Northwest Airlines Annual Report 1978

Tl-tWEST 1978 Annual Report
Cities Presently
Served by
Northwest Orient
Other Cities
Authorized for
Service by
Northwest Orient
Description of
Business
orth America
Anchorage
Atlanta
Billings
Bi marck/ fandan
Boston
Bozeman
Butte
Chicago
Cleveland
Detroit
Edmonton
Fairbanks
Fargo/Moorhead
Ft. Lauderdale/Hollywood
Grand Forks
Great Falls
The Orient
Hong Kong
fanila
Okinawa
Helena
Hilo
Honolulu
Jamestown
Las Vegas
Lo Angeles/Long Beach/
Ontario
Madison
Miami
Mihvaukee
Minneapolis/St. Paul
Missoula
ew Orleans
ew York
ewark
Orlando
Osaka
Seoul
Philadelphia
Pittsburgh
Port land
Ro hester
San Francisco/Oaklandi
San Jose
Seattle/Tacoma
Spokane
St. Louis
Tampa/St. Petersburg/
learwater
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 th se points will begin in
1979.)
Bergen
Copenhagen
Glasgovv
Goteborg
Helsinki
Oslo
Reykjavik
Stavanger
Stockholm
Mainland China (Service to Mainland China by Northwest Airlines was authorized
by the United States government on July 20, 1946. The operation of the e routes has
been suspended for many years.)
Dairen
Harbin
anking
Peking
Shenyang
Shanghai
orthwest Airlines , Inc., incorporated in the tate of Minnesota, is a scheduled air
carrier engaged in commercial bansportation 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 33,300 route
miles and serves directly cities in 20 states of the 48 contiguous states, as well as
Alaska. Hawaii. the Di trict of Columbia, Canada, countries in Asia, including
Japan. Korea. Taiwan, Hong Kong and the Philippine and countries in Europe
including orway. Swed n. Denmark. Iceland, Finland and Scotland. The Euro-
pean countries, ere recently awarded to orthwest Airlines and service will begin
to some of the e points this year. Authorizations to serve Shanghai, Peking and
other points in continental China remain in effect although presently inoperative.
Highlights
of 1978
Total Operating Re enues .... ........... .
Operating Income ........ . . . ... .. . ...... .
et Earnings for the Year .. . . .. ... . .. ... . .
Per Common Share . . . .. . . ... ......... .
Per Dollar of Revenues ... ............. .
tockholders 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:
umber at Year End ......... . ... . . .
Total ages and Benefits Paid .. . .. .
1978*
$790,161 ,892
67,284 667
61.841 ,389
2.86
7.8
$793,691 090
36.70
16,210 ,260
27.9
65. 7ct
6,574,901
7,018,305 000
377,851 000
21 ,626,284
10,680
$222,187,657
1977
$1 ,046,3 54.772
104,583.565
92 ,718,790
4.29
8.8
$ 747 ,671 ,847
34.60
10,803,648
22.9c/
54.4
10,354,808
11,100 412 000
566,428 ,000
21 606.686
11,445
$279,194,841
* Operating results were affected
by a major strike which
extended from April 2 9 through
August 15 , 1978.
FO R i\E\I\ CITIES A D THREE E\ CO NTRIE ! .. . Pictured on the ran t CO\'er are cene rom our n 11
ci ties- La ego , Orlando, St. Loui a nd Fairbanks-and thr new countrie - 1
1
eden , Denmark and cot/and
- that Northwe t Orient irline 1
vi ll b erving in 1979.
3
From the President
52nd Annual Report to the Shareholders
Northwest Airlines' net earnings of
$61,841,389 in 1978 were the third high-
est in the company's 52-year history.
While this is a good performance in itself,
1978 would have seen Northwest Airlines
break the revenue and earnings records
set in 1977 if the 109-day strike by the
airline pilots' union had not taken place
in mid-year.
Recovery from that strike is now essen-
tially complete. Service has been re-
stored, all personnel have long since been
recalled, and traffic in February, 1979
showed gains over February a year ago.
Major Expansion Underway
The new year sees Northwest Airlines
embarked on one of the largest expan-
sions of its route structure in the com-
pany's history.
The Airline Deregulation Act of 1978
provided the mechanism for NW A to ac-
quire authority in 18 new non-stop mar-
kets, including rights to serve three U.S.
cities -St. Louis, Las Vegas and Orlando
- that are new to Northwest's route sys-
tem.
Provisions of the new law also resulted
in the award of a key San Francisco - Seat-
tle non-stop route to NWA as well as
non-stop authority in the Los Angeles -
Seattle market. Service will begin on
these routes in spring, 1979.
Late in 1978, NWA sought authority
from the Civil Aeronautics Board to pro-
vide non-stop service between Seattle
and Fairbanks, Alaska when another air
carrier left this market. Within 10 days
after CAB approval, Northwest had begun
this badly-needed service with a daily
DC-10 flight in each direction.
Thus, new cities, new routes and new
services in old cities will be combined for
better traffic growth and for more
economical use of manpower, facilities
and fleet.
Trans Atlantic Service Set
On March 31, 1979, Northwest Airlines
will inaugurate its passenger service be-
tween the U.S. and Scandinavia. All-
cargo flights between New York/Boston
and Scotland/Denmark began in Feb-
ruary, 1979 and are already carrying
heavy freight and mail loads.
Our 1979 trans Atlantic operation to
Scandinavia and Scotland will feature
gateways at New York and at Boston, both
backed up by the expanding NWA
domestic system.
4
All of these new routes will take time to
develop, but there is excellent long-term
potential for a good return on investment.
New Aircraft Ordered
The route expansion that Northwest Air-
lines has mapped in both domestic and
international markets will require addi-
tional jet aircraft.
To provide for this further route de-
velopment, the company has ordered six
new Boeing jet aircraft for 1980 delivery.
The order includes one 747-Z00B pas-
senger aircraft, one 7 4 7F all-cargo
freighter and four advanced model 72 7-
200A jets.
Together with the eight Boeing aircraft
ordered in March, 1978 - six 747-Z00B's
and two 727-Z00A's, the new order will
give Northwest a fleet of 120 jets by the
end of 1980 (compared to the 106 aircraft
in our fleet at present).
Based on curren\ orders, NWA will -
by year-end 1980 - be operating 51
wide-bodied, new generation 747's and
DC-10's, which will be the largest such
fleet of any U.S. airline.
