Northwest Airlines Annual Report 1977

Atlanta
New Orleans
1
CITIES PRESENTLY
SERVED BY
NORTHWEST ORIENT
OTHER CITIES
AUTHORIZED FOR
SERVICE BY
NORTHWEST ORIENT
DESCRIPTION
OF BUSINESS
North America
Anchorage
Atlanta
Billings
Bismarck/Mandan
Boston
Bozeman
Butte
Chicago
Cleveland
Detroit
Edmonton
Fargo/Moorhead
Ft. Lauderdale/Hollywood
Grand Forks
The Orient
Hong Kong
Manila
Okinawa
Great Falls
Helena
Hilo
Honolulu
Jamestown
Los Angeles/Long Beach/
Ontario
Madison
Miami
Milwaukee
Minneapolis/St. Paul
Missoula
ew Orleans
ew York
Osaka
Seoul
Newark
Philadelphia
Pittsburgh
Portland
Rochester
San Francisco/Oakland/
San Jose
Seattle/Tacoma
Spokane
Tampa/St. Petersburg/
Clearwater
Washington, D. C./
Baltimore
Winnipeg
Taipei
Tokyo
Europe (Service to these European cities was authorized by the United States
government on January 26, 1978. Service to some of these points will begin in
1978.)
Bergen
Copenhagen
Glasgow
Gciteborg
Helsinki
Oslo
Reykjavik
Stavanger
Stockholm
Mainland China (Service to Mainland China by orthwest Airlines was authorized
by the United States government on July 20, 1946. The operation of these routes has
been suspended for many years.)
Dairen
Harbin
anking
Peking
Shenyang
Shanghai
orthwest Airlines , Inc. incorporated in the State of Minnesota, is a scheduled air
carrier engaged in commercial transportation of passengers mail and property and
operates under certificates of public convenience and necessity issued by the Civil
Aeronautics Board. The present route system covers approximately 30,500 route
miles and serves directly cities in 18 states of the 48 contiguous states, as well as
Alaska, Hawaii, the District of Columbia, Canada, countries in Asia, including
Japan, Korea, Taiwan, Hong Kong and the Philippines and countries in Europe
including orway, Sweden, Denmark, Iceland, Finland and Scotland. The Euro-
pean countries were recently awarded to Northwest Airlines and service will begin
to some of these points this year. Authorizations to serve Shanghai, Peking and
other points in continental China remain in effect although presently inoperative.
NWA 'S FAMOUS RED TAIL ... is
pictured here with the terminal
building of Dulles International
Airport framed in the background.
The photograph was taken April 18,
1977 when a orthwest Orienl-char-
ter flight, bearing 52 Minnesota
businessmen bound for Cuba on a
historic first trade mission and talks
with Cuban president Fidel Castro,
paused for a State Department brief-
ing in Washington, D. C.
1977
Total Operating Revenues ............... $1,046,354,772
Operating Income ..................... .
Net Earnings for the Year ............... .
Per Common Share .................. .
Per Dollar of Revenues ............... .
Stockholders' Equity ............ . ...... .
Per Common Share ....... . .......... .
Dividends Paid ........................ .
Operating Expenses:
Per Available Ton-Mile
Per Revenue Ton-Mile
Revenue Traffic:
104,583,565
92 ,718,790
4.29
8.8
747,671 ,847
34.60
10,803,648
22.9
54.4
Passengers Carried.................... 10,354,808
Passenger-Miles Flown ................ 11,100,412,000
Ton-Miles, Mail, Freight and Express . . 566,428,000
Common Shares at Year End
Employees:
Number at Year End ......... .. ...... .
Total Wages and Benefits Paid ........ .
21,606,686
11,445
$279,194,841
1976
$963,808,065
102,948,027
51,737,015
2.39
5.4
665,743 ,992
30.81
9,707,217
21.6
50.5
9,818,343
10,758,683,000
571,449,000
21,606,036
11,208
$249,521 ,454
FROM THE CHAIRMAN
51st Annual Report
to the
Shareholders
1977 was an excellent year for orthwest Orient
Airlines. Operating revenues were $1 046,354,772
- exceeding one billion dollars for the first time in
the Company's history.
Total profit for 1977 was $92,718,790 - earn-
ings per share reached $4.29 - an increase in
earnings of 79% in 1977 over 1976.
Financial Strength
The financial strength of orthwest increased
again in 1977. Debt was reduced $21 ,000,000 dur-
ing the year that ended December 31, 1977 - from
$125 000 000 to $104,000 000.
At year-end 1977 orthwest stockholders'
equity was $747,671 ,847. Retained earnings were
$596,475 ,570 - highest in the U.S. airline indus-
try. Debt as a per cent of equity was only 13.9%-
which is the lowest in the U.S. airline industry.
Dividend Increase for 1978
The Board of Directors on March 13, 1978 increased
the dividend by 25 cents per share to an annual rate
of 75 cents. This was the second increase in two
years. The new quarterly dividend rate of 18
cents becomes effective with the payment to be
made on March 31, 1978. Northwest has paid div-
idends for 91 consecutive quarters.
New Orleans Service
orthwest began serving the Twin Cities-
Chicago- ew Orleans market on June 8, 1977 -
the first new route granted to the Company by the
Civil Aeronautics Board in seven years.
Development of this market was expected to take
at least one year to be profitable, but response to
orthwest's new service has been excellent and on
December 15 1977 a fourth daily flight was added
in each direction. ew Orleans' growing impor-
tance as a national convention site and as an oil
and gas exploration center makes this a key city on
our route system.
New Trans-Atlantic Routes
President Carter approved new routes for orth-
4
west Airlines from the U.S. to six northern Euro-
pean countries on January 26, 1978. In doing so, he
confirmed the unanimous recommendation of the
Civil Aeronautics Board that orthwest become
'the orth Country specialist' among U.S. airlines.
The new trans-Atlantic authority permits
orthwest to provide service between a combina-
tion of nine U.S. points (Los Angeles, Seattle, Port-
land, Minneapolis/St. Paul, Chicago, Detroit,
Washington, D.C./Baltimore, Boston and New
York/ ewark) and Scotland, Denmark, orway,
Sweden, Finland and Iceland.
The Company is now developing plans for its
trans-Atlantic services which will begin in the
summer of 1978. The opportunity to link Europe
with the U.S. and Asia on Northwest's route struc-
ture is a welcome one. It comes 3 0 years after
orthwest successfully pioneered service to the
Orient via Anchorage and the orth Pacific.
Aircraft Fleet Modernization
orthwest Airlines continued its program for ac-
quiring cost-efficient, modern jet aircraft to im-
prove its position in the industry. At year-end
1977, orthwest was operating a fleet of 110 fan-jet
airplanes - 21 Boeing 747 airplanes, 22
McDonnell-Douglas DC-10-40's, 65 Boeing 727's
and two Boeing 707's. With this fleet, orthwest
provided 97% of its available seat-miles in interna-
tional transportation with wide-bodied jet air-
planes - Boeing 747's and DC-10-40's. On a sys-
tem basis (international and domestic) 75% of the
Company's available seat-miles were provided in
"wide-cabin" airplanes. The percentage of wide-
cabin seats will increase further in 1978 and 1979.
During the year 1977, orthwest Airlines took
delivery of one additional 747F all-cargo airplane
and nine advanced-model Boeing 727-200's.
These ten aircraft deliveries represent a capital
investment of $127,500,000 and brought the cost of
orthwest's flight equipment to more than
$1 510,000,000.
During the year 1977, the Company sold thirteen
older jet airplanes - six Boeing 707-320's and
THE BOARD OF DIRECTORS ... of orthwest Airlines is pictured here. Seated, left to right: M. Joseph Lapensky; Donald G.
Mc eely; Raymond H. Herzog; Donald . yrop; James H. Binger and Hadley Case. Standing, left to right: Lyman E. Wakefield, Jr.;
Malcolm S. Mackay; Melvin R. Laird and James . Land, Jr.
seven Boeing 727-l 00's. A pre-tax gain of
$51 054,000 as realized from these transactions.
