Latam Airlines Group SA will take as long as three years to recapture an investment-grade credit rating and return profit margins to levels before its merger with Tam SA, Chief Financial Officer Andres Osorio said.

“Hopefully it could be before that,” he said in an interview yesterday in London. “We’ve completed the structural work needed on the fleet and to turn Brazil around. At the same time, the market in the region has contracted and the American and European airlines have increased their offer in the region. That’s why results haven’t been what were first expected.”

Latam Airlines was formed when Chile’s Lan Airlines SA acquired Tam to gain a foothold in the biggest emerging market after China. When the deal was announced in 2010, Brazil was expanding at a region-leading pace of 7.6 percent. When the tie- up was completed in 2012, growth had slowed to 1 percent amid softening demand for its exports. This year, Brazil is forecast to expand 0.3 percent, below the regional average of 1.2 percent, according to analysts surveyed by Bloomberg.

The carrier’s operating margin narrowed to 0.1 percent in the second quarter of this year, from 14 percent in 2010, according to data compiled by Bloomberg.

“A return to investment grade should happen at the same time as we work to improve our margins and generate cash,” Osorio said. Latam is rated BB, two levels below investment grade, both by Standard & Poor’s and Fitch Ratings. Fitch has a negative outlook for the airline.

The carrier expects to close the year with a drop in capacity in Brazil of about 1 percent, recovering slightly in 2015, Osorio said.

Latam is still elaborating its capital expenditure budget for 2015, the executive said. An estimate made in May by Fitch Ratings of $2.5 billion in investment for next year is “a bit high,” Osorio said.

To contact the reporters on this story: Javiera Quiroga in Santiago at jquiroga5@bloomberg.net; Eduardo Thomson in Santiago at ethomson1@bloomberg.net To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net James Attwood, Philip Sanders.

Photo Credit: Chile’s LAN, already a member of oneworld, completed a takeover of Brazil’s TAM last year, creating Latin America’s biggest airline. LATAM Airlines