Fitch Maintains Rating Watch Positive on TAM S.A.

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings maintains the Rating Watch Positive on TAM S.A.'s (TAM) ratings as follows:

--Foreign currency Issuer Default Rating (IDR) 'B+';

--Local currency IDR 'B+';

--Long-term national scale rating 'BBB+(bra)';

--USD300 million senior unsecured note due to 2020 'B+/RR4';

--USD300 million senior unsecured note due 2017 'B+/RR4';

--BRL500 million debentures issuance due 2012 'BBB+(bra)'.

Fitch also maintains the Rating Watch Positive on the foreign currency and local currency IDRs of the following TAM fully owned subsidiaries:

Tam Linhas Aereas S.A.

--Foreign currency IDR 'B+';

--Local currency IDR 'B+'.

Tam Capital Inc.

--Foreign currency IDR 'B+';

--Local currency IDR 'B+'.

Tam Capital Inc. 2

--Foreign currency IDR 'B+';

--Local currency IDR 'B+'.

Tam Capital Inc. 3:

--Foreign currency IDR 'B+';

--Local currency IDR 'B+';

--USD500 million senior unsecured note due to 2021 'B+/RR4'.

On Aug. 16, 2010, Fitch placed TAM's ratings on Rating Watch Positive and LAN's 'BBB' IDR on Rating Watch Negative. These rating actions followed the announcement by TAM and LAN that they had reached an agreement to combine their holdings under a single parent entity. The Rating Watch Positive on TAM's ratings reflects the view that the combined credit profile of the two companies would be stronger than TAM's current credit profile.

The merger of the two airlines has been delayed by anti-trust authorities. The ratings of TAM remain on Rating Watch Positive to reflect the possibility the transaction will ultimately be approved, and that the transaction, if approved would benefit TAM's creditors. Both companies expect to complete all required steps in the legal process to have the merger finalized by the end of the first quarter of 2012.

TAM's 'B+' and 'BBB+ (bra)' ratings reflect the company's strong market position, diversified business, high operational leverage and cyclicality, adequate liquidity, and high financial leverage. The 'B+/RR4' ratings on the company's unsecured public debt reflect average recovery prospects in the range of 31%-50% given default.

During the first nine months of 2011, TAM maintained solid leading position in the Brazilian air passenger transportation with market shares in the domestic and international segments of approximately 42.4% and 87.9%, respectively. The company is the sole player in the Brazilian market maintaining a diversified revenue structure including domestic passenger, international passenger, cargo, and other segments representing 46%, 28%, 9%, and 17%, respectively, of its total revenues for the first nine months of 2011.

Industry-related risks such as fuel cost volatility, high operating leverage, and cyclicality are factored into the ratings reflecting the company's high degree of sensitivity to changes in the macroeconomic scenario. The company's financial performance is vulnerable to FX risk as approximately 90% of its debt and 50% of its cost structure in linked to the U.S. dollar.

TAM's cash generation, as measured by EBITDAR, was BRL1.4 billion, BRL2.2 billion, and BRL2.1 billion during 2009, 2010 and the latest 12 months (LTM) period ended September 2011, respectively. TAM's EBITDAR margin has remained in the 16% to 19% range during 2010 and the first nine months of 2011, the company ended LTM September 2011 with an EBITDAR margin of 16.2%. The company's third quarter 2011 (3Q'11) result included a tax credit of BRL426 million which is non-recurring and had a positive affected on fuel expenses, financial expenses and airport tariffs. Excluding this adjustment the company LTM September 2011 EBITDAR margin would have been approximately 12.9%.

Adequate liquidity and high financial leverage incorporated in the ratings. The company has consistently maintained good liquidity around BRL2 billion during the last five years ended in September 2011. The company's gross financial leverage, as measured by the adjusted debt/EBITDAR ratio was 5.9 times (x) at the end of September 2011.

Reduction in 2012 capacity a positive, the company has revised its fleet plan for 2012 reducing the number of its aircraft units for next year from 163 to 159 and also limiting the increase in capacity (ASK) for the domestic market to 4% for 2012. In addition, the company's yields improved during 3Q'11, its domestic and international yields reached positive changes of 2.2% and 3.3% over 3Q'10; and 6.7% and 11.3% over 2Q'11, respectively. Reduction in 2012 capacity could indicate a more rational market supporting potential yield recovery during 2012 improving profitability in general for the sector.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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Fitch RatingsPrimary AnalystJose Vertiz, +1-212-908-0641DirectorFitch Inc.One State Street PlazaNew York, NY 10004orSecondary AnalystDebora Jalles, +11-55 21 4503 2629DirectororCommittee ChairpersonDaniel Kastholm, +1-312-368-2070Managing DirectororMedia Relations:Brian Bertsch, +1-212-908-0549Email: [email protected]

Source: Fitch Ratings

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