Jorth est in March 1978 ordered six additional
Boeing 747-200B wide-bodied jet airplanes. The
cost of these additional airplanes is approximately
300,000.000 v\ hich includes the cost of addi-
tional spare engines and other spare parts. First
deliver of the new 747-200B s will be in May
1979.Fi eoftheaircraft illbedeli eredin1979
and the sixth in 1980. These ne,,\ Boeing 747's
ha, e been purchased to provide for the further
de elopment of our recently av arded trans-
Atlantic routes to Scandinavia and Scotland. They
will also be used on orthwest s trans-Pacific
routes stem and in high-density cit -pa-ir markets
, i thin the U.S.
Together \\ i th our present 21 Boeing 7 47's (17
passenger aircraft and four all-cargo freighters)
and 22 DC-10-40 s. the six ne, 747 s v ill gi e
North" est Airlines a total of 49, ide-bodied air-
craft - one of the largest fleets of the new genera-
tion jumbo jets in the orld.
T" o advanced model Boeing 727-200 s pre i-
ou ly ordered. "ere deli, ered in Februar.> 1978
and t\\ o more will be deli ered in the last quarter
of 1978.
T o Officers Elected
The Board of Director elected t\\o new corporate
officer during 1 77. fr. Robert E. trite, age 44
as elected ice President-Comptroller, and Mr.
Steven D. \ heeler, age 32, was elected Assistant
Secretary of the corporation.
Outlook for 1978
Passenger traffic, both domestic and international,
has resumed its growth during the last quarter of
1977 and has continued into the first t o months
of 1978. \ e expect that the growth will continue
through 1978 and forecast that revenue passenger-
miles ill increase 8% to 10% over last year.
Cargo traffic, which showed little growth in
1977, increased during the last two months of
1977. The improvement has continued into 1978
and orthwest expects that cargo revenue will in-
crease approximately 10% to 12% in 1978 over the
previous year.
orthwest Airlines continues to ha e good cost
controls and, if the above sales forecasts are
achieved. 1978 v ill be another successful year for
orth, est ir lines.
Sincerel ,
~~r: ~
Chairman and
Chief Exe cu ti ve Officer
arch 15. 19 7 8
5
SALES AND MARKETING HIGHLIGHTS
NWA Records First
Billion Dollar Year
as 10 Million Passenger
Figure Surpassed
Two new milestones were reached by Northwest
Orient in 1977 as the Company exceeded one bil-
lion dollars in operating revenues for the first time
in history and carried more than 10 million pas-
sengers for another first.
A number of sales records were established in
1977:
A new single month record of 998,279 revenue
passengers was set in August.
A new single month cargo revenue record of
$12,043 ,781 was established in November.
For the second consecutive year, more than
500 ,000 passengers were carried on Northwest
Orients' trans Pacific services in 1977.
The continued expansion and growth of North-
west Orient's partnership with its travel agents was
evident in 1977. Travel agency revenue totaled
$432 million - an increase of more than $54 mil-
lion compared to 1976.
The 56 'Travel Fairs' held for nearly 8,000 travel
agents in 1977 enabled them to meet with top tour
operators, cruise lines and representatives of major
tourist attractions in areas served by Northwest
Orient.
Tour Sales Show Gain
Tour programs produced by Northwest Orient and
selected tour wholesalers produced $90 million in
revenues during 1977. This was a 26 per cent in-
crease over 1976.
WA's Orient tours remained a very popular
attraction with more than 40,000 tourists par-
ticipating in 1977 orthwest Orient programs.
Cargo Gains Domestically
Domestic cargo revenue increased by 6 per cent in
19 7 7 over 19 7 6. This offset a decline in eastbound
trans Pacific cargo volume caused by a stagnant
6
import market resulting from the weakened U.S.
dollar overseas.
Also helping make up the deficit in eastbound
trans Pacific traffic was a 26 per cent gain in
westbound cargo traffic from the U.S. to the Orient.
A special sales effort was launched to obtain ship-
ments of fresh seafood products to Japan. Included
were shipments of whole tuna from Boston to To-
kyo, sea urchins from the West Coast and salmon
roe from Alaska.
Containerized traffic represented 46 per cent of
NWA's domestic system freight traffic in 1977.
Convention Sales Grow
Over 43,000 delegates flew on Northwest Orient
flights to their domestic and international conven-
tions during 1977.
Northwest Orient became the first airline to de-
velop Travel Agent Seminars specializing in con-
vention sales techniques. These seminars were at-
tended by more than 200 travel agents in major
on-line cities and the response has been excellent.
New Orleans Service Begun
On June 8, 1977, Northwest Orient began its first
scheduled service in the New Orleans-Chicago
market under new authority granted by the Civil
Aeronautics Board.
An aggressive sales and advertising program
was launched in the key markets - New Orleans,
Chicago and Minneapolis/ St. Paul - using news-
paper advertising like that pictured at right. Spe-
cial food service was also introduced.
Originally estimated to take at least one year to
be profitable because of the market dominance of
the entrenched competitor, the Chicago-New Or-
leans route has literally 'taken off' for Northwest
Orient. On December 15, 1977, a fourth daily flight
providing night coach service in each direction
was added.
Newway
down yonder to
New Orleans!
S'l'-.,e,Nmnl ~,s.pro.,o10__,,..
r--..i--e,,a,,,se,wr,,e,~OC)Ol"-0-..-..
~~"':',.,~~ioo---~l"TN
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SALES AND MARKETING HIGHLIGHTS
Chicago-Tokyo
Non Stop Service Launched;
'Wide Cabin Airline'
Emphasis Continues
The first nonstop service to be offered in the
Chicago-Tokyo market was introduced by orth-
,,vest Orient on June 8 , 1977. It gave WA the
fastest service to the Orient from 3 5 states in the
.S.
This sen ice advantage was announced in news-
papers and radio in all on-line cities, in 22 off-line
cities , regional and national magazines and the
travel trade press with messages like those shown
below. A similar advertising program in the Orient
promoted the Tokyo-Chicago service.
In selected cities, newspaper advertising high-
lighted the difference between orthwest Orient's
full-size 747 and the shorter and more condensed
seating of the smaller B747-SP.
'Wide Cabin' Theme
Continuing emphasis was placed on 'The Wide
Cabin Airline theme throughout 1977 and into
1978 in orthwest Orient advertising.
With 75 per cent of its system seat miles and 97
per cent of its international available seat miles in
modern, wide cabin jet aircraft, WA advertising
reflected this marketing advantage. These 747 and
DC 10 aircraft are clearly preferred by the public in
all opinion surveys.
'The Wide Cabin Airline' theme also generated a
musical jingle which was adapted for use in all
radio and television commercials.
New Uniforms Introduced
A completely 'new look' was introduced for
orthwest Orient's flight attendants on November
14 1977. Over one year in the design and de-
velopment, the program to develop new uniforms
involved the fitting and distribution of more than
32 ,000 pieces of clothing.
With the navy blue and red uniforms keyed to
orthwest Orient's corporate colors, the 'new look'
has been welcomed by both the 2,200 WA flight
attendants and the more than 10 million passen-
gers they served in 1977.
Northwest: Why fly shouldertoshoulder to Tokyo ..
when Northwest gives you 60%
more room!
Northwest:
fastest way to
the Orient.
8
Wrth the first and only Chicago-Tokyo nonstop
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The wide-cabin airline
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EVERY DAY TO A.ORIDA!
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Fly lhewide-cabin .....
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Florida?
FIY. Vlith the
leader!
(The choice is obvious.)
SERVICE NORTHWEST OTHER AIRLINE
Oally wk:te-ca.bm )et.a 6 0
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Service to 10 Florida cities.
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@~ o I WES O 1n
Financial Review
and Management Analysis
for 1977
Operating Revenues
Operating revenues in 1977 surpassed the billion
dollar mark for the first time and amounted to a
record $1 ,046 ,354 ,772 . This compares with previ-
ous highs of $963,808,065 in 1976 and
$800 ,562 ,989 in 1975.
Passenger revenues increased to $861 ,053 ,058 in
1977 and compare with $786,414,179 in 1976 and
$659 ,849 ,499 in 1975. This reflects both an in-
crease in traffic and an increase in fares granted by
the Civil Aeronautics Board. The system
scheduled passenger-mile yield increased to 7. 76ct
in 1977 from 7.30ct in 1976 and 6.94ct in 1975.
Cargo revenues amounted to $121 ,185 ,084 in
1977 and compare with $119 ,882 ,2 59 in 1976 and
$88 ,307 ,610 in 1975. The system cargo revenue
ton-mile yield increased to 26.45(1'; in 1977 from
25.65ft in 1976 and 22.86ct in 1975.
