LAN Airlines reported its consolidated financial results for the third quarter and nine-month period ended September 30, 2006. “LAN” or “the Company” makes reference to the consolidated entity, which includes several passenger and cargo airlines in Latin America.All figures were prepared in accordance with generally accepted accounting principles in Chile and are expressed in U.S dollars.

HIGHLIGHTS

—LAN reported net income of US$51.5 million for the third quarter of 2006 (3Q06), compared to net income of US$23.8 million in 3Q05.

—The Company reported operating income of US$70.5 million, increasing operating margins by 7.6 percentage points to 9.3%. This resulted from 22.6% revenue growth, which outpaced a 13.0% increase in operating costs. These strong operating results are despite US$21.8 million in higher fuel costs during the quarter.

—Total revenues for the quarter reached US$762.3 million due to a 29.0% increase in passenger revenues and a 14.5% rise in cargo revenues. Passenger and cargo revenues accounted for 62% and 32% of total revenues, respectively.

—During the quarter, LAN incorporated eight new Airbus 319 into its fleet, as well as one new Boeing 767-300ER passenger aircraft, which features LAN’s new Premium Business and Economy classes. These aircraft will be followed by one additional new Boeing 767-300ER and one new Boeing 767-300F freighter, both to be delivered during 4Q06.

—On August 15, LAN Argentina began international operations offering three weekly frequencies on the Buenos Aires-Miami route. This became a daily flight as of October 10, 2006. By year end 2006, LAN Argentina plans to launch its second international route, Buenos Aires - Sao Paulo, with 13 weekly frequencies.

—During the third quarter, LAN announced its new commission structure which will become effective January 1, 2007. It involves a 1% commission to be paid to travel agencies in Chile for economy class sales. The current 6% commission will be maintained for Business and First Class sales.

—During 3Q06, LAN advanced in the implementation of its new business model for short-haul operations. This new model seeks to increase efficiency in domestic and regional operations, and is expected to be fully implemented by year end 2007.

Management Comments on 3Q06 Results

LAN reported net income of $51.5 million for the third quarter of 2006. This result reflects a strong operating performance, with significant margin improvements resulting mainly from higher revenues per ATK in both the passenger and cargo businesses. While total revenues increased 22.6% in the quarter, operating margin improved 7.6 points to 9.3%. This represents a major accomplishment for the Company as revenue growth surpassed the 7.5% expansion in operations, as measured in system ATKs. The Company is also advancing in initiatives to control cost per ATK.

Passenger revenues grew 29.0% due to an 11.9% expansion in capacity and a 15.3% improvement in revenues per ASK. The latter resulted from a 17.0% improvement in yield while load-factors decreased 1.1 points during the quarter. During the third quarter, the Company managed capacity to respond to demand growth and market opportunities. As a consequence, capacity grew on routes to Europe, the South Pacific and within South America, while it decreased on segments to the Caribbean and the United States. Capacity also grew in the Chilean and Peruvian domestic markets, and especially in the Argentine domestic market given a low comparison base, as these operations began in June 2005. Load-factors were impacted mainly by higher yields, which rose principally due to improved segmentation and the usage of fuel cost pass-through mechanisms.

Cargo revenues rose 14.5% as capacity rose 3.0% and unit cargo revenues increased 11.2%. Higher revenues per ATK resulted from a 6.3% improvement in yield, as well as a 2.9 points rise in load factors. Conditions in the cargo business remain challenging given the imbalance caused by weak exports and strong imports into Latin America. In response to these conditions, LAN has adjusted its aircraft rotations in order to support northbound flights with stop-overs in various export markets. Additionally, the Company is reducing its ACMI leases of dedicated freighters and increasing the usage of its own fleet of Boeing 767 freighters, leveraging their low operating costs and their ability to adequately serve key destinations. Yield rose due to careful route selection, fuel-cost pass through mechanisms and fare increases, mainly on southbound routes.

Operating expenses rose 13.0% compared to third quarter of 2005 as capacity increased 7.5%. This led to a 6.7% rise in total cost per ATK (which include net financial expenses). Excluding the impact of higher fuel prices, which generated US$21.8 million in additional costs for the quarter, unit costs rose 3.3%. Ex-fuel, unit costs rose due to increased headcount, higher airport fees, and higher fleet related expenses resulting from a larger fleet. These factors were partially offset by lower commercial costs and changes in the on-board service process.

