Administrative Decree, our management established a
provision of R$420 million in relation to this. - 74
      -


---



Table of Contents

ICMS on the
importation of aircraft Proceedings had
been filed against TAM Linhas Aéreas concerning the alleged failure to pay ICMS
due on imported aircraft, parts and engines.  In response, we had filed the
appropriate challenges on the basis that ICMS should not be payable on leased
aircraft.  On May 30, 2007, theSupremo
TribunalFederal(Federal Supreme Court)
ruled in our favor in respect of one of these cases.  On the basis of this
precedent decision and of recent rulings of the Superior Tribunal of Justice, we
believe our chance of loss in respect of the other pending cases is
remote.  We had not established any provisions for the amounts in
question. Airline worker
fund We have filed an
ordinary action with a request for an injunctive relief for non‐payment of the
Airline Workers Fund, a tax charged monthly at the rate of 2.5% of an airline's
payroll.  Payment of the tax credit is suspended by virtue of the
injunctive relief in our favor.  Currently, the proceeding is in the expert
witness phase.  In 2004, the INSS issued an assessment notice in order to
toll the Statute of Limitations of the social security credit as a result of
non‐payment of the Airline Workers Fund.  The administrative proceeding has
been suspended until completion of the judicial process.  The approximate
adjusted value of this proceeding at December 31, 2008 was R$100.4
million.  In the opinion of our legal advisors, the chance of loss in
respect of this proceeding is considered probable.  On the basis that
payment of this tax is required by law, our management established a provision
in accordance in the amount of R$ 100.4 million until the final judicial outcome
of the matter. Labor
actions At December 31,
2008 we were party to 1,307 labor claims filed by our employees, former
employees or service providers arising from the normal course of our
business.  We do not believe that such claims (individually or
collectively) will have a material adverse effect on our results of operations
in the event of unfavorable rulings.  Of those 1,307 labor claims, 784 are
against TAM Linhas Aéreas, 523 against service providers or sales
representatives and TAM Linhas Aéreas.  In the case of the individual labor
claims, the principal disputes refer to demands for the payment of hazard
supplements, overtime and make‐up work, as well as requests for the payment of
wage differentials in specific cases involving crew members.  We are party
to four class actions, one by Panama's union of tourism companies and the
remaining three by the national airline workers' union.  The total assessed
value of those actions was approximately R$222 thousand at December 31, 2008,
and according to our legal advisors, R$5 thousand correspond to claims with
a remote chance of loss, R$192 thousand correspond to claims with a possible
chance of loss, and R$24 thousand correspond to claims with a probable chance of
loss.  We have established provisions totaling R$24 thousand at December
31, 2008 in respect of all of these claims.  For specific actions we have
made court deposits totaling R$1,016 thousand to address labor claims.  The
provision is based on our management's estimate as to likely losses we might
incur as a result of the various labor claims filed by current or former
employees.  We believe the provisioned amount is sufficient as to cover
probable losses, estimated as applicable, in the event that the rulings are
unfavorable to us. Proceedings
instituted by us Damages relating
to price freezes We are
plaintiffs in an action filed against the Brazilian government in 1993 seeking
damages for the breaking‐up of the economic‐financial equilibrium of an air
transport concession agreement as a result of having to freeze our prices from
1988 to September 1993 in order to maintain operations with the prices set by
the Brazilian government during that period.  The process is currently
being heard before the Federal Regional Court and we are awaiting judgment on
appeals we have lodged requesting clarification of the initial decision (which
we challenged).  The estimated value of the action is R$245 million, based
on a calculation made by an expert witness of the court.  This sum is
subject to delinquent interest since September 1993 and inflation adjustment
since November 1994.  Based on the opinion of our legal advisors and recent
rulings handed down by the Supreme Court of Justice in favor of airlines in
similar cases (specifically, actions filed by Transbrasil and Varig) we believe
that our chance of success is probable.  Our management has not recognized
these credits to our accounts and will only do so when the aforementioned
decision is made final. - 75
      -


---



Table of Contents

Claims on
amounts paid in error relating to ICMS We consider
payments of ICMS made between 1989 and 1994 to be amounts paid in error because
we believe it was unconstitutional to charge ICMS on air navigation
services.  TAM Linhas Aéreas has filed claims against various states in
Brazil to claim the amounts paid in error.  Rulings on these claims are
pending.  The total value involved in these claims is R$55 million. 
Our policy is to only adjust the value of these claims for inflation at the time
that payment in respect thereto are recorded in our financial
statements. Additional
airport tariffs  ATAERO We also filed an
ordinary claim, with a request for early judgment, in relation to a dispute
concerning the legality of charging theAdicional
dasTarifas Aeroportuárias(Additional Airport
Tariffs, or ATAERO), which are charged at a rate of 50% on the value of tariffs
and airport tariffs.  The total amount involved, adjusted for inflation, at
December 31, 2008 totaled R$641 million. Dividends and
Dividend Policy Amounts
available for distribution At each general
shareholders' meeting, our board of directors must propose the allocation of net
profits earned during the preceding year (based on our non‐consolidated annual
financial statements).  Brazilian corporation law provides that a company's
net profit is defined as the results from the year, after deductions of income
tax and social contribution on the net profit for that year, net of accumulated
losses from preceding years and amounts allocated to profit‐sharing plans. 
Brazilian corporation law also provides that the amounts available for
distribution of dividends are the amounts corresponding to the net
profit: ·less the amount allocated to the legal reserve;
and ·less the amount allocated to the contingency
reserve, if any. The payment of
dividends may be limited to the amount of net profit earned, provided the
difference is recorded as a future profit reserve, as discussed below.  The
calculation of our net income for this purpose is made in accordance with
Brazilian GAAP, which differs from IFRS in certain significant
respects. According to the
Brazilian corporation law and our by‐laws, we must maintain a legal reserve to
which we must allocate 5% of our profit for each year until we reach 20% of the
paid‐up capital.  We are not required to allocate any amount to the legal
reserve in any year in which that reserve, when added to the others, is equal to
or greater than 30% of our total capital.  Accumulated losses, if any, can
be offset by the legal reserve.  If not utilized for these purposes, the
legal reserve can only be utilized for a capital increase.  The legal
reserve is subject to approval of the shareholders at a regular shareholders'
meeting, and can be transferred to the capital, but it is not available for the
payment of dividends in subsequent years.  Our net‐profit calculations and
allocations to reserves for any year are determined based on the
non‐consolidated (parent company) annual financial statements prepared in
accordance with Brazilian GAAP. Brazilian
corporation law provides that part of a company's net profit can be utilized to
constitute discretionary or statutory reserves, which must be described in the
company's by‐laws, precisely and comprehensively indicating the purpose of such
reserves, the criteria for determining the annual portion of net profits that
will be allocated for constituting the reserves and the maximum limit of the
reserves.  Currently, our by‐laws do not provide for the constitution of
statutory reserves or contingency reserves. According to
Brazilian corporation law, the amount of mandatory dividend that exceeds the net
profit realized in any year can be allocated for future‐profit reserves and the
payment of mandatory dividends can be limited to the amount of net profit earned
in the year.  The profits from any future year consist of the sum of (i)
the portion of positive net profit equal to the net worth equivalency in that
year, if any, and (ii) profit derived from transactions in respect of which the
due date for repayment occurs after the end of the following year.  To the
extent that amounts allocated for future profits reserve are earned in
subsequent years, those amounts must be added to the payment of dividends
relative to the year in which they were earned.  The profits recorded in
the future profits reserve, when earned and if not absorbed by losses
in later years, must be added to the first dividends declared after they are
earned. - 76
      -


---



Table of Contents

A company is
permitted to allocate to the future profit reserves all income from equity gains
in subsidiaries that are not distributed to the company in the form of cash
dividends.  When such gains are distributed to the company in the form of
cash dividends, the company is required to reverse the reserve.  Under
Brazilian corporate law, our shareholders may decide, upon a proposal of our
board of directors, to allocate a discretionary amount of our net profits to a
contingency reserve for estimated future losses which are deemed
probable. The
distributable amount may be further increased by the reversal of such reserve in
the fiscal year when the reasons that justified the creation of such reserve
cease to exist or in which the anticipated loss occurs.  Accordingly, there
is no specific percentage of net profit allocable to this type of
reserve. The amounts
available for distribution can be increased by reversing the contingency reserve
for losses considered probable, established in previous years, but not
realized.  Allocations to the contingency reserve are also subject to the
approval of shareholders at a shareholders' meeting. The balance of
the profit reserve accounts (except for contingency reserves and future profit
reserves) must not exceed our total capital.  In the event that the balance
of the profit reserve accounts does exceed our capital, a shareholders' meeting
must decide if the excess amount will be utilized to pay the subscribed but not
paid‐up capital, subscription of new shares or the distribution of
dividends. Brazilian
corporation law provides that any net profit not allocated for the accounts set
out above must be distributed as dividends. Mandatory
dividend Brazilian
corporation law generally requires that the by‐laws of each company must specify
the minimum available percentage of profit to be distributed to shareholders as
dividends, also known as the mandatory dividend. The compulsory
dividend is based on a percentage of adjusted profit (and must be a minimum of
25%) instead of being based on a fixed monetary amount per share.  In the
event that a company's by‐laws do not specifically address this issue, Brazilian
corporation law provides that the applicable percentage is 50%.  Our
by‐laws provide that at least 25% of the balance of the net profit from the
preceding year (as calculated in accordance with Brazilian corporation law and
Brazilian GAAP) must be distributed as mandatory dividends.  Brazilian
corporation law allows us, however, to suspend the mandatory dividend in any
year in the event that our board of directors informs the shareholders' general
meeting that the distribution would not be feasible in light of our financial
situation.  Any such suspension of the compulsory dividend is subject to
both the review of our fiscal council and approval of the shareholders'
meeting.  In the case of a public company, the board of directors must file
a specific justification for the suspension with the CVM within five days of the
shareholders' meeting.  Any dividends not distributed as a result of any
such suspension must be allocated to a special reserve.  If not absorbed by
subsequent losses, that amount must be distributed in the form of dividends as
soon as the company's financial situation allows such distribution. Distribution of
dividends Brazilian
corporation law provides that we must hold a general shareholders' meeting by
April 30th of each year at which, in addition to other matters, shareholders
must make decisions regarding the allocation of our net profit with respect to
the fiscal year ended immediately prior to our shareholders' meeting and the
distribution of our annual dividends.  Interim dividends may also be
declared by our board of directors.  Any payment of an interim dividend may
be set off against the amount of the mandatory dividend distribution for that
fiscal year.  Any holder of shares at the time of the declaration of
dividends has the right to receive those dividends.  Dividends
corresponding to shares held by custodians are paid to the custodian for
distribution to shareholders.  According to Brazilian corporation law,
dividends must generally be paid to owners within 60 days after the dividend is
declared, unless shareholders elect a different payment date which, in any case,
must occur before the end of the year in which the dividend was declared. 
Dividends attributed to shareholders and not claimed shall not earn interest or
be subject to inflation adjustment and the statute of
limitations in respect of receiving such dividends will expire (in our favor)
three years from the date such dividends were attributed to the
shareholders. - 77
      -


---



Table of Contents

Interest on
shareholders' equity According to
current Brazilian tax law, companies have been authorized since January 1, 1996
to distribute interest on shareholders' equity instead of dividends and treat
such distributions as deductible expenses for the purposes of income tax. 
Since 1998, such distributions may also be treated as deductible expenses for
the purposes of social contributions.  Such interest, which may be paid at
the discretion of our board of directors, subject to approval of the
shareholders' meeting, is limited to the daily variations in the TJLP on a
pro‐rated basis and may not exceed the greater of: ·50%
of net income (after deducting provisions for social contribution on the net
profit and before provision for income tax and interest on the company's own
capital) for the period for which the payment is made; or ·50%
of retained profits and profit reserves at the beginning of the year in relation
to which the payment is made. For accounting
purposes, although the deductible expense must be reflected in our statement of
income in order to be deductible, the expense is immediately reversed before
calculating net profit for the statutory financial statements and deducted from
net worth in a manner similar to a dividend.  Income tax of 15% (or 25% in
the event that the shareholder resides in a tax haven jurisdiction) is withheld
at source and owed by shareholders upon receipt of the interest; however the tax
is normally paid by the companies on behalf of the shareholders upon
distribution of the interest. Our by‐laws and
article 9, paragraph 7, of Law No. 9,249/95 provide that interest on Net
Equity can be attributed to the payment of dividends for purposes of the
mandatory dividend. Our dividend
policy We did not
distribute dividends or interest on capital to our shareholders between 1997 and
2004 because we had accumulated losses for those years.  Our board of
directors declared a dividend payment of R$137,268,869.54 in respect of the year
ended December 31, 2006, which was approved by our shareholders on April 27,
2007.  Our directors declared a dividend payment of R$72,093,006.90 in
respect of the year ended December 31, 2007, which was approved by our
shareholders on April 30, 2008.  Our board of directors resolved declared
that no dividends or interest on share capital would be distributed to our
shareholders with respect to 2008 because we recorded a net loss in
2008. We intend that
any distribution of dividends or interest on capital be made in future will be
made in accordance with Brazilian corporation law and our by‐laws.  Our
board of directors may declare dividends and elect that they be paid against
either accumulated profits or existing profits reserves, following approval at a
shareholders' meeting.  The amount distributed will depend on various
factors such as our financial condition and results of our operations, our cash
requirements, prospects and other factors considered relevant by our board of
directors and shareholders.  Holders of our ADSs will be entitled to the
same rights in respect of any distribution of dividends as holders of our
preferred shares. In addition, the
payment of dividends to our shareholders is contingent upon the net profit
distributed as dividends by our operating subsidiaries.  We may not be able
to pay dividends to our shareholders in the event that our operational
subsidiaries are unable to distribute dividends.  See " Amounts available
for distribution." B.  Significant Changes See the
disclosures in other Items of the Annual Report, as well as our disclosures on
Form 6‐K filed with the SEC after December 31, 2008.  - 78
      -


---



Table of Contents

ITEM 9.  THE OFFER AND LISTING A.  Offer and Listing Details In the United
States, our preferred shares trade in the form of ADSs.  As of December 31,
2008, the ADSs represented approximately 40.0% of our preferred shares and 26.7%
of our current global public float. The following
tables set forth the reported high and low closing sales prices for our ADSs on
the NYSE for the periods indicated. U.S.$ per ADSQuarter
    Low
    Average(1)
    HighFirst quarter 2008
    17.52
    21.01
    23.73Second quarter 2008
    18.45
    21.02
    24.72Third quarter 2008
    15.31
    19.82
    22.68Fourth quarter 2008.
    6.06
    9.81
    19.64First quarter 2009
    5.50
    7.19
    10.18
   (1)       Calculated
as the average of closing prices for the period. U.S.$ per ADSMonth
    Low
    Average(1)
    HighDecember 2008.
    6.74
    8.18
    9.23January 2009.
    7.26
    8.33
    10.18February 2009.
    6.37
    6.96
    7.39March 2009.
    5.50
    6.36
    6.93April 2009.
    5.63
    6.98
    8.14May 2009
    6.86
    8.74
    9.86
   (1)       Calculated
as the average of closing prices for the period. The following
table sets forth the reported high and low closing sale prices for our preferred
shares on the BM&FBOVESPA for the periods indicated. R$ per Preferred
      Share(1)Year
    Low
    Average(2)
    High2004
    3.70
    16.94
    33.002005
    15.75
    27.31
    47.502006
    40.15
    57.15
    75.002007
    39.64
    54.42
    68.712008
    13.70
    31.42
    42.00
   (1)       These
figures have not been adjusted to reflect the share split agreed on May 16,
2005, pursuant to which holders of our existing shares received two shares of
the same class and type for each share held. (2)       Calculated
as the average of closing prices for the period. R$ per Preferred
      Share(1)Quarter
    Low
    Average(2)
    HighFirst
      quarter 2007.
    51.16
    63.13
    70.80Second
      quarter 2007.
    50.42
    57.85
    66.93Third
      quarter 2007
    39.64
    50.39
    65.50Fourth
      quarter 2007
    40.81
    47.93
    52.35First
      quarter 2008.
    29.66
    36.22
    42.00Second
      quarter 2008.
    29.52
    34.49
    40.30Third
      quarter 2008
    24.25
    32.95
    40.53Fourth
      quarter 2008
    13.70
    22.09
    37.65
   (1)       These
figures have not been adjusted to reflect the share split agreed on May 16,
2005, pursuant to which holders of our existing shares received two shares of
the same class and type for each share held. (2)       Calculated
as the average of closing prices for the period. R$ per Preferred
  ShareMonth
    Low
    Average(1)
    HighDecember 2008.
    16.00
    19.57
    21.70January 2009.
    17.25
    19.13
    22.63February 2009.
    15.74
    16.19
    16.58March 2009.
    12.70
    14.69
    15.51April 2009.
    12.87
    15.30
    17.59May 2009
    15.50
    18.16
    20.21
   (1)       Calculated
as the average of closing prices for the period. - 79
      -


---



Table of Contents

B.  Plan of Distribution Not
applicable. C.  Markets Trading on
BM&FBOVESPA BM&FBOVESPA
is a closely‐held company owned by the Securities, Commodities and Futures
Exchange (BM&FBOVESPA S.A.  Bolsa de Valores,
Mercadorias e Futuros) ("BM&FBOVESPA"), which is a publicly‐held
company.  Trading on such exchanges is limited to member brokerage firms
and to a limited number of authorized non‐members. The CVM and
BM&FBOVESPA have discretionary authority to suspend trading in shares of a
particular issuer under certain circumstances.  Trading in securities
listed on BM&FBOVESPA, including theNovo Mercadoand Levels 1 and 2 segments, may be effected off
the exchanges in the unorganized over‐the‐counter market in certain
circumstances. The shares of
all companies listed on BM&FBOVESPA, includingNovo Mercadoand Level 1 and Level 2 companies, are traded
together. Settlement of
transactions occurs three business days after the trade date.  Delivery of
and payment for shares is made through the facilities of separate clearing
houses for each exchange, which maintain accounts for member brokerage
firms.  The seller is ordinarily required to deliver the shares to the
clearing house on the second business day following the trade date.  The
clearing house for BM&FBOVESPA is the CBLC. In order to
reduce volatility, BM&FBOVESPA has adopted a "circuit breaker" system
pursuant to which trading sessions may be suspended for a period of 30 minutes
or one hour whenever specified indices of BM&FBOVESPA fall below the limits
of 10% and 15%, respectively, in relation to the index levels for the previous
trading session. Although the
Brazilian equity market is Latin America's largest in terms of market
capitalization, it is smaller and less liquid than the major U.S. and European
securities markets.  Moreover, BM&FBOVESPA is less liquid than the New
York Stock Exchange and other major exchanges in the world.  Although any
of the outstanding shares of a listed company may trade on a Brazilian stock
exchange, in most cases fewer than half of the listed shares are actually
available for trading by the public, the remainder being held by small groups of
controlling persons, governmental entities or one principal
shareholder. Trading on
Brazilian stock exchanges by non‐residents of Brazil is subject to registration
procedures.  See "Item 10.  Additional Information  D.  Exchange
Controls." Regulation of
Brazilian Securities Markets The Brazilian
securities markets are principally governed by Law No. 6,385, of December
7, 1976, and Brazilian corporation law, each as amended and supplemented, and by
regulations issued by the CVM, which has authority over stock exchanges and the
securities markets generally; the National Monetary Council; and the Central
Bank, which has, among other powers, licensing authority over brokerage firms
and regulates foreign investment and foreign exchange transactions. These laws and
regulations, among others, provide for licensing and oversight of brokerage
firms, governance of the Brazilian stock exchanges, disclosure requirements
applicable to issuers of traded securities, restrictions on price
manipulation and protection of minority shareholders.  They also provide
for restrictions on insider trading.  However, the Brazilian securities
markets are not as highly regulated and supervised as the U.S. securities
markets or securities markets in some other jurisdictions.  Accordingly,
any trades or transfers of our equity securities by our officers and directors,
our controlling shareholders or any of the officers and directors of our
controlling shareholders must comply with the regulations issued by the
CVM. - 80
      -


---



Table of Contents

Under Brazilian
corporation law, a corporation is either public (companhiaaberta), as we are, or closely
held (companhia fechada).  All public
companies are registered with the CVM and are subject to reporting
requirements.  Our preferred shares are listed on the Level 2 segment of
BM&FBOVESPA.  See "BM&FBOVESPA's Different Corporate
Governance Levels." We have the
option to ask that trading in securities on BM&FBOVESPA be suspended in
anticipation of a material announcement.  Trading may also be suspended on
the initiative of BM&FBOVESPA or the CVM, based on or due to, among other
reasons, a belief that a company has provided inadequate information regarding a
material event or has provided inadequate responses to inquiries by the CVM or
BM&FBOVESPA. The Brazilian
over‐the‐counter market consists of direct trades between individuals in which a
financial institution registered with the CVM serves as intermediary.  No
special application, other than registration with the CVM, is necessary for
securities of a public company to be traded in this market.  The CVM
requires that it be given notice of all trades carried out in the Brazilian
over‐the‐counter market by the respective intermediaries. BM&FBOVESPA's Different Corporate Governance
Levels BM&FBOVESPA,
in carrying out its self‐regulatory functions, has established three
differentiated levels of corporate governance:  Level 1, Level 2 andNovoMercado. Each of the
different corporate governance levels includes companies that agree, on a
voluntarily basis, to adopt the corporate governance practices established for
the level they have adopted.  These corporate governance practices go
beyond those required by law. The entry of a
company into any one of the special listing segments of the BM&FBOVESPA
occurs through the signing of a contract that obliges the company to abide by
the rules of corporate governance established in the regulations for the
relevant level. BM&FBOVESPA
Level 2 Preferred shares
with restricted voting rights Voting rights
are guaranteed to holders of preferred shares with respect to the following
issues: (i) transformation, merger, consolidation or spin‐off of the
company, (ii) valuation of assets to be used for payment of capital increases by
the company, (iii) selection of a specialized company to determine the economic
value of our shares for the purpose of our delisting or discontinuation of our
Level 2 registration, (iv) the approval in shareholders meetings of agreements
between the company and its controlling shareholders, both directly and through
third parties, as well as with other companies in which the controlling
shareholders may have an interest, whenever required by law, (v) amending or
changing terms in the company's by‐laws that result in a failure on the part of
the company to meet the requirements established under the Level 2
regulations. Tag along
rights A change of
control of a Level 2 listed company must be conditioned on the acquiror
undertaking, within a maximum period of 90 days from the date of the acquisition
of the controlling interest, to make a public offer to purchase (i) 100% of the
common shares at a price per share equal to the highest price offered per common
share so as to guarantee that all common shareholders are treated equally for
purposes of the change of control, and (ii) 100% of the preferred shares at a
price per share of 70% of the price offered to the holders of the common
shares.  In the event of a change of control, we have voluntarily adopted a
provision in our bylaws, according to which we will offer to the preferred
shareholders 100% of the price per share paid to the controlling shareholder
group. - 81
      -


---



Table of Contents

Similarly, any
party that acquires a controlling interest in the company through successive
purchases of shares will be obliged to make a public offer to purchase the
remaining shares as described above, and to pay the difference between the price
it paid for the shares acquired during the previous six months, duly adjusted in
accordance with the inflation index or any other monetary correction applicable
to the relevant period, and the price to be paid to the other shareholders as
described above. Free
float Companies listed
on Level 2 segment of the BM&FBOVESPA must maintain a minimum percentage of
shares in circulation (free float), equal to at least 25% of its total share
capital.  This percentage must be maintained for the duration of the Level
2 registration. Public offers of
shares through mechanisms that favor broad distribution In each public
offer of shares, we must make every effort to ensure the broad distribution of
our shares, through the adoption of special procedures that must appear in the
relevant prospectus, such as guaranteeing access to all qualified interested
investors and distribution of at least 10% of the offer to private individuals
or non‐institutional investors. Introduction of
improvements in financial statements We must present
our quarterly information report (ITR), or other unaudited financial
information, including information reconciled to U.S. GAAP or IFRS standards, in
each case translated into English, within a maximum of 15 days after the time
established by law for the publication of quarterly information.  The ITR
must include, in addition to the obligatory information established by
law: (i)         
a consolidated balance sheet, a consolidated income statement and a report on
consolidated performance, if obliged to present consolidated annual financial
statements at the end of the financial year; (ii)        
information on the equity positions of all investors, including private
individuals, holding, directly or indirectly, over 5% of our voting
capital; (iii)       
consolidated information on the number and characteristics of securities issued
by us, and whether held, directly or indirectly, by individuals or groups
forming the controlling shareholder group, by directors or by members of the
audit committee; (iv)       
information on the acquisition and disposition of securities over the 12
immediately preceding months by investors covered in item (iii) above with
respect to relevant securities; (v)        
in the explanatory notes, company and consolidated cash flow statements, if we
are obliged to present consolidated statements at the end of the financial year;
and (vi)       
information on the number of outstanding shares and the percentage of total
issued shares that they represent. In the Annual
Information Report (IAN), the company should include, in addition to legal
requirements, the information listed in items (iii), (iv) and (vi)
above. The quarterly
information must be accompanied by a special review report issued by an
independent auditor that is duly registered with the CVM, observing the
methodology specified in the regulations published by the CVM. As of 2006
onward, we must, in addition to the terms of current legislation and regulations
in Brazil, release (i) financial information prepared in accordance with
international standards of U.S. GAAP or IFRS or release financial information,
in English, also disclosing the net income and shareholders' equity at the end
of the respective year, as determined according to accounting practices adopted
in Brazil; or (ii) financial statements, in English, prepared in accordance with
Brazilian corporation law, together with additional notes demonstrating the
reconciliation of results of operations and equity according to Brazilian GAAP
and U.S. GAAP or IFRS, as the case may be, evidencing the main differences between the
applied accounting criteria.  In addition, the annual financial statements
must include, in the explanatory notes, a company cash flow statement and a
consolidated cash flow statement, if applicable. - 82
      -


---



Table of Contents

Compliance with
transparency rules on the part of controlling shareholders and managers in
transactions involving our shares Our directors,
our controlling shareholder group and members of our audit committee must report
to BM&FBOVESPA the number and characteristics of our securities which they
hold, directly or indirectly, including associated derivatives.  This
information must be provided to the BM&FBOVESPA immediately after any such
person is elected, or acquires control, as the case may be. In the same way,
any transactions that may be effected with respect to securities and associated
derivatives dealt with in this item must be communicated in detail to the
BM&FBOVESPA, including pricing information, within ten days of the end of
the month in which the transaction occurs.  These obligations are extended
to securities and their associated derivatives that may be held, directly or
indirectly, by spouses, partners and dependents who are included in the annual
income tax declaration of directors, controlling shareholders, and members of
the audit committee. Shareholders'
agreement, stock option programs and contracts with companies in the same
economic group We must submit
to BM&FBOVESPA a copy of any shareholders' agreement filed at our
headquarters.  Accordingly, whenever we sign new shareholders' agreements
or amendments to any existing shareholders' agreement, the submission to
BM&FBOVESPA must occur within five days following its filing and/or
signing.  The date of filing and/or registration of any shareholders'
agreement at our headquarters must be indicated on the copy. Details of stock
option programs or other programs for the acquisition of any of our securities
by our employees or directors must also be submitted to BM&FBOVESPA and
disclosed. Finally, we must
publish information setting out details of each agreement (a) between us and our
subsidiaries and associated companies, directors and members of our controlling
shareholder group, (b) between us and any company controlled by or associated
with the directors and any member of the controlling shareholder group, as well
as with other companies that form, in conjunction with any one of these parties,
the same group, whetherde factoorde
jure, in each case, whenever a single agreement, or a
group of successive agreements, with or without the same purpose, in any period
of one year, represents values of (i) R$200,000 or more, or (ii) 1% of our net
stockholders' equity, whichever is greater. Resolution of
disputes through arbitration We and our
controlling shareholder group, directors and members of our audit committee must
resolve through arbitration all disputes or controversies related to the Level 2
regulations, our by‐laws, Brazilian corporation law and any other regulations
regarding the financial markets or securities, in each case in accordance with
the terms of the Market Arbitration Chamber (Câmara deArbitragem do
Mercado). Cancellation of
Level 2 registration In the event we
cancel the registration of our shares on Level 2 of BM&FBOVESPA, or de‐list
as a publicly listed company, a public offering by the controlling shareholder
group for the acquisition of all our outstanding shares will be required. 
The minimum price to be paid per share will be determined through a report on
the valuation of our shares, which must be prepared by a specialized company of
proven experience that is independent of us, our directors and our controlling
shareholder group, in addition to satisfying the applicable terms of and
carrying responsibility under Brazilian corporation law. The choice of
the specialized company responsible for determining the economic value of our
shares is to be determined at a shareholders' meeting at which preferred
shareholders will be entitled to vote, following presentation by the board of
directors of a list of three specialized companies nominated for such
purpose.  The selection must be made on the basis of a majority
vote of the free float shares, excluding abstentions.  The cost of the
valuation report will be borne in full by the controlling
shareholders. - 83
      -


---



Table of Contents

In the event
that the valuation report is available by the date of the shareholders' meeting
called for the purpose of canceling our listing as a public company, the
controlling shareholders must disclose the value per share or per 1,000 shares
on the basis of which the offer to purchase will be made.  Unless the price
per share announced by the controlling shareholder group in the shareholders'
meeting is greater than or equal to the value determined in the valuation
report, the meeting will automatically be cancelled, and timely notification of
this fact must be given to the market, unless the controlling shareholders
expressly agree to make the offer to purchase at a price per share equal to the
economic value per share as set forth in the valuation report. The cancellation
of registration as a listed company must follow the procedures and meet the
other requirements established in the regulations applicable under the terms of
current law applicable to a Brazilian company, particularly those appearing in
regulations published by the CVM on the subject. Divestment of
control following abandonment of Level 2 listing In the event
that we abandon or cancel our Level 2 listing and in the subsequent 12 months
there is a change in our control, the controlling shareholders relinquishing
control and the acquiror undertake, jointly and with joint responsibility, to
acquire the shares of all shareholders at the price per share and pursuant to
the same terms and conditions obtained by the controlling shareholder group in
the sale of their own shares in accordance with the inflation index or any other
monetary connection applicable to the relevant period.  In the event that
the price obtained by the controlling shareholder group for their shares is
higher than the price per share offered to the other shareholders in the offer
to purchase made in accordance with Level 2 regulations (see " Cancellation of
Level 2 registration"), the controlling shareholders relinquishing control and
the acquiror undertake, jointly and with joint responsibility, to pay the
difference between the proceeds in the operation for the transfer of control and
the value paid to those shareholders who accept the terms of the
offer. In addition, we
and our controlling shareholders are obliged to register in our share registry
book the obligation to fulfill the provision described in the paragraphs
above. Significant
Differences Between Our Corporate Governance Practices and NYSE Corporate
Governance Standards We are subject
to the NYSE corporate governance listing standards.  As a foreign private
issuer, the standards applicable to us are considerably different to the
standards applied to U.S. listed companies.  Under the NYSE rules, we are
required only to (i) have an audit committee or audit board, pursuant to an
applicable exemption available to foreign private issuers, that meets certain
requirements, as discussed below, (ii) provide prompt certification by our chief
executive officer of any material non‐compliance with any corporate governance
rules, and (iii) provide a brief description of the significant differences
between our corporate governance practices and the NYSE corporate governance
practices required to be followed by U.S. listed companies.  The discussion
of the significant differences between our corporate governance practices and
those required of U.S. listed companies follows below. Majority of
Independent Directors The NYSE rules
require that a majority of the board must consist of independent
directors.  Independence is defined by various criteria, including the
absence of a material relationship between the director and the listed
company.  Brazilian law does not have a similar requirement.  Under
Brazilian law, neither our board of directors nor our management is required to
test the independence of directors before their election to the board. 
However, both Brazilian corporation law and the CVM have established rules that
require directors to meet certain qualification requirements and that address
the compensation and duties and responsibilities of, as well as the restrictions
applicable to, a company's executive officers and directors.  Our directors
meet the qualification requirements of Brazilian corporation law and the CVM,
and a majority of our directors would be considered independent under the NYSE
test for director independence.  Brazilian corporation law and our bylaws
require that our directors be elected by our shareholders at a general
shareholders' meeting. - 84
      -


---



Table of Contents

Executive
Sessions NYSE rules
require that the non‐management directors must meet at regularly scheduled
executive sessions without management present.  Brazilian corporation law
does not have a similar provision.  According to Brazilian corporation law,
up to one‐third of the members of the board of directors can be elected from
management.  The remaining non‐management directors are not expressly
empowered to serve as a check on management, and there is no requirement that
those directors meet regularly without management.  As a result, the
non‐management directors on our board do not typically meet in executive
session. Nominating/Corporate Governance
Committee NYSE rules
require that listed companies have a nominating/corporate governance committee
composed entirely of independent directors and governed by a written charter
addressing the committee's required purpose and detailing its required
responsibilities, which include, among other things, identifying and selecting
qualified board member nominees and developing a set of corporate governance
principles applicable to the company. Compensation
Committee NYSE rules
require that listed companies have a compensation committee composed entirely of
independent directors and governed by a written charter addressing the
committee's required purpose and detailing its required responsibilities, which
include, among other things, reviewing corporate goals relevant to the chief
executive officer's compensation, evaluating the chief executive officer's
performance, approving the chief executive officer's compensation levels and
recommending to the board non‐chief executive officer compensation,
incentive‐compensation and equity‐based plans.  We are not required under
applicable Brazilian law to have a compensation committee.  Under Brazilian
corporation law, the total amount available for compensation of our directors
and executive officers and for profit‐sharing payments to our executive officers
is established by our shareholders at the annual general meeting.  The
board of directors is then responsible for determining the individual
compensation and profit‐sharing of each executive officer, as well as the
compensation of our board and committee members.  In making such
determinations, the board reviews the performance of the executive officers,
including the performance of our chief executive officer, who typically excuses
himself from discussions regarding his performance and compensation. Audit
Committee NYSE rules
require that listed companies have an audit committee that (i) is composed of a
minimum of three independent directors who are all financially literate, (ii)
meets the SEC rules regarding audit committees for listed companies, (iii) has
at least one member who has accounting or financial management expertise, and
(iv) is governed by a written charter addressing the committee's required
purpose and detailing its required responsibilities.  However, as a foreign
private issuer, we need only to comply with the requirement that the audit
committee meet the SEC rules regarding audit committees for listed
companies.  Brazilian corporation law requires companies to have a
non‐permanentConselho Fiscalcomposed of three to five
members who are elected at the general shareholders' meeting. Our statutory
Fiscal Board is primarily charged with certain advisory, oversight and review
functions with respect to the company's financial statements.  However, the
statutory Fiscal Board, as required by Brazilian Corporate Law, has only an
advisory role and does not participate in the management of the company. 
Decisions of the statutory Fiscal Board are not binding on the company under
Brazilian Corporate Law. As Brazilian
Corporate Law does not specifically grant our statutory Fiscal Board the power
to establish receipt, retention and complaint procedures regarding accounting,
internal control and audit matters, or create policies for the confidential,
anonymous treatment of employee concerns regarding accounting or auditing
matters, we have also established an Audit Committee as a best corporate
governance practice to address, at times working with the Ethics Committee,
issues such as this, among others.  See "Item 6.C  Directors, Senior
Management and Employees  Board Practices  Audit Committee."  We expect
that there are some similar functions between the Audit Committee and our
statutory Fiscal Board but we do not believe that our use of a fiscal board that
complies with Brazilian Corporate Law, in combination with our Audit Committee,
materially adversely affects the ability of our Audit Committee to act
independently, satisfy the other applicable requirements of Exchange Act Rule
10A‐3. - 85
      -