Revenues from commercial charter and other in-
come amounted to $13 ,619 ,005 , while military
charter revenues were $12,251 ,605 in 1977. These
compare with $13 ,249 ,974 and $12 ,7 04 ,567 in
1976 and $12 ,561 ,055 and $16 ,457 ,917 in 1975 ,
respectively. The higher military charter revenues
in 197 5 reflected the increased activity from
evacuation of personnel from Vietnam. The Mili-
tary Airlift Contract expires on September 3 0, 197 8
and the Company will seek a renewal contract for
the 1979 fiscal year.
Fares and Rates
The Civil Aeronautics Board approved a number of
fare and rate increases in 1977 as a result of in-
flationary pressures including higher fuel costs.
Domestic 48 state fares were increased on Feb-
ruary 15, 2%; April 1 , 8% first class only; August
18, 1% ; September 10, .5%; and November 4,
3 .0%. Mainland-Hawaii fares were increased on
January 1, 2% on regular fares and 4 .5% on promo-
tional fares and on July 15, 2 %. Canada trans border
fares were increased 4% on June 15. North Pacific
discount fares were increased 5% on August 1.
Cargo bulk rate increases were granted for the
domestic 48 states of approximately 12% and
Mainland-Hawaii, 15%, effective August 21.
Current inflationary trends have caused some
U. S. carriers to apply to the Civil Aeronautics
Board for a 3 % domestic 48 state fare increase for
effectiveness on May 1, 1978.
Operating Expenses
Operating expenses in 1977 increased to
$941 ,77 1 ,207 and compare with $860,860 ,03 8 in
1976 and $750,863,340 in 1975.
Inflationary trends and development of the new
Chicago-New Orleans and Chicago-Tokyo non-
stop routes have contributed to expense increases
in 1977. The Company continues to maintain strict
cost control policies and procedures to minimize
SOURCE AND DISTRIBUTION OF REVENUES
Percent of Total (Dollars in Millions) Distribution:
Employees Wages and Benefits
26.7% $279.2
Source: Fuel and 0 11
Passenger - Coach - ~ ,....._ ___ .....,.,. 23 0% $240.6
74 4% $778 0
Materials and Services
14.2% $148.2
Passenger - 1st Class
7 9% $ 83 1 Depreciation and Amortization
9.8% $103 2
Freight and Express
116% $1212 Commissions
6.8% $ 70 8
Charter and Other
3 3% $ 34 2
Landing Fees and Rentals
4 9% $ 51 .3
Mall Income Taxes
2 8% $ 29 9 58% $ 60 4
'------- Earnings
8.8% $ 92 7
10
the effect of inflation. Operating e pen e per a ail-
able ton-mile increased to 22.92q; in 1977 from
21.61rt in 1976 and 20.61rt in 1975. This is the
Im est operating cost le el in the U. . airline in-
dustr .
Depreciation and amortization e pense
amounted to $103,152 530 in 1977 and compares
ith 102,713,531 in 1976 and 98,879 815 in
197 5. Increases betv een the ears reflect the addi-
tion of ne,, aircraft purchased to replace older less
producti e aircraft.
ajar inflationary increa es continued in the
cost of labor, materials and supplies and aircraft
fuel. The s stem fuel anal sis chart (on this page)
sho s the dramatic climb in fuel costs since the
base ear of 1973. The Com pan spent appro i-
mately 23rt for fuel out of each re enue dollar in
1977 compared to onl 13 in 1973.
Earnings and Dividends
Record earnings were achieved in 1977, amount-
ing to $92,718,790 or 4.29 per average share of
common stock. Thi compares to 51 ,737,015 or
$2 .3 9 per share in 1976.
Included in the earnings before related income
taxes were gains from sale of flight equipment
amounting to $51 053 719, compared with
9,118,984 in 1976. Interest on long-term debt net
of capitalized interest, was $6,517,695 this ear
compared to $14,035,036 in 1976. This is a result of
reduction of long-term debt.
The Company continued its uninterrupted div-
idend payment policy in 1977. Increased quarterly
payments resulted in an annual rate of .50 per
common share compared with .45 in 1976. This is
the 2'.ird consecutive year in hich the Compan
has paid dividends.
The principal market on "hich orthwe t ir-
lines common tock is traded i the ew York
tock E change. The follm, in table how the
sales price range for the ear 1977 and 1976 and
the di, idend paid per hare for the am p riod.
Quarter
1st
2nd
3rd
4th
High
Low
High
Low
High
Low
High
Low
Sales Price of
Common Shares
1976 1977
32 30%
23 22 1
/ 2
34 283,\J
253/a 22
36 263/s
27 20
31 24
26 193/8
Taxes on Earnings
Dividends
Per Share
1976 1977
$. 1125 . 1250
.1125 .1250
.1125 .1250
.1125 .1250
Income ta es on earning in 197 7 amounted to
$60,425 ,200 and compare v ith 46.527 .200 in
1976. The current ear consists of a normal ta.1
provision of $75,276,100 of v,hich 19,891,300
has been deferred for future pa ments as a result of
the Compan s use of accelerated methods of com-
putation of depreciation for income ta purpo e .
In estment ta credits generated from the pur-
chase of flight and ground equipment and applied
against the income ta pro ision amount d to
$14 850,900 in 1977 , up from $1,848 200 in 1976.
The Ta Reform Act of 1976 allowed the airline
industry to applj unutilized investment ta credit
at the rate of 100% of the current ta liability in
1977. As a result, prior period in e tment ta , cr d-
System Fuel Analysis
Year Ended December
% Change
1973 1974 1975 1976 1977 1977/ 1976
Price Per Gallon (Includes Sales Taxes) 12.66(]; 27 .20q; 31.67 33.29(]; 37.48q; + 12. 6%
Gallons Used (000) . . . . . .. .. . ... . . . 616,930 587 ,302 593,821 618 ,325 633, 955 + 2.5%
Fuel Cost (000) ....... . ... . . . $78 ,134 $159,753 $188,049 $205,853 $237 ,602 +15.4%
Revenue Ton-Miles (000) 1,254 ,074 1,411 ,862 1,494,669 1,705,987 1
I
731
I
199 + 1.5%
Revenue Ton-Miles Per Gallon .... . . 2.03 2.40 2.52 2.76 2.73 - 1.1 %
Total Revenues (000) ... $584 ,348 $758,991 $800,563 $963 ,808 $1 ,046,355 8.6%
Fuel Cos % of Revenues 13.37% 21.05% 23.49% 21.36% 22.71 % 6.310
11
Financial Review for 1977
( continued)
its which could not be applied to tax returns, but
which were offset against deferred income taxes,
were reduced from $53 527,600 in 1976 to
$16 ,103,800 in 1977.
Cash Flow
Funds from all sources amounted to $273 ,364,266
in 1977 compared to $196,966,856 in 1976.
Net earnings provided funds of $92,718 ,790 in
1977 compared to $51,737 ,015 in 1976. Additional
benefits derived from owning equipment rather
than procurement through leasing arrangements
have provided funds through depreciation and
amortization of $103 ,152,530 in 1977 compared
with 102 ,713 531 in 1976. Funds from deferred
taxes of $59 ,558 000 and other sources of
$17 934 946 were generated in 1977. This com-
pares with $36 765,400 and $5,750,910 respec-
tively, in 1976.
Funds used in 1977 amounted to 164 ,398 ,932 ,
down from $215 ,300,475 in 1976.
Funds required for the purchase of flight equip-
ment and other property and advance deposits on
aircraft scheduled for delivery during 1978
amounted to 131 ,595 ,284. Payments for reduc-
tion of long-term debt amounted to $22 ,000,000
and cash dividends amounted to $10,803,648.
STOCKHOLDERS' EQUITY VS. LONG-TERM DEBT
1llions of Dollars EQUITY Ill
800 DEBT 1111
700
600
500
400
300
200
100
0
1973 1974 1975 1976 1977
12
Traffic and Services
Scheduled operations in 1977 showed gains in
both traffic and capacity over 1976.