The Company recorded a US$10.9 million non-operating loss in the third quarter of 2006 compared to a US$17.8 million gain in 3Q05. This was mainly the result of lower fuel hedging gains, which decreased by US$15.3 million to US$6.4 million in 3Q06, while foreign exchange gains moved from a US$2.6 million profit in 3Q05 to a US$0.8 million loss in 3Q06.

LAN continues to maintain a solid financial position, with ample liquidity and a sound financing structure. By the end of the quarter LAN had US$248 million in cash, cash equivalents and committed credit lines. Additionally, the Company’s long-term debt only finances aircraft, has 12 to 18-year repayment profiles and features very competitive interest rates.

LAN incorporated eight new Airbus 319 into its fleet during 3Q06, four of them during the month of August and four in September, destined for the domestic operations of Lan Peru. Regarding its long-haul fleet, in July LAN incorporated a new Boeing 767-300ER, featuring its recently-launched Premium Business Class and upgraded Economy Class. This was the third Boeing 767-300ER delivery of 2006 and will be followed by a fourth aircraft in November, as well as a Boeing 767-300F freighter to be delivered in October.

Consistent positive results and a solid balance sheet have enabled LAN to continue advancing on a number of long-term initiatives. These plans, which encompass all levels and business units, are aimed at improving LAN’s long-term strategic position by enabling the Company to address opportunities, strengthen its market position and raise competitiveness.

Recent Events

New Business Model for Domestic/Regional Operations

The Company has recently embarked on an important project to redesign its domestic and regional business model. This project seeks to increase efficiency and improve the margins of LAN’s short haul operations, including domestic operations in Chile, Argentina and Peru, as well as regional narrow-body aircraft operations. A key objective of this project is to increase utilization of the Company’s narrow-body fleet to a target of approximately 12 block hours day per aircraft. This will be achieved through modified itineraries including more point-to-point and overnight flights, as well as through the phasing out of the existing Boeing 737-200 fleet in favor of the new Airbus 320-family aircraft during 2007. The new fleet will allow for lower unscheduled maintenance costs as well as cost efficiencies achieved through commonality of the fleet and operational efficiencies (i.e. fuel consumption).

Other key elements of LAN’s new business model will be the reduction in sales and distribution costs through higher Internet penetration and reduced agency commissions, a faster turn around time, and increased self-check through web check-in and kiosks at airports. These, together with simplifications in back-office and support functions, will allow the expansion in operations to occur without a corresponding increase in fixed costs, spurring an estimated 30% reduction in overhead costs per ASK by year end 2008. LAN plans to pass on these operating efficiencies to consumers through fare reductions, which are expected to have a strong impact on new demand stimulation.

Update on Lan Argentina

LAN Argentina has advanced on a number of key projects aimed at strengthening its operations. During the quarter, the airline advanced in the replacement of its Boeing 737-200s fleet in favor of Airbus 320s, improving LAN Argentina’s customer appeal, raising reliability standards and enhancing efficiency. On August 15, Lan Argentina began its international operations with 3 weekly frequencies on the Buenos Aires-Miami route; this became a daily flight as of October 10. Lan Argentina plans to launch its second international destination by year end 2006, consisting of 13 weekly frequencies on the Buenos Aires-Sao Paulo route. Future domestic and international destinations will be evaluated, especially in light of the rights recently awarded to Lan Argentina to operate 35 new domestic and international destinations. Regarding domestic operations, on August 4, 2006, the Argentine government approved a decree allowing for a 20% increase in domestic fares. We expect the benefits of these recent positive events for Lan Argentina to be reflected in the future results of the Company.

Outlook

The actions mentioned above are part of a broad set of initiatives aimed at reinforcing LAN’s future performance. The Company’s strong third quarter operating performance provides a solid base for long-term growth and profitability. As a consequence, LAN is in a position to plan for capacity expansion in response to growth opportunities, while leveraging opportunities to improve its cost performance. Combined, these elements will enable LAN to consolidate its position as Latin America’s leading international carrier.

LAN is embarked on a very significant fleet expansion program, which contemplates the incorporation of 48 passenger and cargo aircraft between 2006 and 2008. In the first nine months of 2006, the Company has already incorporated 11 new passenger aircraft into its fleet. In addition to additional aircraft, ASK growth will be enhanced as a result of increased aircraft utilization as well as to a lesser extent the densification of its current fleet. Overall, LAN expects passenger ASK growth to be between 10-12% in 2006 and between 23-25% in 2007. Growth in the cargo business over the next two years will result from the delivery of 2 new freighters, as well as from capacity in the bellies of the new passenger aircraft. As a result, we estimate cargo ATK growth of 7-9% in 2006 and 3-5% in 2007.

