Over the past 18 years, LAN has experienced a process of solid and sustained growth accompanied by the internationalization of its operations, positioning it as an important player in the world’s complex and ever more competitive airline industry. We are proud of this achievement which confirms that the strategy implemented since 1994 by the Company’s present controllers has been the right one in its quest to grow LAN’s market and services.

From the start, we opted to differentiate our product, a process in which the decision to invest in talent, fleet and service was key. From having just 13 aircraft and with passenger and cargo operations based only in Chile, we have emerged as a regional airline with a modern fleet that, as of end 2011, comprised 149 aircraft.

Geographic diversification has been crucial in our process of expansion. Today, we serve five domestic passenger markets - Chile, Peru, Argentina, Ecuador and Colombia - as well as international passenger services that connect the region to the rest of the world and a cargo operation, based in Miami, with a network of coverage that includes the main cities of South America, Mexico and some Central American and European countries. In this context, the launch of our new subsidiary in Colombia was one of the great milestones of 2011 since it will allow us to participate

actively in this country’s domestic passenger market, the second largest in South America, and to continue to grow in capacity and connectivity.

Brazil has always been one of our Company’s priorities and we are pleased with the important progress achieved during the year in our process of association with TAM. Thanks to this project, we will, as from 2012, incorporate a sixth market - Brazil - that accounts for half of South America’s air traffic. This association will not only mark a further milestone in LAN’s track record of growth but will also mean great benefits for our customers in terms of fares, connectivity and flight options.

By building on our strengths as regards service quality, flight safety and range of destinations, we have been able to earn the preference of our customers in most of the countries in which we operate. From carrying just 1.2 million passengers in 1994, we have grown to 22.6 million passengers in 2011.

We have also contributed to the development of the region’s air cargo market and, as a result, fostered trade between Latin America, the United States and Europe. As of end-2011, LAN operated a fleet of 14 exclusively cargo aircraft as well as carrying cargo in the belly of its

passenger aircraft, a differentiating strategy that is one of the competitive advantages of LAN’s business model. In cargo, we have also achieved exponential growth and, in 2011, transported 875,000 tonnes of cargo, up from 124,000 tonnes in 1994.

This is also reflected in the extraordinary growth of the Company’s revenues which, from US$318 million in 1993, rose to US$5,718 million in 2011. Over the same period, our profits swelled from US$0.3 million to US$320 million, with an operating margin that, in 2011, reached 9.4%. As a result, LAN’s market capitalization has also grown exponentially and, at US$7,920 million in December 2011, was among the three largest in the world airline industry.

We are proud of our work over the past 18 years, not only because of the expansion of our business but also because we have made a valuable contribution to the development of the airline industry in Latin America and, therefore, to the economic development of the region’s countries, supporting the projects of Chilean companies as they have globalized and achieved world-class status.

We are convinced that LAN today is prepared for the new and challenging stage in its development that will begin in 2012, a year that will mark its definitive entry into the big leagues of the global airline industry. In achieving this, the participation and commitment of our people has been crucial. I would, therefore, like to thank each and every one of our collaborators whose professionalism and great technical capacity have played a fundamental role in this process.

I would, in addition, like to offer sincere and deserved thanks to all those who made possible the realization of the dream of our association with TAM and the creation of LATAM. I am certain that, for all our shareholders, workers and passengers, this great new company will bring the reward of new and important achievements.

Jorge Awad M.

Chairman

For the airline business, 2011 was not an easy year. In addition to the increase in fuel prices and the economic turbulence seen in Europe and the United States, we faced the eruption of the Puyehue-Cordón Caulle Volcano in Chile. This disrupted air traffic in part of South America as well as affecting our operations on the Santiago-Auckland- Sydney route in Oceania. In this context, however, LAN once again showed that, thanks to its diversified and flexible business model, it is prepared to address and mitigate the impact of adverse conditions. Indeed, it was able not only to grow and continue creating value for its shareholders but also to lay down the foundations for ensuring a profitable operation, taking advantage of opportunities for future growth.

In this sense, our main source of pride as regards to our management in 2011 is the record time in which we successfully implemented the restructuring of Colombia’s Aires airline, acquired by LAN in November 2010. We immediately began to introduce operational changes, such as route modifications and gains in efficiency, achieving LAN’s standards in terms of safety, punctuality and service. This process culminated in December 2011 when we launched the LAN brand in the Colombian market.

This is the fifth country in the region in which LAN has domestic passenger operations, along with Chile, Peru, Argentina and Ecuador. For our Company, this milestone meant the incorporation of 23 new destinations into its network, including 22 within Colombia, and, as from February 2012, the international Bogotá-Miami route. Passenger operations in Colombia were always a strategic goal for LAN since it has Latin America’s fourth largest economy and its second largest passenger market after Brazil. In addition, it has the potential to become an important hub for LAN’s international cargo and passenger businesses.

In 2011, we also achieved important progress in our association project with TAM, Brazil’s largest airline. We obtained unconditional approval from the competition authorities of Italy, Germany and Spain while, in Chile and Brazil, we received the necessary regulatory permits on condition of some measures of mitigation. The operation was also approved by LAN’s shareholders after which we started the technical and preparatory work for the companies’ future integration, which we estimate will occur during the early months of 2012.

The new holding, to be known as LATAM Airlines Group, will bring together LAN and TAM, although each company will maintain its corporate identity and respective brand. Their joint operations will initially comprise over 300 aircraft and some 150 destinations in 23 countries. Transporting over 60 million passengers a year and almost 1 million tonnes of cargo, it will be Latin America’s largest airline and one of the three largest in the world in terms of market capitalization. This will, without doubt, be the most transcendental operation of LAN’s history.