Revenue passenger-miles in scheduled service
increased 3.2% and available seat-miles increased
3 .3 %. Revenue ton-miles increased 1.8% and a-
vailable ton-miles flown increased 3 .4%. The in-
crease in revenue ton-miles includes an increase in
passenger ton-miles of 3.2% and a decrease in
cargo ton-miles of 2.0%. The reduction in cargo
ton-miles reflects the slowdown in the Japanese
economy and the decline in the value of the U. S.
dollar.
On June 8 this year, the Company began serving
its new route authority between Chicago and ew
Orleans with three daily round trips and also began
non-stop round trip services between Chicago and
Tokyo four times a week. Passenger acceptance of
these nev.r services has exceeded our expectations.
On July 1, 1977 all trans-Pacific all-cargo service
was converted to B-747F operations. This permits
use of larger containers that produce efficiencies
for both the airline and the shippers.
Financial Condition
The Company continued to improve its financial
position in 1977 and enhanced its ranking as one of
the strongest carriers in the airline industry.
Effective December 3, 1977, the Company termi-
nated the Revolving Credit Agreement with banks
which provided for a maximum credit of
$104 ,600,000 at termination. The Company's
long-term debt arrangements are described in ate
B to the Financial Statements.
Internally generated cash provided the Com-
pany with funds for all of its financial needs in
1977 including the reduction of long-term debt by
$22,000.000 and the purchase of one 747F all-
cargo airplane and nine 727-200 passenger
airplanes and related spare parts. Existing finan-
cial arrangements and internally generated cash
will be used to cover the purchase of four addi-
tional 72 7-200 passenger airplanes to be delivered
in 1978 and si 747-200 passenger airplanes to be
delivered - five in 1979 and one in 1980.
Stockholder equity at December 31 , 1977
amounted to $747,671,847 , compared with
665 ,743,992 in 1976. Book value per common
share at year end increased to $34.60 compared
with $30.81 a year ago. Total outstanding debt at
year end amounted to 104,000,000 compared
with $125,000 ,000 in 1976. Outstanding debt was
13.9% of stockholder equity at year end, down
from 18.8% in 1976. This advantageous debt to
equity ratio continues to be the lowest of the U.S.
trunkline carriers.
Statements of Earnings
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Operating Revenues
Passenger ........ ... .. ...... . ..... . ......... . ......... .
Cargo ...................... . ..... .... . . ..... ... . ..... . .
Mail ...... ...... .. . . ..... . ........ . .. ...... ...... ..... .
Charter and other transportation . .. ......... . . . . . .... ... .
on transport ......... .... ..... .... . .... . ...... ... . .. .. .
Operating Expenses
Flying operations . ................ .. . .................. .
Maintenance .. .. ......... . ...... . ... ... .. . .... ........ .
Passenger service .... . .... . .... ... ........... .. .. .... .. .
Aircraft and traffic servicing ................. .. . . ...... . .
Reservations, sales and advertising .... ... . ....... .. .... . .
Administrative and general ............................. .
Depreciation and amortization ... . ....... .. ..... ........ .
Other Income (Expenses)
Interest on long-term debt, net of capitalized
interest of $2,362 ,672 (1976 - $835 ,938) - ote A . .. . .
Gain on sale of flight equipment .................. . ..... .
Other ................................................. .
Earnings Before Income Taxes .......... . .............. .. . .
Income taxes - ote D . ......... ........ ................ .
et Earnings ............................................ .
Average shares of Common Stock outstanding
during the year ........................................ .
Earnings per share of Common Stock ...................... .
e not to finan ial tat ments
Year Ended December 31
1977
$ 861 053 058
121 ,185 ,084
29 ,893 ,962
25 ,870,610
8 ,352,058
1 046 354,772
351 ,480,978
105 ,146,793
86 ,526 853
148 871 ,186
122,031 ,763
24,561 ,104
103 152 ,530
941.771 207
104,583 ,565
6 ,51 7,695)
51 ,053, 719
4 ,024 ,401
48 ,560,425
153 ,143 ,990
60 ,4 25,200
92 ,718 ,7 90
21,606 ,544
-l .2 9
1976
$786,414,179
119,882259
25 137 ,346
25,954,541
6,419,740
963,808,065
309,198,914
87.175,964
77,085 717
138 ,94 0,753
123,568,082
22,177,077
102,713,531
860 ,860 ,038
102,948,027
14 ,035 036)
9,118,984
232,240
4.683,812)
98,264,215
46,527.200
$ 51.737,015
21.60 5 .-!93
$2.39
13
Statements of Financial Position
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
ASSETS
Current Assets
Cash and short-term investments .... . . ... . . ... . . . ...... . .
Accounts receivable, less allowance of $1 ,300,000
(1976 - $1 ,2 00 ,000) ... .. . .. . ..... . ........ . .... . . .. . .
Flight equipment spare parts,
less allowance for depreciation of $15 ,728 ,241
(1976 - $13,24 7,969) . . . . . . . .. . .. . .... . . . .. . . .. .. .... .
Maintenance and operating supplies ..... ..... .... ... . .. .
Prepaid expenses ...... . . . ... . ...... .... ............... .
Total Current Assets
Other Assets ... . ...... . . .. . ..... .... .. . . .... . . . . .... . ... .
Property and Equipment
Flight equipment ... . .. . ........... . .. . ..... ..... . ... . . .
Less allowance for depreciation ... . ...... . .............. .
Advance payments on new flight equipment - Note E .. . .
Other property and equipment ...... .... .. ... . . .. ....... .
Less allowance for depreciation . . .. ... .. ................ .
14
December 31
$
1977
129,717 ,280
83 ,413 ,519
29 ,731 ,581
7,714 ,326
5,707 ,249
256 ,283 ,955
16,064 ,461
1 ,510,447 ,264
547 ,490 ,198
962 ,957 ,066
13 ,145,496
976 ,102,562
127,595 ,835
76 ,595 ,835
51 ,000 ,000
1 ,027 ,102,562
$1 ,299 ,450 ,978
$
1976
14,544,179
75 ,517,199
23,764,942
6 ,933 ,321
2 ,820,483
123,580,124
16,058 ,113
1,448,401 ,928
523 ,865 ,169
924 ,536,759
31 ,501,595
956 ,038 ,354
122,445,236
66 ,559,527
55,885 ,709
1 ,011 ,924 ,063
$1 ,151 ,562 ,300
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 and Other Liabilities
Income taxes - Note D ............. . . . ................ .
Other ............... . ... . ...... ... . ... ................ .
Stockholders' Equity - ote C
Common Stock $1.25 par value, authorized 40,000,000
shares; issued and outstanding 21,606 686 shares
(1976 - 21,606 03 6 shares) ..................... ...... .
Capital surplus ......... . ..................... ... ...... .
Retained earnings ................ . ..................... .
Commitments and Contingencies - T
otes E and F
See notes to financial statements
$
December 31
1977
122 060 666
27 ,029 ,098
22,041,670
3 302,315
4 000 ,000
178,433 ,749
100,000 000
261 349,600
11 995 782
273 345 ,382
27,008.357
124,187 ,920
596 475,570
747 ,671 ,847
1,299 ,450.978
$
1976
100 485,107
21,934 ,578
17 ,887 ,086
11 ,3 88481
3,000,000
154,695.252
122 000,000
201 791,600
7,331,456
209 123 ,056
27,007,545
124,176 019
514,560,428
665,743 ,992
$1.151,562,300
15
Statements of Changes in Financial Position
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Year Ended December 31
Funds Provided
et earnings . . . .. . . . . .. ... . .. . . ......... . . . . . . .. ...... .
Items not affecting working capital:
Depreciation and amortization . . ...... . .......... . .. . . .
Increase in deferred income taxes . . ... . . ... ... . . ... .. . .
Amortization of deferred investment credit . .. . ........ .
Total From Operations
Proceeds from sale of flight equipment
less gain included in earnings .. ... . .... .. . . . .... ..... .
Other .... .. . . . ...... . . ..... . . ..... . . ... .. . .. . ... . . . .. . .
Total Provided
Funds Used
Flight equipment and other property additions . . . . ... . . .. .
Advance deposits on aircraft . . . . . .... . . ...... . . ......... .
Cash dividends ...... . . .. ............ . ...... . .. . .... .. . .
Reduction of long-term debt ... . . . . ... . .. . . . .... ........ .
Total Used
Increase (Decrease) in Working Capital . . . . . .. . .. ... . ..... .
Changes in working capital consist of:
Increase ( decrease) in current assets:
Cash and short-term investments .. . .......... . . . . . .. . . .
