Northwest Airlines Annual Report 1965

COVER, Northwest Air-
lines 707-3208 awaits
passengers at Tokyo
International Airport.
ABOVE, Seattle-Tacoma
International Airport,
departure point on
Northwest's 4,800-mile
n o n s t o p route from
contiguous 48 states
to Japan.
TOP, Northwest Airlines
Executive Offices at
Minneapolis-St. Paul
International Airport.
1965 Highlights
Total Operating Revenues
Operating Income
Net Earnings for the Year
Per Common Share
Stockholders' Equity
Per Common Share
Dividends Paid
Operating Expenses-
Per Available Ton-Mile
Per Revenue Ton-Mile
Revenue Traffic--'
Passengers Carried
Passenger-Miles Flown
Ton-Miles, Mail, Freight
and Express
Common Shares at Year End
Employees at Year End
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
6,671
39th annual report to stockholders
FROM
THE
PRESIDENT
In 1965 your company greatly expanded and further
improved its service to the public. These additional services
resulted in a high level of traffic growth and produced
outstanding financial results so as to mark 1965 as the
greatest year of success for Northwest Airlines.
Total operating revenues exceeded one quarter-billion
dollars for the first time in our history and reflected sub-
stantial rates of revenue increase-24% in the past year,
and 56% over the two-year span from 1963.
Net earnings also reached a new high. In the year just
ended, net profit totaled $45,694,000.
Continued strength in the nation's economy and increas-
ing acceptance of air transportation as the way to travel"
played a significant role in our 1965 achievements.
Important flight equipment changes took place in 1965
including delivery of five Boeing 707-320C intercontinental-
range fan-jet aircraft. Also in 1965, we greatly improved
our domestic capabilities by addition of eleven Boeing
727 tri-jet airplanes. On December 31, 1965, Northwest
had on order for delivery in 1966 and early 1967 an addi-
tional nine 320C fan-jets and sixteen more 727 type air-
craft of which ten will be the 727C version with a large
forward cargo door permitting interchange of palletized
cargo with our larger aircraft. Upon completion of these
orders, Northwest's Beet will consist of 68 fan-jet aircraft.
Northwest Airlines has continued the successful disposi-
tion of its piston fleet and now has remaining only three
piston airplanes which are used in cargo service. We are
now in a position also to consider the sale of some prop-jet
Electra aircraft, so that orthwest will have an all fan-jet
Heet within two years.
The ability to modernize our flight equipment and to
maintain a first-rate competitive position in the industry
is based upon our sound financial condition with a most
favorable debt/equity relationship and a healthy cash
flow from our operations.
The fundamental economies of our new jet Beet have
permitted reduction in the cost of transportation to the
public. In the past three years our average charge per
passenger-mile has declined about 6% even thot1gh there
has been an increase in most other prices in our economy.
Northwest Airlines has actively sought and is still attempt-
ing to achieve lower fares in our trans-Pacific services. We
hope that such reductions will be forthcoming in the
current year.
In 1966 Northwest will seek authority to operate several
new routes within the United States as well as in the
international field. In 1966 and 1967 the Civil Aeronautics
Board will undertake a broad study of the complex route
structure in the Pacific. In this case, Northwest has ap-
plied for a Central Pacific route and for extension of its
trans-Pacific authority to new points in the nations of
Indonesia, Singapore, Malaysia, Viet Nam, Laos, and
Thailand. We have also asked that such U.S. points as
Boston, Houston, Dallas, Fort Worth, Los Angeles/Long
Beach, and San Francisco/Oakland be added to our interna-
tional route. This will be an extended proceeding with
a large number of applicants.
It is with regret that we announce the loss from our
Board of Directors of Mr. Joseph T. Johnson of Milwaukee
who did not stand for re-election in 1965 because of ill
health. Mr. Johnson was a Director of Northwest Airlines
for nearly 26 years.
As a company dedicated to serving the public we will
in the future, as in prior years, devote every effort to
maintaining our high standard of service.. We greatly
appreciate the interest and cooperation displayed by our
many stockholders. With your valued support and assist-
ance, Northwest Airlines will continue its growth and
progress as one of the nation's leading airlines.
Sincerely,
A~-A}~
President
March, 1966
orthwest Airlines continued to expand its services to the public and to
increase its revenues and profits in 1965, as it began its 40th year of
operation. et earnings reached a record $45,694,024, on total operating
revenues of $262,998,139. Previous record year for both earnings and revenues
was 1964, when 1\orthwest realized a $26,785,523 profit on operating
revenues of $211,610,431.
Just as in 1926, when Northwest Airways inaugurated flights in October
with rented airplanes between Minneapolis, St. Paul and Chicago and before
the end of the year put its first owned aircraft-biplane, single-engined
Stinson Detroiters-into service l orthwest in 1965 put new aircraft into
the skies and expanded its service .
FLEET ACQUISITIONS. During the year, orthwest took delivery of
16 new Boeing fan-jet aircraft-five 707-320C intercontinental-range planes
and ele en 727 short-to-medium-range airliners. Together with related
pare parts, these aircraft represented a total investment of $93,500,000.
Concurrently, we removed all of our remaining piston-engined airliners
from cheduled passenger service and now offer
between the Midwest and Florida, and
in January, 1966, frequency on the
Hawaii route was increased from nine
to 12 round trips a week.