Balance Sheet Strength
Northwest Airlines today can lay claim to
one of the strongest balance sheets in the
U.S. airline industry with net worth of
nearly $800 ,000 ,000 and outstanding
debt of only $100,000,000.
Based on this financial strength and
1978's earnings performance of $61.8
million, Northwest Airlines' board of di-
rectors voted on March 5, 1979 to increase
the annual dividend rate from 7 5 to 80
cents per share payable March 31, 1979.
This is the third consecutive year in
which the dividend rate has been in-
creased and there have now been 95 con-
secutive quarterly dividends paid by
Northwest Airlines.
New Officers Elected
Northwest Airlines has elected four new
corporate officers since last year's annual
report.
Steven G. Rothmeier was elected to the
post of vice president for finance. He has
had an excellent background in areas re-
lating to NWA's budget administration,
economic planning and regulatory af-
fairs.
Thomas E. McGinnity was named as
vice president for purchasing and stores,
having served as director of aircraft
equipment purchasing for a number of
years.
Thomas J. Koors was elected vice presi-
dent for transportation services early in
1979. He had been general sales manager
for NWA immediately preceding his new
appointment.
William A. Kutzke was appointed as
vice president in charge of NWA's
Washington, D.C. office, joining the com-
pany after outstanding service in the U.S.
Department of Transportation.
Two senior officers of the company -
Robert J. Phillips, vice president- finance
and treasurer, and Clayton R. Brandt, vice
president - purchasing and stores - pass-
ed away in 1978. Both men made impor-
tant contributions in their careers of more
than 30 years each with NWA.
Former corporate secretary A. E. Floan,
who was one of the very early officers of
Northwest Airlines, also passed away in
1978 after devoting more than 40 years of
excellent service to the company.
New Director Named
E. W. Blanch, Jr. was elected to the board
of directors at last year's annual meeting.
He is president and chief executive officer
of E. W. Blanch Company, a re-insurance
brokerage firm with world-wide opera-
tions.
Retiring in 1978 as NWA directors after
long and distinguished careers were Had-
ley Case and Malcolm S. Mackay.
Outlook for 1979
The year ahead is difficult to forecast:
The new climate of airline deregulation
presents both opportunities and uncer-
tainties.
The availability, and price, of jet fuel is
of continued concern.
However, as prominent airline industry
analysts have stated in recent reports,
Northwest Airlines is better positioned
than most of its competitors to capitalize
on new opportunities and to meet the new
challenges that lie ahead.
We will continue to emphasize good
cost controls in the new airline environ-
ment and we believe that 1979 will be an
excellent year for Northwest Airlines.
Sincerely,
..,,, }'r ir-"u
M. Joseph Lapensky
President and
Chief Executive Officer
March 15, 1979
An Expression of Appreciation to
Donald W. Nyrop
0
J- On 31 December 1978, Donald W. Nyrop completed one of the finest perfor-
mances of leadership in airline history. That date marked the culmination of 24 years of
his devoted services to the safety, security and expansion of the company for the benefit
of the traveling public, employees and the shareholders. 0
J- TNhen Mr. Nyrop
became CEO of the company in the troublesome days of 1954, he inherited a company
which was struggling in every respect; today his legacy to the traveling public, em-
ployees and the shareholders is an airline which is the envy of all - financially sound,
superbly equipped in both aircraft and facilities, and operated by employees whose work
product is one of the most efficient in the industry.
J- During his tenure, the
route system has been extended to such important markets as Miami, Tampa-St. Peters-
burg, Atlanta, New Orleans, Hilo, Hong Kong, Boston, Los Angeles and San Francisco.
He also secured important new routes to Scotland and the Scandinavian
countries. 4-Mr. Nyrop, upon reaching retirement age last spring, had planned
to retire. The board prevailed upon him to continue his leadership because of the labor
altercations which prevailed at the time. Upon resumption of full operation, under Mr.
Nyrop's direction, the airline recovered its position in the marketplace in a most exem-
plary manner -with an earliE:r recovery of traffic, a greater number and earlier return of
employees, and a lesser drain on the corporate operating statement so as to protect the
shareholders' interest. +Asa result of Mr. Nyrop's careful training and percep-
tive vision, the company today has outstanding, experienced management in all depart-
ments. At a time of deregulation, increased competition and a new generation of aircraft,
Northwest is in the best position operationally and financially to maintain its superior-
ity to the benefit of the employees and shareholders, thanks to Donald Nyrop's
foresight. a 4-Each member of this board recognizes Donald Nyrop as the most
outstanding airline executive in the industry. He has had the respect, unlimited confi-
dence and complete support of this board throughout his 24 years of dedicated service to
the company. We have prevailed upon him to continue to serve on the board and to be
available to successor management as a consultant. Our appreciation for a job well done
exceeds the expression stated here.
5
awa
Guam
- Northwest Orient Airlines Previous Routes
Northwest Orient Airlines New Routes
(Dotted lines indicate authorized routes not presently served)
rv1 Hi hli0
ht
N orth"West Orient Launches Service to
4 Ne-w U.S. Cities and 3 Ne"W Countries
One of CoDipany's Biggest Expansions

Ill
r t ie - t. Louis, Orlando, Las
and to thr e new countries
and Denmark - has been
la st Orient in one of the largest
rout undertaken by the company.
orth ' F bruar 1 1979 schedule
r fl ct th ddition of non- top service in 18 new
dom tic mark t " hich were acquired under
dormant uthorit provi ion of the Airline Dereg-
ul tion ct of 1 7 8. total of 45 ne daily flights
and 100 hours of daily flying is involved in this
domestic schedule expansion.
On February 28, 1979, Northwest was also
awarded non-stop rights beween Seattle and San
Francisco under the dormant authority provisions.
Service on this important new route is planned to
begin sometime in April, 1979.
First Trans Atlantic Service
orthwest's first scheduled flight across the Atlan-
avik
,, .......
----~~-- ... ~
-------, ----~------: ....
;
-..
,,,'
, ---------------
---
San Juan
U.S. Virgin Islands
.
tic took place on February 10, 1979 from Boston's
Logan airport to Glasgow's Prestwick airport. The
Boeing 747F freighter carried a load of 154,653
pounds of cargo with an estimated value in ship-
ments of over $2 million.
First scheduled passenger service by WA will
begin on March 31 from the U.S. to Denmark and
Sweden. By April 29, service to Scotland will be
added and orthwest will be operating two flights
daily in each direction in the U.S. - northern
Europe market. All flights will be operated with
WA's 369-passenger Boeing 747 wide-cabin jets.
