Northwest Airlines Annual Report 1966

NORTHWEST ORIENT AIRLINES 1966 ANNUAL REPORT
1966 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
fOperations in 1 966 were curtailed during a strike
from July 8 to August 1 9.
*Reflecting two-for-one split in 1966.
1966t
.$311,318,511
.$100,654,479
. .$53,135,922
$5.81
.$212,726,698
$23.25
. . .$5,489,771
15.60
30.10
. . . .4,963,275
3,699,851,000
. 175,872,000
. . . .9,149,626
8,875
1965
$262,998,1 39
$85,847,206
$45,694,024
$4.99*
$165,080,849
$18.04*
$3,657,442
16.40
33.00
4,593,462
3,303,809,000
1 33,048,000
9,149,626*
7,578
40th ANNUAL REPORT TO STOCKHOLDERS
. . . FROM THE PRESIDENT:
During this, our 40th anniversary
year, your Company experienced
exceptional progress and improved
operations in all areas. 1 966 also
provided the most outstanding fi
nancial results in the history of
Northwest Orient Airlines.
Total operating revenues reached
$311,31 8,511 --an increase of 1 8%
in the past year and a 1 80% increase
over the latest five-year period.
New highs were also achieved in
net earnings, with a net profit total
ing $53,1 35,922 for the year just
ended.
Reflecting continued efforts to
remain highly competitive in the air
line industry. Northwest's Fan-Jet
fleet was increased to 61, with the
delivery of eight additional Boeing
707-320C intercontinental range
aircraft, and ten additional 727 tri
jet airplanes for domestic opera
tions. Six Ill's and fourteen 320's
are on order and will be delivered in
1 967 and 1 968. This will bring our
fleet to a total of 81 Fan-Jets during
the next 21 months.
On future order are ten Boeing
747's with delivery dates set for
one aircraft each month starting in
March 1 970.
It is our opinion that the Com
pany's sound cash flow position
will permit the completion of this
flight equipment program without
additional loans or equity financing.
Increasing reliance on air travel
Northwest's main base (the most completely
integrated airline facility in the industry)
is located at the Minneapolis-St. Paul
International Airport.
as the fastest, most convenient and
comfortable means of transporta
tion is only one aspect of North
west's 1 966 success. Management
strength has been improved and
tightened in all phases of operation,
resulting not only in meeting the
requirements of our expanding op
eration, but also minimizing the cost
of expansion. Utilizing pre-planned
building space in our General Office,
several departments have been re
located in new areas, resulting in an
improvement in overall company
operations.
Northwest lias a vital stake in the
Transpacific proceeding, and will
seek an expanded opportunity to
provide new and improved service
to a number of major cities and to
strengthen the U.S. air transport
route system in the Pacific. Autho
rization of Northwest Airlines as a
Central Pacific carrier (on the pri
mary trade route out of Los Angeles
and San Francisco) would strength
en the competitive balance of U.S.
earners in the Pacific without dilut
ing the available traffic. Concur
rently, Northwest is continuing its
proposal for a Twin-Cities/Califor-
nia route.
We deeply regret the loss of Mr.
Albert J. Weatherhead from our
Board of Directors. Mr. Weather-
head was a highly valued director
for Northwest Airlines from 1953
until his death on December 13,
1 966.
Our operating demands in 1966
called for extraordinary response
from employees throughout the
Company, and the year ahead will
make further demands upon our en
tire organization. We look with con
fidence to another successful year
in 1 967. The high standards of ser
vice to the public will be continued,
and we will maintain a constant
regard for necessary improvements.
Our legacy of progress will continue
with the greatly appreciated sup
port of our stockholders.
Sincerely,
President
March 10, 1967
FLEET, ROUTES AND SCHEDULES
Northwest's 40th anniversary year
was a year of progress and record
achievements. All-time records were
established in both operating reve
nues and net earnings.
Fleet
With the addition of 1 8 fan-jet air
craft to our fleet, major service im
provements included increased
Florida flights, new transcontinen
tal services, and added flights to
our Pacific areas. On April 24, we
began our first jet aircraft service to
Washington National Airport and
our first jet service to Pittsburgh.
During December 1 966, we initi
ated all-jet cargo service between
Minneapolis and New York, with
late night departure from Minne
apolis/St. Paul. Return flights on
the same night from New York to
the Twin Cities provides early morn
ing cargo delivery to consignees.
