Northwest Airlines Annual Report 1974

NORTI-IWEST ORIENT
Directors*
James H. Binger
Honeywell, Inc.,
Chairman of the Executive Committee,
Minneapolis, Minnesota
(Manufacturer of automation systems)
Hadley Case
President, Case, Pomeroy & Company, Inc.
New York, New York
(Investments)
Donald H. Hardesty
Retired Vice President-Finance, NWA
St. Paul, Minnesota
Melvin R. Laird
Senior Counsellor, Reader's Digest, Inc.
Washington, D.C.
(Magazine publishing)
Malcolm S. Mackay
President, Foothills Company
Roscoe, Montana
(Oil and gas properties)
Donald G. McNeely
President, Space Center, Inc.
St. Paul, Minnesota
(Real estate)
Donald W. Nyrop
President, Northwest Airlines, Inc.
St. Paul, Minnesota
C. Frank Reavis
Partner, Reavis and McGrath
New York, New York
(Attorneys)
Albert G. Redpath
Vice President, Thomson and McKinnon,
Auchincloss, Kohlmeyer, Inc.
New York, New York
(Investment bankers)
Lyman E. Wakefield, Jr.
Resource Trust Co.,
Chairman of the Board
Minneapolis, Minnesota
(Investment advisors)
Co-Registrars and Transfer Agents:
orthwestern National Bank,
Minneapolis, Minnesota
Northwestern Trust Co.,
ew York, ew York
Officers*
Donald W. Nyrop
President
James A. Abbott
Vice President-Law
Clayton R. Brandt
Vice President-Purchasing and Stores
Robert W. Campbell
Vice President-Budgets
J. William Campion
Vice President-Regulatory Proceedings
Roland W. Chambers
Vice President-Properties
Robert A. Ebert
Vice President-Personnel
Roy K. Erickson
Vice President-Public Relations
A.E. Floan
Secretary
Robert J. Glischinski
Vice President-Communications
and Computer Services
Benjamin G. Griggs, Jr.
Vice President-Assistant to the President
William E. Huskins, Jr.
Vice President-Maintenance
and Engineering
Reginald C. Jenkins
Vice President-Orient Region
M. Joseph Lapensky
Vice President-Finance and Treasurer
Ronald McVickar
Vice President
Bryan G. Moon
Vice President-Advertising
Robert J. Phillips
Vice President-Comptroller
C.L. Stewart
Vice President-Transportation Services
Robert J. Wright
Vice President-Sales
Stock Listed: Common Stock listed on
New York Stock Exchange, Pacific Coast Stock
Exchange and Midwest Stock Exchange
* As of March 1, 1975
Highlights of 1974
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 ..... . ..... . ...... . .. .
~
NORTHWEST ORIENT AIRLINES
General Offices:
Minne~polis-St. Paul International Airport
St. Paul, Minnesota 55111
Business
1974
$758,990,979
77,785,297
64,747,629
3.00
589,990,898
27.31
9,721 ,943
19.9
48.29'.;
8,948,373
9,173,875,000
413 ,415,000
21 ,604,136
11,515
1973
$584,348,065
51,305,260
51,850,053
2.40
534,965,212
24.76
9,722,027
15.8
42.5t
7,987,299
8,007,850,000
340,198,000
21 ,604,136
11,263
Northwest Airlines. Inc .. incorporated in the State of :\linnesota. is a scheduled air carrier engaged in
commercial transportation of passcngt-?rs. mail and property. and operates under certificates of public:
convenience and necessity issued by the Civil Aeronautics Board. The present route system covers
approximately 23.mJO route miles and serves directly cities in 17 states of the 48 contiguous states. as well
as Alaska. Hawaii. the District of Columbia. Canada and countries in Asia. including Japan. Korea. Taiwan.
flong Kong and the Philippines. Authorizations to serve Shanghai. Peking and other points in continental
China remain in effect although presently inoperative.
3
4
48th Annual Report to the Shareholders
Earnings of $64,747,629 were achieved by Northwest
Orient Airlines in 1974. This was a record and a 25 per
cent increase over net earnings of $51,850,053 in 1973.
Earnings per share were $3.00 in 1974, compared to the
$2.40 earned in 1973.
Total operating revenues were at an all time high of
$758,990,979 in 1974. This was a 30 per cent gain over
total revenues of $584,348,065.
Dividend payments totaling $9,721,943 were made in
1974 as quarterly dividends were paid to Northwest
Orient shareholders for the 20th consecutive year.
Shareholders' equity grew to $589,990,898 in 1974
compared to $534,965,212 in 1973. Book value of NWA
stock increased to $27.31 in 1974 compared to $24.76 in
1973.
Revenue passenger miles flown in scheduled opera-
tions in 1974 were a record 9,173,875,477 compared to
8,007,850,467 in 1973. This was an increase of 14.6 per
cent. Available seat miles flown in scheduled service
showed more modest growth from 19,593,379,337 miles
in 1973 to 20,016,106,526 miles in 1974. Passenger load
factor climbed from 40.87 per cent in 1973 to 45.83 per
cent in 1974. Northwest Orient outperformed all other
U.S. trunk airlines in percentage gains in both passenger
and cargo traffic in 1974.
Fuel Prices Doubled
These achievements came despite the many problems
presented by the availability and price of aviation jet
fuel.
Availability of fuel was the prime concern of U.S.
airlines early in 1974 and a reduction in schedules was
necessary. Soon, however, price of fuel became the
paramount consideration.
Northwest Orient's expenditure for jet fuel more than
doubled in 1974- rising from $78.1 million in 1973 to
$159.8 million. The increase of $81.7 million brought
the Company's fuel costs as a per cent of revenue from
13.4 per cent in 1973 to 21.0 per cent in 1974. Without
the five per cent- or 29.7 million gallons - in fuel
saved by the Company in 1974 the added costs would
have been even larger.
Fare Increases Necessary
This rapid escalation in jet fuel prices and other costs
made it essential for the Civil Aeronautics Board to grant
offsetting fare increases. On April 16, 1974, the Board
permitted a six per cent domestic increase, followed by a
four per cent domestic increase on November 15, 1974.
Fleet Upgrading
The constant upgrading of Northwest Orient's aircraft
fleet continued in 1974 as seven additional McDonnell
Douglas DC 10-40's were accepted and integrated into
scheduled service.
With the 15 Boeing 747 jets and the 22 DC 10-40's now
in service, Northwest Orient offers approximately 7 5 per
cent of its available seat miles in the new generation,
wide-bodied aircraft. The Company has a higher ratio of
this type equipment in its fleet than any other U.S.
airline and obtains substantial benefits from the engine
standardization found on its 747's and DC 10-40's.
A total of 12 used aircraft were sold and delivered
during 1974 (two Boeing 720B's and 10 Boeing 320's)
to six different foreign flag carriers.
Jet Freighters Ordered
Three Boeing 7 4 7F jet air freighters were ordered in
December, 1974. They represent an investment of
more than $90 million with spare engine. Delivery of
the first 747F w.ill be made in June of this year fol-
lowed by deliveries in July and August.
Northwest Orient will be the first U.S. trunk airline to
place this version of the 7 4 7 freighter in operation. It
will have both nose-loading and side-door loading
capability. Loads up to 11 feet wide, 10 feet high and 180
feet long can be handled by this remarkable new aircraft.
It will play a key role in building NWA cargo business in
the Alaska market, the trai:is-Pacific market and the
trans-continental market.
New Routes and Services
There was little route case activity in 1974 as the Civil
Aeronautics Board maintained its virtual moratorium in
this area.
The opportunity for Northwest Orient to reinstate its
service to Edmonton, Alberta, Canada did come, how-
ever, as a result of the U.S. - Canadian bilateral air
rights treaty being signed.
Non-stop service to Edmonton from the Twin Cities of
Minneapolis/St. Paul was inaugurated on June 7, 1974,
with the flight continuing on non-stop to Anchorage
Alaska. This new service established links between two
important oil centers - Edmonton and Anchorage -
and between the Upper Midwest and western Canada
for trade and commerce.
New non-stop service between Winnipeg, Manitoba,
Canada and Chicago was also made possible by the new
bilateral agreement. It was inaugurated on June 1 , 1974.
New Labor Agreements
Collective bargaining agreements were signed with
ten classes or crafts of WA employees in 1974.
egotiations are currently being conducted with five
groups of A employees - among them pilots,
cabin attendants, clerical and agent employees.