---



Table of Contents

Shareholder
Approval of Equity Compensation Plans NYSE rules
require that shareholders be given the opportunity to vote on all equity
compensation plans and material revisions thereto, with limited
exceptions.  Under Brazilian corporation law, shareholders must approve all
stock option plans.  In addition, any issuance of new shares that exceeds
our authorized share capital is subject to shareholder approval. NYSE rules
require that listed companies adopt and disclose corporate governance
guidelines.  We have not adopted any formal corporate governance guidelines
beyond those required by applicable Brazilian law.  We have adopted and
observe a disclosure policy, which requires the public disclosure of all
relevant information pursuant to guidelines set forth by the CVM, as well as an
insider trading policy, which, among other things, establishes black‐out periods
and requires insiders to inform management of all transactions involving our
securities. Code of Business
Conduct and Ethics NYSE rules
require that listed companies adopt and disclose a code of business conduct and
ethics for directors, officers and employees, and promptly disclose any waivers
of the code for directors or executive officers.  Applicable Brazilian law
does not have a similar requirement.  We have, however, adopted a Code of
Ethics applicable to our officers, directors and employees.  See "Item
16B.  Code of Ethics." Internal Audit
Function NYSE rules
require that listed companies maintain an internal audit function to provide
management and the audit committee with ongoing assessments of the company's
risk management processes and system of internal control. Sarbanes‐Oxley
Act of 2002 We maintain
controls and procedures designed to ensure that we are able to collect the
information we are required to disclose in the reports we file with the SEC, and
to process, summarize and disclose this information within the time periods
specified in the rules of the SEC.  Our officer certifications under
Section 404 of the U.S. Sarbanes‐Oxley Act of 2002 are included as Exhibits 12.1
and 12.2 to this annual report. D.  Selling Shareholders Not
applicable. E.  Dilution Not
applicable. F.  Expenses of the Issue Not
applicable. ITEM 10.  ADDITIONAL
INFORMATION A.  Share Capital Not
applicable. B.  Memorandum and Articles of
Association We set forth
below a brief summary of certain significant provisions of our by‐laws,
Brazilian corporation law and the rules and regulations of the CVM. 
Because this is a summary, it may not contain all information that is important
to you.  Accordingly, this description is qualified entirely by references
to our by‐laws and Brazilian corporation law. - 86
      -


---



Table of Contents

In addition,
holders of our preferred shares will be entitled to all shareholders' rights
provided to shareholders of companies listed on the Level 2 segment of
BM&FBOVESPA.  For a summary description of these shareholder rights,
see "Item 9.  The Offer and Listing  C.  Markets  BM&FBOVESPA's
Differentiated Corporate Governance Practices." General Our corporate
name is TAM S.A. and our head office is located in the city of São Paulo, state
of São Paulo, Brazil.  We were registered with the Board of Trade of the
state of São Paulo under NIRE number 35,300,150,007 and have been registered
with the CVM as a public stock corporation under number 01639‐0 since
1997. All of our
shares are registered with no par value and are indivisible.  Our entire
capital stock is fully paid‐up.  We currently hold 402,311 treasury
shares. Corporate
purpose Pursuant to
article 3 of our by‐laws, our corporate purposes are the participation (as
either a shareholder or quotaholder) in companies engaged in scheduled air
transportation services or related activities (including TAM Linhas
Aéreas).  Our by‐laws provide that any sale of more than 50% of our holding
of voting capital in TAM Linhas Aéreas to a third party is considered a change
in corporate purpose and, accordingly, would allow shareholders to exercise
their right to withdraw their shareholdings and receive in consideration the
economic value of their shares, subject to the provisions of our by‐laws and the
Brazilian corporation law.  See "Reimbursement and right of
withdrawal." Rights of our
common and preferred shares Each of our
common shares gives the holder the right to vote on decisions of our
shareholders' meetings.  Our preferred shares carry no right to vote on
decisions of the shareholders' meetings, except (as long as we are listed on the
Level 2 segment of BM&FBOVESPA) with regard to certain matters.  See "
Voting Rights." Our preferred
shares shall have the following advantages as compared to our common
shares: ·priority in the reimbursement of capital, without
premium, in the event of our liquidation; and ·the
right to be included in public offerings derived from the transfer of our
control, at the same price paid per each common share of the controlling
block. Reimbursement
and right of withdrawal For purposes of
the right of withdrawal, Brazilian corporation law provides that a dissident
shareholder includes not only shareholders who vote against a specific
resolution, but also those that have abstained from voting or failed to appear
at the shareholders' meeting.  Brazilian corporation law provides that a
dissident shareholder or shareholder with no voting rights has the right to
withdraw from shareholding in a company upon receiving full reimbursement for
all shares held in the event that the first invitation published for attending
such shareholders' meeting is made (by a qualified quorum of shareholders
representing at least 50% of the shares with the right to vote) to approve any
of the following matters: ·create preferred shares or increase an already
existing class of preferred shares, without maintaining the same proportion in
relation to the other classes of shares, unless already provided or authorized
in the by‐laws; ·alter the preference, privilege, or conditions for
redemption or amortization granted to one or more classes of preferred classes,
or create a new class of shares with greater privileges than the existing
classes of preferred shares; ·reduce the mandatory dividend; ·consolidate or merge with another company,
including one of our controlling companies; - 87
      -


---



Table of Contents

·participate in a group of companies; ·change of corporate purpose; ·transfer all shares to another company or receive
shares in another company in such a way as to make the company whose shares were
transferred to a wholly‐owned subsidiary of the merged company; ·perform a spin‐off that results in (i) a change in
the company's corporate purpose (unless the company's assets and liabilities are
transferred to a company that has substantially the same corporate purpose),
(ii) a reduction in the compulsory dividend, or (iii) participation in a group
of companies, as defined in Brazilian corporation law; or ·acquire control of another company for a price that
exceeds the limits provided in Brazilian corporation law (and subject to the
conditions set forth in Brazilian corporation law). In the case of
the first two items set out above, only the holders of shares adversely affected
may exercise the right of withdrawal. Whenever a
company resulting from the consolidation, merger of shares, or spin‐off of a
public stock corporation fails to obtain registration as a public stock
corporation (and, if applicable, fails to obtain registration of its shares for
trading on the stock exchange within 120 days of the date of the shareholders
meeting that approved that decision), the dissident shareholders or shareholders
without voting rights may also exercise the right of withdrawal. In the event
that our shareholders approve any resolution for us to (i) consolidate or merge
with another company, (ii) transfer all our shares to another company so as to
transform our company into a wholly‐owned subsidiary of that company, or (iii)
become part of a group of companies, the right of withdrawal may be exercised
only if our shares fail to satisfy certain liquidity tests at the time of the
shareholders' meeting. The right of
withdrawal expires 30 days after publication of the minutes of the shareholders'
meeting which approved any of the matters set out above.  In the case of
the first two items above, the decision taken at the shareholders' meeting only
becomes legally effective upon confirmation by shareholders holding preferred
shares, which must be obtained at a special shareholders' meeting held within
one year. In such cases,
the 30‐day deadline begins on the date of publication of the minutes of the
special shareholders meeting.  In the event that any redemption of shares
held by dissident shareholders would potentially be prejudicial to our financial
stability, we would have ten days following the expiration of that 30 day
deadline to reconsider the resolution that caused the exercise of the right of
withdrawal. Brazilian
corporation law also provides that the value of any shares to be withdrawn by
dissident shareholders, or shareholders with no voting rights who have exercised
the right to withdraw, shall be valued in an amount greater than the portion of
our net worth attributed to those shares, as demonstrated by reference to our
assets in the latest balance sheet approved at a shareholders meeting (in the
event that more than 60 days have passed since the date of that balance sheet,
the dissident shareholders have the right to request that the value of their
shares be calculated by reference to our assets on our most recent balance
sheet). The change in
the rights and benefits of our preferred shares was discussed at an
extraordinary general shareholders' meeting held on September 19,
2008. The sale of more
than 50% of our common stake in TAM Linhas Aéreas to a third party would be
considered a change in our corporate purpose and would give our shareholders the
right (subject to Brazilian corporation law and our by‐laws) to withdraw their
shareholdings and receive the economic value of their shares. - 88
      -


---



Table of Contents

Increases in
capital and preemptive rights Each shareholder
has preemptive right in respect of any issuance of new shares we conduct for the
purpose of increasing our capital (as well as in respect of subscribing to
debentures convertible to shares and warrants).  The extent of the
preemptive right is in direct proportion to the equity interest held by the
shareholder and may be exercised at least 30 days after the publication of the
notice of capital increase.  In the case of an increase of equal proportion
in the number of shares of all existing types and classes, each shareholder may
exercise the preemptive right only over the same type and class of shares
already held.  In the event that the shares to be issued are of existing
types and classes but the exercise of the preemptive right would result in a
change in the respective proportions of our capital stock, the preemptive right
may only be exercised over the types and classes identical to those already held
by the shareholders and may only extend to any other shares in the event that
these are insufficient to assure the shareholders the same proportion in our
capital stock they had prior to the increase in capital.  In the event that
there is an issuance of shares of types and classes different from those already
existing, each shareholder may exercise their preemptive rights (in proportion
to the same number of shares already held) over the shares of all types and
classes in the capital increase. Our by‐laws
provide that, in accordance with Brazilian corporation law and criteria set
forth by our board of directors, preemptive rights may be excluded, or the
deadline for exercise may be brought forward, in respect of any issuance of
shares, subscription bonuses, debentures or other securities convertible to
shares where such issuance is placed (a) via sale on the stock exchange or
public subscription, or (b) in exchange for shares in a public offering of
control acquisition, in accordance with applicable laws.  In addition,
Brazilian corporation law provides that granting an option to purchase shares in
relation to certain plans is not subject to preemptive rights. Shareholders'
meetings Our board of
directors is the competent body for calling our shareholders' meetings. 
Notice of our shareholders' meetings must be published at least three times in
theDiário Oficial do Estado, the official newspaper of
the state where our headquarters are located and another newspaper in general
circulation, currentlyValor Econômico.  Our shareholders'
meetings take place in our headquarters, in the city of São Paulo, in the State
of São Paulo.  Shareholders attending a shareholders' meeting must produce
proof of their status as shareholders and proof that they hold the shares
entitling them to vote. Voting
rights Each common
share grants the holder the right to one vote at shareholders'
meetings. Our preferred
shares do not grant their holders general voting rights except, for so long as
we are listed on the Level 2 segment of BM&FBOVESPA, in relation to the
following matters: ·any
direct conversion, consolidation, spin‐off or merger of TAM; ·agreements between us and our controlling
shareholder(s), as well as other companies in which our controlling
shareholder(s) have an interest, so long as such matters have been approved in a
general shareholders' meeting to the extent required by law or
statue; ·the
evaluation of assets in relation to any capital increase; ·the
appointment of any company specializing in evaluating the economic value of our
shares in case of a mandatory tender offer launched by us or by our controlling
shareholders if we elect to go private or if we elect to cease to follow the
requirements of BM&FBOVESPA's Level 2 regulation; ·any
change in our corporate purpose; and ·any
change in, or the revocation of, provisions of our by‐laws resulting in any
violation of certain requirements of BM&FBOVESPA's Level 2 regulation. 
See "Item 9.  The Offer and Listing  C. Markets  BM&FBOVESPA's
Differentiated Corporate Governance Practices." - 89
      -


---



Table of Contents

Brazilian
corporation law provides that shares with no voting rights or restricted voting
rights (which would include our preferred shares) must now carry unrestricted
voting rights in the event we should fail to distribute, for three consecutive
years, any fixed or minimum dividends granted by these shares until such time as
the respective distribution is completed.  As a result of the fact that our
by‐laws do not provide for any fixed or minimum dividend, such unrestricted
voting rights do not apply to our preferred shares. Brazilian
corporation law also provides that any change in the rights of preferred
shareholders, or any creation of a class of shares with priority over the
preferred shares must be approved by the owners of our common shares at a
shareholders' meeting.  Any such approval will only become legally
effective upon approval by the majority of our preferred shareholders at a
special shareholders' meeting, at which preferred shareholders vote as a special
class of shareholder. Brazilian
corporation law grants the right to elect members of our board of directors (and
alternates) at general shareholders' meetings to the holders of (i) preferred
shares with no voting rights (or with restricted voting rights) representing at
least 10% of the total capital, and (ii) common shares that are not part of the
controlling group, representing at least 15% of the total voting capital. 
In the event that the non‐controlling holders of preferred shares or common
shares do not represent the respective thresholds set out above, Brazilian
corporation law provides that holders of preferred shares and common shares
representing at least 10% of our capital may combine their holdings in order to
elect a member (and alternate) to our board of directors. Shareholders
have certain rights that may not be altered by provisions of our by‐laws or
resolutions of shareholders' meetings.  These rights are (i) in the case of
common shares only, the right to vote at general shareholders' meetings, (ii)
the right to participate in the distribution of dividends and interest paid on
our own capital and to share in our remaining assets in the case of liquidation,
(iii) rights to subscribe for shares or securities convertible to shares under
certain circumstances, and (iv) withdrawal rights in certain cases.  Our
by‐laws and a resolution of the majority of the shareholders with voting rights
have the ability to establish as well as remove certain additional
rights. Registration of
Our Shares:  Form and Transfer Our preferred
shares are held in registered book‐entry form, using the book‐entry form
services of Banco Itaú S.A., as custodian.  Transfer of our preferred
shares is carried out by means of an entry in their books, by debiting the share
account of the transferor and crediting the share account of the
transferee. Transfer of
shares by a foreign investor are made in the same way and executed by the
investor's local agent on the investor's behalf except that, if the original
investment was registered with the Central Bank pursuant to foreign investment
regulations, the foreign investor should also seek amendment, if necessary,
through its local agent, of the Certificate of Registration to reflect the new
ownership. The São Paulo
Stock Exchange operates a central and fungible clearing system through the
CBLC.  A holder of our preferred shares may choose, at its discretion, to
participate in these systems and all shares elected to be put into the systems
will be deposited in custody with the relevant stock exchange (through a
Brazilian institution that is duly authorized to operate by the Central Bank and
maintains a clearing account with the relevant stock exchange).  The fact
that such shares are subject to custody with the relevant stock exchange will be
reflected in our registry of shareholders.  Each participating shareholder
will, in turn, be registered in our register of beneficial shareholders that is
maintained by the relevant stock exchange and will be treated in the same way as
registered shareholders. American
Depositary Receipts JPMorgan Chase
Bank, N.A., as depositary has executed and delivered the ADRs representing our
preferred shares.  Each ADR is a certificate evidencing a specific number
of American Depositary Shares, or ADSs.  Each ADS represents an ownership
interest in one preferred share which we have deposited with the custodian, as
agent of the depositary.  Each ADS also represents any securities, cash or
other property deposited with the depositary but which they have not distributed
directly to you.  Unless specifically requested by you, all ADSs will be
issued on the books of our depositary in book‐entry form and periodic statements
will be mailed to you which reflect your ownership interest in such ADSs. 
In our description, references to American depositary receipts or ADRs shall
include the statements you will receive which reflects your ownership of
ADSs. - 90
      -


---



Table of Contents

The depositary's
office is located at 4 New York Plaza, New York, NY 10004. You may hold
ADSs either directly or indirectly through your broker or other financial
institution.  If you hold ADSs directly, by having an ADS registered in
your name on the books of the depositary, you are an ADR holder.  If you
hold the ADSs through your broker or financial institution nominee, you must
rely on the procedures of such broker or financial institution to assert the
rights of an ADR holder.  You should consult with your broker or financial
institution to find out what those procedures are. Because the
depositary's nominee will actually be the registered owner of the shares, you
must rely on it to exercise the rights of a shareholder on your behalf. 
The obligations of the depositary and its agents are set out in the deposit
agreement.  The deposit agreement and the ADSs are governed by New York
law. C.  Material Contracts Our material
contracts are directly related to our operating activities, such as contracts
relating to aircraft leasing and fuel supply.  We do not have material
contracts that are not related to our operating activities. Airbus Purchase
Contracts In 1998, we
entered into an agreement with Airbus pursuant to which we agreed to lease 38
Airbus A319‐100 and A320‐200 aircraft.  The last aircraft was delivered in
February 2008.  In 2005, we entered into an agreement with Airbus pursuant
to which we agreed to lease ten Airbus A350‐900 aircraft.  Due to
modifications to the A350 project at Airbus, we renegotiated the contract and
agreed to lease 22 A350 aircraft.  The A350 aircraft are scheduled to be
delivered by 2013.  In November 2006, we entered into an agreement with
Airbus pursuant to which we agreed to lease 31 A319/A320/A321 family aircraft,
with 20 options and six A330 aircraft, with four options.  In January 2008,
the 20 options of the 2006 contract were converted into firm orders. TAY Engine
Maintenance Contract In 2000, we
entered into an engine maintenance contract with MTU Motoren‐und Turbinen‐Union
München GmbH, or MTU, pursuant to which MTU agreed to provide certain
maintenance, refurbishment, repair and modification services with respect to
approximately 105 TAY650‐15 aircraft engines.  This contract is
complemented by a novation and amendment agreement between us and Rolls‐Royce
Brazil Ltda.  pursuant to which Rolls‐Royce Brazil Ltda., replaced MTU as
contract counterparty.  This agreement terminates on June 30,
2015. V2500 Engine
Maintenance Contract In 2000, we
entered into an engine maintenance contract with MTU Maintenance Hanover GmbH,
or MTU Hanover, pursuant to which MTU Hanover agreed to provide certain
maintenance, refurbishment, repair and modification services with respect to
certain V2500‐A5 engines.  This agreement terminates on June 30,
2014. PW4168A Engine
Maintenance Contract In 2000, we
entered into an engine maintenance contract with United Technologies Inc., Pratt
and Whitney Division, or Pratt and Whitney, pursuant to which Pratt and Whitney
agreed to perform maintenance, modification and/or overhaul of PW4168A engines,
engine modules and the parts and components thereof.  This agreement
terminates on September 14, 2010. GE
Contract In 2001, we
entered into a general terms agreement with GE Engine Services Distribution,
L.L.C., or GE, pursuant to which we have agreed to purchase certain spare
engines and support equipment for both the spare engines that we have purchased
from GE and certain engines that have already been installed on our operating
fleet.  We have also agreed to purchase certain product
support services from GE.  This agreement has no fixed termination
date. - 91
      -


---



Table of Contents

Sabre
Contract In October 2003,
we entered into a general services agreement with Sabre Travel International
Limited, pursuant to which we were granted a license (relating to the provision
of maintenance services) for electronic reservation technology and database
backup.  This agreement terminates in October 2013. D.  Exchange Controls Investors
residing outside Brazil are authorized to purchase equity instruments, including
our preferred shares, or as foreign portfolio investments on BM&FBOVESPA,
provided that they comply with the registration requirements set forth in
Resolution No. 2,689 of the National Monetary Council, (or Resolution
No. 2,689) and CVM Instruction No. 325; or register their investment
as foreign direct investments under Law No. 4,131/62. With certain
limited exceptions, Resolution No. 2,689 investors are permitted to carry
out any type of transaction in the Brazilian financial capital market involving
a security traded on a stock, future or organized over‐the‐counter market. 
Investments and remittances outside Brazil of gains, dividends, profits or other
payments under our preferred shares are made through the foreign exchange
market. In order to
become a Resolution No. 2,689 investor, an investor residing outside Brazil
must: ·appoint a representative in Brazil with powers to
take actions relating to the investment; ·appoint an authorized custodian in Brazil for the
investments, which must be a financial institution duly authorized by the
Central Bank and CVM; and ·through its representative, register itself as a
foreign investor with the CVM and the investment with the Central
Bank. Securities and
other financial assets held by foreign investors pursuant to Resolution
No. 2,689 must be registered or maintained in deposit accounts or under the
custody of an entity duly licensed by the Central Bank or the CVM.  In
addition, securities trading by foreign investors is generally restricted to
transactions involving securities listed on the Brazilian stock exchanges or
traded in organized over‐the‐counter markets licensed by the CVM. Foreign direct
investors under Law No. 4,131/62 may sell their shares in both private or
open market transactions, but these investors will generally be subject to less
favorable tax treatment on gains. A foreign direct
investor under Law No. 4,131/62 must: ·register as a foreign direct investor with the
Central Bank; ·obtain a taxpayer identification number from the
Brazilian tax authorities; ·appoint a tax representative in Brazil;
and ·appoint a representative in Brazil for service of
process in respect of suits based on the Brazilian corporation law. Resolution
No. 1,927 of the National Monetary Council, which restated and amended
Annex V to Resolution No. 1,289 of the National Monetary Council, provides
for the issuance of depositary receipts in foreign markets in respect of shares
of Brazilian issuers.  We filed an application to have the ADSs approved
under Resolution 1,927 by the Central Bank and the CVM, and we received final
approval on March 6, 2006. If a holder of
ADSs decides to exchange ADSs for the underlying preferred shares, the holder
will be entitled to (i) sell the preferred shares on the BM&FBOVESPA and
rely on the depositary's electronic registration for five business days from
the date of exchange to obtain and remit U.S. dollars abroad upon the holder's
sale of our preferred shares, (ii) convert its investment into a foreign
portfolio investment under Resolution No. 2,689/00, or (iii) convert its
investment into a foreign direct investment under Law
No. 4,131/62. - 92
      -


---



Table of Contents

If a holder of
ADSs wishes to convert its investment into either a foreign portfolio investment
under Resolution No. 2,689/00 or a foreign direct investment under Law
No. 4,131/62, it should begin the process of obtaining his own foreign
investor registration with the Central Bank or with the CVM as the case may be,
in advance of exchanging the ADSs for preferred shares. The custodian is
authorized to update the depositary's electronic registration to reflect
conversions of ADSs into foreign portfolio investments under Resolution
No. 2,689/00.  If a holder of ADSs elects to convert its ADSs into a
foreign direct investment under Law 4,131/62, the conversion will be effected by
the Central Bank after receipt of an electronic request from the custodian with
details of the transaction. If a foreign
direct investor under Law No. 4,131/62 wishes to deposit its shares into
the ADR program in exchange for ADSs, such holder will be required to present to
the custodian evidence of payment of capital gains taxes.  The conversion
will be effected by the Central Bank after receipt of an electronic request from
the custodian with details of the transaction.  Please refer to "Item
10.  Additional Information  E.  Taxation  Brazilian Tax
Considerations" for a description of the tax consequences to an investor
residing outside Brazil of investing in our preferred shares in
Brazil. E.  Taxation The summary
below is based upon tax laws of Brazil and the United States as in effect on the
date of this annual report, which are subject to change (possibly with
retroactive effect). There is at
present no income tax treaty between Brazil and the United States.  In
recent years, the tax authorities of the two countries held discussions that did
not, but may eventually, culminate in such a treaty.  No assurance can be
given as to whether or when such a treaty might enter into force or how it would
effect the United States holders of our preferred shares. Brazilian Tax
Considerations The following
discussion summarizes the material Brazilian tax consequences of the
acquisition, ownership and disposition of our preferred shares or ADSs by a
holder that is not domiciled in Brazil for purposes of Brazilian taxation and,
in the case of preferred shares, which has registered its investment in such
securities with the Central Bank as a U.S. dollar investment (in each case, a
Non‐Brazilian Holder).  Pursuant Brazilian law, investors may invest in the
preferred shares under Resolution No. 2,689. Resolution
No. 2,689 allows foreign investors to invest in almost all financial assets
and to engage in almost all transactions available in the Brazilian financial
and capital markets, provided that some requirements are fulfilled. In accordance
with Resolution No. 2,689, the definition of foreign investor includes
individuals, legal entities, mutual funds and other collective investment
entities, domiciled or headquartered abroad. Pursuant to
Resolution No. 2,689, foreign investors must: (a) appoint at least one
representative in Brazil with powers to perform actions relating to the foreign
investment; (b) complete the appropriate foreign investor registration form; (c)
register as a foreign investor with the Brazilian securities commission; and (d)
register the foreign investment with the Central Bank. Securities and
other financial assets held by foreign investors pursuant to Resolution
No. 2,689 must be registered or maintained in deposit accounts or under the
custody of an entity duly licensed by the Central Bank or the CVM.  In
addition, securities trading is restricted to transactions carried out in the
stock exchanges or organized over‐the‐counter markets licensed by the CVM,
except for transfers resulting from a corporate reorganization, occurring upon
the death of an investor by operation of law or will or as a consequence of the
delisting of the relevant shares from a stock exchange and the cancellation of
the registration with the CVM. - 93
      -


---



Table of Contents

Taxation of
Dividends Dividends,
including dividends in kind, paid by us to the depositary in respect of the
preferred shares underlying the ADSs or to a Non‐Brazilian Holder in respect of
preferred shares generally will not be subject to Brazilian income withholding
tax provided that they are paid out of profits generated as of or after January
1, 1996.  Dividends relating to profits generated prior to December 31,
1995 are subject to a Brazilian withholding tax of 15% to 25% according to the
tax legislation applicable to each corresponding year. Taxation of
Gains Gains realized
outside Brazil by a Non‐Brazilian Holder on the disposition of ADSs to another
Non‐Brazilian Holder are not currently subject to Brazilian tax.  However,
according to Law No. 10,833, enacted on December 29, 2003, or Law
No. 10,833, the disposition of assets located in Brazil by a Non‐Brazilian
Holder, whether to other Non‐Brazilian Holders or Brazilian holders, may become
subject to taxation in Brazil.  Although we believe that the ADSs do not
fall within the definition of assets located in Brazil for purposes of Law
No. 10,833, considering the general and unclear scope of such provisions
and the lack of a judicial court ruling in respect thereto, we are unable to
predict whether such understanding will ultimately prevail in the courts of
Brazil. For purposes of
Brazilian taxation, there are two types of Non‐Brazilian Holders of preferred
shares or ADSs: (a) Non‐Brazilian Holders that are not resident or domiciled in
a tax haven jurisdiction (i.e., a country or location
that does not impose income tax or where the maximum income tax rate is lower
than 20% or where the internal legislation imposes restrictions to disclosure of
shareholding composition or the ownership of the investment), and that, in the
case of holders of preferred shares, are registered before the Central Bank and
the CVM to invest in Brazil in accordance with Resolution No. 2,689; and
(b) other Non‐Brazilian Holders, which include any and all non‐residents of
Brazil who invest in equity securities of Brazilian companies through any other
means and all types of investors that are located in tax haven
jurisdiction.  The investors mentioned in item (a) above are subject to a
favorable tax regime in Brazil, as described below. The deposit of
preferred shares in exchange for ADSs may be subject to Brazilian tax on capital
gains at the rate of 15%, if the amount previously registered with the Central
Bank as a foreign investment in the preferred shares is lower than (a) the
average price per preferred share on a Brazilian stock exchange on which the
greatest number of such shares were sold on the day of deposit; or (b) if no
preferred shares were sold on that day, the average price on the Brazilian stock
exchange on which the greatest number of preferred shares were sold in the 15
trading sessions immediately preceding such deposit.  In such case, the
difference between the amount previously registered and the average price of the
preferred shares calculated as above will be considered to be a capital
gain.  Such taxation is not applicable in case of investors registered
under Resolution No. 2,689 which are not located in a tax haven
jurisdiction, which are currently tax exempt from income tax in such
transaction. The withdrawal
of ADSs in exchange for preferred shares is not subject to Brazilian tax. 
Upon receipt of the underlying preferred shares, a Non‐Brazilian Holder
registered under Resolution No. 2,689 will be entitled to register the U.S.
dollar value of such shares with the Central Bank as described below. As a general
rule, Non‐Brazilian Holders registered under Resolution No. 2,689 that are
not located in a tax haven jurisdiction are subject to income tax at a rate of
15% on gains realized on sales or exchanges of preferred shares outside a
Brazilian stock exchange.  With reference to proceeds of a redemption or of
a liquidating distribution with respect to the preferred shares, the difference
between the amount effectively received by the shareholder and the amount of
foreign currency registered with the Central Bank, translated intoreaisat the commercial market
rate on the date of the redemption or liquidating distribution, will be also
subject to income tax at a rate of 15% once such transactions are treated as a
sale or exchange not carried out on Brazilian stock exchange.  In both
cases, if the Non‐Brazilian Holders are located in tax haven jurisdictions, the
applicable rate is 25%.  Gains realized arising from transactions on a
Brazilian stock exchange by an investor registered under
Resolution No. 2,689 that is not located in a tax haven jurisdiction
are exempt from Brazilian income tax.  This preferential treatment under
Resolution No. 2,689 does not apply to Non‐Brazilian Holders of the
preferred shares or ADSs that are resident in a tax haven jurisdiction, in which
case, gains realized on transactions performed by such holder on the Brazilian
stock exchange are subject to the same tax rate that is applicable to a
Brazilian resident.  Pursuant to Law No. 11,033 of December 21, 2004,
the rate applicable to Brazilian residents in transactions entered as of January 1,
2005 was established at 15%, being also subject to a withholding tax of 0.005%
(to be offset against tax due on eventual capital gains). - 94
      -


---



Table of Contents

Therefore,
Non‐Brazilian Holders are subject to income tax at a rate of 15% on gains
realized on sales or exchanges in Brazil of preferred shares that occur on a
Brazilian stock exchange, unless such sale is made by a Non‐Brazilian Holder
that is not resident in a tax haven jurisdiction, and (a) such a sale is made
within five business days of the withdrawal of such preferred shares in exchange
for ADSs and the proceeds of such sale are remitted abroad within such five‐day
period, or (b) such a sale is made under Resolution No. 2,689 by
Non‐Brazilian Holders that register with the CVM.  In these two cases the
transaction will be tax exempt. The "gain
realized" as a result of a transaction on a Brazilian stock exchange is the
difference between the amount in Brazilian currency realized on the sale or
exchange of the shares and their acquisition cost, without any correction for
innovation.  The "gain realized" as a result of a transaction that occurs
other than on a Brazilian stock exchange, with shares that are registered under
a certificate of registration of investment (other than under Resolution
No. 2,689), will be calculated based on the foreign currency amount
registered with the Central Bank which will be translated intoreaisat the commercial market rate of the date of such
sale or exchange.  There can be no assurance that the current preferential
treatment for holders of ADSs and Non‐Brazilian Holders of preferred shares
under Resolution No. 2,689 will continue or will not be changed in the
future.  Reductions in the tax rate provided for by Brazil's tax treaties
do not apply to tax on gains realized on sales or exchanges of preferred
shares. Any exercise of
preemptive rights relating to the preferred shares or ADSs will not be subject
to Brazilian taxation.  Any gain on the sale or assignment of preemptive
rights relating to preferred shares by the depositary on behalf of holders of
ADSs will be subject to Brazilian income taxation according to the same rules
applicable to the sale or disposition of preferred shares. Distributions of
Interest Attributable to Shareholders' Equity In accordance
with Law No. 9,249, dated December 26, 1995, as amended Brazilian
corporations may make payments to shareholders characterized as distributions of
interest on the company's shareholders' equity.  Such interest is
calculated by reference to the TJLP as determined by the Central Bank from time
to time and cannot exceed the greater of: ·50%
of net income (after social contribution on profits and before taking such
distribution and any deductions for corporate income tax into account) for the
period in respect of which the payment is made; or ·50%
of the sum of retained profits and profit reserves, as of the date of the
beginning of the period in respect of which the payment is made. Distributions of
interest on shareholders' equity in respect of the preferred shares paid to
shareholders who are either Brazilian residents or non‐Brazilian residents,
including holders of ADSs, are subject to Brazilian income withholding tax at
the rate of 15%, or 25% in case of shareholders domiciled in a tax haven
jurisdiction.  The distribution of interest on shareholders' equity may be
determined by our board of directors.  We cannot assure you that our board
of directors will not determine that future distributions of profits may be made
by means of interest on shareholders' equity instead of by means of
dividends. The amounts paid
as distribution of interest on shareholders' equity are deductible for corporate
income tax and social contribution on profit, both of which are taxes levied on
our profits, as far as the limits and rules described above are observed by
us. Other Relevant
Brazilian Taxes There are no
Brazilian inheritance, gift or succession taxes applicable to the ownership,
transfer or disposition of preferred shares or ADSs by a Non‐Brazilian Holder
except for gift and inheritance taxes which are levied by some states of Brazil
on gifts made or inheritances bestowed by individuals or entities not resident
or domiciled in Brazil or domiciled within the state to individuals or entities
resident or domiciled within such state in Brazil.  There are no Brazilian
stamp, issue, registration or similar taxes or duties payable by holders of
preferred shares or ADSs.  Pursuant to Decree 6,306 of
December 14, 2007, the conversion into foreign currency or the conversion into
Brazilian currency of the proceeds received by a Brazilian entity from a foreign
investment in the Brazilian securities market, including those in connection
with the investment in the preferred shares and ADSs and those made under
Resolution No. 2,689, is potentially subject to an exchange transactions
tax (Imposto Sobre Operãçoes Financeiras 
IOF/Câmbio), although at present the rate of such tax is
generally 0.38%, which the Minister of Finance has the legal power to increase
at any time to a maximum of 25%, but any such increase will only be applicable
to transactions occurring after such increase becomes effective. - 95
      -


