OREANDA-NEWS. November 03, 2015. Challenging macroeconomic and business conditions should continue to pressure the performance of LATAM Airlines Group S.A.'s (LATAM), according to Fitch Ratings. The company has been seeking to reduce ex-fuel costs to offset the decline in revenues per unit in 2015. Considering the development of the factors mentioned above, as well as a lower fuel price environment for the airline, Fitch has revised its expectations for LATAM's 2015 EBIT margin from 8% (level previously incorporated) to 4.5%.

The company's free cash flow (FCF) is expected to be neutral to slightly positive during 2015-2016, reflecting balanced levels of cash flow from operations and capital expenditures. LATAM's capital intensity, measured as the net capex to revenues ratio, has been around 11% during the last two years. Fitch expects this ratio to be in the 8% to 10% range during 2015-2017.

LATAM's adjusted gross leverage metric is high and remains weak for the rating category. Fitch expects the company to reach a gradual business deleverage driven by better operational margins. Fitch forecasts the company's adjusted gross leverage at 6.2x by the end of 2015 and trending toward levels around 5x by mid-2017.

Fitch views the company's liquidity position as satisfactory for the rating category. As of June 30, 2015, the company had a cash position of \\$1.6 billion, along with \\$210 million in unused committed credit lines. Fitch expects LATAM's liquidity, measured as total cash and marketable securities plus unused committed credit lines over latest 12 month revenues, to be around 15% in the foreseeable future.

Fitch currently rates LATAM and TAM S.A. as follows:

LATAM Airlines Group S.A.:
--Long-term Issuer Default Rating (IDR) 'BB-';
--USD500 million senior unsecured note due 2020 'BB-';
--National Equity Rating 'Primera Clase Nivel 2 (cl)'.

TAM S.A.
--Long-term IDR 'BB-';
--Local currency IDR 'BB-';
--National long-term rating 'A(bra)'.

Tam Linhas Aereas S.A.
--Long-term IDR 'BB-;
--Local currency IDR 'BB-';
--National long-term rating 'A(bra)'.

Tam Capital Inc.
--USD300 million senior unsecured note due 2017 'BB-'.

Tam Capital Inc. 3
--USD500 million senior unsecured note due 2021 'BB-'.

The Rating Outlook is Stable.