System employment for the Company was 11,515 at
year end, 1974, compared to 11 263 employees at year
end, 1973. A total of 902 employees were nationals
from Orient countries.
Affirmative Action Broadened
Substantial progress was made in extending the
Company's Affirmative Action Program.
The increased number of minorities and women in
positions throughout the airline is a direct result of this
program and our conscientious effort to hire and pro-
mote qualified candidates.
The Company has participated in college recruiting
and in a number of national and community organiza-
tions involved with equal opportunity.
Officer, Director Changes
A.E. Floan stepped down in May, 1974 after outstand-
ing service on the Board of Directors for 31 years. His
valuable counsel will not be lost to the Company, how-
ever, as he will continue to serve as Secretary of the
corporation.
Melvin R. Laird was elected to replace Mr. Floan on
the Board of Directors. Mr. Laird is a former U.S. Secre-
tary of Defense and a former Congressman from Wis-
consin with 18 years of service. He now serves as
Senior Counsellor, - National and International Af-
fairs, Reader's Digest, Inc.
Frank C. Judd, Vice President - Maintenance and
Engineering, retired on April 1 , 1974 after an illustrious
career that spanned 42 years with Northwest Orient. He
had held key management positions in flight opera-
tions, station operations and maintenance and engineer-
ing after originally joining the Company as a pilot in
1932.
William E. Huskins, Jr. was named to replace Mr.
Judd. Mr. Huskins, although only 49, has 28 years ex-
perience with the Company and most recently was Vice
President - Communications and Computer Services.
Robert J. Glischinski was elected to the position of
Vice President - Communications and Computer Serv-
ices. He is a veteran of 34 years with orthwest Orient
and had been Director of Communications prior to his
promotion.
orth west Orient cabin attendants model new uniforms.
Outlook for 1975
Traffic for the early part of 1975 has not kept pace with
the same period last year. This has been the experience
of nearly all U.S. air carriers.
Airline business is particularly responsive to the state
of the economy. It will take a general business upturn to
bring about a very substantial improvement in revenues
and earnings.
The key to profitable performance for airlines in 1975,
more than ever before, will be the ability-and willing-
ness - to deal with budgets and cost controls. These
have been historical strengths of orthwest Orient Air-
lines.
In 1974, as in most recent years, your Company has
achieved the lowest breakeven operating weight load
factor in the U.S. airline industry - 36.9 per cent.
That operating efficiency plus the dedication to gain
a larger share of the existing market, will make 1975 a
profitable - if not record setting - year for your Com-
pany.
d :::::tA. ~
Donald W. yrop
March 1 5, 1975 5
Sales Records Set in 1974 for Both Passenger,
Cargo; Growth Well Above Industry's
Total revenues for Northwest Orient were at an all-
time high in 1974 with a figure of $759 million, com-
pared to $584 million in 1973, the previous record.
The primary factors in this growth were:
An increase in schedules utilizing the new wide-
bodied 747 and DC 10-40 aircraft.
The development of Convention Central, a new and
improved technique in business meeting and conven-
tion travel sales.
The traffic stimulus provided by Expo '7 4 in Spokane.
New traffic generated by commencement of work on
the Alaska pipeline.
Expansion of package tour programs, which increased
participation in the pleasure travel market.
Creation of a dynamic new advertising program using
the theme "We Give You Half The World".
Agency and Interline Sales
Passenger revenues from travel agency sales in-
creased in excess of 35 per cent during 1974. This rate of
growth, substantially exceeding industry averages, was
generated by a wide range of sales activities to educate,
assist and personally familiarize travel agents with
Northwest Orient services and destinations.
Promotional activities directed toward the travel in-
dustry included the presentation of Northwest Orient
"Travel Fairs" during the fall of 1974, introducing the
company's new tour and cruise vacation products to
more than 4,000 travel agents throughout the midwest
and east. These "Travel Fairs" are unique because they
reach travel agents in the smaller cities and towns, in
addition to major metropolitan areas.
Northwest Orient schedule displays in official indus-
try scheduled publications were greatly increased dur-
ing 1974. International connecting schedules between
domestic U.S. points and points in the Orient were in-
creased by more than 30 per cent, including the first
published connecting schedules by a U.S. carrier into
Peking and Shanghai from major U.S. cities on North-
west Orient routes.
Air Cargo
Air cargo revenues in 1974 were $76.2 million, rep-
resenting a 38 per cent increase over 1973 revenues of
$55.3 million. Revenues from freight forwarders in-
6 creased 66 per cent over 1973, reflecting the greater
acceptance of our improved cargo services by the pro-
fessionals serving public shipping requirements.
Important steps were taken in 1974 to prepare for
introduction of the 747F. all-cargo service. Interline a-
greements have been signed with 34 trucking firms to
deliver cargo traffic to Northwest Orient from offline
points. A "Cargo Central" facility has been established
allowing shippers throughout the U.S. to contact
Northwest Orient toll free to obtain rate and schedule
information.
Tour Sales
A separate Tour Sales Division was established
within the Sales Department to facilitate Northwest
Orient's growth in the vacation, pleasure travel market.
New tour brochure distribution systems were im-
plemented to place tour offerings more efficiently at
point-of-sale locations and into the hands of potential
customers.
The number of group and individual tour passengers
on Northwest Orient increased 20 per cent over 1973. In
NWA 'Travel Fairs' attracted more
than 4,000 travel agents in 1974.
1974, Northwest Orient had the industry's best selling
popular priced Orient tour programs. Hawaii tour pro-
grams continued to be very much in demand and were
instrumental in Northwest Orient increasing its share of
the Hawaii market.
New and expanded package tour developments dur-
ing 1974 included East Coast, Florida/Caribbean, Air-
Sea brochures, California and Ski tours. A most popular
tour was the Fly/Drive package featuring rental car and
family-type motor inns. Northwest Orient now offers
Fly/Drive tours to California Florida, and the Pacific
Northwest, plus a nationwide program including all our
on-line cities.
Convention Sales
Convention Central, a nationwide, toll free reserva-
tion and assistance center for firms and individuals ar-
ranging conventions, completed its first year of opera-
tion. Convention Central produced $5 million dollars in
new revenue for Northwest Orient in 1974.
To capitalize on the superiority of Northwest Orient's
Convention program an advertising campaign was in-
One of the most unique exhibit at
Spokane s fuYPO 74 ffa \A. 's
authentic Chine e junk.
Hong Kong busses became '.A
mobile billboards, promoting 747
serdces.
augurated in several meeting-planner publications.
This advertising program has successfully established
Northwest Orient as a leading convention carrier.
A new corporate meeting program was instituted in
September, 1974 and an aggressive sales solicitation
campaign is now underway to establish Northwest
Orient Airlines as a major competitor in this growing
market.
Expo '74 Exhibit
At Expo '74, the World's Fair held at Spokane,
Washington between May and November Northwest
Orient's presentation, though one of the smallest at the
Fair, captivated visitors and was featured in much of the
resulting press coverage.
The exhibit, an authentic Chinese Junk sailing vessel,
was purchased and renovated in Hong Kong then
trans-shipped 8,000 miles to rest in the Spokane River at
Expo '74. As many as 7,000 persons per da toured the
vessel's decks and cabins. At the conclusion of Expo '74,
the Junk was sold for slightl more than its original
purchase price. 7
8
Sales and Marketing Highlights
(Continued)
Advertising
Northwest Orient adopted the coordinating theme
"We Give You Half The World" in all its advertising and
sales promotion in 1974. This was conceived to project
the size and stature of the airline.
It influenced an increase in television advertising,
and the. production of a movie for showing to travel
agency and interline personnel. The movie was featured
in a country-wide series of live "Travel Fairs" in which
all major destinations were presented to the travel in-
dustry.
Specially composed theme music changed the sound
of Northwest Orient radio commercials, and in the
Orient the theme adaptation "We Give You The Best Of
Both Worlds" underlined the Company's advertising
message. However, our advertising continued to accent
schedules, wide-cabin equipment superiority, and
competitive fares in price conscious markets.
Cooperative tour support advertising with Orient and
domestic wholesalers and cruise ship lines was ex-
panded. This included extensive television advertising
in Japan for the Hawaii group tour market, and in the
U.S. midwest for Fly/Drive tours to Florida and Califor-
nia, and for Caribbean tours, primarily cruises.
MOST NONSTOP SEATS TO CHICAGO!