Expansion Benefits Cited
Several key objectives were achieved by orthwest
in the domestic route expansion reflected in the
February 1 schedule:
WA gained entry to Orlando and Las Vegas
major U.S. vacation spots and two of the prime U.S.
destinations for the Japanese tourists which
Northwest carries across the Pacific .
NWA became an important carrier in the orth-
east U.S. -Florida vacation markets, giving added
seasonal balance to its operations.
WA's recently acquired Chicago- ew Orleans
route now has been linked beyond ew Orleans to
Tampa and to Miami.
WA's Boston station becomes a major hub of
operations with 12 daily domestic flights now
scheduled at Logan International airport. ith in-
auguration of daily trans Atlantic flights to Scot-
land and Scandinavia starting April 29, A will
also use Boston as one of its principal gate a s for
U.S.-Europe service.
Continued on page 27
7
N : new unsqueezed
way to Europe.
MPLS./St PAUL NEW YORK
SEATTlf/TACOMA MPLS./ST. PAUL BOSlON
COPENHAGEN SlOCKHOLM
GLASGOW COPENHAGEN
NORTHWEST
WON'T PUT THE
SQUEEU
ONYOUR
CLIENTS.
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~ NORTHWEST ORIENT
Sales and Marketing Highlights
NWA Advertising Capitalizes
on Bigger Jets, Fewer Seats;
Miss America Featured in Japan
orthwest Airlines' advertising in recent years has
consistently featured its outstanding fleet of
wide-bodied 747 and DC 10 jets - the largest,
relative to NW A's size, of any U.S. airline.
In 1978, this advertising emphasis was con-
tinued - but with a new campaign theme that
emerged from a new development in the airline
industry.
Faced with growing traffic and too few aircraft,
U.S. airlines converted their wide-cabin fleets to
higher density seating by adding an extra seat to
each economy class row. So, too, did Northwest's
major trans Pacific and trans Atlantic competitors.
orthwest Airlines was not forced to add seats to
its wide-cabin aircraft - retaining, in economy
class, eight abreast seating (rather than nine
abreast) on its 22 DC lO's and nine abreast seat-
ing (rather than 10 abreast) on its 17 7 47's.
8
Out of that marketing advantage emerged a
major Northwest Airlines' advertising campaign,
launched in October of 1978 and featuring radio,
television, newspapers and travel trade press ad-
vertising. The theme: 'Northwest won't put the
squeeze on you'.
Trans Atlantic Services
Major travel agent promotions were held in
Denmark, Norway and Sweden to introduce the
new U.S ./Scandinavia services that NWA will
begin on March 31, 1979.
In the United States, Northwest's annual Travel
Fairs highlighted these new routes as NWA's new
tour operators for Scotland and Scandinavia pre-
sented information to thousands of travel agents
across the country.
,_.,,,.,'Jl--(J),f-;r-t- .+at.:t.,q)~ ,,. ~i ., :1~
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~NORTHWEST ORIENT
D Iii 1111 kli..~u 1n, ,.X/11-.n llLt _, c amo-sru /
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'Miss America' Featured
The Honolulu and California markets are of spe-
cial importance to WA because of their great
popularity with Japanese tourists.
In a special promotional campaign, orthwest
collaborated with a major Japanese tour operator in
a campaign -featuring Dorothy Benham, Miss
America of 1977, as the spokesperson inviting the
Japanese public to 'come and see my America'.
The national campaign utilized both Japanese
television and magazines and, to reinforce the
promotion personal appearances by Miss America
at the Japanese tour operators trade show.
Convention Sales Grow
orth est's Con ention Sales division con-
tinued to lead the airline industr in convention
and corporate meeting services b introducing its
ne Delegate Discount Dollar program in October
of 1978.
This inno ative and exclusive marketing con-
cept is a direct expansion of Conv ntion Central
ad ertising th m to h lp m ting plann r and
delegate get mor for their con ention dollar.
77 !,. 7J.1J b<T)ro:,,,- ,.-..:;.,-H.L..b1.:"llltt4 ~ .:..'7t
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illllf~8Hlll 20 .000l'IO",. 1:27~-;\,. 7J YtJ'rl1it
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Q.\ ~ -t:"'
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Featured in this unique program is a checkbook
containing very substantial savings offered on 32
executive gift items such as cameras, video cas-
sette recorders and color TV sets, watches and
pocket recorders. In addition, a car rental firm has
provided a convention discount on car rentals.
ew convention air freight rates for orth est's
U.S. cities were also developed in 1978- provid-
ing another inducement for meeting planners to
use A services.
MEETI'IG IN SEATTLE TACO..,_A OR POATLA."4O?
Northwest serves your delegates like
1 no other airline can.
exdllllvl ll'mll extra !bat 1
......
Financial Review and
Management Analysis for 1978
Revenue
Total operating re enues for 1978 amounted to
$790,161.892 compared with $1 046,354,772 in
1977 and $963 808 065 in 1976. This reduction in
total operating revenue resulted from a major cur-
tailment in operations due to the 109 day pilot
strike against the Company in 1978. Consequently,
comparisons of individual revenue categories for
the current and prior ears are not meaningful.
Operating revenues in 1978 included mutual aid
pa ments of $104 863 790.
In 1978 the Civil Aeronautics Board approved
domestic 48-state pas enger fare increases of 3% in
Ma and 2.5% in December. The CAB also ap-
proved a 3% fare increase in Mainland-Hawaii
markets in May with an additional 3% increase in
eptember.
orthwest's tern passenger-mile ield in-
creased to 7.94rt in 1978 or a 2.3% increase in the
1977 ield of 7.7 6rt. Thi increase was attributable
to limited u age of di count fares in 19 78 as a result
of the trike curtailed operations during the peak
summer acation months. March 1978 brought the
introduction of temwide Super Saver fares at
30-40% discounts from coach fare levels. Despite
fare ad ances, increasing usage of the Super Saver
and other discount fares is eroding passenger-mile
ields.
The Ci il Aeronautics Board also approved
freight rate increases of 10% for all domestic cargo
in a of 1978 following a 7% increase in domes-
tic cargo container rate that occurred in March.
Total re enues from charter and other transpor-
tation v ere 10,996,783 in 1978. This revenue in-
cluded 8.028,741 from commercial charters and
other income, and $2 ,968,042 from military char-
ter .
