Northwest Airlines Annual Report 1964

NORTHWEST AIRLINES, INC.
Total Operating Revenues
Operating Income
. -et Earn in gs for the Year
Per Common Share
Stockholders Equity
Per Comm,on Share
Dividends Paid
Operating Expenses-
Per Available Ton-Mile
Per Recenue Ton-Mile
Revenue Traffic-
Passengers Carried
Passenger-\:files Flown
Ton-\files, ~laiL Freight
and Express
Common Shares at Year End
0 Reflecting two-for-one split
in 1964
1964
$211,610,431
$ 53,131,117
$ 26,785,523
$5.86
$122,959,586
$26.91
$ 2,601.682
18.5
39.7
3,663,077
2,668,812,000
93,356,000
4,568,634
Employees at Year End . . . . . . . . 6,671
1963
$168,788,040
$ 25,915,517
$ 10,452,957
$2.861)
$ 68,435,947
$18.761)
$ 1,822,656
21.7
46.8
2,911,914
2,179,208,000
73,082,000
3,648,904~
6,090
1964
Highlights
TO THE STOCKHOLDERS :
from
the
president
W e are pleased to report the highly successful results achieved by
Northwest Airlines in 1964. During the year, substantial progress was made
in strength ning the Company in every facet of its operation.
W e grew strong through greatly increa ed revenues, passing by good
margin the $200 million mark for the first time. W gained competitive
strength by exceeding the industry rate of passenger traffic growth.
Our 22.5 per cent increase carried us well over 2.5 billion revenue passenger-
miles. Cargo traffic spurred our revenue growth with a 40 per cent in-
crease to more than 50 million ton-miles.
Net earnings of $26,786,000 resulted from the favorable relationship
of record revenues and well-controlled cost level . Operating expenses
required only 75 of each revenue dollar and our unit cost measures
showed marked decline from 1963 figures.
During 1964 -orthwest Airlines broadened its fin ancial structure by
increasing the equity base of the Company to , 123 million. This sound
move toward attainment of a stronger financial condition will insure
even greater development of your Company in the years ahead.
-otable gains were achieved in our service capability in 1964. We
added nin e new fan-jets to our excellent fleet, spanning the full range of
modern aircraft with three new long-range 707-320C's, thr e intermediate
720B's, and three shorter range trijet 727's. At year-end we had on order
five more 320C' and 17 additional 727-type jets.
i\orthwest Airlines improved its operating authority with new routes
awarded by the Civil Aeronautics Board in 1964. In October we began
flights between Chicago and Cleveland and are ready to commence service
in the D etroit-Philadelphia and Cl veland-Philadelphia markets on April 1
of this year. The new route s gments will increase our total traffic and
will provide more convenient access to these important eastern cities
from many of the cities on our system.
Your Company will continue to devote itself to ever-improved service to
the public. We look forward to forth r progress as one of the nation's
leading airlines, and with the continu ed loyal support of our stockholders
we will meet our goals.
Sincerely,
March, 1965
1
2
Continued growth at a rate which paced the air-
line industry keynoted the progress of orthwest
Airlines in 1964. Favorable traffic response to the
improved quality and frequency of our schedules
brought marked revenue gains during the year. In
turn, the stronger financial position attained by
s und, profitable growth has permitted us to assume
an even more significant role in the economic prog-
ress of the communities we serve.
Likewise, Northv,rest's sound financial position is
of immeasurable importance in enabling us to carry
out the national interest responsibilities inherent in
operation of our major international route to the
Far East. Financial ability to purchase and operate
additional modern aircraft has enabled Northwest
to strengthen this bridge to the nations of the
Orient which are so vital to the interests of the
United States.
Financial Results
Net earnings of $26,785,523 in 1964 amounted to
$5.86 per share of common stock, compared with
net earnings of $10,452,957 or $2.86 per share in
1963 ( the latter figure adjusted to reflect the two-
for-one split of common stock in 1964 ).
Record high revenues of $211,610,431 in 1964
resulted, after operating expenses of $158,479,314,
in operating net income of $53,131,117. on-operat-
ing charges in 1964 included interest expense of
$2,187,578. Disposals of property produced a net
gain before taxes in the amount of $912,656. This
figure compared with a loss before taxes from dis-
posal of property in 1963 in the amount of $307,732.
All of the foregoing reflect marked improvement
over the results for 1963, including a 25 per cent
increase in total operating revenues compared v.ith
an increase of 11 per cent in total operating ex-
penses. Favorable financial results permitted re-
duction in interest expense to further improve
Northwest's net earnings result.
In the treatment of our income tax provision, we
are continuing the practice of amortizing over an
eight-year period the net income benefit of the in-
vestment tax credit. Such credits included in net
earnings amounted to $682,800 in 1964, an increase
over the amount of $105,600 credited to income in
1963. There remains an unamortized investment
credit of $6,581,900 to be included in future years'
income. All investment credit amounts available to
the airline as a result of equipment purchases
through 1964 have been realized in cash by reduction of current
income taxes ( See table, Page 15 ).
Operations in 1964 generated a cash flow of $57,865,000 from net
earnings, depreciation and amortization, and the tax reductions
from deferred taxes and the investment credit. An additional amount of
$30,337,000 was realized from the sale of common stock in 1964.
Other cash generation included $6,779,000 from sale of flight equipment
and other property.
The major application of funds during the year consisted of additions
to fleet and advance deposits for aircraft on order, which totalled
$71,194,000. In addition, long-term debt was reduced by approximately
$20,000,000. Other applications included cash dividends paid to
stockholders in the amount of $2,602,000.
Stockholder Dividends and Net Worth
Quarterly cash dividends of 15 per share ( after two-for-one stock
split ) were paid on common stock during 1964.