~'O"'l)f"' _11,,. l)MI( ,cf:1L1uOPr01" l
MOST WIDE.CABIN JETS TO CHICAGO!
plt\:11 f"lt~CO""'bfr"'1/
GREAT NIGHTCOACH SAVINGS TO CHICAGO!
l
,s.!'::o" ~ .f'ld.~p!FJl'IVJ ...... C, H ...;..']ff-11':f?i
FREE W1NE OR CKAMPAONE IN COACH TO CHtcAGO!
1-;- .,.. ,u 11,- It rtjf' Sc~ce ~, 'tX.CI .It
FlRST DAILY NONSTOP TO CHICAGO!
10:..i q 10 n ~er ''IYI ~:; '10 .i~ll{I t r.1 11
1bei1Way
toQ,icago!
To Chicago ... and half the world.
r=7-
l'~:.'.::.;j:
~
@NORTHWEST ORIENT
Charter Sales
Advertising in 1974
spotlighted NWA's
schedules and fleet
supremacy.
Many successful charter programs were carried out in
1974. Noteworthy was a thirteen-flight Orient program,
with a major tour operator, which, alone, generated
charter revenue in excess of one million dollars.
Northwest Orient was the official carrier for the Min-
nesota Vikings and Baltimore Colts professional football
teams. During 1974, sports teams of all types traveled
more extensively than ever before on scheduled service
and, as a result, Northwest Orient registered significant
revenue gains from this traffic.
Support for sales efforts is prime responsibility of NWA udvertising department.
Flights to Edmonton
Inaugurated in June
Non-stop jet service from the Twin Cities of
Minneapolis/St. Paul to Edmonton, Alberta, Canada was
inaugurated by Northwest Orient on June 7.
The new service became possible as the result of a new
bilateral air rights agreement negotiated by the U.S. and
Canadian governments.
An important new link between Edmonton and An-
chorage, Alaska- both important oil centers - has also
been forged with this new service which originates in
the Twin Cities.
A city of more than 500,000 population, Edmonton is
a dynamic, rapidly growing city that serves as western
Canada's major distribution center. It is also the gateway
to Jasper National Park, a major recreational area in both
winter and summer.
NWA Is Recommended
for Trans-Atlantic Routes
The Bureau of Operating Rights of the Civil Aeronau-
tics Board has recommended that Northwest Orient be
authorized to provide air service between the United
States and Norway, Sweden, Denmark, Finland and Ice-
land.
In its statement of position in the Trans-Atlantic
Route Proceeding, the Bureau recommended that
"Northwest Airlines replace Pan American in Scan-
dinavia and Finland, and should be allowed to provide
Los Angeles, Seattle, Chicago and New York service to
Iceland, Copenhagen, Oslo, Bergen, Stockholm and
Helsinki."
Oral argument of the case will be April 9 and a final
decision is expected late in 1975.
Other Route Cases
Pending Before CAB
Other route investigations in which Northwest Orient
is an applicant for new authority remain undecided by
the Civil Aeronautics Board. The status of these cases is
as follows:
Service to Saipan Case. (This case is now before the
Civil Aeronautics Board for decision.)
Edmonton - newest city on NWA 's route structure - is major
oil and gas exploration center.
Miami-Los Angeles Competitive Non-stop Case. (Oral
argument before the Civil Aeronautics Board will be
_
held on April 3.)
Reopened Service to Omaha and Des Moines Case.
(This case is awaiting a date for filing of briefs to the
Civil Aeronautics Board.)
Honolulu-Vancouver Route Proceeding. (Hearings
before an Administrative Law Judge will begin on
April 29.)
The Atlanta-Fort Myers Case. (Hearings before an
Administrative Law Judge will begin on May 20.)
In addition, final order of the Civil Aeronautics Board
which denied all applications for first competitive au-
thority in the Remanded Atlanta-Detroit/Cleve-
land/Cincinnati Investigation is now before the Court of
Appeal for review. g
10
Management's Discussion
The ten-year summary on Pages 24 and 25 of this
report shows the operating trends of revenues and ex-
penses. The sizeable increases in revenues, expenses
and earnings in 1973 compared with 1972 is primarily
the result of severely curtailed operations in 1972 due to
a pilots strike from June 30 through October 2, 1972.
Therefore, many of the comparisons of operations be-
tween 1972 and 1973 are not meaningful and will not be
discussed further. Material variances or trends between
1973 and 1974 will be emphasized in the discussion in
the balance of this financial review.
Revenues
Total operating revenues of $758,990,979 for 1974
represent an all-time high and compares with
$584,348,065 for 1973.
Passenger, cargo and mail revenues all showed sub-
stantial increases, derived from increased traffic in all
categories and increased fares and rates as permitted by
the CAB during the year. The system passenger-mile
SOURCE AND
DISTRIBUTION OF
REVENUES
~ 3. 0%
MAIL
soURCE
3.6%
CHARTER AND
0THER
TRANSPORTATION
~ .5%
OTHER
82.8%
PASSENGER
12.9%
INCOME TAX
AND
EARNINGS
12.7%
DEPRECIATION
AND AMORTIZATION
21.4%
FUEL AND OIL
27.2%
EMPLOYEE
WAGES
AND BENEFITS
25.8%
MATERIALS,
SERVICES
AND OTHER
DISTRIBUTION
yield increased to 6.81 in 1974 compared to 5.92 in
1973 and 6.09 in 1972. The revenue ton-mile yield for
mail and cargo was 23.87 and 23.99 respectively, and
compares with 20.85 and 21.95 in 1973 and 20.63
and 22.98 in 1972.
Revenues from charter and other transportation de-
creased slightly to $27,321,686 from $28,516,986 in
1973. This revenue includes $12,811,474 from commer-
cial charters and other income and $14,510,212 from
military charters which compares with $12,599,537 and
$15,917,449 respectively, a year ago. The Military Air-
lift Contract expires on June 30, 1975 and the Company
will again seek a renewal contract for the Government's
1976 fiscal year.
Fares and Rates
The Civil Aeronautics Board approved various fare
and rate increases which were placed into effect in 1974,
as a result of the spiraling inflationary costs. The major
item was the fuel price escalation. The principal fare
and rate adjustments were placed into effect for domes-
tic operations in January, April, June and November and
for international operations in January, March, July and
November. Other lesser fare and rate increases were
made effective during the year. Further fare and rate
increases may be required in 1975 if the inflationary cost
trends continue.
Expenses
Operating expenses in 1974 amounted to
$681,205,682 compared with $533,042,805 in 1973.
Depreciation and amortization expenses amounted to
$96,212,517 compared with $87,641,813 in the prior
year. This increased expense results primarily from the
addition of seven new Douglas DC 10-40 wide-bodied
airplanes to our fleet. Maintenance expense in 1974
amounted to $71,355,832 and compares with
$63,530,814 in 1973 and $47,503,176 in 1972. These
increases reflect the inflationary trends in cost of labor
and materials and abnormally low costs in 1972 from
reduced operations due to a strike. Flying operations
expense increased to $243,517,374 from $155,066,543
in 1973. This is primarily the result of a substantial
inflationary increase in the cost of fuel to $159,752,940
from $78,134,470 in 1973. Jet fuel cost was 28.92 per
gallon in December 1974 compared with 15.61c;t per
gallon in December 1973. The average cost per.gallon of
fuel used in 1974 increased 115% when compared with
the same average cost in 1973.
STOCKHOLDERS' EQUITY
VS. LONG TERM DEBT
MILLIONS OF DOLLARS
600
500
400
300
200
100
0
1970 1971
- -
EQU ITY DEBT
1972 1973 1974
Northwest Airlines is continuing to experience in-
flationary trends in all cost areas including wages, rent-
als, services, materials and supplies. Operating ex-
penses per available ton-mile increased to 19.9ct in 1974
compared with 15.8ct in 1973. The Company is exercis-
ing stringent cost control policies and procedures to
minimize the inflationary effect and it continues to be a
leader in low cost levels in the airline industry. The
Civil Aeronautics Board, as previously stated, has ap-
proved fare and rate increases in both domestic and
international operations in recognition of these escalat-
ing costs.
Interest on long-term debt, net of capitalized interest,
increased to $19,553,814 in 1974 from $14,758,082 in
1973 and $8,355,485 in 1972. This expense varied be-
tween years based primarily on the amount of debt out-
standing and the prime commercial loan rate. The prime
interest rates began increasing steadily from a low of
4.5% in February 1972 to a high of 12.0% in July 1974.