Receivables . . . ..... . .. . .. .. ..... . ...... . ... . .... . ... .
Recoverable income taxes . . . . . ............... . ....... .
Inventories ... . ....... . .. . . ... ..... .. . . . . ... ... . . . .. . .
Prepaid expenses .. .... . .... .. ... .. .......... . ..... . . .
Increase ( decrease) in current liabilities:
Accounts payable and accrued expenses ...... . ... . .... .
Other accrued liabilities .... . .. .. . . ... . .. . . . .... .. ... . .
Unredeemed ticket liability ............ .. ... . .. .. . . ... .
Current maturities of long-term debt .... . . . .... . .. . .. . .
Increase ( decrease) in working capital . .. . . ...... .... .. .. . .
See notes to financial statements
16
$
1977
92,718 ,790
103 ,152 ,530
59,558 ,000
-0-
255,429,320
15 ,780 ,836
2,154,110
273,364,266
118 ,449 ,788
13 ,145 ,496
10,803 ,648
22,000,000
164,398 ,932
$108 ,965 ,334
$115 ,173 ,101
7,896,320
-0-
6 ,747 ,644
2,886 ,766
132 ,703,831
21 ,575 ,559
2,991,646)
4 ,154 584
1,000,000
23 ,738 ,497
$108 ,965 ,334
1976
$ 51,737 ,015
102 ,713 ,531
36,765 ,400
522,200)
190,693 ,746
5 ,976,395
296 ,715
196,966,856
50,091,663
31,501 ,595
9 ,707,217
124,000 ,000
215,3 00,475
($ 18,333,619)
($ 34,617 ,989)
3,025 ,071
6 ,040 ,800)
73 ,758)
194,224
37 ,513 ,252)
359,316)
4,417 ,292
337,609)
22,900 ,000)
( 19,179,633)
( $18 ,333 ,619)
Statements of Stockholders' Equity
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
Common Stock
Shares Amount
Balance December 31 , 1975 ............ 21,604,136 $27 ,005 ,170
Exercise of stock options ....... . . . . . . 1,900 2,375
et ~arnings for 19 7 6 ..... . . .. ..... . .
Cash dividends - $.45 a share ...... .
Balance December 31 , 1976 ............ 21,606,036 27 ,007,545
Exercise of stock options ............. 650 812
et earnings for 1977 . . ....... . ......
Cash dividends - $.50 a share ... . ...
Balance December 31, 1977 ........... . 21 ,606,686 $27,008,357
See notes to financial statements
Capital Retained
Surplus Earnings
$124,140,834 $4 72 ,53 0,63 0
35,185
51,737,015
9,707,217)
124,176,019 514,560,428
11 ,901
92,718,790
10,803 ,648)
$124,187,920 $596,475,570
APPLICATION OF INVESTMENT TAX CREDIT NORTHWEST AIRLINES FLEET
Available* Appliedt
and Reflected on
Period in Earnings Tax Returns
1962-1976 ......... $124,757,700 $ 71,230,100
1977. . ............ 14,850,900 52,274,700
Total .... . ........ $139,608,600 $123,504,800
Applied on I
Returns . . . . . . . . . . 123,504,800 .,____J
To be Applied ..... $ 16,103,800
*The Company uses the flow-through method of
accounting for investment credits and records the
credits as a reduction of income tax expense in the
year earned.
tlnvestment credits are applied on tax returns as
allowed by income tax regulations. Credits not
applied currently are offset against deferred taxes.
Year End On Order
Aircraft Type 1976 1977
B727 & B727C-100 .... 32 25
B727-200 ............ 31 40 4
B707-320B & 320C .... 8 2
DCl0-40 ............. 22 22
B747 ..... ........... 17 17 6
B747F .... . .. ..... . .. 3 4
Total ................ 113 110 10
See ate E to financial statem nts
17
18
Notes to Financial Statements
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
December 31 , 1977
ote A - Accounting Policies
A summary of significant accounting policies of the Company which have been consistently
followed in preparing the accompanying financial staterLents 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.
Short-Term Investments
Short-term investments are stated at cost which approximates market.
Flight Equipment and Property
Provision for depreciation is computed by the straight line method over the estimated useful
lives of the assets. Useful lives are estimated at fifteen years with 10% residual values for 7 4 7 and
DC-10 aircraft and ten years with 15% residual values for all other aircraft. Useful lives of
buildings vary from 5-30 years and other equipment from 4-10 years.
Depreciation of flight equipment spare parts, rotables and assemblies is provided by the
straight line method at rates which depreciate the cost of these ass.ets, less residual value, over
the estimated useful lives of the related aircraft.
The Company charges all expenditures for maintenance and repairs and minor renewals and
betterments to operating expense. Expenditures which materially increase values or extend
useful lives are capitalized. Book value of assets sold or otherwise disposed of is eliminated from
the accounts in the year of disposal and the resulting gain or loss is included in operations.
Interest on the Company's long-term debt relating to deposits advanced to manufacturers prior to
the delivery of new aircraft is capitalized and amortized over the useful life of the aircraft. If the
Company did not follow a policy of capitalizing interest, net earnings would have been increased
by 15 ,000 in 1977 and by $731,000 ($.03 a share) in 1976.
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 thirty years.
Income Taxes
Income taxes are provided at statutory rates to earnings before income taxes regardless of when
such taxes are paid. Deferred income taxes arise principally from timing differences between
financial and tax methods of accounting for depreciation and capitalized interest.
Notes to Financial Statements
ote A - Accounting Policies (Continued)
The Company uses the flow-through method of accounting for investment credits. 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 investment credit carryover periods.
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. o material dilution would result upon exercise of outstanding stock options.
Note B - Long-Term Debt
Term Credit with banks is payable $12.5 million quarterly be-
ginning April 1, 1981. Interest is paid based on a formula
related to prime commercial loan rates; however, total in-
terest paid shall not exceed 73/a% per annum on borrowings
over the term of the loan .. . , ... . ...... . .. . . . . ..... . .... .
Revolving Credit Agreement with banks was terminated by the
Company effective December 3, 1977. Interest on funds bor-
rowed was at % above the prime commercial loan rate prior
to July 1, 1976 and % above thereafter .. .. .. .. ... . . . . . .
ote purchase agreements with twelve insurance companies are
payable $3 ,000 ,000 annually to October 1, 1978 when the
balance is due. Interest is at 6% per annum .. ... . .. . . ... .
Less current maturities . . .. .. . ..... . ... . . . . ......... . .... . .
December 31
1977 1976
$100 ,000 ,000
-0-
4,000 ,000
104,000,000
4,000 ,000
$100 ,000 ,000
18,000 ,000
7,000,000
125,000 ,000
3,000 ,000
$100 ,000 ,000 $122 ,000 ,000
The Company was in compliance with the covenants of the debt agreements at the end of both
years. At Dec; mber 31 , 197 7 approximately $178 ,000,000 of retained earnings was unrestricted
under the terms of the agreements.
The required long-term debt payments are $37 ,500,000 in 1981 , $50 ,000 ,000 in 1982 and
$12 500,000 in 1983 .
1.
20
Notes to Financial Statements
ote C - Stockholders' Equity
Cumulative Preferred Stock, $25 par value:
Authorized ............................................ .
Issued December 31 .... .... .. ........... ....... ........ .
Common Stock options at prices which were
not less than 100% of market at date
of grant are as follows:
Outstanding December 31, 1975 .................. .... .
Exercised ............... . ... . .. ............... .... .
Outstanding December 31, 1976 ...................... .
Exercised ................. . .. ............... ...... .
Lapsed ............................................ .
Outstanding December 31, 1977 ...................... .
Options exercisable:
At December 31 , 1976 .............................. .
At December 31 , 1977 .. . .................. .. . . .. . .. .
1977
1,000 ,000
None
Shares
81,000
( 1,900)
79 ,100
( 650)
( 1,150)
77 ,300
56 ,450
77 ,300
Shares
1976
1,000 ,000
None
Price Per Share
$19.13/ 20.06
19.13/ 20.06
19.13/20.06
19.13/ 20.06
19.13/ 20.06
19.13/ 20.06
$19.13/ 20.06
19.13/ 20.06
Shares available for future stock options and other plans were 330,286 and 329,136 at December
31, 1977 and 1976, respectively, of which 70,150 and 69 ,000 , respectively, were available for
additional grants under the 1973 Stock Option Plan.