Route Developments
Amendments to the U.S. --United
Kingdom Air Transport Agreement
provided implementation of North
west's certificate authority at Hong
Kong. Daily through-plane service
between New York and Hong Kong
was added October 1, 1 966 --a
landmark date following more than
1 5 years of effort by Northwest. The
traffic response to the initial service
in this market has been excellent.
The case for expanded authority
in the Pacific, started in 1 966, is
continuing. We are requesting au
thority to 1 ) fly the Central Pacific
route from California via Hawaii to
the Orient; 2) serve the expanding
California-Hawaii market as part
of our total Transpacific services;
3) to provide new and improved
Pacific service to major Midwest
and Eastern cities; and 4) to extend
our routes beyond Taipei and Hong
Kong to Southeast Asia. There are
17 other airlines seeking authority
in the Pacific which, if granted,
would be competitive with North
west.
Northwest is vitally interested in
the Twin Cities/California case,
which would accomplish a major
objective in the development of our
domestic route structure.
Under the CAB examiner's initial
decision in the New York/Florida
renewal case, it was held that
Northwest should be authorized to
operate between New York, Phila
delphia and Washington on flights
serving Detroit or a point west of
Detroit. This addition would pro
vide improved flexibility in schedul
ing and routing aircraft.
During 1 966 Northwest contin
ued its requestfor Chicago/Toronto
authority. This authority would pro
vide one-carrier through-plane ser
vice from Toronto via Chicago to
such areas as the Twin Cities, Mil
waukee, Seattle, Portland and
others.
Schedules
Philadelphia, Detroit and Minne
apolis/St. Paul were provided their
first through-plane service to the
Orient, bringing the total to nine
domestic cities receiving direct one-
plane service to Orient destinations.
Northwest's Transpacific com
mercial schedules were increased
in 1 966 from 1 7 to 25 weekly round
trips, bringing greatly increased
traffic on our international routes.
Military
Transpacific charter flights by
Northwest in 1 966 provided the
Military Airlift Command with near
ly 11,000,000 plane-miles in jet
service to Korea, Okinawa, Japan,
Vietnam, Thailand, the Philippines
and other areas. Northwest also
continued its Mid-pacific island
service between Hickam Air Force
Base and Eniwetok, and between
Hickam and Midway.
At Northwest's recommendation,
McChord Air Force Base near
Seattle was established as a major
channel for military charter opera
tions in the Pacific. As a result both
the Government and Northwest
achieved savings in operating ex
penses, and the military has re
ceived greater lift from the available
aircraft because of savings in mile
age. McChord's proximity to Seattle
provides the Company with an op
portunity to place overflow military
traffic on commercial flights.
FINANCIAL RESULTS AND TRAFFIC GROWTH
Revenue & Expenses
Despite the 42-day strike in July
and August, total revenues of
$311,318,511 in 1 966 reflected an
increase of 1 8.4 per cent over 1 965's
$262,998,1 39.
System passenger revenues in
creased 9.0 per cent to
$21 6,238,508. The average fare per
passenger-mile declined approxi
mately 3 per cent to 5.840 in 1 966
due to liberalization of the family-
plan discount, from increased trav
el by youth and military personnel
on reduced stand-by fares, and
from a greater share of traffic in
coach service. The latter accounted
for 82.9 per cent of total passenger-
miles in 1 966, compared with 81.4
per cent in 1 965.
Freight, mail, express and excess
baggage revenues totaled $52,-
071,958 in 1 966. This revenue, up
23.4 per cent from 1 965, repre
sented a ratio of almost one dollar
for every four dollars of passenger
revenue.
Increased revenues were received
from Northwest's extensive com
mercial and military charter flights
with a total of $39,205,101 --an
increase of 79.4 per cent over 1 965.
The Military Airlift Command con
tract extends to June 30, 1 967,
and we will seek a renewal contract
for fiscal 1 968.
Operating costs increased by only
18.9 per cent from a total of
$1 77,1 50,933 in 1 965 to $210,-
664,032 during 1 966. Expenses in
clude depreciation and amortiza-
ln 1966 Northwest increased daily jet
service to the Orient to 25 flights a week.
tion of $24,010,596 in 1 965 and
$33,1 94,660in 1 966. Unitoperating
expenses declined from 16.40 per
available ton-mile in 1 965 to 1 5.60
in 1 966 through expanded fan-jet
services of greater capacity, high
hourly utilization of our flight equip
ment, and continued attention to
the control of expenses in all cate
gories. The unit cost of revenue
traffic carried declined from 33.00
per revenue ton-mile to 30.10 per
ton-mile in the year just ended.