Earnings and Dividends
Earnings in 1974 amounted to $64,747,629 or a record
$3.00 per average share of common stock outstanding,
compared with $51,850,053 and $2.40 per share in 1973.
The Company continued its aircraft sales program as a
result of the upgrading of our aircraft fleet with the new
and more productive wide-bodied DC 10-40 airplanes.
Gain from disposals of property before related income
taxes increased to $39,161,170 and compares with
$18,683,982 in 1973 and $9,923,380 in 1972. The dis-
posal gains were primarily from the sale of aircraft and
spare parts.
orthwest Airlines continued its dividend payment
policy in 1974 with quarterly payments resulting in an
annual rate of 45ct per common share. These payments
represent the 20th consecutive year in which the Com-
pany has paid dividends. The principal market on which
the Company's common stock is traded is the ew York
Stock Exchange. The following table shows the high
and low sales prices on this exchange for each quarter of
the years 1974 and 1973 and also shows the dividends
paid per share for the same periods:
Sales Price of Common Shares Dividends Per Share
Quarter 1974 1973
High Low High Low 1974 1973
First 253/a 16% 36 231/s $.1125 $.1125
Second 27 22 30 183/a .1125 .1125
Third 223/a 12 26 18 .1125 .1125
Fourth 18 10% 27 173/a .1125 .1125
11
12
Financial Review for 1974
(Continued)
Taxes on Earnings
Taxes on earnings in 1974 amounted to $33,631,100
compared with $3,830,100 in 1973. The 1974 income
tax is made up of a normal provision of $47,450,400 of
which $36,215,400 has been deferred for future pay-
ment, due primarily to the Company's use of accelerated
methods for computation of depreciation for income tax
purposes. Investment tax credits were applied against
the income tax provision amounting to $13,819,300 in
1974 compared with $22,986,800 in 1973. These credits
in 1974 included $11,634,500 generated in the current
year primarily from the purchase of seven DC 10-40
airplanes with spare parts and $2,184,800 from amorti-
zation of investment tax credits from 1968 and prior. See
Notes A and E to the Financial Statements.
Investment tax credits which cannot be applied to
income tax returns, but which were offset against de-
ferred income taxes for future application, amount
to $41 ,692,700 at the end of 1974.
Cash Flow
Northwest Airlines generated funds in the current
year from all sources amounting to $217,523,429.
The Company continues to benefit from the policy of
owning its own equipment rather than through leasing
arrangements. This provides additional funds in excess
of earnings through depreciation charges which, with
amortization, amounted to $96,212,517 in 1974 and
$87,641,813 in 1973. Disposals of previously purchased
equipment provided funds of $69,043,853 in the current
year and compares with $41,373,848 in 1973.
Application of funds in 1974 amounted to
$229,706,680 which was made up of $143,119,179 for
the purchase of new flight equipment, ground property
additions and advance deposits on additional flight
equipment, reduction of long-term debt by $70,100,000,
payment of cash dividends totaling $9,721,943 and
other applications of $6,765,558.
Traffic
The Company's traffic results in 1974 showed gains in
all the scheduled services.
Revenue passenger-miles in scheduled services in-
creased by 14.6% and the passenger load factor in-
creased from 40.9% in 1973 to 45.8% in 1974. Cargo'and
mail ton-miles in scheduled service increased 21.5%
over the prior year. Scheduled available ton-miles in-
creased 3.4% in spite of a 3.3% reduction in scheduled
plane miles flown. This increased productivity is the
result of our adding seven new DC 10-40's to our fleet
and the sale of 12 older narrow-bodied and less produc-
tive aircraft.
Financial Condition
Northwest Airlines in 1974 continued to show im-
provement in its financial position, which ranks as one
of the best in the airline industry.
Previous financial arrangements and internal cash
flow provided the Company with funds for all of its
financial needs in 197 4 including the purchase of seven
Douglas DC 10-40 aircraft and related spare parts. The
continued improvement in the financial position re-
sulted in the Company being able to reduce the revolv-
ing credit agreement with banks from a previous max-
imum of $250 million to a new and reduced maximum of
$200 million. Details of the Company's long-term debt
arrangements are described in Note B to the Financial
Statements.
The present financial arrangements, along with inter-
nally generated funds, are expected to cover the pur-
chase from Boeing Aircraft Company of three 747F all-
cargo airplanes and eight 727-200 passenger airplanes
which are planned for delivery in 1975. These airplanes,
with spare engines, will require an expenditure of
$155,585,700 of which $6,641,000 has been deposited
with manufacturers at year end.
The stockholders' equity at December 31, 1974, was
$589,990,898 compared with $534,965,212 in 1973
which resulted in an increased book value per common
share of $27.31 compared to $24.76 a year ago. Out-
standing debt at year end amounted to $229,000,000
compared with $287,000,000 in 1973. This outstanding
debt amounts to 38.8% of stockholder equity and com-
pares with 53.6% in 1973. This favorable ratio of debt to
equity is the lowest of the U.S. trunk-line carriers.
Statement of Earnings
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Operating Revenues
Passenger ............................................. .
Cargo ................................................. .
Mail .................................................. .
Charter and other transportation ....................... . .
Mutual Aid Agreement ................................. .
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, net of capitalized
interest of $2,429,994 (1973 - $5,128,302) - Note A
Disposals of property .................................. .
Other ................................................. .
Earnings Before Taxes ................................... .
Taxes on Earnings, including deferred taxes
and investment credit - Note E ........................ .
Net Earnings for the Year ................................ .
Average shares of Common Stock outstanding
during the year ........................................ .
Earnings per share of Common Stock ...................... .
See notes to financial statements.
Year Ended December 31
1974
$628,488,358
76,157,097
22,911,103
27,321,686
( 1,529,882)
5,642,617
758,990,979
243,517,374
71,355,832
69 ,146,474
110,776,802
70,255,493
19,941,190
96,212,517
681 ,205,682
77,785,297
19,553 ,814)
39,161,170
986,076
20,593,432
98,378,729
33 ,631 ,100
$ 64,747,629
21,604,136
$3.00
1973
$476,793,651
55,280,382
18,414,621
28,516,986
( 2,692,100)
8,034,525
584,348,065
155,066,543
63,530,814
56,970,838
96,407,948
57,390,985
16,033,864
87,641,813
533,042,805
51,305,260
14,758,082)
18,683,982
448,993
4,374,893
55,680,153
3,830,100
$ 51,850,053
21 604,136
$2.40
13
14
Statement of Financial Position
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
ASSETS
Current Assets
Cash and short-term investments ........................ .
Accounts receivable, less allowance of $950,000
(1973 - $800,000) ........... . .............. .. ........ .
Flight equipment spare parts at average cost,
less allowances for depreciation of $9,262,733
(1973 - $7,607,420) .................................. .
Maintenance and operating supplies at average cost ...... .
Prepaid expenses ...................................... .
Total Current Assets .
Other Assets
Property and Equipment
Flight equipment at cost ............................... .
Less allowances for depreciation ........................ .
Advance payments on new flight equipment - Note D ....
Other property and equipment at cost ................... .
Less allowances for depreciation ........................ .
Deferred Charges
Training and development costs .... . ...... . ............ .
Rentals ..... .. ............. . .. .. ............. . ........ .
December 31
1974 1973
$ 40,070,177 $ 37,819,883
59,363,639 55,103,729
21,147,524 16,119,104
6,038,606 4,891,192
2,1 90,900 3,145,730
128,810,846 117,079,638
8,783,172 3,863,527
1,282,556,385 1,216,631,982
374,621 ,819 355,400,549
907,934,566 861,231,433
6,641 ,028 36,480,999
914,575,594 897,712,432
112,129,133 101,437,028
51,359,908 44,135,491
60,769,225 57,301,537
975,344,819 955,013,969
2,759,311 4,379,311
5,455,020 5,295,978
8,214,331 9,675 ,289
$1,1 21 ,153,168 $1,085,632,423
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses .. ............ . .. .
Employee compensation ................. . ..... . ....... .
Unredeemed ticket liability ................. . ..... . ... .. .
Income taxes .......................... . . .. ... .. .... .. . .
Current maturities of long-term debt ............ .. . . .... .
Total Current Liabilities
Long-Term Debt - Note B
Deferred Credits - Note E
Income taxes ........................ . ....... .. ........ .
Investment credit .......... . ....................... . . . . .
Stockholders' Equity - Note C
Common Stock $1.25 par value; authorized 40,000,000
shares; issued and outstanding 21,604,136 shares ... . .. .