On February 22, 1965, your directors authorized an increase in the
quarterly dividend to 20 per share, payable on March 31, 1965.
This is the third increase in dividend since the close of 1962 and, at
an annual rate of $.80 per share, represents an actual doubling of the
dividend rate paid through 1962. With the March, 1965, dividend
Torthwest Airlines will have completed 10 years of consecutive quarterly
cash dividends.
Stockholders' equity increased from $68,436,000 to $122,960,000 during
the year just ended, reflecting both the issue of additional equity and
retained earnings for the year. Book value per share of common stock
increased from $18.76 at D ecember 31, 1963, to $26.91 at the
end of 1964.
Financial Position
Long-term debt arrangements remained essentially unchanged during
1964 and outstanding debt at the close of the year amounted to
$45,000,000.
During 1964, our bank credit agreement was revised to place the
maximum credit line at $40,000,000 of which $5,000,000 was borrowed
at year-end. Under the revolving feature of this agreement, the credit line
may be repaid and reborrowed with reductions in maximum credit
to $33,500,000 at December 31, 1966, and thereafter in a series of steps to
fin al maturity at June 30, 1969. During 1964 your Company repaid in
full the conditional contracts of sale for Lockheed Electras and the
subordinated note payable to The Boeing Company.
The note purchase agreements with insurance companies reflect
$40,000,000 in outstanding debt. This loan is subject to repayment
heginning October 1, 1966, with a payment of $3,000,000, and
annual payments thereafter in the same amount to a final payment of
M,000,000 at October 1, 1978.
At year-end Korthwest Airlines had on order five Boeing 707-320C
long-range convertible fan-jet aircraft and 17 Boeing 727 trijet aircraft.
Financing for these aircraft will be available from existing credit
and from internal cash generation.
3
4
Operating Revenues
MILLIONS OF DOLLARS
225 - - - - - - - - - - - - - - - -- - - - - -
55 56 57 58 59 60 61 62 63 64
Break-Even Passenger Load Factor
PER CENT
60 - - - - - - - - - - - - - - - - - - - - - -
55
50
45
40
35
~
0 _ _,___...___.___.,____.____.____.__.....____.__.....___.___.____._____.___._......____._~~~-
55 56 57 58 59 60 61 62 63 64
Expense per Available Ton-Mile
CENTS
30 - - - - - - - - - - - - - - - - - - - - - -
28
26
24
22
20
18
M
0
55 56 57 58 59 60 61 62 63 64
1964
OPERATIONS
S rvice improvements along our varied route
structure with an expanded fleet included, in 1964,
the offering of additional sch dules and increased
capacity. During the year a 15 per cent increase
in revenue plan -miles brought an increase of slight-
ly more than 19 per cent in available seat-miles and
26 per cent in available ton-miles. The latter in-
crease reflects the larger weight capacity in our
growing j t fie t which, in varying configurations of
convertible pas enger-cargo capability, serves to
improve the cargo lift ratio of our schedules. Traffic
respons to these service increases was in favorable
proportion, as the traffic-carried elements rose by
high r p rcentages than reflected in capacity in-
creases.
Passenger Traffic and Revenues
In 1964, orthwe t Airlines surpass d the 2.5
billion passenger-mile mark for the first time, re-
cording a total of 2,668,812,000 system revenue pas-
senger-mile in scheduled service. This was an in-
crease of 22.5 per cent over 1963. Major traffic gains
w re realized on our domestic routes with pas-
enger-rniles up more than 25 per cent, far greater
than the darn stic trunk industry gain of 14 per
cent. Among our major cities showing greater-than-
average rates of increase in passenger boardings
wer highly competitive markets such as Detroit,
Clev land, New York-Newark, Chicago, Milwaukee
and Miami-Fort Lauderdale. As a result of such
gains our proportionate share of U. S. total traffic
increased o that one of every 20 domestic trunk
pa ng r-mil s in 1964 was flown on Northwest
Airlines.
Our irnprov d passenger traffic also reflected it-
elf in another important economic measure, with
a gain in system pa seng r load factor from 50.6
per cent in 1963 to 52.0 per cent in 1964.
System passenger revenues of $163,807,000 were
21 per cent more than in 1963. Our over-all yield
per passeng r-rnile declined slightly from 6.20 in
1963 to 6.14 in 1964. The passenger fare structure
gen rally was stable during the past year despite
the continuance of a number of promotional fares,
and our small drop in average yield came primarily
from a larger percentage of total passenger-miles in
coach or economy service-79.1 per cent in 1964
compared with 74.4 per cent in 1963.
Cargo and Charter Revenues
Our largest percentage traffic gains were realized in the carriage
of cargo. Freight and express ton-miles increased almost 40 per cent
during 1964, reflecting a growing use of our gr ater capacity to
handl large volume shipments of all sizes. The largest gain was
r alized in international air freight with an increase of 50 per cent
over ton-miles carri d in 1963. Mail revenues showed a smaller
increase, due in part to r duced rates for international air mail made
effective by CAB action on October 1, 1964.
Th importanc of cargo in our total r venues is highlighted by the
fact that in 1964, rev nues from mail, freight, express and excess
baggage on chedul d s rvices totalled mor than $33,700,000, or about
on dollar for ev ry fiv of pa s nger revenu .
During 1964 w continu d to serve the military establishment with
an xt n ive chart r contract in the Pacific. Rev nues from th se
military passeng r and cargo flights and from other charters more than
doubl d in 1964, reaching a n w high of $12,965,000. The current
contract with the military extends to Jun 30, 1965, and orthwest
irlin s will se k r n wal in fiscal 1966.