---



Table of Contents

Pursuant to
Decree 6,306/07, the Tax on Bonds and Securities Transactions (IOF/Títulos), which may be imposed on
any transactions involving bonds and securities effected in Brazil, even if
there transactions are performed on a Brazilian stock exchange.  As a
general rule, the rate of this tax is currently zero but the executive branch
may increase such rate up to 1.5% per day, but only with respect to future
transactions. Until December
31, 2007 financial transfers were taxed by theContribuição Provisória
sobreMovimentação Financeira, or CPMF, at a rate of
0.38%.  The CPMF was levied upon the remittance of proceeds on the amount
converted inreaisof the transaction and was
required to be withheld by the financial institution that carries out the
transaction.  Currently, the funds transferred from a bank account to
acquire shares on the Brazilian stock exchange are exempt from CPMF.  In
addition, Provisional Measure 281 of February 15, 2006 provided that the CPMF
rate assessable on an acquisition of shares in a non‐organized over‐the‐counter
transaction was to be reduced to zero (provided that such acquisition relates to
a public offering of shares made by a publicly‐traded company).  However,
since January 1, 2008, CPMF was no longer in force, as the Brazilian Senate did
not approve the Constitutional Amendment that would extend the term of CPMF
collection.  Therefore, CPMF should not be levied on any debit to bank
accounts carried out after such date. United
States The following
summary describes the material U.S. federal income tax consequences of the
ownership and disposition of our ADSs or preferred shares as of the date
hereof.  Except where noted, this discussion deals only with U.S. Holders
(as defined below) that hold our ADSs or preferred shares as capital assets for
U.S. federal income tax purposes (generally, property held for
investment).  This summary does not represent a detailed description of the
U.S. federal income tax consequences applicable to you if you are subject to
special treatment under the U.S. federal income tax laws, including if you
are: ·a
financial institution; ·a
dealer or trader in securities or currencies; ·a
regulated investment company; ·a
real estate investment trust; ·an
insurance company; ·a
tax‐exempt organization; ·a
person holding our ADSs or preferred shares as part of a hedging, integrated or
conversion transaction, a constructive sale or a straddle; ·a
person liable for alternative minimum tax; ·a
person who actually or by attribution owns 10% or more of our voting
stock; ·a
partnership or other pass‐through entity for U.S. federal income tax purposes;
or ·a
person whose "functional currency" is not the U.S. dollar. - 96
      -


---



Table of Contents

The discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (which we refer to as the Code), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below.  If you are considering
the purchase, ownership or disposition of our ADSs or preferred shares, you
should consult your own tax advisors concerning the U.S. federal income tax
consequences to you in light of your particular situation as well as any
consequences arising under the laws of any other taxing jurisdiction. As used herein,
"U.S. Holder" means a holder of our ADSs or that is for U.S. federal income tax
purposes: ·a
citizen or resident alien of the United States; ·a
corporation created or organized in or under the laws of the United States or
any political subdivision thereof; ·an
estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or ·a
trust which is subject to the primary supervision of a court within the United
States 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). If a partnership
(or other entity treated as a partnership for U.S. federal income tax purposes)
holds our ADSs or preferred shares, the tax treatment of a partner will
generally depend on the status of the partner and the activities of the
partnership.  If you are a partner of a partnership holding our ADSs or
preferred shares, you should consult your tax advisors. In general, for
U.S. federal income tax purposes, U.S. Holders of the ADSs will be treated as
the beneficial owners of the underlying preferred shares that are represented by
such ADSs.  Accordingly, deposits or withdrawals of preferred shares by
U.S. Holders for the ADSs will not be subject to the U.S. federal income
tax.  This summary is based, in part, upon representations made by the
depositary to us and assumes that the deposit agreements, and all other related
agreements, will be performed in accordance with their terms. The U.S.
Treasury has expressed concerns that parties involved in transactions where
depositary shares are pre‐released may be taking actions that are inconsistent
with the claiming of foreign tax credits for U.S. holders of ADSs. 
Accordingly, the analysis of the creditability of Brazilian taxes and the
availability of the reduced dividend rate discussed below could be affected by
future actions that may be taken by the U.S. Treasury. Taxation of
dividends Subject to the
discussion under " Passive foreign investment company rules" below,
distributions on our ADSs or preferred shares, including distributions paid in
the form of payments of interest on capital for Brazilian tax purposes, before
reduction for any Brazilian income tax withheld by us, will be taxable as
dividends to the extent paid out of our current or accumulated earnings and
profits, as determined for U.S. federal income tax purposes.  Such
dividends, including any withheld taxes, will be includable as ordinary income
on the day received by the depository.  Such dividends will not be eligible
for the dividends received deduction allowed to corporations.  Under
current law, dividends received before January 1, 2011 by non‐corporate U.S.
investors on shares of certain foreign corporations will be subject to U.S.
federal income tax at a maximum rate of 15% if certain conditions are met. 
A U.S. Holder will be eligible for this reduced rate only if it has held the
ADSs or preferred shares for more than 60 days during the 121‐day period
beginning 60 days before the ex‐dividend date.  A U.S. Holder will not be
able to claim the reduced rate for any year in which the company is treated as a
PFIC.  See " Passive foreign investment company rules" below. Based on
existing guidance, it is not entirely clear whether dividends received with
respect to the preferred shares will be treated as qualified dividends because
the preferred 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 holders of ADSs 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 the company will be
able to comply with them.  Holders of ADSs should consult their own tax
advisers regarding the availability of the reduced dividend tax rate in the
light of their own particular circumstances. - 97
      -


---



Table of Contents

The amount of
any dividend paid inreaiswill equal the U.S. dollar
value of thereaisreceived calculated by
reference to the exchange rate in effect on the date the dividend is actually or
constructively received by the depositary, regardless of whether thereaisare converted into U.S.
dollars at that time.  A U.S. holder should not recognize any foreign
currency gain or loss in respect of such distribution if thereaisis converted into U.S. dollars on the date
received.  If anyreaisreceived are not converted
into U.S. dollars on the date of receipt, you will have a tax basis in thereaisequal to their U.S. dollar
value on the date of receipt.  Any gain or loss realized on a subsequent
conversion or other disposition of thereaiswill be treated
as U.S. source ordinary income or loss. Subject to
generally applicable limitations and restrictions, Brazilian withholding taxes
on dividends may be treated as foreign taxes eligible for credit against your
U.S. federal income tax liability.  In the event that you do not elect to
claim a credit for foreign taxes, you may instead claim a deduction in respect
of such Brazilian taxes.  For purposes of calculating the foreign tax
credit, dividends paid on our ADSs or preferred shares will be treated as income
from sources outside the United States.  The limitation on foreign taxes
eligible for credit is calculated separately for specific categories of
income.  The rules governing the foreign tax credit are complex.  You
are urged to consult your tax advisors regarding the availability of the foreign
tax credit under your particular circumstances. Taxation of
capital gains Subject to the
discussion under " Passive foreign investment company rules" below, you will
recognize capital gain or loss for U.S. federal income tax purposes on any sale,
exchange or redemption of our ADSs or preferred shares in an amount equal to the
difference between the amount realized for the ADSs or preferred shares and your
tax basis in the ADSs or preferred shares.  This gain or loss will be
long‐term capital gain or loss if you held the ADSs or preferred shares for more
than one year at such time.  The deductibility of capital losses is subject
to limitations.  Any gain or loss recognized by you will generally be
treated as U.S. source gain or loss.  Consequently, you may not be able to
use the foreign tax credit arising from any Brazilian tax imposed on the
disposition of our ADSs or preferred shares unless such credit can be applied
(subject to applicable limitations) against tax due on other income treated as
derived from foreign sources in the appropriate income category. 
Alternatively, you may take a deduction for the Brazilian tax. If Brazilian tax
is withheld on the sale or disposition of our ADSs or preferred shares, your
amount realized will include the gross amount of the proceeds of such sale or
disposition before deduction of Brazilian tax. Passive foreign
investment company rules Based on the
information available, including our current market capitalization, we do not
expect to be considered a passive foreign investment company for U.S. federal
income tax purposes.  Passive foreign investment company status depends on
a foreign company not earning more than a permitted amount of gross income that
is considered "passive income" (such as interest, dividends and certain rents
and royalties) and not holding more than a permitted percentage of assets,
determined by value, that produce or are held to produce passive income. 
These tests depend on our income and the fair market value of our assets from
time to time, which include a significant number of passive assets. 
Accordingly, there can be no assurance that we will not be considered a passive
foreign investment company for any taxable year due, among other factors, to a
decline in our market capitalization.  If you are a taxable U.S. Holder and
we are treated as a passive foreign investment company for any taxable year
during which you own preferred shares or ADSs, you could be subject to
materially adverse consequences including the imposition of significantly
greater amounts of U.S. tax liability on disposition gains and certain
distributions as well as additional tax form filing requirements. Other Brazilian
taxes You should note
that any Brazilian IOF/Exchange Tax, IOF/Bonds Tax or the recently extinguished
CPMF Tax (as discussed above under " Brazilian Tax Considerations" above) may
not be treated as a creditable foreign tax for U.S. federal income tax purposes, although
you may be entitled to deduct such taxes, subject to applicable limitations
under the Code.  You should consult your tax advisors regarding the U.S.
federal income tax consequences of these taxes. - 98
      -


---



Table of Contents

Information
reporting and backup withholding Information
returns may be filed with the Internal Revenue Service in connection with
distributions on our ADSs or preferred shares and the proceeds from their sale,
exchange or redemption unless you establish that you are exempt from the
information reporting rules, for example because you are a corporation.  If
you do not establish this, you may be subject to backup withholding on these
payments if you fail to provide your taxpayer identification number or comply
with certain certification procedures.  The amount of any backup
withholding from a payment to you will be allowed as a credit against your U.S.
federal income tax liability and may entitle you to a refund, provided that the
required information is timely furnished to the Internal Revenue
Service. F.  Dividends and Paying Agents Not
applicable. G.  Statement by Experts Not
applicable. H.  Documents on Display We are subject
to the informational requirements of the U.S. Securities Exchange Act of 1934,
which is also known as the Exchange Act.  Accordingly, we are required to
file and/or furnish reports and other information with the SEC, including annual
reports on Form 20‐F and reports on Form 6‐K.  You may inspect and copy
reports and other information to be filed with the SEC at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Washington
D.C.  20549.  Copies of the materials may be obtained from the Public
Reference Room of the SEC at 100 F Street, N.E., Washington, D.C.  20549 at
prescribed rates.  The public may obtain information on the operation of
the SEC's Public Reference Room by calling the SEC in the United States at
1‐800‐SEC‐0330.  In addition, the SEC maintains an internet website at
http://www.sec.gov, from which you can electronically access these
materials.  In addition, such reports, proxy statements and other
information concerning us can be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, on which our equity
securities are listed. As a foreign
private issuer, we are not subject to the same disclosure requirements as a
domestic U.S. registrant under the Exchange Act.  For example, we are not
required to prepare and issue quarterly reports.  However, we furnish our
shareholders with annual reports containing financial statements audited by our
independent registered public accounting firm and make available to our
shareholders quarterly reports containing unaudited financial data for the first
three quarters of each fiscal year.  We file annual reports on Form 20‐F
within the time period required by the SEC, which is currently six months from
December 31, the end of our fiscal year. We will send the
depositary a copy of all notices that we give relating to meetings of our
shareholder or to distributions to shareholders or the offering of rights and a
copy of any other report or communication that we make generally available to
our shareholders.  The depositary will make all these notices, reports and
communications that it receives from us available for inspection by registered
holders of ADSs at its office.  The depositary will mail copies of those
notices, reports and communications to you if we ask the depositary to do so and
furnish sufficient copies of materials for that purpose. We also file
financial statements and other periodic reports with the CVM located at Rua de
Setembro, 111, Rio de Janeiro, RJ 20159‐900, Brazil. I.  Subsidiary Information Not
applicable.  - 99
      -


---



Table of Contents

ITEM 11.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK We are exposed
to market risks from our normal commercial activities.  These market risks
principally relate to changes in interest rates, exchange rates or oil
prices.  Any such changes may adversely affect the value of our financial
assets and liabilities or our future cash flow and income.  Market risk is
the possible loss derived from variations in market prices.  We have
entered into derivative contracts and other financial instruments for the
purpose of hedging against variations in these factors.  We have also
implemented policies and procedures in order to evaluate such risks and approve
and monitor our derivative transactions, including a policy that stipulates that
we will only enter into derivative transactions with counterparties who have a
high credit rating.  The counterparties to our derivative transactions are
major financial institutions.  We do not have significant exposure to any
single counterparty in relation to derivative transactions. Interest rate
risk Our earnings are
affected by changes in interest rates due to the impact those changes have on
interest expense from variable‐rate debt instruments, variable‐rate leasing
contracts and on interest income generated from our cash and short‐term
investment balances.  To minimize possible impacts from interest rate
fluctuations, TAM diversifies its debt among fixed and variable rate (such as
LIBOR and CDI) agreements. As of December
31, 2008, our variable‐rate debt totaled in the aggregate approximately R$687
million (consisting of debentures in the total aggregate amount of approximately
R$500 million and other variable‐rate debt and leasing contracts in the total
aggregate amount of U.S.$80 million).  A hypothetical 100 basis point
increase in market interest rates at December 31, 2008 would have increased our
annual variable‐rate interest expense by approximately R$6.9 million (consisting
of an increase in interest expenses from variable‐rate debentures in the total
aggregate amount of approximately R$5 million (equal to one percent of R$500
million) and from other variable‐rate debt and leasing contracts in the total
aggregate amount of R$1.9 million (equal to one percent of U.S.$80 million, or
R$187 million at the December 31, 2008 exchange rate of R$ 2.337 to
U.S.$1.00). Exchange rate
risk A significant
part of our costs and operating expenses, such as aircraft and engine
maintenance services, aircraft lease payments and aircraft insurance, are
denominated in U.S. dollars.  To manage exchange rate risk, we may enter
into derivatives contracts with various counterparties to protect ourselves
against a possible depreciation or devaluation of the real in relation to the
U.S. dollar.  At December 31, 2008, we had no outstanding currency futures
contracts.  Our profit was more sensitive to currency fluctuations in 2008
than 2007 because we were party to more U.S. dollar‐denominated finance leases
in 2008. At December
31,2008, if the Brazilianrealhad weakened/strengthened
by 10% against the U.S. dollar, assuming all other variables (such as LIBOR and
outstanding value) remained constant, net finance results for the year would
have been R$770 million higher/lower, mainly as a result of exchange
gains/losses (in respect of U.S. dollar‐denominated financial assets (valued at
fair value), borrowings, finance leases and derivatives instruments).  This
amount corresponds to 10% of our net exposure to foreign currency exchanges,
which total in the aggregate U.S.$3.3 billion (or R$7.7 billion at the December
31, 2008 exchange rate of R$2.337 to U.S.$ 1.00). Risks relating
to variations in the price of oil Our results of
operation are affected by changes in the price of oil.  We have entered
into oil derivatives contract in order to hedge ourselves against this
risk.  Our policy is to enter into oil derivatives contracts that cover a
minimum of 30% and a maximum of 80% of the amount of our projected fuel
consumption for up to rolling 24‐month periods.  At December 31, 2008, we
were party to outstanding oil derivatives contracts corresponding to
approximately eight million barrels of oil.  In 2008, we recorded liability
of R$1,129 million in respect of these contracts. - 100
      -


---



Table of Contents

We enter into
derivatives contracts only with counterparties rated at least A‐ (A3) by
S&P, Moody's or Fitch.  The fair values of our oil derivatives
contracts according to the credit rating of the counterparties are: Fair value of
    derivativesAAA.
    (446,757)AA+, AA or AA‐
    (131,109)A+, A or A‐
    (551,119)(1,128,985)
  In Brazil, the
price of jet kerosene is determined by a state‐controlled oil company,
Petrobras, and is based on international jet fuel prices.  We attempt to
hedge against the volatility of kerosene prices through oil derivatives based on
crude oil (West Texas Intermediate or "WTI").  WTI is highly correlated
with our average Jet Fuel Price and is arguably the most actively traded
commodity. A hypothetical
10% increase/decrease in the price of WTI of US$ 44.6 at December 31, 2008 would
lead to an increase/decrease of approximately R$ 30.4 million/R$ 30.6 million
respectively in the fair value of our WTI derivatives.  This assumes that
the inherent components, interest rates and the exchange rates with respect to
the contracts remain constant and that the 10% variation in WTI price is uniform
along the future curve of WTI.  We calculate the fair value of our oil
derivatives contracts individually using specific models for each contract,
which include simple discounted cash flow models, Monte‐Carlo's simulation
models and other analytical models. Such a 10%
increase/decrease would also directly influence our financial results.  In
terms of cash flow, such changes in WTI price would be more than offset by a
decrease/increase in our jet fuel costs.  To calculate the impact on our
cash flows, we estimate our average Jet Kerosene price as a function of WTI
prices (through a simple linear regression analysis of prices over periodic
24‐month periods).  Assuming a base monthly consumption of 1.2 million
barrels of fuel and an average strike price of US$112 per barrel of fuel under
our derivatives contracts, a 10% increase/decrease in the price of WTI would
increase/decrease our jet fuel expenses by R$745.6 million/R$745.6 million
(including the relevant effects of settlements on our derivatives
contracts). ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES Not
applicable. - 101
      -


---



Table of Contents

PART II ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES None. ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS On August 29,
2008, certain of our key shareholders,Amaro &
Aviation Participações S.A., TAM Empreendimentos E Participações S.A., and
Agropecuária Da Nova Fronteira Ltda., entered into a Shareholders' Agreement
with respect to the common shares in us that they hold.  We have included
an English translation of this Shareholders' Agreement in this Annual Report as
Exhibit 2.3. ITEM 15.  CONTROLS AND
PROCEDURES Disclosure
Controls and Procedures  We carried out an evaluation under the supervision of,
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, including those defined in
United States Exchange Act Rule 13a‐15(e), as of the year ended 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 controls and procedures can only provide reasonable
assurance of achieving their control objectives.  As a result of this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2008, and that the information
required to be disclosed in our filings and submissions under the Exchange Act
had been recorded, processed, summarized, and reported within the time periods
specified by the SEC's rules and forms, and that such information was
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
about required disclosure.   After filing our annual report on Form 20-F for the year
ended December 31, 2008, and while preparing our annual report on Form 20-F for
the year ended December 31, 2009, we discovered a material error in our 2008
consolidated financial statements and concluded that we had to restate our
financial statements as of and for the year ended December 31, 2008. 
Management concluded that a material error
existed with respect to (i) theaccumulated
depreciation recognized under "operating expenses" in our income statement after
removing certain aircraft from our fleet in 2007 and (ii) the corresponding
amount of accumulated depreciation reported on our balance sheet after that
removal.  Management identified the
error while performing reconciliations that were part of the implementation of a
new computer system designed to record aircraft and flight equipment.  The
material error required corrections to the financial statements as of December
31, 2008 and 2007 and is more fully described in Note 2.1(b) to our restated
financial statements included as part of this Amendment No. 2 for the year ended
December 31, 2008.   As a result of this
restatement, we re-evaluated the effectiveness of the design and operation of
our disclosure controls and procedures and our internal controls over financial
reporting as of December 31, 2008 and concluded that a material weakness existed
in our internal control over financial reporting with respect to (i)
the accumulated
depreciation recognized under "operating expenses" in our income statement after
removing aircraft from our fleet and (ii) the corresponding amount of
accumulated depreciation reported on our balance sheet after those
removals.  The material error occurred because of a flaw in the design of
an electronic spreadsheet we use to maintain an auxiliary record of aircraft and
flight equipment.  As a result, with respect to aircraft removed from our
fleet in 2007, we failed to recognize accumulated depreciation under "operating
expenses" in our income statement and we failed to recognize accumulated
depreciation on our balance sheet.  Our failure to recognize these amounts
was not detected by our accounting staff in a subsequent review of the
electronic spreadsheet.Accordingly, our Chief Executive Officer and Chief
Financial Officer have now concluded that our disclosure controls and procedures
were not effective as of December 31, 2008.   After completion of the procedures to correct these
errors, our management concluded that our consolidated financial statements
included as part of this Amendment No. 2 are fairly stated in accordance with
applicable generally accepted accounting principles.   Management's Annual Report on Internal Control over
Financial Reporting and Attestation Report of Registered Public Accounting Firm
(Restated)   Our management
reassessed the effectiveness of our internal controls over financial reporting
as of December 31, 2008.  In making this reassessment, our management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal ControlIntegrated
Framework. Based on this assessment, our management concluded
that, as of December 31, 2008, our internal control over financial reporting did
not operate effectively and that, accordingly, there was a material weakness in
our internal controls, as described above. - 102
      -


---



Table of Contents

Our restated management's annual report on internal control over financial reporting is included in this Amendment No. 2 on page F-2 and the opinion by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is included in the report of PricewaterhouseCoopers Auditores Independentes that is included in this Amendment No. 2 on page F-3.  Remediation of Material Weakness   In order to remedy this material weakness, we now register all aircraft in the "SISPRO" control system for assets.  SISPRO is a computerized system for recording property, plant and equipment.  When we remove aircraft and flight equipment from our fleet, the SISPRO control system ensures that both the cost, or revalued amount, and corresponding accumulated depreciation are recognized in income upon disposal.  The implementation of SISPRO required our management to perform a full reconciliation of the carrying amount of aircraft and flight equipment and we believe SISPRO accurately accounts for the aircraft and flight equipment in our fleet.   Changes in Internal Control over Financial Reporting   Other than as set forth above, there have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting as of December 31, 2008.  ITEM 15T.  CONTROLS AND PROCEDURES Not applicable.  - 103 -


---



Table of Contents

ITEM 16A.  AUDIT COMMITTEE FINANCIAL
EXPERT Our board of
directors has determined that Adalberto de Moraes Schettert, a member of our
audit committee, is an "audit committee financial expert" as defined by current
SEC rules and meets the independence requirements of the SEC and the NYSE
listing standards.  For a discussion of the role of our audit committee,
see "Item 6.  Directors, Senior Management and Employees C. Board Practices
 Audit Committee." ITEM 16B.  CODE OF ETHICS Our board of
directors has adopted a Code of Ethics applicable to our directors, officers and
employees, including our principal executive officer and principal financial
officer.  Our Code of Ethics can be found at www.tam.com.br under the
heading "Investor Relations".  Information found at this website is not
incorporated by reference into this document. ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND
SERVICES The following
table sets forth by category of service the total fees for services provided by
PricewaterhouseCoopers Auditores Independentes during the fiscal years ended
December 31, 2008 and 2007. 2008
    2007(R$
      millions)Audit Fees
    5.8
    3.7Audit‐Related Fees
    
    Tax Fees.
    
    All Other
      Fees.
    
    Total
    5.8
    3.7
  Audit
Fees Audit fees
consist of the aggregate fees billed by PricewaterhouseCoopers Auditores
Independentes in connection with the audit of our annual financial statements,
internal control reviews, interim reviews of our quarterly financial
information, the issuance of comfort letters, procedures related to the audit of
income tax provisions in connection with the audit and the review of our
financial statements. Audit‐Related
Fees No audit‐related
fees were paid to PricewaterhouseCoopers Auditores Independentes for the fiscal
year ended December 31, 2008.  No audit‐related fees were paid to
PricewaterhouseCoopers Auditores Independentes for the fiscal year ended
December 31, 2008. Tax
Fees No tax fees were
paid to PricewaterhouseCoopers Auditores Independentes for the fiscal years
ended December 31, 2008 and 2007. All Other
Fees No other fees
were paid to PricewaterhouseCoopers Auditores Independentes for the fiscal years
ended December 31, 2008 and 2007. Pre‐Approval
Policies and Procedures Our audit
committee approves all audit, audit‐related services, tax services and other
services provided by PricewaterhouseCoopers Auditores Independentes.  Any
services provided by PricewaterhouseCoopers Auditores Independentes that are not
specifically included within the scope of the audit must be pre‐approved by the
audit committee in advance of any engagement.  Pursuant to Rule 2‐01 of
Regulation S‐X, audit committees are permitted to approve certain fees for
audit‐related services, tax services and other services pursuant to ade minimisexception prior to the
completion of an audit engagement.  Our management periodically reports to
our audit committee the nature and scope of audit and non‐audit services
rendered by our independent auditors.  In 2008 and 2007, none of the fees paid to
PricewaterhouseCoopers Auditores Independentes were approved pursuant to thede minimisexception. - 104
      -


---



Table of Contents

ITEM 16D.  EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY
THE ISSUER AND AFFILIATED PURCHASERS None. ITEM 16F.  CHANGE IN REGISTRANT'S CERTIFYING
ACCOUNTANT Not
applicable. ITEM 16G.  CORPORATE GOVERNANCE See "Item
9.  The Offer and Listing  C.  Markets  Significant Differences
Between Our Corporate Governance Practices and NYSE Corporate Governance
Standards."  - 105
      -


---



Table of Contents

PART III ITEM 17.  FINANCIAL STATEMENTS See "Item 18.  Financial Statements." ITEM 18.  FINANCIAL STATEMENTS See our consolidated financial statements beginning on page F‐1. ITEM 19.  EXHIBITS 1.1
     By‐laws of TAM S.A. (English translation), incorporated herein by reference from our fourth pre‐effective amendment to our Registration Statement on Form F‐1, filed February 17, 2006, File No. 333‐131938.1.2
     By‐laws of TAM Linhas Aéreas S.A. (English translation), incorporated herein by reference from our second pre‐effective amendment to our Registration Statement on Form F‐4, filed October 29, 2007, File 333‐145838‐01.1.3
     By‐laws of TAM Capital Inc. (English translation), incorporated herein by reference from our second pre‐effective amendment to our Registration Statement on Form F‐4, filed October 29, 2007, File 333‐145838‐02.2.1
     Form of Deposit Agreement among TAM S.A., JPMorgan Chase Bank, N.A., as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the form of American Depositary Receipts, incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.2.2
     Indenture dated as of April 25, 2007 among TAM Capital Inc., Tam S.A., TAM Linhas Aéreas S.A., The Bank of New York and The Bank of New York (Luxembourg) S.A., incorporated herein by reference from our second pre‐effective amendment to our Registration Statement on Form F‐4, File No. 333‐131938.2.3
     Shareholders' Agreement entered into by certain key shareholders of TAM S.A., dated August 27, 2007.4.1
     A320 Family Purchase Agreement, dated March 19, 1998, between Airbus S.A.S. (formerly known as Airbus Industrie GIE) and TAM Linhas Aéreas S.A. (formerly known as TAM Transportes Aéreas Meridionais S/A and as successor in interest in TAM‐Transportes Aéreas Regionais S.A.), incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.2
     A350 Family Purchase Agreement, dated December 20, 2005, between Airbus S.A.S.  and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.3
     Tay Engine Maintenance Agreement, dated September 14, 2000, between TAM Linhas Aéreas S.A. and MTU Motoren‐und Turbinen‐Union Muchen GmbH, incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.4
     V2500 Maintenance Agreement, dated September 14, 2000, between TAM Transportes Aéreos Regionais S.A. (incorporated by TAM Linhas Aéreas S.A.) and MTU Maintenance Hannover GmbH (MTU), incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.5
     PW4168A Maintenance Service Agreement, dated September 14, 2000, between TAM Linhas Aéreas S.A. and United Technologies International, Inc., Pratt & Whitney Division, incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.6
     Novation and Amendment Agreement, dated November 8, 2001, between Rolls‐Royce, MTU Aero Engines GmbH and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.7
     General Terms Agreement N° GE‐00‐0059, dated May 2001, among General Electric Company, GE Engine Services Distribution LLC and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.4.8
     General Services Agreement, dated October 3, 2003, between Sabre Travel Information Limited and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre‐effective amendment to our Registration Statement on Form F‐1, filed March 2, 2006, File No. 333‐131938.8.1
     List of subsidiaries.12.1
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Executive Officer of TAM S.A.12.2
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Financial Officer of TAM S.A.12.3
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Executive Officer of TAM Linhas Aéreas S.A.12.4
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Financial Officer of TAM Linhas Aéreas S.A.12.5
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Executive Officer of TAM Capital Inc.12.6
     Rule 13a‐14(a)/15d‐14(a) Certification of Chief Financial Officer of TAM Capital Inc.13.1
     Section 1350 Certification of Chief Executive Officer of TAM S.A.13.2
     Section 1350 Certification of Chief Financial Officer of TAM S.A.13.3
     Section 1350 Certification of Chief Executive Officer of TAM Linhas Aéreas S.A.13.4
     Section 1350 Certification of Chief Financial Officer of TAM Linhas Aéreas S.A.13.5
     Section 1350 Certification of Chief Executive Officer of TAM Capital Inc.13.6
     Section 1350 Certification of Chief Financial Officer of TAM Capital Inc.15.1
     Consent of Engeval Engenharia de Avaliações S/C Ltda.15.2
     Consent of PricewaterhouseCoopers.
 - 106 -


---



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 amended
annual report on its behalf. TAM S.A. By:/s/ Marco Antonio
BolognaName:  Marco Antonio
BolognaTitle:  Chief Executive OfficerDate:  June 8, 2010 TAM LINHAS AÉREAS S.A. By:/s/ Líbano Miranda
BarrosoName:  Líbano Miranda
BarrosoTitle:  Chief Executive OfficerDate:  June 8, 2010 TAM CAPITAL INC. By:/s/ Líbano Miranda
BarrosoName:  Líbano Miranda
BarrosoTitle:  Chief Executive OfficerDate:  June 8, 2010 - 107
    -


---



Table of Contents TAM S.A. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2008 AND 2007 Managements Report on Internal Control over Financial Reporting
     F-2Report of Independent Registered Public Accounting Firm (including Report on Internal Control over Financial Reporting)
     F-3Consolidated Balance Sheets as of December 31, 2008 and 2007
     F-4Consolidated Income Statement for the years ended December 31, 2008 and 2007
     F-5Statement of Recognized Income and Expense for the years ended December 31, 2008 and 2007
     F-5Consolidated Statement of Cash Flows for the years ended December 31, 2008 and 2007
     F-6Notes to Consolidated Financial Statements
     F-7
  108


---



Table of Contents TAM S.A.Consolidated Financial Statements atDecember 31, 2008 and 2007and Report of the IndependentRegistered Public Accounting Firm


---



Table of Contents
 Management'sReport on Internal Control 
over Financial Reporting(Restated) To the Board of Directors and Stockholders of TAM S.A.


1. The management of TAM S.A. ("TAM" or the "Company"), including the CFO and CEO, is responsible for establishing and maintaining adequate internal control over financial reporting.


2. 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 (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) 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 (c) 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.


3. 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.


4. TAM's management 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"). Subsequent to the filing of the Annual Report on Form 20-F for the year ended December 31, 2008, management concluded that a material error existed with respect to (i) the accumulated depreciation recognized under "operating expenses" in the income statement after removing certain aircraft from the Company's fleet in 2007 and (ii) the corresponding amount of accumulated depreciation reported on the balance sheet after that removal. This error is more fully described in Note 2.1(b) to the consolidated financial statements included in the Form 20-F/A. As a result of this misstatement, management, after consultation with the Audit Committee, determined that the audited financial statements included in TAMs Form 20-F for the year ended December 31, 2008 should be restated to correct this misstatement.


5. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual financial statements will not be prevented or detected on a timely basis. Management has concluded that, as of December 31, 2008, the Company did not maintain effective controls over (i) the accumulated depreciation recognized under "operating expenses" in the income statement after removing aircraft and flight equipment from the Company's fleet and (ii) the corresponding amounts of accumulated depreciation reported on the balance sheet after those removals. This resulted from an error in the design of an electronic spreadsheet the Company used to maintain an auxiliary record of aircraft and flight equipment. As a result, there was a failure to recognize amounts under "operating expenses" in the income statement and a failure to recognize accumulated depreciation on the balance sheet. The failure to recognize these amounts was not detected by the Company's accounting staff in a subsequent review of the electronic spreadsheet. This control deficiency resulted in the restatement of the Companys consolidated statements as of and for the year ended December 31, 2008. Management previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2008. In connection with the restatement of the Companys consolidated financial statements due to the material error discussed above, and based on the criteria established inInternal Control  Integrated Frameworkissued by the COSO, management has determined that the Company did not maintain effective internal control over financial reporting as of December 31, 2008. Accordingly, management has restated this report on internal control over financial reporting.


6. The effectiveness of the Company's internal control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.


São Paulo, June 8, 2010


By:/s/ Marco Antonio BolognaChief Executive Officer, TAM S.A.





By:/s/Líbano Miranda BarrosoChief FinancialOfficer, TAM S.A.
F-2




Table of Contents
 Report of the Independent Registered PublicAccounting Firm to the Stockholders of TAM S.A. To the Board of Directors and Stockholders of Tam S.A. In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, consolidated cash flow statements and consolidated statements of recognized income and expense present fairly, in all material respects, the financial position of TAM S.A. and its subsidiaries (the "Company") at December 31, 2008 and 2007 and the results of their operations and cash flows for each of the two years in the period ended December 31, 2008, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. We and management previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2008. However, management has subsequently determined that a material weakness existed in internal control over financial reporting with respect to (i) the accumulated depreciation recognized under "operating expenses" in the income statement after removing aircraft and flight equipment from the Company's fleet and (ii) the corresponding amount of accumulated depreciation reported on the balance sheet after those removals. Accordingly, managements report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report. In our opinion the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness existed in internal control over financial reporting with respect to accumulated depreciation recognized under "operating expenses" in the income statement after removing aircraft and flight equipment from the Company's fleet and the corresponding accumulated depreciation reported on the balance sheet after those removals. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanyingManagement's Report on Internal Control over Financial Reporting. We considered this  material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and our opinion regarding the effectiveness of the Companys internal control over financial reporting does not affect our opinion with respect to those consolidated financial statements.  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 accompanying "Management's Report on Internal Control over Financial Reporting" as set out on page F-2. 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 consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated 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. As described in Note 2.1.(b) to the consolidated financial statements, the Company has restated its 2008 financial statements to correct the misstatements described in that Note. 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 (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated accounts 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 (c) 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. São Paulo, Brazil, June 7, 2010 PricewaterhouseCoopersAuditoresIndependentes  F-3


---







Table of Contents TAM S.A.Consolidated Balance Sheets as at December 31In thousands of reais, unless otherwise indicated
  Assets
     2008
     
     2007
     
     Liabilities
     2008
     
     2007(Restated)
     
     (Restated)
     
     
     (Restated)
     
     (Restated)Non-current assets
     
     
     
     
     Non-current liabilitiesProperty, plant and equipment (Note5)
     9,237,228
     
     4,756,779
     
     Financial liabilities (Note 15)
     7,178,873
     
     3,908,700Pre-delivery payments (Note 6)
     426,224
     
     1,024,297
     
     Derivative financial instruments (Note 14)
     107,057Intangible assets (Note 7)
     152,092
     
     34,248
     
     Deferred income (Note 16)
     369,210
     
     357,769Deferred income tax and socialcontribution (Note 20)
     306,969
     
     4,770
     
     Provisions (Note 17)
     947,800
     
     769,696Other financial assets (Note 8)
     657,632
     
     385,830
     
     Other non-current liabilities (Note 18)
     282,993
     
     185,27710,780,145
     
     6,205,924
     
     
     8,885,933
     
     5,221,442Current assets
     
     
     
     
     Current liabilitiesTrade and other receivables (Note 9)
     1,404,464
     
     1,207,919
     
     Trade and other payables (Note 19)
     967,553
     
     804,670Inventories (Note 10)
     169,422
     
     100,185
     
     Deferred income (Note 16)
     1,105,719
     
     1,049,514Non-current assets held for sale
     62,134
     
     62,286
     
     Current income tax liabilities
     83,429
     
     20,080Income taxes recoverable
     120,712
     
     87,016
     
     Financial liabilities (Note 15)
     910,153
     
     1,197,986Derivative financial instruments (Note 14)
     
     
     62,967
     
     Derivative financial instruments (Note 14)
     1,021,928Cash and cash equivalents (Note 12)
     671,785
     
     466,538
     
     Other current liabilities (Note 18)
     149,091
     
     130,765Other financial assets (Note 13)
     1,242,271
     
     2,140,3394,237,873
     
     3,203,0153,670,788
     
     4,127,250Total liabilities
     13,123,806
     
     8,424,457EquityCapital and reserves attributable to equity holdersof TAM S.A.Share capital (Note 21)
     675,497
     
     675,497Revaluation reserve (Note 22)
     1,146,829
     
     284,465Other reserves (Note 23)
     92,092
     
     885,383Retained earnings (accumulated deficit) (Note 21)
     (591,525)
     
     60,7431,322,893
     
     1,906,088Minority interest
     4,234
     
     2,629Total equity
     1,327,127
     
     1,908,717Total assets
     14,450,933
     
     10,333,174
     
     Total liabilities and equity
     14,450,933
     
     10,333,174The accompanying notes are an integral part of these consolidated financial statements.
  