Expenses
Total operating e penses for 1978 amounted to
722 ,877 ,225 , dm, n significantl from oper-
ating e pen e of 941 ,771 207 in 1977 and
$860.860.038 in 19 76 as a result of the strike.
Depreciation and amortization e penses
10
SOURCE AND DISTRIBUTION OF REVENUES
Percent of Total - Dollars in Millions
SOURCE
Freight and Express
11 .0% $87.1 Mutual Aid
13.3% $104.9
2.4%
DISTRIBUTION
Commissions
6.6% $52.4 Materials and Services
Landing Fees and Rentals
5.0% $39.7
Income Taxes
6.0% $4 7.2
Earnings
7.8% $61 .8
Employees Wages and Benefits
28.1 % $222.2
13.0% $102.3
Fuel and Oil
20.2% $159.6
totaled $104,969,627 in 1978 compared with
$103,152,530 in 1977 and $102,713,531 in 1976.
This increase in depreciation and amortization ex-
pense reflected the addition of new, more modern
aircraft which was partially offset by the disposal
of older, less productive aircraft.
Operating expenses per available ton-mile in-
creased to 27.86q; in 1978 from 22.92ct in 1977 and
21.61ct in 1976. This unusually large increase in
unit production expense is in large part due to the
curtailment of operations resulting from the strike.
Inflation trends continue to increase costs in the
airline industry particularly in wages rentals, fuel ,
services and cost of materials and supplies.
Earnings and Dividends
et earnings for 1978 amounted to $61,841 ,389 or
$2.86 per average share of common stock outstand-
ing compared with $92,718,790 or $4.29 per share
in 1977. Total interest on long-term debt net of
capitalized interest declined from $6,517,695 in
1977 to $3,376,357 in 1978.
Gain on disposal of property declined to
$34,290,447 from $51 ,053,719 a year ago.
The Company increased its cash dividend to
$.75 per shar(tin 1978 and paid out a dividend for
the twenty-fourth consecutive year. Dividends
paid to shareholders in 1978 totaled $16,210,260.
Sales Price of Dividends
Common Shares Per Share
Quarter 1977 1978 1977 1978
1st High 30% 26 $.1250 $.1875
Low 22 21
2nd High 283/a 321/a 1250 1875
Low 22 23
3rd High 263
/a 371/a 1250 1875
Low 20 26
4th High 24 32 1250 1875
Low 193/a 223/a
OPERATING REVENUES AND EXPENSES
Millions of Dollars REVENUES 1111
EXPENSES 1111
1000
900
800
700
600
500
400
300
200
100
0
1974 1975 1976 1977 1978
11
ACTUAL AND BREAK-EVEN PASSENGER LOAD FACTOR
ACTUAL-
Percent BREAK-EVEN -
50
49
48
47
46
45
44
43 /
42
-
41
40
1974 1975 1976 1977 1978
STOCKHOLDERS' EQUITY VS. LONG-TERM DEBT
Millions of Dollars EQUITY 1111
DEBT IIII
800
700
600
500
400
300
200
100
0
1974 1975 1976 1977 1978
12
Financial Review for 1978
( continued from page 11 )
Taxes on Earnings
In 1978 income taxes on earnings amounted to
$47,194,200 compared with $60,425,200 in 1977.
Investment tax credit earned declined from
$14,850,900 in 1977 to $6,319,800 in 1978. The
Company continues to use accelerated deprecia-
tion methods for income tax purposes.
Cash Flow
Funds provided from all sources totaled
$208,426,244 in 1978, consisting of net earnings,
depreciation and amortization, deferred income
taxes and proceeds from sale of property. Applica-
tion of funds in 1978 totaled $166,615,614 and
consisted of flight equipment and other property
additions, advance deposits on aircraft and cash
dividends.
Traffic and Services
Traffic results showed reductions in all areas dur-
ing 19 7 8 reflecting the effect of the strike. Indi-
vidual traffic category comparisons, therefore, are
not meaningful.
Passenger and cargo traffic recovered at an en-
couraging rate during the fourth quarter of 1978
and continues to show strength through February
of 1979. Northwest embarked on a significant ex-
pansion program in January and February of 1979
which aided in the strike recovery.
Financial Condition
The financial condition of Northwest continues to
be one of the healthiest in the U.S. airline industry.
Long-term debt totals $100,000,000 with repay-
ment beginning in April 1981 and terminating in
January 1983.
Northwest's debt to equity ratio on December 31,
1978 was 12.6%. This favorable debt equity ratio is
one of the lowest, if not the lowest, in the U.S.
airline industry.
Stockholders equity increased to $793,691 ,090
in 1978 from $747,671,847 at the end of 1977. The
book value per average common share increased to
$36.70 from $34.60 a year ago.
At year end, the Company had on order an addi-
tional six B-747 and two B-727 passenger jet air-
craft and spare engines for deli very in 19 79 and
1980. In addition the Company announced in Feb-
ruary, 1979 the purchase of four B-727-200, one
B-747 passenger aircraft and one B-747F all-cargo
jet for 1980 delivery. It is planned that internally
generated funds and the existing financial ar-
rangements will be used to purchase all aircraft on
order.
Statement of Earnings
NORTHWEST AIRLINES, INC.
Operating Revenues
Passenger ......................... ~ ................. .. .
Cargo ................................................. .
Mail ................. . .................. . .... . ........ .
Charter and other transportation ......... . .............. .
Mutual Aid ................ . . . ..................... . .. .
Non 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 6f $4 ,678,643 (1977 - $2 ,3 62 ,672) - Note A
Gain on sale of flight equipment ........................ .
Other .. . .... . . . ....................... . ... . ........... .
Earnings Before Income Taxes ........................... .
Income taxes - Note D ....................... .. . .... .... .
Net Earnings ....... . ..................... . .. . . ... ....... .
Average shares of Common Stock outstanding
during the year ...... .. ........... .. .............. . .... .
Earnings per share of Common Stock .................... . . .
ee notes to financial statements
Year Ended December 31
1978*
$557,400,881
87,076,726
18,944,410
10,996,783
104,863,790
10,879,302
790,161,892
241,740,611
72,233,045
60,748,751
117,409,858
100,614,747
25,160,586
104,969,627
722,877 ,225
67,284,667
3,376,357)
34,290,447
10,836,832
41 ,7 50,922
109,035,5 89
47,194,2 00
$ 61,841,389
21,618,144
$2.86
1977
$ 861,053,058
121,185,084
29,893,962
25,870,610
38,416
8,313,642
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
104,583,5 65
6,517,695)
51,053 ,719
4,024,401
48,5 60,425
153,143,990
60,425,200
$ 92,718,790
21,606,544
$4.29
* Operating results were affected by a major strike which extended from April 29 through August 15, 1978.