Operating Expenses
D espit further upward tr nds in wage rates and other co ts of
providing service, total op rating exp nses increased only 10.9 per cent
in 1964 in contrast to larg r increas in available seat-miles and
avaHabl ton-miles. Our total operating exp nses for the year
amounted to $158,479,314 including depreciation and amortization of
~22, 51,790. Exp ns in 196.3 were $142, 72,523, with depreciation
and amortization of $19,1.5 , 99.
Total op rating cost xpr s d in units of capacity declin d
from 21.7 per availabl ton-mil in 1963 to 18.5 in 1964.
Cost per revenue ton-mil of traffic carri d was 39.7 in 1964, down
from 46.8 in 196.3, and th pass nger break-ev n load factor
requir d to cover operating xpenses and int rest declined again in
1964 to 35.8 per cent from th level of 41.6 per c nt realized in 1963.
, orthw st Airlines add d approximat ly 10 p r c nt to its labor force
in 1964 to meet the n ds of growing traffic, to implement our
n w dam stic rout and to improv our s rvic to the public.
Furth r increases will be made in our work force as our expanding
r ic s d v lop the n d for such additions.
\ will continue to monitor costs in careful fashion to develop
the low st pos ible operating cost levels consist nt with our goal of
maintaining the finest standards of safe, fficient and comfortable service.
Distribution of Our Revenue Dollar
In 1964 employ es' wages and other benefits absorbed 24.5 of each
revenu dollar. Other principal applications of revenue were taxes
(including income tax s), 13.5; rentals, landing fees and
purchased services, 11.0 ; depreciation, 10.8; fuel, 10.0; and various
other xpenses, 16.5. Dividends and interest accounted for 2.3 of
ach re nue dollar. Th remainder of 11.4 p r dollar was
r inv t d to provide for necessary broadening of our finan cial
tructur , to insure continu d growth in services to the public and
a sound conomic future for your Company.
5
NORTHWEST AIRLINES, INC.
10 YEAR SUMMARY and
SUBSIDIARY
( D ollars in thou and except per hare fi gures )
Operating Revenues 1964 1963 1962 1961' 1960 1959 1958 1957 1956 1955
Passeng r $163,807 $135,222 $121,781 $ 85,971 $ 97,680 $100,641 $ 81,116 $ 66,674 $ 60,264 $ 57,253
\fail 15,313 14,233 14,228 11,701 10,711 11,219 10,228 8,350 7,858 7,090
Fr ight, Exr ress and Excess Baggage 18,402 13,745 11,828 8,443 11,368 11,881 8,667 7,541 7,155 6,124
Chart r and Other Transportation 12,965 6,442 2,646 1,482 823 526 1,237 226 816 111
!\on transport 1,123 (854) (30) 3,456 2,780 1,763 709 641 386 510
Total Operating Revenues $211,610 $168,788 $150,453 $111,053 $123,362 $126,030 $101,957 $ 83,432 $ 761479 $ 711088
Operating Expenses
D precia tion and Amortization $ 22,852 $ 19,159 $ 18,445 $ 17,118 $ 14,413 $ 11,310 $ 8,638 $ 5,851 $ 6,996 $ 6,455
0th r 135,627 123,713 112,802 84,213 104,455 103,811 81,281 72,597 64,888 60,216
Total Operating Expenses $158,479 $142,872 $131,247 $101,331 $118,868 $115,121 $ 89,919 $ 78,448 $ 71,884 $ 66,671
Op rating Incom $ .53,131 $ 25,916 $ 19,206 $ 9,722 $ 4,494 $ 10,909 $ 12,038 $ 4,984 $ 4,595 $ 4,417
0th r Incom and (Deductions)- et (1,125) (4,166) (4,578) (2,828) (1,882) 335 (559) 2,247 1,306 (131)
Earnings B fore Taxes $ 52,006 $ 21,750 $ 14,628 $ 6,894 $ 2,612 $ 11,244 $ 11,479 $ 7,231 $ 5,901 $ 4,286
Incorn Taxes 25,220 11,297 7,398 3,233 986 5,530 5,865 2,412 2,675 2,170
et Earnings $ 26,786 $ 10,453 $ 7,230 $ 3,661 $ 1,626 $ 5,714 $ 5,614 $ 4,819 $ 3,226 $ 2,116
Earnings p r Shar O 0 $ 5.86 $ 2.86 $ 1.99 $ 1.01 $ .45 $ 1.57 $ 2.04 $ 1.73 $ 1.15 $ .75
Stockhold r ' Equity 122,960 68,436 59,712 54,177 52,193 52,267 48,224 33,065 30,172 28,228
Book alu per Share00
.
