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Brazilian Airlines, TAM S.A. (TAM - Snapshot Report) reported its financial results for the second quarter of fiscal year 2011. TAM reported a net income of R$60.3 million (US$37.9 million) in the quarter, up from a loss of R$174.8 million (US$98.2 million) in the year-ago quarter but down 53.2% sequentially.

Earnings per share entered the positive territory and was R$0.40 per share (US$0.25 per ADR) compared with a loss of R$1.2 per share (US$0.67 per ADR) reported in the year-ago quarter. Earnings were well above the Zacks Consensus Estimate of $0.07 per ADR.

In the second quarter, net revenue was R$3,053.2 million (US$1,920.3 million), up 16.9% year over year and 0.4% sequentially. The year-over-year improvement was primarily due to higher load factor in domestic and international market as well as rising passenger demand in the quarter.

Passenger revenues and the overall cargo revenues in the second quarter reached R$2,337.4 million (US$1,470.1million) and R$296.9 million (US$186.7 million), representing a year-over-year growth of 8.2% and 4.2%, respectively.

During the reported quarter, the company received 2 new Airbus A330, one A321 and one A319 ending the quarter with 156 aircraft. In July 2011, TAM received two Airbus A319 and ended operations with the ATR-42, which are yet to be operational.       

Total operating expenses in the second quarter increased 16.4% year over year and 3.6% sequentially to R$3,037.6 million (US$1,910.4 million). The year-over-year increase was mainly due to a rise in the cost of fuel, personnel, third party services, depreciation and amortization, and landing/ take off charges.

EBITDA in the second quarter was R$202.3 million (US$127.2 million), up 20.3% with a margin of 6.6% compared with 6.4% in the corresponding quarter of 2010.

Financial liability at the end of the quarter was R$6,375.2 million (US$4,010 million) versus R$7,139.8 million (US$4,353.5 million) in the previous quarter. Cash and cash equivalents were recorded at R$892.6 million (US$569 million) up 58.2% sequentially.

During the quarter, net cash generated from operating activities was R$131.5 million (US$82.7million), down 61.9% on a year-over-year basis. Purchases of property, plant and equipment was recorded at R$66.2 (US$41.6 million) up 8.3% year-over-year.

During the quarter, the company restructured old operations related to the current hedge position. TAM’s subsidiary TAM Capital 3 Inc. issued US$500 million senior guaranteed notes due 2021. The bonds will pay semi-annual coupons at a rate of 8.38% per year. The net proceeds will be used for the payment of maturing debt, pre-delivery and general corporate purposes.

The proposed combination of LAN and TAM under a single parent entity named LATAM Airlines Group is currently pending antitrust approval in Chile by the Tribunal de Defensa de la Libre Competencia (TDLC). The TDLC’s resolution of a public hearing is expected in August.

TAM recorded the best load factor in international flights for the month of June. In international market, the company registered a load factor of 79.6% and market share of 90.6%. In the Domestic market, load factor was recorded at 66.6% with a market share of 41.7%.

TAM S.A., operating through its subsidiaries TAM Linhas Aéreas and TAM Mercosur, is a renowned air transportation service provider, both in the domestic and international markets. TAM competes directly with its peers, such as AMR Corporation and GOL Linhas A (GOL - Analyst Report).

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