Northwest Airlines Annual Report 1951

ANNUAL REPORT
A WORLD OF EXPERIENCE
OVER 25 YEARS
OFFICERS AND DIRECTORS*
OFFICERS
CROIL HUNTER President
MALCOLM S. MACKAY Executive Vice President
E. I. WHYATT Vice President and Comptroller
FRANK C. JUDD Vice President--Operations
LINUS C. GLOTZBACH Vice President and Assistant to the President
AMOS CULBERT Vice President--Sales
A. E. FLOAN Vice President and Secretary
L. S. HOLSTAD Treasurer
D. J. KING Regional Vice President--Orient Region
WM. J. EIDEN Assistant Treasurer
C. L. STEWART Assistant Secretary
DIRECTORS
MORTON H. FRY Partner, Riter and Company, New York City**
WM. TUDOR GARDINER Chairman, Board of Directors, Incorporated
Investors, Boston, Mass.
ROBERT M. HARDY President, Sunshine Mining Co., Yakima, Wash.
CROIL HUNTER President, Northwest Airlines, Inc.
JOSEPH T. JOHNSON President, The Milwaukee Co., Milwaukee, Wis.
MALCOLM S. MACKAY Executive Vice President, Northwest Airlines, Inc.
DR. CHARLES W. MAYO Mayo Clinic, Rochester, Minn.
ALONZO PETTEYS Vice President and Director, Farmers State Bank,
Brush, Colorado
C. FRANK REAVIS Partner, Hodges, Reavis, McGrath, Pantaleoni and
Downey, New York City**
ALBERT G. REDPATH Partner, Auchincloss, Parker & Redpath,
New York City
W ILLIAM STERN President, Dakota National Bank, Fargo, N. D.
PRINCIPAL REGISTRAR
PRINCIPAL TRANSFER AGENT
CO-REGISTRAR
GO-TRANSFER AGENT
THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, N. Y.
BANKERS TRUST COMPANY, NEW YORK, N. Y.
HARRIS TRUST AND SAVINGS BANK, CHICAGO, I-LLINOIS
THE FIRST NATIONAL BANK OF CHICAGO, CHICAGO,
ILLINOIS
GENERAL OFFICES: 1885 UNIVERSITY AVENUE, ST. PAUL 4, MINNESOIA
*As of April 9, 1952
**Subject to approval of Civil Aeronautics Board
NORTHWEST AIRLINES IN 1951 . . .




*


*

Produced net earnings of $1,785,671
Increased operating revenues by $2,228,360
Increased passenger revenues by $2,044,370
Increased passenger load factor 13.1 per cent
Reduced bank loan by $4,000,000
Paid dividends totaling $442,572 on 4.6 per cent cumulative
preference stock
Established new daily round trip Stratocruiser service between
the Twin Cities and Washington, D. C.
Took over flight and maintenance operations to help Japanese
establish new intra-Japan airline
Applied for Orient route extensions which would add 12,000
miles to our network




*


*

WORLD OF EXPERIENCE . . . . OVER 25 YEARS
TO THE SHAREHOLDERS OF NORTHWEST AIRLINES:
FINANCIAL RESULTS
For the year 1951 your company
showed a profit of $1,785,671 after taxes.
This amounts to $1.64 for each of the
820,858 shares of $10 par value common
stock outstanding at the end of the year,
after allowance for dividends on prefer
ence shares. This is the largest profit
ever reported by your company and rep
resents 3.26% per dollar of total operat
ing revenues. Total operating revenues
were 4.25% or $2,228,360 over 1950,
while total operating expenses were
$28,704 under last year.
Passenger revenues of $35,192,765
established an all-time high and showed
a 6.17% increase over 1950. Mail pay
ments from the U. S. Government to
taled $7,788,915 compared with $9,937,-
999 for 1950. Freight and express reve
nues amounted to $4,371,533 as against
$4,122,222 for the previous year.
The passenger load factor over our
entire system was 63.91% compared
with 56.51% for 1950. The Orient pas
senger load factor dropped slightly, al
though 35.52% more Orient passenger
miles were performed, while the Do
mestic load factor rose from 56.70% in
1950 to 65.88% in 1951. Despite a re
duction of 27.00% in total revenue miles
flown in scheduled service, your com
pany flew 98.17% of the passenger miles
flown in 1950.
Operating expenses totaled $51,624,-
821 compared with $51,653,525 the year
before. Your company has recently en
tered into new wage agreements with
certain labor unions which will increase
the cost of doing business. Likewise oth
er costs, such as materials, are rising;
therefore, in 1952 additional revenue
and continuing economy will be required
to sustain a profitable operation. Im
proved utilization of aircraft, increased
sales effort, higher tariffs and rates and
more efficient operations will all be
sought in 1952 to maintain and improve
our earnings.
On December 31st your company's
net working capital totaled $1,920,463.
During the year $442,572 was paid out
in dividends on preference shares; $4.-
000,000 was paid on our bank loan, and
$4,582,188 was invested in additional
aircraft and other capital equipment.
The unpaid balance remaining on our
bank loan was $13,140,363, compared
with $17,140,363 as of December 31,
1950.
At the time the financial report to
shareholders was issued for 1950, the
Civil Aeronautics Board had retroactive
ly adjusted the company's temporary
rates of mail pay for several years ended
December 31, 1950, and tentatively
awarded net additional mail pay aggre
gating $1,572,348 for those periods. In


November of 1951, however, the Board
issued a show cause order reducing such
tentative additional pay by $639,574.