Note D - Taxes on Earnings
The provision for taxes on earnings consists of the following:
Year Ended December 31
1977 1976
Current:
Provision for the year .. . ............................... . $55,384,800 $20,494,300
Investment credit applied .............................. . ( 52,274,700) ( 9,956 ,700)
3,110,100 10,537,600
Deferred:
Provision for the year .............. ......... .. . ........ . 19,891,300 27,881 ,100
Investment credit:
Earned during the year ............................... . 14,850,900) 1,3 26 ,000)
Transferred to current ( earned in prior years,
applied on tax return in current year) ...... .... .. . . . . 52 ,274 ,700 9,956 ,700
Deferred amortized over eight years ........ ..... ...... . -0- 522,200)
57 ,315 ,100 35 ,989,600
Total income tax expense .... .. ...... ....... .. .......... . . $60,425,200 $46,527,200
The deferred expense consists of:
et current items . ............... ......... ............. . ($ 2,242 ,900) ($ 775 ,800)
et noncurrent items ..... . .......... ...... ... . ..... ... . 59,558,000 36 ,765 ,400
$57,315,100 $35 ,989 ,600
Notes to Financial Statements
Note D - Taxes on Earnings (Continued)
TheCompan 'seffectivetaxrate\ as39.5 % for1977and47.3 % for1976.Therate arelm erthan
the statutor federal rate of 48% primarily because of in e tment tax credits earn d.
In estment credits not applied on tax return but offset again t deferred income ta 'es at De-
cember 31. 1977 will e pire $1,227 100 in 1983 and $14.876.700 in 1984.
Note E - Commitments
The Company does not lease an aircraft or related flight equipment.
At December 31 1977 the Company has contracted to purcha e four B727-200 jet aircraft for
delivery in 1978 which will require expenditures of $42,536.000, of\ hich $13,145,000 ha b n
deposited and the remainder is pa able in 1978.
On February 25. 1978 the Company contracted to purchas ix B7--l: 7-200 jet aircraft for deli\ ery
in 1979 and 1980 which \Nill require expenditures of $89.041 ,000 in 197 8, $153,961.000 in 1979
and $30,453 ,000 in 1980.
Leased property consists of space in air terminals, land and buildings at airports, and ticket, sales
and reservation offices under noncancelable operating leases which expire in various year
through 2008. Portions of these facilities are subleased under noncancelable op rating leases
expiring in various years through 1988.
Future minimum rental commitments at December 31, 1977 for noncanc lable operating 1 a es
with initial or remaining terms of one year or more, of which $163 ,73 6.000 is for air terminal and
airport facilities are as follows:
1978 ............ . .................... .
1979 ................................. .
1980 ................................. .
1981 ................................. .
1982 ........... ...... . ...... ......... .
Thereafter .............. ... ... ........ .
$ 12,451,000
11.671000
10,908,000
10 614 ,000
10,470,000
120,305 000
176,419,000
Sublease rental income . ..... ... .. ... . . ( 7,068,000)
R ntal e pen for all op rating
1 ases con ist d of:
Minimum ....... ... ................................. .
ubl a r ntal incom ............................... .
$169 351,000
1977
14,984 ,000
610,000)
H,374.000
1976
21
22
Notes to Financial Statements
Note F - Contingencies
The Company is a defendant in a class action brought in 1970 in federal court in Washington,
D.C. 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 appealed that decision. The Court of
Appeals for the District of Columbia affirmed the trial judge on all substantive issues and
remanded the case for further consideration including (1) a redetermination as to whether
plaintiffs seeking recovery under the Equal Pay Act may be entitled to liquidated damages which
could effectively double the Company's liability to certain of the plaintiffs and (2) a determina-
tion of the appropriate statute of limitations applicable to the alleged Civil Rights Act violations
which could also increase the Company's liability. After a denial of a motion for rehearing by the
Court of Appeals, the Company petitioned the Supreme Court of the United States to review the
decision of the Court of Appeals. That petition was denied on February 21 , 197 8 . The case will
now be remanded to the trial court to decide the unresolved issues and to identify specific
plaintiffs and the amounts to which they are entitled.
Last year, while the Company's motion for rehearing was pending , it estimated that its ultimate
liability might range from approximately $1 million to an amount in excess of $26 million. If all
the issues that are to be decided by the trial court upon remand are resolved against the Company,
liability could ultimately reach $50 million. However, either party has the right to seek appellate
review of the case again following the trial court's further decision, so that no specific amount of
ultimate liability may be estimated as probable.
The Company has brought action against the unions that represented the plaintiffs in the class
action described above. The Company seeks indemnification and contribution from the unions
for any liability for which the Company may ultimately be held responsible. The District Court
held that the unions may be liable for contribution under the Civil Rights Act but not under the
Equal Pay Act. Both parties have appealed the decision to the Court of Appeals. The outcome of
the lawsuit cannot be predicted.
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. Company
management does not believe that these actions will result in material liability to the Company.
Note G - Pension Plans
The Company's pension expense was $26 ,359,000 in 1977 and $23 ,636,000 in 1976 . Unfunded
prior service costs at January 1 , 1977 were estimated by consulting actuaries to be $24,161 ,800.
At December 31 , 1977 the market value of the assets in all pension funds was $180,444,966. The
value of vested benefits was estimated by consulting actuaries to be $191,347 ,781 or $10,902 ,815
in excess of the fund assets.
Notes to Financial Statements
Note H - Export Sales
orthvlest Airlines, Inc. is a scheduled air carrier engaged in commercial transportation of
passengers , mail and cargo, and operates under certificates of public convenience and necessity
issued by the Civil Aeronautics Board. Operating revenues include export sales of $183 .349.000 ,
principally associated with countries in Asia. Revenue from sales consummated in foreign
countries is considered to be export sales.
Note I - Replacement Cost of Property and Equipment (Unaudited)
As required by the Securities and Exchange Commission, the Company's annual report on Form
10-K contains specific information with respect to replacement cost of property and equipment
at December 31, 1977 and the approximate effect which replacement cost would have had on the
computation of depreciation expense for the year then ended.
The Company's fleet modernization program substantially mitigates the impact of replacement
cost assumptions on its historical cost financial statements. Moreover, since the Company is
regulated and entitled to a fair rate of return on its investment, any increased cost would justify
higher fares and rates to its customers.
ote J - Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations for the two years
ended December 31, 1977:
Earnings
Operating Operating Net Per Share of
Revenues Expenses Earnings Common Stock
1977
First quarter $ 238 ,555 ,071 $227 ,892 ,025 $12 ,160,183 $ .56
Second quarter . . . . . 251 ,588 ,606 224 ,975,908 27 ,238,413 1.26
Th:rd quarter ..... . 281 319 ,813 243,295 ,659 29 ,401 ,907 1.36
Fourth quarter 274 ,891 ,282 245 ,607 ,615 23 ,918.287 1.11
$1 046 ,354,772 $941 ,771 ,207 $92 ,718 ,790 $4 .29
1976
First quarter $214 ,714 ,469 $210,026 ,554 $ 5.298,109 $ .25
Second quarter ..... 238 ,381 ,535 209 ,921 ,881 12 ,816 ,786 .59
Third quarter .. . . .. 267,069 ,988 222 ,513 ,430 21 ,371 ,128 .99
Fourth quarter 243 .642 ,073 218,398 ,173 12 ,250 ,992 .56
$ 963 .808 ,065 $860 ,860 ,038 $51 ,7 37 ,015 $ 2.3 9
Income taxes for interim periods are calculated at statutory rates less a pro rata portion of
investment tax credits.
23
10 Year Summary*.
NORTHWEST AIRLINES, INC. AND SUBSIDIARIES
(Dollars in thousands except per share figures)
Operating Revenues
Passenger ........................................ .
Cargo ............................................ .
Mail ............................................. .
Charter and other transportation ................... .
Non transport ............................. , ....... .
Total Operating Revenues
Operating Expenses
Depreciation and amortization ..................... .
Other ............................................ .
Total Operating Expenses
Operating income ................................... .
Interest expense on long-term debt ................... .
Other income and (deductions) - net ................ .
Earnings before taxes ................................ .
Income taxes ....................................... .
Net Earnings l~l ...................................... .