 F-4


---



Table of Contents TAM S.A.Consolidated Income StatementsYears Ended December 31In thousands of reais, unless otherwise indicated
  2008
     
     2007(Restated)
     
     (Restated)Revenue (Note 24)
     
     10,513,044
     
     8,018,819Operating expenses (Note 25)
     
     (9,954,107)
     
     (7,698,478)Operating profit before movements in fair value of fuel derivativesand revaluation of aircraft
     
     558,937
     
     320,341Movements in fair value of fuel derivatives
     
     (1,273,461)
     
     130,410Gains/(losses) on revaluation of aircraft recognized in the incomestatement (Note 5)
     
     242,370
     
     (224,701)Operating (loss)/profit
     
     (472,154)
     
     226,050Finance income (Note 27)
     
     1,410,361
     
     1,006,868Finance costs (Note 27)
     
     (3,006,220)
     
     (755,198)(Loss)/Profit before income tax and social contribution
     
     (2,068,013)
     
     477,720Income tax and social contribution (Note 28)
     
     634,243
     
     (145,941)(Loss)/Profit after tax (all continuing operations)
     
     (1,433,770)
     
     331,779Attributable toMinority interest
     
     868
     
     177Equity holders of TAM
     
     (1,434,638)
     
     331,602Earnings (loss) per share (common and preferred)Basic (Note 29)
     
     (9.54)
     
     2.20Diluted (Note 29)
     
     (9.54)
     
     2.19Consolidated Statements of Recognized Income
and Expense Years Ended December 31




In thousands of reais, unless otherwise indicated2008
     
     2007(Restated)
     
     (Restated)Revaluation of property, plant and equipment, net of tax (Note 22)
     
     885,921
     
     (17,370)Currency translation gains/(losses), net of tax
     
     13,152
     
     (3,537)Net income/(expense) recognized directly in equity
     
     899,073
     
     (20,907)(Loss)/Profit after tax (all continuing operations)
     
     (1,433,770)
     
     331,779Total recognized income and expense for the year (Note 21)
     
     (534,697)
     
     310,872Attributable toMinority interest
     
     868
     
     177Equity holders of TAM
     
     (535,565)
     
     310,695
  The accompanying notes are an integral part of these consolidated financial statements. 
 F-5


---



Table of Contents TAM S.A.Consolidated Cash Flow StatementsYears Ended December 31In thousands of reais, unless otherwise indicated
  2008
     
     2007Cash flows from operating activities (Note 31)
     
     1,904,477
     
     724,760Tax paid
     
     (58,443)
     
     (65,528)Interest paid
     
     (303,525)
     
     (286,559)Net cash generated from operating activities
     
     1,542,509
     
     372,673Cash flows from investing activitiesProceeds from sale property, plant and equipment (PPE)
     
     8,204
     
     4,558Purchases of property, plant and equipment (PPE)
     
     (637,483)
     
     (311,852)Purchases of intangible assets
     
     (133,469)
     
     (37,071)Deposits in guaranteeReimbursement
     
     106,292
     
     21,011Deposits made
     
     (30,503)
     
     (65,383)Pre-delivery paymentsReimbursement
     
     261,302
     
     401,977Payments
     
     (217,688)
     
     (451,456)Net cash used in investing activities
     
     (643,345)
     
     (438,216)Cash flows from financing activitiesProceeds from issuance of common shares
     
     
     
     497Purchase of treasury shares
     
     (14,269)Dividends paid to the Company's stockholders
     
     (72,065)
     
     (137,629)Short and long-term borrowingsIssuance
     
     208,692
     
     638,105Repayment
     
     (471,390)
     
     (591,857)Capital element of finance leases
     
     (340,092)
     
     (263,664)Repayments of debentures
     
     (4,793)
     
     (19,957)Issuance of senior notes
     
     
     
     607,080Net cash (used in) from financing activities
     
     (693,917)
     
     232,575Net increase in cash and cash equivalents
     
     205,247
     
     167,032Cash and cash equivalents at beginning of year
     
     466,538
     
     299,506Cash and cash equivalents at end of year
     
     671,785
     
     466,538Supplementary information on cash flowsNon cash investing and financing activities - acquisitionof aircraft under finance lease
     
     2,360,295
     
     1,325,685The accompanying notes are an integral part of these consolidated financial statements.
  
 F-6


---



Table of
Contents TAM S.A.Notes to the Consolidated
      Financial Statementsat December 31, 2008 and
      2007In thousands of reais, unless
      otherwise indicated
  1
General Information TAM
S.A ("TAM" or the "Company") was incorporated on May 12, 1997, to invest in
companies which carry out air transportation activities. The Company wholly owns
TAM Linhas Aéreas S.A. ("TLA"), a company that operates in the transportation of
passengers and cargo in Brazil and on international routes, and 94.98% of
Transportes Aéreos del Mercosur S.A. ("Mercosur"), an airline headquartered in
Assunción, Paraguay, which operates in Paraguay, Argentina, Brazil, Chile,
Uruguay and Bolivia. TAM S.A. is incorporated and domiciled in Brazil. On
July 15, 2005, the Company concluded a Public Offering of shares on the São
Paulo Stock Exchange - BOVESPA. On March 10, 2006 the Company made an additional
Public Offering - this time on the BOVESPA and the New York Stock Exchange 
NYSE (in the form of American Depositary Shares  ADS), which was concluded on
April 6, 2006. On
April 2007, two wholly-owned finance subsidiaries of TLA were constituted,
namely TAM Capital Inc. ("TAM Capital") and TAM Financial Services 1 Limited
("TAM Financial 1"), and in October 2007 TAM Financial Services 2 Limited ("TAM
Financial 2") was constituted. These subsidiaries are headquartered in the
Cayman Islands, and their main activities involve aircraft acquisition and
financing. Debt issued by these wholly-owned companies is wholly and
unconditionally guaranteed by TAM. The
Company also controls TP Participações Ltda. ("TP Participações"), whose
corporate purpose is holding ownership interests in other companies. TP
Participações did not record any transactions during either 2008 or 2007. TAM
controls 99.99% of Fidelidade Viagens e Turismo Ltda.("Fidelidade"), whose corporate purpose
is to carry out the activities of a travel and tourism agency, under the name
TAM Viagens. The
consolidated financial statements, of TAM and its subsidiaries, as originally
issued were approved by the Board of Directors on June 26, 2009 and these
restated consolidated financial statements were approved by management of the
Company on June 7, 2010. 2
Summary of Significant Accounting Policies The
principal accounting policies applied in the preparation of these consolidated
financial statements are set out below. These policies have been consistently
applied to both years presented, unless otherwise stated. 
 F-7




Table of
Contents 2.1
Basis of preparationand adjustment
to previously issued financial statements (a)
Basis of preparation The
consolidated financial statements of TAM have been prepared in accordance with
International Financial Reporting Standards - IFRS as issued by the
International Accounting Standards Board - IASB. The consolidated financial
statements of TAM as of and for the year ended December 31, 2008 and 2007
originally presented are the first TAM S.A. financial statements to be prepared
in accordance with IFRS. IFRS 1 - "First-time Adoption of International
Reporting Standards" has been applied in preparing these financial
statements. The
financial statements are prepared under the historical cost convention unless
otherwise indicated, for example in respect of revaluation of flight equipment
and measurement of derivative financial instruments at fair value. For
years ended until December 31, 2008 the consolidated financial statements of TAM
S.A. had only been prepared in accordance with Generally Accepted Accounting
Principles in Brazil (BR GAAP). BR GAAP differs in certain respects from IFRS.
When preparing TAM's 2008 consolidated IFRS financial statements, management has
amended certain accounting, valuation and consolidation methods in the BR GAAP
financial statements to comply with IFRS. The comparative figures in respect to
2007 were restated to reflect these adjustments. Reconciliations and
descriptions of the effect of the transition from BR GAAP to IFRS are given in
Note 4. The
last consolidated financial statements available under BR GAAP, at the date the
first financial statements prepared in accordance with IFRS were publicly
issued, filed with: .
the United States Securities and Exchange Commission were those for the year
ended December 31, 2007; .
the Brazilian Securities regulators ("CVM") were those for the year ended
December 31, 2008. The
reconciliations in Note 4 cover both dates. The
financial statements are presented in Brazilian reais and all values are rounded
to the nearest thousand Brazilian reais, except where indicated otherwise. (b)
Adjustments to previously issued financial statements During the
process of preparing the financial statements for the year ended December 31,
2009 certain errors were identified in the previously issued financial
statements for the years ended December 31, 2008 and 2007. The adjustment to
prior periods did not affect the opening statement of financial positions as of
January 1, 2007.  The errors
were related to:  ·Property, plant and equipment 
 The criteria used to determine the revalued amount of 2 finance leased
aircraft added during 2007  and the period of depreciation of such aircraft
as well as an error in the carrying amount derecognized and profit/loss on
disposal for certain aircraft that were disposed of during 2007. The effect of
the adjustment resulted in 2007 in a  increase of property, plant and
equipment of R$ 23,725, a decrease in operating expenses of R$ 92,033 and a
decrease in other comprehensive income (revaluation for the year) of R$ 68,308
and the corresponding deferred tax effects in the statement of income of R$
31,291 and in other comprehensive income of R$ 23,225. The effect of the
adjustment resulted in 2008 in a decrease of property, plant and equipment of R$
88,943, a increase in operating loss of R$ 33,043 and a decrease in
comprehensive income (revaluation for the year) of R$ 79,625 and the
corresponding tax effects in the statement of income of R$ 11,235 and in other
comprehensive income of R$ 27,073.  ·Transfer between revaluation reserve to
retained earnings  Having released in 2007 and 2008 the deferred tax liability
on revalued amounts corresponding to the depreciation for the year through other
comprehensive income and not through net income. The effect of the adjustment
resulted in recognizing a gain under income tax and social contribution in the
income statement of R$ 12,467 in 2007 and R$ 12,136 in 2008.  ·Prepaid aircraft maintenance  Having
maintained as prepaid aircraft maintenance as of December 31, 2008 amounts
related to an aircraft that had already been returned to the lessor. The effect
of the adjustment resulted inrecognizing a reduction in prepaid
aircraft maintenance of R$ 49,246 and an increase in operating expenses of R$
49,246 and the corresponding deferred income tax effect of R$ 16,744.  
 F-8


---



The effect of the adjustments as of and
for the years ended December 31, 2008 and 2007 is presented below:  2008
    
    2007As originally presented
    
    Adjustment
    
    As restated
    
    As originally presented
    
    Adjustment
    
    As restatedEffects on balance
      sheetOther financial
      assets
    706,878
    
    (49,246)
    
    657,632
    
    n/a
    
    n/a
    
    n/aProperty, plant
      and equipment
    9,326,171
    
    (88,943)
    
    9,237,228
    
    4,733,054
    
    23,725
    
    4,756,779Deferred income
      tax and socialcontribution
      asset
    259,984
    
    46,985
    
    306,969
    
    12,835
    
    (8,065)
    
    4,770Total
    10,293,033
    
    (91,204)
    
    10,201,829
    
    4,745,889
    
    15,660
    
    4,761,549Revaluation
      reserve
    1,244,465
    
    (97,636)
    
    1,146,829
    
    329,548
    
    (45,083)
    
    284,465Retained earnings
      (Accumulated
      deficit)
    (597,957)
    
    6,432
    
    (591,525)
    
    
    
    60,743
    
    60,743Total
    646,508
    
    (91,204)
    
    555,304
    
    329,548
    
    15,660
    
    345,208
   2008
    
    2007As originally presented
    
    Adjustment
    
    As restated
    
    As originally presented
    
    Adjustment
    
    As restatedEffects on income
      statementOperating
      expenses
    (9,885,065)
    
    (69,042)
    
    (9,954,107)
    
    (7,790,511)
    
    92,033
    
    (7,698,478)Gains/(losses) on
      revaluation of
      aircraft
      recognized in the income
      statement
    255,617
    
    (13,247)
    
    242,370
    
    n/a
    
    n/a
    
    n/aIncome tax and
      social contribution
    594,129
    
    40,114
    
    634,243
    
    (127,118)
    
    (18,823)
    
    (145,941)Total
      profit/(Loss) for the year (all
      continuing
      operations)
    (1,391,595)
    
    (42,175)
    
    (1,433,770)
    
    258,569
    
    73,210
    
    331,779Earnings per share
      - Basic
    (9.26)
    
    (0.28)
    
    (9.54)
    
    1.72
    
    0.48
    
    2.20Earnings per share
      - Diluted
    (9.26)
    
    (0.28)
    
    (9.54)
    
    1.70
    
    0.49
    
    2.19Effects on
      statement of
      comprehensive
      income (loss)Revaluation of
      property, plant and
      equipment, net of tax
    938,474
    
    (52,553)
    
    885,921
    
    27,713
    
    (45,083)
    
    (17,370)Profit/(Loss) for
      the year
    (1,391,595)
    
    (42,175)
    
    (1,433,770)
    
    258,569
    
    73,210
    
    331,779Total
      comprehensive income (loss)
    (439,969)
    
    (94,728)
    
    (534,697)
    
    282,745
    
    28,127
    
    310,872
 2.2
Consolidation (a)
Subsidiaries Subsidiaries are all entities
(including special purpose entities) over which TAM has the power to govern the
financial and operating policies, generally accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether TAM controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to TAM. They are
de-consolidated from the date that control ceases.   
 F-9


---



Table of
Contents Intercompany transactions, balances and
unrealized gains on transactions between the companies are eliminated.
Unrealized losses are also eliminated but are considered as an impairment
indicator of the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by
TAM. (b)
Companies included in the consolidated financial statements Ownership andvoting
      power - %2008 and
      2007TLA
    100.00Fidelidade (i)
    99.99TAM Capital (i)
    100.00TAM Financial 1 (i)
    100.00TAM Financial 2 (i)
    100.00Mercosur
    94.98TP
    Participações
    99.99Fundo Spitfire II (Exclusive
      investment fund) (ii)
    100.00(i) TAM's investments are held
      indirectly through TLA.(ii) TAM's investment is held 30%
      directly and 70% through TLA. See also Note
  13.
  (c)
Transactions and minority interests TAM
applies a policy of treating transactions with minority interests as
transactions with parties external to TAM. Minority interests represent the
portion of profit or loss and net assets in subsidiaries that are not held by
TAM and are presented separately within equity in the consolidated balance
sheet. 2.3
Foreign currency translation (a)
Functional and presentation currency Items included in the financial
statements of each of TAM's entities are measured using the currency of the
primary economic environment in which the entity operates ("the functional
currency"). The consolidated financial statements are presented in Brazilian
reais ("Real"), which is also the Company's functional currency.   
 F-10


---



Table of
Contents (b)
Transactions and balances Foreign currency transactions are
translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Assets and liabilities balances are translated at
the exchange rate on the balance sheet date. Exchange gains and losses on the
settlement of such transactions and the translation of monetary assets and
liabilities in foreign currencies are taken to income. (c)
Translation In
preparing the consolidated financial statements, the income statement, the cash
flow statement and all other movements in assets and liabilities are translated
at annual average rates of exchange, which are considered a good approximation
to the exchange rates prevailing on the dates of the underlying transaction. The
balance sheet is translated at year-end rates of exchange. The
effects of exchange rate changes during the year on net assets at the beginning
of the year are recorded as a movement in stockholders' equity, as is the
difference between profit of the year retained at average rates of exchange and
at year-end rates of exchange. Cumulative exchange differences arising
are reported as a separate component of other reserves. In the event of disposal
or part disposal of an interest in a group company either through sale or as a
result of a repayment of capital, the cumulative exchange difference is
recognized in the income statement as part of the profit or loss on disposal. 2.4
Property, plant and equipment Property, plant and equipment (PPE) is
stated at either cost less depreciation or revalued amounts. Depending on the
type of asset, and when it was acquired, cost either refers to historical
purchase cost; deemed cost based on a revaluation performed under previous GAAP;
or historical purchase cost adjusted for the effects of hyperinflation during
the years when Brazil's economy was considered to be hyperinflationary. Brazil
was considered to be hyperinflationary for IFRS purposes until 1997. Revaluations are performed periodically
for flight equipment based on independent appraisers' reports. Increases in the
carrying amount arising on revaluation of flight equipment are recognized in the
Statement of Recognized Income and Expense, except where the increase reverses a
decrease of the same asset previously recognized in the income statement.
Decreases that offset previous increases of the same asset are recognized in the
Statement of Recognized Income and Expense; all other decreases are recognized
in the income statement.  F-11


---



Table of
Contents Each year the difference between
depreciation charged to income statement based on the revalued amount and
depreciation based on the assets' original cost is transferred from the
revaluation reserve to retained earnings. Land is not depreciated. Depreciation
on other assets is calculated using the straight-line method to allocate their
cost or revalued amounts to their residual values over their estimated useful
lives, as follows: YearsFlight equipment - aircraft
      (*)
    
    25 -
      30Flight equipment -
      engines
    
    10Overhaul
    
    4 -
      6Buildings
    
    25Machinery and
      equipment
    
    10Computers
    
    5(*) Certain aircraft acquired
      used are being depreciated over six
years.
  Major overhaul expenditure, including
replacement spares and labor costs, is capitalized and amortized over the
average expected life between major overhauls (the "built-in overhaul method").
All other replacement spares and other costs relating to maintenance of flight
equipment assets, including all amounts payable under "power by the hour"
maintenance contracts, are charged to the income statement on consumption or as
incurred respectively, as described below in Note 2.24. Borrowing costs, including interest and
applicable foreign exchange differences, associated with the acquisition of
qualifying assets such as aircraft are capitalized as part of the cost of the
asset to which they relate. The
carrying value of PPE is reviewed for impairment when events or changes in
circumstances indicate the carrying value is greater than its estimated
recoverable amount. Gains and losses on disposals are
determined by comparing the proceeds with the carrying amount and are recognized
in the income statement. When revalued assets are sold, the amounts included in
the revaluation reserves are transferred to retained earnings. 2.5
Pre-delivery Payments and other aircraft deposits Pre-delivery Payments - PDPs paid to
aircraft manufacturers under the terms of purchase agreements for aircraft are
denominated in US dollars and are recognized at the amount paid translated at
the exchange rate ruling at the date of payment. Borrowing costs, including
interest and applicable foreign exchange differences incurred for the
construction of qualifying assets are capitalized during the period which the
aircraft are built.  F-12




Table of
Contents In
the event that a decision is taken that the aircraft will not be purchased by
TAM, but rather it will be leased and it is agreed that the PDPs will be
returned to TAM, then the related PDPs are reclassified to other receivables and
are remeasured to the present value of the amount expected to be returned to
TAM. This amount will, if it is denominated in a foreign currency, be translated
at the exchange rate ruling at the reporting date, and any resulting difference
is recognized in the income statement. 2.6
Intangible assets (a)
Computer software and IT projects Expenses related to software
maintenance are recognized as expenses as they are incurred. Expenses directly
related to internally developed software and other IT projects include
materials, costs incurred with software development companies and other direct
costs. They are capitalized as intangible assets when they will probably
generate economic benefits greater than their costs, considering their economic
and technological viability. Computer software development costs recognized as
assets are amortized on a straight-line basis over their estimated useful lives,
which does not usually exceed three years. (b)
Other intangible assets Other intangible assets include
licenses and other contractual rights acquired from third parties. They are
capitalized as intangible assets and amortized over their estimated useful
lives. The
carrying value of intangible assets is reviewed for impairment if events or
changes in circumstances indicate the carrying value may not be recoverable, or
if the intangible assets have not yet started to be used and amortized. 2.7
Impairment of non-current assets Property, plant and equipment and other
non-current assets, including intangible assets, are reviewed for impairment
whenever events or changing circumstances suggest that their book value may not
be recoverable. Impairment losses are recognized as the excess of the asset book
value over its recoverable value, which is the higher of fair value less cost to
sell and value in use. For impairment testing purposes, assets are grouped at
the lowest level for which cash flows can be separately identified (cash
generating units or "CGUs"). F-13





Table of
Contents 2.8
Financial assets TAM
classifies its financial assets in the following categories: at fair value
through profit or loss, (including derivative financial instruments) and loans
and receivables. The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of its
financial assets at initial recognition. (a)
Financial assets at fair value through profit or loss This category has two sub-categories:
financial assets held for trading, and those designated at Fair Value Through
Profit or Loss - FVTPL at inception. A financial asset is classified in this
category if acquiredprincipally
for the purpose of selling in the short-term. Assets in this category are
measured at fair value and gains or losses arising from changes in the fair
value are recognized immediately in the income statement. Assets in this
category are classified as current assets. (b)
Loans and receivables Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are valued at amortized cost, and are included
in current assets, except for those with maturities greater than 12 months after
the balance sheet date. These are classified as non-current assets. TAM's loans
and receivables comprise "trade and other receivables" and cash and cash
equivalents in the balance sheet, except for certain short term investments that
meet the definition of assets at fair value through profit and loss. (c)
Derivative financial instruments Derivatives are initially recognized at
fair value on the date a derivative contract is entered into and are
subsequently remeasured at their fair value. Transaction costs are expensed when
incurred. While TAM uses derivatives to mitigate
the economic effects of international petroleum prices, TAM does not apply hedge
accounting. Changes in the fair value of derivative instruments are recognized
immediately in the income statement. Gains and losses due to fair value
movements of fuel derivatives are presented as a separate line item on the face
of the income statement. F-14


---



Table of
Contents (d)
Valuation of financial assets The
fair values of quoted investments are based on current bid prices. For unlisted
and for listed securities where the market for a financial asset is not active
TAM establishes fair value using valuation techniques. These include the use of
recent arm's length transactions, reference to other instruments that are
substantially the same and discounted cash flow analysis. (e)
Impairment of financial assets At
each balance sheet date TAM assesses whether there is objective evidence that
its financial assets are impaired. 2.9
Inventories Inventories, consisting mainly of spare
parts and materials to be used in maintenance and repair activities, are stated
at the average acquisition cost, or realizable value where lower, net of
provisions to write down the value of obsolete items. 2.10 Non-current assets held for
sale Assets are classified as 'held for
sale' when all of the following criteria are met: a decision has been made to
sell, the assets are available for sale immediately, the assets are being
actively marketed, and a sale has been or is expected to be concluded within
twelve months of the balance sheet date. Assets held for sale are valued at the
lower of book value or fair value less disposal costs. Assets held for sale are
not depreciated. 2.11 Trade receivables Trade receivables are recognized
initially at fair value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment. In practice, due to
the short term nature of the receivables, they are usually recognized at the
invoiced amount. A provision for impairment of trade receivables (allowance for
doubtful receivables) is established when there is objective evidence that the
Company will not be able to collect all amounts due according to the original
terms of the receivables. The
carrying amount of the asset is reduced through the use of an allowance account,
and the amount of the loss is recognized in the income statement. When a trade
receivable is uncollectible, it is written off against the allowance account for
trade receivables. Subsequent recoveries of amounts previously written off are
credited to the income statement. F-15


---



Table of
Contents 2.12 Cash and cash
equivalents Cash and cash equivalents presented in
the cash flow statement include cash in hand, deposits held at call with banks
and other short-term highly liquid investments with original maturities of three
months or less. 2.13 Share capital Common shares and non-redeemable
preferred shares are classified as stockholder's equity. Where any group company purchases the
Company's equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes) is
deducted from stockholders' equity until the shares are cancelled or reissued. 2.14 Share-based payment TAM
operates an equity-settled share-based compensation plan. The fair value of the
employee services received in exchange for the grant of the options is
recognized as an expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions (for example,
profitability and sales growth targets). Non-market vesting conditions are
included in assumptions about the number of options that are expected to vest.
At each balance sheet date, TAM revises its estimates of the number of options
that are expected to vest, recognizing the impact of the revision of original
estimates, if any, in the income statement, with a corresponding adjustment to
equity. When share options are satisfied by
issuing treasury shares, the proceeds received from the exercise of options, net
of any directly attributable transaction costs are credited to treasury shares;
the difference between the book value of the treasury shares awarded to the
employee and the exercise price is recognized in retained earnings. 2.15 Pension plans TAM
only operates defined contribution plans. Once the contributions are made, the
Company has no further liability for additional payments. Regular contributions
comprise the net periodic costs of the period when they are due and,
accordingly, are included in personnel expenses. 2.16 Deferred income Deferred income comprises advances from
ticket sales, gains on sale and leaseback transactions resulting in finance
leases (see also Note 2.21 below) and revenue related to TAM Loyalty Program
frequent flyer scheme (see Note 2.23 below). F-16


---



Table of
Contents Advances from ticket sales represent
the liabilities connected with tickets sold in the last 12 months and not yet
used. Such amounts are recognized as income when the service is actually
rendered or when the tickets expire. 2.17 Trade payables Trade payables are recognized initially
at fair value and subsequently measured at amortized cost using the effective
interest method. In practice, due to the short term nature of most trade
payables, they are usually recognized at the invoiced amount. 2.18 Borrowings Borrowings are included within
financial liabilities, and are recognized initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated at amortized
cost, including charges and interest using the effective interest rate method,
net of repayments made. Borrowings are classified as current
liabilities unless TAM has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date. Non-convertible debentures and senior
bonds are recorded similarly to borrowings. 2.19 Income tax and social
contribution Income tax and social contribution on
net income, for the current period and deferred, are calculated based on a
Brazilian federal income tax rate of 25% and 9% for social contribution, and
consider the offsetting of tax losses and negative social contribution, limited
to 30% of actual income in any one year. The
current income tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in accordance with Brazil's tax
regulations. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to
interpretation and establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities. Deferred income tax is calculated using
the liability method, using tax that are expected to apply to the period when
the asset is realized or the liability settled, based on tax rates which have
been enacted or substantively enacted by the balance sheet date. Deferred income tax assets are
recognized to the extent that it is probable that future taxable profit will be
available against which the tax losses or temporary differences can be utilized. F-17


---



Table of
Contents Deferred tax liabilities in respect of
unremitted earnings of overseas subsidiaries are not recognized to the extent
that TAM can control the payment of dividends, and does not plan to do so in the
foreseeable future. 2.20 Provisions Provisions are recognized when TAM has
a legal or constructive obligation as a result of past events, a reliable
estimate can be model, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are measured at the
present value of the expenditure expected to be required to settle the
obligation, using where appropriate a discount rate based on current market
interest rates and that reflects the risks related to the liability. 2.21 Lease agreements Leases are classified at inception.
Leases of assets under which TAM has substantially all the risks and rewards of
ownership are classified as finance leases. All other types of leases are
classified as operating leases. Finance leases are capitalized at the lease's
commencement at the lower of the fair value of the leased property and the
present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges. The corresponding rental obligations,
net of finance charges, are included within financial liabilities. The interest
element of the finance cost is charged to the income statement over the lease
period. The long-term assets acquired under finance leases are depreciated over
the shorter of the asset's useful life and the period for which the asset will
be leased. Payments made under operating leases
are charged to the income statement on a straight-line basis over the period of
the lease. Any
gains arising on sale and leaseback transactions resulting in finance leases are
deferred and recognized in the income statement on a straight-line basis over
the period of the lease; gains arising on sale and leaseback transactions
resulting in operating leases are generally recognized in the income statement
immediately. 2.22 Dividends Dividends payable are recognized as a
liability in the financial statements when there is a legal obligation for them
to be paid. This is either when the dividends are approved by TAM's stockholders
or to comply with Brazilian corporate law. TAM's by-laws establish that all
stockholders are entitled at a minimum dividend of 25% of net income for each
year, calculated in accordance with Brazilian corporate law. F-18





Table of
Contents 2.23 Revenue Air
transportation revenues (passengers and cargo) are recognized when
transportation services are rendered. Revenue in respect of passenger tickets
sold but not yet used (advance ticket sales) is treated as deferred income,
classified within current liabilities. Revenue for unused tickets is recognized
on the ticket expiration date, which is 12 months after the issuance date of the
ticket. The
Company sponsors a program (TAM Loyalty Program) to award frequent flyers,
whereby points are accumulated when flying with TAM or partner airline
companies, or when making purchases using TAM Loyalty Program credit card, or
using the services and products of commercial partners. The Loyalty Program
award credits are recognized as a separately identifiable component of revenue
based on the estimated fair value of the points awarded. This revenue is
deferred, considering the points that are expected to be redeemed based on
historical experience, and is recognized in the income statement as passenger
revenue when the points are redeemed and passengers uplifted. Other operating revenues, represented
by fees arising from alterations to flight reservations, sub-lease of aircraft
and other services, are recognized when the service is provided. Interest income is recognized using the
effective interest rate method, taking into account the principal outstanding
and interest rates in effect up to maturity or the balance sheet date. 2.24 Aircraft and engine maintenance Engine maintenance contracts cover all
significant engine maintenance activity. The Company recognizes maintenance
expenses for its engine maintenance contracts on an as-incurred basis. The basis
on which maintenance expenses are considered incurred is dependant on the nature
of the services provided: .
for contracts under which amounts are payable to the maintenance provider, and
are recognized in the income statement, based on actual maintenance activities
performed by the maintenance providers, the costs incurred reflect the actual
amount of time incurred by the maintenance providers and the cost of the
materials and components used in the maintenance activities. These maintenance
contracts are referred to as "time and materials" contracts; .
for contracts under which amounts are contractually payable to the maintenance
provider based on hours flown, "power by the hour" contracts, a liability and a
corresponding expense in the income statement are recognized as the hours are
flown. F-19


---



Table of
Contents 2.25 Segmental information Operating segments are reported in a
manner consistent with the internal reporting provided to the chief operating
decision-maker ("CODM"). The CODM, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the
Chief Executive Officer. Due to the essentially fixed cost base of TAM's
operations, while the CODM reviews revenue information at a number of levels,
the CODM only assesses the performance of TAM's group as a whole, and so TAM has
determined that there is only one operating segment. However, the financial
information provided to the CODM during 2008 was based on BR GAAP (Law 11,638)
rather than IFRS. Reconciliations between the amounts presented under BR GAAP
(Law 11,638) and IFRS as at December 31, 2008 and for the year then ended are
included in Note 4.3. 2.26 Income statement presentation On
the face of the income statement, amounts relating to: .
the movements in the fair value of fuel derivatives; .
revaluations of flight equipment required to be recognized in the income
statement. These items are shown separately as
part of operating profit. These are material in terms of nature and amount, and
are disclosed separately in order to help users of the financial statements
better understand TAM's financial performance. 2.27 Recent accounting developments (a)The following interpretation, standards
and amendments were early adopted by TAM: IAS
23 (revised) - "Borrowing costs" (effective from January 1, 2009). The amendment
requires TAM to capitalize borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset (one that takes a
substantial period of time to get ready for use or sale) as part of the cost of
that asset. The option of immediately expensing those borrowing costs was
removed. A further amendment, as part of the IASB's annual improvements project
published on May 2008, amends the definition of borrowing costs so that interest
expense is calculated using the effective interest method defined in IAS 39
"Financial instruments: Recognition and measurement". This eliminates the
inconsistency of terms between IAS 39 and IAS 23. F-20


---



Table of
Contents (b)
TAM is currently assessing the impact of the following revised standards or
interpretations that are not yet effective and have not been early adopted by
TAM: .
IAS 1 (revised) - "Presentation of financial statements" (effective from January
1, 2009). The revised standard will prohibit the presentation of items of income
and expenses (that is, "non-owner changes in equity") in the statement of
changes in equity, requiring 'non-owner changes in equity' to be presented
separately from owner changes in equity. All non-owner changes in equity will be
required to be shown in a performance statement, but TAM can choose whether to
present one performance statement (the statement of comprehensive income) or two
statements (the income statement and statement of comprehensive income). When
TAM restates or reclassifies comparative information, it will be required to
present a restated balance sheet as at the beginning comparative period in
addition to the current requirement to present balance sheets at the end of the
current period and comparative period. TAM will apply IAS 1 (revised) from
January 1, 2009. It is likely that TAM will choose to present both an income
statement and a statement of comprehensive income as performance statements. IFRS 3 (revised) - "Business
combinations" (effective from July 1, 2009). The revised standard continues to
apply the acquisition method to business combinations, with some significant
changes. For example, all payments to purchase a business are to be recorded at
fair value at the acquisition date, with contingent payments classified as debt
subsequently re-measured through the income statement. There is a choice on an
acquisition-by-acquisition basis to measure the non-controlling interest in the
acquiree either at fair vale or at the non-controlling interest's proportionate
share of the acquiree's net assets. All acquisition-related costs should be
expensed. TAM will apply IFRS 3 (revised) prospectively to all business
combinations from January 1, 2010. .
IAS 36 (amendment) - "Impairment of assets" (effective from January 1, 2009).
The amendment is part of the IASB's annual improvements project published on May
2008. Where fair value less costs to sell is calculated on the basis of
discounted cash flows, disclosures equivalent to those for value-in-use
calculation should be made. TAM will apply the IAS 36 (amendment) and provide
the required disclosure if applicable for impairment tests from January 1, 2009. Amendment to IFRS 7 - "Financial
instruments - Disclosures" (effective January 1, 2009). The amendment increases
the level of required disclosure in respect of liquidity and valuation of
financial instruments. IFRIC13 - "Customer loyalty programs"
(effective from July 1, 2008). IFRIC 13 clarifies that where goods or services
are sold together with a customer loyalty incentive (for example, loyalty points
or free products), the arrangement is a multiple-element arrangement and the
consideration receivable from the customer is allocated between the components
of the arrangement using fair values. IFRIC 13 is relevant to TAM's operations
but TAM currently defers revenue in a manner consistent with IFRIC 13, and so we
do not expect it to have a significant impact. F-21