The net effect of this last reduction is
$574,345, after income taxes. The com
pany has adjusted its profit and loss
statements for the years affected to re
flect this latest order of the Board. The
adjustment affects various years, three
of which, 1949, 1950, and 1951, are
shown in this report for comparative
purposes. As of this date, the company
is still operating under temporary mail
rates, but it is expected that final rates
for these years and for the future will
be determined through proceedings now
before the Board.
FLYING EQUIPMENT AND SERVICE
Your company's satisfactory 1951 per
formance, achieved despite a reduction
in the over-all volume of service offered,
was due largely to improved utilization
of all flight equipment, high average
passenger loads, increased popularity of
our luxury Boeing Stratocruisers and a
sharp upturn in business on our Orient
routes.
Gratifying results from our fleet of 10
double-deck Boeing Stratocruisers were
marked by increased daily utilization,
high average passenger loads and en
thusiastic acceptance by the traveling
public.
In addition to the established Strato-
cruiser flights coast to coast, to Alaska
and Hawaii, in 1951 we extended Strato-
cruiser service into Washington, D. C.
Daily round trip flights between the
Twin Cities, Milwaukee, Detroit and
Washington were inaugurated on Sep
tember 30, the 25th anniversary of
Northwest's founding. The response has
been gratifying and the schedules have
shown consistently high load factors.
An important extension of high speed
Stratocruiser service will be made in
April of the current year when we in
augurate flights over the Great Circle
route to Tokyo. The favorable traffic
outlook between the United States and
the Orient reflected in our increased
Orient business in 1951 prompted the
decision to start this service. The new
schedules will cut nearly eight hours
from our present flying time between
the United States and Japan, Formosa
and the Philippines. For example, east-
bound flights can be operated with only
one stop between Tokyo and Seattle
permitting a spectacular schedule of ap
proximately seventeen hours. Initial
operations will consist of two round trip
Stratocruiser flights and one DC-4 flight
per week.
At the end of 1951 we were flying
24 DC-4s in passenger and freight serv
ice in the United States, in first-class
service to and in the Orient, in coach
service between the United States and
Alaska and in military contract opera
tions. During the year three DC-3s were
flying in domestic passenger and freight
service, four more are now in operation
and an eighth ship is being made ready
for service.
Our Martin fleet was removed from
scheduled service in March of 1951 and
although we put in service six DC-4s and
tin ee DC-3s at various times during the
year, the miles flown by these substi
tuted aircraft were not sufficient to cov
er all of the schedules previously flown
by the Martins, thus total mileage was
reduced. Since the removal from sched
uled service, we have disposed of four
teen Martin aircraft and have contract
ed to sell four more to be delivered on
or before May 15, 1952. The remain
ing two Martins are in use in our intra-
Japan airline contract operations as
described later in this report.
ROUTES
In July we filed with the Civil Aero
nautics Board an application for route
extensions in Southeast Asia which
would add 12,000 miles to our network
and bring Northwest Airlines into some
of the richest trade and travel points in
the world.
JAPANESE AIRLINES
In October Northwest signed an
agreement with the 1,500 mile intra-
Japan airline, Nippon Koku Kabushiki
Kaisha, by which we undertook this new
line's operation. In helping to establish
the Japanese carrier, Northwest flies
and maintains the airplanes while the
line's own personnel handles sales, estab
lishment of fares and rates, ticketing and
advertising. As Japanese participation
expands, Northwest will train Japanese
pilots and maintenance mechanics for
operations duties.
KOREAN AIRLIFT
Northwest continued as a prime con
tractor in the Korean military airlift.
Military Air Transport Service figures
show that from July 1, 1950, start of
the lift, to January 1, 1952, we carried
approximately 14,000 passengers and
1,500 tons of cargo and mail between
the United States and Japan. North
west pilots fly two NWA DC-4s and
five DC-4s leased from other airlines,
and up to January 1 had made 655
round trips between the United States,
Tokyo and Korea. The airlift follows
Northwest's Great Circle route and its
flights arc integrated into our operations
without conflicting with commercial
schedules.
The National Capitol, Washington, D.C.
You were informed last year that we
had instituted a suit against the Boeing
Airplane Company on account of late
delivery of aircraft and certain deficien
cies and failures. Subsequently the Boe
ing company filed a countersuit against
us. In 1951 both suits were dropped by
mutual agreement.
OFFICIAL STAFF
The year saw the election of Malcolm
S. Mackay as Executive Vice President
on May 1 and of Frank C. Judd as Vice
President--Operations on May 28. Mr.
Mackay has been a director of the com
pany since 1948. Mr. Judd had been
acting as Vice President -- Operations
prior to his election, and before that
had been Regional Vice President --
Western Region. He has been with
Northwest since 1931.
'
%
One of the most important develop
ments in the history of our company is
now under way. An Agreement of Merg
er was entered into in March, 1952, be
tween the directors of Northwest and the
directors of Capital Airlines, Inc., for
a merger of the two companies. To be
effective, this merger agreement must
be approved by the shareholders of both
companies and by the Civil Aeronautics
Board. The matter will be presented to
Northwest shareholders at the Annual
Meeting of May 19, 1952, and a separate
Proxy Statement is being sent you, giving
full details.
The merger of these two systems
should result in increased strength, ef
ficiency and earning power, and should
substantially benefit all shareholders of
both companies.
CONCLUSION
At this time I wish to express to all
of our shareholders and employees my
appreciation for their loyal support and
cooperation. Such support and coopera
tion inspire confidence that we may suc
cessfully deal with the opportunities and
problems which lie ahead.