ORIENT SERVICES. On WA's
route to the Orient, frequency was in-
creased from 12 to 16 round trips per
week, including the first through-plane
service linking Washington, D. C. and
Cleveland with the Far East, via
Chicago and Anchorage. Eastbound,
.'Jorthwest established via Seattle-Ta-
coma a daily one-stop Tokyo- ew
York service and on March 1, 1966
began a one-stop New York-Tokyo
operation.
In 1966,
air travelers turbine-powered equipment on all flights.
The last DC-6B's were sold and remaining DC-7C/ F's
now are operated only in cargo and charter service.
Fleet, Schedules
WA will
begin its
20th year
of provid-
ing vital
servi c e
orthwest s enlarged fleet of modern, fan-jet
aircraft made po sible ubstantial increases in jet
and Routes
chedule erving major cities and enabled us to
begin jet ervice in a number of smaller markets:
\ innipeg Grand Fork , Fargo, Bi marck Billings, Great Falls, Rochester
and Madi on.
Ser ice , a inaugurated at Philadelphia on April 1 1965, on new
route egment from Detroit and Cleveland. Traffic response on these
route has been encouraging and orthwest now offers a total of nine
Bight a day from Philadelphia to points , est aero the United States.
Ten round trip per day are being offered during the 1965-66 winter season
over the
strategic orth Pacific route between
the United States and the Far Eastern
nations of Japan, Korea, Okinawa, Tai-
wan and the Philippines. And, just as
inaugural ceremonies across the United
States in July 1947 began a 19-year-
long program of trans-Pacific route
development, growth and improvement in services to the
traveling and shipping public will continue in 1966 and
following years.
The first Orient-bound NWA flights, in DC-4 equipment
carrying 32 passengers all at first-class fares, required an
elapsed time of 44 hours 50 minutes to fly to Tokyo from
ew York. Today, it takes just 17 hours 20 minutes to
cover the 7,200 miles via orthwest's one-stop, New York
to Tokyo flight. With prevailing westerly tail winds, the
Tokyo-Seattle- Jew York flight is even faster, requiring
an elapsed time of 14 hours 38 minutes. Costs to the
traveler were reduced, too, with Northwest's introduction
of tourist-class and, later, jet economy fares.
INTERNATIONAL TRAFFIC. Although orthwest's
operation to the Orient via the North Pacific continues
to carry a lesser share of trans-Pacific traffic in com-
parison with the more heavily traveled Central Pacific,
gains were recorded in 1965. Passenger-miles in scheduled
services on route segments to Alaska, Hawaii and the
Orient increased by 26.0 per cent, from 625,329,000 in 1964
to 788,046,000 in 1965. International revenue ton-miles
of cargo led all traffic categories in rate of growth, with
a 68.5 per cent increase from 21,870,000 in 1964 to
36,850,000 in 1965.
orthwest's concept of providing lift for a large volume
of air cargo on all of its flights to and from the Orient
continued to offer shippers a uperior service. This ame
program of providing volume cargo on the priority
scheduling normally associated with passenger operations
will be extended to most of orthwest's dom stic cities
as ten 727C's, convertible passenger-cargo version of the
727, are put into service in 1966 and 1967. Equipped with
the same-sized, forward cargo door and other cargo-hand-
ling equipment as the larger 707-320C's used on interna-
tional routes, the 727C will allow prepalletized shipments
to be transferred efficiently between the larger and smaller
aircraft.
MILITARY SUPPORT. In addition to maintaining a
balanced pattern of commercial services in the Pacific,
Northwest provided vital support to the military through
contract operations-fan-jet passenger and cargo charters
from West Coast bases to various Far East destinations,
including Saigon, and a DC-7CF mid-Pacific supply mis-
sion based in Honolulu.
This vital logistical support for America's military estab-
lishment recalled a similar operation earlier in orthwest' s
long years of experience in the Pacific. In the early
1950's, orthwest as a prime contractor in the Korean
Airlift completed 1,380 round-trip Pacific crossings. Then
as now, this mission was completed without disrupting
normal commercial services.
ROUTE DEVELOPMENTS. Northwest looks forward
to an important addition to its Orient services during 1966.
Under a new agreement negotiated by the U. S. and
Japanese governments, Osaka-Japan's second largest city
-was added to Tokyo as a point for service by U.S. flag
carriers. Your company has received authority from the
Civil Aeronautics Board to add Osaka to its service pattern
beyond Tokyo and expects to start service later this year.
Under the same new Japan-U.S. agreement, Japan
was given the right to extend its Central Pacific route
from San Francisco to ew York and beyond to Europe-with a mandatory
stop in California.
In another important Air Services Agreement, the U.S. and Canada
in January, 1966, established a revised pattern of trans-border routes
for the carriers of both nations. Of primary interest to Northwest were
establishment of new nonstop rights for orthwest between Winnipeg
and Minneapolis-St. Paul and provision for the certification of two U.S.
carriers to serve a Chicago-Toronto route. orthwest has asked the
C.A.B. to hear its application for Chicago-Toronto route authority
in the proceeding which will result.
In other route development matters, your company was active during
1965-and looks forward to even greater activity in 1966.
At public hearings in the Pacific orthwest-Southwest Air Service
Investigation, we prosecuted our case for new routes from Seattle-Tacoma
and Portland, via Salt Lake City and Denver, to major cities in Oklahoma,
Texas, Louisiana and Missouri. An examiner's initial decision in the
case is pending.