Net Earnings
The total of $53,1 35,922 in 1966
amounted to net earnings of $5.81
per share of common stock com
pared with $45,694,024 or $4.99
per share in 1 965. Operating income
was a record $1 00,654,479 in 1 966.
Pretax non-operating items in
cluded $3,267,821 interest expense
and $1,358,702 gain on disposals of
property. The latter figure compares
with $1,971,304 in 1 965.
Investment tax credit available to
Northwest as a result of equipment
purchases has been used to reduce
the current income taxes. We are
continuing to amortize over an
eight-year period the net income
benefit of the investment tax credit.
The investment credit included in
net earnings amounted to $2,292,-
000 in 1 966 or about 67 per cent
more than the amount credited to
income in 1 965. There remains an
unamortized investment credit of
$17,656,100 to be reflected in in
come in future years. (Table, Page
13).
Cash flow from 1 966 operations
included generation of $103,037,-
882 from net earnings, depreciation
and amortization, deferred taxes and
investment credit. Other sources of
funds included a net increase of
$24,000,000 in long-term debt (de
rived from our revolving bank credit
agreement) and disposals of
$1,846,564 of operating property.
Major application of funds in
cluded fleet additions and advance
deposits for aircraft on order, total
ing $1 1 3,837,724. In addition, cash
dividends of $5,489,771 were paid
in 1 966, at the annual rate of 600
per share. With the March 1967
dividend, increased to 17.5 cents
quarterly, your Company will have
completed 12 years of consecutive
quarterly cash dividends.
Record Growth
Revenue plane-miles in scheduled
service during 1 966 increased by
9.9 per cent and available ton-
miles increased by 16.7 per cent.
Even greater percentage gains were
realized in virtually all categories
of traffic.
During 1 966 Northwest Airlines
approached the 3.7 billion-mile level
-- a total of 3,699,851,026 revenue
passenger-mi les flown in scheduled
services --an increase of 12.0 per
cent over 1 965. Our domestic pas
senger-miles increased 9.4 per cent,
and our system passenger load
factor improved from 53.8 per cent
in 1 965 to 54.6 per cent in 1 966.
Throughout our entire system
traffic increased from 4.6 million in
1 965 to almost 5.0 million pas
sengers carried in 1 966. Cargo and
mail again recorded the largest
1 966 increases in scheduled service
traffic. System freight and express
ton-miles increased by 32 per cent
and system mail ton-miles increased
by 33 per cent.
NORTHWEST AIRLINES, INC.
FINANCIAL REPORT
1966
Financial Condition
Northwest Airlines ranks among
the strongest in the airline industry
in terms of financial condition.
Stockholders' equity increased from
$1 65,080,849 at year-end 1 965 to
$21 2,726,698 at the close of 1 966.
Book value per common share was
$23.25 on December 31,1 966, com
pared with $1 8.04 per share last year.
Outstanding debt at the close of
the year amounted to $99,000,000.
Our existing bank credit agreement
provides maximum revolving credit
of $75,000,000 of which $62,000,-
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, 1 968 and
by $5,000,000 on the first day of
each quarter thereafter until Oc
tober 1, 1971.
The note purchase agreements
with insurance companies com
prise $37,000,000 in outstanding
debt. This loan is payable $3,000,-
000 annually and $4,000,000 on
October 1, 1 978.
On order at the close of 1 966
were 14 Boeing 707-3200 inter
continental range fan-jet aircraft,
six Boeing 727 and 7270 fan-jets,
and 10 Boeing 747 and 7470 air
craft. Financing for these orders is
available from existing credit ar
rangements and from internal cash
generation.
The strong financial position at
tained by Northwest Airlines is evi
denced by a most favorable debt
ratio with year-end debt at 47 per
cent of stockholders' equity.
Northwest's substantial growth on the
Florida segment continues--with the help
of our famous upside-down map.