Earnings per average share as reported each year l.
11
..... .
Cash dividends ..................................... .
Dividends per share as paid each year ................ .
Stockholders' equity ................................ .
Number of shares outstanding at end of year .......... .
Book value per share at end of year l2
_l
Recomputed per share figures after stock splits l3
l
Earnings per average share l3
_l
Dividends per share \3! ............................. .
Book value per share at end of year l3
_
l
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) .......................... .
* ot covered by Accountants' Report.
$
$
$
$
$
$
$
$
$
$
1977
861 ,053
121 ,185
29 ,894
25 ,871
8 ,352
1,046,355
103 ,152
838,619
941 ,771
104,584
(6 ,518)
55 ,078
153 ,144
60,425
92 ,719
4.29
10,804
.50
747 ,672
21 ,606 ,686
34.60
4 .29
.50
34.60
1,510,447
962 ,957
1,299 ,451
100,000
22.9(/:
54.4
90.0%
111 ,271
22 ,968 ,489
11 ,100 ,412
48.3 %
10 ,354 ,808
458 ,143
1,676 ,470
114 ,643
4 ,109,110
tStrikes adversely affected 1970 and 1972 and the strike recovery period of 1971.
1976
$ 786,414
119,882
25,137
25,955
6,420
$ 963,808
$ 102,713
758,147
$ 860,860
$ 102,948
(14,035)
9,351
$ 98,264
46,527
$ 51,737
$ 2.39
9,707
.45
665,744
21,606,036
$ 30.81
2.39
.45
30.81
$ 1,448,402
924,537
1,151,562
122,000
21.6
50.5
89.3%
108,474
22,228,259
10,758,683
48.4%
9,818,343
467,399
1,647,317
112,279
3,982,743
(1) See Financial Review pages 10 through 12 for Management's Discussion and Analysis of the Summary of Operations.
(2) Per share figures reflect the increase in outstanding shares resulting from stock issues in 1969, 1970 and 1972.
(3) The stock was split "two-for-one" in 1969. The recomputations in this section are shown to provide
24
comparability on an adjusted basis and follow the form recommended by the Accounting Principles Board. These
figures , of course, do not reflect the way the corporation was operated.
1975
$ 659,849
88,308
23,280
29,019
107
$ 800,563
$ 98,880
651,983
$ 750,863
$ 49,700
(16,120)
13,509
$ 47,089
3,693
$ 43,396
$ 2.01
9,710
.45
623,677
21,604,136
$ 28.87
2.01
.45
28.87
$ 1,420,670
977,062
1,215,146
246,000
20.6
50.2
93.8%
104,104
20,910,966
9,471,282
45.3%
8,865,263
386,309
1,428,381
107,721
3,642,650
1974 1973 1972t 1971t 1970t 1969 1968
$ 628 ,488 $ 4 76 ,794 $ 277 ,891 $ 331 ,966 $ 260 ,335 $ 350,504 $ 301 277
76 ,157 55 ,280 34 ,694 39 ,641 30,053 51 ,006 43 ,902
22 ,911 18 ,415 13 ,309 19,443 18,958 29 ,386 28,605
27 ,322 28 ,517 20 ,009 31 588 20 ,800 35 ,090 4 1,060
4 ,113 5,342 46 ,598 2 881 48 ,894 1,952 1,446
$ 758 ,991 $ 584,348 $ 392 ,501 $ 425 ,519 $ 379,040 $ 467 ,938 $ 416 ,290
$ 96 ,213 $ 87 ,642 $ 81 ,054 $ 77 ,245 .$ 69 ,173 $ 60 ,833 $ 49 ,817
584 ,993 445 ,401 296 ,348 330,108 258 ,784 324 ,979 268 ,529
$ 681,206 $ 533 ,043 $ 377 ,402 $ 407 ,353 $ 327 ,957 $ 385 ,81 2 $ 318,346
$ 77 ,785 $ 51 ,305 $ 15,099 $ 18,166 $ 51 ,083 $ 82 ,126 $ 97 ,944
(19 ,554) (14 ,758) (8 ,356) (13 ,051) (6,296) (2 ,334) (3 ,894)
40 ,148 19,133 10,510 6 ,685 (227) 1,181 674
$ 98,379 $ 55 ,680 $ 17,253 $ 11 ,800 $ 44 560 $ 80,973 $ 94 ,724
33 631 3,830 (429) (9 ,561) 121 29 ,507 44 ,673
$ 64 ,748 $ 51 ,850 $ 17,682 $ 21 ,361 $ 44 ,439 $ 51 ,466 $ 50,051
$ 3.00 $ 2.40 $ .83 $ 1.01 $ 2.11 $ 2.55 $ 5.47
9,722 9,722 9,620 9,518 9,465 9,117 7,320
.45 .45 .45 .45 .45 .45 .80
589 ,991 534,965 492 ,837 477,054 465 ,210 426 ,797 306,717
21 ,604 ,136 21,604,136 21 ,604 ,136 21 ,149,756 21 ,149,756 20,914 ,272 9,149,628
$ 27 .31 $ 24.76 $ 22.81 $ 22 .56 $ 22.00 $ 20.41 $ 33.52
3.00 2.40 .83 1.01 2.11 2.55 2.74
.45 .45 .45 .45 .45 .45 .40
27.31 24.76 22.81 22.56 22.00 20.41 16.76
$ 1,282 ,556 $ 1,216 ,632 $ 1,008 ,041 $ 1,012 ,568 $ 929 ,181 $ 697,938 $ 582 ,646
907 ,935 861 ,231 682,020 709 ,433 668,129 492 ,241 424 ,522
1,121 ,153 1,085,632 920,418 944,302 923 ,126 742 ,732 627 ,538
213 ,900 284 ,000 208,000 252 ,500 260 ,915 112,000 160,000
19.9 15 .8 16.9 14.5 18.0 15.2 14.6
48.2<t 42 .5q; 49.6 42.1 43.5 34.5 30.8
89.8% 91.2 % 96.2% 95.7% 86.5% 82.4% 76.5%
105,295 108 ,853 79 ,025 100,992 83 ,177 123,966 107 ,646
20 ,016,107 19,593,379 12 ,963 ,054 15,614 ,614 10,234 ,060 13 ,504,111 10,840,758
9 ,173,875 8 ,007 ,850 _. 4 ,565 ,618 5,553 ,043 4 ,506 ,256 6 ,208 ,725 5,458 ,128
45.8% 40.9% 35.2% 35.6% 44.0% 46.0% 50.3%
8 ,948 ,373 7,987 ,299 5,150,636 6 ,089 ,273 4 ,682,812 7,517 ,780 7,173 805
317 ,437 251 ,865 150,973 161 ,345 110,215 198,494 169,416
1,330 ,803 1,140,983 672 ,035 813,403 655 ,339 942 ,050 836 ,085
110,519 115 ,726 84 ,098 110,045 89 ,938 135 ,563 121,077
3,431 038 3 ,370 ,694 2 ,236 ,069 2,806,407 1 ,819,439 2,535 ,137 2,186,234
25
26
Report of Ernst & Ernst,
Independent Accountants
To the Stockholders and Board of Directors
Northwest Airlines , Inc.
Saint Paul, Minnesota
We have examined the statements of financial position of Northwest Airlines, Inc. and sub-
sidiaries as of December 31, 1977 and 1976, and the related 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 finan-
cial position of Northwest Airlines , Inc. and subsidiaries at December 31 , 1977 and 1976, 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.
aint Paul, Minnesota
February 13, 1978. except for Notes E and F
a to which the date is February 25. 197 8
Notice to Stockholders
Any person who either owns , as of December 31 of the year preceding issuance of this annual
report, or subsequently 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 such 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 more 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.
Northwest Orient's Fan-Jet Fleet
Total 110 as of December 31 , 1977
1 7 Boeing 747 Fan-Jet
12 \ ith range of 5.460 mile with 3 9 pa senger .
5 with range of 6.670 mile with 363 pa senger .
2 2 McDonne~ Oougla DCl0-40 Fan-Jets
Range of 5,100 mile with 236 pa enger .
40 Boein 727-200 Fan-J t
Range of 1.7 O mil \\ ith 128 pa nger
++++
-+-+-+-+-+
-+-+-+-+-+
-+ -+ -+ -+ -+
-+-+-+-+ -+
-+-+
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
++
4 Boeing 7-17F Freighter
All car o aircraft capable of carrying
a tructural pa rload of 262.900 pound .