Late in 1965, Northwest agreed with West Coast Airlines to transfer
operating authority at Yakima Wash., to the local service carrier. The
C.A.B. approved this transfer and we terminated service as of
February 28 1966.
In 1966, orthwest will seek route extensions in the Far East,
additional U.S. co-terminal points and authority to fly to the Orient via
the Central Pacific as well as on its present orth Pacific routing, in a new
Tran pacific Route Investigation.
We also will participate in the Reopened ew York-Florida Renewal
Case in which orthwest seeks a route extension to Boston and a
link-up of East Coa t terminal points; in a case involving service between
th ::-,,; ortheast and the Bahamas, in which WA has applied for new service
point in the Caribbean, and in a case to determine the needs for
improved air ervice benveen 1inneapolis-St. Paul and California.
Of particular significance to orthwest's operations was the announcement,
early in 1966, by the Federal Aviation
Agency that smaller jets such as NWA's
727's would be permitted to operate at
Washington National Airport, starting
April 24, 1966. Inauguration of this jet
service will enable orthwest also to
begin fan-jet flights at Pittsburgh. The
combination of additional fan-jet deliv-
eries and opening of Washington a-
tional to jets has allowed NW A to plan
for retirement and sale of some Electra
jet-prop aircraft in 1966.
CUSTOMER SERVICES. In addition
to improving service to the public
through additional schedules in most
of its markets, WA improved custom-
er services in a number of areas in
1965. Aloft, for example, a new first-
class meal program-using fine china
and silver and serving entrees from
attractive aisle carts-was developed for
trans-Pacific flights and later was
adapted to key domestic routes.
On the ground, improved customer
facilities ranged from faster reservations
service made possible by operation of
>Jorthwest's new Univac 490 real-time
computer and expanded reservations
offices, to more convenient and efficient
ticket office and field installations. To
provide weather protection and addi-
tional convenience in passengers' moving between term-
inal and aircraft, two Top Flight Loaders were installed
at Portland and additional such terminal-to-aircraft bridges
went into operation at the Twin Cities, Chicago, Seattle-
Tacoma and Miami.
ew or remodeled city ticket offices were opened in
Philadelphia, Tokyo, Cleveland, Pittsburgh, Hong Kong
and Washington, D. C. A new station operation was set
up at Philadelphia;
T
orthwest moved into a new terminal
building at Spokane and a completely remodeled terminal
at Helena. A new, 24,000
radar and self-contained navigation system. We now can
operate these aircraft with this improved system from the
U.S. West Coast to any destination in the Orient, via
either orth or Central Pacific routing.
Throughout 1965, orthwest's turbine engines consis-
tently demonstrated the highest operating reliability and
the lowest per flight hour maintenance costs in the industry.
The progressive maintenance program for overhaul of our
turbine airliners in the modern and efficient Main Base
continued to provide a maximum of aircraft time for sys-
tern-wide operations.
square-foot air cargo facility
was completed at ew York,
while new Top Flight Lounge
facilities were occupied at Seat-
tle-Tacoma. In order to expand
facilities and improve passenger
convenience, we began con-
Customer Services
and Operations
The year 1965 was an out-
standing one in labor-manage-
ment relations. After agreements
were concluded with flight engi-
neers and radio-teletype opera-
tors in the summer, all of our
struction of a new, six-gate terminal facility at the Detroit
Metropolitan airport, which is scheduled to be ready for
occupancy in June, 1966.
PERSONNEL & OPERATIONS. To man orthwest's
expanded fan-jet Beet, a total of 178 new pilots were hired
and trained in 1965. In addition, 307 pilots received transi-
tion training to qualify them for newer aircraft. orthwest
recruited and trained 498 new stewardesses in 1965. Over-
all, orthwest' s personnel complement was increased by
13.6 per cent, from 6,671 employes on January 1, 1965,
to 7,578 at year end.
Additional routes wer approv d for op ration of 707-320
fan-jets by pilot navigation using the Doppler airborne
18 labor agreements were signed
and in force. Late in the year, collective bargaining with
the pilots was begun and conferences were started between
five carriers (including WA) and the union representing
mechanics and related personnel.
MARKETING. Effective sales effort in 1965 converted
expanded and improved services into greater revenues. At
the annual January conference of sales managers from
throughout the syst m and at two subsequent sessions for
the training of all outside sales personnel emphasis was
placed on increasing international passenger and cargo
traffic and on development of additional group tours.
Seminars and escorted group tours provided travel
ag ncy per onn 1 throughout the system with pecialized
information as well as direct, personal familiarity with Northwest services
and vacation destinations.
W e have continued to promote increased travel through attractive
lower fares. The liberalization of the family plan during 1965 and such
new programs as stand-by youth fares and a domestic excursion plan which
go into effect in the first quarter of 1966 will attract new passenger traffic.
Special inaugural ceremonies called attention to such new NWA
services as Washington-Cleveland-Orient, start of Philadelphia flights and
extension of fan-jet service to smaller markets. Advertising continued
to stress orthwest as the "Fan-Jet Airline," and promote the short, orth
Pacific route to the Orient. In addition to accepting American Express,
Diners Club, Carte Blanche and
Increased military activity in the
Pacific resulted in higher revenues from
T
orthwest's extensive charter operations
for the military establishment. Revenues
from those flights as well as from other
charter operations reached $21,851,204-
an increase of 68.5 per cent compared
with 1964 charter revenues. Our present
contract with the Military Airlift Com-
mand extends to June 30, 1966, and we
will seek renewal of this arrangement
for fiscal 1967.