---



Table of
Contents (c)
The following interpretations and amendments to existing standards have been
published and are mandatory for TAM's accounting periods beginning on or after
January 1, 2009 or later periods but are not relevant for TAM's operations or
are not expected to have a significant impact on TAM's financial statements: .
IFRS 2 (amendment) - "Share-based payment" (effective from January 1, 2009). The
amended standard deals with vesting conditions and cancellations. It clarifies
that vesting conditions are service conditions and performance conditions only. .
IFRS 1 (amendment) - "First time adoption of IFRS" and IAS 27 - "Consolidated
and separate financial statements" (effective from January 1, 2009). The amended
standard deals with separate financial statements, and TAM does not prepare its
separate financial statements in accordance with IFRS. .
IAS 20 (amendment) - "Accounting for government grants and disclosure of
government assistance" (effective from January 1, 2009). The benefit of a
below-market rate government loan is measured as the difference between the
carrying amount in accordance with IAS 39.- "Financial instruments: Recognition
and measurement", and the proceeds received with the benefit accounted for in
accordance with IAS 20. .
IAS 27 (revised) - "Consolidated and separate financial statements" (effective
from July 1, 2009). The revised standard requires the effects of all
transactions with non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer result in goodwill or
gains and losses. .
IFRS 5 (amendment) - "Non-current assets held for sale and discontinued
operations" (and consequential amendment to IFRS 1 - "First-time adoption")
(effective from July 1, 2009). The amendment clarifies that all of a
subsidiary's assets and liabilities are classified as held for sale if a partial
disposal sale plan results in loss of control. .
IAS 28 (amendment) - "Investments in associates" (and consequential amendments
to IAS 32 - "Financial Instruments: Presentation" and IFRS 7 - "Financial
instruments: Disclosures") (effective from January 1, 2009). TAM has no
investments in associates. .
IAS 38 (amendment) - "Intangible assets" (effective from January 1, 2009). A
prepayment may only be recognized in the event that payment has been made in
advance of obtaining right of access to goods or receipt of services. F-22


---



Table of
Contents .
IAS 38 (amendment) - "Intangible assets", (effective from 1 January 2009). The
amendment deletes the wording that states that there is "rarely, if ever"
support for use of a method that results in a lower rate of amortization than
the straight line method. TAM's intangible assets are amortized using the
straight line method. .
IAS 19 (amendment) - "Employee benefits" (effective from January 1, 2009). TAM
no longer has any defined benefit pension plans, to which the amendments refer. .
IAS 39 (amendment) - "Financial instruments: Recognition and measurement"
(effective from January 1, 2009). The amendments largely relate to hedge
accounting; TAM does not apply hedge accounting. .
IAS 16 (amendment) - "Property, plant and equipment" (and consequential
amendment to IAS 7 - "Statement of cash flows") (effective from January 1,
2009). TAM's ordinary activities do not comprise renting and subsequently
selling assets. .
IAS 27 (amendment) - "Consolidated and separate financial statements"; IAS 28
(amendment) - "Investments in associates" (and consequential amendments to IAS
32 - "Financial Instruments: Presentation" and IFRS 7- "Financial instruments:
Disclosures"); IAS 31 (amendment) - "Interests in joint ventures (and
consequential amendments to IAS 32 and IFRS 7) (all effective from January 1,
2009). There is no impact on TAM's consolidated financial statements. .
IAS 29 (amendment) - "Financial reporting in hyperinflationary economies"
(effective from January 1, 2009). None of TAM's subsidiaries operates in
hyperinflationary economies. .
IAS 32 (amendment) - "Financial instruments: Presentation", and IAS 1
(amendment) - "Presentation of financial statements" - "Puttable financial
instruments and obligations arising on liquidation" (effective from January 1,
2009). TAM does not have any financial instruments of the type referred to in
this amendment. .
IAS 40 (amendment) - "Investment property" (and consequential amendments to IAS
16) (effective from January 1, 2009). TAM does not have any investment
properties. .
IAS 41 (amendment) - "Agriculture" (effective from 1, 2009). TAM does not have
any biological assets. .
IAS 1 (amendment) - "Presentation of financial statements" (effective from
January 1, 2009). The amendment clarifies that some rather than all financial
assets and liabilities classified as held for trading in accordance with IAS 39
are examples of current assets and liabilities respectively. TAM will apply the
IAS 39 (amendment) from January 1, 2009. It is not expected to have an impact on
TAM's financial statements. F-23


---



Table of
Contents .
There are a number of minor amendments to IFRS 7 - "Financial instruments:
Disclosures", IAS 8 - "Accounting policies, changes in accounting estimates and
errors", IAS 10 - "Events after the reporting period", IAS 18 - "Revenue" and
IAS 34 - "Interim financial reporting", which are part of the IASB's annual
improvements project published on May 2008 (not addressed above). These
amendments are unlikely to have an impact on the accounts and have therefore not
been analyzed in detail. .
IFRIC 15 - "Agreements for construction of real estates" (effective from January
1, 2009). The interpretation clarifies whether IAS 18 - "Revenue", or IAS 11 -
"Construction contracts" should be applied to particular transactions. It is
likely to result in IAS 18 being applied to a wider range of transactions. IFRIC
15 is not relevant to TAM as all revenue transactions are accounted for under
IAS 18 and not IAS 11. .
IFRIC 16 - "Hedges of a net investment in a foreign operation" (effective from
October 1, 2008). TAM does not apply net investment hedging. .
IFRIC 17 - "Distributions of non-cash assets to owners" (effective from July 1,
2009). TAM does not generally distribute non-cash assets to its stockholders. .
IFRIC 18 - "Transfers of assets from customers" (effective from July 1, 2009).
TAM does not ordinarily receive assets from its customers. 3
Critical Accounting Estimates and Judgments Estimates and judgments are continually
evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below. 3.1
Revenue recognition Tickets that are sold are posted under
advance ticket sales, in current liabilities, due to our obligation to transport
passengers. Flight revenue (passenger and cargo transportation) is recognized
when the transportation services are effectively rendered. Other revenue is
recognized for tickets unused within 12 months of the original scheduled travel
date. These tickets are cancelled in accordance with IATA regulations and
revenue is recognized at that point. F-24


---



Table of
Contents Revenue in respect to TAM Loyalty
Program - frequent flyer program - is deferred based on the estimated fair value
of the points awarded to passengers. The fair value is determined based on a
weighted average of the value of points sold to commercial partners, and the
value of free tickets awarded to passengers. Revenue deferral also depends on
the number of points estimated to be forfeited when they expire after two years,
and this is based on historical forfeiture rates. The principal assumptions used
are shown in Note 16. 3.2
Deferred taxes TAM
recognizes deferred income tax assets and liabilities based on the differences
between the carrying amounts shown in the financial statements and the tax basis
of the assets and liabilities, using prevailing tax rates. TAM regularly reviews
deferred tax assets for recoverability, taking into account historical income
generated and projected future taxable income based on a study of technical
viability. The accounting losses recognized in 2008 relate in large part to fair
value movements of the WTI (West Texas Intermediate crude oil) derivatives due
to the decrease in the cost of fuel during the year. 3.3
Provisions TAM
is currently involved in various judicial and administrative proceedings, as
described in Note 17. Provisions are recognized for all contingencies in
judicial proceedings that represent probable losses. The probability of loss is
evaluated based on the available evidence, including the views of internal and
external legal counsel. TAM believes that these contingencies are properly
recognized in the financial statements. 3.4
Financial instruments used to mitigate the risks of variations in jet fuel
prices TAM
records the financial instruments used to mitigate the risks of variations in
jet fuel prices at their fair market value based on market quotations for
similar instruments. Derivative financial instruments are used in order to
mitigate the risk against variations in fuel prices. Sensitivity to movements in
the price of oil is discussed in Note 11. TAM
does not apply hedge accounting to its derivatives. If TAM were to apply hedge
accounting, it would affect the timing of recognition of gains and losses in the
income statement, but would not affect the underlying economic effects of the
derivative contracts. 3.5
Carrying value of flight equipment TAM's flight equipment is included in
the financial statements at fair value based on valuations. The valuations are
based on observable market prices. The revaluations are described further in
Note 5. F-25


---



Table of
Contents The
carrying value is further affected by the aircraft and engines' estimated useful
economic lives, which is based on expected usage and current technology and
environmental regulations. 4
First Time of Adoption of IFRS 4.1
Basis of transition to IFRS 4.1.1 Application of IFRS 1 TAM's financial statements for the year
ended December 31, 2008 are the first annual financial statements that comply
with IFRS as issued by the IASB. The financial statements for the year ended
December 31, 2007 were prepared in accordance with accounting principles
generally accepted in Brazil ("BR GAAP") in accordance with Brazilian Law
6,404/76. During 2008, following the publication of Brazilian Law 11,638/07,
accounting principles generally accepted in Brazil changed substantially as
Brazil moves towards aligning BR GAAP with IFRS. The
reconciliations that are presented in Note 4.2 reconcile the previously
published financial statements under BR GAAP in accordance with Brazilian Law
6,404/76 at December 31, 2007 to the corresponding amounts calculated in
accordance with IFRS. Reconciliations between the amounts included in the
financial statements prepared in accordance with BR GAAP under Law 11,638/07 at,
and for the year ended December 31, 2008 and IFRS are presented in Note 4.3. The
accounting policies set out in Note 2 have been applied in preparing the
financial statements for the year ended December 31, 2008, the comparative
information presented in these financial statements for the year ended December
31, 2007 and in the preparation of an opening IFRS balance sheet at January 1,
2007. In
preparing these consolidated financial statements in accordance with IFRS 1, TAM
has applied the mandatory exceptions and certain of the optional exemptions from
full retrospective application of IFRS, as set out in IFRS 1 - "First time
adoption of IFRS". 4.1.2 Exemptions from full
retrospective application elected by TAM IFRS 1 allows first-time adopters
certain exemptions from the general requirements contained in IFRSs. TAM has
taken the following exemptions: F-26


---



Table of
Contents (a)
Business combinations exemption TAM
has applied the business combinations exemption in IFRS 1 to prior business
combinations; TAM does not have any significant goodwill relating to those
business combinations. (b)
Fair value as deemed cost exemption As
discussed in Note 4.2.1(b) certain assets were revalued under BR GAAP in 1991.
The revalued amounts for those assets are considered as deemed cost under IFRS. Despite TAM electing to measure its
flight equipment at revalued amounts on the date of transition to IFRS, the
revalued amounts are not being considered as deemed cost. Historical acquisition
cost will remain as cost under IFRS for flight equipment. The revaluation at
January 1, 2007 is discussed in Note 4.2.1(b) . (c)
Employee benefits exemption TAM
had no significant defined benefit pension schemes at January 1, 2007, and so
this exemption is not applicable. (d)
Cumulative translation differences exemption TAM
elected to record the accumulated cumulative translation adjustment at January
1, 2007, and so this exemption is not applicable. (e)
Compound financial instruments exemption TAM
has no compound financial instruments in issue; this exemption is not
applicable. (f)
Assets and liabilities of subsidiaries, associates and joint ventures exemption This exemption is not applicable, as
the use of the exemption is made at the level of the subsidiary, associate or
joint venture that adopts IFRS later than its parent company. (g)
Designation of financial assets and financial liabilities exemption TAM
did not reclassify any financial assets as available-for-sale investments or as
financial assets at fair value through profit and loss; this exemption is not
applicable. F-27


---



Table of
Contents (h)
Share-based payment transaction exemption TAM's share-based payment program
consists only at equity classified awards and commenced in 2005; this exemption
is not applicable. (i)
Insurance contracts exemption TAM
does not issue insurance contracts; this exemption is not applicable. (j)
Changes in existing decommissioning, restoration and similar liabilities
included in the cost of property, plant and equipment exemption TAM
does not have any decommissioning liabilities relating to its property, plant
and equipment; this exemption is not applicable. (k)
Leases TAM
has considered contracts which may contain a lease based on the facts and
circumstances as at the date of transition to IFRS. There was no impact on the
financial statements. (l)
Fair value measurement of financial assets or liabilities at initial recognition TAM
has not applied the exemption offered by the revision of IAS 39 on the initial
recognition of the financial instruments measured at fair value through profit
and loss where there is no active market; this exemption is not applicable. (m)
Service concession arrangements TAM
has no arrangements that fall to be treated in line with IFRIC 12; this
exemption is not applicable. 4.1.3 Exceptions from full
retrospective application followed by TAM TAM
S.A. has applied the following mandatory exceptions from retrospective
application: F-28


---



Table of
Contents (a)
Derecognition of financial assets and liabilities exception Financial assets and liabilities
derecognized before January 1, 2007 as a result of transactions that occurred
before January 1, 2004 are not re-recognized under IFRS. The application of this
exception had no significant impact on these financial statements. (b)
Hedge accounting exception Management has chosen not to apply
hedge accounting, and so no adjustments were required. (c)
Estimates exception Estimates under IFRS at January 1, 2007
and December 31, 2007 are consistent with estimates made for the same date under
BR GAAP. There is no evidence that those estimates were made in error. (d)
Assets held for sale and discontinued operations exception Management applies IFRS 5
retrospectively from January 1, 2007. TAM S.A. did not have any assets that met
the held-for-sale criteria during the periods presented, and so no adjustment
was required. 4.2
Reconciliations between BR GAAP (Law 6,404 effective in 2007) and IFRS As
discussed above, in preparing its opening balance sheet, TAM has adjusted
amounts reported previously in the financial statements prepared in accordance
with its old basis of accounting (BR GAAP) which were published for the year
ended December 31, 2007. 4.2.1 Explanation of the effect of the
transition to IFRS The
following explains the material adjustments to the balance sheet and income
statement: F-29


---



Table of
Contents (a)
Recognition of finance leased assets on TAM's balance sheet and income statement EquityJanuary
    
    December1,
      2007
    
    31,
      2007Recognition of flight equipment
      at cost (i)
    
    3,655,605
    
    4,778,085Capitalized built-in - overhaul
      maintenance in respect offlight equipment under finance
      leases (ii)
    
    108,738
    
    192,560Depreciation effect of the above
      adjustments
    
    (915,102)
    
    (1,112,736)Recognition of finance lease
      obligations (i)
    
    (2,450,635)
    
    (2,894,316)Total
    adjustments
    
    398,606
    
    963,593IncomeStatementDecember31,
      2007Reverse of operating lease
      expense
    
    
    
    379,663Foreign exchange gain on finance
      lease obligations
    
    
    
    441,266Interest expense on finance lease
      obligations
    
    
    
    (142,130)Capitalized built - in - overhaul
      maintenance in respect of flight equipmentunder
      finance leases (ii)
    
    83,823Depreciation effect of the above
      adjustments (iii)
    
    
    
    (197,634)Total
    adjustments
    
    
    
    564,988(i) Recognition of flight
      equipment under finance leases and of finance lease
      obligations
  BR
GAAP did not have a specific requirement on accounting for leases and TAM
recognized as finance leases only contracts where TAM had a bargain purchase
option for the asset. All other leases were treated as operating leases. Under IFRS, IAS 17 - "Accounting for
Leases" defines financial leases as leases which transfer substantially all
risks and rewards to the lessee. While there are no specific rules which define
when substantially all risks and rewards have been transferred, the following
are criteria which would usually indicate that the lessee has assumed
substantially all risks and rewards: F-30


---



Table of
Contents .
The lease transfers ownership of the property to the lessee by the end of the
lease. .
The lease contains a bargain purchase option for the lessee to purchase the
asset at a price below market value. .
The lease term is for more the major part of the economic life of the leased
asset. .
The present value at the inception of the lease of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset. .
The leased assets are of such a specialized nature that only the lessee can use
them without major modifications. On
renegotiation of lease terms, regardless as to whether the lessor is changed,
the new lease is maintained as a finance lease by the lessee if, under the
amended lease terms, the lease would have been classified a finance lease either
initially or at the renegotiation date. At
January 1, 2007, TAM had 41 aircraft recorded as operating leases under BR GAAP,
which were considered finance leases under IFRS. At
December 31, 2007, TAM had 47 aircraft recorded as operating leases under BR
GAAP, which were considered as finance leases under IFRS. Under IFRS, the acquisition cost of
these aircraft and the related liability at the inception of the lease contract,
totaling, at January 1, 2007 R$ 3,655,605 (December 31, 2007 - R$ 4,778,085),
has been recorded in the balance sheet, with accumulated depreciation at January
1, 2007 of R$ 915,102 (December 31, 2007 - R$ 1,112,736). The obligations are
recorded in short and long-term liabilities, including accrued interest and
foreign exchange gains or losses (the lease obligations are denominated in U.S.
dollars). Foreign exchange gains on finance lease
payables totaled R$ 441,266 for the year ended December 31, 2007. Interest
expense on the financial lease obligation of these aircraft totaled R$ 142,130
for the year ended December 31, 2007. The operating lease expense recognized
under BR GAAP for these aircraft were reversed during all periods and totaled R$
379,663 for the year ended December 31, 2007. (ii) Built-in overhaul Under BR GAAP, TAM used the built-in
overhaul method for engines under capital lease arrangements. Under the built-in
overhaul method, major maintenance expenditure is capitalized and depreciated
over the period to the next scheduled major maintenance. For aircraft under
operating leases, TAM continued to expense maintenance as incurred. F-31


---



Table of
Contents Under IFRS, TAM also applies the
built-in overhaul method. However, the population of engines for which the
built-in overhaul method is used under IFRS also includes engines which had been
classified as operating leases under BR GAAP but are finance leases under IFRS.
The effect of applying the built-in overhaul method to the finance-leased
engines was to increase the cost of flight equipment by R$ 108,738 at January 1,
2007 (December 31, 2007 - R$ 192,560). The effect of capitalized built - in -
overhaul maintenance in respect of flight equipment under finance leases was R$
83,823 in net income for the year ended December 31, 2007. (iii) Depreciation Depreciation expense on these aircraft
recognized in the IFRS financial statements totaled R$ 197,634 for the year
ended December 31, 2007. (b)
Revaluation of flight equipment TAM
has elected to measure its flight equipment at revalued amounts (fair value) on
the date of transition to IFRS, January 1, 2007. However, the "cost" of the
revalued assets will remain their historical acquisition cost, or historical
acquisition cost adjusted for the effects of hyperinflation in 1996 and 1997,
with the difference recorded in revaluation reserve within equity. The revalued
amounts are not considered as "deemed cost" on transition to IFRS. The fair
value of the flight equipment at January 1, 2007 was determined to be R$
3,334,485, representing an increase of R$ 69,363 compared with the BR GAAP
carrying value. The increased carrying value had a consequent impact on the
depreciation charge for the year. The depreciation charge for the year ended
December 31, 2007 was R$ 17,370 higher than it had been under BR GAAP, and the
carrying value of flight equipment at December 31, 2007 was R$ 72,694 higher
than it had been under BR GAAP. The income statement for the year ended December
31, 2007 also included revaluation decreases below cost in the amount of R$
224,701. Further information relating to the revaluation of the flight equipment
is included in Note 5. (c)
Gains on sale and leaseback transactions BR
GAAP does not have specific requirements on sale-leaseback transactions. All
gains or losses arising from sale and leaseback transactions were recognized in
the income statement at the time of the transaction. Under IFRS a sale and leaseback where
the resulting lease is a finance lease is treated as a single financing
transaction in which any profit or loss on the sale for the seller (who becomes
the lessee) is deferred and amortized over the lease term. F-32


---



Table of
Contents The
amortization of gains on sale and finance-leaseback transactions recognized in
the income statement under IFRS for the year ended December 31, 2007 was R$
32,085. The
effect of recognizing the deferred income was to reduce IFRS equity at January
1, 2007 by R$ 211,611 (December 31, 2007 - R$ 179,526). (d)
Loyalty Program The
Company sponsors a program of rewards to frequent flyers (TAM Loyalty Program),
who accumulate points when they use TAM's flights or flights of partner
airlines, as well as when they make purchases using TAM Loyalty Program credit
cards, or use products and services at partner establishments. Revenue from passengers - under BR
GAAP, TAM provided for the incremental cost of providing award flights, and made
a provision for future liabilities relating to the Loyalty Program. Revenue from the Loyalty Program
Partners - under BR GAAP, revenues related to partnership with the Loyalty
Program for frequent flyers were recorded when the points are issued to
participants. Under IFRS, TAM defers revenue in
respect of points in issue (both for those awarded directly to passengers by TAM
and for those sold by TAM to partners) based on the fair value of the points.
Revenue is deferred, considering the points that are expected to be redeemed,
and is recognized in the income statement as passenger revenue when the points
are redeemed and passengers uplifted. The
effect of deferring revenue in this way rather than recognizing the incremental
cost was to increase deferred income by R$ 230,351 at January 1, 2007 (December
31, 2007 - R$ 361,131) and decrease revenue for the year ended December 31, 2007
by R$ 130,780. (e)
Dividends and interest on capital Under BR GAAP at December 31, 2007 the
Company recorded an amount of R$ 72,616 as dividends and interest on capital to
be paid to its stockholders, based on the declaration of dividends by the Board
of Directors in March 2008 (January 1, 2007 - none). For
IFRS purposes at December 31, 2007 an amount of R$ 40,537 (January 1, 2007 -
none) relating to the amounts accrued in excess of the minimum mandatory
dividend has been reversed because it had not been approved at that date. F-33


---



Table of
Contents (f)
TAM Mercosur Negative goodwill - negative goodwill
for BR GAAP purposes was generated as the difference between the book value and
the amount paid in the transaction for the acquisition of TAM Mercosur and
recorded on TAM's balance sheet as a liability IFRS does not allow negative
goodwill, and so R$ 11,099 at December 31, 2007 (January 1, 2007 - R$ 11,099)
has been eliminated against retained earnings on transition to IFRS. Currency translation adjustment - for
BR GAAP purposes, the effects of the exchange variation on this subsidiary's
stockholders' equity were recorded in the income statement. For IFRS purposes,
the effect of this exchange variation for the year ended December 31, 2007, R$
3,537, was removed from the income statement and recognized in equity in
cumulative translation adjustments, in accordance with IAS 21 - "Foreign
Currency Translation". (g)
Share based payment plan Under BR GAAP stock options did not
generate any expense and were recorded as a capital increase only when exercised
for the amount of the exercise price paid. IFRS requires the measuring and
recording of the cost of employee services in exchange for awards of equity
instruments based on the grant-date fair value of those awards (with limited
exceptions). The cost is recognized over the period during which the employee is
required to provide the service in exchange for the award. The grant date fair
value is estimated using the Black-Scholes option-pricing model. The plan is
treated as an equity settled, and the share based payment charge for the year is
based on the fair value of the options as at the grant date. R$ 11,230 was
recognized in the income statement for the year ended December 31, 2007. There
is no effect on equity at either January 1, 2007 or December 31, 2007. (h)
Pre-delivery payments Under BR GAAP, pre-delivery payments
(PDPs) were recognized as accounts receivable due to the past history of such
amounts being refunded by the aircraft manufacturers. Correspondingly, exchange
differences on amounts denominated in foreign currency were recognized in the
income statement. Under IFRS, due to TAM not having a
contractual right for the PDPs to be refunded, the PDPs are accounted for as
non-monetary items, and no exchange differences arise. Borrowing costs in
relation to the PDPs are capitalized under IFRS. The
impact in equity was to reverse net exchange loss of R$ 12,353 at January 1,
2007 and R$ 53,024 at December 31, 2007, and to capitalize borrowing costs of R$
27,379 at January 1, 2007 and R$ 58,100 at December 31, 2007. The impact in net
income at December 31, 2007 was R$ 71,392. F-34


---



Table of
Contents (i)
Maintenance contracts Under BR GAAP maintenance was accounted
for when the maintenance activities were performed by the maintenance provider. Under IFRS an accrual is made for the
maintenance of engines covered by "power by the hour" maintenance contracts
based on hours flown. The
impact was to recognize an additional maintenance accrual of R$ none at January
1, 2007 and R$ 62,925 at December 31, 2007. (j)
Other adjustments Other adjustments include individually
and collectively insignificant amounts in relation to: .
hyperinflation accounting for the years 1996 and 1997; .
pension accounting in respect of five employees that were still in TAM's defined
pension plan at January 1, 2007. The pension liability was irrevocably
transferred to a third party on September 30, 2007. (k)
Deferred income tax and social contribution Under BR GAAP, deferred income tax is
recognized using the liability method on temporary taxable or deductible
differences, in a manner largely consistent with IFRS. The deferred tax
adjustments represent the tax effect of the adjustments discussed in items (a)
to (j) above. (l)
Earnings per share Under BR GAAP, net income (loss) per
share was only presented in the parent company financial statements and is not
presented for the consolidated financial statements. Net income (loss) per share
was calculated on the number of shares outstanding at the balance sheet date.
Information was disclosed per one thousand shares because, generally, this is
the minimum number of shares that can be traded on the Brazilian stock
exchanges. Under IFRS, earnings per share are
presented based on TAM's consolidated net income (loss), considering the
weighted average number of shares in issue during the year excluding shares held
as treasury shares. Diluted earnings per share are also presented, taking into
account the potentially dilutive impact of outstanding share options. F-35


---



Table of
Contents (m)
Classification of line items (i)
Income statement Under BR GAAP, the classification of
certain income and expense items was presented differently from IFRS. The
reclassifications, other than those disclosed above, are summarized as
follows: .
Under BR GAAP, gains and losses on the disposal of property, plant and equipment
and investments or impairment of fixed assets are classified as non-operating
income/(expense) while under IFRS they are classified within operating income. .
Under BR GAAP movements in the fair value of fuel derivatives are shown as
financial result. Under IFRS they are shown separately. (ii) Balance sheet Under BR GAAP, the classification of
certain balance sheet items was presented differently from IFRS. The
reclassifications, other than those disclosed above, are summarized as follows: .
Under BR GAAP, cash and cash equivalents consist principally of highly liquid
cash deposits, but there is no requirement that there are insignificant
potential changes in value because of interest rate changes, nor is there a
maximum 90 day original period to maturity. Under IFRS, the Company's funds are
considered to be subject to potential change in value due to changes in interest
rates or have underlying securities with original maturities greater than 90
days. Therefore, under IFRS, such investments were classified under other
financial assets (held for trading) in the balance sheet. .
Under BR GAAP, deferred income taxes are not netted and assets are presented
separately from liabilities. For IFRS purposes, deferred tax assets and
liabilities are netted where there is a legal right of set-off and are
classified as non-current. .
Certain other amounts regarding accounts receivable and payable, financial
liabilities, revenue and operating expenses, which were previously presented
under BR GAAP on the face of the balance sheet or income statement have been
grouped together in the corresponding IFRS financial statements and are shown
separately in the Notes. F-36


---



Table of
Contents (n)
Business segments Under BR GAAP, no separate segment
reporting is required. Under IFRS, IFRS 8 - "Segmental
reporting" defines operating segments as components of an entity for which
separate financial information is available and evaluated regularly for
assessing segment performance and allocating resources to segments. Measures of
profit or loss, total assets and other related information are required to be
disclosed for each operating segment. IFRS 8 requires that segment data be
presented in accordance with the internal information that is used by management
for operating decision making, including allocation of resources among segments,
and segment performance. In addition, this standard requires the annual
disclosure of information concerning revenues derived from the entity's products
or services, countries in which revenues or assets are generated and major
customers. (o)
Cash flow statement Under BR GAAP, there was no requirement
to prepare a cash flow statement, although TAM voluntarily prepared
one. Under IFRS a cash flow statement is
required. There are no significant differences between the format of the cash
flow statement previously presented and the IFRS format, other than the
definition of cash and cash equivalents discussed above in (m)(ii). (p)
Impairment Under BR GAAP, companies were required
to determine if operating income is sufficient to absorb the depreciation or
amortization of long-lived assets in order to assess potential asset impairment.
In the event that operating income is insufficient to recover the depreciation,
the assets, or groups of assets, are written-down to recoverable values,
preferably based on the projected discounted cash flows of future operations. In
the event of a planned substitution of assets prior to the end of the original
estimated useful life of the asset, depreciation of that asset is accelerated to
ensure the asset is depreciated according to estimated net realizable value at
the estimated date of substitution. Under IFRS, IAS 36 - "Impairment"
requires companies to evaluate the carrying value of long-lived assets, when
events and circumstances require such a review (or annually in the case of
goodwill and intangible assets not subject to amortization). The carrying value
of long-lived assets is considered impaired when the recoverable amount, the
higher of the value in use and fair value less costs to sell, is less than the
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the recoverable amount. F-37


---



Table of
Contents In
the case of TAM, there were no impairment indicators and, therefore, no
differences between IFRS and BR GAAP related to impairment provision criteria
were recorded for the periods presented. 4.2.2 Reconciliations (a)
Reconciliation of equity at January 1, 2007 and December 31, 2007 January
      1,
    
    December
      31,2007
    
    2007(Restated)Total equity under BR GAAP (Law
      6,404 effective in 2007)
    
    1,446,176
    
    1,494,287Recognition
      of finance leased assets on TAM's balance sheet(Note
      4.2.1(a))
    
    398,606
    
    963,593Revaluation
      of flight equipment (Note 4.2.1(b))
    
    259,415
    
    72,694Gains on sale
      and leaseback transactions (Note 4.2.1(c))
    
    (211,611)
    
    (179,526)Loyalty
      program (Note 4.2.1(d))
    
    (230,351)
    
    (361,131)Dividends and
      interest on capital (Note 4.2.1(e))
    
    
    
    40,537TAM Mercosur
      (Note 4.2.1 (f))
    
    11,099
    
    11,099Pre-delivery
      payments (Note 4.2.1 (h))
    
    39,732
    
    111,124Maintenance
      contracts (Note 4.2.1 (i))
    
    
    
    (62,925)Other
      adjustments
    
    745
    
    8,850Deferred
      income tax and social contribution on adjustments above(Note
      4.2.1(k))
    
    (94,991)
    
    (189,885)Total
    adjustments
    
    172,644
    
    414,430Total equity under
      IFRS
    
    1,618,820
    
    1,908,717
  (b)
Reconciliation of net income for year ended December 31, 2007 December
      31,2007(Restated)Net income for the year under BR
      GAAP (Law 6,404 effective in 2007)
    
    129,073Recognition
      of finance leased assets on TAM's balance sheet (Note
    4.2.1(a))
    
    564,988Revaluation
      of flight equipment (Note 4.2.1(b))
    
    (160,402)Gains on sale
      and leaseback transactions (Note 4.2.1(c))
    
    32,085Loyalty
      program (Note 4.2.1(d))
    
    (130,780)Shared based
      payment plan (Note 4.2.1(g))
    
    (11,230)
  F-38


---



Table of
Contents Pre-delivery
      payments (Note 4.2.1(h))
    
    71,392Maintenance
      contracts (Note 4.2.1(i))
    
    (62,925)TAM Mercosur
      (Note 4.2.1(f))
    
    3,537Other
      adjustments
    
    (117)Deferred
      income tax and social contribution on adjustments above (Note
      4.2.1(k))
    
    (103,842)Total
    adjustments
    
    202,706Total net income for the year
      under IFRS
    
    331,779
  4.3
Additional reconciliations between BR GAAP (Law 11,638 effective in 2008) and
IFRS On
March 31, 2009, TAM published its consolidated financial statements for the year
ended December 31, 2008 prepared under revised BR GAAP, prepared in accordance
with Brazilian Corporate Law 11,638. In
addition to the reconciliations presented in Note 4.2 reconciling between the
amounts published in TAM's 2007 20-F filed with the United States Securities and
Exchange Commission and IFRS, reconciliations are presented below between the
amounts presented in accordance with Brazilian Corporate Law 11,638 and IFRS as
at December 31, 2008 and for the year then ended. 4.3.1 Explanation of the differences
between BR GAAP (Law 11,638 effective in 2008) and IFRS The
following explains the material adjustments to the balance sheet and income
statement: (a)
Revaluation of property, plant and equipment As
discussed in Note 4.2.1(b), TAM has elected to measure its flight equipment at
revalued amounts (fair value) on transition to IFRS. The
fair value of the flight equipment at December 31, 2008 was determined to be R$
8,767,142, representing an increase of R$ 1,643,526 compared with the BR GAAP
(Law 11,638) carrying value. The increased carrying value had a consequent
impact on the depreciation charge for the year, which for the year ended
December 31, 2008 was R$ 36,231 higher than it had been under BR GAAP. The
income statement for the year ended December 31, 2007 also included a
revaluation gain of R$ 242,370 for aircraft where a revaluation decrease had
previously been recognized in the income statement. Further information relating
to the revaluation of the flight equipment is included in Note 5. F-39


---



Table of
Contents (b)
Loyalty Program As
discussed in Note 4.2.1(d), TAM sponsors a program of rewards for frequent
flyers. Under IFRS, TAM defers revenue in respect of points in issue. The effect
of deferring revenue in this way was to increase deferred income by R$ 414,283
December 31, 2008 and decrease revenue for the year then ended by R$
53,152. (c)
TAM Mercosur As
discussed in Note 4.2.1(f), IFRS does not allow negative goodwill, and so R$
11,099 at December 31, 2008 was eliminated against retained earnings on
transition to IFRS. (d)
Pre-delivery payments As
discussed in Note 4.2.1(h), exchange differences on pre-delivery payments (PDPs)
denominated in foreign currency were recognized in the income statement, but
under IFRS, the PDPs are accounted for as non-monetary items, and no exchange
differences arise. Borrowing costs in relation to the PDPs are capitalized under
IFRS. The
impact in equity was to reverse accumulated net exchange gain of R$ 172,190 at
December 31, 2008 and to capitalize accumulated borrowing costs of R$ 104,484 at
December 31, 2008. The impact in net income at December 31, 2008 was a loss of
R$ 178,830. (e)
Maintenance contracts Under BR GAAP, maintenance was
accounted for when the maintenance activities were performed by the maintenance
provider, whereas under IFRS an accrual is made for the maintenance of engines
covered by "power by the hour" maintenance contracts based on hours flown. The
impact was to recognize an additional maintenance accrual of R$ 125,329 at
December 31, 2008, and a corresponding additional expense in the income
statement of R$ 62,403 for the year then ended. The
impact in equity was to reverse accumulated maintenance depreciation to engines
related to "power by the hour" contracts was R$ 56,548 at December 31, 2008. The
impact in net income at December 31, 2008 was R$ 14,645. F-40