Our association with TAM will give us access to the Brazilian market, a goal long sought by LAN, where we see great opportunities in both the cargo and passenger businesses. In the case of cargo, a business in which we have a long and successful track as the region’s largest carrier, we believe we will be able to make a significant contribution to TAM’s network. Similarly, in the case of international passenger operations, we see important opportunities in the combination of our networks, with their highly complementary routes. As well as the very important revenues they promise, these two businesses also offer important efficiency gains and cost savings. As a result, we estimate that the combined synergies produced by the merger could boost the new company’s operating earnings before depreciation and tax by between US$600 million and US$700 million annually as from the fourth year, once the association has been perfected.

The size of Brazil’s domestic market makes this an historic opportunity: 40% of its population, or some 80 million people, belong to a middle class that is just starting to travel by air. This phenomenon will create a boom of which we are certain the LATAM Group will be able to take advantage.

We are proud of our work in 2011, a year in which we continued to serve the region with the quality and service standards for which we are known. At the same time, we maintained our position of leadership in most of the markets in which we operate and continued working to diversify the Company and open up new horizons for its development.

We are convinced that great goals can be achieved only by committed human teams. As LAN’s successful track record has shown over the past 18 years, excellent teams make excellent companies. I would, therefore, like to recognize the valuable contribution made by each one of our workers, technicians, professionals and executives in the different countries in which we are present. Their efforts and dedication have been crucial for LAN’s transformation. In addition, I would like to thank our shareholders for the confidence that, over all these years, they have placed in this administration which has allowed us to transform LAN into a world-class airline.

Enrique Cueto P.

Chief Executive Officer

LAN AIRLINES S.A.

Tax N° (RUT): 89.862.200-2

Corporate Headquarters

Avenida Presidente Riesco 5711, 19th Floor

Las Condes, Santiago, Chile

Tel: (56) (2) 565 2525

Fax: (56) (2) 565 8764

Maintenance Center

Arturo Merino Benítez Airport

Santiago, Chile

Tel: (56) (2) 677 4500

Fax: (56) (2) 677 4505

Ticker Symbol

LAN - Santiago Stock Exchange

LFL - New York Stock Exchange

Financial Information

Investor Relations

LAN Airlines S.A.

Avenida Presidente Riesco 5711, 20th Floor,

Las Condes, Santiago, Chile

Tel: (56) (2) 565 8785

E-mail: Investor.Relations@lan.com

Shareholder Enquiries

Depósito Central de Valores

Huérfanos 770, 22nd Floor

Santiago, Chile

E-mail: atencionaccionistas@dcv.cl

Tel: (56) (2) 393 9003

Fax: (56) (2) 393 9315

Depositary Bank

JPMorgan Chase Bank, N.A.

JPMorgan Chase & Co.

P.O. Box 64504

St. Paul, MN 55164-0504

Tel: General (800) 990-1135

Tel: From outside US (651) 453 2128

Tel: Global Invest Direct (800) 428 4237

E-mail: jpmorgan.adr@wellsfargo.com

Custodian Bank

Banco Santander Chile

Bandera 140, Santiago

Custody Department

Tel: (56) (2) 320 3320

Fax: (56) (2) 320 3560

External Auditors

PricewaterhouseCoopers

Avenida Andrés Bello 2711, 5th Floor

Santiago, Chile

Tel: (56) (2) 940 0000

Website

Complete information about

LAN Airlines: www.lan.com

Vision

To be recognized as one of the world’s ten best airlines.

Mission

To be the carrier of people’s dreams, giving the best of ourselves, earning our customers’ and communities preference and building a sustainable company in which we love to work.

Values

Safety, Achievement, Efficiency and Cordiality.

A regional airline

Diversification has been key in LAN’s consolidation as one of the world’s most efficient, competitive and profitable airlines. The development of the Company’s operations is underpinned by a model that integrates its cargo and passenger businesses, allowing it to optimize aircraft utilization and adjust its routes and itineraries in line with demand to the benefit of its earnings. This model, in other words, gives LAN the flexibility it needs to adapt to changing market conditions by taking advantage of the synergies that exist between these two areas of its business. At present, 28% of the Company’s income derives from its cargo business and 70% from its passenger business.

Another pillar of LAN’s strategy is the geographic diversification of its operations within South America under which it has built a network of subsidiaries in Chile, Peru, Argentina, Ecuador and Colombia. This has permitted the sustained development of LAN’s coverage of destinations in accordance with its objective of providing complete connectivity to customers in these countries’ domestic markets as well as within the region and to the

rest of the world. Thanks to this diversification of origin, the domestic markets of the countries in which it operates today account for 27% of the Company’s revenues while 43% correspond to its international operations.

In its passenger business, LAN embarked on a revolutionary change in its short-haul operations in 2007, implementing a low-cost model in the Chilean, Peruvian, Argentine and Ecuadorean domestic markets in a bid to stimulate demand. This change began with the replacement of its short-haul fleet by modern and more efficient aircraft from the Airbus A320 family that permit higher daily utilization. Together with other efficiency gains, this allowed the Company to reduce costs and fares with the result that, over the past four years, it has incorporated over one million new passengers into each of these markets.

Thanks to LAN’s value proposition geared to quality and safety, its services are today recognized as the best in the region and it is noted for the frequency of its flights and the variety of destinations it offers as well as for its modern fleet and technological advances.

1929

Línea Aérea Nacional de Chile (LAN) founded by

Comandante Arturo Merino Benítez.

1946

First international flight: Santiago-Buenos Aires.

1956

Start of services to Lima.

1958

Start of services to Miami.

1970

LAN begins flights to Europe.

1985

LAN becomes a joint stock company.

1989

Start of privatization of LAN: the Chilean government sells

a 51% stake to local investors and Scandinavian Airlines

System (SAS).

1994

Privatization of LAN completed with the acquisition

of a 98.7% stake by its current controllers and other

shareholders.

1997

LAN lists on the New York Stock Exchange, becoming

the first Latin American airline to trade ADRs on this

important financial market.

1999

LAN’s expansion begins: start of operations of LAN Peru.

2000

LAN joins the oneworld alliance.