Capital surplus .. ... .. ... ... ... .. . . ....... . . . ... . .. . . . . .
Retained earnings . .. . ........... . . . .. .. .. . .. .. . .... . .. .
Commitments- Note D
Leases - Note F
Contingencies - Note G
See notes to financial statements.
December 31
$
1974
93 483 456
27 195 640
13,410 376
8,881198
15 100 000
158 070,670
213 900,000
157 294 500
1 897,100
159 191,600
27005170
124 140 834
438 844,894
589 990 898
$1,121,153,168
$
1973
93,410,975
19,804,754
11,250,152
6,690,330
3,000,000
134,156,211
284,000,000
128,429,100
4,081 ,900
132,511,000
27,005,170
124,140,834
383,819,208
534,965,212
$1,085,632,423
15
Statement of Changes in Financial Position
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Year Ended December 31
Source of Funds
1974 1973
Net earnings ........... . .............................. . $ 64,747,629 $ 51,850,053
Items not requiring current funds:
Depreciation and amortization:
Aircraft and related flight equipment ................. 86,341,066 78,787,383
Other . . ..... . ...... . .............................. . 9,871,451 8,854,430
Deferred income taxes ........... . ....... . ........... . 28,865,400 553,200
Deferred investment credit ( 2,184,800) 3,116,300)
Total from Operations 187,640,746 136,928,766
Issuance of long-term debt ............................. . 79,000,000
Disposals of operating property - book value . ...... . ... . 29,882,683 22,689,866
Total of Sources 217,523,429 238,618,632
Application of Funds
Flight equipment and other property additions ........... . 136,518,651 221,794,269
Advance deposits on aircraft ........................... . 6,600,528 26,961,743
Deferred DC-10 training costs .. . . . ...................... . 2,473,520
Other assets and deferred charges . ...................... . 5,078,687 3,003,661
Cash dividends .......... . ..... . ....................... . 9,721,943 9,722,027
Reduction of long-term debt - Note B ................. . . 70,100,000 3,000,000
Other ................................................. . 1,686,871 1,656,843
Total of Applications 229,706,680 268,612,063
Decrease in Working Capital ............................. . ($ 12,183,251) ($ 29,993,431)
Changes in working capital consist of:
Increase (decrease) in current assets:
Cash and short-term investments ...................... . $ 2,250,294 $ 14,479,235
Receivables .......... . .............................. . 4,259,910 6,188,956
Inventories .......................................... . 6,175,834 ( 2,233,274)
Prepaid expenses .................................... . ( 954,830) 1,221,635
11,731,208 19,656,552
Increase in current liabilities:
Accounts payable and accrued expenses .............. . . 72,481 40,080,908
Other accrued liabilities .. . ..................... . ..... . 9,581,754 6,884,752
Unredeemed ticket liability ........................... . 2,160,224 2,684,323
Current maturities of long-term debt .................. . 12,100,000
23,914,459 49,649,983
Decrease in working capital . . ..... . . . ............. . ...... . ($12,183,251) ($29,993,431)
16 See notes to financial statements.
Statement of Stockholders' Equity
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Common Stock Capital Retained
Shares Amount Surplus Earnings
Balance December 31, 1972 .. . . ..... .... . .. . 21,604,136 $27,005,170 $124,140,834 $341,691,182
Net earnings for 1973 .................... . 51,850,053
Cash dividends - $.45 a share ........... . ( 9,722,027)
Balance December 31, 1973 ............ .... . 21,604,136 27,005,170 124,140,834 383,819,208
Net earnings for 19 7 4 .................... . 64,747,629
Cash dividends - $.45 a share ........... . ( 9,721,943)
Balance December 31, 1974 ................ . 21,604,136 $27,005,170 $124,140,834 $438,844,894
See notes to financial statements.
APPLICATION OF INVESTMENT TAX CREDIT NORTHWEST AIRLINES FLEET
Reflected in
Period Available* Net Earningst
1962-1973............ $94,467,800 $90,385,900
1974 . . . . . . . . . . . . . . . . . 11,634,500 13,819,300
Total ................ $106,102,300 $104,205,200
To Net Earnings . . . . . . 104,205,200--
---~
To Be Amortized ..... $ 1,897,100
*Investment credits not applied on tax returns but
offset against deferred taxes through 1974, amount to
$41,692,700. See Note E to financial statements.
tlncome benefits of investment credit generated in
1962-68 are amortized over an eight year period. The
flow-through method of accounting was adopted for
investment credit generated after 1968 and the income
benefits have been reflected in the year generated.
December 31
Aircraft Type 1973 1974 On Order
JET:
707-320B & 320C .. 23 13
720B .. '
.......... 2
727 & 727C-100 ... 32 32
727-200 ........... 24 23 8
747 ............... 15 15
DC 10-40 ......... 15 22
747F ............. 3
Total Jet ............ 111 105 11
17
18
Notes to Financial Statements
NORTHWEST AIR.IJNES, INC. AND SUBSIDIARIES
Years Ended December 31, 1974 and 1973
Note A - Accounting Policies
A summary of certain accounting policies of the Company which have been consistently
followed in preparing the accompanying financial statements is set forth below:
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries after elimination of intercompany accounts and transactions.
Foreign Currency Translation
Inventory and property and equipment are translated at rates of exchange in effect when
acquired. All other assets and liabilities are translated at year-end rates of exchange. Revenue
and expense accounts are translated at a weighted average of exchange rates which were in effect
during the year, except for depreciation which is translated at the rates of. exchange in effect
when the property and equipment were acquired. Exchange adjustments are charged or credited
to income currently and are not material.
Flight Equipment and Property
Provision for depreciation is computed by the straight line method over the estimated useful
lives of the assets. The calculation assumes fifteen year lives and 10% residual values for 7 47 and
DC-10 aircraft and ten years and 15% residual values for all other aircraft. Useful lives of
buildings vary from 5-30 years and other equipment 4-.10 years.
Allowances for depreciation of flight equipment spare parts, rotables and assemblies are pro-
vided by the straight line method at rates which allocate the cost of these assets, less residual
value, over the estimated useful lives of the related aircraft.
The Company charges to operating expense when incurred, all expenditures for maintenance
and repairs and minor renewals and betterments. Expenditures which materially increase values
or extend useful lives are generally capitalized. Carrying amounts of assets sold or otherwise
disposed of are eliminated from the accounts in the year of disposal and the resulting gain or loss
reflected in operations.
Interest on the Company's long-term debt relating to deposits advanced to manufacturers prior to
the deli very of new aircraft is capitalized as cost of the assets and is amortized over the useful life
of the aircraft. If the Company did not follow a policy of capitalizing interest, net earnings would
have been reduced by $11,500 ($.00 a share) in 1974 and $1,642,900 ($.08 a share) in 1973.
Training and Development Costs
The Company defers -preoperating expenses of new aircraft fleets (principally training) and
amortizes such costs over future periods to be benefited, generally five years.
Pension Plans
The Company has several pension plans covering substantially all of its employees. The policy is
to fund pension costs accrued which includes the amortization of prior service costs over a
period of forty years.
Notes to Financial Statements
Not~ A - Accounting Policies (Continued)
Taxes on Earnings
Taxes are provided for all items included in the statement of earnings regardless of the years
when such items are reported for tax purposes. Deferred income taxes result primarily from
using for tax purposes accelerated depreciation methods and deducting currently the interest
capitalized as cost of aircraft.
Since 1969, the Company has used the flow-through method of accounting for the investment
credit. Investment credits not applied on tax returns are offset against deferred income taxes to
the extent they are applicable to deferred taxes becoming payable in the carryover periods. No
change has been made in accounting for investment credits arising prior to 1969 which are
amortized over eight years from the dates the credits arose.
Earned Revenue
Passenger and cargo sales are recognized as earned revenue when the transportation is provided.
Earnings Per Share
Earnings per share are based on the average number of shares of Common Stock outstanding
during each year. Shares issuable upon exercise of stock options are excluded from the computa-
tion since their effect is not significant. .