By Authority of the Board of Direc
tors,
President and General Manager
Saint Paul, Minnesota
April 9, 1952
Daibutsu, The Great Buddha at Kamakura, Japan, Erected in 1252

and Important News in 1952
jUmneapolt Jilorning tribune
MINNEAPOLIS, MINN., FRIDAY, FEBRUARY I, 1952 Pnce
NWA Plans Immedial
Steps Toward tderg er
Vol. LXXXV--No. 253
By MIBIAM ALBURN'
^A^CaptAirl"te
Pact For Merger^
w Riven lr
n
IWA and Capital
Airlines to Merge
_ .
Northwest and Capital Airlines will be
merging operations immediately, - taking steps toi
Northwest executive
Businessjdilestones A/Torctpr-
Northwest, Capital A.Anes Plan M .
A'
0
^e
te\ ^
olders of Bothjo GetShary^Shave
Plan Awaits
Action ot U.S.,
Stockholders
Friday.
Complete^oining of forces vii
corporation merger by the civ.; ,
stockholders of i i mi " " . i * A i
r IM^S^rWorihwest A
(Lilli ('.|it"l,_'-u1'"
to sharA ^ substantU
,,,, *3TMmen,t
nc
t ^ North- ptrsonncl in ho
Vhs". w TSScSU
11 '
10 BIG MMES E^iX'0
vfA
tfREEOHmCEBr^dV^^
Contii icd From l' : 31
the Twin Cities i ]QQ
Liai bet'
apital'fs the outgro^vUi of locaj
shington and Detroit. Unde i
.nichaels preside
re of the heavy New
rod and New York-P.ttsburg
,, . disposed of mos
ibined Domestic Routes porls
overj^e
Would Equal in Lengthy
py of Nation's idents. and CJ
barnstor
looked up v.'
Hera
Merger of ISortlucest
routes will I fnr-one exchange of ^"`".'because 1
said--such tn
n
n stoclt >n the o\ ^0
Chicago nFTM, which will "-""-^Car^'Shving thA
Northwest the name North^ sloc
u natiohal del ^
Chicago Nettiai Airlines. 'n'h P e
rem
'ath 0Ut"lm
Ste system'
Capital but N<>rlh*Mt
an
Slisaon o! TM`Ulely 2
"He presufctanding as , nolh companies
11 think nfr-erccd cornua agreement. he
t
^"Uandja^
r<SZ
Mit it Capital Voted by
Airlines
Hoards
>' a
<iN a' ,, <nc'/7aviation, approvet
>pO` both companie
\ ^
\to i merge Cap-imaintain substantially i
North-jperS
onncl in both the T
eon con*!and in Washing
V
nichacl.jth

v
^n
;tal L!neS
K J \*' --^tf2vresident*ami chief e>
plan Mer^er
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ny. which will be ii
\ r,r- The ritferred slock na..t.nal 1 v g
\ \iU ^
THE MINNEAPOLIS STAR
i doing
common shares
compared with 52 02
Capital. | previous year,
e officer. | Capital, which
,, filed immediately gross animal busi
ironautics Board seeking ap- | 1910. when i ' j
r-ann rrentlv. appl
. ~r
general currer
Iholdci
_ calls fo; tereste
.ancc of com-,pedited
mon stoex m me merged com- orcau-e
panv. whicli will he meorpotated f..ilitic-
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Capital Airline
vt
\\on^ate
yotV^oW^'
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Capital and Northwest Airlines
raw Up Plans for Merger
; and other W
ith short-
ill t ght. luci
ss. has been plac
iul troubles, la
es which have
MINNEAPOLIS, MINN. FRIDAY, FEBRUARY 1, 1952
operate approxi- four i then
It
By S. Oliver Goodma
' the largest
ould join th
with the Mid
It also would
Orient
the Twin Cities, and th
rngthened. But the irai
ould add an
.. officer. It 1
the maemtud
company's opi
ill cnab
ilement prev
Covert
(idoVion Wou'd
Ooit*0 ' . jni
M'ie ^/t!,ecoun'r^
i for the merger of Capi- now President and general
lines and Northwest Air ager of Northwest Airlines. Pr
l into what is expected toiident will be James H- t
third largest American nuchael. Capnafs president,
ansport system were an The merger pgreement c
\ed last nigh! for " one for-one exchange
ictors of both companies common stock-^^-
pproved details of Ihe eon VhrP"lc'1
application
A^S
1N
W
Uorq^'
immedu
KortlHvesl
aero^
beco^.
L
omeS"c
roa
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terTriS y compn'':i>ber se
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Cap>1 A
Pa
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only vs
in oyetseas .ld
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.nnoUI' w --
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l for the.
sharesp Cal
up 50 ,
,;c
anV' trad^dp big f
'Stock ET
tal which first among th
rs espoused the cause ot
U oducing this low-cost se
er scheduled domestic carne
veral month-
i had been fl> -c
juple of vears. But Capital
e pn aident of traffic
ravel now may
with first class ;
X
the most alert
I probablv hav<
ged company.
Merger to Make
N W A-Capital T op
' To Merge with p
I Northwest ILl
Speedy Government
Approval Expected
, M,
of HfSRy
U'ARD Pines
. cip!i:rzn\raio^irhin,
... -- presenled to Ihe if both serrfnn pl.^. Nor'fl"est.k-ort
,
Ic association H'ednestf may be mereon i ', sburh- soontr m
the auation commiitcft *ystem. ni 0ne Sigamicrnc-'
nneapolis Chamber J Plans for tho
ft heir
will consider thcl joinfly bv 71e.rger-
' - h-armicte,,.