Th e cost of or th -
Bank of Hawaii credit cards, orth-
west expanded its own card pro-
gram, both in number of accounts
and in utility of the cards.
Financial Results west's operations in -
creased by only 11.8 per
cent from the total of
$158,479,314 in 1964 to
$177,150,933 in 1965. Ex-
and Traffic Grovvth
REVENUES & EXPENSES. Total
revenues of $262,998,139 in 1965 ex-
ceeded the quarter-billion dollar mark for the first time and reflected an
increase of 24.3 per cent over prior year revenues of $211,610,431.
System passenger revenues increased 21.2 per cent to $198,457,081.
The passenger fare structure generally was stable during the year with
the average fare per passenger-mile declining about 2 per cent to 6.01
in 1965. This reduction resulted from liberalization of the family-plan
discount, from increased travel by military personnel on reduced, stand-by
fares and from a greater share of traffic in coach or economy service. The
latter accounted for 81.4 per cent of total passenger-miles in 1965 compared
with 79.1 per cent in the lower fare services in 1964.
Freight, mail, express and excess baggage revenues totaled $42,200 185
in 1965. Such revenues, up 25.2 per cent from last year, improved slightly
the 1964 ratio of one cargo dollar for every five dollars of pas enger revenue.
penses for the two years
include depreciation and amortization of
$22,851,790 in 1964 and $24,010,596 in
1965. Unit operating expenses con-
tinued our prior years' trend of decline
from 18.5 per available ton-mile in
1964 to 16.4 in 1965. This favorable re-
sult was achieved through a combina-
tion of expanded fan-jet services of
great r capacity, high hourly utilization
of our flight equipment and continued
attention to the control of operating
expense in all cat gories. The unit cost
of revenue traffic carried declined from
39 .... c per revenue ton-mile to 33.0 per ton-mile in the
year just ended.
NET EARNINGS. The total of $45,694,024 in 1965
amounted to net earnings of S9.99 per share of common
stock compared with $26 ,-,'85 523 or $5.86 per share in
1964. Operating income \\ as a record $85,847,206 in 1965.
Pretax non-operating items included $1,822 302 interest
expense and Sl 9,...1 304 gain on disposal of property. The
latter figure compares with 8912 656 in 1964.
In the treatment of our income tax pro\ ision we have
continued the practice of amortizing over an eight-year
period the net income benent of the investment tax credit
although all such credit a ailable to ::\orthwest as a result
of equipment purchases have been realized b reduction of
current income taxes. The im estment credit included in
net earnings amounted to $1 371,100 in 1965 or about twice
the amount credited to income in the prior year. There
remains an unamortized investment credit of $12,072,100
to be reflected in income in future years (Table, Page
11).
Cash Bow from operations in 1965 included generation
of 884,034,620 from net earnings depreciation and amort-
ization, deferred taxes and the investment credit. Other
sources of funds included a net increase of $27,000,000
in long-term debt (deri ed from our revolving bank credit
agreement) and funds from disposal of operating property
in the amount of $1 269 361.
The major application of funds during the year was for
additions to Beet and for ad ance deposits for aircraft on
order, which expenditures totaled S106 259 537. In addition
cash dividends in the amount of 83,657 442 were paid dur-
ing 1965.
On January 31, 1966, your directors authorized a 50 per
cent increase in the quarterly dividend to 30 per share
payable on March 31, 1966. This is the fourth increase in
dividend since the close of 1962 and, at the annual rate
of $1.20 per share represents an increase of 200 per cent
over the dividend paid through 1962. With the March,
1966 dividend your company will have completed 11 years
of consecutive quarterly cash dividends.
FINANCIAL CONDITION. Northwest Airlines is
among the strongest in the airline industry in terms of
financial condition. Stockholders' equity increased from
$122,959,586 at year-end 1964 to $165,080,849 at the close
of 1965. Book value per common share was $36.08 on
December 31, 1965, compared with $26.91 per share one
year prior.
Outstanding debt at the close of the year amounted to
$75,000,000. During 1965 our existing bank credit agree-
ment was revised to place the maximum revolving credit
at $,...,5,000,000, of which $35,000,000 was borrowed at year-
end. Under the revolving feature of this agreement, the
credit line may be repaid and reborrowed subject to the
provision that it be reduced by $5 000,000 on April 1, 1968
and by $5,000,000 on the first day of each quarter there-
after until October 1, 1971.
On January 31, 1966, the Board of Directors of
Northwest Airlines, Inc., decided to recommend to
the stockholders a two-for-one split of the Common
Stock. If approved by the stockholders at Northwest's
annual meeting, May 16, 1966, this stock split would
become effective shortly thereafter.