---



Table of
Contents (f)
Deferred income tax and social contribution Under BR GAAP, deferred income tax is
recognized using the liability method on temporary taxable or deductible
differences, in a manner largely consistent with IFRS. The deferred tax
adjustments represent the tax effect of the adjustments discussed in items (a)
to (e) above. 4.3.2 Reconciliations (a)
Reconciliation of equity at December 31, 2008 - (Restated)  Total equity under BR GAAP (Law
      11,638 effective in 2008)
    
    632,355Revaluation
      of flight equipment (Note 4.3.1(a))
    
    1,643,526Loyalty
      program (Note 4.3.1(b))
    
    (414,283)TAM Mercosur
      negative goodwill (Note 4.3.1(c))
    
    11,099Pre-delivery
      payments (Note 4.3.1(d))
    
    (67,706)Maintenance
      contracts (Note 4.3.1(e))
    
    (68,781)Others
      adjustments
    
    (64,254)Deferred
      income tax and social contribution on adjustments above(Note
      4.3.1(f))
    
    (344,829)Total
    adjustments
    
    694,772Total equity under
      IFRS
    
    1,327,127
  (b)
Reconciliation of net loss for the year ended December 31, 2008- (Restated) Net loss for the year under BR
      GAAP (Law 11,638 effective in 2008)
    
    (1,359,239)Revaluation
      of flight equipment (Note 4.3.1(a))
    
    206,139Loyalty
      program (Note 4.3.1(b))
    
    (53,152)Pre-delivery
      payments (Note 4.3.1(d))
    
    (178,830)Maintenance
      contracts (Note 4.3.1(e))
    
    (47,758)Others
      adjustments
    
    (49,246)Deferred
      income tax and social contribution on adjustments aboveNote
      4.3.1(f))
    
    48,316Total
    adjustments
    
    (74,531)Total net loss for the year under
      IFRS
    
    (1,433,770)
  F-41


---



Table of
Contents 5
Property, Plant and Equipment Flight
    
    Land
      and
    
    Computer
    
    Machinery and
    
    Constructionequipment
    
    buildings
    
    equipment
    
    equipment
    
    in
      progress
    
    Other
    
    Total(Restated)
    
    
    
    
    
    
    
    
    
    
    
    (Restated)At January 1,
      2007Cost
    4,780,983
    
    219,930
    
    98,158
    
    64,303
    
    43,406
    
    83,917
    
    5,290,697Accumulated
      depreciation
    (1,256,446)
    
    (12,463)
    
    (42,636)
    
    (31,254)
    
    
    
    (50,371)
    
    (1,393,170)Net book
      amount
    3,524,537
    
    207,467
    
    55,522
    
    33,049
    
    43,406
    
    33,546
    
    3,897,527Year ended December 31,
      2007Opening net
      book amount
    3,524,537
    
    207,467
    
    55,522
    
    33,049
    
    43,406
    
    33,546
    
    3,897,527Additions
    1,405,670
    
    
    
    13,112
    
    14,988
    
    16,322
    
    35,609
    
    1,485,701Reclassification
    (83,951)
    
    
    
    
    
    
    
    
    
    
    
    (83,951)Disposals/write-offs
    (23,379)
    
    (13,816)
    
    (2,617)
    
    (3,225)
    
    (78)
    
    (1,734)
    
    (44,849)Revaluation
      through equity
    (26,318)
    
    
    
    
    
    
    
    
    
    
    
    (26,318)Revaluation
      through income statement
    (224,701)
    
    
    
    
    
    
    
    
    
    
    
    (224,701)Depreciation
    (209,920)
    
    (4,876)
    
    (18,004)
    
    (6,525)
    
    
    
    (7,305)
    
    (246,630)Closing net
      book amount
    4,361,938
    
    188,775
    
    48,013
    
    38,287
    
    59,650
    
    60,116
    
    4,756,779Year ended December 31,
      2007Cost
    5,828,304
    
    206,114
    
    108,653
    
    76,066
    
    59,650
    
    117,792
    
    6,396,579Accumulated
      depreciation
    (1,466.366)
    
    (17,339)
    
    (60,640)
    
    (37,779)
    
    
    
    (57,676)
    
    (1,639,800)Net book
      amount
    4,361,938
    
    188,775
    
    48,013
    
    38,287
    
    59,650
    
    60,116
    
    4,756,779
  F-42


---



Table of
Contents MachineryFlight
    
    Land
      and
    
    Computer
    
    and
    
    Constructionequipment
    
    buildings
    
    equipment
    
    equipment
    
    in
      progress
    
    Other
    
    Total(Restated)
    
    
    
    
    
    
    
    
    
    
    
    (Restated)Year ended December 31,
      2008Opening net
      book amount
    4,361,938
    
    188,775
    
    48,013
    
    38,287
    
    59,650
    
    60,116
    
    4,756,779Additions
    3,228,970
    
    6,631
    
    31,408
    
    39,005
    
    26,402
    
    42,530
    
    3,374,946Reclassification
    (16,322)
    
    49,790
    
    
    
    
    
    (49,790)
    
    
    
    (16,322)Disposals/write-offs
    (3,553)
    
    
    
    
    
    (4,582)
    
    (56)
    
    (8,838)
    
    (17,029)Revaluation
      through equity
    1,342,304
    
    
    
    
    
    
    
    
    
    
    
    1,342,304Revaluation
      through income statement
    242,370
    
    
    
    
    
    
    
    
    
    
    
    242,370Depreciation
    (388,564)
    
    (17,044)
    
    (20,739)
    
    (8,713)
    
    
    
    (10,760)
    
    (445,820)Closing net
      book amount
    8,767,143
    
    228,152
    
    58,682
    
    63,997
    
    36,206
    
    83,048
    
    9,237,228Year ended December 31,
      2008Cost
    10,622,073
    
    262,535
    
    140,061
    
    110,489
    
    36,206
    
    151,484
    
    11,322,848Accumulated
      depreciation
    (1,854,930)
    
    (34,383)
    
    (81,379)
    
    (46,492)
    
    
    
    (68,436)
    
    (2,085,620)Net book
    amount
    8,767,143
    
    228,152
    
    58,682
    
    63,997
    
    36,206
    
    83,048
    
    9,237,228
  F-43


---



Table of
Contents "Flight equipment" includes aircraft,
engines and spare parts. During 2008, acquisitions include aircraft under
finance leases, and at December 31, 2008 TAM possesses 64 finance leased
aircraft. The cost of these aircraft recognized at the commencement of the
leases was R$ 7,724,713 (2007 - R$ 5,031,289), with accumulated depreciation of
R$ 1,311,799 (2007 - R$ 1,086,482), and so a net book value of R$ 6,412,914
(2007 - R$ 3,944,807). The depreciation expense for the year for finance leased
flight equipment was R$ 186,357 (2007 - R$ 210,881). Flight equipment is recorded at
revalued amounts. The revaluations were performed by an independent valuation
firm, Engeval Engenharia de Avaliações S/C Ltda., part of the ArcaLaudis -
Global Network of International Valuers and Loss Assessors, as at January 1,
2007, December 31, 2007 and December 31, 2008. The valuations were based on
observable market prices for flight equipment. If the flight equipment had been
recorded at historical cost, the carrying value at December 31, 2008 would have
been R$ 7,092,539 (2007 - R$ 4,250,602). The revaluation surplus at December 31,
2008 was R$ 1,342,304 (2007 - R$ 26,318). At December 31, 2007 the revaluations
resulted in an expense of R$ 224,701 for aircraft whose revalued amount was
lower than their cost. At December 31, 2008 the revaluations resulted in a gain
being recognized in the income statement of R$ 242,370 for aircraft where a
revaluation decrease had previously been recognized in the income statement. "Construction in progress" is mainly
composed of improvements carried out at the São Carlos Technology Center.
"Other" is mainly composed of furniture and vehicles. The
properties and improvements of TAM's subsidiary TLA have been mortgaged as
guarantee for loans in the total amount of R$ 110,499 (2007 - R$ 110,499). Other than aircraft, no significant
amounts of PPE are located outside Brazil. Aircraft are based in Brazil but fly
both domestically and internationally. 6
Pre-delivery Payments Pre-deliverypaymentsAt January 1,
      2007
    
    383,165Additions
    
    924,375Transfers (*)
    
    (313,964)Capitalized borrowing
      costs
    
    30,721Year ended December 31,
      2007
    
    1,024,297
  F-44


---



Table of
Contents Pre-deliverypaymentsAdditions
    
    401,653Transfers (*)
    
    (1,046,110)Capitalized borrowing
      costs
    
    46,384Year ended December 31,
      2008
    
    426,224(*) Transfers occur when the
      aircraft are delivered and amounts are either returned to TAM
      or capitalized within flight
equipment.
  7
Intangible Assets IT
      projects
    
    Computerin
      progress
    
    software
    
    Others
    
    TotalAt January 1,
      2007CostAccumulated
      amortization and impairmentClosing net book
      amountYear ended December 31,
      2007Additions
    
    22,723
    
    14,348
    
    
    
    37,071Amortization
    
    
    
    (2,823)
    
    
    
    (2,823)Closing net book
      amount
    
    22,723
    
    11,525
    
    
    
    34,248At December 31,
      2007Cost
    
    22,723
    
    14,348
    
    
    
    37,071Accumulated
      amortization and impairment
    
    
    
    (2,823)
    
    
    
    (2,823)Net book
      amount
    
    22,723
    
    11,525
    
    
    
    34,248Year ended December 31,
      2007Opening net
      book amount
    
    22,723
    
    11,525
    
    
    
    34,248Additions
    
    80,044
    
    23,527
    
    29,897
    
    133,468Transfer
    
    (431)
    
    (278)
    
    
    
    (709)Amortization
    
    
    
    (14,915)
    
    
    
    (14,915)Closing net
      book amount
    
    102,336
    
    19,859
    
    29,897
    
    152,092Year ended December 31,
      2008
    
    102,336
    
    19,859
    
    29,897
    
    152,092At December 31,
      2008Cost
    
    102,336
    
    37,597
    
    29,897
    
    169,830Accumulated
      amortization and impairment
    
    
    
    (17,738)
    
    
    
    (17,738)Closing net
      book amount
    
    102,336
    
    19,859
    
    29,897
    
    152,092
  F-45


---



Table of
Contents IT
projects in progress and computer software are recorded at cost less accumulated
amortization and impairment. Expenditure for development of projects and
software, including the costs of materials, third-parties' worked hours and
other direct costs, are recognized when it is probable that they will be
successful, taking into account their commercial and technological feasibility,
and only when their cost can be reliably measured. Such expenses are amortized
on the straight-line method over the period of the expected benefits. As to
Company development projects still underway, it is expected that they will be
amortized as from 2009, upon becoming operational. The anticipated amortization
period is three-ten years, depending on the useful life of each
project. Computer software is amortized over its
useful life, not normally exceeding three years. Other projects include payments to the
international airline network Star Alliance, and will be amortized from 2009
when TAM completes the integration process into the network and the assets start
to be used. 8
Other Financial Assets 2008
    
    2007(Restated)Deposits in guarantee
      (i)
    
    116,135
    
    161,488Prepaid aircraft maintenance
      (ii)
    
    383,593
    
    119,633Other non-current
      receivables
    
    157,904
    
    104,709657,632
    
    385,830
  Financial assets included above are
classified as loans and receivables measured at amortized cost. Their carrying
value approximates to their fair value. (i)
Deposits in guarantee Deposits in guarantee and collateral
relating to the lease of aircraft and engines are mainly guarantees of operating
lease installments. These deposits and collateral are denominated in U.S.
dollars, and accrue interest based on the London Interbank Offered Rate
("LIBOR") plus a spread of 1% per annum (p.a.). (ii) Prepaid aircraft maintenance The
maintenance reserve is a guarantee for the aircraft owner that the returned
aircraft can be restored to its original condition. Certain aircraft leasing
agreements require that advance deposits be made on behalf of the lessor, with
maintenance reserve funds, at a restricted bank account in the lessor's name.
The lessor may withdraw funds from this account if the required maintenance is
not carried out upon return of the aircraft. Should TLA perform the maintenance
of the aircraft or its parts, such as fuselage, engines and landing gear, it can
request that the lessor return the related amount, which will otherwise revert
to the owner. F-46


---



Table of
Contents 9
Trade and Other Receivables Trade and other receivables are
composed of: 2008
    
    2007Trade accounts
      receivable
    
    1,157,239
    
    937,928Aircraft
      insurance
    
    58,694
    
    44,515Prepaid
    expenses
    
    90,587
    
    151,372Other current
      receivables
    
    97,944
    
    74,1041,404,464
    
    1,207,919
  Financial assets included above are
classified as loans and receivables measured at amortized cost. Their carrying
value approximates to their fair value. (a)
Trade receivables 2008
    
    2007Domestic
    
    International
    (*)
    
    Total
    
    TotalCredit cards
    
    659,315
    
    41,698
    
    701,013
    
    575,039Travel agents
    
    226,090
    
    47,849
    
    273,939
    
    239,747Others
    
    180,560
    
    76,403
    
    256,963
    
    173,382Sub total
    
    1,065,965
    
    165,950
    
    1,231,915
    
    988,168Provision for impairment oftrade
    receivables
    
    (57,225)
    
    (17,451)
    
    (74,676)
    
    (50,240)1,008,740
    
    148,499
    
    1,157,239
    
    937,928
  (*)
Includes R$ 42,487 denominated in U.S. Dollars, R$ 40,344 denominated in Euros,
R$ 14,842 denominated in Argentine Pesos, and the remaining balance is composed
of various currencies. F-47


---



Table of
Contents (b)
Trade receivables by due date 2008
    
    2007Not yet due
    
    1,119,068
    
    892,581Over dueUp to 60
      days
    
    20,651
    
    20,663From 61
      to 90 days
    
    3,796
    
    11,582From 91
      to 180 days
    
    2,482
    
    7,056From 181
      to 360 days
    
    27,572
    
    10,332More than 360
      days
    
    58,346
    
    45,9541,231,915
    
    988,168
  (c)
Provision for impairment of trade receivables Movements on the provision for
impairment of trade receivables are as follows: 2008
    
    2007Balance at January
      1
    
    50,240
    
    38,387Charge for
      the year
    
    25,047
    
    12,399Unused
      amounts reversed
    
    (611)
    
    (546)Balance at December
      31
    
    74,676
    
    50,240
  The
establishment and release of provisions for impaired receivables have been
included in "selling expenses" in the income statement. Amounts charged to the
allowance account are generally written off when there is no expectation of
recovering additional cash. None of the items for which an impairment provision
has been recognized is individually significant. The
maximum exposure to credit risk at the reporting date is the carrying value of
each class of receivable mentioned above. TAM does not hold any collateral as
security. 10
Inventories 2008
    
    2007Material for repairs and
      maintenance
    
    149,062
    
    94,966Other inventories
    (*)
    
    20,360
    
    5,219169,422
    
    100,185
 (*) Other
inventories include uniforms, stationery and catering items. F-48


---



Table of
Contents 11
Financial risk management TAM's activities expose it to a variety
of financial risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit risk and
liquidity risk. The
Company has a risk management program which allows its Treasury Department to
enter into derivative financial instruments in order to reduce the exposure to
its main risks of exchange rate and jet fuel price volatility on its cash
flows. These derivatives are used in line with
TAM's policies, considering liquidity, impact on TAM's results and cost/benefit
analysis of each position taken. Control over the use of derivatives includes
ensuring that the rates contracted in derivative contracts are in line with
market rates. All of the derivatives entered into are to mitigate TAM's risk
exposures and are not used for speculation. (a)
Market risks TAM
is exposed to market risks from our normal commercial activities. These market
risks principally relate to changes in interest rates, exchange rates or jet
fuel prices. Any such changes may adversely affect the value of our financial
assets and liabilities or our future cash flows and expenses. Market risk is the
possible loss derived from variations in market prices. TAM has entered into
derivative contracts and other financial instruments for the purpose of
mitigating the risks arising from variations in these factors. TAM has also
implemented policies and procedures in order to evaluate such risks and approve
and monitor its derivative transactions, including a policy which stipulates
that TAM will only enter into derivative transactions with counterparties which
have an investment grade credit rating. (i)
Risks relating to variations in the price of jet fuel One
of the most important financial risks of airline companies is the volatility in
fuel prices. Fuel represented 39.5% (2007 - 32.9%) of operating costs for the
year ended at December 31, 2008. The
Company has entered into derivative transactions in order to economically hedge
themselves against this risk. TAM's Risk Committee has established policies for
achieving this. TAM's policy is to enter into derivative transactions covering a
period of up to two years, allowing up to 80% of forecast fuel consumption for
the next year decreasing to 30% of forecast consumption for the second year.
Swaps, options, forwards or a combination of these (e.g. seagulls), using market
prices for crude oil, heating oil or jet fuel as the underlying may be used to
achieve TAM's aims. F-49


---



Table of
Contents In
Brazil the price of jet kerosene is determined by the state-controlled oil
company, Petrobras, based on international jet fuel prices. TAM aims to reduce
the volatility in its kerosene price by using derivatives based on crude oil
(West Texas Intermediate or "WTI"). WTI is highly correlated with TAM's average
Jet Fuel Price. This strong fundamental and statistical relationship, coupled
with the fact that crude oil is arguably the most actively traded commodity, led
TAM to elect WTI as the main underlying for its fuel hedging program. In
January the 2009, the Company, together with its key counterparties, started a
restructuring of its hedge transactions whose market value was R$ 1,128,985 at
December 31, 2008. The restructuring basically consisted of the distribution of
maturity dates over a longer period. With this action, the Company aims at
accomplishing two main goals: first, reduce cash payments, that were
concentrated in the first half of 2009; second, settle the most part of the
transactions at a period when prices are less volatile which, according to
Company estimates, should be more in line with price levels more similar to the
transaction strike. The
coverage profile, which was concentrated in the first half of 2009, is now more
evenly distributed through 2009 and 2010, including a small coverage in the
first quarter of 2011. For the next 12 months following March 31, 2009, the
coverage accounts for 27% of the anticipated consumption. The average strike for
transactions in the same period is now US$ 112 per barrel. Approximately 65% of
the volume in WTI barrels, as of the end of the first quarter, had been
renegotiated, representing a reduction of around US$ 95 million of disbursements
in the first half of 2009. All
of the crude oil derivatives that TAM enters into are "over the counter", and
none requires guarantees or margin calls. Due to the rescheduling of its hedging
derivatives maturities, which took place in Q1 09, TAM has agreed to deposit a
portion of its fair value as collateral to those restructured operations. At
December 31, 2008, the company had outstanding derivatives contracts relating to
the price of crude oil amounting approximately 8.0 million barrels of oil with
maturities out to Q3 10 (2007 - 5.5 million with maturities to November 2008)
covering 47% of the next 12 months' expected usage. At December 31, 2008 TAM
recorded a liability of R$ 1,128,985 in respect of these contracts (2007 - asset
of R$ 62,967). See also Note 14. As
TAM does not hedge 100% of its expected fuel needs with derivatives, any
increase in kerosene prices will not be completely offset; similarly decreases
in kerosene prices will have a net benefit to TAM, despite the negative cash
flows from settling its derivative contracts. At
the time the majority of the WTI derivatives were entered into, the expected
price of WTI was between US$ 120-150 per barrel. In this context, derivatives
were entered into with an average strike price of US$ 104 per barrel. At
December 31, 2008 the market price of WTI was US$ 44.60 per barrel resulting in
a negative value for the derivatives. F-50


---



Table of
Contents The
maturity of the derivatives is as follows: 2009
    
    2010Notional amount - thousands of
      barrels
    
    7,200
    
    800Fair value (reais)
    
    (1,021,928)
    
    (107,057)
  TAM
will only contract derivatives with counterparties which have a credit rating of
at least A- (A3) issued by S&P, Moody's or Fitch. The distribution of the
fair values of the counterparties by credit rating is: Fair
      value ofderivativesAAA
    
    (446,757)AA+, AA or
AA-
    
    (131,109)A+, A or A-
    
    (551,119)(1,128,985)
  A
hypothetical 10% increase/decrease in the price of WTI would lead to an
increase/decrease of approximately R$ 30.4 million/R$ 30.6 million respectively
in the fair value of the WTI derivatives. This increase/decrease would directly
influence our financial results; in terms of cash flow, however, these changes
in WTI price would be more than offset by a decrease/increase in our jet fuel
costs. (ii) Exchange rate risk A
significant part of the company's costs and operating expenses, such as aircraft
and engine maintenance services, aircraft lease payments and aircraft insurance,
are denominated in U.S. dollars. To manage exchange rate risk, TAM may enter
into derivative contracts to protect itself against a possible depreciation or
devaluation of the real in relation to the U.S. dollar. At December 31, 2008,
TAM had no outstanding currency derivative contracts. At
December 31, 2008, if the Brazilian real had weakened/strengthened by 10%
against the U.S. dollar with all other variables held constant, post-tax profit
for the year would have been R$ 770 higher/lower, mainly as a result of foreign
exchange gains/losses on translation of U.S. dollar denominated financial assets
at fair value through profit or loss, and foreign exchange losses/gains on
translation of U.S. dollar-denominated borrowings and finance leases. Profit is
more sensitive to movement in currency/U.S. dollar exchange rates in 2008 than
2007 because of the increased amount of U.S. dollar-denominated finance leases.
The exchange rate risk in our financial results is inflated by the fact that its
effect on the price of our aircraft cannot be registered in results. The effect
on equity would have been the same as the effect on post-tax profit. F-51


---



Table of
Contents (iii) Interest rate risk TAM's earnings are affected by changes
in interest rates due to the impact those changes have on interest expense from
variable-rate debt instruments, variable-rate leasing contracts and on interest
income generated from its cash and short-term investment balances. To minimize
possible impacts from interest rate fluctuations, TAM has adopted a policy of
diversification, alternating between contracting fixed and variable rates (such
as LIBOR and CDI). A
hypothetical 100 basis point increase in market interest rates at December 31,
2008 would increase its aircraft rental and interest expense by approximately R$
1.9 million. These amounts are determined by
considering the impact of the hypothetical interest rates on TAM's variable-rate
debt and variable-rate leasing contracts at December 31, 2008. (b)
Credit risk Credit risk arises from the possibility
of TAM not recovering amounts receivable from services provided to consumers
and/or travel agencies, or from credits held by financial institutions generated
by financial investment operations. Management does not expect any losses from
non-performance by its counterparties, and does not have any significant
exposure to any individual counterparty. To
reduce credit risk, TAM has adopted the practice of establishing credit limits
and the permanent follow-up of its debtor balance (mainly from travel agencies). TAM
will only deal with financial institution counterparties which have a credit
rating of at least BBB- (Baa3) issued by S&P, Moody's or Fitch. In the case
of derivatives contracted in Brazil, a local rating of at least brA- is
required. In addition, each institution has a maximum limit for investments, as
determined by the Company's Risk Committee. TAM's maximum exposure to credit risk
is equal to the carrying amount of each of its financial assets. (c)
Liquidity risk Prudent liquidity risk management
implies maintaining sufficient cash and marketable securities, the availability
of funding through an adequate amount of committed credit facilities and the
ability to close out market positions. Due to the dynamic nature of the
underlying businesses, TAM treasury maintains flexibility in funding by
maintaining availability under committed credit lines. F-52


---



Table of
Contents Excess cash is invested mainly in the
exclusive investment funds described in Note 13. Each of these funds has a clear
investment policy, with limits on concentration of risk in the underlying
investments. The
table below analyses TAM's financial liabilities into relevant maturity
groupings based on the remaining period at the balance sheet to the contractual
maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows and include interest, apart from the net settled
derivatives, for which the fair value is disclosed. Less
    
    Between
    
    Betweenthan
    
    one
      and
    
    three
      and
    
    More
      than
    
    
    
    Effect
      of
    
    Carryingone
      year
    
    two
      years
    
    five
      years
    
    five
      years
    
    Total
    
    discounting
    
    valueNon-derivative financialliabilitiesAt
      December 31, 2008Finance
      leaseobligations
    961,373
    
    1,764,576
    
    1,751,910
    
    3,751,912
    
    8,229,771
    
    (1,781,291)
    
    6,448,480Borrowings
    239,402
    
    228,621
    
    8,310
    
    12,468
    
    488,801
    
    (87,233)
    
    401,568Debentures
    51,464
    
    333,333
    
    166,667
    
    
    
    551,464
    
    (22,922)
    
    528,542Senior notes
    51,562
    
    103,269
    
    103,412
    
    882,215
    
    1,140,458
    
    (430,022)
    
    710,436Trade
      and otherpayables
    967,553
    
    
    
    
    
    
    
    967,553
    
    
    
    967,553At
      December 31, 2007Finance
      leaseobligations
    456,065
    
    821,927
    
    800,005
    
    1,781,126
    
    3,859,123
    
    (890,909)
    
    2,968,214Borrowings
    944,414
    
    237,340
    
    35,601
    
    10,217
    
    1,227,572
    
    (159,725)
    
    1,067,847Debentures
    57,393
    
    218,131
    
    333,333
    
    
    
    608,857
    
    (76,698)
    
    532,159Senior
      notes
    39,408
    
    78,162
    
    78,380
    
    707,854
    
    903,804
    
    (365,338)
    
    538,466Trade
      and other payables
    804,670
    
    
    
    
    
    
    
    804,670
    
    
    
    804,670Derivative financialliabilitiesAt
      December 31, 2008WTI
    1,021,928
    
    107,057
    
    
    
    
    
    1,128,985
    
    
    
    1,128,985
  11.1 Fair value
estimation The
fair value of financial instruments traded in active markets (such as trading
securities) is based on quoted market prices at the balance sheet date. The
quoted market price used for financial assets held by TAM is the current bid
price. The
fair value of financial instruments that are not traded in an active market (for
example, over-the-counter derivatives) is determined by using valuation
techniques. TAM uses a variety of methods that are based on market conditions
existing at each balance sheet date. Quoted market prices or dealer quotes for
similar instruments are used for long-term debt. Other techniques, such as
estimated discounted cash flows, are used to determine fair value for the
remaining financial instruments. The fair value of forward foreign exchange
contracts is determined using quoted forward exchange rates at the balance sheet
date. F-53


---



Table of
Contents The
carrying value less impairment provision of trade receivables and payables are
assumed to approximate their fair values. The fair value of financial
liabilities for disclosure purposes is estimated by discounting the future
contractual cash flows at the current market interest rate that is available to
TAM for similar financial instruments. 11.2 Capital management The
objective of capital management is to ensure that TAM is able to continue as a
going concern whilst delivering shareholder expectations of a strong capital
basis as well as returning benefits to other stakeholders and optimizing the
cost of capital. TAM
monitors capital on the basis of the leverage ratio, net debt as a percentage of
total capital. Net debt is defined as the total loans and borrowings, lease
agreements, net of cash and cash equivalents and other current financial assets.
We define capital as the total of shareholders equity and net debt. The
leverage ratios at December 31, 2008 and 2007 were as follows: 2008
      (Restated)
    
    2007
      (Restated)Cash and cash
      equivalents
    
    (671,785)
    
    (466,538)Other financial
      assets
    
    (1,242,271)
    
    (2,140,339)Borrowings
    
    401,568
    
    1,067,847Debentures and senior
      notes
    
    1,238,978
    
    1,070,625Lease
    agreements
    
    8,928,266
    
    4,811,572Net debt (1)
    
    8,654,756
    
    4,343,167Total equity
    
    1,327,127
    
    1,906,088Total capital (2)
    
    9,881,883
    
    6,251,884Leverage ratio (1) /
      (2)
    
    86.7%
    
    69.5%
  The
increase in the leverage ratio during 2008 resulted primarily from the delivery
of Boeing and Airbus aircraft during the year. Management believes that the
resources available to the Company are sufficient for its present requirements
and will be sufficient to meet its anticipated requirements for capital
investments, which are approved annually by the Board of Directors, and other
cash requirements for the 2009 fiscal year despite the current economic turmoil.
The Company is not subject to any externally imposed capital requirements. F-54


---



Table of
Contents 12
Cash and Cash Equivalents Cash and cash equivalents include the
following: 2008
    
    2007Cash and bank
      accounts
    
    105,251
    
    134,873Short-term
      deposits
    
    566,534
    
    331,665Cash and cash
      equivalents
    
    671,785
    
    466,538
  13
Other Financial Assets 2008
    
    2007In local
    currencyExclusive
      investment fundsGovernment securities
    
    683,779
    
    1,229,723Corporate securities
    
    222,990
    
    173,026Others
    
    1,246
    
    40,570908,015
    
    1,443,319Austrian
notes
    
    84,124
    
    79,082Bank Deposit Certificates
      (CDB)
    
    11,16495,288
    
    79,0821,003,303
    
    1,522,401In foreign
      currencyDual currency
      bonds
    
    221,518
    
    617,938Other bank
      deposits
    
    17,450238,968
    
    617,9381,242,271
    
    2,140,339
  F-55


---



Table of
Contents All
financial investments are measured at their fair value through profit and loss
and held for active and frequent trading. Management of financial investments in
the domestic market is primarily performed via exclusive investment funds. This
structure follows high transparency and corporate governance standards. The
custody of securities and units of funds and the management of funds are carried
out by an independent management institution. The mandates and regulations are
consistent within each type of management and are subject to clear limits and
measurement methods for market, credit and liquidity risks. The average
profitability of these funds was 11.33% in 2008 (2007 - 11.77 %). Investments in international markets
essentially comprise time deposits, notes and overnight transactions with first
tier banks with which the Company maintains business relationships. The average
profitability of these investments was 4.89% in 2008 (2007 - 11.82 %). 14
Derivative Financial Instruments 2008
    
    2007Assets
    
    Liabilities
    
    Assets
    
    LiabilitiesWest Texas Intermediate crude oil
      derivativesForwards
    
    
    
    351,343Swaps
    
    
    
    517,696
    
    55,096Seagulls
    
    
    
    224,902
    
    7,059Collar
    
    
    
    35,044Foreign currency
      forwards
    
    
    
    
    
    8121,128,985
    
    62,967AnalyzedCurrent
    
    
    
    1,021,928
    
    62,967Non-current
    
    
    
    107,057
  The
derivative financial instruments included above are described in Note 11. 15
Financial Liabilities The
carrying value of financial liabilities, all of which are measured at amortized
cost, and their corresponding fair values are shown in the following
table: F-56


---



Table of
Contents Fair
      value
    
    Carrying
      value2008
    
    2007
    
    2008
    
    2007Non-currentFinance lease
      obligations
    
    5,768,040
    
    2,669,736
    
    5,768,040
    
    2,669,736Senior
      notes
    
    328,335
    
    453,694
    
    701,100
    
    531,390Borrowings
    
    221,034
    
    214,959
    
    209,733
    
    207,574Debentures
    
    483,517
    
    504,043
    
    500,000
    
    500,0006,800,926
    
    3,842,432
    
    7,178,873
    
    3,908,700CurrentFinance lease
      obligations
    
    680,440
    
    298,478
    
    680,440
    
    298,478Senior
      notes
    
    4,372
    
    6,041
    
    9,336
    
    7,076Borrowings
    
    202,172
    
    891,346
    
    191,835
    
    860,273Debentures
    
    27,601
    
    32,419
    
    28,542
    
    32,159914,585
    
    1,228,284
    
    910,153
    
    1,197,986
  15.1 Finance lease obligations Monthlypaymentsexpiring
      in
    
    2008
    
    2007Foreign
    currencyAircraft
    
    2020
    
    6,176,550
    
    2,894,316Engines
    
    2017
    
    244,379
    
    41,409IT
      equipment
    
    2012
    
    27,551
    
    32,4896,448,480
    
    2,968,214AnalyzedCurrent
    
    
    
    (680,440)
    
    (298,478)Non-current
    
    
    
    5,768,040
    
    2,669,736
  The
finance lease obligations are denominated in U.S. dollars. TAM has provided
letters of guarantee and deposits in guarantee in respect of the finance leases.
At December 31, 2008 TAM has 64 aircraft under finance leases (2007 - 47
aircraft). See Note 5. The
minimum payments under finance leases are classified: F-57


---



Table of
Contents 2008
    
    2007No later than one
      year
    
    961,373
    
    456,065Later than one year and no later
      than five years
    
    3,516,486
    
    1,621,932Later than five
      years
    
    3,751,912
    
    1,781,126Effect of
      discounting
    
    (1,781,291)
    
    (890,909)6,448,480
    
    2,968,214
  15.2 Senior Notes On
April 25, 2007, TAM Capital concluded an offer of senior bonds in the total
amount of US$ 300 million (equivalent to R$ 710.4) with interest of 7.375% per
annum, paid half-yearly and with final or sole maturity in 2017, by means of a
transaction abroad exempt from filing with the Brazilian CVM. The Company opted
to register the securities with the United States Securities and Exchange
Commission - ("SEC") on October 30, 2007. F-58


---



Table of
Contents 15.3 Borrowings Guarantees
    
    Interest rate
      (effectiverate for
      year endedDecember
      31, 2008and
      2007)
    
    Payment
      termsand year
      of lastpayment
    
    2008
    
    2007Local
currencyFINEM - subcredit
      A
    
    Mortgage of assets and
      accounts receivable
    
    TJLP + 4.5% p.a (10.8% p.a.
      and 10.8% p.a.)
    
    Monthly until
      2011
    
    43,554
    
    58,040FINEM - subcredit
      B
    
    Mortgage of assets and
      accounts receivable
    
    Basket of currencies BNDES +
      3.0% p.a. (10.5% p.a and 11.9% p.a.)
    
    Monthly until
      2012
    
    7,984
    
    8,149Compror
    
    No guarantee
    
    100.0% p.a. to 101.5% p.a.
      of the CDI (12.8% p.a. and 11.3% p.a.)
    