2001

Alliance with Iberia and inauguration of Miami cargo

terminal.

2002

Alliance with Qantas and Lufthansa Cargo.

2003

LAN continues its expansion plan: start of operations of

LAN Ecuador.

2004

Launch of new corporate image as LAN Airlines S.A.

2005

Further step in LAN’s regional expansion plan: start of

operations of LAN Argentina.

2006

Launch of new Premium Business Class.

2007

Implementation of low-cost model in domestic markets;

capital increase of US$320 million;

purchase orders for 32 Boeing 787 Dreamliners.

2008

Completion of renewal of short-haul fleet with aircraft

from the Airbus A320 family.

2009

Start of cargo operations in Colombia and domestic

passenger operations in Ecuador; purchase order for 30

aircraft from the Airbus A320 family.

2010

Purchase order for 50 aircraft from the Airbus A230 family.

LAN bought Aires, a colombian airline.

2011

LAN nd TAM sign binding agreements relating to the

merger of the two airlines.

LAN is committed to always being in the vanguard of technology and innovation, two factors that are essential in order to achieve an operation that is efficient and environmentally-friendly. In this way, the Company seeks not only to optimize its costs through savings on fuel and maintenance but also to significantly reduce the CO2 emitted as a result of its flights.

In 2000, LAN embarked on an ambitious program of fleet renewal and expansion, thanks to which it now operates one of the world’s most modern fleets of aircraft. These have an average age of 6.7 years and, as of December 2011, included 135 passenger planes and 14 aircraft exclusively for cargo.

For its short-haul operations, the Company has a modern fleet of single-gangway planes from the Airbus A320 family. These enable it to serve domestic and regional routes within South America efficiently since their range and power permit a high daily utilization rate. With the 17 new Airbus A320s incorporated during 2011, LAN now has 76 planes from this family, comprising 42 A320s, 24 A319s and ten A318s.

LAN’s strategic fleet renewal plan envisages the gradual replacement of its Airbus A318s by A320s which, with their greater capacity, are better suited to the domestic and regional markets in which it operates. In 2011, the Company took five A318s out of service and, in 2012 and 2013, plans to sell another five of these planes each year.

This plan will allow it to reduce emissions per passenger-kilometer by more than 10% on the routes previously operated by A318s.

On long-haul routes, LAN uses principally Boeing 767s, a model it prefers since it is very convenient for its eight to ten-hour flights to the United States and some routes to Europe as well as having the advantage of a cargo version. In 2011, it incorporated three Boeing 767-300s for passenger operations and one cargo Boeing 767-300F to serve the growth of operations on its routes north out of Latin America. As of end-2011, its Boeing fleet comprised 54 aircraft, including 14 exclusively for cargo.

In 2011, LAN completed the installation of winglets on all its own long-haul Boeing 767-300s in a project, launched in 2009, that represented an investment of US$75 million. These advanced-technology devices on the edge of wings reduce their aerodynamic resistance and, therefore, fuel consumption. They have allowed the Company to increase the efficiency of its fleet’s fuel consumption by approximately 4%, reducing its impact on the environment. Through this project alone, LAN avoided some 113,000 tonnes of CO2 emissions in 2011.

In the case of its ultra-long-haul operations, LAN maintained its fleet of five Airbus A340-300s in 2011. This model has been key in the development of its direct flights from South America to Europe and Oceania.

As of December 2011, LAN’s fleet also included nine Boeing 737-700s, ten Dash 8-200s and four Dash 8-Q400s, all rented, which the Company received as a result of its acquisition of Colombia’s Aires airline in November 2010 (which led to the launch of LAN Colombia in December 2011). LAN Colombia plans to gradually take the Boeing 737s out of service, replacing them with aircraft from the Airbus A320 family.

From the point of view of the growth and modernization of its fleet, 2012 will be a particularly important year for LAN. Its plan envisages the delivery of twelve aircraft from the Airbus A320 family, nine Boeing 767-300s and the first two latest-generation Boeing 787-8 Dreamliners for long-haul routes. LAN will, as a result, become the first airline in the Americas - and one of the first in the world - to operate the Boeing 787 Dreamliner, considered the new “ecological aircraft” since it consumes up to 20% less fuel and significantly reduces noise. The Company’s fleet plan includes the incorporation of 32 of these planes over the next eight years, representing an historic investment for LAN.

For its cargo operation, the Company expects to receive two new Boeing 777-200Fs in 2012, bringing its planes of this model up to a total of four and positioning it as the first airline in the region - and only the second in the world - to operate these advanced-technology cargo aircraft, considered the most modern in the industry. Their capacity (104 tonnes) and range (8,741 kilometers with maximum cargo weight) will allow the Company to expand its coverage to destinations outside the region and, particularly, to strengthen its cargo operations to Europe.

LAN is constantly seeking new and more efficient technologies that help to reduce emissions and, in June 2011, announced the signing of a purchase order for 20 aircraft from the Airbus A320neo family for delivery between 2017 and 2018, representing an investment at list price of US$1,700 million. This model uses more efficient engines and the new sharklet aerodynamic devices which together mean benefits that include up to a 15% saving on fuel, equivalent to an annual reduction of 3,600 tonnes of CO2 per aircraft.

Jorge Awad Mehech

Mr. Jorge Awad Mehech, RUT: 4.756.185-K, an economist and business administrator, has served as chairman and/ or member of the board of directors of LAN Airlines since March 1994. He was previously senior vice-president of Fast Air from 1979 to 1993. He is currently also a member of the board of Banco de Chile, president of the association of banks and financial institutions and ICARE business organization, and a professor of Management and Companies at the Economics School of the University of Chile.

Mr. Awad is member of the Directors Committee.

Darío Calderón González

Mr. Darío Calderón González, RUT: 5.078.327-8, a lawyer, has been a member of the board of directors of LAN Airlines since 1994. He has been a founding partner in Calderón y Cía., a Santiago law firm, since 1970 and currently serves on the boards of a number of other Chilean companies, including Integramédica S.A., Imprenta A. Molina Flores S.A., Enjoy S.A. and Nutrechile A.G.