10 YEAR SUMMARY
NORTHWEST AIRLINES, INC. AND SUBSIDIARY
(Dollars in thousands except per share figures)
Operating Revenues
Passenger
Cargo
Mail
Charter and Other Transportation
Nontransport
Total Operating Revenues
Operating Expenses
Depreciation and Amortization
Other
Total Operating Expenses
Operating Income
Other Income and (Deductions) --Net
Earnings Before Taxes
Income Taxes
Net Earnings
Earnings per Share*
Stockholders' Equity
Book Value per Share*
Cash Dividends
Assets and Long-Term Debt
Flight Property at Cost
Flight Property at Net Book Value
Total Assets
Long-Term Debt
Unit Expenses
Per Available Ton-Mile
Per Revenue Ton-Mile
Per Cent of Operating Revenues
Statistics--Scheduled Services
Revenue Plane Miles (000)
Available Seat Miles (000)
Revenue Passenger Miles (000)
Passenger Load Factor
Revenue Passengers Carried
Freight and Express Ton-Miles (000)
Total Revenue Ton-Miles (000)
Statistics--Total Operations
Revenue Plane Miles (000)
Available Ton-Miles (000)
1966t
$ 216,239
29,51 5
22,557
39,205
3.803
$ 311,319
$ 33,195
177,469
$ 210,664
$ 100,655
(1,243)
$ 99,412
46,276
$ 53,136
$ 5.81
212,727
23.25
5,490
$ 401,476
311,803
422,040
96,000
1 5.60
30.10
67.7%
67,780
6,773,257
3,699,851
54.6%
4,963,275
108,914
533,556
77,71 5
1,348,983
1965
$ 1 98,457
24,779
17,421
21,851
490
$ 262,998
$ 24,011
1 53,140
$ 177,151
$ 85,847
224
$ 86,071
40,377
$ 45,694
$ 4.99*
1 65,081
18.04*
3,657
$ 304,072
233,858
333,31 1
72,000
16.40
33.00
67.4%
61,653
6,140,717
3,303,809
53.8%
4,593,462
82,71 5
452,553
67,125
1,079,832
1964
$ 1 63,807
18,402
15,313
12,965
1,123
$ 211,610
$ 22,852
1 35,627
$ 1 58,479
$ 53,131
(1,125)
$ 52,006
25,220
$ 26,786
$ 2.93*
1 22,960
13.46*
2,602
$ 219,523
1 60,925
237,226
45,000
18.50
39.70
74.9%
52,1 57
5,1 29,944
2,668,81 2
52.0%
3,663,077
55,100
351,886
55,477
856,61 2
tAffected by major strikes in 1961 and 1966.
'Per share figures reflect two-for-one stock split in 1964 and again in 1966
and conversion of preferred stock as applicable in years prior to 1 963.
1963 1962 19611 1960 1959 1958 1957
$1 35,222 $121,781 $ 85,971 $ 97,680 $100,641 $ 81,116 $ 66.674
13,745 11,828 8,443 11,368 11,881 8,667 7,541
14,233 14,228 11,701 10,711 11,219 10,228 8,350
6,442 2,646 1,482 823 526 1,237 226
(854) (30) 3,456 2,780 1,763 709 641
$168,788 $1 50,453 $111,053 $1 23,362 $1 26,030 $101,957 $ 83,432
$ 19,159 $ 18,445 $ 17,118 $ 14,413 $ 11,310 $ 8,638 $ 5,851
123,713 112,802 84,21 3 104,455 103,811 81,281 72,597
$142,872 $1 31,247 $101,331 $118,868 $11 5,1 21 $ 89,919 $ 78,448
$ 25,916 $ 19,206 $ 9,722 $ 4,494 $ 10,909 $ 12,038 $ 4,984
(4,166) (4,578) (2,828) (1,882) 335 (559) 2,247
$ 21,750 $ 14,628 $ 6,894 $ 2,612 $ 11,244 $ 11.479 $ 7,231
11,297 7,398 3.233 986 5,530 5,865 2,41 2
$ 10,453 $ 7,230 $ 3,661 $ 1,626 $ 5,714 $ 5,614 $ 4,819
$ 1.43* $ .99* $ .50* $ .22* $ .79* $ 1.02* $ .87*
68,436 59,712 54,177 52,193 52,267 48,224 33,065
9.38* 8.20* 7.44* 7.17* 7.18* 6.69* 5.95*
1,823 1,702 1,701 1,700 1,714 1,110 1,117
$1 76,655 $1 69,41 3 $170,772 $121,441 $104,389 $ 90,608 $ 71,716
1 27,074 1 22,980 1 33,485 86,957 76,647 56,461 43,023
1 96,765 1 86,887 189,103 148,698 130,097 105,061 76,222
64,996 74,968 90,286 68,500 50,000 34,250 27,000
21.70 23.90 27.60 27.80 26.50 26.10 27.40
46.80 50.20 54.20 54.20 51.00 49.00 50.40
84.6% 87.2% 91.2% 96.4% 91.3% 88.2% 94.0%
45,356 41,821 31,143 46,671 47,568 39,113 34,742
4,305,147 3,697,796 2,611,840 3,073,400 3,149,000 2,574,848 2,1 25,505
2,179,208 1,904,112 1,361,790 1,653,966 1,738,1 38 1,408,743 1,205,765
50.6% 51.5% 52.1% 53.8% 55.2% 54.7% 56.7%
2,911,914 2,437,342 1,723,667 2,1 39,547 2,1 38,970 1,827,1 29 1,574,035
39,417 35,179 23,035 32,480 31,377 22,285 19,714
284,732 254,033 182,704 217,722 225,1 10 181,678 1 55,323
47,207 42,718 31,658 46,963 47,732 39,670 34,814
657,761 548,1 59 367,301 428,782 435,977 348,235 285,958
STATEMENT OF FINANCIAL POSITION
NORTHWEST AIRLINES, INC. AND SUBSIDIARY
ASSETS
December 31
Current Assets
1966 1965
Cash
Accounts receivable
Flight equipment parts, at average cost, less allowance for
depreciation (1 966 --$2,958,21 2; 1 965 --$2,623,461 ) .