    Monthly until
      2008
    
    
    
    223,573Other
    
    
    
    
    
    
    
    9,261
    
    7,561Total local
      currency
    
    
    
    
    
    
    
    60,799
    
    297,323Foreign
    currencyFINIMP
    
    Promissory note US$ 23,593
      thousand
    
    LIBOR + 0.9% p.a. to 5.7%
      p.a. (5.3% p.a. and 6.4%p.a.)
    
    Annual
      until 2010
    
    167,289
    
    84,883International
      Finance Corporation - "IFC"
    
    Deposits in guarantee US$
      2,500 thousand
    
    6 months LIBOR + 3.0% p.a.
      (6.6% p.a. and 7.7% p.a.)
    
    Half-yearly
      until 2012
    
    52,393
    
    51,414Leasing renegotiation
    
    Letter of
      guarantee
    
    Fixed installments of US$ 55
      thousand
    
    Monthly until
      2022
    
    14,013
    
    11,137Financing
      - Pre-delivery payment
    
    No guarantee
    
    Monthly LIBOR + 0.6% p.a.
      (1.1% p.a. and 4.8% p.a.)
    
    Monthly until
      2011
    
    107,074
    
    621,734Other
    
    
    
    
    
    
    
    
    
    1,356Total foreign
      currency
    
    
    
    
    
    
    
    340,769
    
    770,524401,568
    
    1,067,847AnalyzedCurrent
    
    
    
    
    
    
    
    (191,835)
    
    (860,273)Non-current
    
    
    
    
    
    
    
    209,733
    
    207,574
  FINIMP - Import Financing, FINEM -
Government agency financing for machinery and equipment, TJLP - Long term
interest rate and CDI - Interbank deposit rate. F-59


---



Table of
Contents Non-current maturities are as follows: Year
    
    2008
    
    20072009
    
    
    
    119,5232010
    
    60,573
    
    56,0152011
    
    132,559
    
    22,9502012
    
    5,531
    
    2,4862013
    
    1,221
    
    660After 2013
    
    9,849
    
    5,940209,733
    
    207,574
  On
May 21, 2007, TAM entered into a loan agreement with Calyon Bank and other banks
to finance up to US$ 331 million (equivalent to R$ 643) of pre-delivery payment
- PDP operations made to Boeing for the delivery of 4 Boeing 777-300ER aircraft
with firm purchase orders and delivery scheduled for 2008. On December 31, 2008
the balance of this loan was R$ 356 (2007 - R$ 516,725). On
December 28, 2007, TAM entered into a loan agreement with bank BNP Paribas to
finance up to US$ 117.1 million (equivalent to R$ 207.3) of pre-delivery
payments for 30 Airbus aircraft with firm purchase orders and delivery scheduled
between 2008 and 2010. At December 31, 2008, the balance of this loan was R$
106,718 (2007 - R$ 105,009). In
2005, TAM signed a loan agreement under the FINIMP program, obtaining funds
mostly from Unibanco and Banco do Brasil to finance imports of aircraft engines
and parts up to a sum of US$ 8,805 thousand (equivalent to R$ 21,435), with
maturities until December 2008, except for a renegotiated portion with Banco do
Brasil for US$ 4,719 thousand (equivalent to R$ 11,299), maturing in November
2009. In 2006, the Company raised US$ 37,885 thousand (equivalent to R$ 82,412)
from Unibanco, maturing in July 2009. In 2008, for the same purpose, US$ 84,996
thousand (equivalent to R$ 155,862) was obtained from Unibanco, HSBC and Itaú,
maturing in September 2010. At December 31, 2008 the balance of this type of
financing amounts to R$ 167,289 (2007 - R$ 84,883). The
Company is not subject to certain obligations under loan agreements, such as
compliance with certain financial indices, limits on the issue of financial
debt, and priority in the repayment of loans. 15.4 Debentures Issuer
    
    Series
    
    Quantity
    
    Nominal
      value - R$
    
    2008
    
    2007TAMAugust 1,
      2006
    
    Only
    
    50,000
    
    10,000
    
    528,542
    
    523,147
  F-60


---



Table of
Contents Issuer
    
    Series
    
    Quantity
    
    Nominalvalue - R$
    
    2008
    
    2007TLAApril 22,
      2003
    
    First
    
    473,006
    
    100
    
    
    
    4,308April 22,
      2003
    
    Second
    
    222,835
    
    100
    
    
    
    2,029May 16,
      2003
    
    Third
    
    177,165
    
    100
    
    
    
    2,675873,006
    
    
    
    
    
    9,012528,542
    
    532,159Current
    
    
    
    
    
    
    
    28,542
    
    32,159Non-current
    
    
    
    
    
    
    
    500,000
    
    500,000
  (a)
TAM On
July 7, 2006 the Board of Directors approved the issue of nominative,
nonconvertible debentures with no security guarantee or preference but with a
guarantee provided by TLA. The
debentures have a face value of R$ 10 and a term of six years, with repayment in
three successive, equal, annual payments the first of which falls due on August
1, 2010. Interest is to be paid every six months
at a rate equivalent to 104.5% of the CDI as calculated and published by CETIP -
the custodian and liquidation chamber. The effective interest rate was 14.29% as
at December 31, 2008 (2007 - 11.7%) . The
Company will be subject to certain obligations under the debenture contracts,
such as compliance with certain financial indices, limits on the issuance of
financial debt, and priority in the repayment of debentures. Such requirements
will become effective as from 2010, when the debentures will start to be
amortized. (b)
TLA At
the Extraordinary General Meeting held on April 7, 2003 the stockholders
approved the private issuance of nonconvertible, nominative debentures, without
the issuance of warrants or certificates, with a face value of R$ 100.00 (one
hundred reais) each, totaling three series. Each series falls due 60 months as
from the subscription date. The debentures were totally settled in May 2008. F-61


---



Table of
Contents 16
Deferred Income 2008
    
    2007Non-currentFrequent flyer
      program
    
    253,854
    
    210,328Sale and leaseback - deferred
      gains
    
    115,356
    
    147,441369,210
    
    357,769CurrentAdvance ticket
      sales
    
    819,780
    
    807,101Frequent flyer
      program
    
    253,854
    
    210,328Sale and leaseback - deferred
      gains
    
    32,085
    
    32,0851,105,719
    
    1,049,514
  At
31 December, 2008, "Advance ticket sales" amounted to R$ 819,780 (2007 - R$
807,101), which is represented by 2,835,019 (2007 - 2,698,341) tickets coupons
sold but not yet used. The
frequent flyer deferred income is accounted for based on the number of
outstanding points of 30.4 billion (2007 - 25.5 billion) and a forfeiture rate
of 31.6% (2007 - 29.2%) and TAM Loyalty Program points expire after two years
and are forfeited at that point. During the year 2,142,160 (2007 - 934,597)
reward flights were granted to passengers. The
deferred gains on sale and leaseback transactions relate to sales of aircraft in
2001 and 2003. The gains are being recognized in the income statement on a
straight-line basis through to 2013. 17
Provisions Management of the Company and its
subsidiaries recorded provisions for contingencies in all cases where loss by
the Company is deemed probable, based on advice provided by the Company's
internal and external legal counsel. As at December 31, 2008 and December 31,
2007, the value of provisions and corresponding judicial deposits recognized
were as follows: F-62


---



Table of
Contents COFINS
      andPIS
      (i)
    
    Additionaltariff
      (ii)
    
    Airline
      stafffund
      (iii)
    
    Laborcontingencies(iv)
    
    Otherprovisions
    
    TotalAt 1 January
    2008Provision net of
      judicial deposits
    
    
    
    
    
    
    
    
    
    
    
    769,696Add: judicial
      deposits made
    
    
    
    
    
    
    
    
    
    
    
    75,017Provision
    
    396,532
    
    323,691
    
    71,552
    
    12,811
    
    40,127
    
    844,713Charged/(credited)
      to the income statementAdditional provisions
    
    4,722
    
    63,832
    
    21,718
    
    18,233
    
    64,437
    
    172,942Unused
amounts reversed
    
    (33,744)
    
    
    
    
    
    (2,089)
    
    (1,592)
    
    (37,425)Payments made
    
    
    
    
    
    
    
    (5,517)
    
    (9,340)
    
    (14,857)Inflation adjustments
    
    24,640
    
    32,815
    
    7,151
    
    743
    
    2,006
    
    67,355At 31 December
      2008
    
    392,150
    
    420,338
    
    100,421
    
    24,181
    
    95,638
    
    1,032,728Less: Judicial deposits
      made
    
    
    
    
    
    
    
    
    
    
    
    (84,928)Provision net of judicial
      deposits (all non-current)
    
    
    
    
    
    
    
    
    
    
    
    947,800
  (i) 
   Corresponds to the discussion of the constitutionality of the
increase in the tax base of the PIS tax and the increase in the contribution and
basis of calculation of the COFINS tax, introduced under Law 9,718/98. Judicial
deposits were made for certain months, and for the others TLA is supported by
judicial measures. These amounts, net of judicial deposits, are updated based on
the SELIC rate. On November 9, 2005, the full bench of the Federal Supreme Court
ruled that the increase in the tax base was unconstitutional. During the first
quarter of 2007 the Company was successful in obtaining a favorable ruling in
one process and reversed the related provision for the amount of R$ 7,560, of
which R$ 3,496 was recorded to reduce administrative expenses and R$ 4,064
recorded to reduce financial expenses. As at December 31, 2008, five lawsuits
had not yet to been finally judged. (ii)      Corresponds
to the collection of 1% of the amount of fares of all tickets sold for regular
domestic routes. TLA management, based on the opinion of its external legal
counsel, is contesting the constitutionality of this collection, and non-payment
is supported by a judicial order. (iii)      Corresponds
to the collection of 2.5% on the monthly payroll for private social welfare and
professional training entities. TLA management, based on the opinion of its
external legal counsel, is contesting the constitutionality of this collection,
and the non-payment is supported by a judicial order. (iv)   
  Corresponds to the provision based on management estimates as to losses
that are expected to be incurred as a result of the various labor claims filed
by current or former employees. Due to the
nature of these disputes, the timing of the utilization of the provisions, and
any associated cash outflows, is uncertain. F-63


---



Table of
Contents 18
Other Liabilities 2008
    
    2007Non-current
      liabilitiesReturn of
      Fokker 100 Fleet
    
    32,563
    
    41,523Accrued
      maintenance
    
    135,021
    
    75,179Other
      liabilities
    
    115,409
    
    68,575282,993
    
    185,277Current
      liabilitiesReturn of
      Fokker 100 Fleet
    
    18,623
    
    11,501Accrued
      maintenance
    
    7,400Other
      liabilities
    
    123,068
    
    119,264149,091
    
    130,765
  Pursuant to the agreement to return the
Fokker 100 fleet, on December 19, 2003, TLA cancelled 19 lease agreements then
outstanding, of which ten were finance leases and nine were operating leases. As
a result, TLA agreed to pay a contractual rescission penalty in 30 consecutive
quarterly installments, between April 2004 and July 2011 in the original amount
of R$ 94,188. This amount was recognized in the statement of operations in the
year ended December 31, 2003. The Company issued letters of guarantee as
Security. TLA also renegotiated the reschedule overdue installments in the
original amount of R$ 49,599. On
December 31, 2008, the total commitment under the Fokker 100 fleet operating
leases arrangements amounted to R$ 51,186 (2007 - R$ 53,024) equivalent to US$
21,903 thousand (2007 - US$ 29,935 thousand), of which R$ 18,623 (2007 - R$
11,501) is classified in current liabilities. 19
Trade and Other Payables 2008
    
    2007Trade
payables
    
    486,095
    
    426,856Salaries and payroll
      payable
    
    317,951
    
    236,708Indirect taxes and tariffs
      payable
    
    162,908
    
    109,054Dividends
    
    599
    
    32,052967,553
    
    804,670
  The
financial liabilities included above are measured at amortized cost, and their
fair value approximates to their carrying value. F-64


---



Table of
Contents 20
Deferred Income Tax and Social Contribution (Restated) Deferred income tax assets and
liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income
taxes relate to the same fiscal authority. The
movement in deferred income tax assets and liabilities during the years, without
taking into consideration the offsetting of balances within the same tax
jurisdiction, is as follows: Deferred tax
      assets
    
    At
      January1,2008
    
    Charged/(credited)
      totheincomestatement/equity
    
    At
      December31,
      2008Income tax loss carry
      forwards
    
    3,556
    
    7,136
    
    10,692Social contribution carry
      forwards
    
    2,507
    
    2,570
    
    5,077Temporary timing
      differencesProvision for derivatives
      loss
    
    
    
    383,855
    
    383,855Provision for
      contingencies
    
    134,121
    
    53,386
    
    187,507Allowance for doubtful
      accounts
    
    56,011
    
    (42,468)
    
    13,543Allowance for losses on
      inventories
    
    18,081
    
    5,883
    
    23,964Deferred revenue from sale
      "leaseback transaction"
    
    61,039
    
    (10,909)
    
    50,130Maintenance
    
    7,148
    
    16,238
    
    23,386Pre delivery
      payments
    
    (37,431)
    
    60,803
    
    23,372Loyalty
      Program
    
    129,793
    
    26,860
    
    156,653Revaluation
    
    54,698
    
    (82,406)
    
    (27,708)Other
    
    66,454
    
    (81,401)
    
    (14,947)Total deferred tax
      assets
    
    495,977
    
    339,547
    
    835,524Deferred tax
      liabilitiesRevaluation
      reserve
    
    (146,542)
    
    (444,248)
    (*)
    (590,790)Finance
leases
    
    (344,665)
    
    406,900
    
    62,235Total deferred tax
      liabilities
    
    (491,207)
    
    (37,348)
    
    (528,555)Total deferred tax
      netted
    
    4,770
    
    302,199
    
    306,969(*) Amount of R$ 456,383related
      to revaluation reserve charged directly to Equity.
  2008
    
    2007Deferred tax expected to be
      recovered within 12 months - netted
    
    57,485
    
    17,483Deferred tax expected to be
      recovered within more than 12 months - netted
    
    249,484
    
    (12,713)Total deferred tax
      netted
    
    306,969
    
    4,770
  F-65


---



Table of
Contents Deferred tax assets resulting from tax
losses, social contribution negative calculation basis, and temporary
differences are recognized to the extent that the realization of the related tax
benefit through the future taxable profits is probable. No
withholding tax or other taxes would be payable regarding the distribution of
earnings of TAM Mercosur. There are no unrecognized deferred tax
assets. Deferred tax amounts are presented net
as all amounts relate to a single taxpayer. 21
Share Capital and Reserves  - (Restated) Sharecapital
    
    Revaluationreserve(Note
      22)
    
    Otherreserves(Note
      23)
    
    Retainedearnings(accumulateddeficit)
    
    Total
    
    Minorityinterest
    
    TotalAt January 1,
      2007
    675,000
    
    326,035
    
    615,041
    
    
    
    1,616,076
    
    2,744
    
    1,618,820Recognized income
      and expense for the year  (Restated)
    
    
    (17,370)
    
    (3,537)
    
    331,602
    
    310,695
    
    177
    
    310,872Stock option plan
      - credit
    
    
    
    
    11,230
    
    
    
    11,230
    
    
    
    11,230Capital increase
      through issuance of shares
    497
    
    
    
    (882)
    
    
    
    (385)
    
    
    
    (385)Revaluation reserve
      depreciation of aircraft  (Restated)
    
    
    (24,200)
    
    
    
    24,200Dividends (Note
      30)
    
    
    
    
    
    
    (31,528)
    
    (31,528)
    
    
    
    (31,528)Appropriation of
      net income
    
    
    
    
    263,531
    
    (263,531)Other
      movements
    
    
    
    
    
    
    
    
    
    
    (292)
    
    (292)At December 31,
      2007
    675,497
    
    284,465
    
    885,383
    
    60,743
    
    1,906,088
    
    2,629
    
    1,908,717Recognized income
       and expense for  the year  (Restated)
    
    
    885,921
    
    13,152
    
    (1,434,638)
    
    (535,565)
    
    868
    
    (534,697)Stock option plan -
      credit
    
    
    
    
    16,512
    
    
    
    16,512
    
    
    
    16,512Options
      exercised
    
    
    
    
    (9,336)
    
    
    
    (9,336)
    
    
    
    (9,336)Movement in
      treasury shares
    
    
    
    
    (11,370)
    
    (2,899)
    
    (14,269)
    
    
    
    (14,269)Revaluation reserve
       depreciation of aircraft  (Restated)
    
    
    (23,557)
    
    
    
    23,557Dividends (Note
      30)
    
    
    
    
    
    
    (40,537)
    
    (40,537)
    
    
    
    (40,537)Appropriation of
       net loss
    
    
    
    
    (802,249)
    
    802,249Other
      movements
    
    
    
    
    
    
    
    
    
    
    737
    
    737At December 31,
      2008
    675,497
    
    1,146,829
    
    92,092
    
    (591,525)
    
    1,322,893
    
    4,234
    
    1,327,127
  F-66


---



Table of
Contents 21.1 Authorized capital At
December 31, 2008 and 2007, the authorized capital was R$ 1,200,000 and can be
increased by means of the issuance of common and preferred shares, as resolved
by the Board of Directors. 21.2 Subscribed share capital At
December 31, 2008 the subscribed share capital was comprised of 150,585,147
shares, 50,195,049 of which were common shares and 100,390,098 were preferred
shares (2007- 150,585,147 shares, 59,791,955 of which were common shares and
90,793,192 preferred shares). At
the Board of Directors meeting held on August 29, 2007, a capital increase
through the exercise of share options was approved, with the subscription of
16,140 preferred shares with no par value under the 1st grant, and 5,666
preferred shares with no par value under the 2nd grant, for issue prices of R$
15.21 and R$ 44.38 per share, respectively, for a total of R$ 497. Payment of
this capital increase was made on November 30, 2007. The
common shares confer to their holder the right to vote in general meetings. The
preferred shares have the right to vote in respect of some matters, as described
in the 8th paragraph of the Company's Statutes while the Company is
listed on BOVESPA's Level 2. However, they have priority in the distribution of
dividends and in capital reimbursement, without any premium, if the Company were
to be liquidated, and the right to participate, under the same terms as the
common shares, in the distribution of any benefits to stockholders. As
per the Adhesion Agreement executed with BOVESPA, the Company has a three-year
period, from June 13, 2005, to comply with the requirement to have a free float
of 25% of its shares. Since August 2007 the free float has been 53.85%
(unaudited). 22
Revaluation Reserve  (Restated) The
revaluation reserve represents the amount by which the carrying value (revalued
amount) of certain property, plant and equipment (flight equipment) exceeds its
historical cost. See Note 5. Revaluationreserve,grossof tax
    
    Deferred
      tax
    
    Revaluationreserve,net of
      taxJanuary 1,
    2007
    
    493,992
    
    (167,957)
    
    326,035Revaluation - through
      equity
    
    (26,318)
    
    8,948
    
    (17,370)Depreciation
    
    (36,667)
    
    12,467
    
    (24,200)
  F-67


---



Table of
Contents Revaluationreserve,grossof tax
    
    Deferred
      tax
    
    Revaluationreserve,net of
      taxYear ended December 31,
      2007
    
    431,007
    
    (146,542)
    
    284,465Revaluation -
      through equity
    
    1,342,304
    
    (456,383)
    
    885,921Depreciation
    
    (35,692)
    
    12,135
    
    (23,557)Year ended December 31,
      2008
    
    1,737,619
    
    (590,790)
    
    1,146,829
  23
Other Reserves 2008
    
    2007Share premium
    
    74,946
    
    74,946Legal reserve
    
    
    
    802,249Treasury
    shares
    
    (11,370)Cumulative translation
      adjustments
    
    3,309
    
    (9,843)Stock options
    
    25,207
    
    18,03192,092
    
    885,383
  23.1 Share premium The
share premium reserve arose on the subscription of shares in TAM, due to the
fair value of net assets received being greater than the nominal amount of the
share capital issued. 23.2 Legal reserve Brazilian law requires that a legal
reserve is constituted by appropriating 5% of profit for the year until the
legal reserve reaches 20% of the amount of share capital. 23.3 Treasury shares The
movement of treasury shares during the year was as follows: Quantity
      ofshares
    
    Thousandsof
      reais
    
    Averageprice
      pershare -
      reaisAs at January 1,
      2008Purchases of
      shares
    
    601,900
    
    17,703
    
    29.41Reductions
    
    (199,589)
    
    (6,333)
    
    31.73Year ended December 31,
      2008
    
    402,311
    
    11,370
    
    28.26
  F-68


---



Table of
Contents The
market value was R$ 19.09 (reais) per preferred share at December 31, 2008. The
reduction in Treasury shares relates to the share option plan (see Note 26.2) .
The difference between the exercise price of options and the book value of
treasury shares used was accounted for in "Retained earnings" for an amount of
R$ 2,899. The
Board of Directors, at a meeting held on January 30, 2009, approved a new
program to repurchase TAM shares to be kept in treasury or subsequently
cancelled or sold, with no capital reduction. Under the program, 3,596,629
preferred shares will be repurchased. 23.4 Currency translation
adjustment The
effects of exchange rate changes during the year on net assets of foreign
operations at the beginning of the year and the difference between their profit
for the year at average and year-end exchange rates are recorded in the currency
translation adjustment reserve. 23.5 Stock options The
credit relating to the expense for stock options is recorded in this reserve,
and is released to retained earnings when options are exercised or expire. 24
Revenue TAM
had no major customers which represented more than 10% of revenues in 2008 or
2007. The Company utilizes its segmented gross revenue information by type of
service rendered and by region, as follows: (a)
By type of service rendered 2008
    
    Percentage
    
    2007
    
    Percentage
    
    Yearon
      -yearvariation- %DomesticScheduled -
      passenger
    
    5,967,628
    
    54.6
    
    4,681,866
    
    56.2
    
    27.5Charter -
      passenger
    
    194,844
    
    1.8
    
    152,037
    
    1.8
    
    28.2Cargo
    
    459,487
    
    4.2
    
    360,149
    
    4.3
    
    27.66,621,959
    
    60.6
    
    5,194,052
    
    62.3
    
    27.5InternationalScheduled -
      passenger
    
    2,803,800
    
    25.7
    
    2,109,398
    
    25.3
    
    32.9Charter -
      passenger
    
    18,818
    
    0.2
    
    20,343
    
    0.2
    
    (7.5)Cargo
    
    549,595
    
    5.0
    
    416,668
    
    5.0
    
    31.93,372,213
    
    30.9
    
    2,546,409
    
    30.5
    
    32.4
  F-69


---



Table of
Contents 2008
    
    Percentage
    
    2007
    
    Percentage
    
    Yearon -
      yearvariation - %OtherTAM Loyalty
      Program
    
    441,202
    
    4.0
    
    144,183
    
    1.8
    
    206.0Travel and
      tourism agencies
    
    64,132
    
    0.6
    
    30,242
    
    0.4
    
    112.1Others
      (includes expired tickets)
    
    420,682
    
    3.9
    
    413.220
    
    5.0
    
    1.8926,016
    
    8.5
    
    587,645
    
    7.2
    
    57.6Total gross
    
    10,920,188
    
    100.0
    
    8,328,106
    
    100.0
    
    31.1Sales taxes and other
      deductions
    
    (407,144)
    
    
    
    (309,287)Revenue
    
    10,513,044
    
    
    
    8,018,819
  (b)
By geographic location of the Company's destinations 2008
    
    Percentage
    
    2007
    
    Percentage
    
    Yearon -
      yearvariation - %Brazil
    
    7,547,976
    
    69.2
    
    5,781,698
    
    69.4
    
    30.5Europe
    
    1,543,350
    
    14.1
    
    1,047,726
    
    12.6
    
    47.3North America
    
    943,137
    
    8.6
    
    1,000,102
    
    12.0
    
    (5.7)South America
      (excluding Brazil)
    
    885,725
    
    8.1
    
    498,580
    
    6.0
    
    77.6Total gross
    
    10,920,188
    
    100.0
    
    8,328,106
    
    100.0
    
    31.1Sales taxes and
      other deductions
    
    (407,144)
    
    
    
    (309,287)Revenue
    
    10,513,044
    
    
    
    8,018,819
  F-70


---



Table of
Contents 25
Operating Expenses by Nature - (Restated) 2008ExpensesCost
      ofservicesrendered
    
    Selling
    
    General
      andadministrative
    
    Directors'fees
    
    Total
    
    PercentagePersonnel
    
    1,477,381
    
    158,954
    
    128,857
    
    16,833
    
    1,782,025
    
    17.9Fuel
    
    3,927,888
    
    
    
    
    
    
    
    3,927,888
    
    39.5Depreciation
      and amortization  (Restated)
    
    395,871
    
    1,074
    
    63,791
    
    
    
    460,736
    
    4.6Maintenance and
      repairs (except personnel)  (Restated)
    
    518,347
    
    
    
    
    
    
    
    518,347
    
    5.2Aircraft
      insurance
    
    47,781
    
    
    
    
    
    
    
    47,781
    
    0.5Take-off, landing
      and  navigation aid charges
    
    495,426
    
    
    
    
    
    
    
    495,426
    
    5.0Leasing of aircraft,
      engine and equipment
    
    424,637
    
    7,720
    
    11,074
    
    
    
    443,431
    
    4.5Third party
      services
    
    150,538
    
    223,817
    
    327,429
    
    
    
    701,784
    
    7.1Selling and
      marketing
    
    
    
    988,579
    
    
    
    
    
    988,579
    
    9.9Other
    
    337,563
    
    16,469
    
    234,078
    
    
    
    588,110
    
    5.97,775,432
    
    1,396,613
    
    765,229
    
    16,833
    
    9,954,107
    
    100.02007ExpensesCost
      ofservicesrendered
    
    Selling
    
    General
      andadministrative
    
    Directors'fees
    
    Total
    
    %Personnel
    
    1,051,324
    
    118,514
    
    112,150
    
    27,739
    
    1,309,727
    
    17.0Fuel
    
    2,536,398
    
    
    
    
    
    
    
    2,536,398
    
    32.9Depreciation
      and amortization  (Restated)
    
    217,574
    
    1,443
    
    30,436
    
    
    
    249,453
    
    3.2Maintenance and
      repairs (except personnel)
    
    445,816
    
    
    
    
    
    
    
    445,816
    
    5.8Aircraft
      insurance
    
    33,560
    
    
    
    
    
    
    
    33,560
    
    0.4Take-off, landing
      and navigation aid charges
    
    421,021
    
    
    
    
    
    
    
    421,021
    
    5.5Leasing of aircraft,
      engine and equipment
    
    488,514
    
    4,077
    
    8,547
    
    
    
    501,138
    
    6.5Third party
      services
    
    124,406
    
    174,711
    
    249,834
    
    
    
    548,951
    
    7.1Selling and
      marketing
    
    
    
    975,149
    
    
    
    
    
    975,149
    
    12.7Other
    
    351,303
    
    173,763
    
    152,199
    
    
    
    677,265
    
    8.95,669,916
    
    1,447,657
    
    553,166
    
    27,739
    
    7,698,478
    
    100.0
  26
Employee Benefits Personnel costs are composed of the
following amounts: 2008
    
    2007Salaries and
      bonuses
    
    1,380,304
    
    1,014,222
  F-71


---



Table of
Contents 2008
    
    2007Defined contribution pension
      plan
    
    19,803
    
    13,025Share based
      payment
    
    16,512
    
    11,230Taxes and social
      contributions
    
    365,406
    
    271,2501,782,025
    
    1,309,727
  26.1 Profit-sharing and bonuses In
accordance with the annual Union agreement, the Company will pay a share of its
BR GAAP earnings before interest and tax as a result of it reaching certain
performance indicators established in line with the annual budget. Consequently,
management recorded at December 31, 2008, a provision for payment of this
benefit in the amount of R$ 60,939 (2007 - R$ 36,140). 26.2 Share-based payment At
the Extraordinary Stockholders' Meeting held on May 16, 2005, TAM's stockholders
approved the Company's Stock Option Plan for Directors and employees. The Board
of Directors made available under this plan 1,735,316 preferred shares relating
to the 1st, 2nd and 3rd grants and 230,000 preferred shares relating to the
special grant as follows: Number
      ofshares
    
    Weightedaverageexerciseprice -
      reaisAs at January 1,
      2007
    
    955,005
    
    22.15Granted
    
    1,010,311
    
    39.37Exercised
    
    (21,806)
    
    22.79Year ended December 31,
      2007
    
    1,943,510
    
    32.10Exercised
    
    (199,589)
    
    17.21Cancelled
    
    (42,593)
    
    22.36Year ended December 31,
      2008
    
    1,701,328
    
    37.31
  Under the terms of the Plan, the
options granted are divided into three equal amounts and employees may exercise
one third of their options after three, four and five years, respectively, if
still employed by the Company at that time. The
options have a contractual term of seven years. F-72


---



Table of
Contents The
options contain a "service condition" as vesting and exercisability of the
options depends only on the rendering of a defined period of services by the
employee. Dismissed employees have the obligation to satisfy certain conditions
in order to maintain their options rights. The
options are valued using the Black-Scholes option pricing model. The following
table shows details of the various option grants, together with the variables
used in valuing the options granted. The exercise price is adjusted by the IGP-M
(General Price Index), from the award grant date up to the exercise
date. First
      grant
    
    Second
      grant
    
    Third
      grant
    
    Specialgrant
    
    Total
      orweightedaverageDate
    
    12.28.05
    
    11.30.06
    
    12.14.07
    
    09.27.07Number of options
      granted
    
    715,255
    
    239,750
    
    780,311
    
    230,000Exercise price at grant
      date
    
    14.40
    
    43.48
    
    39.67
    
    38.36Risk free interest rate -
      %
    
    17.93
    
    13.13
    
    10.95
    
    10.82Option term
    
    5.5
    
    5.5
    
    5.5
    
    4.5Expected dividend yield -
      %
    
    0.00
    
    0.32
    
    0.58
    
    0.58Share price volatility -
      %
    
    34.24
    
    41.29
    
    42.30
    
    40.48Market share price -
      R$
    
    45.00
    
    61.00
    
    44.03
    
    50.10Number of options
      outstanding
    
    481,825
    
    227,870
    
    761,633
    
    230,000
    
    1,701,328Number of options
      exercisable
    
    160,608
    
    
    
    
    
    
    
    160,608Exercise price (adjusted by
      IGP-M) - R$
    
    17.68
    
    51.59
    
    43.56
    
    43.61
    
    37.31
  Share price volatility is determined
based on historical share price volatility of the company's quoted shares. The
charge to the income statement in respect of share based payment for the year
ended December 31, 2008 was R$ 16,512 (2007 - R$ 11,230). 27
Net Finance Result 2008
    
    2007Financial
    incomeInterest income from financial
      investments
    
    192,765
    
    263,291Exchange
gains
    
    1,182,239
    
    673,414Other
    
    35,357
    
    70,1631,410,361
    
    1,006,868Financial
      expensesExchange
    losses
    
    (2,440,322)
    
    (280,618)Interest
    expense
    
    (582,157)
    
    (469,362)Other
    
    (30,125)
    
    (35,939)Capitalizated borrowing cost
      (*)
    
    46,384
    
    30,721(3,006,220)
    
    (755,198)Financial result,
      net
    
    (1,595,859)
    
    251,670
 (*) Rate used
for capitalization was 10.0% in 2008 (2007 - 13.7%) . F-73


---



Table of
Contents 28
Income Tax Expense 2008
    
    2007(Restated)
    
    (Restated)Current tax
    
    (120,956)
    
    (138,956)Deferred tax
    
    755,199
    
    (6,985)634,243
    
    (145,941)
  The
tax on TAM's profit before tax differs from the theoretical amount that would
arise using the weighted average tax rate applicable to profits of the
consolidated entities as follows: 2008
    
    2007(Restated)
    
    (Restated)(Loss)/Profit before
      tax
    
    (2,068,013)
    
    477,720Tax calculated at Brazilian tax
      rates applicable to profits
    
    34%
    
    34%703,124
    
    (162,425)Non-deductible
      expenses
    
    (7,572)
    
    (5,138)Other permanent
      differences
    
    (1,637)
    
    10,516IRPJ tax
      incentives
    
    
    
    1,849Realization of the revaluation
      reserve
    
    (1,362)
    
    (1,768)Unrecognized tax credit on tax
      losses arising from foreign subsidiaries
    
    (68,894)
    
    (1,587)Net income of foreign
      subsidiary
    
    10,584Income tax and social
      contribution on interest on own capital
    
    
    
    12,612634,243
    
    (145,941)
  The
applicable tax rate was 34% (2007 - 34%). No income tax is payable in Paraguay. The
tax years 2003 to 2007 are subject to examination by the Brazilian tax
authorities. 29
Earnings per Share - (Restated) Considering that common and preferred
shares have equal rights in respect of dividends (see Note 21), a single measure
of earnings per share based on the total number of common and preferred shares
is presented. Common and preferred shares are considered two classes of ordinary
shares. F-74


---



Table of
Contents (a)
Basic Basic earnings per share is calculated
by dividing the profit attributable to equity holders of the company by the
weighted average number of ordinary shares (common and preferred) in issue
during the year excluding ordinary shares purchased by the Company and held as
treasury shares. 2008
    
    2007Profit (loss) attributable to
      equity holders of the company
    
    (1,434,638)
    
    331,602Weighted average number of
      ordinary shares in issue
    
    150,585
    
    150,585Treasury
    shares
    
    (205)Weighted average number of
      ordinary shares outstanding
    
    150,380
    
    150,585Basic (loss)/earnings per share
      (reais per share)
    
    (9.54)
    
    2.20
  (b)
Diluted Diluted earnings per share is
calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The
company has only one category of dilutive potential ordinary shares: share
options. 2008
    
    2007Profit (loss) attributable to
      equity holders of the company
    
    (1,434,638)
    
    331,602Weighted average number of
      ordinary shares outstanding
    
    150,380
    
    150,585Adjustments for share
      options
    
    
    
    1,046Weighted average number of
      ordinary shares for diluted earnings per share
      calculation
    
    150,380
    
    151,631Diluted (loss)/earnings per share
      (reais per share)
    
    (9.54)
    
    2.19
  30
Dividends In
accordance with TAM S.A.'s bylaws, stockholders are assured a minimum compulsory
dividend based on of 25% of net income for the year in the parent company's
separate financial statements, prepared under BR GAAP. Tax deductible interest
on own capital which has been paid or credited may be deducted from mandatory
dividends. The preferred shares have priority in capital reimbursement and the
right to dividends at least equal to those distributed to the common shares. The
dividend is subject to approval at the Annual General Meeting (AGM) and is shown
as follows: F-75


---



Table of
Contents 2008
    
    2007Minimum compulsory dividend R$
      none per share (2007 - R$ 0.20937693 per share)
    