Consolidated Third Quarter Results

Net income for the third quarter of 2006 amounted to US$51.5 million compared to US$23.8 million for the same period of 2005. Net margin increased 3.0 points from 3.8% in 2005 to 6.8% in 2006.

Operating income amounted to US$70.5 million compared to US$10.0 million in 2005. Operating margin for the quarter increased 7.6 points to 9.3%.

Total operating revenues amounted to US$762.3 million, a 22.6% increase compared to the third quarter of 2005. This reflected a:

—29.0% increase in passenger revenues to US$476.2 million,

—14.5% increase in cargo revenues to US$247.4 million, and a

—5.3% increase in other revenues to US$38.7 million.

Passenger and cargo revenues accounted for 62% and 32% of total revenues for the third quarter, respectively.

Passenger revenues grew driven by a 10.2% increase in traffic and a 17.0% increase in yields. Load factors decreased 1.1 points to 75.7% as an 11.9% capacity increase outpaced traffic growth. Overall, revenues per ASK increased 15.3%. Traffic grew as a 1.8% decrease in Chilean domestic traffic was offset by a 12.0% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 89% of total passenger traffic during the quarter. Yields grew mainly due to fuel cost pass-through initiatives and improved segmentation.

Cargo revenues grew driven by a 7.8% increase in cargo traffic and a 6.3% increase in yields. Yields rose primarily due to higher southbound rates as well as cost-based rate increases. Traffic growth outpaced a 3.0% increase in capacity and resulted in a 2.9 point increase in cargo load factors to 66.9%. As a consequence, revenues per ATK rose 11.2%.

Other revenues increased 5.3% as increased on-board sales and aircraft leasing revenues were offset by lower handling and courier revenues.

Total operating expenses increased 13.0% during the quarter as capacity, measured in system ATKs, increased 7.5%. As a consequence, unit (ATK) costs increased 6.7%. Excluding the impact of higher fuel prices, unit costs increased 3.3%. Changes in operating expenses were driven by:

—Wages and benefits increased 11.8% mainly due to increased headcount as well as to a slight appreciation of local currencies in relation to the US dollar.

—Fuel costs increased 20.4% due to a 12.0% increase in prices and a 7.5% increase in consumption.

—Commissions to agents rose 6.3% driven primarily by a 23.6% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions decreased from 15.2% to 13.1%.

—Depreciation and amortization increased 56.1% mainly due to the incorporation of 14 new aircraft (three Boeing 767-300ER, one Boeing 767-300F and ten Airbus 319), and to the reclassification of certain expenses due to the change in maintenance accounting policies in January 2006. This was partially offset by two Boeing 737-200 passenger aircraft being phased out of the fleet.

—Other rental and landing fees increased 13.3% as a result of the impact of increased operations on landing and ground-handling fees, as well as increases in fees in the United States, Ecuador and Brazil, compounded by higher insurance expenses due to a larger fleet. These effects were mitigated by lower ACMI leases in the cargo business.

—Passenger service expenses decreased 8.4%, as the 8.8% increase in the number of passengers transported was offset by changes in the on-board service process on certain domestic operations, as well as by the renegotiation of certain catering services.

—Aircraft rentals increased 9.4% mainly due to an increase in leased aircraft as compared to 3Q05. Specifically, the Company added five Boeing 737-200s, one Boeing 767-300ER and one additional Airbus 320 passenger aircraft.

—Maintenance expenses decreased 6.2% as increased costs due to capacity growth were compensated by efficiency gains related to fleet renewal programs, and the reclassification of certain expenses due to the change in maintenance accounting policies in January 2006.

—Other operating expenses grew 8.7% due to increased operations, which resulted in increased sales costs and costs related to the Company’s frequent flyer program LanPass, as well as due to higher marketing expenses.

Non-operating results for the third quarter of 2006 amounted to a US$10.9 million loss compared to a US$17.8 million gain in 2005. While interest income decreased 54.4% due to lower average cash balances, interest expense increased 59.3% due to the increase in average long-term debt. In the miscellaneous-net item, the Company recorded a US$3.5 million gain compared to a US$24.4 million gain in 2005. In 2006 this included a US$6.4 million fuel hedging gain (compared to a US$21.7 million gain in 2005) as well as a US$0.8 million foreign-exchange loss (compared to a US$2.6 million gain in 2005).