I
10 YEAR SUMMARY
( Dollars in thousands except per share figures)
Operating Revenues 1965 1964 1963 1962 1961 0 1960 1959 1958 1957 1956
Pa nger $198,457 $163,807 $135,222 $121,781 $ 85,971 $ 97,680 $100,641 $ 81,116 $ 66,674 $ 60,264
Mail 17,421 15,313 14,233 14,228 11,701 10,711 11,219 10,228 8,350 7,858
Freight, Express and Excess Baggage 24,779 18,402 13,745 11,828 8,443 11,368 11,881 8,667 7,541 7,155
Charter and Other Transportation . . 21,851 12,965 6,442 2,646 1,482 823 526 1,23'7 226 816
on transport 490 1,123 (854) (30) 3,456 2,780 1,763 709 641 386
- - -
Total Operating Revenues $262,998 $211,610 $168,788 $150,453 $111,053 $123,362 $126,030 $101,957 $ 83,432 $ 76,479
Operating Expenses
Depreciation and Amortization $ 24,011 $ 22,852 $ 19,159 $ 18,445 $ 17,118 $ 14,413 $ 11,310 $ 8,638 $ 5,851 $ 6,996
Other 153,140 135,627 123,713 112,802 84,213 104,455 103,811 81,281 72,597 64,888
- - - - - -
Total Operating Expenses $177,151 $158,479 $142,872 $131,247 $101,331 $118,868 $115,121 $ 89,919 $ 78,448 $ 71,884
-
Op rating Income $ 85,847 $ .53,131 $ 25,916 $ 19,206 $ 9,722 $ 4,494 $ 10,909 $ 12,038 $ 4,984 $ 4,595
Other Income and (Deductions )-Net 224 (1,125) (4,166) (4,578) (2,828) (1,882) 335 (559) 2,247 1,306
Earnings Before Taxes $ 86,071 $ 52,006 $ 21,750 $ 14,628 $ 6,894 $ 2,612 $ 11,244 $ 11,479 $ 7,231 $ 5,901
Income Taxes 40,377 25,220 11,297 7,398 3,233 986 5,530 5,865 2,412 2,675
- -
Net Earnings $ 45,694 $ 26,786 $ 10,453 $ 7,230 $ 3,661 $ 1,626 $ 5,714 $ 5,614 $ 4,819 $ 3,226
Earnings p r hare 0 $ 9.99 $ 5.86 $ 2.86 $ 1.99 $ 1.01 $ .45 $ 1.57 $ 2.04 $ 1.73 $ 1.15
tockholder ' Equity 165,081 122,960 68,436 59,712 54,177 52,193 52,267 48,224 33,065 30,172
Book Value per Share0 36.08 26.91 18.76 16.40 14.88 14.35 14.37 13.39 11.90 10.79
Cash Dividends 3,657 2,602 1,823 l ,702 1,701 1,700 1,714 1,110 1,117 1,110
=
Assets and Long-Tenn Debt
Flight Property at Cost . $304,072 $219,523 $176,655 $169,413 $170,772 $121,441 $104,389 $ 90,608 $ 71,716 $ 51,669
Flight Property at et Book Value 233,858 160,925 127,074 122,980 133,485 86,957 76,647 56,461 43 023 21,692
Total Assets 333,311 237,226 196,765 186,887 189,103 148,698 130,097 105,061 76,222 58,337
Long-Term Debt . 72,000 45,000 64,996 74,968 90,286 68,500 50,000 34,250 27,000 13,800
Unit Expenses
Per Available Ton-Mile 16.4 18.5 21.7 23.9 27.6 27.8 26.5 26.1 27.4 28.2
P r R venue Ton-Mil 33.0 39.7 46.8 50.2 54.2 54.2 51.0 49.0 50.4 48.5
Per Cent of Operating Revenues 67.4% 74.9% 84.6% 87.2% 91.2% 96.4% 91.3% 88.2% 94.0% 94.0%
tati tics-Scheduled Services
R venue Plane Mile (000) . 61,653 52,157 45,356 41,821 31,143 46,671 47,568 39,113 34,742 31,421
vailable Seat Miles (000) 6,140,717 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
Rcvenu Passenger Miles (000) 3,303,809 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
Passeng r Load Factor . . . 53.8% 52.0% 50.6% 51.5% 52.1% 53.8% 55.2% 54.7% 56.7% 60.5%
R venue Passcng rs Carried 4,593,462 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
Freight and Expr ss Ton-Miles (000) 82,715 55,100 39,417 35,179 23,035 32,480 31,377 22,285 19,714 18,825
Total RC', C'nue Ton-Mil s (000) 452,553 351,886 284,732 254,033 182,704 217,722 225,110 181,678 155,323 145,135
, tatistic - Total Operations
RPv 'IHI(' Plan :\1 il s ( 000 ) 67,125 ,c:;5.477 47,207 42,718 31,658 46,963 47,732 39,670 34,814 31,901
Available Ton-~1iles (000 ) . I 079,832 856,612 657,761 54 ,159 367,301 428,782 435,977 348,235 285,958 255,338
0 Per share figures reflect two-for-one stock split in 1964 and con- 0 0 Affected by
ver ion of preferred tock as applicable in years prior to 1963. major strike.
Operating R e venues
MILLIONS OF DOLLARS
56 57 58 59 60 61 62 63 64
275
250
225
200_
175
150
125
100
65
30
28
26
24
22
14
12
10
.,,,._
0
56
The note purchase agreements with insurance companies comprise
$40,000,000 in outstanding debt. This loan is subject to repayment
beginning October 1, 1966, with a payment of $3,000,000 on that date and
annual payments thereafter in the same amount ending with a final payment
of $4,000,000 at October 1, 1978.