Maintenance and operating supplies at average cost
Prepaid expenses
$ 18,909,883
33,775,339
7,922,256
2,639,637
2,387,181
$ 1 9,926,1 36
25,81 6,690
6,687,027
2,238,505
2,1 53,1 61
Total Current Assets $ 65,634,296 $ 56,821,51 9
Property and Equipment
Flight equipment at cost
Less allowances for depreciation
$401,476,043
89,673,047
$304,072,405
70,214,485
Advance payments on new flight equipment--Note C
$31 1,802,996
23,726,852
$233,857,920
25,546,31 3
Other property and equipment at cost
Less allowances for depreciation
$335,529,848
$ 29,477,098
14,61 3,625
$259,404,233
$ 25,366,504
1 3,079,596
$ 14,863,473 $ 12,286,908
$350,393,321 $271,691,141
Deferred Charges and Other Assets
Unamortized training and other costs
in connection with aircraft fleets
Rentals
Other
$ 1,641,734
1,403,442
2,967,705
$ 2,718,578
1,304,493
775,023
$ 6,012,881 $ 4,798,094
$422,040,498 $333,310,754
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31
Current Liabilities
Accounts payable
Employee compensation
Air travel card deposits
Unredeemed ticket liability
Income taxes
Current maturities of long-term debt
Total Current Liabilities
Long-Term Debt--Note A
Deferred Credits--Note E
Income taxes--arising principally from accelerated depreci
ation methods
Investment credit
Other
Stockholders' Equity--Note B
Common Stock (after giving effect to two-for-one stock
split in 1 966) $2.50 par value; authorized 20,000,000
shares; issued and outstanding 9,149,626 shares
Capital surplus
Retained earnings
Commitments--Note C
1966 1965
$ 24,821,375 $ 19,411,834
7,625,084 6,299,878
1,173,000 1,201,475
3,627,578 2,801,299
10,666,850 17,799,448
3,000,000 3,000,000
$ 50,91 3,887 $ 50,51 3,934
$ 96,000,000 $ 72,000.000
$ 43,743,900 $ 32,620,600
17,656,100 1 2,072,100
999,91 3 1,023,271
$ 62,399,91 3 $ 45,71 5,971
$ 22,874,065 $ 22,874,065
39,381,745 39,382,047
1 50,470,888 102,824,737
$21 2,726,698 $165,080,849
$422,040,498 $333,310,754
See notes to financial statements.
STATEMENT OF EARNINGS
NORTHWEST AIRLINES, INC. AND SUBSIDIARY
Year Ended December 31
Operating Revenues
Passenger
Cargo
Mail
Charter and other transportation
Nontransport
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 investment credit--Note E
Net Earnings for the Year
Earnings per share of Common Stock
'Operations in 1966 were curtailed during a strike from July 8 to August 19.
1966*
1965
$21 6,238,508 $' 198,457,081
29,51 5,333 24,778,806
22,556,625 17,421,379
39,205,101 21,851,204
3,802,944 489,669
$311,318,511 $262,998,1 39
$ 64,649,872 $ 53,143,541
29,731,968 27,558,040
22,571,986 18,468,831
29,352,334 25,41 1,681
23,832,322 21,952,569
7,330,890 6,605,675
33,1 94,660 24,010,596
$210,664,032 $' 177,1 50,933
$' 100,654,479 $ 85,847,206
($ 3,267,821) ($ 1,822,302)
1,358,702 1,971,304
666,062 75,116
($ 1,243,057) $ 224,118
$ 99,41 1,422 $ 86,071,324
46,275,500 40,377,300
$ 53,1 35,922 $ 45,694,024
$5.81 $4.99
See notes to financial statements.