26.91 18.76 16.40 14.88 14.35 14.37 13.39 11.90 10.79 10.02
Cash Dividends 2,602 1,823 1,702 1,701 1,700 1,714 1,110 1,117 1,110 939
A set and Long-Term Debt
F light Prop rty at Cost . . . . $219,523 $176,655 $169,413 $170,772 $121,441 $104,389 $ 90,608 $ 71,716 $ 51,669 $ 51,109
Flight Prop rty at Ke t Book Value 160,925 127,074 122.980 133,485 86,957 76,647 56,461 43,023 21,692 23,791
Total As et 237,226 196,765 186,887 189,103 148,698 130,097 105,061 76,222 58,337 55,515
Long-Term D bt . 45,000 64,996 74,968 90,286 68,500 50,000 34,250 27,000 13,800 14,500
nit Expen es
P r Available Ton-Mile 18.5 21.7 23.9 27.6 27.8 26.5 26.1 27.4 28.2 28.4
P r R v nu Ton- 1ile 39.7 46.8 50.2 54.2 54.2 51.0 49.0 50.4 48.5 50.0
p r en t of Operating Revenues 74.9% 84.6% 87.2% 91.2% 96.4% 91.3% 88.2% 94.0% 94.0% 93.8%
tati tics-Scheduled Services
R v nu Plane Miles (000) . 52,157 45,356 41,821 31,143 46,671 47,568 39,113 34,742 31,421 30,097
vailabl Seat Mil s (000) 5,129,944 4,305,147 3,697,796 2,611,840 3,073,400 3,149,000 2,574,848 2,125,505 1,807,337 1,746,149
R v nuc Passeng r Miles (000) 2,668,812 2,179,208 1,904,112 1,361,790 1,653,966 1,738,138 1,408,743 1,205,765 1,094,121 1,017,400
Pass ng r Load Factor 52.0% 50.6% 51.5% 52.1% 53.8% 55.2% 54.7% 56.7% 60.5% 58.3%
R nu Passeng r Carried 3,663,077 2,911,914 2,437,342 1,723,667 2,139,547 2,138,970 1,827,129 1,574,035 1,427,063 1,343,337
Freight and Express Ton-Miles (000) 55,100 39,417 35,179 23,035 32,480 31,377 22,285 19,714 18,825 16,341
Total Hevenu ' Ton-M il s (000) 351,886 284,732 254,033 182,704 217,722 225,110 181,678 155,323 145,135 133,531
0 Aff cc:t d by major strik .
0 0 Pcr c.;har figur s r fl ec:l two-for-one stock split in 1964 and con-
version of prcferre<l ~tock a applic< bl in y ar prior to 1963.
6 7
8
FLEET & FACILITIES
Northwest Airlines in 1964 continued to enhance the competi-
tive excellence of its fleet of aircraft.
ine new fan-jets-three more 720B' , three 707-320C's and
three 72Ts- were delivered to th airline by The Boeing Com-
pany. Orders were placed for delivery in 1965 of five additional
320C's and for delivery in 1965 and '66 of 17 more of the three-
engined 727 and 727C, short-to-medium-range fan-jets.
At December 31, rorthwest's well balanced fie t comprised
five 707-320B's and three 707-320C's, for transcontinental and
trans-Pacific passenger and cargo service; 16 medium-range
720B's; three 72Ts; 16 Electra jet-propellor airliners; and six
piston-engined DC-7C and DC-7CF transports.
As part of the airline's program for orderly disposal of older
aircraft, the four remaining pi ton-engined DC-6B's have been
sold and the last will be phased out of -orthwest's operations
and delivered to its buyer in May.
Approval was obtained for operation of 320B and 320C air-
craft on trans-Pacific and Hawaii routes using the Doppler air-
borne radar and self-contained navigation system. With' this
system, the pilot is provided with continuous position ground
speed and drift data, enabling him to conduct hi flight with
maximum safety and efficiency.
Ground Fac ilities
Continued improvement of ground facilities to provide for
greater efficiency and customer convenience kept pace with
Northwest's developments in the air during 1964.
Additional gate facilities and another Top Flight Loader-
providing terminal to jet aircraft passenger boarding protected
from the weather-were installed at Seattle-Tacoma irport,
along with a new passenger lounge. Two Top Flight Loaders to
keep Portland passengers out of the weather whil boarding
Northwest fan-jets were completed early in 1965, and two addi-
tional similar facilities are under construction at Minneapolis-
St. Paul.
New reservations space and a new city ticket office were com-
pleted in Atlanta and a new larg r and more convenient air
cargo facility was occupied at the Atlanta Airport. At Cleve-
land's airport, l WA reworked its facilities in order to handl
increased traffic resulting from new Cleveland route authority.
New Computer
Throughout 1964, communications facilities were improved,
with the addition of more reservations telephone circuits to
accommodate increasing pas enger traffic. Service to Northwest's
customers will be speeded even more through use of a new
Univac 490 Real-Time Computer System, which went "on lin "
on March 1, 1965. This computer, which replaced the nivac
File Computer in use for reservations since 1959, op rates 10
times faster than the old unit and in addition will take over the
automatic switching center fnnctions of i\orthwest's teletype
network. Additional computer applications are planned.
AIRCRAFT
TYPE
JET
707-3208
& 320C
7208
727 &
727C
Total Jet
PROP-JET
Electra
PISTON
DC-7C
DC-68
Total Fleet
0 All DC-6B aircraft have been sold for delivery in 1965.
December
31, 1964
8
16
3
27
16
6
4*
53
On Order
5
17
22
J
22 11:~ 1111 1111 .. 11 11:= 11:~ II INI
II:~!~;~
\__
9
10
HONG <ONG

KOREA
~EOUL .._
THE PHILIPPINES
ALASKA
ANCHORAGE
HAWAII
SYSTEM MAP
NORTHWEST ~.~t~N"!!
CANADA
UNITED STATES
NEW YORK
NEWARK
PHILA DEL PHIA
WASHINGTON 0. C
11
12
Ii
I!
I:
I '
I,
I,
I I
PHILADELPHIA'S historic Independence Hall,
birthplace of the United States. Northwest
Airlines inaugurates service to the City of
Brotherly Love on April 1, 1965.
ROUTES
New route authority granted Northwest Airlines
in 1964 in the Eastern part of the United States will
increase our participation in traffic to and from this
area of heavy population.
As a result of action by the Civil Aeronautics
Board in the United Air Lines Competitive Service
Investigation, Northwest was authorized to add a
new city-Philadelphia-and three new segments
to its route structure east of Chicago. The new
markets are Chicago-Cleveland, Cleveland-Phila-
delphia and Detroit-Philadelphia.