José Cox Donoso

Mr. José Cox Donoso, RUT: 6.065.868-4, an economist and business administrator, has served as a member of the board of directors of LAN Airlines from April 1994 to June 1995 and since September 1995. He has also been chairman of the board of LAN Cargo since September 1995. In addition, he is a member of the boards of CMB-Prime AFI S.A. and Socovesa S.A.

Juan José Cueto Plaza

Mr. Juan José Cueto Plaza, RUT: 6.694.240-6, an economist and business administrator, has been a member of the board of directors of LAN Airlines since 1994. He currently serves as executive vice-president of Inversiones Costa Verde S.A., a position he has held since 1990, and is a member of the boards Consorcio Maderero S.A. and Minera Michilla S.A.

Juan Cueto Sierra

Mr. Juan Cueto Sierra, RUT: 3.246.727-K, a businessman, was one of the founders of Fast Air in 1978 and has been a member of the board of directors of LAN Airlines since 1998. He has vast experience in different business activities and is the father of Messrs. Juan José, Enrique and Ignacio Cueto Plaza, who are a director, chief executive officer and chief operating officer of LAN Airlines, respectively.

Ramón Eblen Kadis

Mr. Ramón Eblen Kadis, RUT: 4.346.062-5, an economist and business administrator, has been a member of the board of directors of LAN Airlines since June 1994. He has served as chairman of Comercial Los Lagos Ltda., Inversiones Santa Blanca S.A. and TJC Chile S.A. and is a member of the Eblen Group (a shareholder in LAN Airlines).

Mr. Eblen is member of the Directors Committee.

Bernardo Fontaine Talavera

Mr. Bernardo Fontaine Talavera, RUT: 6.371.763-0, an economist, has been a member of the board of directors of LAN Airlines since April 2005. He has served as head of the financial retail area of Falabella, one of Chile’s leading retailers, and as vice-chairman of the boards of CMR Falabella and Banco Falabella. He also headed the M&A Corporate Finance division of Citicorp-Citibank Chile and is currently a member of the boards of Deutsche Bank Chile, Metro S.A., Aquamont S.A., South-Am S.A. and Loginsa S.A. and is also general manager of Tres Mares S.A., Indigo S.A. and Sarlat S.A.

Carlos Heller Solari

Mr. Carlos Heller Solari, RUT: 8.717.000-4, an agricultural engineer, joined the board of directors of LAN Airlines in May 2010. He has great experience in the retail, transport and agricultural sectors. He currently serves as vice-chairman of Bethia (an investment company and owner of Axxion) and as chairman of Axxion S.A., Club Hípico de Santiago, Sotraser S.A. and Agrícola Ancali. In addition, he is a member of the boards of SACI Falabella S.A., Falabella Retail S.A., Sodimac S.A. and Titanium S.A. and is the main shareholder and vice-chairman of “Azul Azul” (administrator of the first-division Universidad de Chile football team).

Gerardo Jofré Miranda

Mr. Gerardo Jofré Miranda, RUT: 5.672.444-3, an economist and business administrator, joined the board of directors of LAN Airlines in May 2010. He is chairman of the board of Codelco and a member of the board of Air Life Chile S.A. as well as president of the Fundación Saber Más and a member of investment council of the Santander real estate funds. From 2005 to 2009, he was a member of the boards of Endesa Chile S.A., Viña San Pedro Tarapacá S.A., D&S S.A., Construmart S.A., Inmobiliaria Titanium S.A. and Inmobiliaria Parque del Sendero S.A. Between 2004 and 2005, he was insurance manager for the Americas at Grupo Santander in Spain. From 1989 to 2004, he was group vice-president and general manager of Grupo Santander in Chile and served as director and chairman of many of the Group’s companies.

Mr. Jofré is member of the Directors Committee.

Enrique Cueto Plaza

Mr. Enrique Cueto Plaza is chief executive officer of LAN Airlines, a post he has held since 1994. From 1983 to 1993, Mr. Cueto served as chief executive officer of Fast Air, a Chilean cargo airline. With 22 years of experience in the industry, he has in-depth knowledge of both the commercial and operational management of passenger and cargo airlines. He is an active member of the governing boards of the oneworld® alliance and of the International Air Transport Association (IATA). He is also a member of the boards of the Chilean Manufacturers’ Association (SOFOFA) and the Endeavor foundation, an organization that promotes entrepreneurship in Chile.

Ignacio Cueto Plaza

Mr. Ignacio Cueto Plaza has been chief operating officer of LAN Airlines since 2005. He began his career in the aviation industry in 1985 in Fast Air. Between that year and 1993 he held various positions at Fast Air, including service manager and vice-president for sales and marketing. Between 1993 and 1995, he was general manager of Fast Air, and between 1995 and 1998 he was President of the LAN Cargo group. Furthermore, Mr. Cueto was a board member of Ladeco between 1994 and 1997 and of LAN Airlines between 1995 and 1997. In 1999, Ignacio Cueto became chief executive officer of the passenger business of LAN Airlines, a position he maintained until 2005 when he assumed his current role.

Alejandro de la Fuente Goic

Mr. Alejandro de la Fuente Goic has been chief financial officer of LAN Airlines since july 1995. He joined LAN Airlines in April 1995 after serving as finance manager at Chiquita Frupac Ltd., a subsidiary of Chiquita Brands Inc. Mr. De la Fuente is an agronomist, with an economy and agricultural economics master’s degree at the Catholic University and an MBA from Adolfo Ibáñez University.

Armando Valdivieso Montes

Mr. Armando Valdivieso Montes has been chief executive officer for passengers at LAN Airlines since 2006, after serving as chief executive officer for cargo from 1997 to 2005. From 1994 to 1997, he was chief operating officer of Fast Air and, from 1991 to 1994, served as Fast Air’s vice-president in the United States, based in Miami. Mr. Valdivieso is a civil engineer and holds an Executive MBA from Harvard University.