STATEMENT OF RETAINED EARNINGS
NORTHWEST AIRLINES, INC. AND SUBSIDIARY
Balance at beginning of year
Add net earnings
Deduct cash dividends on Common Stock
(after giving effect to two-for-one stock split in 1966)
1966 --$.60 a share; 1965 --$.40 a share
Balance at end of year
See notes to financial statements.
Year Ended December 31
1965
$ 60,788,155
45,694,024
$1 55,960,659 $106,482,179
1966
$102,824,737
53,1 35,922
5,489,771
$1 50,470,888
3,657,442
$102,824,737
STATEMENT OF SOURCE AND APPLICATION OF FUNDS
NORTHWEST AIRLINES, INC. AND SUBSIDIARY
Year Ended December 31
1965
$ 45,694,024
24,010,596
8,839,800
5,490,200
$ 84,034,620
27,000,000
1,269,361
$112,303,981
$ 81,474,478
24,785,059
3,657,442
1,920,027
$111,837,006
$ 466,975
Net earnings $ 53,1 35,922
Depreciation and amortization 33,1 94,660
Deferred income taxes 11,123,300
Investment credit 5,584,000
Total from Operations $103,037,882
Increase in long-term debt 24,000,000
Disposals of operating property 1,846,564
Total of Sources $1 28,884,446
Application of Funds
Flight equipment and other property additions $ 92,1 61,535
Advance deposits on aircraft 21,676,189
Cash dividends 5,489,771
Other 1,144,127
Total of Applications $120,471,622
Increase in Working Capital $ 8,412,824
See notes to financial statements.
NORTHWEST AIRLINES FLEET APPLICATION OF INVESTMENT TAX CREDIT
December 31
Aircraft Type 1965 1966 On Order Period
Available & Reflected in
Utilized* Net Earningst
JET:
707-320B & 320C
720B
727 & 727C
747 & 747C
Total Jet
PROP-JET: Electra
PISTON: DC-7C
Total Fleet
13 21 14
16 16 --
14 24 6
--
10
43 6? 30
16 13 --
5 3 --
64 77 30
1 962-1 965
1966
Total
To Net Earnings
To Be Amortized
$14,249,600
7,876,000
$22,1 25,600
4,469,500
$17,656,100
$2,177,500
2,292,000
$4,469,500
*AN investment credit amounts generated 1962-1966 have
been utilized to reduce income taxes,
t Income benefit of investment credit amortized over eight-
year period.
NOTES TO FINANCIAL STATEMENTS
Note A--Long-Term Debt
Under Note Purchase Agreements with twelve in
surance companies the Company has borrowed
$37,000,000 at 6% payable $3,000,000 annually and
$4,000,000 on October 1, 1 978. Certain optional pre
payments at par are permitted. The Agreements con
tain certain other provisions with respect to redemp
tion as a whole, but not from borrowed funds, at
premiums ranging from 5% to 1%.
Under the Second Amendatory Credit Agreement
with fifteen banks the Company has outstanding
$62,000,000. This Agreement provides for revolving
credit of $75,000,000 reducing to $55,000,000 by
January 1, 1 969, to $35,000,000 by January 1, 1 970,
to $15,000,000 by January 1, 1971, and terminating
on October 1, 1971. Interest on funds borrowed is
at 4%%.
At December 31, 1 966 the Company had complied
with the covenants of the long-term debt agreements.
Note B --Stockholders' Equity
The Company is authorized to issue 1,000,000 shares
of Cumulative Preferred Stock, $25 par value, none of
which are outstanding.
At December 31, 1966, 300,000 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.
Capital surplus decreased $302 during 1 966 as a
result of miscellaneous stock transactions.
After applying the most restrictive provisions of the
long-term debt agreements, $18,720,409 of retained
earnings was available for cash dividends on Common
Stock at December 31, 1 966.
Note C --Commitments
The Company has contracted to purchase from The
Boeing Company ten 747, fourteen 320, and six 727
turbo-jet aircraft for delivery in 1 967 through 1970,
which with spare equipment will require expenditures
of $336,894,000. Of this amount, $23,726,000 had
been deposited with manufacturers at December 31,
1 966 and approximately $68,679,000, $99,031,000,
$39,756,000 and $105,702,000 become payable in
1 967, 1 968, 1 969 and 1 970, respectively.