1
Statements of Financial Position
NORTHWEST AIRLINES, INC.
ASSETS
Current Assets
Cash and short-term investments ............... . ........ .
Accounts receivable, less allowance of $1,400,000
(1977 - $1 ,300,000) ................................. .
Flight equipment spare parts,
less allowance for depreciation of $17,340,236
(1977 - $15,728,241) ............... . ................ .
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
$
1978
184,028,308
79,782,195
28,979,870
7,660,768
6,057,410
306,508,551
19,566,429
1,525,442,014
602,827,242
922,614,772
98,106,465
1,020,721 ,237
129,587,886
83,519,022
46,068,864
1,066,790,101
$1 ,392,865,081
$
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
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 - Note C
Common Stock $1.25 par value, authorized 40,000,000
shares;)ssued and outstanding 21,626,284 shares
(1977 - 21, 606,686 shares) ........ . . . . . ... . ....... .. . .
Capital surplus ......................... .. .. . . .. ....... .
Retained earnings ...... . .. . ............ . ...... . .... .. . .
Commitments and Contingencies - ates E and F
S notes to financial tatements
December 31
1978
$ 122,693,609
27,909,236
20,321,703
15,923,167
-0-
186,847,715
100,000,000
290,660,200
21,666,076
312 326,276
27,032,855
124,551,536
642 106 699
793 ,691 .090
1 ,3 92,865,081
1977
$ 122,060,666
2 7,029,098
22,041 ,6 70
3,302,3 15
4,000,000
1 78,4 33,749
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
15
Statements of Changes in Financial Position
NORTHWEST AIRLINES, INC.
Year Ended December 31
Funds Provided
et earnings ......... ...... ........................... .
Items not affecting working capital:
Depreciation and amortization ........................ .
Increase in deferred income taxes ... . ................. .
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 In Working Capital ............................. .
Changes in working capital consist of
Increase (decrease) in current assets:
Cash and short-term investments ................. . .. .. .
Receivables .................. ........... ..... ...... . .
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 in working capital .............................. .
See notes to financial statements
16
1978
$ 61,841 ,389
104,969,627
29,310,600
196,121,616
6,795,353
5,509,275
208,426,244
52,298,889
98,106,465
16,210,260
-0-
166,615 ,614
$ 41 ,810,630
$ 54,311 ,028
( 3,631 ,324)
( 805,269)
350,161
50,224,596
632,943
13,500,990
1,719,967)
4,000,000)
8,413 ,966
$ 41 ,810,630
1977
$ 92,718,790
103,152,530
59,558,000
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
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
Statements of Stockholders' Equity
NORTHWEST AIRLINES, INC.
Common Stock Capital Retained
Shares Amount Surplus Earnings
Balance December 31, 1976 . . ... .. ..... 21 ,606,036 $27,007,545 $124,176,019 $514,560,428
Exercise of stock options . . . . .. .. .. .. . 650 812 11,901
et earnings for 19 7 7 ... ... . .. . . .. ... 92,718,790
Cash dividends - $.50 a sh are . .. .. . . 10,803,648)
Balance December 31, 1977 . . . . .. . .... . 21,606,686 27,008,357 124,187,920 596,475,570
Exercise of stock options .. .. . . . . .. . .. 19,598 24,498 363,616
Net earnings for 1978 . . .. . ... .. . . . ... 61 ,841,389
Cash dividends - $. 75 a share . .. ... . ( 16,210,260)
Balance December 31 , 1978 ..... .. . .. . . 21,626,284 $27,032,855 $124,551,536 $642 ,106,699
See notes to fi nancial statements
APPLICATION OF INVESTMENT TAX CREDIT NORTHWEST AIRLINES FLEET
Available* Appliedt
and Reflected on
Period in Earnings Tax Returns
1962-19 77 . .. . . ... $139,608,600 $123,504,800
1978 . . . . . . . . . . . . . 6,319,800 22,423,600
Total ....... . . . ... $145,928,400 $145,928,400
Applied on
Returns . . . . . . . . . 145,928,400
.__J
To be Applied ... . $ -0-
*Th Company use the flow-through method of
accounting for investment credits and records the
er dits as a reduction of income tax expense in the
ear arned .
tln v tm nt credits ar applied on ta returns as
allm, d b in ome ta r gulation . Cr dit not
appli d currentl y ar off t again t def err d ta e .
Year End On Order
Aircraft Type 1977 1978
B727 & B727C-100 ... . 25 19
B727-200 . ... . . .. . . .. 40 44 6
B707-320B & 320C .... 2 0
DC10-40 .... . ...... . . 22 22
B747 . .. . .. ... . . . . ... 17 17 7
B747F .... . . . .. . . .... 4 4 1
Total .. . . . . ... . . ... . . 110 106 14
ee ot E to fi nancia l tat ments
17
18
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
December 31, 1978
Note A - Accounting Policies
A summary of significant accounting policies of the Company is set forth below:
Basis of Presentation
The financial statements include the accounts of the Company and its wholly-owned sub-
sidiaries after elimination of inter-company accounts and transactions.
Short-Term Investments
Short-term investments are stated at cost which approximates market and amounted to
$171,690,041 and $122,463,076 at December 31, 1978 and 1977, respectively.
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 747 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 cost, less residual value, over the estimated useful lives of
the related aircraft.
The Company charges expenditures for maintenance and repairs to operating expense. Expendi-
tures 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 long-term debt relating to deposits advanced to manufacturers prior to the deli very of
new aircraft is capitalized and amortized over the useful life of the aircraft. If such interest was
not capitalized, net earnings would have been decreased by $1 ,145,000 ($.05 a share) in 1978 and
increased by $15,000 in 1977.
Pension Plans
The Company has several pension plans covering substantially all of its employees. The policy is
to fund pension costs accrued including 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
Note 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.
Operating Revenues
Passenger and cargo revenues are recognized when the transportation is provided.