Cristian Ureta Larraín

Mr. Cristián Ureta Larraín is chief executive officer for cargo at LAN Airlines, a post he has held since 2005. He is an engineering graduate of the Catholic University in Santiago and of Stanford University’s Special Executive Program. Between 2002 and 2005, he served as vice-president for production at LAN Cargo and, from 1998 to 2002 as its vice-president for planning and development. He was previously general director and commercial director at MAS Air and service manager at Fast Air.

Roberto Alvo Milosawlewitsch

Mr. Roberto Alvo Milosawlewitsch is vice-president for strategic planning and development at LAN Airlines, a post he has held since 2008. Mr Alvo joined LAN Airlines in November 2001. Prior to his current position, he served as chief financial officer of LAN Argentina from 2005 to 2008, as manager of development and financial planning at LAN Airlines, and as deputy chief financial officer of LAN Airlines. Before 2001, Mr. Alvo held various positions at Sociedad Química y Minera de Chile S.A., a leading Chilean non-metallic mining company. He is a civil engineer and obtained an MBA from the IMD in Lausanne, Switzerland.

Cristián Toro Cañas

Mr. Cristián Toro Cañas has served as general counsel at LAN Airlines since January 2008. He holds a law degree from the Catholic University in Santiago (1993) and a master’s law degree (MCJ 97’) from New York University. Prior to joining LAN Airlines, Mr. Toro served as general counsel/legal director at Citibank Chile where he held various posts from 1997 until 2007. He also worked as an international trainee at Shearman & Sterling in New York (1999). Mr. Toro is a professor for the master’s degree in company law at the Los Andes University in Santiago.

Enrique Elsaca Hirmas

Mr. Enrique Elsaca Hirmas is vice- president for operations and service at LAN Airlines, a post he has held since October 2008, after serving as vice- president for strategic planning between 2004 and 2008. Mr. Elsaca holds a degree in industrial engineering from the Catholic University in Santiago and an MBA from the Massachusetts Institute of Technology. Prior to joining LAN Airlines, he served as real estate and development manager at Cencosud, Chile’s second largest retail group. From 1997 to 1999, he worked at Booz Allen & Hamilton in Latin America and, from 1991 to 1995, held various posts at Esso Chile, a subsidiary of Exxon.

Since January 2012 Enrique Elsaca Is CEO for Chile.

Emilio del Real Sota

Mr. Emilio del Real Sota has been vice-president for human resources at LAN Airlines since August 2005. He holds a psychology degree from the Gabriela Mistral University in Santiago. Between 2003 and 2005, he served as manager for human resources at D&S, a Chilean retail company. Between 1997 and 2003, he held various posts at Unilever, including human resource manager for Lever Chile as well as training and recruitment manager and executive development manager for Latin America.

Pablo Querol

Mr. Pablo Querol, vice-president for corporate affairs at LAN Airlines, holds a first degree in communications sciences from Argentina’s Business and Social Sciences University (UCES) and a postgraduate administration degree from Argentina’s IAE Business School. He joined LAN Airlines in December 2004 after almost ten years as editor of Argentina’s La Nación newspaper, a radio commentator and business consultant. From 2005 to early 2011, before being promoted to his current position, Mr. Querol played an active role in the launch and growth of LAN Argentina.

In 2011, LAN paid its executives total remunerations of US$90.6 million, plus a further US$20.1 million in incentives. Severance compensation totaled US$2.3 million.

Compensation Plan

The general characteristics of the Company’s Stock Option Compensation Plan are as follows:

In accordance with the decision of the Extraordinary Shareholders’ Meeting of 5 April 2007, a total of 2,209,091 shares are allocated to the Company’s Stock Option Compensation Plan.

Under modifications to the Compensation Plan, the last of which was introduced by Ordinary Board Meeting N° 358, the plan has the following characteristics: The options assigned to each employee accrue in stages on the following two occasions: (1) 30% as from 29 October 2010 and (2) 70% as from 30 October 2011, subject to the employee remaining with the Company. Employees may exercise these options totally or partially up to their expiry date of 31 March 2012. Employees may not make over the options to another person, lien or transfer them in any way and may only waive them. The price to be paid for the shares at the time of exercising the option will be equivalent to US$14.50 adjusted for the variation in the Consumer Price Index and payable in Chilean pesos according to the market exchange rate at the date the shares are subscribed and paid.

As of 31 December 2011, a total of 1,535,522 stock options corresponding to the current Compensation Plan had been subscribed.

LAN’s corporate governance practices are subject to constant review in order to ensure that the Company’s internal self-regulation processes are totally aligned with the legislation in force and its own values.

LAN Airlines S.A. (“LAN”) is a listed company registered with the Superintendencia de Valores y Seguros (SVS), Chile’s stock market regulator, under Inscription N° 306. Its shares trade on the Santiago Stock Exchange, Chile’s Electronic Stock Exchange and the Valparaíso Stock Exchange as well as on the New York Stock Exchange as American Depositary Receipts (ADRs).

LAN’s corporate governance practices are regulated by Chile’s Securities Market Law (N° 18.045) and its Corporations Law (N° 18.046), including the latter’s associated norms, as well as other norms issued by the SVS. In addition, it is subject to US legislation and regulation and norms issued by the Securities and Exchange Commission (SEC) as they apply to ADRs.

Its corporate governance practices are subject to constant review in order to ensure that the Company’s internal self-regulation processes are totally aligned with the legislation in force and its own values. LAN’s decisions and commercial activities are underpinned by the ethical principles established in the company’s Code of Conduct.