Northwest inaugurated service between Chicago
and Cleveland on October 5, 1964, the effective
date of the Board's route award. An all-fan-jet
schedule pattern will be inaugurated in the Phila-
delphia markets on April 1, 1965, after completion
of ground facilities at this new station.
During 1964, the Board initiated a proceeding
to determine the need for new, one-carrier long-
haul service linking the Pacific Northwest with the
Southwest. Northwest is one of a number of ap-
plicant airlines seeking such route authority. As
established by the Board, the proceeding will in-
volve new route authority between the Pacific
Northwest cities now served by NWA on the one
hand, via Salt Lake City and Denver, and major
cities in Texas, Louisiana, Oklahoma, Kansas, New
Mexico and Southeast Colorado and the cities of
St. Louis and Kansas City, Mo., on the other hand.
While definite procedural dates have not been as-
signed, it is expected the hearing before the Ex-
aminer will be completed in 1965.
The proceeding is of great importance to North-
west Airlines because new, direct routings from
these Southern points to Seattle-Tacoma would
enhance Northwesf s ability to attract Orient traffic
originating and terminating in this growing area.
In an investigation to determine possible revisions
in the airline route structure between the Pacific
Northwest and Alaska, a CAB Examiner has rec-
ommended against any restriction on Northwest
Airlines' operating authority between Seattle-Ta-
coma and Anchorage. Northwest vigorously had
opposed any restrictions on its rights in the mar-
ket. The case now is awaiting Board decision.
In the Service to Spokane Case, despite North-
west's opposition, the CAB awarded West Coast
Airlines nonstop authority between Spokane and
Seattle, competitive with Northwest's service in this
market. In addition, United Air Lines received non-
stop rights from Spokane to Salt Lake City and
Denver. The case has been re-opened for further
proceedings to determine the possible need for
additional nonstop authorizations between Spokane
and Portland. Northwest opposed such awards at a
hearing held early in 1965 and will continue to do
so in further stages of the proceeding.
The Postmaster General early in 1964 petitioned
for a reduction of approximately 50 per cent in the
service rates for international priority mail includ-
ing the .Pacific. The Board's decision, effective
October 1, 1964, included a reduction of about 24
per cent on routes operated by T
orthwest. In De-
cember, 1964, the Postmaster General petitioned
for reductions in domestic service mail rates. This
petition is awaiting Board action.
SERVICES
orthwest Airlines' sales force merchandised a wide variety of
expanded and improved customer services in 1964.
On the Orient route, for example, addition by mid-year of three
intercontinental-range 707-320C's to the previous fleet of five 320B's
enabled orthwest to increase its trans-Pacific frequencies by 50 per
cent. Your airline now operates 12 round trips each week over the shorter
orth Pacific route between ew York/ Chicago and Japan-eight
on a non-stop routing between Seattle-Tacoma and Tokyo and the four
others via Anchorage, Alaska. In addition, several extra flights
were operated to Tokyo during the Olympic Games, including two
which orthwest operated as an official United States carrier
for American team members.
Cargo Services
Since all of our intercontinental fan-jets are equipped with large
forward cargo doors giving access to the airliners' main decks, orthwest's
capability to lift volume shipments of cargo was increased
substantially. A concentrated advertising, public relations and ales
program-coupled with a cargo-development contest among
domestic stations-called public attention to these large-door
combination passenger and cargo planes, as well as l orthwest's well
rounded pattern of other freight services, with a resulting
substantial increase in freight traffic.
Also in the area of cargo services, orthwest designed and put into
service on the 320C fleet early in 1965 "igloo" containers which attach
to the cabin-width cargo pallets and expedite the loading of
smaller items of freight.
Domestic and Hawaii Schedules
Delivery during 1964 of additional shorter-range fan-jet aircraft
enabled orthwest Airlines to up-grade its domestic passenger and
cargo services as well.
Inauguration of scheduled service with the new 727's on
January 1, 1965, marked the beginning of an all-fan-jet service on
the route between the Midwe t and Florida; during the peak of the winter
vacation season T
orthwest is operating nine round trips daily
between Chicago and Miami, with intermediate service to Atlanta,
Tampa-St. Petersburg and Fort Lauderdale. orthwest now is the
only domestic airline serving Miami with an all-fan-jet operation.
Piston-engined DC-6B's were phased out of Pacific
Northwest operations and replaced with Electras-giving such cities as
Bozeman, Butte and Helena turbine-powered service and a choice of
both first-class and tourist fares. Northwest thus extended the benefits
of economical coach fares to every city on its route system.
An eighth fan-jet frequency each week was provided during the peak
travel s a son between the Pacific Northwest and Hawaii, in addition to
daily through-plane round trips from ew York and Chicago to Honolulu.
S rvice to and from the ew York area was increased to
handle the traffic demand created by the World's Fair.
A pattern of 15 flights daily between Chicago and Cleveland was
inaugurated October 5, 1964, and plans have been completed
14
for the start of service in the Cleveland-Philadelphia and Detroit-
Philadelphia markets on April 1, 1965.
Promotion
orthwest continued to enhance its reputation for providing
the finest in-flight cuisine and beverage service in the airline
industry. Additional luxury items were placed on the menu
for the Regal Imperial flights to Florida and similar embellish-
ments were provided in the meal service on other routes. In
trans-Pacific first-class service, plans developed during 1964 were
culminated in January, 1965, with food service from silver trays
on luxurious aisle carts and fine china plates for the passengers.
A number of specific sales programs during the year com-
plemented orthwest's effective mepia advertising. Special
Hawaii, Alaska and Orient tour seminars were conducted for
personnel of travel agencies and connecting airlines. Detailed
presentations were made to travel agents during the fall on
winter schedules to Florida. Special cargo seminars were con-
ducted for air freight customers.