Domestic Airline
Proposed merger of Northwest Airlines and
Capital Airlines, as approved by directors of both ^ ^
companies, would give the consolidated cat net
Northwest-Capital Airlines the largest domestic
route mileage in the country.
, indicated 5100 milhi
Plans for the merger were announced in a joint state
mem by Croil Hunter, president and general manager ot
Northwest, and James H. Carmichael, president 1 Capua
Homer said total demesne routes ' beserved bt me n
rompanv in ihe Unlied States would be S.0S9 miles. TTus is
mbinalion of Northwest s 3.S90 domestic mileage and Capi.al
The CAB reports domestic
lileage currently flown by L'nit-
1 Airlines is 7.800. and by Amer
ican Airlines 6.515. They are
present domestic leaders.
ombined companies also
meeting Wednesdaf ^f,'7n,('nael, presir
;_ ,
e committee .action/and Cro`l Huntrr r\-0t Capitabrhursc
any `public President comes as a Thr 1
North
; before the \
ness in 1940.
i about 51 m
comes a su
J been b^2
Jna'Jl'>,h
C,rc,es <ba7
] cent weeks fn rumors jn
re^j
I hne. Xat1'^"'bllrrh horn
I r>... . cen opera* ' ~*rJmesfic
Pittsburgh . , n
^
w'csr. one 0
f the 1?27: North-Lr
isent Networks I h-es. added P,rt
;h ^?.s oldest&/
I franscominenfui 'sf>,|,rSh to irai .
l,chJ Between
,,T"_f.a! route in
I9j8 f APProv;
ihe East Coa
Between vva'u- route
I^K i
-, Stnrra ^ 'be ro^'*TM n-t^h#W
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P'",;
^.Cap'AaVs
rAo-o-'"-
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,(;
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iUortb'51; '
p\tal N'
covering
acre Pn
n
\\ne
it'
Route Mileage
Will Double
, <>*
.ge'be1
on'O" i
All""
ST PAUL, Minn.-
Norlh,a4 Air Lu
1 Airlines, z
of both i
Merger
and Capita
uthonzed by director
companies, would
consolidated carrier. North
Capital A
4/r Co,
e(fera/
Fliett
} addition
ffshurgh
Pitts-1
Orient
service through/
Plans
Paul-MinneapJ r'r'^rfh. Northwest ri:"Ui
v^Zi'hr '"'sZZ rz: ,r^r ^
mpeg Can..-l| ha
,
Capita.
I head.
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nlheFarvvg Capiiii^--A huariers
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AO\Xa'V',hen.,ral ^`ebnnslfeneral m
am
sw*Vft553&Sj
id5
Rec
Svf
dn ,
Northwest, Capital Airlines To Merge
>ncZyct
Zr*o.
I uuuuaien carrier. NorlhweslY fl"'^he^h/e,. nfofLlrf/J.lcompanies imp a mam new air-
\UHE F^ARGO FORUM
WASHINGTON. (UP) -- Capital
and Northwest airlines last night
announced plans to merge Ihe two
companu
yo' <*,,
e
-qua
setter ^
.\nR
Y .^."^edb'*
,old b'0: r'.nf'
wUP *
equip10*1
C T>oUr?r
A\xali0t'
(,-i
p-for-onc exchange of /-om-1 Ixxjnded by New York New Or-
stock in the merged com- lrans and Minncapohs-St. Paul,
pany Northwest Airlines prefer- ^,nn Northwest flies a transcon-
" " ' ` IQ.
AND DAILY TRIBU
Mor
sre.nd ciw. MM. FARGO N D,, FRIDAY MORNING, FEBRUARY 1,1932 --
IPimi JND NW AIRLINES TO MERG
Eighteen Pagea Price Five On
SV, , \1
C xb
Ian tr
wo Ai
Is Anm
^orlliw cs
Combinn
ub)eC'
$ 6,444,634
CURRENT ASSETS
Cash
Accounts receivable:
For transportation (including U. S. Government
accounts of $3,098,885)
Other current accounts
$ 5,163,187
1,460,570
Less allowance for losses
Inventories of repair materials and operating supplies
--at average cost
Other current assets:
Prepaid insurance, rent, taxes, etc
Recoverable federal income taxes and interest ....
Property expenditures deemed reimbursable from
Cash and other Collateral Accounts-security to
long-term debt ($276,520 released January,
1952)
TOTAL CURRENT ASSETS
OTHER ASSETS
Cash and other Collateral Accounts--security to
long-term debt, less amounts ($652,370) deemed
reimbursable to working capital during 1952 for
prior property expenditures (as defined)--Note A
Sundry related business investments (at cost -- no
quoted market), deposits, advances, etc
$ 6,623,757
50,000 6,573,757
1,239,009
$ 793,365
106,211
652,370 1,551,946
$15,809,346
$ 490,720
268,414 759,134
PROPERTY, PLANT, AND EQUIPMENT--on the basis of
cost (including $10,530,708 amortized to residual
amount of $230,263)---Notes A and B
Land
Cost
$ 31,595
Depreciation and
Amortization
Allowances Balance
$ 31,595
Aircraft and reserve ccjuipment... 39,079,139 $16,043,890 23,035,249
Conversion costs on leased aircraft 1,838,913 1,658,971 1 79,942
Buildings on land not owned .... 3,076,143 827,545 2,248,598
Other buildings and equipment.... 5,819,257 3,059,337 2,759,920
Improvements to leased property
Work in progress
1.116,815
395,458
1,025,724 91,091
395,458
Non-operating property 6,619 3,023 3,596
$51,363,939
DEFERRED CHARGES
Training and other costs in connection with the
Boeing fleet, less accumulated amortization (over
life of fleet) of $254,545
Long-term rental prepayments
$22,618,490 $28,745,449
$ 542,579
146,598
28,745,449
Other deferred charges 13,558 702,735
$46.016,664
See accompanying Notes to Financial Statements.