December 31
Note B - Long-Term Debt 1974 1973
Revolving Credit Agreement with banks provides for revolving
credit of $200 million (1973 - $250 million) reducing $15.9
million quarterly beginning July 1, 1976 and terminates April
1, 1979. Interest on funds borrowed is at % above prime
commercial loan rate prior to July 1, 1976 and % above
thereafter. As of December 31, 1974 the agreement makes
available an additional $119 million for working capital and
other purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,000,000 $111,000,000
Term Credit with banks is payable $12.5 million quarterly
beginning April 1, 1981 and terminates January 1, 1983. In-
terest is paid based on a formula related to prime commercial
loan rates; however, total interest paid shall not exceed 7 %%
per annum on borrowings over the term of the loan. Current
payments in excess of that rate are classified as other assets 100,000,000 100,000,000
Note purchase agreements with twelve insurance companies
are payable $3,000,000 annually and terminate on October 1,
1978. Interest is at 6% per annum. Certain optional prepay-
ments at par are permitted. The agreements contain certain
other provisions with respect to redemption as a whole, but
not from borrowed funds, at premiums not to exceed 2% . . 13,000,000 16,000,000
Credit agreements with aircraft and aircraft engine manufac-
turers financing purchases from those manufacturers through
the issuance of five-year notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000,000 60,000,000
Less amounts due within one year included in current
liabilities . ... . .. . . . .. . . .. .... .. ... . .. . . ..
229,000,000
15,100,000
287,000,000
3,000,000
$213,900,000 $284,000,000
19
20
Notes to Financial Statements
Note B - Long-Term Debt (Continued)
The Company had complied with the covenants of the debt agreements at the end of both years.
At December 31, 1974 approximately $84,700,000 ofretained earnings were not restricted under
terms of the long-term debt agreements.
The aggregate repayment of the outstanding long-term debt over the years 1976 through 1979 is
$25,900,000, $3,000,000, $44,000,000 and $41,000,000, respectively.
Note C - Stockholders' Equity
1974
Cumulative Preferred Stock, $25 par value:
Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
Issued December 31.... . ................................ None
Common Stock options for officers and employees at prices
which were not less than 100% of market at date of grant
are as follows:
Shares
Outstanding January 1, 1973 .......................... . 69,986
Lapsed ............................................ . (57,586)
Granted ........................................... . 37,500
Outstanding December 31, 1973 ...................... . 49,900
Lapsed . . ..................................... _ ..... . (13,200)
Outstanding December 31, 1974 ...................... . 36,700
Options exercisable:
At December 31, 1973 .............................. . - 12,400
At December 31, 1974 .............................. . 18,350
Shares
1973
1,000,000
None
Price Per Share
$32.3 75/36.625
33.470/36.625
20.06
20.06/32.3 75
20.06/32.375
20.06
32.375
20.06
Shares available for future stock options and otper plans were 373,436 and 360,236 at December
31, 1974 and 1973, respectively, of which 113,300 and 112,500, respectively, were available for
additional grants under the 1973 Stock Option Plan.
Note D - Commitments
At December 31, 1974 the Company has contracted to purchase jet aircraft for delivery in 1975
which, with spare engines, will require expenditures of $155,585,700. Of this amount,
$6,641 ,000 has been deposited with manufacturers and the remainder becomes payable in 1975.
Notes to Financial Statements
Note E -Taxes on Earnings
The provision for taxes on earnings consists of the following:
Current:
Provision for the year ...... . ... . .... ... .... . .... . .... . .. .
Investment credit flow-through .... . ....... . .. . ..... . . .. .
Deferred:
Provision for the year ... . ............... . . . ............ .
Unapplied investment credit flow-through . . ..... . ..... . . .
Deferred investment credit being
amortized over eight years .. .. . ................. . .... . . .
Year Ended December 31
1974 1973
$11 ,235,000
( 4,992,600)
6,242,400
36,215,400
( 6,641 ,900)
29,573,500
( 2,184,800)
$33,631,100
$12,712,600
( 5,729,600)
6,983,000
14,104,300
( 14,140,900)
( 36,600)
( 3,116,300)
$ 3,830,100
Investment credits not applied on tax returns but offset against deferred income taxes at
December 31, 1974 will expire $8,920,200-1978, $3,879,200-1979, $19,975,600-1980 and
$8,917,700 - 1981.
Exclusive of investment credit, the Company's effective tax rate is 48.2% for both 1974 and 1973
as compared to the federal statutory rate of 48%.
Note F - Leases
The Company does not lease any aircraft or related flight equipment. Sublease income and
contingent rentals are not material. Total rental expense follows:
Air terminal and main base facilities
(financing leases) .................. .. .. .. . . . . .. . .. . .. . . .
Ticket offices anq. miscellaneous equipment ... . .. .. .. . .. . . .
Total
Year Ended December 31
1974 1973
$ 8,593 ,000
4,817,000
$13,410,000
$ 7,533,000
4,140,000
$11,673,000
Future minimum rental commitments at December 31, 1974 for all non-cancellable leases
follows:
21
22
Notes to Financial Statements
Note F - Leases (Continued)
1975
1976
1977
1978
1979
Five years 1980-84 ................... . .... .
Five years 1985-89 . . . .... . .. . .. . ......... . .
Five years 1990-94 . ..... . .... . ........... . .
Remainder . . . . . .. . . ... . .... . .......... .. .. .
Ticket
Air Terminal Offices and
and Main Base Miscellaneous
Facilities Equipment
$ 9,450,000 $ 2,999,000
8,956,000 2,350,000
8,708,000 1,043,000
8,707,000 951,000
8,189,000 718,000
38,669,000 1,650,000
31,036,000 390,000
15,899,000
22,263,000
$151 ,877,000 $10,101,000
Total
$ 12,449,000
11,306,000
9,751,000
9,658,000
8,907,000
40,319,000
31,426,000
15,899,000
22,263,000
$161,978,000
The estimated present values of the net fixed minimum rental commitments for all non-
cancellable financing leases (terminal facilities and other buildings) was $81,176,000 at De-
cember 31, 1974 and $77,626,000 at December 31, 1973. The present values were computed after
reducing total rental commitments by estimated amounts applicable to the lessors' payments of
taxes, insurance, maintenance and other operating costs. The weighted average interest rate
used was 6.54% for 1974 and 5.19% for 1973. The range of interest rates was 2.8% to 10% for
both years. The impact on net earnings if financing leases had been capitalized was not material
for either year.
Note G - Contingencies
The Company is a defendant in a class action brought by certain of its female cabin attendants
alleging violations of certain provisions of the Equal Pay Act of 1963 and the Civil Rights Act of
1964. The trial judge held that provisions of both statutes had been violated by the Company. The
Company has appealed that decision. Counsel for the Company have advised that neither the
timing of the final outcome nor the consequences of the lawsuit are presently determinable.
However, Company management does not believe any resulting liability will have a material
effect on the Company's financial position.
The Company is a defendant, along with other airlines, in a number of legal actions alleging
noise and air pollution resulting from aircraft operations around certain airports, excessive air
fares, violation of anti-trust laws, and matters regarding the Mutual Aid Agreement among
airlines. Company management does not believe that these actions will result in a material
liability to the Company.
Note H - Pension Plans
The total pension expense was $17,460,589 (1973 - $14,118,050). As of the most recent
valuation date the market value of the assets in all pension funds was approximately
$104,619,600, and the actuarially computed value of vested benefits exceeded applicable assets
by approximately $11,814,500. The value of vested benefits was increased during the year as a
result of increased benefits provided under certain new labor contracts (no material effect on net
earnings). The effect on the Company's future pension expense of the Employee Retirement
Income Security Act of 1974 has not been determined but, in the opinion of Company manage-
ment based upon a report from its consulting actuaries, the effect is not expected to be material.
Accountants' Report
To the Stockholders and Board of Directors
Northwest Airlines, Inc.
Saint Paul, Minnesota
We have examined the consolidated statements of financial position of Northwest Airlines, Inc. and subsidiaries as
of December 31, 1974, and December 31, 1973, and the related consolidated statements of earnings, stockholders'
equity and changes in financial position for the years then ended. Our examinations were made in accordance with
generally accepted auditing standards and, accordingly, included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the consolidated financial position of
Northwest Airlines, Inc. and subsidiaries at December 31, 1974, and December 31, 1973, and the consolidated
results of their operations and changes in their financial position for the years then ended, in conformity with
generally accepted accounting principles applied on a consistent basis.