Group tours via orthwest to the Orient, Hawaii and other
vacation destinations were sold by a number of newspapers and
radio-television stations. Both traffic and additional identity for
the airline resulted from promotion of these tours by the par-
ticipating media.
ow in the final planning stage is a program for expanded use
of a new T
orthwest Airlines credit card. In addition, we have
concluded agreements with American Express, Carte Blanche
and Diners Club, for use of these credit cards for online travel.
Maintenance
Provision of convenient and dependable customer service
during the year was supported by Northwest's efficient main-
tenance organization. The continuing high reliability of orth-
west's aircraft and engines was illustrated by further govern-
ment-approved extensions of the time between required over-
hauls for turbine engines.
For the first time in history, overhaul of all piston engines was
phased out during the last months of the year. Concurrently,
work progressed toward establishment early in 1965 of a pro-
duction line for the JT8D fan-jet engines on the new 727's.
Personnel
The year 1964 was one of stability in labor relations. In the
first half of the year, agreements were consummated with nine
classes or crafts of employees, assuring reasonable rates of pay,
rules and working conditions.
At the end of 1964, orthwest employed a total of 6,671 per-
ans at more than 50 locations in the United States, Canada,
and overseas-a net increase of 581 over the number employed
at the end of 1963.
Source and Application of Funds
for the years ended December 31, 1964 and 1963
SOURCE OF FUNDS:
et Earnings . . . . . . .
Depreciation and Amortization .
Deferred Taxes . . . . . .
Unamortized Investment Credit
Total from Operations . . .
Sale of Common Stock . . .
Disposals of Operating Property
Other . . . .
Total of Sources . . . .
APPLICATION OF FUNDS:
Flight Equipment and Other Property Additions .
Advance Deposits on Aircraft .
Reduction of Long-Term Debt
Cash Dividends . . .
Other . . . . . .
Total of Applications
Net Increase (Decrease ) in Working Capital
1964
$26,785,523
22,851,790
3,796,200
4,431,500
$57,865,013
30,337,228
6,779,257
96,305
$95,077,803
$52,201,424
18,992,339
19,995,515
2,601,682
1,672,776
$95,463,736
$ (385,933 )
Application of Investment Tax Credit
for the years 1962-1963-1964
1963
$10,452,957
19,158,899
2,690,500
1,868,400
$34,170,756
95,593
21,738,798
215,339
$56,220,486
$36,031,451
8,699,753
9,972,013
1,822,656
1,517,136
$58,043,009
$ ( 1,822,523 )
Realization of Investment Credit
Tax Credit Utilized to
Reduce Taxes
Credit Reflected
In Net Earnings
Year
1962
1963
1964
Total
Available
$ 300,000
2,930,800
4,157,500
$7,388,300
$ 300,000
1,974,000
5,114,300
$7,388,300
806,400
To be amortized to income in future years $6,581,900
( 8-yr. Amortization)
$ 18,000
105,600
682,800
$806,400
15
16
STATEMENT OF FINANCIAL
ASSETS
CURRENT ASSETS
Ca h . . . . .. . . . . . . . . . . .. .
.1.
ote r c ivabl from sale of aircraft . . . . . . .
Trad r ivabl s, I ss allowance (1964-$120,000; 1963-
$105,000) . . . . . . . . . . . . . . . .
Flight quipm nt part , at av rage cost, l s al1owance
for depre iation (1964-$3,365,312; 1963-$2,765,206)
faint nance and op rating supplies at average cost . .
Prepaid expenses . . . . . . . . . . . . . . .
TOTAL CURRENT ASSETS
INVESTMENTS AND OTHER ASSETS at cost
Related industry inveshnen ts and other advances
PROPE RTY AND EQU IPMENT at cost
Flight equipm nt . . . . .
L ss allowanc for depreciation .
dvanc s on purcha ontract - ote D
0th r property and quipm nt .
L allowanc s for d preciation
DEFERRED CHARGES
namortizecl training and oth r costs in conn ction with
aircraft fl ts
R ntals . . . . . . . . . . . . . . . . . .
December 31
1964
$ 14,437,075
19,369,385
5,285,295
2,136,884
2,171,652
$ 43,400,291
$ 544,881
$219,522,697
58,597,808
$160,924,889
18,992,339
$179,917,228
$ 21,673,570
12,613,130
$ 9,060,440
$188,977,668
$ 3,232,258
1,071,207
$ 4,303 465
$237,226,305
1963
$ 12,866,565
6,911,619
15,248,025
6,100,076
2,176,335
2,706,816
- - -
$ 46,009,436
$ 638,615
$176,654,741
49,580,630
$127,074,111
8,699,753
$135,773,864
$ 21,523,556
12,031,320
- - - -
$ 9,492,236
$145,266,100
$ 3,885,157
965,385
$ 4,850,542
$196,764,693
===-==----------
POSITION
NORTHWEST AIRLINES, INC.
and
SUBSIDIARY
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . .
Salaries, wage and vacations
Air travel card depo its
Unr d cmed ticket liability .
Income taxes . . . . . .
Current maturiti s of long-term debt .
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT, less curr nt maturities-Note A
ot s payabl to in urance companies
Not s payable to banks
Other (paid in 1964) . . . . . .
DEFERRED CREDITS- ote F
In om taxes-arising principally from accelerat d d pre-
ciation methods
Inv stm nt er dit
0th r . . . . .
STOCKHOLDERS' EQUITY- ot B
Cumulativ Preferred Stock, $25 par valu , authorized
1,000,000 shar s, outstanding non . . . . . . . .