CURRENT LIABILITIES--Note C
Accounts payable and accrued expenses:
Trade accounts
Refund of mail pay claimed by U. S. Government
Salaries, wages, and vacation compensation
Air travel contract deposits--gross
Pay roll taxes and taxes withheld from employees' wages
Retirement plan contributions, including amounts withheld from
employees' wages--Note E
Savings bond and other deductions from employees' wages
Dividends on 4.6% Cumulative Preference Stock payable February
1, 1952
Accrued local taxes
$ 4,177,424
639,574
2,347,362
578,425
415,770
80,417
104,336
110,643
338,317 $ 8,792,268
Unearned transportation revenue--estimated
Federal and state taxes on income--estimated--Note F
Current maturities of long-term debt, less $1,000,000 due January 1,
1952, paid in November, 1951
863,826
1,232,789
3,000,000
TOTAL CURRENT LIABILITIES
$13,888,883
LONG-TERM DEBT--secured--Note A
4% Notes payable to banks under Credit Agreement--less current
maturities of $3,000,000 10,140,363
DEFERRED CREDIT
Unearned interest income 15,893
CAPITAL STOCK AND SURPLUS--Note G
Capital stock:
Cumulative Preference Stock, par value $25.00 per share;
authorized 600,000 shares issuable in series:
4.6% Cumulative Preference Stock Series; authorized and
issued 390,000 shares; entitled upon liquidation (voluntary)
or redemption to $25.75 per share to May 1, 1953, thereafter
to $25.25 per share, plus accumulated unpaid dividends;
convertible to January 1, 1957, into one and one-half shares
of Common Stock for each share of 4.6% Cumulative Pref
erence Stock--Note C:
Outstanding 384,845 shares after deducting 5,155 shares
permanently retired through market fund purchases .... $ 9,621,125
Common Stock, par value $10.00 per share--Note FT:
Authorized 3,000,000 shares; issued and outstanding 820,858
shares 8,208,580
Capital surplus (after deduction of $560,625 for part of dividends
paid on 4.6% Cumulative Preference Stock)--see statement of
surplus 2,821,033
$20,650,738
Earned surplus--see statement of surplus 1,320,787 21,971,525
CONTINGENT LIABILITIES^--Note I
COMMITMENTS--Note J
$46,016,664
See accompanying Notes to Financial Statements.
NORTHWEST AIRLINES, INC.
Year Ended December 31,
OPERATING REVENUES
Transportation:
1949 1950 1951
Passengers
Mail, including amounts from foreign govern-
$27,873,942 $33,148,395 $35,192,765
ments--Note D 8,508,884 10,469,715 8,408,679
Express, freight, and excess baggage 3,426,022 4,388,119 4,648,127
Charter and other 74,626 227,007 305,159
Pacific airlift for the U. S. Government--Note L .... 3,969,670 5,723,548
Repair and service income, rents, etc.--net 87,273 253,794 406,782
OPERATING EXPENSES--Note E
$39,970,747 $52,456,700 $54,685,060
Flving operations $11,139,374 $15,654,788 $15,109,156
Ground operations 5,710,053 6,385,189 6,734,534
Maintenance and repairs 7,970,909 12,024,822 11,837,319
Passenger service 2,252,960 2,903,744 3,382,318
Traffic and sales 3,608,294 3,984,494 4,200,676
Advertising and publicity
Administrative and general, pay roll taxes, property
1,353,129 1,442,156 1,281,198
taxes, etc 2,926,360 3,360,158 3,623,099
Provision for depreciation and amortization
Provision for doubtful accounts, adjustments,
3,981,713 5,873,247 5,428,593
recoveries, etc 35,983 24,927 27,923
$38,978,775 $51,653,525 $51,624,821
OPERATING PROFIT
OTHER INCOME
$ 991,972 $ 803,175 $ 3,060,239
Interest on marketable securities 23,307 7,235 126
Discounts and interest earned 55,473 70,529 77,921
Profit from disposals of property--net 19,737 129,850 481,055
Profit from sale of surplus parts inventories 120,210 69,430 111,281
Sundry 34,909 51,714 10,126
OTHER DEDUCTIONS
Interest and debt expense:
$ 1,245,608 $ 1,131,933 $ 3,740,748
Interest on long-term debt $ 377,101 $ 772,026 $ 619,971
Other long-term debt expense 35,179 13,121 33,625
$ 412,280 $ 785,147 $ 653,596
Other interest expense 5,187 13,803 127
Route extension and development 5,369 5,905 2,314
Sundry 45,653 59,883 99,040
$ 468,489 $ 864,738 $ 755,077
PROFIT BEFORE TAXES ON INCOME
TAXES ON INCOME--Note F
Estimated federal and state taxes on income (no
$ 777,119 $ 267,195 $ 2,985,671
excess profits taxes required)
Reduction in taxes on income arising from carry-
$ 310,000 $ 135,000 $ 1,425,000
forward of operating loss of prior year 310,000 135,000 225,000
$ $ $ 1,200,000
NET PROFIT--Notes K and L $ 777,1 19 $ 267,195 $ 1,785,671
See accompanying Notes to Financial Statements.