Earnings Per Share
Earnings per share are based on the average number of shares of Common Stock outstanding. No
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 paid is based on a formula
related to prime commercial loan rates; however, total in-
terest paid shall not exceed 73/a% per annum over the term of
December 31
1978 1977
the loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000,000 $100,000,000
Note purchase agreements with twelve insurance companies
matured on October 1, 1978. Interest was at 6% per annum -0-
100,000,000
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0-
$100,000,000
4,000,000
104,000,000
4 ,000,000
$100,000,000
The Company was in compliance with the covenants of the debt agreements at the end of both
years. At December 31 , 1978, approximately $195,000,000 ofretained earnings was unrestricted
under the terms of the agreement.
Long-term debt maturities are as follows: 1981 - $37,500,000; 1982-$50,000,000; and 1983 -
$12,500,000.
Note C - Stockholders' Equity
Cumulative Preferred tock, $ 25 par value:
Authorized ..... ... ......................... . . .... . . ... .
Issued December 31 .. .. ... . .. ... . .. . ............. . ..... .
1978
1,000,000
one
Shares
1977
1,000,000
one
H)
20
Notes to Financial Statements
Note C - Stockholders' Equity (Continued)
Common Stock options at prices which were not less than
100% of market at date of grant are as follows:
Outstanding December 31, 1976 . ......... ..... ...... . .
Exercised ......................................... .
Lapsed ............ . ............ .... . .. .... .. ...... .
Outstanding December 31, 1977 ...................... .
Granted ........................................... .
Exercised .. .. ...... . .............................. .
Lapsed ............................................ .
Outstanding December 31, 1978 ............ ... ...... . .
Options exercisable:
At December 31, 1977 .............................. .
At December 31, 1978 ... .... ........ . .... ... ....... .
Shares Price Per Share
79,100 $19.1 3/20.06
( 650) 19.13/20.06
( 1,150) 19.13/20.06
77,300 19.13/2 0.06
75,680 22. 7 5/24.00
(19,598) 19.13/2 0.06
(28,472) 19.13/24.00
104,910 19.13/24.00
77,300 $19.13/2 0.06
33,250 19.13
The stock option plan terminated in 1978; however, options granted prior to the termination are
not affected. Shares available for future stock option and other plans were 283,078 and 330,286 at
December 31, 1978 and 1977, respectively.
Note D - Taxes on Earnings
The provision for taxes on earnings consists of the following:
Current:
Provision for the year .................................. .
Investment credit applied:
Earned in current year .. . ...... . ..................... .
Earned in prior years . .... . .......................... .
Deferred:
Provision for the year
Investment credit:
Earned in current year ............................... .
Transferred to current ( earned in prior years,
applied on tax return in current year) ............... .
Total income tax expense ................................ .
The deferred expense consists of:
Net current items ...................................... .
Net noncurrent items .................................. .
Year ended December 31
1978 1977
$39,918,700
6,319,800)
16,103,800)
17,495,100
13,595,300
-0-
16,103,800
29,699,100
$47,1 94,200
$ 388,500
29,310,600
$29,699,100
$55,384,800
-0-
( 52,274,700)
3,110,100
19,891,300
( 14,850,900)
52,274,700
57,315,100
$60,425,200
( $ 2,242,900)
59,558,000
$57,315,100
Notes to Financial Statements
Note D - Taxes on Earnings (Continued)
The Company's effective tax rate was 43.3% for 1978 and 39.5% for 1977. The rates are lower than
the statutory federal rate of 48% primarily because of investment tax credits earned.
Note E - Commitments
The Company does not lease any aircraft or related flight equipment.
At December 31, 1978 the Company has contracted to purchase six B 747-200B and two
B 727-200 jet aircraft and spare engines for delivery in 1979 and 1980 which will require
expenditures of $179,372,000 in 1979 and $3 0,422,000 in 1980. Of these amounts, deposits of
$98,106,465 have been made with the manufacturers.
The Company has agreed to purchase four B 727-200, one B 747-200B and one B 747-200F jet
aircraft for delivery in 1980; however, no firm prices have been contracted.
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 years
through 2008. Portions of these facilities are subleased under noncancelable operating leases
expiring in various years through 19 88.
Future minimum rental commitments at December 31, 1978 for noncancelable operating leases
with initial or remaining terms of one year or more, of which $186,053,000 is for air terminal and
airport facilities , are as follows:
1979
1980
1981
1982
1983 . ........ . . . . . ... . .. . ..... . ... . . .
Thereafter ........................... .
$ 14,057,000
13,297,000
12,904,000
12,131,000
11,356,000
136,014,000
199,759,000
Sublease rental income . . ... .. ........ . ( 7,187,000)
Rental expense for all operating
leases consisted of:
inimum .... . .... . ...................... . ............ .
Sublease rental income ................................. .
$192,5 72,000
1978
S 16,568,000
( 724,000)
$15,844,000
1977
$14,984,000
( 610,000)
$14,374,000
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, 1978. The case has
been remanded to the trial court to decide the unresolved issues and to identify specific plaintiffs
and the amounts to which they are entitled.
The Company estimates that its ultimate liability may range from approximately $1 million to
approximately $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 $27,941,000 in 1978 and $26,359,000 in 1977. Unfunded
prior service costs at January 1, 1978 were estimated by consulting actuaries to be $29,619,000.
The market value of the assets in all pension funds was $187,368,000; $14,889,000 less than the
vested benefits estimated by the consulting actuaries.
Notes to Financial Statements
Note H - Export Sales
orthwest 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 $132,081 ,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 1978 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.
Note 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 , 1978:
Earnings
Operating Operating et Per Share of
Revenues Expenses Earnings Common Stock
1978
First quarter $ 275 ,616,289 $250,983 ,242 $16 563,127 $ .77
Second quarter ... .. 160 309,383 140,144 524 20 ,545 ,906 .95
Third quarter .. . .. . 115 804 036 111,247,056 11 ,551 ,930 .53
Fourth quarter 238,432 ,184 220,502 403 13 ,180426 .61
$ 790,161 ,892 $722 ,877,225 $61 841 ,389 $2.86
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
Third quarter ... . . . 281 ,319,813 243 ,295.659 29 ,401 907 1.3 6
Fourth quarter ..... 274 ,891 282 245.607 ,615 23,918 ,287 1.1 1
$1,046,354,772 $941 ,771 .207 $92 .718,790 $4.29
10 Year Summary*
ORTH\'\ E T IRLI E , I C.