Common Stock, aft r giving effect to two-for-one stock
split in 1964, $5 par value; authorized 10,000,000 shar . ;
issu d and outstanding 1964- 4,568,634 shares; 1963-
3,648,904 shares-Not C
Capital surplus
Retained earnings .
COMMITMENTS- ot D
Decembe r 31
1964
$ 15,472,568
5,516,467
1,211,675
2,286,999
13,071,972
$ 37,559,681
$ 40,000,000
5,000,000
$ 45,000,000
$ 23,780,800
6,581,900
1,344,338
$ 31,707,038
$
22,843,170
39,328,261
60,788,155
$122,959,586
- - -
$237,226,305
1963
$ 14,466,973
7,764,811
1,195,100
1,865,862
6,750,302
7,739,845
$ 39,782,893
$ 40,000,000
19,000,000
5,995,515
$ 64,995,515
$ 19,984,600
2,150,400
1,415,338
$ 23,550,338
$
18,244 520
13,587,113
36,604,314
$ 68,435,947
$196,764,693
See notes to financial statements.
17
NORTHWEST AIRLINES, INC.
and ST A TEMENT OF EARNINGS
.
.
SUBSIDIARY
OPERATING REVENUES
Transport:
Passenger . .
United States mail
Foreign mail . .
Excess baggage .
Freight and express .
Charter and other transportation
Kon transport:
Federal mail subsidy
Other . . . . . .
OPERA Tl NG EXPENSES
Flying operations .
Maintenance . . .
Passenger service .
Aircraft and traffic servicing
Reservations, sales and advertising
Administrative and general
Depreciation and amortization .
OTHER INCOME AND (DEDUCTIONS)
Interest on long-term debt
Disposals of property .
Other income . . . .
EARNINGS BEFORE TAXES
TAXES ON EARNINGS, including deferred taxes and in-
vestment credit- ote F . . . . . . . . . .
NET EARNINGS FOR THE YEAR
See notes to financial statements.
18
Year Ended December 31
1964 1963
$163,807,113 $135,222,118
14,032,937 12,917,441
1,280,673 1,316,118
1,200,868 1,146,730
17,201,103 12,597,528
12,964,989 6,441,700
$210,487,683 $169,641,635
1,833,123 )
1,122,748 979,528
$211,610,431 $168,788,040
$ 48,367,765 $ 42,906,211
26,557,091 26,203,309
14,194,368 11,412,619
21,558,723 19,690,557
19,557,196 16,985,125
5,392,381 6,515,803
22,851,790 19,158,899
$158,479,314 $142,872,523
$ 53,131,117 $ 25,915,517
($ 2,187,578) ($ 3,876,789 )
912,656 ( 307,732 )
149,828 19,261
($ 1,125,094 ) ($ 4,165,260)
$ 52,006,023 $ 21,750,257
25,220,500 11,297,300
$ 26,785,523 $ 10,452,957
CAPITAL SURPLUS AND RETAINED EARNINGS
Year Ended December 31
CAPITAL SURPLUS 1964 1963
Balance at beginning of year
Additions arising from:
$ 13,587,113 $ 6,612,905
Sale of shares of Common Stock in public offering
(less expenses of $784,671), in excess of par value .
Sale of shares of Common Stock under option agree-
ments, in excess of par value .
Redemption of shares of Preferred Stock and con-
version into shares of Common Stock
Balance at end of year .
RETAINED EARNINGS
Balance at beginning of year
Add net earnings for the year
Deduct cash dividends on Common Stock ( after g1vmg
effect to two-for-one stock split in 1964) 1964-$.60 a
share; 1963-$.50 a share
Balance at end of year .
ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors
orthwest Airlines, Inc.
Saint Paul, Minnesota
25,674,465
64,118
2,565
$ 39,328,261
$ 36,604,314
26,785,523
$ 63,389,837
2,601,682
$ 60,788,155
58,213
6,915,995
$ 13,587,113
$ 27,974,013
10,452,957
$ 38,426,970
1,822,656
$ 36,604,314
We have examined the statement of financial position of Northwest Airlines, Inc. and subsidiary
as of December 31, 1964 and the related statements of earnings, capital surplus and retained earn-
ings for the year then ended. Our examination was 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. We have previously made a
similar examination for the prior year.
In our opinion, the accompanying statements of financial position, earnings, capital surplus and re-
tained earnings present fairly the consolidated financial position of Northwest Airlines, Inc. and sub-
sidiary at December 31, 1964 and the consolidated results of their operations for the year then
ended, in conformity with generally accepted accounting principles applied on a basis consistent with
that of the preceding year.
Saint Paul, Minnesota
February ] 5, 1965 Certified Public Accountant
See_ notes to financial statements .
.,.,,,.,- l I
19
20
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
December 31, 1964
Note A-Long-Tem1 Debt
Under Note Purcha e Agreements with twelve insur-
ance companies the Company has borrowed $40,000,000
at 6% payable $3,000,000 annually beginning October
1, 1966 and a final payment of $4,000,000 on October
1, 1978. Certain optional prepayments at par are per-
mitted. The Agreements contain certain other pro-
Yision with respect to redemption as a whole, but not
from borrowed funds, at premiums ranging from 5%
to 1%
.
Under the Amendatory Credit Agreement with fifteen
bank the Company has outstanding $5,000,000. This
Agreement provides for revolving credit of $40,000,000
reducing to $33,500,000 by December 31, 1966, to
$20,500,000 by December 31, 1967, to $7,000,000 by
December 31, 1968, and terminating on June 30, 1969.
Interest on funds borrowed is 4~~%.
Under provisions of long-term debt agreements the
Company has agreed, among other things, that it will
not permit its working capital at any time to be less
than certain pecified amounts and its funded debt to
exceed certain percentages of net tangible assets, of
net worth and of depreciated value of flight equipment,
a those terms are defined in the agreements. At
December 31, 1964 the Company had complied with
the covenant then in effect.