Ernst & Ernst
Saint Paul, Minnesota
February 17, 1975
Notice to Stockholders
L:r1LJ-
Any person who either owns, as of December 31 of the year preceding issuance of this annual report, or subse-
quently acquires, beneficially or as trustee, more than 5 per centum, in the aggregate, of any class of the capital stock
or capital of the air carrier, shall file with the Civil Aeronautics Board (CAB) a report containing the information
required by Section 245.12 of the CAB's Economic Regulations on or before April 1, as to capital stock or capital
owned as of December 31 of the preceding year, and, in the case of stock subsequently acquired, a report under
Section 245.13 of such Economic Regulations, within 10 days after such acquisition, unless such person has
otherwise filed with the CAB a report covering such acquisition or ownership.
A bank or broker which holds, as trustee, more than 5 per centum of any class of the capital stock or capital of an air
carrier to the extent that it holds shares on the last day of any quarter of a calendar year, shall file with the CAB,
within 30 days after the end of the quarter, a report in accordance with the provisions of Section 245.14 of the CAB's
Economic Regulations. Any person required to report under the CAB's regulations who grants a security interest in
morr than 5 per centum of any class of the capital stock or capital of the air carrier shall, within 30 days after
granting such security interest, file with the CAB a report containing the information required in Section 245.15 of
the CAB's Economic Regulations.
Any stockholder who believes that he may be required to file such a report may obtain further information by
writing to the Director, Bureau of Operating Rights, Civil Aeronautic Board, Washington, D. C. 20428.
23
10 Year Summary
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
(Dollars in thousands except per share figures) 1974 1973 1972t 1971t 1970t 1969 1968 1967 1966 1965
Operating Revenues
Passenger .. . ...... . ........................ ....... $ 628,488 $ 476,794 $ 277,891 $ 331,966 $ 260,335 $ 350,504 $ 301,277 $ 275,873 $ 216,239 $ 198,457
Cargo ................ .............. . . . ............ 76,157 55,280 34,694 39,641 30,053 51,006 43,902 38,118 29,515 24,779
Mail .............................................. 22,911 18,415 13,309 19,443 18,958 29,386 28,605 26,898 22,557 17,421
Charter and other transportation
0 0 0 t O O e f t I f I I I I t f I
27,322 28,517 20,009 31,588 20,800 35,090 41,060 41,799 39,205 21,851
Mutual aid agreement ......... . . ... ... ....... ... ... (1,530) (2,692) 43,629 (462) 46,325 (509) 2,491 (717)
Nontransport . ..... ................................ 5,643 8,034 2,969 3,343 2,569 2,461 1,446 1,291 1,312 1,207
Total Operating Revenues $ 758,991 $ 584,348 $ 392,501 $ 425,519 $ 379,040 $ 467,938 $ 416,290 $ 383,979 $ 311,319 $ 262,998
Operating Expenses
Depreciation and amortization ...................... $ 96,213 $ 87,642 $ 81,054 $ 77,245 $ 69,1 73 $ 60,833 $ 49,817 $ 41 ,252 $ 33,195 $ 24,011
Other ............................................. 584,993 445,401 296,348 330,108 258,784 324,979 268,529 229,969 177,469 153,140
Total Operating Expenses $ 681,206 $ 533,043 $ 377,402 $ 407,353 $ 327,957 $ 385,812 $ 318,346 $ 271,221 $ 210,664 $ 177,151
Operating income .................................... $ 77,785 $ 51,305 $ 15,099 $ 18,166 $ 51,083 $ 82,1 26 $ 97,944 $ 112,758 $ 100,655 $ 85,847
Interest expense on Long-Term Debt ................... (19,554) (14,758) (8,356) (13,051) (6,296) (2,334) (3,894) (3,725) (3,268) (1,822)
Other income and (deductions) - net ................. 40,148 19,133 10,510 6,685 (227) 1,181 674 1,334 2,025 2,046
Earnings before taxes ................................. $ 98,379 $ 55,680 $ 17,253 $ 11,800 $ 44,560 $ 80,973 $ 94,724 $ 110,367 $ 99,412 $ 86,071
Income taxes .................... '
................... 33,631 3,830 (429) (9,561) 121 29,507 44,673 51 ,651 46,276 40,377
Net Earnings (~l $ 64,748 $ 51,850 $ 17,682 $ 21,361 $ 44,439 $ 51,466 $ 50,051 $ 58,716 $ 53,136 $ 45,694
Earnings per average share as reported each year (~l .... $ 3.00 $ 2.40 $ .83 $ 1.01 $ 2.11 $ 2.55 $ 5.47 $ 6.42 $ 5.81 $ 9.99
Cash dividends ............................... . ...... 9,722 9,722 9,620 9,518 9,465 9,117 7,320 6,405 5,490 3,657
Dividends per share as paid each year ................. .45 .45 .45 .45 .45 .45 .80 .70 .60 .80
Stockholders' equity ................................. 589,991 534,965 492,837 477,054 465,210 426,797 306,717 263,986 212,727 165,081
Number of shares outstanding at end of year ........... 21,604,136 21,604,136 21 ,604,136 21,149,756 21,149,756 20,914,272 9,149,628 9,149,626 9,149,626 4,574,813
Book value per share at end of year (2,l .................. $ 27.31 $ 24.76 $ 22.81 $ 22.56 $ 22.00 $ 20.41 $ 33.52 $ 28.85 $ 23.25 $ 36.08
Recomputed per share figures after stock splits (.31

Earnings per average share (3
_
l 3.00 2.40 .83 1.01 2.11 2.55 2.74 3.21 2.90 2.50
Dividends per share (
.31
.. .45 .45 .45 .45 .45 .45 .40 .35 .30 .20
Book value per share at end of year (~l 27.31 24.76 22.81 22.56 22.00 20.41 16.76 14.43 11.62 9.02
Assets and Long-Tenn Debt
Flight property at cost ................................ $1,282,556 $ 1,216,632 $ 1,008,041 $ 1,012,568 $ 929,181 $ 697,938 $ 582,646 $ 467,859 $ 401,476 $ 304,072
Flight property at net book value ... . . . ..... ... ........ 907,935 861,231 682,020 709,433 668,129 492,241 424,522 346,029 311,803 233,858
Total assets ... . ...................................... 1,121,153 1,085,632 920,418 944,302 923,126 742,732 627,538 481 ,206 422,040 333,311
Long-term debt ...................................... 213,900 284,000 208,000 252,500 260,915 112,000 160,000 85,000 96,000 72,000
Unit Expenses
Per available ton-mile ................... ......... .. 19.9 15.B<t 16.9<t 14.5<t 18.0t 15.2 14.6 14. 5<t 15. 6<t 16.4
Per revenue ton-mile ......... . ..................... 48.2 42.5~ 49.6<t 42.1 43.5 34.5 30.8t 30.3 30.lct 33.0<t
Per cent of operating revenues ......... . . ........ ... 89.8% 91 .20/o 96.20/o 95.70/o 86.50/o 82.40/o 76.5/n 70.60/o 67.70/o 67.40/o
Statistics - Scheduled Services
Revenue plane-miles (000) ... ... . . ... ......... ...... 105,295 108,853 79,025 100,992 83,177 123,966 107,646 93,395 67,780 61,653
Available seat-miles (000) .. . . . '
. . ............ '
..... 20,016,107 19,593,379 12,963,054 15,614,614 10,234,060 13,504,111 10,840,758 9,198,150 6,773,257 6,140,717
Revenue passenger-miles (000) ... . ... . ..... . ..... . . . 9,173,875 8,007,850 4,565,618 5,553,043 4,506,256 6,208,725 5,458,128 4,901 ,520 3,699,851 3,303,809
Passenger load factor . . ............................. 45.8% 40.90/o 35.20/o 35.60/o 44.00/o 46.00/o 50.30/o 53.30/o 54.60/o 53.80/o
Revenue passengers carried ................ ........ . 8,948,373 7,987,299 5,150,636 6,089,273 4,682,812 7,517,780 7,173,805 6,489,295 4,963 ,275 4,593,462
Freight and express ton-miles (000)
0 IO O O O O O O IO O IO O O 0
317,437 251 ,865 150,973 161,345 110,215 198,494 169,416 141,175 108,914 82,715
Total revenue ton-miles (000) . .... ...... ... ......... 1,330,803 1,140,983 672,035 813,403 655,339 942,050 836,085 709,165 533,556 452 ,553
Statistics - Total Operations
Revenue plane-miles (000) ............. .... ......... 110,519 115,726 84,098 110,045 89,938 135,563 121 ,077 106,197 77,715 67,125
Available ton-miles (000) . .............. ....... ... .. 3,431,038 3,370,694 2,236,069 2,806,407 1,819,439 2,535,137 2,186,234 1,864,128 1,348,983 1,079,832
tStrikes adversely affected 1970 and 1972 and the strike recovery period of 1971.