(Dollar in
thoust111ds l cept per shar figur
1978t 1977
Op ratin R v nu
'
I a n r ......................... . . . . '
. ... ... .. . . 557,401 $ 861 ,053
argo ............... . ..... 87,077 121 ,185
~lail .................................. '
... .. . ... '.
18,944 29 ,894
:hart r n th r tran portation ..... .. . '
..... . .... . 10,997 25 ,871
ontrnn port ... '
................ . .. . .... ...... .. . . 115,743 8 ,352
Tota l Operating Revenues $ 790,162 $ 1 ,046 ,355
ratin E
'pr iati amortization .... .. . .. .. .. . . . ...... $ 104,970 $ 103,152
h ' r ..... ..................... . ..... '
..... ... . . . 617,907 838 ,619
Total Operating Expenses $ 722 ,877 $ 941 ,771
..................... . ..... . .. . ... .. $ 67 285 $ 104,584
n Ion -l rm debt ........ . ...... ..... (3 ,377) (6 ,518)
(d du lion ) - net .......... . . ..... 45 ,127 55 ,078
laxe ........ ......... . .. . .. .......... $ 109,035 $ 153,144
. . . ............ . . . ....... .. . ..... . ..... 47,194 60 ,425
e l arnin ............ ....................... . .. .. $ 61 ,841 $ 92, 719
I. rning .... p 'r cl \ ' 'rag har I )
2.86 $ 4.29
.............. . . '
.. .. .. . . . . .
( .1 h d i \ 1 den cl ............. . ......... . ... . ... ... . . . . 16,210 10,804
Dt\ 1dencL p 'r hare ... ..... . ......... . . . . .. . .. . ...... .75 .50
toc.kholdPrs Pqui lv ........... . ..... . ........ .. .... .. 793,691 74 7,672
umh r of h.1rPs out tan din o al nd of ear .. . ... .. ... 21 ,626,284 21,606 ,686
Boo \ .ii UP p 'f ' he re al nd f y ar ! '.
1
$ 36.70 $ 34.60
.\ s .t and T rm D bt
F)iPht Jrop t C 0 , l .............. . .... . ... . . .. .. ... 1,525,442 $ 1,510,447
Ili t n l book va lu e ................. .... . 922 ,615 962 ,957
To ....................... . . . . .... . .... . .... 1,392,865 1 ,299 ,451
Lo bt .................. ..... . ..... . .. ..... . 100,000 100,000
nl
p n-mi l ........ . ......... . .. . . . . . . ... 27.9 22.9q;
p -mi l ............... ........... . .... 65.7 54 .4
p rating r \' nu ..................... . 1.5% 90.0%
d
s (000) ........ .................. 66,420 111,271
(000) ..... . ........ ............ 14,302,037 22 ,968 ,489
1 mi l (O 0) ........... . ..... .. . . . 7,018 ,305 11,100,412
C
r ... . '
............. .......... . . 49.1 % 48.3%
....... n C d ................... ..... . ,5 74 ,901 10 ,354 ,808
d C. p t ii s (000) ...... ...... .. '
. . 302 ,153 458 ,143
.nu t ii 00) ....................... 1,0 79,681 1 ,676 ,4 70
, tc:1 ti stic - lot I p ra li n
k,venu! plc1n'-mil (000) ................. ...... . .. 7,4 71 114,643
\ \c1ilnblP. ton-mil (000) .................. ......... 2, 4,632 4 ,109 ,11 0
H port
0 , 1'1i2 ,111d l'liH 111d tlw striJ...P nco,er, prriod of 1971 .
Io hrou~h 12 for, lant1Rement' Di cu 10n and nal is of the ummary of Operations.
ill( r 1 1
in outst,rnding shares r suiting from tock issue in 19 70 and 197 2.
2
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
$ 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 ,3 99
1,647,317
11 2 ,279
3 ,98 2,743
1975 1974 1973 1972t 1971t 1970t 1969
$ 659 ,849 $ 628 ,488 $ 476 ,794 $ 277 ,891 $ 331,966 $ 260 ,335 $ :350 ,504
88 ,308 76 ,157 55,280 34 ,694 39,641 30 ,053 51,006
23 ,280 22 ,911 18,415 13 ,3 09 19 ,443 18,958 29 ,38
29 ,019 27 ,3 22 28 ,517 20 ,009 31,588 20 ,800 35 ,090
107 4 ,113 5,342 46 ,598 2,881 48 ,894 1,952
$ 800 ,563 $ 758 ,991 $ 584 ,348 $ 392,501 $ 425,5 19 $ 379,040 $ 467,938
$ 98 ,880 $ 96 ,213 $ 87 ,642 $ 81 ,054 $ 77, 24 5 $ 69,173 $ 60 ,833
651 ,983 584 ,993 445 ,401 296 ,348 330 ,108 258 ,784 324 , 79
$ 750 ,863 $ 681 ,206 $ 533 ,043 $ 377 ,402 $ 407 .353 $ 327,957 $ 385 ,812
$ 49 ,700 $ 77 ,785 $ 51 ,305 $ 15,099 $ 18,166 $ 51 ,08 3 $ 82,126
(16 ,120) (19 ,554) (14 ,758) (8 ,356) (13,051) (6 ,296) (2,334)
13 ,509 40 ,148 19,133 10,510 6 ,68 5 (227) 1,181
$ 47 ,089 $ 98 ,3 79 $ 55,680 $ 17 ,2 53 $ 11,800 $ 44 ,560 $ 80 ,973
3 ,693 33 ,631 3,830 (429) (9 ,561) 121 29,5 07
$ 43 ,396 $ 64 ,748 $ 51 ,850 $ 17,682 $ 21,361 $ 44 ,439 $ 51,466
$ 2.01 $ 3.00 $ 2.40 $ .83 $ 1.01 $ 2.11 $ 2.55
9 ,710 9,722 9 ,722 9,620 9 ,518 9,465 9 ,117
.45 .45 .45 .45 .45 .45 .45
623 ,677 589 ,991 534 ,965 492 ,837 477,054 465 ,210 426 ,797
21 ,604 ,136 21 ,604 ,136 21 ,604 ,136 21 ,604 ,136 21,149,756 21,149 ,756 20 ,914 ,272
$ 28.87 $ 27 .31 $ 24 .76 $ 22 .81 $ 22.56 $ 22 .00 $ 20 .41
$ 1,420 ,670 $ 1,282 ,556 $ 1,216,632 $ 1,008 ,041 $ 1,01 2,568 $ 929 ,18 1 $ 697 ,938
977 ,062 907 ,935 861 ,231 682 ,020 709 ,433 668 ,129 492 ,241
1,215 ,146 1,121 ,153 1 ,085 ,632 920 ,418 944 ,302 923 ,126 742 ,732
246 ,000 213 ,900 284 ,000 208 ,000 252,500 260 ,915 112 ,000
20.6 19.9 15.8 16.9 14.5 18.0<t 15.2
50.2 48.2ct 42.5 49.6 42.1 43 .5 34.5
93.8% 89.8% 91.2 % 96.2% 95.7% 86.5% 82.4 %
104 ,104 105,295 108 ,853 79 ,025 100 ,992 83 ,177 123 ,966
20 ,910 ,966 20,016 ,107 19,593 ,379 12 ,963 ,054 15,614,614 10,234 ,060 13 ,504 ,111
9 ,471 ,282 9 ,173 ,875 8 ,007 ,850 4,565,618 5,553,043 4 ,506,256 ,208 ,725
45.3 % 45 .8% 40.9% 35.2% 35 .6% 44 .0% 46.0%
8 ,865 ,263 8 ,948 ,373 7,987 ,299 5,150 ,636 6,08 9,273 4 ,682 ,812 7,517 ,780
386 ,309 317 ,4 37 251 ,865 150,973 161,345 110,215 198,4 4
1,4 28 ,381 1,330 ,803 1,140,983 672 ,035 81 3,403 655 ,339 42 ,050
107 ,721 110,519 115 ,7 26 84 ,098 110,045 89 ,938 135 ,563
3,642 ,650 3,431,038 3,370,694 2,23 6 ,069 2,806 ,407 1,819,439 2,535 ,137
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, 1978 and 1977, 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, 1978 and 1977, 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.
