LATAM Airlines Group SA : Chile's Latam Airlines Seen Posting Drop in 2nd-Quarter Net after LAN-TAM Merger
07/25/2012| 04:09pm US/Eastern
Chilean holding company Latam Airlines Group SA's (LAN.SN) second-quarter net profit likely fell year on year, after the merger of LAN Airlines and Brazil's carrier TAM concluded last month.
After nearly two years of clearing regulatory hurdles, LAN and TAM merged to give birth to Latam Airlines, which became the biggest carrier in Latin America and the largest in the world in terms of market capitalization.
The newly created company will release quarterly earnings for the first time but the merged carrier will only consolidate LAN and TAM results for the last eight days in June, as Latam Airlines was created June 22.
Including the eight combined days with TAM, Latam Airlines likely will report a second-quarter net profit of $11.7 million, according to the median estimate of three analysts polled by Dow Jones Newswires.
As a stand-alone company, LAN reported a $15.9 million second-quarter net profit last year. Higher costs associated with the merger's conclusion, a slowing cargo business and foreign-exchange fluctuations likely contributed to the year-on-year decline in Latam Airlines' net income, according to the analysts.
"We expect nonrecurring costs due to the completion of the merger that will affect 2Q12 results," Santander Investment Chile said in a research note.
As in previous quarters, a decline in exports to South America due to the global downturn on the euro zone's debt crisis contributed to a decrease in LAN's cargo traffic.
The combined carrier likely posted $209 million in earnings before interest, taxes, depreciation, amortization and rent costs, or Ebitdar, Santander said.
LAN Airlines reported $200.3 million in Ebitdar during the second quarter of last year.
The company, meanwhile, likely reported $1.45 billion in revenue last quarter, according to the analysts' median estimate. During the same period of 2011, LAN posted $1.33 billion in sales.
"Positive results in domestic [passenger] traffic last quarter" lifted Latam Airlines' sales in April to June from a year earlier, said Bice Inversiones in a research note.
Latam Airlines, which has a market capitalization of around $12 billion, entered the subinvestment-grade credit-rating category on TAM's $4 billion debt load. The company aims to recover LAN's previous investment-grade rating. A better rating helps companies fund themselves at a lower rate.
Latam Airlines' main hubs are in Miami, Lima, Santiago, Brasilia, Sao Paulo and Rio de Janeiro. Outside the region, it flies to destinations in North America, Europe and Oceania.
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