Structure

As of 31 December 2011, LAN had a total of 1,682 registered shareholders. The Company is controlled by the Cueto Group, represented by Costa Verde Aeronáutica S.A., Inversiones Nueva Costa Verde Aeronáutica Ltda. and Inversiones Mineras del Cantábrico S.A. As of 31 December 2011, they together held a 33.9% stake while the remainder corresponded to different institutional investors, companies and individuals and 3.1% of the Company was held in the form of ADRs.

The main bodies responsible for LAN’s corporate governance are its Board of Directors and the Directors and Audit Committee whose principal functions are set out below.

Board of Directors

LAN’s Board of Directors has nine members and is the body responsible for analyzing and defining the Company’s strategic vision, thereby playing a fundamental role in its corporate governance. All the Board seats come up for election every two years and, under LAN’s bylaws, directors are elected according to the total number of votes they receive. Each shareholder has one vote per share and can use all his or her votes to support one candidate or divide them among any number of candidates. This arrangement currently ensures that a shareholder with more than a 10% stake can elect at least one director. The present Board of Directors was elected by the Ordinary Shareholders’ Meeting which took place on 29 April 2010.

The Board holds ordinary monthly meetings and extraordinary meetings whenever the Company’s affairs so require. Directors’ fees must be approved by vote at the Ordinary Shareholders’ Meeting. The Directors Committee usually meets monthly and its functions and powers are those established by law and the corresponding regulation.

Directors Committee

Under Chilean law, listed companies must appoint at least one independent director who is also a member of the Directors Committee when they have a market capitalization of at least 1,500,000 unidades de fomento (an inflation-indexed currency unit) and at least 12.5% of the voting shares are held by shareholders who individually control or possess less than 10% of these shares. Three of the nine Board members form a Directors Committee, which fulfills both the functions required under Chile’s Corporations Law and those of the Audit Committee required under the Sarbanes-Oxley Act of the United States and the corresponding SEC norms. The Directors and Audit Committee has the functions established in Article 50 bis of Chile’s Corporations Law (N° 18.046) and the other applicable regulation. These include:

The requirements for directors’ independence are set out in Chile’s Corporations Law and its subsequent modifications under Law N° 19.705 on the relationship between directors and a company’s controlling shareholders. A director is considered independent when he or she does not, in general, have ties, interests or economic, professional, credit or commercial dependence of a significant nature or size with or on the company, the other companies in the group of which it forms part, its controller or senior management or a family relationship with the latter nor any of the other types of ties specified in Chile’s Corporations Law (N° 18.046),

Under US regulation, it is necessary to have an Audit Committee, comprising at least three Board members, that fulfills the independence requirements established under Rule 10A-3 of the Exchange Act. Given the similarity of the functions of the Directors Committee and the Audit Committee, LAN’s Directors Committee acts as an Audit Committee under Rule 10A-3 of the Exchange Act.

As of 31 December 2011, all the members of the Directors Committee, who also act as part of the Audit Committee, were independent directors as defined under Rule 10A-3 of the Exchange Act. At that date, its members were Messrs. Jorge Awad Mehech, Gerardo Jofré Miranda and Ramón Eblen Kadis (chairman of the Committee).

In accordance with Article 50 bis of Law N° 18.046, the matters examined by the Directors Committee during 2011 are set out below:

1 Ordinary Session N° 109 25/1/11:

2 Ordinary Session N° 110 01/3/11:

3 Ordinary Session N° 111 29/3/11:

4 Ordinary Session N° 112 26/4/11:

5 Ordinary Session N° 113 28/6/11:

6 Ordinary Session N° 114 26/7/11:

7 Extraordinary Session N° 9 08/8/11:

8 Ordinary Session N° 115 30/8/11:

9 Ordinary Session N° 116 26/9/11:

10 Extraordinary Session N° 10 24/10/11:

11 Ordinary Session N° 117 25/10/11

12 4Extraordinary Session N° 11 10/11/11

13 Extraordinary Session N° 12 11/11/11

14 Ordinary Session N° 118 29/11/11

15 Ordinary Session N° 119 20/12/11

Related-party transactions

Under Chile’s Corporations Law, the operations of a listed company with a “related” party must take place in market conditions and comply with certain authorization and disclosure requirements that are different from those applying to a non-listed company. This applies to listed companies and all their subsidiaries.

LAN has carried out different transactions with its subsidiaries, including the entities owned or controlled by some of its majority shareholders. In the normal course of the Company’s business, different types of services have been provided to or received from related companies, including the rental and exchange of aircraft and cargo transport and booking services.

LAN’s policy is not to carry out transactions with or for the benefit of any shareholder or Board member or with any entity controlled by these persons or in which they have a significant economic interest, except when the transaction is related to the Company and the price and other terms are at least as favorable as those which could be obtained from a third party under equal conditions. These transactions, none of which is individually material, are summarized in the audited consolidated financial statements for the year ending on 31 December 2011.

Principles of good corporate governance

LAN’s good corporate governance is the result of the interaction of different individuals and stakeholders. Although all our employees share responsibility for compliance with the high standards of ethics and adherence to regulation established by the Board of Directors, it is the Board, the Directors Committee and senior management who are primarily responsible for the Company’s good corporate governance. In line with the above, LAN is committed to transparency and compliance with the ethical and regulatory standards established for this purpose by the Board of Directors.

Pillars of LAN’s corporate governance

Notwithstanding the responsibilities of the Company’s Board of Directors and its Directors Committee, LAN’s management has also taken a number of measures to ensure due corporate governance. These include principally:

1 LAN Code of Conduct. This seeks to ensure that all the Company’s employees adhere to the highest standards of ethics, transparency and compliance with regulation as required by LAN in accordance with its core values of safety, achievement, efficiency and cordiality. Key aspects of the LAN Code of Conduct include:

2 Code of Ethics for Senior Financial Executives. This Code of Ethics is designed to foster honest and ethical conduct in the disclosure of financial information, compliance with regulation and avoidance of conflicts of interest.