111 See Financial Review pages 10 through 12 for Management's Discussion and Analysis of the Summary of Operations.
121 Per share figures reflect the increase in outstanding shares resulting from stock issues in 1969, 1970 and 1972.
(3JThe stock was split "two-for-one" in 1966 and 1969. The recomputations in this section are shown to provide
comparability on an adjusted basis and follow the form recommended by the Accounting Principles Board. These
24 figures, of course, do not reflect the way the corporation was operated. 25
26
An aerial view of NWA' s DC 10-40.
Heart of the reservations office is in
Minneapolis/St. Paul headquarters.
$2 Million Hangar Expansion Complete
Expansion and modification of three hangars at Northwest Orient's main
base in the Twin Cities was completed in 1974. This permits their use for
maintenance of the wide-bodied DC 10-40 aircraft as well as smaller jets.
Installation of a "keyhole" in the facia of the three hangars for the added tail
height and extension of the hangars to accommodate the nose of the larger jets
cost approximately $2 million.
Other Projects-New air freight facilities were completed in Miami, Portland
and Edmonton. New jetway loaders were installed in Spokane, San Fran-
cisco, Portland and Winnipeg.
Most of the construction of a new $1. 7 million facility in Anchorage,
combining air freight, reservations and a flight kitchen, was completed dur-
ing the year.
Computerized Flight Planning Begun
A new program involving use of the computer for flight planning was
begun in 1974. It could result in savings up to $6 million annually based on
today's aircraft fuel costs. The system is presently being used only on long-
haul international segments and a few long-haul domestic flights but it will be
expanded in 1975 to include additional flight segments.
Dual Processor Purchased - Purchase and installation of new $2 million
Univac 494 dual processing equipment by Northwest Orient provides 180
per cent more computer capacity than was formerly available. The equip-
ment will reduce or eliminate reservations delays during peak periods.
With this purchase of the dual processor, NWA's investment in computer
equipment now totals $16.2 million. The system performs not only the re-
servations function but also collects flight data, performs message switch-
ing and other computer processing requirements of the company.
The 'keyhole' cut into existing
hangars made room for DC 10-40 jets
to be maintained.
Custom Sales Guide Developed
Electric 'Citi-Cars' ore one of the
n ewest kinds of air cargo carried by
'.A .
A custom sales guide was developed and distributed to all WA reserva-
tions offices and ticket offices on June 1, 1974. This guide displays NWA
schedules in the most efficient way to maximize the sale of our on-line and
inter-line schedules. An annual increase in revenue of $3 ,900,000 was pro-
jected; that estimate was more than doubled by year-end.
Other significant developments in the transportation services area in-
cluded:
Further progress in computerized ticket printing. Seventy five per cent of
tickets issued in the Twin Cities are now produced in this way.
Construction of a training mock-up for cabin attendants. It is now possible to
give annual refresher training and emergency training required by FAA
regulations without the use of an actual aircraft as in the past. This represents
an annual saving in the thousands of dollars.
Inauguration of a duty-free in-flight &ales program on Orient inter-port
flights. Perfume, cigarettes and liquor are currently offered. This program
will be expanded to include Tokyo-Honolulu, Seattle-Tokyo and
Seattle/Anchorage-Tokyo flights in 1975. 27
28
Operating Highlights
(Continued)
Overhaul of the Pratt & Whitney jet
engine used on NWA's 747 and DC
10's is complex.
Test console aids NWA mechanics in
maintenance of jet fleet.
Engine Performance Tops Industry
Engine performance on Northwest Orient's DC 10-40 fleet continues to
reflect the superior performance of our Pratt & Whitney JT9 power plants.
NWA is the only U.S. airline to operate both its DC 10 and 747 fleets with this
engine. Benefits of that standardization are apparent. Unscheduled engine
removal rate on Northwest Orient's DC 10-40 fleet is constantly and signifi-
cantly below the industry average.
New Concept Introduced - A new procedure aimed at reducing delays
attributable to maintenance reasons was introduced in August, 1974. Each
day all aircraft with items needing minor repair are reviewed and the next
layover location determined. Under the direction of Maintenance Control,
trouble-shooting is coordinated and parts shipments are directed to layover
stations so that repairs can be made.
This procedure has utilized the resources of stations with small mainte-
nance staffs in keeping airplanes ready for service. In addition to reduction
of delays considerable savings are realized by avoiding the need to carry
an inventory of spare parts at all layover stations. The procedure also re-
duces the need to route an aircraft to a specific station having the needed
parts.
Since this program was initiated there has been a substantial reduction
in delays, specifically those attributable to maintenance.
New 747 Jet Freighters to Play
Key Role in NW A Cargo Operations
The three all-cargo Boeing 747F aircraft ordered by Northwest Orient will
be delivered by August, 1975. They represent an investment of more than $90
million.
The 747F's will have the capability to handle cargo loads up to 11 feet wide,
10 feet high and 180 feet long in the main cargo deck cabin. The main door is
nine feet wide, eight feet high and is also the nose of the airplane; its hinge
action provides for straight-in nose loading of very large and very long items.
Aft of the left wing is a side-loading cargo door. It is also hinged to open
outward and upward. Loads 10 feet high, 10 feet long and 11 feet wide can be
accepted through this door.
Pratt & Whitney JT9D-7F engines will power NWA's 747F fleet. These are
similar to the engines used on the 747 passenger aircraft but have approxi-
mately 2,000 pounds more thrust per powerplant. Freighter engines can be
\
I
Hinge d nose of the Boe_
ing 747F jet
freighters makes loading of big cargo
easy. Interior of cargo deck is
immense.
2
30
Fleet Highlights
(Continued)
fl~
Boeing 747's
used interchangeably with 747 passenger aircraft engines, maintaining the
standardization concept that is a hallmark of Northwest Orient operations.
The 747F is capable of carrying 250,000 pounds of cargo. Using newly
developed loading devices, the airplane can be unloaded in 45 minutes of
over 200,000 pounds of air freight-then loaded again in 45 minutes with an
equal volume.
Eight More 727-200 Tri-Jets Are Ordered
An order for eight Boeing advanced model 727-200's has been placed by
Northwest Orient. The order is valued at $66 million.
Delivery of the eight tri-jet aircraft will come in 1975. Two each will be
delivered in October and November and the final four will arrive in December.
The advanced model 727-200 will carry 128 passengers-14 in first class and
114 in economy class.
With delivery of these eight new aircraft, NWA will have 31 727-200's in its
fleet.
DC 10 Order Complete as
Seven Jets Delivered
Seven additional DC 10-40 aircraft were delivered to Northwest Orient in
1974. This completed the order of 22 DC 10-40's made by the airline.
Twelve used aircraft were sold and delivered during the year to six foreign
flag carriers. Ten were Boeing 320 jets and two were Boeing 720B's.
Update programs were also completed on all NWA DC 10 and 747 aircraft so
that all necessary and desired changes have now been made. The result is the
finest and most modern fleet of wide-bodied jets of any U.S. airline.
~~
Boeing 727's
Range of 5,850 miles with 362 passengers.
32 727-l00's - Range of 2380 miles with 93 passengers.
23 727-200's - Range of 1760 miles with 128 passengers.
fl&]
Boeing 707-320's
Range of 5,620 miles with 156 passengers.
Peking
anking
Shang
Harbin
ROUTES OPERATED
--------- CHINESE MAINLAND ROUTES SUSPENDED
Cities Served by Northwest Orient
DOMESTIC
Anchorage
Atlanta
Billings
Bismarck/Mandan
Boston
Bozeman
Butte
Chicago
Cleveland
Detroit
Edmonton
Fargo Moorhead
Ft. Lauderdale/Holl} \ ood
Grand Forks
Great Falls
Helena
Hilo
Honolulu
Jamestown
Los Angeles ong Beac Ontario
Madison
Miami
Milwaukee
Minneapolis/St. Paul
Missoula
Nev\ York
;-,J e-1.\ ark
Philadelphia
Pittsburgh
Portland
Rochester
SanFrancisco/Oaklan San Jose
Seattle/Tacoma
Spokane
Tampa/St. Petersburg/Clean ater
\r
\ ashington, D. C./Baltimore
iililipeg
ORIENT
Hong Kong
:'vianila
Okina a
Osaka
Seoul
Taipei
Tokyo
31