Annual rental payments of approximately $3,760,000
are required under various lease agreements for periods
up to thirty-two years covering airport facilities, ticket
offices, etc.
Note D --Mail Transportation Compensation
A final determination of total mail compensation has
not been made by the Civil Aeronautics Board on in
ternational and domestic routes for 1 951. 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
Current provision
Deferred taxes
Deferred investment credit
1966
$29,568,200
11,123,300
7,876,000
1965
$26,047,300
8,839.800
6,861,300
$48,567,500 $41,748.400
Less amortization of deferred invest
ment credit over eight years 2,292,000 1.371,100
$46,275,500 $40,377,300
ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors
Northwest Airlines, Inc.
Saint Paul, Minnesota
We have examined the statement of financial position of Northwest
Airlines, Inc. and subsidiary as of December 31, 1966 and the
related statements of earnings, retained earnings and source and
application of funds 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 had previously made a similar examina
tion for 1 965.
Saint Paul, Minnesota
February 14, 1 967
In our opinion, the accompanying statements of financial posi
tion, earnings and retained earnings present fairly the consoli
dated financial position of Northwest Airlines, Inc. and subsidiary
at December 31, 1966 and 1 965 and the consolidated results of
their operations for years ended those dates, in conformity with
generally accepted accounting principles consistently applied.
Further, in our opinion, the accompanying statement of source
and application of funds presents fairly the information shown
therein.
Certified Public Accountants
NORTHWEST AIRLINES, INC.
General Offices
Minneapolis-St. Paul International Airport
St. Paul, Minnesota 55111
DIRECTORS'
JAMES H. BINGER
Chairman of the Board, Honeywell Inc.
Minneapolis, Minnesota
HADLEY CASE
President, Case, Pomeroy & Company, Inc.
New York, New York
A. E. FLOAN
Vice President and Secretary, Northwest Airlines. Inc.
St. Paul, Minnesota
MORTON H. FRY
Senior Partner, Riter & Company
New York, New York
CROIL HUNTER
Chairman Emeritus, Northwest Airlines, Inc.
St. Paul, Minnesota
MALCOLM S. MACKAY
President, Foothills Company
Roscoe, Montana
CLYDE B. MORGAN
Chairman of the Board, Rayonier Incorporated
New York, New York
DONALD W. NYROP
President, Northwest Airlines, Inc.
St. Paul, Minnesota
ALONZO PETTEYS
President, Farmers Realty Co.
Brush, Colorado
C. FRANK REAVIS
Partner, Reavis and McGrath
New York, New York
ALBERT G. REDPATH
Partner, Auchincloss, Parker & Redpath
New York, New York
LYMAN E. WAKEFIELD, JR.
Vice President, First National Bank of Minneapolis
Minneapolis, Minnesota
OFFICERS'
DONALD W. NYROP
President
ROBERT A. EBERT
Vice President-Personnel
A. E. FLOAN
Vice President and Secretary
BENJAMIN G. GRIGGS, JR.
Vice President-Flight Operations
DONALD H. HARDESTY
Vice President-Finance and Treasurer
WM. E. HUSKINS, JR.
Vice President-Orient Region
FRANK C. JUDD
Vice President-Maintenance and Engineering
M. JOSEPH LAPENSKY
Vice President-Economic Planning
RONALD McVICKAR
Assistant Vice President
EMORY T. NUNNELEY, JR.
Vice President and General Counsel
ROBERT J. PHILLIPS
Comptroller
C. L. STEWART
Vice President-Transportation Services
ROBERT J. WRIGHT
Vice President-Sales
REGISTRAR: The Chase Manhattan Bank,
New York, N.Y.
TRANSFER AGENT: Bankers Trust Company,
New York, N.Y.
STOCK LISTED: Common Stock listed on New York
Stock Exchange and Midwest Stock Exchange
Vis of March 7, 1967
CUSTOMER SERVICES AND OPERATIONS
Personnel
Continued dynamic growth of your
Company and improvement in its
ground and flight services created
approximately 1,200 additional em
ployment opportunities m 1 966, and
broadened opportunities for the
more than 8,800 employees on pay
roll at the end of the year.
A new agreement was ratified on
August 1 9 between Northwest Air
lines and four other carriers and
the Machinists Union, ending a 42-
day strike. During this time. North
west was able to successfully pro
vide necessary and essential ser
vices to the military. At year's end,
11 collective bargaining agreements
were in effect and will continue in
force throughout 1 967. Progress is
currently being made in mediation
conferences toward reaching new
agreements with the two unions
representing cabin attendants and
personnel in the agent, clerical and
office classifications.