3 Manual for Management of Market-Sensitive Information. This is required by the SVS and, since Law N° 20.382 on Corporate Governance came into force, also by Chilean securities market legislation. LAN, however, seeks to go further than these norms and regulates the criteria for disclosure of operations, periods of voluntary abstinence from the purchase and sale of the Company’s shares, mechanisms for continuous disclosure of market-sensitive information and mechanisms for the protection of confidential information by the Company’s employees and executives.

4 Program of Regulatory Compliance. Under this program, the Company’s General Counsel, in coordination with and under the supervision of the Board of Directors and its Directors Committee, supervises compliance with the laws and regulation applicable to LAN’s business and activities in the different countries in which it operates.

The Company’s policy is to pay the minimum dividends required by law or, in other words, 30% of profits calculated in accordance with the regulation in force. This does not, however, imply that dividends above this obligatory minimum level cannot be distributed depending on the particular events and circumstances that may arise during the year.

The table below shows the dividends per share paid during the past three years. Those corresponding to 2009 and 2010 represent 50% of the distributable profits of the respective year while the provisional dividends corresponding to 2011 are equivalent to 44.2% of the year’s distributable profits.

In accordance with International Financial Reporting Standards, distributable profits in 2009, 2010 and 2011 for the payment of dividends corresponded to the net annual income attributable to holders of a stake in the controller’s net assets while, in previous years, they corresponded to the net income reported in accordance with Chile’s generally accepted accounting principles.

SHARE AND ADR PRICE 2011

CUMULATIVE SHARE PRICE PERFORMANCE 2011

Stock Market Activity

In 2011, LAN’s share price showed a loss of 16.6% while its ADR price dropped by 24.5%. As of 31 December 2011, the Company had a market capitalization of US$7,920 million.

The loss on LAN’s shares in 2011 was 1.4 percentage points more than that on Chile’s IPSA share price index, which showed an annual loss of 15.2%.

STAFFING LEVELS

The history of LAN’s achievements, during which we have realized dreams that initially seemed unattainable, was possible thanks to the work and commitment of our people.

One of LAN’s strategic pillars for achieving its vision of becoming one of the world’s ten best airlines is to be a High Performance Organization. That is why the development of its people is a priority for the Company as it seeks to meet the growth and sustainability goals it has established for the future.

In 2011, 4,424 people joined the Company, giving it a total of 21,838 employees of 56 nationalities in the 21 countries where LAN has its own personnel. These new hirings were required by the growth of its operations during the year and to cover the holding’s natural turnover.

EMPLOYEES BY COUNTRY OF ORIGIN

In line with LAN’s declaration that fostering the professional development of its people is one of its priorities, 18,687 employees with a permanent contract, equivalent to 86% of the workforce, received a total of 704,128 hours of training at the Company’s Corporate Academy in 2011. In addition, 89 training and specialization scholarships were awarded for four types of study: Completion of Schooling, Technical and University Studies, Diplomas and Master’s Degrees. In accordance with the above and as a way of recognizing the work and professionalism of our people, 4,264 employees were promoted internally (one in five people) in the different countries where LAN has operations.

In the case of labor relations, the Company once again successfully completed important collective bargaining processes, renewing agreements for LAN Express Maintenance, LAN Airlines Cabin Crews and Andes Operators.

Work climate

An important milestone in 2011 was the implementation for the first time at the Company level of the Great Place to Work (GPTW) survey.

LAN has measured its work climate since 2002, using a high-quality methodology that is, indeed, comparable to that used by GPTW. However, it decided to adopt this latter survey since its use by different organizations around the world permits comparison with the best companies in which to work.

The results of this first survey in LAN were extremely positive in that it obtained 69% of positive replies, achieving the goal the Company had set for the year. Although it still has some way to go before being among the companies with the best work climate, this result indicates that it is on the right road to achieve its ambitious target of 85% of positive replies by 2015.

Culture of Service

In 2011, LAN continued to develop the Culture of Service project launched in 2010 in order to take a new step in the Company’s qualitative relationship with its customers, building an emotional bond with them as an airline that they regard with both admiration and affection.

During its first year, the project focused on launching and positioning LAN’s Service Message - “We are people caring for people” - and its five service keys throughout the company, particularly among teams that work in direct contact with customers.

In 2011, the project went on to emphasize the importance of the internal client for the proper working of the service chain, drawing attention to the ways in which the actions of support teams in areas working directly with customers can have a positive impact on the Company’s passengers.

Recognition of our people

One of the keys to ensuring that more people feel the enjoyment of working at LAN is to make recognition a natural and constant feature of the Company’s internal culture.

In 2011, a new version was, therefore, launched of the Service Leaders ceremony, the most important event in which prizes are awarded to the best representatives of the excellent service that LAN seeks to provide for its customers on a daily basis. The different areas of the Company that work directly with customers, such as Contact Center, Sales Offices, Airport, Cabin Crew, Cockpit Crews and Customer Service, choose their best representatives to attend this ceremony where they are recognized by the Company’s highest authorities and, finally, the Service Stars - or, in other words, the best of the best as regards customer service - are selected.

Similarly, LAN also makes a point of recognizing the commitment of those people who have dedicated more than a quarter of a century’s effort and work to the Company. Each year, a Track Record ceremony takes place at which those who have completed 25, 35, 40, 45, 50 and 55 years with LAN are thanked and receive an award in a solemn event, also attended by the Company’s highest authorities.

Taking advantage of the constant growth and renewal of LAN’s fleet, which has converted it into one of the most modern in the world, the Company has also implemented the Yo me traje un Airbus (I brought back an Airbus) activity as a further way of recognizing its people. This corporate program seeks to reward those employees who have shown excellent performance in their work and/or a high potential for professional development within LAN.

In broad terms, this activity allows those selected to fly to the Airbus factory in Hamburg to bring back one of the new A319s and A320s. During the trip, which lasts approximately six days, they are able to visit the city, attend the dinner at which the aircraft is delivered, fly back in it and, on landing, be received with the traditional arch of water.