    
    
    31,528Complementary dividend in respect
      of 2007's results approved  at the 2008 AGM
    
    40,53740,537
    
    31,528
  31
Cash Generated from Operations 2008
    
    2007Net income after taxes for the
      year  (Restated)
    
    (1,433,770)
    
    331,779Adjustments
    forDeferred
      income tax and social contribution  (Restated)
    
    (755,199)
    
    6,985Depreciation
      and amortization  (Restated)
    
    460,736
    
    249,453Revaluation
      through income statement  (Restated)
    
    (242,370)
    
    224,701(Profit)/loss
      on disposal of property, plant and equipment (see
below)
    
    8,825
    
    40,291Deferred
      income
    
    67,646
    
    161,652Fair value
      (gains)/losses on derivative financial instruments
    
    1,191,949
    
    (72,887)Foreign
      exchange losses/(gains) on operating activities
    
    1,664,380
    
    (311,918)Monetary
      variation and interest expense
    
    96,612
    
    111,410Others
      provisions set
    
    84,530
    
    143,348Contingent
      provision
    
    173,751
    
    232,583Changes in working capital
      (excluding the effects of acquisition and exchange differences on
      consolidation)Financial Assets
    
    898,068
    
    13,132Inventories
    
    (69,237)
    
    11,171Provision for contingencies and tax obligations under
      judicial dispute
    
    (60,632)
    
    (186,294)Trade and other receivables
    
    (216,988)
    
    (264,246)Trade and other payables
    
    194,336
    
    167,890Held for sale
    
    (17,150)
    
    (69,431)Other assets  (Restated)
    
    (252,323)
    
    (165,282)Other liabilities  (Restated)
    
    111,313
    
    100,423Cash generated from
      operations
    
    1,904,477
    
    724,760
  F-76


---



Table of
Contents In
the cash flow statement, proceeds from sale of property, plant and equipment
comprise: 2008
    
    2007Net book
    amount
    
    17,029
    
    44,849Profit/(loss) on disposal of
      property, plant and equipment
    
    (8,825)
    
    (40,291)Proceeds from disposal of
      property, plant and equipment
    
    8,204
    
    4,558
  Non-cash transactions The
principal non-cash transactions relate to share based payment discussed in Note
25 and acquisitions of flight equipment under finance leases discussed in Note
5. 32
Commitments and Contingencies (a)
Operating lease commitments TLA
has obligations arising under aircraft operating lease contracts. TAM has 65
aircraft under the simple type of operating lease (2007 - 68 aircraft). These
agreements have an average term of 125 months and are denominated in U.S.
dollars plus "LIBOR".The leasing
expense, recognized in the consolidated statement of income in "Costs of
services rendered", was R$ 424,637 for the year ended at December 31, 2008 (2007
- R$ 488,514), equivalent to US$ 181,702 thousand (2007 - US$ 275,794 thousand). For
most of the operations TAM has given letters of guarantee issued by TAM or
deposits in guarantees. In
addition, to meet the payment conditions established by contract, promissory
notes guaranteed by TAM were issued, totaling US$ 36,492 thousand at December
31, 2008 (2007 - US$ 49,222 thousand). Future aggregate minimum lease payments
under these agreements are as follows: F-77


---



Table of
Contents Monthlypaymentsmaturing
      in
    
    2008
    
    2007Aircraft
    
    2016
    
    1,035,103
    
    1,022,479Engines
    
    2014
    
    25,995
    
    18,2021,061,098
    
    1,040,681Operating lease obligations fall
      due as follows:2008
    
    2007No later than one
      year
    
    
    
    231,401
    
    232,806Later than one year and no later
      than five years
    
    
    
    714,961
    
    669,107Later than five
      years
    
    
    
    114,736
    
    138,7681,061,098
    
    1,040,681
  The
amounts included above are denominated and payable in U.S. dollars. (b)
Commitments for future aircraft leases (i)
Airbus Since 1998, TLA has had firm orders to
purchase new Airbus aircraft. The final one was delivered in September 2008. In
2005, the Company executed an amendment to the contract with Airbus for the firm
order of 20 Airbus A320, the remaining nine of which to be delivered by 2010,
with an option for 20 more of the same aircraft family (including A319, A320 and
A321). In 2006, the Company finalized the contract to acquire a further 37
Airbus aircraft (31 aircraft narrow body family A320 and six A330) for delivery
by 2012. The options under the contract from 2005 were transferred to the 2006
contract. On
June 28, 2007, the Company also executed a Memorandum of Understanding for the
purchase of 22 Airbus A350XWB models 800 and 900, with ten more options, for
delivery between 2013 and 2018. Additionally, the Company confirmed the
exercise of four options for Airbus A330, two of which will be delivered in
2010, and the other two in 2011, related to the agreement signed at the end of
2006. TAM also confirmed the twenty options that had been postponed from 2005 to
2006 and the anticipated delivery before the end of 2014. F-78


---



Table of
Contents (ii) Boeing In
2006, the Company ordered four Boeing 777-300ER with options for four additional
aircraft, which were exercised in 2007. Upon receipt of the four aircraft in
2008, the Company had six firm orders placed with Boeing for this type of
aircraft, of which four are expected to be delivered in 2012 and two in
2013. (c)
Insurance TAM
maintains adequate insurance for risks which are expected to cover any
liabilities generated by the accident on July 17, 2007, of an Airbus A320
aircraft, considering the agreements already made with and paid to the victims'
families by the insurance company. As of December 31, 2008, some 160 (2007 - 50)
compensation payments were paid to families of the victims and others are under
negotiation with the Company's insurance firm. Management understands that the
insurance coverage of these liabilities is adequate to cover all related costs.
The Company believes that it will not incur additional or unexpected expenses
outside the scope of the insurance agreement which would be TAM's direct
responsibility. (d)
Contingent liabilities Contingencies for which it is probable
that TAM will be required to make payments are provided for and are discussed in
Note 17. The
Company and its subsidiaries are involved parties in other judicial
contingencies involving fiscal, labor and civil claims in the amount of R$
787,920 as at December 31, 2008 (2007 - R$ 423,125) for which no provision is
required. Based on the opinion and advice from internal and external Brazilian
legal counsel, the Company believes that the chances of success remaining
amounts are possible but not probable. (e)
Contingent assets (i)
ICMS On
December 17, 2001 the Federal Supreme Court ruled that domestic and
international air passenger transportation revenue, as well as international air
cargo transportation revenue was no longer subject to ICMS. However, based on this ruling, ICMS
taxation on domestic air cargo transportation revenue is still due. On December
31, 2008, the provision maintained by the Company totaled R$ 6,187 (2007 - R$
6,059), recorded in "Taxes and tariffs payable". On December 31, 2008, the
installments due in more than one year totaled R$ 98 (2007 - R$ 136), classified
within "Other liabilities". F-79


---



Table of
Contents We
consider payments of ICMS made between 1989 and 1994 to be amounts paid in error
because we believe it was unconstitutional to charge ICMS on air navigation
services. TAM Linhas Aéreas has filed claims against various states in Brazil to
claim the amounts paid in error. Rulings on these claims are pending. The total
value involved in these claims is R$ 55 million. Our policy is to only adjust
the value of these claims for inflation at the time that payment in respect
thereto is recorded in our financial statements. (ii) Indemnification for losses on
regulated fares We
are plaintiffs in an action filed against the Brazilian government in 1993
seeking damages for breaking-up of the economic-financial equilibrium of an air
transport concession agreement as a result of having to freeze our prices from
1988 to September 1993 in order to maintain operations with the prices set by
the Brazilian government during that period. The process is currently being
heard before the Federal Regional Court and we are awaiting judgment on appeals
we have lodged requesting clarification of the initial decision (which we
challenged). The estimated value of the action is R$ 245 million, based on a
calculation made by an expert witness of the court. This sum is subject to
interest accruing from September 1993 and inflation since November 1994. Based
on the opinion of our legal advisors and recent rulings handed down by the
Supreme Court of Justice in favor of airlines in similar cases (specifically,
actions filed by Transbrasil and Varig) we believe that our chance of success is
probable. We have not recognized these amounts as receivable in these financial
statements and will only do so when the decision is made final. (iii)Additional airport tariffs
("ATAERO") At
2001, TLA filed a claim addressing the legality of the additional airport
tariffs ("ATAERO"), which represent an additional 50% on the tariff amount. On
December 31, 2008, the amount under discussion totaled approximately R$ 641,393
(2007 - R$ 525,716), not recognized in the financial statements. 33
Related-party Transactions The
company is controlled by TAM - Empreendimentos e Participações S.A.
(incorporated in Brazil), which is owned by the Amaro family, and which owns
89.26% of the Company's common shares and 24.67% of the Company's preferred
shares. The remaining shares are widely held. F-80


---



Table of
Contents The
following transactions were carried out with related parties: (a)
Sale and purchases of goods and services For
the year ended December 31, 2008, TAM received from Táxi Aéreo Marília S.A.
("Marília"), a company under common control, R$ 130 (2007 - R$ 820), as
reimbursement for the use of its infra-structure being mainly the importation
areas and human resources. This amount was credited to "cost of services
rendered". TAM Marília and TAM have common indirect stockholders. On
May 11, 2007, TLA and TAM Marília agreed to share the use of a hangar located by
Congonhas airport São Paulo, for a period of ten years. TLA paid R$ 15,500
upfront to TAM Marília and is entitled to use the facilities and the
infra-structure of the hangar, providing the same cargo services, as those
previously provided in the cargo terminal. The total amount was established
based on valuation reports performed by independent companies, reflecting the
economic premium obtained by the use of such a location in TAM's cargo
activities. The amount recognized in the income statement for the year ended
December 31, 2008 amounted to R$ 1,550 (2007 - R$ 903). The
Company and its subsidiaries signed a contract in March 2005 with TAM Milor Táxi
Aéreo, Representações, Marcas e Patentes S.A. ("TAM Milor") for the right to use
the "TAM" brand. This contract is valid for a term equal to the current
passenger air transport concession of TAM and establishes a monthly fee,
adjusted annually by the IGP-M inflation index, totaling R$ 15,429 for the year
ended December 31, 2008 (2007 - R$ 14,331), recorded as "Operating
expenses". (b)
Key management compensation - (Restated) The
key management personnel of TAM include the members of the Board of Directors,
the president, vice presidents and statutory directors. Their remuneration was
as follows: 2008
    
    2007Salaries
    
    9,031
    
    9,262Profit share and
      bonuses
    
    7,326
    
    18,197Share-based
      payment
    
    16,512
    
    11,230Other long-term
      benefits
    
    476
    
    28033,345
    
    38,969
  F-81


---



Table of
Contents 34
Consolidation Schedules In
accordance with SEC rule SX 3-10 the Company is presenting the consolidation
schedules for the following entities: TAM S.A. (parent company and guarantor),
TAM Linhas Aéreas S.A. (guarantor), TAM Capital (subsidiary issuer), TAM
Financial 1, TAM Financial 2, TP Participações, TAM Mercosur and TAM Fidelidade
(non-guarantors) . (a)
Income statement (i)
For the year ended December 31, 2008 TAM
      S.A.(parent
      companyand
      guarantor)
    
    TAM
      Linhas.Aéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non--guarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)Revenue
    
    
    
    10,253,235
    
    
    
    293,990
    
    (34,181)
    
    10,513,044Operating expenses
    
    (4,006)
    
    (9,740,458)
    
    (134)
    
    (243,824)
    
    34,315
    
    (9,954,107)Operating profit before movements
      in fair value of fuel derivatives
    
    (4,006)
    
    512,777
    
    (134)
    
    50,166
    
    134
    
    558,937Movements in fair value of fuel derivatives
    
    
    
    (1,273,461)
    
    
    
    
    
    
    
    (1,273,461)Gains/(losses) on revaluation of aircraft recognized in the income
      statement
    
    
    
    242,370
    
    
    
    
    
    
    
    242,370Operating
      (loss)/profit
    
    (4,006)
    
    (518,314)
    
    (134)
    
    50,166
    
    134
    
    (472,154)Share
      of earnings (loss) of subsidiaries
    
    (1,348,470)
    
    18,221
    
    
    
    
    
    1,330,249Finance income
    
    48,940
    
    1,335,626
    
    213,804
    
    23,086
    
    (211,095)
    
    1,410,361Finance costs
    
    (66,265)
    
    (2,907,168)
    
    (393,064)
    
    (30,080)
    
    390,357
    
    (3,006,220)(Loss)/Profit before income
      tax
    
    (1,369,801)
    
    (2,071,635)
    
    (179,394)
    
    43,172
    
    1,509,645
    
    (2,068,013)Income tax and social
      contribution
    
    9,694
    
    632,218
    
    
    
    (7,669)
    
    
    
    634,243(Loss)/Profit after tax (all
      continuing operations)
    
    (1,360,107)
    
    (1,439,417)
    
    (179,394)
    
    35,503
    
    1,509,645
    
    (1,433,770)Attributable
    toMinority interest
    
    
    
    
    
    
    
    
    
    868
    
    868Equity
      holders of TAM
    
    (1,360,107)
    
    (1,439,417)
    
    (179,394)
    
    35,503
    
    1,508,777
    
    (1,434,638)
  F-82


---



Table of
Contents (ii) For the year ended December 31,
2007 TAM
      S.A.(parent
      companyand
      guarantor)
    
    TAM
      Linhas.Aéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non--guarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)Revenue
    
    
    
    7,823,163
    
    
    
    225,876
    
    (30,220)
    
    8,018,819Operating expenses
    
    (7,341)
    
    (7,507,651)
    
    (401)
    
    (215,352)
    
    32,267
    
    (7,698,478)Operating profit before movements
      in fair value of fuel derivatives
    
    (7,341)
    
    315,512
    
    (401)
    
    10,524
    
    2,047
    
    320,341Movements in fair value of fuel derivatives
    
    
    
    130,410
    
    
    
    
    
    
    
    130,410Gains/(losses) on revaluation of aircraft recognized in the income
      statement
    
    
    
    (224,701)
    
    
    
    
    
    
    
    (224,701)Operating
      (loss)/profit
    
    (7,341)
    
    221,221
    
    (401)
    
    10,524
    
    2,047
    
    226,050Share
      of earnings (loss) of subsidiaries
    
    510,057
    
    3,577
    
    (583)
    
    (9,842)
    
    (503,209)Finance income
    
    59,561
    
    942,082
    
    45,105
    
    16,027
    
    (55,907)
    
    1,006,868Finance costs
    
    (62,048)
    
    (722,547)
    
    (29,024)
    
    (31,585)
    
    90,006
    
    (755,198)(Loss)/Profit before income
      tax
    
    500,229
    
    444,333
    
    15,097
    
    (14,876)
    
    (467,063)
    
    477,720Income
      tax and social contribution
    
    4,900
    
    (149,600)
    
    
    
    (1,241)
    
    
    
    (145,941)(Loss)/Profit after tax (all
      continuing operations)
    
    505,129
    
    294,733
    
    15,097
    
    (16,117)
    
    (467,063)
    
    331,779Attributable
    toMinority interest
    
    
    
    
    
    
    
    
    
    177
    
    177Equity
      holders of TAM
    
    505,129
    
    294,733
    
    15,097
    
    (16,117)
    
    (467,240)
    
    331,602
  F-83


---



Table of
Contents (b)
Balance sheet As
at December 31, 2008 TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others -
      (nonguarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)AssetsNon-current
      assetsInvestments
    
    664,549
    
    
    
    
    
    
    
    (664,549)Property, plant and equipment
    
    798
    
    9,221,765
    
    
    
    14,665
    
    
    
    9,237,228Pre-delivery payments
    
    
    
    426,224
    
    
    
    
    
    
    
    426,224Intangible assets
    
    
    
    152,078
    
    
    
    
    
    14
    
    152,092Deferred income tax and social contribution
    
    15,769
    
    291,200
    
    
    
    
    
    
    
    306,969Other
      financial assets
    
    847
    
    657,321
    
    108,608
    
    2,147
    
    (111,291)
    
    657,632681,963
    
    10,748,588
    
    108,608
    
    16,812
    
    (775,826)
    
    10,780,145Current
assetsTrade
      and other receivables
    
    47,866
    
    1,352,902
    
    1,580
    
    136,917
    
    (134,801)
    
    1,404,464Inventories
    
    
    
    168,091
    
    
    
    1,331
    
    
    
    169,422Non-current assets held for sale
    
    
    
    62,134
    
    
    
    
    
    
    
    62,134Income
      taxes recoverable
    
    26,650
    
    84,529
    
    
    
    9,533
    
    
    
    120,712Cash
      and cash equivalents
    
    251,269
    
    372,496
    
    385
    
    33,568
    
    14,067
    
    671,785Other
      financial assets
    
    156,837
    
    1,060,274
    
    435,653
    
    39,582
    
    (450,075)
    
    1,242,271482,622
    
    3,100,426
    
    437,618
    
    220,931
    
    (570,809)
    
    3,670,788Total assets
    
    1,164,585
    
    13,849,014
    
    546,226
    
    237,743
    
    (1,346,635)
    
    14,450,933
  F-84


---



Table of
Contents TAM S.A.
      (parent company andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others -
      (nonguarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)Liabilities and
      equityLiabilitiesNon-current
      liabilitiesFinancial liabilities
    
    500,000
    
    6,678,873
    
    701,100
    
    
    
    (701,100)
    
    7,178,873Derivative financial instruments
    
    
    
    107,057
    
    
    
    
    
    
    
    107,057Deferred income
    
    
    
    369,210
    
    
    
    
    
    
    
    369,210Provisions
    
    (30)
    
    942,039
    
    
    
    5,791
    
    
    
    947,800Other
      non-current liabilities
    
    (10,563)
    
    282,992
    
    
    
    
    
    10,564
    
    282,993489,407
    
    8,380,171
    
    701,100
    
    5,791
    
    (690,536)
    
    8,885,933Current
      liabilitiesTrade
      and other payables
    
    6,612
    
    959,400
    
    
    
    123,599
    
    (122,058)
    
    967,553Deferred income
    
    
    
    1,084,544
    
    
    
    21,175
    
    
    
    1,105,719Current income tax liabilities
    
    
    
    83,002
    
    
    
    427
    
    
    
    83,429Financial liabilities
    
    28,542
    
    881,611
    
    9,336
    
    
    
    (9,336)
    
    910,153Derivative financial instruments
    
    
    
    1,021,928
    
    
    
    
    
    
    
    1,021,928Other
      current liabilities
    
    6
    
    159,160
    
    
    
    8,151
    
    (18,226)
    
    149,09135,160
    
    4,189,645
    
    9,336
    
    153,352
    
    (149,620)
    
    4,237,873Total
    liabilities
    
    524,567
    
    12,569,816
    
    710,436
    
    159,143
    
    (840,156)
    
    13,123,806EquityCapital and reserves attributable to equity holders of TAM
      S.A.Share capital
    
    675,497
    
    752,727
    
    88
    
    43,728
    
    (796,543)
    
    675,497Revaluation reserve
    
    133,169
    
    1,137,915
    
    
    
    7,866
    
    (132,121)
    
    1,146,829Other reserves
    
    92,092
    
    25,212
    
    
    
    883
    
    (26,095)
    
    92,092Retained earnings (accumulated
      deficit)
    
    (260,740)
    
    (636,656)
    
    (164,298)
    
    26,123
    
    444,046
    
    (591,525)640,018
    
    1,279,198
    
    (164,210)
    
    78,600
    
    (510,713)
    
    1,322,893Minority interest
    
    
    
    
    
    
    
    
    
    4,234
    
    4,234Total equity
    
    640,018
    
    1,279,198
    
    (164,210)
    
    78,600
    
    (506,479)
    
    1,327,127Total liabilities and
      equity
    
    1,164,585
    
    13,849,014
    
    546,226
    
    237,743
    
    (1,346,635)
    
    14,450,933
  F-85


---



Table of
Contents As
at December 31, 2007 TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)AssetsNon-current
      assetsInvestments
    
    1,992,691
    
    
    
    
    
    
    
    (1,992,691)Property, plant and equipment
    
    
    
    4,745,654
    
    
    
    11,138
    
    (13)
    
    4,756,779Pre-delivery payments
    
    
    
    1,024,297
    
    
    
    
    
    
    
    1,024,297Intangible assets
    
    
    
    34,236
    
    
    
    
    
    12
    
    34,248Deferred income tax and social contribution
    
    6,064
    
    (1,294)
    
    
    
    
    
    
    
    4,770Other
      financial assets
    
    1,164
    
    385,202
    
    9,983
    
    1,964
    
    (12,483)
    
    385,8301,999,919
    
    6,188,095
    
    9,983
    
    13,102
    
    (2,005,175)
    
    6,205,924Current
assetsTrade
      and other receivables
    
    55,797
    
    1,192,951
    
    1,200
    
    63,373
    
    (105,402)
    
    1,207,919Inventories
    
    
    
    99,459
    
    
    
    726
    
    
    
    100,185Non-current assets held for sale
    
    
    
    62,286
    
    
    
    
    
    
    
    62,286Income
      taxes recoverable
    
    16,150
    
    62,212
    
    
    
    8,654
    
    
    
    87,016Derivative financial instruments
    
    
    
    62,967
    
    
    
    
    
    
    
    62,967Cash
      and cash equivalents
    
    386,295
    
    20,407
    
    518
    
    60,759
    
    (1,441)
    
    466,538Other
      financial assets
    
    125,470
    
    2,020,057
    
    541,950
    
    
    
    (547,138)
    
    2,140,339583,712
    
    3,520,339
    
    543,668
    
    133,512
    
    (653,981)
    
    4,127,250Total assets
    
    2,583,631
    
    9,708,434
    
    553,651
    
    146,614
    
    (2,659,156)
    
    10,333,174
  F-86


---



Table of
Contents TAM S.A.
      (parent company andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    Consolidated(Restated)
    
    
    
    
    
    
    
    (Restated)Liabilities and
      equityLiabilitiesNon-current
      liabilitiesFinancial liabilities
    
    500,000
    
    3,408,700
    
    531,390
    
    
    
    (531,390)
    
    3,908,700Deferred income
    
    
    
    357,769
    
    
    
    
    
    
    
    357,769Provisions
    
    (14)
    
    761,077
    
    
    
    3,514
    
    5,119
    
    769,696Other
      non-current liabilities
    
    (5,442)
    
    185,277
    
    
    
    
    
    5,442
    
    185,277494,544
    
    4,712,823
    
    531,390
    
    3,514
    
    (520,829)
    
    5,221,442Current
      liabilitiesTrade
      and other payables
    
    72,670
    
    729,156
    
    
    
    80,621
    
    (77,777)
    
    804,670Deferred income
    
    
    
    1,027,616
    
    
    
    21,898
    
    
    
    1,049,514Current income tax liabilities
    
    
    
    19,451
    
    
    
    629
    
    
    
    20,080Financial liabilities
    
    23,147
    
    1,174,839
    
    7,076
    
    
    
    (7,076)
    
    1,197,986Other
      current liabilities
    
    2
    
    177,697
    
    
    
    10,734
    
    (57,668)
    
    130,76595,819
    
    3,128,759
    
    7,076
    
    113,882
    
    (142,521)
    
    3,203,015590,363
    
    7,841,582
    
    538,466
    
    117,396
    
    (663,350)
    
    8,424,457EquityCapital and reserves attributable to equity holders of TAM
      S.A.Share capital
    
    675,497
    
    659,701
    
    88
    
    34,288
    
    (694,077)
    
    675,497Revaluation reserve
    
    135,134
    
    276,197
    
    
    
    8,026
    
    (134,892)
    
    284,465Other reserves
    
    885,383
    
    18,040
    
    
    
    319
    
    (18,359)
    
    885,383Retained earnings (accumulated
      deficit)
    
    297,254
    
    912,914
    
    15,097
    
    (13,415)
    
    (1,151,107)
    
    60,7431,993,268
    
    1,866,852
    
    15,185
    
    29,218
    
    (1,998,435)
    
    1,906,088Minority interest
    
    
    
    
    
    
    
    
    
    2,629
    
    2,629Total equity
    
    1,993,268
    
    1,866,852
    
    15,185
    
    29,218
    
    (1,995,806)
    
    1,908,717Total and liabilities and
      equity
    
    2,583,631
    
    9,708,434
    
    553,651
    
    146,614
    
    (2,659,156)
    
    10,333,174
  F-87


---



Table of
Contents (c)
Cash flow statement For
the year ended December 31, 2008 TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    ConsolidatedCash flows from operating
      activities
    
    349
    
    1,905,969
    
    (167,402)
    
    (19,015)
    
    184,576
    
    1,904,477Tax paid
    
    
    
    (58,443)
    
    
    
    
    
    
    
    (58,443)Interest paid
    
    (57,393)
    
    (246,132)
    
    
    
    
    
    
    
    (303,525)Net cash generated from operating
      activities
    
    (57,044)
    
    1,601,394
    
    (167,402)
    
    (19,015)
    
    184,576
    
    1,542,509Cash flows from investing
      activitiesProceeds from sale of property, plant and equipment
    (PPE)
    
    
    
    8,204
    
    
    
    
    
    
    
    8,204Purchases of property, plant and equipment (PPE)
    
    
    
    (627,523)
    
    
    
    4,326
    
    (14,286)
    
    (637,483)Purchases of intangible assets
    
    
    
    (133,454)
    
    
    
    
    
    (15)
    
    (133,469)Deposits in guaranteeReimbursement
    
    
    
    106,292
    
    
    
    
    
    
    
    106,292Deposit made
    
    
    
    (30,503)
    
    
    
    (12,502)
    
    12,502
    
    (30,503)Pre-delivery paymentsReimbursement
    
    
    
    261,302
    
    
    
    
    
    
    
    261,302Payment
    
    
    
    (217,688)
    
    
    
    
    
    
    
    (217,688)Net cash used in investing
      activities
    
    
    
    (633,370)
    
    
    
    (8,176)
    
    (1,799)
    
    (643,345)Cash flows from financing
      activitiesPurchase of treasury shares
    
    (14,269)
    
    
    
    
    
    
    
    
    
    (14,269)Dividends paid to TAM's stockholders
    
    (63,713)
    
    (8,352)
    
    
    
    
    
    
    
    (72,065)Short
      and long-term borrowingsIssuance
    
    
    
    208,692
    
    
    
    
    
    
    
    208,692
  F-88


---



Table of
Contents TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    ConsolidatedRepayment
    
    
    
    (471,390)
    
    
    
    
    
    
    
    (471,390)Capital element of finance leases
    
    
    
    (340,092)
    
    
    
    
    
    
    
    (340,092)Repayment of debentures
    
    
    
    (4,793)
    
    
    
    
    
    
    
    (4,793)Issuance of senior notes
    
    
    
    
    
    167,269
    
    
    
    (167,269)Net cash used in financing
      activities
    
    (77,982)
    
    (615,935)
    
    167,269
    
    
    
    (167,269)
    
    (693,917)Increase in cash and cash
      equivalents, bank overdrafts and financial investments
    
    (135,026)
    
    352,089
    
    (133)
    
    (27,191)
    
    15,508
    
    205,247Cash, cash equivalents, bank
      overdrafts and financial investments at beginning of
    year
    
    386,295
    
    20,407
    
    518
    
    60,759
    
    (1,441)
    
    466,538Cash, cash equivalents, bank
      overdrafts and financial investments at end of year
    
    251,269
    
    372,496
    
    385
    
    33,568
    
    14,067
    
    671,785
  F-89


---



Table of
Contents For
the year ended December 31, 2007 TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    ConsolidatedCash flows from operating
      activities
    
    199,651
    
    568,717
    
    (34,832)
    
    38,282
    
    (47,058)
    
    724,760Tax
      paid
    
    
    
    (65,528)
    
    
    
    
    
    
    
    (65,528)Interest paid
    
    (65,620)
    
    (220,939)
    
    
    
    
    
    
    
    (286,559)Net cash generated from operating
      activities
    
    134,031
    
    282,250
    
    (34,832)
    
    38,282
    
    (47,058)
    
    372,673Cash flows from investing
      activitiesProceeds from sale of property, plant and equipment
    (PPE)
    
    
    
    4,558
    
    
    
    
    
    
    
    4,558Investments in subsidiaries
    
    (30)
    
    
    
    
    
    
    
    30Purchases of property, plant and equipment (PPE)
    
    
    
    (311,818)
    
    
    
    4,988
    
    (5,022)
    
    (311,852)Proceeds from sale of PPEPurchases of intangible assets
    
    
    
    (37,071)
    
    
    
    
    
    
    
    (37,071)Deposits in guaranteeReimbursement
    
    
    
    21,011
    
    
    
    
    
    
    
    21,011Deposit made
    
    
    
    (65,383)
    
    
    
    
    
    
    
    (65,383)Pre-delivery paymentReimbursement
    
    
    
    401,977
    
    
    
    
    
    
    
    401,977Payment
    
    
    
    (451,456)
    
    
    
    
    
    
    
    (451,456)Net cash used in investing
      activities
    
    (30)
    
    (438,182)
    
    
    
    4,988
    
    (4,992)
    
    (438,216)Cash flows from financing
      activitiesProceeds from issuance of common shares
    
    497
    
    
    
    
    
    
    
    
    
    497Purchase of treasury sharesDividends paid to TAM's stockholders
    
    (137,106)
    
    
    
    
    
    
    
    (523)
    
    (137,629)Short and long-term borrowingsIssuance
    
    
    
    638,105
    
    
    
    
    
    
    
    638,105
  F-90


---



Table of
Contents TAM
      S.A.(parentcompany andguarantor)
    
    TAM
      LinhasAéreas
      S.A.(guarantor)
    
    TAM
      Capital(subsidiaryissuer)
    
    Others
      (non-guarantors)
    
    Consolidationadjustments
    
    ConsolidatedRepayment
    
    
    
    (591,857)
    
    
    
    
    
    
    
    (591,857)Capital element of finance
      leases
    
    
    
    (263,664)
    
    
    
    
    
    
    
    (263,664)Repayment of debentures
    
    
    
    (19,957)
    
    
    
    
    
    
    
    (19,957)Issuance of senior notes
    
    
    
    607,080
    
    
    
    
    
    
    
    607,080Funds obtained
    
    
    
    
    
    607,080
    
    
    
    (607,080)Net cash used in financing
      activities
    
    (136,609)
    
    369,707
    
    607,080
    
    
    
    (607,603)
    
    232,575Increase (decrease) in cash, cash
      equivalents, bank overdrafts and financial investments
    
    (2,608)
    
    213,775
    
    572,248
    
    43,270
    
    (659,653)
    
    167,032Cash, cash equivalents, bank
      overdrafts and financial investments at beginning of
    year
    
    173,157
    
    22,919
    
    (571,730)
    
    (29,037)
    
    704,197
    
    299,506Cash, cash equivalents, bank
      overdrafts and financial investments at end of year
    
    170,549
    
    236,694
    
    518
    
    14,233
    
    44,544
    
    466,538
  35Events after the reporting period
generating  (a)Restructuring of derivative
instruments In January 2009, the
Company, along with its key counterparties, started a restructuring of its hedge
transactions whose market value was R$ 1,128,985 at December 31, 2008. The
restructuring basically spread the maturity dates over a longer period,
extending the life of the derivatives but, generally, maintaining all other
terms (mainly residual value and strike price). With this action, the Company
aimed at two main goals: first, to postpone cash payments, which were
concentrated in the first half of 2009 and second, to settle most of the
transactions in a period when prices are expected to be less volatile. The coverage profile,
which was concentrated in the first half of 2009, was as a result more evenly
distributed through 2009 and 2010, including a small coverage in the first
quarter of 2011. For the 12 months following December 31, 2009, the coverage
accounts for 23% of the anticipated consumption. (b)Issuance of debt On
July 16, 2009 the Board of Directors approved the issuance for public
distribution of simple and nonconvertible debentures, with a guarantee provided
by TAM S.A. On July 24, 2009 TAM Linhas Aéreas S.A. concluded the offering of
600 simple debentures in a single series debentures, with unitary nominal value
of R$ 1,000 each for a total amount of R$ 600,000 and debt issue, costs of R$
7,631. The debentures expire in four years and repayable in 13 quarterly
installments as from July 24, 2010. Interest is payable monthly, at a rate
equivalent to 126.5% of the CDI (effective interest rate at the date of issuance
of 11.50%), calculated and published by CETIP (The custodian and liquidation
agent). The effective interest rate was 12.5% p.a as at December 31, 2009. The
Company may exercise early redemption at any time, at the Issuer's discretion,
by sending or publishing a notice to debenture holders 10 days in advance. The
early redemption can be total or partial.  
 F-91


---





Table of
Contents



On
October 22, 2009, through TAM Capital 2 Inc, a newly created subsdiary. The
Company concluded the offering of 3,000 senior notes, with unit nominal value of
US$ 100 thousand, each in the total amount of US$ 300 million (equivalent to
R$ 523,2 million using the exchange rate as of the date the of the
transaction), carrying interest at 9.5% p.a. (resulting in an effective interest
rate of 9.85%). The notes were issued outside Brazil under an exemption from
registration with the Brazilian CVM and with the SEC. TAM Capital 2 has the
option to early redeem the Senior Notes at any time prior to January 29, 2015
and at specified redemption dates thereafter. (c
) Initial public offering of shares of the subsidiary Multiplus On
October 28, 2009 the Company acquired all the shares of QXSPE S.A., a dormant
company without any activity and it modified its corporate name to Multiplus
S.A. (Multiplus), whose corporate purpose is to carry out of customer loyalty
programs. On February 5, 2010 the Company concluded the initial public offering
of shares of its subsidiary Multiplus, offering 39,340,000 shares held by the
Company for an offering price of R$ 16.00 per share (sixteen reais)
totalling net proceeds of R$ 629,440. On March 02, 2010 3,934,000
additional shares were sold at a price of R$ 16.00 (sixteen reais)
representing proceeds of R$ 62,944. The resources proceeding from the IPO
will be used for general corporate purposes and reducing indebtedness. 
After the offer the Company continues to control Multilplus S.A. through its
remaining 72.5% voting and total interest. (d)Acquisition of Pantanal Linhas Aéreas
S.A. On
December 19, 2009, the Company signed a commitment for the acquisition of all of
the shares of Pantanal Linhas Aéreas S.A. (Pantanal). As compensation for the
acquisition of these shares, the Company paid in advance R$ 3,000, on
December 22, 2009, and made a final payment of R$ 10,000 on March 19, 2010.
ANAC (Brazilian Civil Aviation Authority) approved the acquisition of Pantanal
Linhas Aéreas on March 18, 2010.  
 F-92


---





F-93