At the end of 1965 Northwest Airlines had on order nine Boeing
707-320C intercontinental range fan-jet aircraft and 16 Boeing 727 and
727C three engine fan-jets. Financing for these orders is available from
existing credit arrangements and from internal cash generation.
The attainment of a strong financial position by orthwest Airlines
is evidenced by a most favorable debt ratio with year-end debt at 45 per
cent of stockholders' equity. This sound base will enable your Company
to meet the needs for future growth and expansion which the coming
years will bring.
RECORD GROWTH. Traffic results in 1965 reflect the combination
of improved service to meet the public need for air transportation and
growing acceptance of our increased schedules and capacity. Revenue
plane miles in scheduled service during 1965 increased by 18.2 per cent
while available ton-miles increased by 21.7 per cent, reflecting operation
of additional larger and faster aircraft. Even greater percentage gains were
realized in virtually all categories of traffic.
In 1965 orthwest Airlines approached the 3.5 billion level with a
total of 3,303,809,091 revenue passenger-miles flown in scheduled services.
This represents an increase of 23.8 per cent over 1964. On our domestic
routes the increase was 23.l per cent compared with an over-all increase
of 17.6 per cent in passenger-miles for the domestic trunk line industry
as a whole. Our system passenger load factor improved from 52.0 per
cent in 1964 to 53.8 per cent in 1965.
Traffic gains were distributed in good proportion throughout our
entire system with an increase from 3.7 million in 1964 to 4.6 million
57 58
E x pen se p e r A va ilab le T o n -M lle
CENTS
59 60 61 62 63 64 65
passengers carried in 1965. Cleveland,
reflecting operation of new route seg-
ments to Chicago and Philadelphia, and
Fort Lauderdale, as a result of our grow-
ing Florida service, led among stations
exceeding the system average increase
of 25.4 per cent in passengers boarded
in 1965. Other cities which exceeded the
system average were Honolulu, Chicago,
Pittsburgh and Seoul, Korea. Extension
of jet service to smaller cities resulted
in an above-average increase in pas-
sengers at Madison and Grand Forks.
The largest 1965 increases in sched-
uled service traffic were those recorded
in cargo. System freight and express
ton-miles increased by 50 per cent and
system mail ton-miles increased by 32
per cent in 1965.
Our goals for 1966 will include the
attainment of our maximum potential
for growth. We will add personnel and
equipment as needed to provide for ex-
panding traffic, to meet competition and
to maintain the most efficient, useful
and attractive service to the public. We
will continue to exercise the most care-
ful management of operating costs con-
sistent with the highest standards of
safe, convenient and dependable service
for the traveling and shipping public.
NORTHWEST A APPLICATION OF INVESTMENT TAX CREDIT
December 31 Available & Reflected in
Aircraft Type 1964 1965 On Order Period Utilized* Net Earnings**
JET: 707-320B & 320C 8 13 9 1962-1964 $ 7,388,300 $ 806,400
720B 16 16 1965 6,861 ,300 1,371,100
727 & 727C 3 14 16
- Total $14,249,600 $2,177,500
Total Jet 27 43 25
PROP-JET: Electra 16 16
To Net Earnings 2,177,500
PISTON: DC-7C 6 5*
To Be Amortized $12 IO 72 I 100
DC-6B 4
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All imtm,o l mdit ammh goomt,d 1"2-19'5 hm bm , tili,od
Total Fleet 53 64 25 to reduce income ta xes .
*Two DC-7C 's have been sold for de livery in first quarter 1966 . Jncome be nefit of investment cred it a mortized ove r e ight yea r pe riod .
Source and Application of Funds
for the years ended December 31, 1965 and 1964
SOURCE OF FUNDS:
Net Earnings . . . . . .
Depreciation and Amortization
Deferred Taxes . . . . .
Unamortized Investment Credit
Tota I from Operations .
Increase in Long-Term Debt .
Disposals of Operating Property
Sale of Common Stock
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 Capita I
1965
$ 45,694,024
24,010,596
8,839,800
5,490,200
$ 84,034,620
27,000,000
1,269,361
84,838
$112,388,819
$ 81,474,478
24,785,059
3,657,442
2,004,865
$111 ,921 ,844
$ 466,975
1964
$26,785,523
22,851,790
3,796,200
4,431,500
$57,865,013
6,779,257
30,337,228
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)
Northwest Airlines, Inc.
and Subsidiary
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . .
Trade receivables, less allowance of $120,000 . . . . .
Flight equipment parts, a average cost, less allowance
for depreciation ( 1965-$2,623,461; 1964-$3,365,312)
Maintenance and operating supplies at average cost . .
Prepaid expenses . . . . . . . . . . . . . . .
TOTAL CURRENT ASSETS
INVESTMENTS AND OTHER ASSETS at cost
PROPERTY AND EQUIPMENT at cost
Flight equipment . . . . . .
Less allowances for depreciation .
Advance payments on new flight equipment-Note C _
Other property and equipment .
Less allowances for depreciation
DEFERRED CHARGES
Unamortized training and other costs in connection with
aircraft fleets . . . . . . . . . . . .
Rentals . . . . . . . . . . . . . . . . . .
See notes to financial statements.
December 31
1965
$ 19,926,136
25,816,690
6,687,027
2,238,505
2,153,161
$ 56,821,519
775,023
$304,072,405
70,214,485
$233,857,920
25,546,313
$259,404,233
$ 25,366,504
13,079,596
$ 12,286,908
$271,691,141
$ 2,718,578
1,304,493
$ 4,023,071
$333,310,754
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
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . .
Salaries, wages and vacations
Air travel card deposits
Unredeemed ticket liability .
Income taxes . . . . . .
Current maturities of long-term debt .
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT, less current maturities-Note A
Notes payable to insurance companies
otes payable to banks . . . . . . . . .
DEFERRED CREDITS - ote E
Income taxes-arising principally from accelerated depre-
-
ciation methods
Investment credit
Other . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS' EQUITY- ote B
Common Stock, $5 par value; authorized 10,000,000
shares; issued and outstanding 1965-4,574,813 shares;
1964-4,568,634 shares
Capital surplus
Retained earnings . . . . . . . . . . . . . .
COMMITMENTS- 1 ote C
December 31
1965
$ 19,411,834
6,299,878
1,201,475
2,801,299
17 799 448
3,000,000
$ 50,513,934
$ 37,000,000
35,000,000
$ 72,000,000
$ 32,620,600
12,072,100
1,023,271
$ 45,715,971
$ 22,874,065
39,382,047
102,824,737
$165,080,849
$333,310,754
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
See notes to fi1Umcial statements.
UI
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Statement of Earnings
OPERATING REVENUES
Transport:
Passenger . .
United States mail
Foreign mail . .
Excess baggage .
Freight and express .
Charter and other transportation
Non transport:
Mutual Aid Agreement
Other . . . . . . .
OPERATING 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-Note E . . . . . . . . . .
NET EARNINGS FOR THE YEAR
See notes to financial statements.
Year Ended December 31
1965 1964
$198,457,081 $163,807,113
16,168,201 14,032,937
1,253,178 1,280,673
1,033,972 1,200,868
23,744,834 17,201,103
21,851,204 12,964,989
$262,508,470 $210,487,683
716,903) 20,576)
1,206,572 1,143,324
$262,998,139 $211,610,431
$ 53,143,541 $ 48,367,765
27,558,040 26,557,091
18,468,831 14,194,368
25,411,681 21,558,723
21,952,569 19,557,196
6,605,675 5,392,381
24,010,596 22,851,790
$177,150,933 $158,479,314
$ 85,847,206 $ 53,131,117
($ 1,822,302 ) ($ 2,187,578)
1,971,304 912,656
75,116 149,828
$ 224,118 ($ 1,125,094)
$ 86,071,324 $ 52,006,023
40,377,300 25,220,500
$ 45,694,024 $ 26,785,523
CAPITAL SURPLUS
Balance at beginning of year
Additions arising from:
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
Sundry
Balance at end of year .
RETAINED EARNINGS
Balance at beginning of year
dd net earnings
Deduct cash di idends on Common Stock-1965-~.80
a share; 1964-~.60 a share
Balance at end of year .
See notes to financial statements.
ACCOUNT ANTS' REPORT
To the Stockholders and Board of D irectors
~
forth\ est Airlines, Inc.
Saint Paul, :\linnesota
Yea r Ended December 31
1965 1964
$ 39,328,261 $ 13,587,113
53,943
157 )
$ 39 382,047
$ 60,788,155
45 694 024
$106,482,179
3,657,442
$102,824,737
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
\ e have examined the statement of financial position of I orthwest Airlines, Inc. and subsidiary
a of December 31, 1965 and the related statement of earnings, capital surplus and retained earn-
ings for the year then ended. Our examination ,,as 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 ha e previously made a
irnilar 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 orthwest Airlines, Inc. and sub-
idiary at December 31, 1965 and the consolidated results of their operations for the year then
ended, in conformity with generally accepted accounting principles applied on a basis consi tent , ith
that of the preceding year.
Saint Paul, :\finne ota
February 15, 1966 Certified Public Accountants
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NOTES TO
Fl ANCIAL
STATEMENTS
December 31, 1965
Note A-Long-Term Debt
Under ote Purchase Agreements with twelve in-
surance companies the Company has borrowed
$40,000,000 at 6% payable $3,000,000 annually begin-
ning October 1, 1966 and a final payment of $4,000,000
on October 1, 1978. Certain optional prepayments at
par are permitted. The Agreements contain certain
other provisions with respect to redemption as a
whole, but not from borrowed funds, at premiums
ranging from 5% to 1 %.
Under the Second Amendatory Credit Agreement
with teen banks the Company has outstanding
$35,000,000. This Agreement provides for revolving
credit of $75,000,000 reducing to $55,000 000 by Jan-
uary 1, 1969, to $35,000,000 by January 1, 1970, to
$15,000,000 by January 1, 1971, and terminating on
October 1, 1971. Interest on funds borrowed is at
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 specified amounts and its funded debt to
exceed certain percentages of net tangible assets, of
net worth and of depreciated value of flight equip-
ment, as those terms are defined in the agreements.
At December 31, 1965 the Company had complied
with the covenants then in effect.
Note B-Stockholders' Equity
The Note Purchase Agreements and the Second
Amendatory Credit Agreement establish an aggregate
dollar maximum for the declaration and payment of
cash dividends on Common Stock, and for the dis-
tribution on, redemption purchase or other acquisi-
tion of shares of any class of capital stock. The
amount of retained earnings unrestricted for such
purposes at December 31, 1965 was $41,307,585.