CAPITAL SURPLUS
Balance at beginning of year (1949 after deduction
of $336,375 for part of prior dividends paid on
4.6% Cumulative Preference Stock) $ 3.007.242 $ 2,782.992 $ 2,821,033
Additions :
Excess of par value over cost of 5,155 shares of
4.6% Cumulative Preference Stock permanently
retired through market fund purchases 37,979
Excess of cash received over par value of 50
shares of Common Stock sold from treasury .... 62
Cash dividends on 4.6% Cumulative Preference
Stock, 57.50 cents per share for the two quarters
ended May 1. 1949, during which there was no
$ 3,007,242 $ 2,821.033
earned surplus available for dividends 224.250
Balance at end of year (after deduction of $560,625
for part of dividends paid on 4.6% Cumulative
Preference Stock)
EARNED SURPLUS
$ 2.782,992 $ 2.821.033
Balance at January 1, 1949, as previously reported....
Deduct retroactive adjustments of mail pay, pro
visions for depreciation, war contract costs, rent.
$ 108,778
and related taxes on income--Note K 396,458
Adjusted balance at beginning of year ($ 287,680) $ 265,189
Add net profit for the year 777,1 19 267,195
$ 489,439 $ 532,384
Cash dividends on 4.6% Cumulative Preference
Stock:
57.50 cents per share for the two quarters ended
November 1, 1949 $
$1.15 per share for the four quarters ended
November 1, 1950, and 1951
28.75 cents per share for the quarter ending
February 1, 1952. declared but not paid in 1951
: 224,250
$ 444,053
$ ; 224,250 $ 444,053
Balance at end of vear $ 265,189 $ 88,331
$ 2.821,033
$ 2,821,033
$ 88.331
1,785,671
$ 1,874,002
$ 442,572
110,643
$ 553,215
$ 1,320,787
( ) Denotes red figure.
See accompanying Notes to Financial Statements.
December 31, 1951
NOTE A--BANK CREDIT AGREEMENT
The Credit Agreement with banks (with which
Reconstruction Finance Corporation has agreed upon
request of the loaning banks to purchase a partici
pation in the loan) requires annual fixed payments of
$4,000,000 in equal installments on the first days of
each calendar quarter. Additional payments, in
determinate in amount and contingent upon happen
ings specified in the Agreement, also may be required.
The loan is secured (a) by chattel mortgages on
NOTES (Continued)
certain flight equipment which at December 31, 1951,
was carried in the accounts at a depreciated cost of
$19,333,571; (b) by mortgages on certain hangars
and other improvements at airports at Minneapolis,
Minnesota, and Seattle, Washington, carried in the
accounts at December 31, 1951, at a depreciated
cost of $1,228,738: and (c) by Cash and other Col
lateral Accounts aggregating $1,143,090 which in
clude the note and chattel mortgage referred to
in Note B. Under certain conditions, among other
things the replacement of the released or destroyed,
or the repair of damaged, property and/or equipment,
monies in the Cash Collateral Accounts may be
released to the Company.
Under the Credit Agreement, the Company also
is required to maintain as additional security for the
payment of principal of and interest on the loan, a
Cash Collateral Account, which at all times, shall
be equal to the excess of the unpaid balance of the
loan over 80% of the depreciated cost of all flight
equipment. At December 31, 1951, no amount was
required as such collateral.
The Company has covenanted that, among other
things, it will not permit the excess of current assets
over current liabilities (exclusive of current maturities
of long-term debt) at any time to be less than
$4,000,000.
B--MARTIN 202 FLEET
At December 31, 1951, the Company had retained
eleven of its fleet of Martin 202 aircraft withdrawn
from scheduled operations in March, 1951; and these
were under lease to and operated by Transocean Air
Lines, Inc. The remainder of the fleet had been
sold or otherwise disposed of. Three of the aircraft
were sold to Transocean Air Lines, Inc. for a con
sideration including a note on which there was a
balance of $476,799 owing at December 31, 1951.
That note and chattel mortgage on the aircraft secur
ity thereto had been deposited as part of the security
to the Company's long-term debt.
The Company's investment (net carrying amount)
in the aircraft leased to Transocean Air Lines, Inc.,
and other related spare engines and parts, aggregated
$3,169,205 at December 31, 1951.
The Company is presently completing arrangements
for the sale of nine of the retained aircraft and related
spare engines and parts for approximately $3,175,000,
which is in excess of the net carrying amount of all
such flight equipment. In the opinion of the manage
ment of the Company, the amount ultimately realiz
able through sale, exchange, or other disposition of
the remaining two aircraft and related spare engines
and parts will be not less than the net carrying
amount.
C--MARKET FUND FOR 4.6% CUMULATIVE
PREFERENCE STOCK
So long as any of the 4.6% Cumulative Preference
Stock is outstanding, the Company is required to set
aside on or before March 31st in each year to and
including 1957, an amount equal to 10% of its net
earnings (as defined) for the preceding calendar
year, but not more than 3% of the par value of
such Stock theretofore issued. Such funds are to
be used to purchase such Stock on the market at a
price not exceeding $25 per share exclusive of
brokerage charges and taxes. Any funds not so
applied during the twelve months period following
the date of having been set aside will revert to the
Company. After 1957, other, and cumulative, sink
ing fund provisions become applicable.
Pursuant to the foregoing provisions, the Company
is required to set aside $76.875 on or before March
31, 1952.