Consolidated First Nine-Month Results

Net income for the first nine months of 2006 amounted to US$147.7 million compared to US$96.7 million for the same period of 2005. Net margin increased 1.4 points from 5.4% in 2005 to 6.8% in 2006.

Operating income for the first nine months of 2006 was US$164.6 million compared to US$82.4 million in 2005. Operating margin for this nine month period increased 3.0 points to 7.6%.

Total operating revenues amounted to US$2.2 billion, a 21.1% increase compared with the first nine months of 2005. This reflected a:

—23.4% increase in passenger revenues to US$1.3 billion,

—18.4% increase in cargo revenues to US$770.2 million, and a

—15.2% increase in other revenues to US$111.1 million.

Passenger and cargo revenues accounted for 60% and 35% of total revenues for the first nine months of 2006, respectively.

Passenger revenues grew driven by a 7.0% increase in traffic and a 15.3% increase in yields. Load factors decreased 1.1 point to 73.0% as an 8.6% capacity increase outpaced traffic growth. Overall, revenues per ASK increased 13.6%. Traffic grew as a 0.1% decrease in Chilean domestic traffic was offset by an 8.2% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 87% of total passenger traffic during the first nine months of 2006. Yields grew mainly due to fuel cost pass-through initiatives and improved segmentation.

Cargo revenues grew due to an 8.1% increase in traffic and a 9.4% improvement in yields, measured in RTKs. Yields rose primarily due to improvements in southbound rates and cost driven rate increases. Growth in cargo traffic outpaced a 6.9% increase in capacity, resulting in a 0.7 point increase in cargo load factors to 66.0%. As a consequence, revenues per ATK rose 10.7%.

Other revenues grew 15.2% as higher revenues from on-board sales, handling activities, aircraft leasing revenues and courier operations were partially offset by lower third party maintenance revenues.

Total operating expenses increased 17.4% in the first nine months of 2006 compared to 2005, as capacity, measured in system ATKs, increased 7.3%. As a consequence, unit (ATK) costs increased 10.4%. Excluding the impact of higher fuel prices, unit costs increased 4.9%. Changes in operating expenses were driven by:

—Wages and benefits increased 19.1% mainly due to increases in headcount and a stronger Chilean peso.

—Fuel costs increased 27.8% due to a 20.2% increase in prices and a 6.4% increase in consumption.

—Commissions to agents rose 17.7% driven primarily by a 21.5% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions decreased from 15.0% to 14.5% in 2006 as lower average passenger commissions offset higher cargo commissions.

—Depreciation and amortization increased 52.9% mainly due to the incorporation of 14 new aircraft (three Boeing 767-300ER, one Boeing 767-300F and ten Airbus 319), and to the reclassification of certain expenses due to the change in maintenance accounting policies in January 2006. This was partially offset by two Boeing 737-200 passenger aircraft being phased out of the fleet.

—Other rental and landing fees increased 8.1% as a result of the impact of increased operations on landing fees, handling costs and insurance expenses. These effects were mitigated by lower ACMI leases in the cargo business.

—Passenger service expenses increased 1.5%, mainly due to the 7.6% increase in the number of passengers transported, offset by changes in the on-board service process on certain domestic operations, as well as by the renegotiation of certain catering services.

—Aircraft rentals increased 7.5% mainly because of the incorporation of five additional Boeing 737-200s, one additional Boeing 767-300ER and one additional Airbus 320 aircraft into the Company’s leased fleet.

—Maintenance expenses decreased 10.0% as increased costs due to capacity growth were compensated by efficiency gains related to fleet renewal programs, the renegotiation of maintenance contracts with third parties, and the reclassification of certain expenses due to the change in maintenance accounting policies in January 2006.

—Other operating expenses grew 13.7% due to increased operations, which resulted in increased sales costs and costs related to the Company’s frequent flyer program LanPass, increases in booking expenses, and higher marketing expenses.

Non-operating results for the first nine-month of 2006 amounted to a US$8.6 million gain compared to a US$32.5 million gain in 2005. While interest income decreased 48.6% due to lower cash balances and lower interest rates, interest expense increased 49.9% due to an increase in average debt. In the miscellaneous-net item, the Company recorded a US$45.4 million gain compared to a US$50.3 million gain in 2005. In 2006 this included a US$13.9 million fuel hedging gain (compared to a US$47.2 million gain in 2005) as well as a US$0.6 million foreign-exchange loss (compared to a US$2.7 million gain in 2005).
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