Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to Commission File Number: 1-14728 Lan Airlines S.A. (Exact name of registrant as specified in its charter) Lan Airlines S.A. Republic of Chile (Translation of registrant’s name into English) (Jurisdiction of incorporation or organization) Presidente Riesco 5711, 20th Floor Las Condes Santiago, Chile (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 registered: American Depositary Shares (as evidenced by New York Stock Exchange American Depositary Receipts), each representing five shares of Common Stock, without par value 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: None 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: 318,909,090 Indicate by check mark if the registrant is a well-known seasoned issuer, as defines in Rule 405 of the Securities Act. Yes No 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. Yes No 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. 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. (Check one): Large Accelerated filer Accelerated filer Non-Accelerated filer Indicate by check mark which financial statement item the registrant has elected to follow: Item 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). Yes No TABLE OF CONTENTS PRESENTATION OF INFORMATION 1 FORWARD LOOKING STATEMENTS 2 GLOSSARY OF TERMS 3 PART I ITEM 1. Identity of Directors, Senior Management and Advisers 5 ITEM 2. Offer Statistics and Expected Timetable 5 ITEM 3. Key Information 5 ITEM 4. Information on the Company 19 ITEM 4A. Unresolved Staff Comments 51 ITEM 5. Operating and Financial Review and Prospects 52 ITEM 6. Directors, Senior Management and Employees 72 ITEM 7. Controlling Shareholders and Related Party Transactions 81 ITEM 8. Financial Information 82 ITEM 9. The Offer and Listing 84 ITEM 10. Additional Information 85 ITEM 11. Quantitative and Qualitative Disclosure about Market Risk 104 ITEM 12. Description of Securities other than Equity Securities 106 PART II ITEM 13. Defaults, Dividend Arrearages and Delinquencies 107 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 107 ITEM 15. Controls and Procedures 107 ITEM 16. Reserved 108 ITEM 16A. Audit Committee Financial Expert 108 ITEM 16B. Code of Ethics 108 ITEM 16C. Principal Accountant Fees and Services 108 ITEM 16D. Exemptions From The Listing Standards For Audit Committees 109 ITEM 16E. Purchase Of Equity Securities By The Issuer And Affiliated Purchasers 109 PART III ITEM 17. Financial Statements 110 ITEM 18. Financial Statements 110 ITEM 19. Exhibits 111 i Table of Contents PRESENTATION OF INFORMATION In this annual report on Form 20-F, unless the context otherwise requires, references to ‘‘Lan Airlines’’ are to Lan Airlines S.A., the unconsolidated operating entity, and references to ‘‘LAN,’’ ‘‘we,’’ ‘‘us’’ or the ‘‘Company’’ are to Lan Airlines S.A. and its consolidated subsidiaries. All references to ‘‘Chile’’ are references to the Republic of Chile. This annual report contains conversions of certain Chilean peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These conversions should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we specify otherwise, all references to ‘‘$’’, ‘‘US$’’, ‘‘U.S. dollars’’ or ‘‘dollars’’ are to United States dollars, references to ‘‘pesos’’, ‘‘Chilean pesos’’ or ‘‘Ch$’’ are to Chilean pesos and references to ‘‘UF’’ are toUnidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate. Unless we indicate otherwise, the U.S. dollar equivalent for information in Chilean pesos is based on the ‘ ‘dólar observado’’ or ‘‘observed’’ exchange rate published by Banco Central de Chile (which we refer to as the Central Bank of Chile) on December 31, 2006, which was Ch$534.43=US$1.00. The observed exchange rate on May 4, 2007 was 523.54=US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. See ‘‘Key Information—Exchange Rates’’ under Item 3. Lan Airlines and the majority of our subsidiaries (including our main cargo subsidiary Lan Cargo S.A., or Lan Cargo) maintain their accounting records and prepare their financial statements in U.S. dollars. Some of our other subsidiaries, however, maintain their accounting records and prepare their financial statements in Chilean pesos. Our consolidated financial statements include the results of these subsidiaries translated into U.S. dollars. Generally accepted accounting principles in Chile, or Chilean GAAP, require monetary assets and liabilities to be translated at period-end exchange rates, non-monetary assets and liabilities to be translated at historical rates of exchange as of the date of acquisition or incurrence and revenue and expense accounts to be translated at the average monthly exchange rate for the month in which they are recognized. As required by Chilean GAAP, the financial statements of our subsidiaries that report in Chilean pesos are adjusted to reflect changes in the purchasing power of the Chilean peso due to inflation. These changes are based on the consumer price index published by the Chilean National Institute of Statistics. Our consolidated financial statements are prepared in accordance with Chilean GAAP, which differs in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP. For a description of certain significant differences between Chilean GAAP and U.S. GAAP as they relate to us, together with a reconciliation of our net income and shareholders’ equity to U.S. GAAP, see Note 26 to our audited consolidated financial statements. We have rounded percentages and certain U.S. dollar and Chilean peso amounts contained in this annual report for ease of presentation. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. This annual report contains certain terms that may be unfamiliar to some readers. You can find a glossary of these terms on page 3 of this annual report. 1 Table of Contents FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements. Such statements may include words such as ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘believe’’ or other similar expressions. Forward- looking statements are statements that are not historical facts, including statements about our beliefs and expectations. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to: • our ability to service our debt and fund our working capital requirements; • future demand for passenger and cargo air service in Chile, other countries in Latin America and the rest of the world; • the maintenance of relationships with customers; • the state of the Chilean, Latin American and world economies and their impact on the airline industry; • the effects on us from competition; • future terrorist incidents or related activities affecting the airline industry; • the relative value of the Chilean peso compared to other currencies; • inflation; • competitive pressures on pricing; • our capital expenditure plans; • changes in labor costs, maintenance costs, fuel costs and insurance premiums; • cyclical and seasonal fluctuations in our operating results; • defects or mechanical problems with our aircraft; • our ability to successfully implement our growth strategy; • increases in interest rates; and • changes in regulations, including regulations related to access to routes in which we operate. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them, whether in light of new information, future events or otherwise. You should also read carefully the risk factors described in ‘‘Key Information—Risk Factors’’ under Item 3. 2 Table of Contents GLOSSARY OF TERMS The following terms, as used in this annual report, have the meanings set forth below. Capacity Measurements: ‘‘available seat kilometers’’ or ‘‘ASKs’’ The number of seats made available for sale multiplied by the kilometers flown.