During any period while the Company is in default
with respect to payment of dividends on the Cumu
lative Preference Stock, the Company shall not
purchase any of such Stock except pursuant to an
offer to all holders thereof and shall not redeem less
than all of such Stock then outstanding.
D--MAIL TRANSPORTATION COMPENSATION
The Civil Aeronautics Board in orders issued in
April and November, 1951, tentatively and retro
actively adjusted the Company's mail transportation
compensation for the period September 26, 1946, to
December 31, 1950, as to international routes, and
for the period December 8, 1947, to December 31,
1950, as to domestic routes. The order made in
April was issued prior to the closing of the accounts
for 1950; and $1,076,009 for additional compensation
awarded in that order and the income tax effect
thereof were reflected in income reported for that
year. The remainder ($358,483 after related federal
income taxes) of the April award, and the net
decrease of $574,345 established by the order issued
in November, have been reflected in the Statement
of Profit and Loss insofar as they pertain to 1949
and 1950 (See Note K). The Board has issued
orders directing the Company to show cause why
the tentative findings should not be made final.
The Company's rate of mail transportation com
pensation for the year 1951 is temporary. The final
rates for that year will be determined through pro
ceedings now being conducted before the Board. The
Company believes that any changes which may result
would not be material.
The Company received $371,352 in 1951 and
$361,526 (part of the retroactive mail transportation
compensation awarded by the Board in its order of
April, 1951) as partial reimbursements for loss of
profits and additional costs occasioned by the
temporary withdrawals from operations in 1949 and
1950 of the fleet of Martin aircraft. The remainder
($1,022,963) of such loss of profits and additional
costs is involved in proceedings being conducted by
the Board in which it is proposed that commencing
January 1, 1952, the Company should not receive
mail transportation compensation in excess of a
service rate for the domestic routes. A determination
to that effect would affect the Company's right to be
reimbursed in the future for the aforementioned
amount of $1,022,963, which has not been included
in the financial statements.
E--EMPLOYEES' RETIREMENT PLAN
In 1946, the Company instituted an uninsured
contributory trusteed employees' retirement plan.
During the period covered by the Statement of Profit
and Loss, contributions by the Company charged
against income for its share of the cost of the plan
were as follows :
Past Service Future Service
Benefits Benefits
1949 $18,600 $238,700
1950 18,030 271,440
1951 14,960 300,340
As of September 30, 1951, the Company's actuary
reported that the indicated maximum liability of the
Company for unfunded past service benefits was esti
mated to be $557,789. This sum, at the discretion of
the Company, may be paid to the Trustee in variable
amounts each year. It is presently being funded over
a period estimated not to exceed twenty-five years from
October 1, 1946, the effective date of the plan. This
liability for past service contributions will be re
duced each time a participant dies or leaves the
Company's employ prior to reaching normal retire
ment age.
NOTES (Continued)
F--TAXES OX INCOME
The Company's federal and State of Minnesota in
come tax returns have been examined and settled
through December 31, 1948: however, recoverable
federal taxes on income arising from a retroactive
mail pay reduction in 1951, together with interest
thereon as well as interest on tax refunds of years set
tled. have not yet been collected from the U. S. Gov
ernment.
G--RESTRICTIONS ON DIVIDENDS
Under provisions of the Credit Agreement (Note A)
the Company may not, without the prior written con
sent of the representative of the lending banks and
the Reconstruction Finance Corporation, pav divi
dends (other than stock dividends) on, or purchase,
retire, or redeem anv of its capital stock except that
(a) 4.60 Cumulative Preference Stock may be re
tired (Note C): and (b) dividends on such class of
Stock may be declared and paid to the extent that
the net improvement at the date of the declaration
thereof in the earned surplus since March 31, 1949,
exceeds $224,250. At December 31, 1951, such
improvement in earned surplus amounted to $2,470,-
729. However, under the covenant to maintain not
less than $4,000,000 net current assets (See Note A)
the amount free for dividends on 4.6% Cumulative
Preference Stock at December 31. 1951. was $920.463,
the excess of net current assets at that date over the
amount required to be maintained.
The terms of the Cumulative Preference Stock also
contain restrictions relative to dividends on and re
purchase of Common Stock which are less limiting
than those contained in the Credit Agreement.
H--COMMON STOCK RESERVATIONS AND
OPTIONS
Of the 2,179,142 shares of unissued Common Stock:
(a) 577,267J/a shares were reserved for conver
sion of the 4.6% Cumulative Preference
Stock :
(b) 14,800 shares were reserved for options
which may be granted in the future to offi
cers and employees; and
(c) 15,147 shares were subject to outstanding op
tions (at prices approximately market at the
time the options were granted) as follows:
(i) 5,147 shares at $10 per share to Jan
uary 10, 1954;
(ii) 10,000 shares at $11.25 to October
23, 1955.
I--CONTINGENT LIABILITIES
The Company is involved in a number of lawsuits
as follows: (a) those in which any claims paid by the
Company will be fully reimbursed by the LE S. Gov
ernment under terms of various war contracts; (b)
those in which any claims paid by the Company will
be fully reimbursed under insurance contracts; and
(c) other miscellaneous claims of approximately $710,-
000 in excess of insurance coverages and approximate
ly $76,000 which are not covered by insurance or other
indemnification which the Company believes will be
settled without material effect on its financial position.
J--COMMITMENTS
The Company's commitments for capital expendi
tures at December 31, 1951, amounted to approxi-
mately $1.180,000 of which approximatelv $1,090,000
were for spare parts and assemblies for flight equip
ment. The Company had no material long-term lease
commitments.