Note B-Restrictions on Stockholders' Equity
The Note Purchase Agreements and the Amendatory
Credit Agreement establish an aggregate dollar maxi-
mum for the declaration and payment of cash dividends
on Common Stock, and for the distribution on, redemp-
tion, purchase or other acquisition of shares of any
clas of capital stock. The amount of retained earnings
unre tricted for such purposes at December 31, 1964
wa $23,042,485.
Note C-Common Stock Options and
Reservation
At December 31, 1964, 6,179 unissued shares of
Common Stock were subject to outstanding options,
exercisable by Company officers and employees at
S13.73 a hare which price was not less than 95% of
the market when the options were granted in 1962.
Options for 800 shares expire in 1965 and for 5,379
shares in 1966. Options for 7,345 shares at $13.73 were
exercised during the year. The foregoing options have
been adjusted for the two-for-one stock split in 1964.
An additional 150,000 shares are reserved for options
which may be granted to officers and employees in the
future.
Note D-Commitments
The Company has contracted to purchase from The
Boeing Company five 320C, eleven 727 and six 727C
turbo-jet aircraft for delivery in 1965 and 1966, which
with spare parts and equipment will require expendi-
tures of $122,354,000. Of this amount, $18,992,000
had been deposited with manufacturers at December
31, 1964 and approximately $71,519,000 and $31,843,-
000 become payable in 1965 and 1966, respectively.
Annual rental payments of approximately $3,165,000
are required under various lease agreements for periods
up to thirty-four years covering airport facilities, ticket
office , etc.
Note E-Mail Transportation Compensation
No final determination of total mail compensation
has been made by the Civil Aeronautics Board on inter-
national and domestic routes for 1951. The ultimate
effect of any redetermination i not known at this time.
Note F-Taxes on Earnings
The provision for taxes on earnings consists of the
following:
Year Ended December 31
1964 1963
Current prov1
s10n ................ $16,992,800 $ 6,738,400
Deferred taxes ....... ............. .. 3,796,200 2,690,500
Deferred investment credit.. 5,114,300 1,974,000
$25,903,300
Less a mortization of de-
f erred investment credit
over eight years ............... . 682,800
$25,220,500
$11,402,900
105,600
$11,297,300
Amounts for 1963 have been reclassified to conform
to changes adopted under provisions of the Revenue
Act of 1964.
Northwest Airlines, Inc.
General Offices
Minneapolis-St. Paul International Airport/ St. Paul, Minn. 55111
DIRECTORS':,
CROIL HU.\'TER
Chairman of the Board, orthwest Airlines, Inc.
St. Paul. .\Iinnesota
JA.\IES H. BL cER
Pre:ident. Hone, well Inc.
~f inneapoli. . .\I innesota
HADLEY CASE
President, Case, Pomeroy & Company, Inc.
. ew York, . ew York
. 10RTOX H. FRY
Senior Partner. Riter & Company
.e" York . . ew York
JOSEPH T. JOH. so ..
Retired Chairman of the Board
The .\Iilwaukee Company
.\Iifo,'.mkee. \\7 iscon:in
.\IALCODf S . .\L-\.CK.-\Y
President. Foothill Company
Roscoe . .\fontana
CLYDE B . .\IORGA. T
Chairman of the Board. Rayonier Incorporated
. e\,. York, . ew York
DO. -ALD \\' .. "YROP
President
P:\TL L. BE.\'SCOTER
\"ice President-Transportation Ser.ices
ROBERT A .. EBERT
\'ice President-Personnel
A. E. FLOA ..
\'i.ce President and Secretary
BK ].-\.\IL - G. GRIGGS. JR.
Yice President-Flid1t Operations
DO. ALD H. HARDESTY
\'ice President-Finance and Treasurer
\\":.I. E. Hl'SKL s. JR.
\'ice President- Orient Region
0 As of Jfarch 1. 1965
DO. 'ALD W ... YROP
Pre.ide:rt .... 'orthwe_t Airlines. Inc.
St Paul, .\finne:ot,1
ALO. zo PETTEYS
Prt.ident. F,umers State B,mk
Bm h, Colorado
C. FR:\. 'K REA \'I,~
Partner, Re::n i and cGrath
ew York .. \'\\ Yllrk
ALBERT C. RFDPATH
P.1rtner. .\u hindo . P.uker & Redpath
. ew YorL ... e\\ York
L \ .\1.A. E. \Y.-\1:EFIELD, JR.
Yict Pre. ident. Fict ational Bank of .\finneapolis
. linnt,lpoli , .\linm. ota
ALBERT T. \\'EA THERHEAD. TR.
Preid.ent, The Weatherhead company
Cle, eland, Ohio
FR.\. K C. _Tl'DD
\"ict Pre 1dent-\Imntt:n,1nce ,1
nd Engineenng
.\1. JOSEPH LAPE. :KY
ComptrnllL'r
RO. .-\LD \I<. \'!Gf-::AR
A ,i,Lmt YiCt' Pres;Jcnt
DALE ~1ERHIC1:
\'i-.l Prc,ident-Pro11erties
DIOR\ T. ;\l. . 'ELEY. JR
\"kc Presi It nt and Gt neral Coumel
C. L STEWART
\'icT Pre,idcnt-Economic Planning
ROBERT J. \\'RIGHT
Yice President-Sales
REGISTRAR: The Chase Manhattan Bank, New York, N. Y. STOCK LISTED: Common Stock listed on New York Stock Exchange
TRANSFER AGENT: Bankers Trust Company, New York, N. Y. and Midwest Stock Exchange
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