Northwest employed and trained
308 new pilots, in addition to pro
viding transition training for 363
pilots, and qualifying them to fly our
increasing fan-jet fleet of aircraft.
The record of performance of
Northwest's personnel, both new
and veteran, was outstanding in
1 966. Northwest's policy places
great emphasis on recruitment, se
lection, placement, training and de
velopment of the best qualified em
ployees and managers to meet re
quirements of the future.
Operations
Northwest inaugurated the first
stage of an extensive computer
flight planning system which will
provide automatic analysisofTrans
pacific weather data and prepara
tion of optimum flight plans for all
Transpacific operations. Financial
and administrative functions are
also being programmed into the
computer system.
Major communications improve
ments were installed in Detroit,
Milwaukee and Washington, D.C.,
with plans for further improve
ments in the New York reservations
office. Progress is being made in a
major revision of our computer res
ervations program.
The first of three modern Trans
dyne Instrument Trainers was de
livered in 1 966. In addition to these
trainers, a full flight simulator with
both 707-320C and 727 cockpits
was ordered and is being manu
factured for 1 967 delivery.
Marketing
Extensive sales promotional cam
paigns were conducted throughout
the entire system, with spring travel
agency seminars held in Boston,
New York, Washington, Los
Angeles, San Francisco, Dallas and
Philadelphia. New services from
Philadelphia, Detroit and Minne-
apolis-St. Paul were promoted in
July and September. The fall sales
and advertising effort included an
introductory campaign on the new
Hong Kong services, intensive pro
motion on the Florida segment, and
a comprehensive program on the
Transpacific market including travel
agency seminars which were con
ducted in Seattle, Detroit and
Atlanta.
"Youth Fares" became effective
in February, 1 966, permitting per
sons between the ages of 1 2 and 21
to travel at approximately half fare.
Northwest reduced Orient fares
twice in 1 966. In May we led the
industry in instituting reductions.
Imperial Service. Northwest's finest.
The luxury way to travel --here in the
U.S. and across the Pacific.
THE FAN-JET FLEET OF NORTHWEST ORIENT
Boeing 727 Fan-Jets. Built to get in and out of smaller airports, the
Northwest 727 takes off in seconds and rides quiet as a breeze. We
have 24 of these in our fleet. (Length: 116 feet, 2 inches--range:
3,050 miles--maximum speed: 606 mph.)
Boeing 720B Fan-Jets. Powerful. Versatile. Good for both long and
short trips. Sixteen of these transcontinental Fan-Jets are flying
Northwest passengers to major cities coast to coast. (Length: 130
feet, 6 inches--range: 4,430 miles--maximum speed: 606 mph.)
Boeing 320 Intercontinental Fan-Jets. Twenty-one of these long- U.S.A. and the Orient--non-stop between Seattle and Tokyo. (Length:
range Fan-Jets are now flying Northwest passengers between the 145 feet, 6 inches--range: 6,900 miles--maximum speed: 606 mph.)
Coming in 1970! The Boeing 747 Fan-Jets. Northwest has placed
an order for ten of these 370-490 passenger intercontinental Fan-
Jets to be delivered in 1970. This newest addition to the Northwest
fleet will represent significant improvement in passenger and cargo
economics, passenger comfort, cruise speed and operational re
liability. (Length: 228 feet, 6 inches--range: 8,290 miles--maximum
speed: 657 mph--gross weight: 680,000 lbs. --payload: 229,200 lbs.)
The United States SST. The 1800-mph supersonic jetliner of the position on four United States SSTs. These aircraft will make it
future. Northwest has deposited funds to guarantee early delivery possible to fly from the West Coast to Tokyo in 4 hours 28 minutes.
Anchorage
Atlanta
Billings
Bismarck
Bozeman
Butte
Chicago
Clearwater
Cleveland
Detroit
Fargo
IENT AIRLINES' ROUTES SERVE: Portland
Rochester
Ft. Lauderdale Miami St. Paul
Grand Forks Milwaukee St. Petersburg
Great Falls Minneapolis Seattle
Flelena Missoula Seoul
Flollywood Moorhead Spokane
Hong Kong New York Tacoma
Honolulu Newark Taipei
Jamestown Okinawa Tampa
Madison Osaka Tokyo
Mandan Philadelphia Washington, D.C
Manila Pittsburgh Winnipeg
The beautiful islands of Hawaii are served
by 1 4 Northwest flights every week
from the mainland.
NORTHWEST ORIENT THE FAN-JET AIRLINE