K--RESTATEMENT OF PRIOR YEARS' PROFIT
AND LOSS AND SURPLUS
The results of operations for the years 1949 and
1950 dift'er from the amounts originally reported for
those years by reason of retroactive application to the
years affected of adjustments recorded through profit
and loss and/or earned surplus accounts in 1949, 1950,
and 1951. A reconcilement follows:
1949 1950
Net proft or loss originally
reported $1,357,679 ($493,961)
Additional income or
deductions :
Retroactive mail pay adjust
ment and related income
taxes recorded in 1950
(See Note D) 312,996
Retroactive mail pay adjust
ment and related income
taxes recorded in 1951
(See Note D) (
Adjustment of provisions
for depreciation in re
spect of station commu
nication equipment, ve
hicles, and Martin 202
radio equipment (
Adjustment of war con
tract costs and related
income taxes (
Overaccrual of rent (
Income taxes
682,059) 794,627
162,293)
28,850) ( 33,471)
52,647)
32,293
Net profit adjusted $ 777,119 $267,195
( ) Denotes loss or deductions.
In addition, earned surplus at January 1, 1949, as
originally reported, was reduced by $396,458 for por
tions of the items described above that affected prior
periods.
L--RENEGOTIATION OF PROFITS
Operations of the Company for 1950 and 1951 in
cluded transactions under fixed price contracts with
the LE S. Government which provide for price rede
termination and renegotiation of profits. Price re
determinations have been settled through June 30,
1951, and no material changes are anticipated for the
six months ended December 31, 1951. The effect of
renegotiation of profits is indeterminable at this time.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Northwest Airlines, Inc., Saint Paul. Minnesota
We have examined the balance sheet of NORTHWEST AIRLINES, INC., as of December 31, 1951, and the
related statements of profit and loss and surplus for the period of three years then ended. Our examinations
were made in accordance with generally accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as we considered necessary in the circumstances.
It was not possible to confirm by communication accounts receivable from certain U. S. Government departments
and agencies, as to which accounts we satisfied ourselves by other auditing procedures.
In our opinion, the accompanying balance sheet and related statements of profit and loss and surplus present
fairly the financial position of NORTHWEST AIRLINES, INC., at December 31, 1951, and the results of its
operations for the period of three years ended at that date, in conformity with generally accepted accounting
principles applied on a consistent basis.
Saint Paul, Minnesota
March 14, 1952
ERNST & ERNST
Certified Public Accountants
SHANGHAI
DAI R N
HARBIN
MUKDEN
KOREA
TOK1IO
HE
HILIPPINES
OKINAWA
iNIL A
HONG KONG P U I Ai A O
NO ROUND U n I ri H W "
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LEGEND
Note:
HAWAII
HONOLULU
Ivii-r*
I HE President's Letter refers to a proposed
merger between Northwest Airlines, Inc., and
Capital Airlines, Inc. This map shows the
routes presently certificated to Northwest Air
lines and to Capital Airlines and indicates the
complementary route structures of the two
systems.
Northwest Airlines Routes
Presently Operated
Capital Airlines Routes
Presently Operated
Northwest Airlines Routes
Certificated but not Presently Operated
Connecting Airlines
Seoul, Korea, is presently being
served through Pusan.
CALENDAR
YEAR `
J?Sc CJemJ
$4,371,533
4,122,222
602,220,853
613,446,244
495,114,870
386,509,809
9,142,552,000
9,975,120,154
9,445,597,392
8,052,148,614
5,473,873,894
4,099,317,238
19,531,632
$35,192,765
$8,408,679
26,868,177
33,148,395
27,873,942
9,409,526
25,908,552
3,163,278
9,039,154
24,074,778 2,072,362 22,288,002
20,824,912
19,304,234
8,444,106
1,019,497
553,875
409,613
382,544,382
385,858,473
218,469,773
20,520,631
18,062,492
10,060,619
6,073,967
4,018,340
1,254,257
5,396,757,098 12,870,714
,649,575
246,030
297,941
240,800
118,885
79,531
120,834,296 4,900,802,947
4,005,180,807
2,528,042,954
1,871,311,191
1,370,076,043
7,523,146
1,500,874
3,139,713 63,787,683
52,061,159
59,659,145
51,175,254
4,584,766
1,353,822
2,410,512
2,526,721
4,931,815
,850,601
6,353,659
1,955,826
2,151,311 6,079,669
1,769,735
61,186
1,324,728 34,749,246 1,166,518,244 5,399,024
1,763,288
829,554 41,625 21,153,258 1,116,975,430 5,310,015
1,286,549
761,839 33,768 16,685,852 841,274,933
1,076,293 4,462,439
759,981 27,318 16,528,401 671,011,789
1,050,639 3,699,818
481,528 12,388 10,342,834 315,817,803
629,724 2,841,198
1,643,127
199,074 4,319 4,301,145
251,133 44,034,248
82,613,032
188,966 4,108,313
4,127,800
762,208 1,823,850
200,984 77,867,566
884,719 1,639,015
205,164 3,934,093
917,635 89,706,330 1,434,555
119,349
648,799 2,129,600 Not Avail 1,032,340
121,075 Not Avail.
495,708 1,956,400 736,664
24,890
195,315 402,400
126.000
314,496
,663
76,029 211,667
47,397
3 Months, 1926
MAIL
REVENUE
PASSENGER
REVENUE
MAIL
POUND
MILES
TOTAL
PLANE
MILES
FLOWN
REVENUE
PASSENGER
MILES
m&mt
EXPRESS
AND FREIGHT
REVENUE
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