2 Boeing 707-320 Fan-Jet
Ran
2 5 Bo in 727-100 Fa n-J I
Rang of 2. 80 mil \\ ilh 3 pa ng r.
27
Fii LA D ... Pictured here is a park in Tapiola , a
modern suburban area outside Helsinki.
SWEDE1 ... A glimpse of down-
toivn Stockholm, capital of Swe-
den and often called the Venice of
the orth.
28
ICELA D . . . A view of new apartments in the eastern
part of Reykjavik, capital city of Iceland.
ORWAY ... This picturesque scene of Bergen's
harbor shows the rugged beauty of orway.
President Approves
Trans Atlantic Award to NWA;
Service to Northern Europe
Will Begin in 1978
President Jimmy Carter has appro ed the a, ard to
orthwest Orient Airlines of new routes bet, een
nine points in the nited State and si northern
European countries.
In igning the a,,ard on JanuarJ 23. 1978 , the
President appro ed the entire Ci il eronautics
Board recommendation of September 12 , 1977.
This added Boston and inneapolis/ St. Paul as
co-terminals on the route and remo ed the restric-
tion bet\\ een e,\ York and Copenhagen which
would ha e prohibited \\ A from carr ing local
traffic between those points.
DE MARK ... A launch motor through th canal of
~ yhm"n, th fa m ou port ction o Copenha0 n.
nder the ne, Trans Atlantic authorit granted
orth,\ est Orient scheduled ser ice is authorized
from nine .S. points (Los ngeles Seattle Port-
land, 1inneapolis St. Paul , Chicago . Detroit ,
Boston. \ \ ashington. D.C. Baltimore and e,
Yor e, ark) to si , northern European countrie
on a , , eden. Denmark Iceland, Finland
and Scotland.
Sen ice patterns are still being formulated but
inauguration of Trans Atlantic flights b \ A, ill
definitel begin in 1978.
COTLA,\ D... a tlr and J...i/L or o port o
heritoo . Both arc pictur d her at Ei/ on Donan
:_9
Operating
Highlights of 1977
Personnel
Seven labor agreements covering
orthwest employees were suc-
cessfully negotiated in 1977 .
These new contracts covered Jap-
anese and Korean employees,
flight dispatchers, radio and tele-
type operators , flight duplicator
instructors , Canadian agent per-
sonnel and Anchorage flight
kitchen employees.
orthwest Orient, an Equal Op-
portunity Employer, hired 73 9
new employees in 1977 and promoted 332 others.
A total of 129 employees was recognized for 25
years of service at the annual service award ban-
quet.
At year-end 1977, total system employment was
11,445.
Properties
Improvements in orthwest Orient facilities com-
pleted in 1977 included:
Detroit - where a new ticket office was com-
pleted at the Detroit Plaza hotel.
Anchorage - where remodeling of the ticket
counter and gate holding areas was completed and
a third upper level loader was installed.
ew Orleans - where new airport and
downtown city ticket office facilities were estab-
lished in connection with the beginning of ser-
vice to that city.
Minneapolis - where the existing downtown
city ticket office was completely remodeled.
Computer Services
An increasing number of information systems for
more efficient operation of the airline were com-
puterized in 1977.
A cargo container inventory program is but one
example. This program keeps track of individual
cargo containers by station and by airline - pro-
viding more effective utilization of these units.
Insta-Res , orthwest Orient's computerized re-
servations service, was extended to Osaka, Japan,
providing greatly improved service to passengers ,
travel agencies and commercial accounts at that
location.
A mini-computer system was installed in the
Orient Region main office in Tokyo. It currently
handles payroll and disbursements for this area. In
the near future , accounting for NWA's owned and
operated hotel facility at the new arita Interna-
tional Airport will also be handled by this unit.
30
Transportation Services
Increased use of Northwest
Orient's 74 7 freighter aircraft for
carrying outsize cargo was evident
in 1977. Two examples include
the movement of 53 foot long
cranebooms from the Twin Cities
to Hong Kong and of 65 foot length
pipe from New Yark to Seoul.
NWA's reservations offices
handled 7 per cent more calls in
1977 than in the prior year. Addi-
tionally, a new computerized tick-
et printer system was installed in Anchorage.
Introduction of nonstop service between
Chicago and Tokyo was preceded by development
of special menus and expanded entertainment
programs.
Maintenance and Engineering
Floor modification work, including venting struc-
tural reinforcement, was completed on NWA's en-
tire fleet of 2 2 DC 10-4 0 aircraft in 1977. A similar
program for the 747 aircraft is scheduled for com-
pletion by June 30, 1978.
In addition to regular maintenance and overhaul
operations, conditioning of 13 used aircraft -
seven 727-lO0's and six 707-320's - was also per-
formed prior to delivery to purchasers.
Route Development
orthwest Orient is an applicant for new and im-
proved route authority in a number of cases now
before the Civil Aeronautics Board. These include:
New Orleans to the Yucatan Peninsula; Los
Angeles/San Francisco to Anchorage and Seattle to
Fairbanks; Minneapolis/St. Paul and Milwaukee to
Memphis; Seattle to Atlanta nonstop; Atlanta to
Sarasota/Bradenton, Tallahassee and Daytona
Beach; Pittsburgh to Los Angeles; Oakland to
Portland/Seattle; Minneapolis/St. Paul to Las
Vegas/Phoenix/San Diego; Reno/Las Vegas to San
Diego/Los Angeles/San Francisco; Chicago to
Syracuse/Albany/Boston and Des Moines/Quad
Cities/Peoria to Atlanta.
Other NWA applications not yet under active
CAB consideration include: Billings/Great Falls to
Los Angeles/San Francisco via Bozeman; the addi-
tion of Atlantic City to orthwest Orient's route
system; the addition of Fort Myers and elimination
of a current restriction which prevents NWA from
operating single-plane service between its Califor-
nia cities and Rochester, Madison and Milwaukee.
THE DIRECTORS
OF NORTHWEST
ORIENT AIRLINES*
THE OFFICERS
OF NORTHWEST
ORIENT AIRLINES *
James H. Binger
Chairman of the Executive Committee
Honeywell Inc.
Minneapolis, Minnesota
(Manufacturer of automation systems)
Hadley Case
President, Case, Pomeroy & Company, Inc.
ew York, ew York
(Investments)
Raymond H. Herzog
Chairman of the Board, 3M Company
St. Paul, Minnesota
(Multi-national manufacturing)
Melvin R. Laird
Senior Counsellor, Reader's Digest, Inc.
Washington D. C.
(Maga zine publishing)
James N. Land, Jr.
Business Consultant
New York, New York
Donald W. Nyrop
Chairman & Chief Executive Officer
M. Joseph Lapensky
President & Chief Operating Officer
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
Roy K. Erickson
Vice President-Public Relations
Robert J. Glischinski
Vice President-Communications
and Computer Services
Benjamin G. Griggs, Jr.
Vice President-Assistant
to the President
Co-Registrars and Transfer Agents:
M. Joseph Lapensky
President & Chief Operating Officer
Northwest Airlines, Inc.
St. Paul, Minnesota
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
Chairman & Chief Executive Officer
Northwest Airlines Inc.
St. Paul, Minnesota
Lyman E. Wakefield, Jr.
Chairman of the Board, Resource Trust Co.
Minneapolis, Minnesota
(Investment advisors)
John F. Horn
Assistant Vice President-Properties
William E. Huskins, Jr.
Vice President-Maintenance
and Engineering
Reginald C. Jenkins
Vice President-Orient Region
Bryan G. Moon
Vice President-Advertising
Robert J. Phillips
Vice President-Finance and Treasurer
James F. Redeske
Vice President-Personnel
Robert E. Strite
Vice President-Comptroller
Steven D. Wheeler
Assistant Secretary
Robert J. Wright
Vice President-Sales
*As of Morch 15, 1978
orthwestern ational Bank, Minnea polis, Minne ota
orthwestern Trust Co., ew York, w York
Stock Listed:
omm on lo k Ii led on ew York Slo k E chang ,
Pa ifi c oa l lock E change and id w l tock E hang
General Offices:
Minnea polis- l. Paul , Inlernalional irporl , SL. Paul, Minnesota 55111
Anchorage
Manila