During the year options for 6,179 shares of Common
Stock were exercised at prices not less than 95% of
the market price of Common Stock at the time of
granting. At December 31, 1965, 150,000 unissued
shares of Common Stock are reserved for options
which may be granted to officers and key employees
in the future at prices not less than 100% of the market
price of Common Stock at the date of such grant.
There were authorized at December 31, 1965
1,000,000 shares of Cumulative Preferred Stock, $25
par value, none of which were outstanding.
Note C-Commitments
The Company has contracted to purchase from The
Boeing Company nine 320C, six 727 and ten 727C
turbo-jet aircraft for delivery in 1966 and 1967, which
with spare engines, parts and equipment will re-
quire expenditures of $139,414,000. Of this amount,
$25,546,000 had been deposited with manufacturers
at December 31, 1965 and approximately $94,873,000
and $18,995,000 becorrie payable in 1966 and 1967,
respectively.
Annual rental payments of approximately $3,255,000
are required under various lease agreements for per-
iods up to thirty-three years covering airport facilities,
ticket offices, etc.
Note D-Mail Transportation Compensation
o final determination of total mail compensation
has been made by the Civil Aeronautics Board on in-
ternational and domestic routes for 1951. The ultimate
effect of any redetermination is not known at this
time.
Note E-Taxes On Earnings
The provision for taxes on earnings consists of the
following:
Year Ended December 31
1965 1964
Current provision .................... $26,047,300 $16,992,800
Deferred taxes......... ................. 8,839,800 3,796,200
Deferred investment credit.... 6,861,300 5,114,300
$41,748,400 $25,903,300
Li=>ss amortization of deferred
investment credit over eight
years ...................................... 1,371,100 682.800
$40,377,300 $25,220,500
Northwest
Airlines,
Inc.
General Offices
Minneapolis-St. Paul
International Airport
St. Paul, Minn. 55111
*
JAMES H. BINGER
Chairman of the Board, Honeywell Inc.
MlnD'eapolis, ltlinnesota
HADLEY CASE
President, Case, Pomeroy & Company, Inc.
New York, Xew York
A. E. FLOA T
Vice President and Secretary, l\"orth""est Alrllnes, Inc.
St. Paul, IUlnnesota
MORTON H. FRY
Senior Partner, Riter & Company
New York, ~ew York
CR OIL HUNTER
Chairman Emeritus, North~-est Airlines, Inc.
St. Paul, Minnesota
MALCOLM S. MACKAY
Presid-ent, Foothills Company
Roscoe, )lontana
CLYDE B. MORGAN
Chairman of the Board, Rayonier Incorporated
New York, Xew York
DONALD W. NYROP
President, ::\'orthwest Airlines, Inc.
St. Paul, )Iinnesota
ALO ZO PETIEYS
President, Farmers State Bank
Brush, Colorado
C. FRANK REA VIS
Partner, ReaYis and )IcGrath
New York, Xew York
ALBERT G. REDPATH
Partner, Auchincloss, Parker & Redpath
NewYork,XewYork
LYMA E. WAKEFIELD, JR.
Vice President, First Xational Bank or Minneapolis
:'.tllnnea polis, :'.tllnnesota
ALBERT J. WEATHERHEAD, JR.
Chairman of the Boord, The "\\eatherbead Company
CleYeland, Ohio
*
DONALD W. NYROP
President
PA UL L. BENSCOTER
Ylce President-Transportation Senlces
ROBERT A. EBERT
Ylce President-Personnel
A. E. FLOA.t~
YJce President and Secretary
BENJAMIN G. GRIGGS. JR.
Ylce President-Flight Operations
DONALD H. HARDESTY
Ylce President-Finance and Treasurer
WM. E. HUSKINS, JR.
Yiee President-Orient Region
FRA KC. JUDD
, ice Presldent-llalntenance and Engineering
M. JOSEPH LAPENSKY
Con\J)tro lier
RONALD i\,tcVICKAR
..\ssh1tant , ice President
EMORY T. NUI\'NELEY, JR.
Yice President and General Counsel
C. L. STEWART
, ice President-Economic Planning
0 As of March 1, 1966
R.~1:1,., 11. 11. 1 e\,,, ase ar,
TRANSFER AGENT Banke s rJst
STOCK LISTED: Corrrror S od
Excti nge and M" dwes~
ROBERT J. WRIGHT
Yic-e President-Sales
y
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SEo:'ru;"'L---------..~
KOREA
T AIWAN
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.,
HONG KONG
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CANADA
UNITED STATES
NORTHWEST ORIENT AIRLINES
SYSTEM MAP
ANCHORAGE
ATLANTA
BILLINGS
BISMARCK
BOZEMAN
BUTTE
CHICAGO
CLEARWATER
CLEVELAND
DETROIT
FARGO
FT. LAUDERDALE
GRAND FORKS
GREAT FALLS
HELENA
HOLLYWOOD
HONOLULU
JAMESTOWN
MADISON
MANDAN
MANILA
MIAMI
MILWAUKEE
MINNEAPOLIS
MISSOULA
MOORHEAD
NEW YORK
NEWARK
OKINAWA
OSAKA
PHILADELPHIA
PITTSBURGH
PORTLAND
ROCHESTER
ST. PAUL
ST. PETERSBURG
SEATTLE
SEOUL
SPOKANE
TACOMA
TAIPEI
TAMPA
TOKYO
WASHINGTON, D. C.
WINNIPEG
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THE FAN-JET AIRLINE