A transversal goal across all the Company is for its people to say, “I love working at LAN”. That is why the set of measures related to professional development and improvements in its work climate seek to achieve greater general satisfaction among those who make up the Company’s human team which is, in turn, what will allow us to become a High Performance Organization.

The airline industry’s complexity is a result of its high level of exposure to exogenous factors such as macroeconomic conditions, the price of fuel and climatic and political events.

In this context, the main players have, in recent years, increasingly looked to alliances and association agreements as a source of efficiency gains and operational, commercial and financial synergies.

In 2011, the global airline industry was impacted by a number of events. As well as the sharp increase in the price of oil - particularly in the early part of the year - in response to geopolitical conflicts in the Middle East, there was the earthquake and subsequent tsunami in Japan and the euro zone’s severe economic crisis.

Global passenger traffic, nonetheless, increased by 5.9%, led by Latin America where it expanded by 11.3%. Similarly, in the domestic markets of emerging economies such as Brazil, India and China, it showed double-digit growth.

International air cargo traffic, however, contracted by 0.7% in 2011, reflecting principally its close correlation with economic activity. In the Asia Pacific region, the world’s largest air cargo market and the center of manufacturing activity, the contraction reached 4.6%. This drop was, however, offset by the important growth seen in Latin America and the Middle East.

In all, IATA estimates that the industry recorded profits of US$7.9 billion in 2011. This demonstrates that airlines adapted successfully to changing conditions, allowing them to be profitable despite the economic deceleration and the sustained increase in fuel prices.

It is also important to note that, in recent years, the industry’s growth has been driven by the emerging regions of the world - Asia Pacific, Latin America and the Middle East. This trend is, moreover, expected to become more pronounced in future, considering the low penetration of air transport in these markets and their rapid economic development.

TOTAL REVENUES

LAN reported net earnings of US$320.2 million in 2011 when its results were driven by solid demand, strong yields and high load factors in both its passenger and cargo businesses. However, its net earnings represented a 23.7% drop from US$419.7 million in 2010, due principally to the restructuring of the Company’s operation in Colombia and the cloud of volcanic ash produced by the eruption of the Puyehue Volcanic Complex (Cordón Caulle) in southern Chile, which disrupted air traffic throughout the region, as well as to the impact of higher fuel prices which was not totally offset by fuel surcharge mechanisms.

In 2011, the Company’s revenues showed an important increase, with passenger sales rising by 28.9% to US$4,008.9 million and cargo sales by 23.1% to US$1,576.5 million. In all, operating revenues reached US$5,718.2 million, up by 26.4% on the previous year, giving a net operating income of US$539.7 million, down by 13.4% on 2010.

OPERATING INCOME

OPERATING MARGIN

The 28.9% increase in passenger revenues reflected a 15.9% increase in traffic combined with an 11.2% increase in yields. The Company’s load factor rose from 78.3% to 79.8% since the increase in its capacity, at 13.7%, was less than that in traffic. The growth of both capacity and traffic in 2011 reflected the incorporation of LAN Colombia’s domestic and international operations which was partly offset by the disruption of air traffic around the region caused by the volcanic eruption in the south of Chile. Revenues per ASK rose by 13.4%. The yield increased, due principally to higher fuel surcharges.

Higher traffic was the result of a 23.7% increase in domestic traffic (including the domestic operations of LAN and its subsidiaries in Chile, Argentina, Peru, Ecuador and Colombia) and of a 12.6% increase in international traffic, which accounted for 68.1% of total traffic in 2011. The growth of capacity occurred principally on domestic routes in Chile, regional routes within South America and long-haul routes to the United States. This expansion was partly offset by a drop in capacity on long-haul routes to Europe following itinerary changes implemented in 2011, including principally the elimination of the Madrid-Paris route in July 2011.

NET MARGIN

UNIT REVENUES

The 23.1% increase in cargo revenues in 2011 was the result of an 11.5% increase in traffic combined with a 10.4% increase in yields, reflecting the sustained growth of cargo demand in Latin America and higher fuel surcharges as well as better revenue management practices and the optimization of itineraries. Capacity rose by 12.4% in 2011 and, as a result, the load factor dropped by half a percentage point to 69.6%. Revenues per ATK were 9.5% up on 2010.

The Company has continued to increase its capacity selectively in response to demand in the main markets in which it operates. Imports into Latin America continued to grow but the weakness of cargo markets internationally has meant increased competition on routes to Latin America and, particularly, Brazil. Export volumes have shown a recovery, due partly to the recovery of salmon exports from Chile. The increase in capacity corresponds principally to the three Boeing 767-300F cargo planes received between November 2010 and January 2011 to serve routes from Latin America to North America and Europe. In addition, the Company continues to optimize the cargo capacity of the belly of its passenger aircraft, maximizing the synergies offered by the integration of the operations of the two businesses.

UNIT COSTS

NET INCOME

LAN also continues to progress in restructuring its operation in Colombia. In December 2011, it launched LAN in Colombia, an important step in the successful restructuring process implemented during the year. In 2011, LAN reported an operating loss on its passenger operations in Colombia. This includes important costs related to the change of brand, the migration of LAN Colombia to LAN’s computing systems, marketing campaigns designed to integrate Colombia into LAN’s regional network and extraordinary maintenance costs.

Operating costs increased by 32.8% in 2011 while costs per unit (ATK) rose by 18.0% as compared to 2010. Higher fuel prices in 2011 meant that fuel costs rose by US$454.7 million, considering current consumption levels. Unit costs excluding fuel also rose by 11.1%, due principally to the general appreciation of local currencies in 2011 and higher wage costs as well as higher expenditures relating to the restructuring of operations in Colombia.

In all, LAN maintained its solid financial position and good balance sheet indicators in 2011. This is reflected in its BBB investment-grade risk rating, a status which it is one of the few airlines to have retained.