Saint Paul, Minnesota
February 14, 1979
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.
Service Highlights
( continued from page 7)
NWA's route system became better integrated
and provided a number of new single plane ser-
vices to Northwest cities. For example, several
Montana cities served by NWA now have one-
plane flights to San Francisco.
Mainland China Flights
Northwest Airlines was authorized by the United
States government to serve mainland China on July
20, 1946. During the period from 1947-1949, NWA
operated scheduled flights between Manila, Shang-
hai and Tokyo and this service represented nearly
30 per cent of Northwest's international passenger
traffic at that time.
NWA has indicated both its ability and its desire
to resume scheduled service from the U.S. to main-
land China to the appropriate agencies of the U.S.
government.
Automatic Entry Program
One of the provisions of the newly-enacted Airline
Deregulation Act of 1978 permits each U.S.
scheduled airline to select one new non-stop route
each year for the next three years. These routes will
automatically be awarded regardless of how many
other carriers select them.
NWA selected the Seattle-Los Angeles market
for its first automatic route entry. The prime
reasons for its selection were:
The market has 575,000 passengers annually.
NWA anticipates an increased share of Los-
Angeles-Orient and Alaska traffic via connections
and single plane services through Seattle.
NWA has existing operations at both cities.
The route is a major step in closing the gap on the
western end of Northwest's domestic route-
structure.
Under the Deregulation Act, each scheduled air-
line was also permitted to protect one of its non-
stop routes from added competition for a one year
period. NWA selected its Seattle-Twin Ci ties
route, which it pioneered in 1933 and which has
been a strategic part of the airline's system since.
Other Route Expansion
During the past year, a number of other route
expansions has occurred. On January 9, 1978, the
CAB issued an all-cargo certificate to orth west
which authorizes it to operate between any two
points in the United States. between any point in
the United States and Puerto Rico or the U.S. ir-
gin Islands and between any point in Puerto Rico
and the U.S. Virgin Islands.
Northwest also received authority to operate
nonstop between Pittsburgh and Midway Airport;
a route between Chicago and Boston via Syracuse
and Albany; and a route between Des Moines and
Atlanta via Quad Cities and Peoria. In addition, it
was granted exemption authority to provide ser-
vice between Amsterdam and New York/Chicago;
between Honolulu and Taipei via Guam and
Okinawa; and between Chicago or Miami and San
Juan/St. Croix. None of this authority is currently
being operated.
Further expansion of NWA's domestic and in-
ternational route structure in 19 79 is possible.
Northwest has already tentatively been awarded,
or is seeking, additional route authority in a
number of other proceedings before the Civil
Aeronautics Board. These are summarized in the
table below.
Status of NWA Route Authority Requests
1. A Show Cause Order has been issued which
would eliminate certain of the operating restrictions
in Northwest's certificate.
2. Interlocutory Orders have been issued and the
required documentation submitted which would
secure for Northwest the following nonstop author-
ity:
Boston/Chicago/New York/Philadelphia/
Washington-Fort Myers
Atlanta-San Francisco and San Jose
Atlanta-Cleveland and Detroit
Dallas/Fort Worth-New Orleans and Albuquerque
Boston/New York/Newark/Philadelphia-San Juan
and New York/Newark-St. Thomas and St. Croix
Colorado Springs-Denver/Dallas/Fort Worth/
St. Louis/Chicago
Denver-Los Angeles
Denver-San Francisco and San Jose
Memphis-Norfolk/Denver/Las Vegas/San Diego/
San Francisco/Oakland/San Jose/Houston/
Seattle
Salt Lake City-Albuquerque/Atlanta/Boise/
Dallas/Fort Worth/San Antonio
Denver-Detroit
Dallas/Fort Worth and Houston-Detroit/
Cleveland/Pittsburgh
Las Vegas-Chicago and ew York
Pittsburgh-Charlotte and Raleigh/Durham
Cleveland-Orlando/Day tona Beach/Sarasota/
Fort Myers
Dallas/Fort Worth-Denver/Portland/Seattle
Atlanta-Dallas/Fort Worth
Reno-Chicago
Albuquerque-St. Louis/Atlanta
Atlanta-Dallas/Fort Worth/Houston an d Denver-
Atlanta
Dallas/Fort Worth-Denver/Seattle/Portland with a
long haul restriction that all fli ghts over this seg-
ment serve Dallas/Fort Worth.
Birmi ngham-Clevela nd/Dalla Fort Worth/
Houston/Philadelphia/Pittsburgh/St. Loui
Tampa/ ashington
St. Loui Des Moines/ orfolk and alt Lake Cit -
San Franci co/ an Jose/Oa kland/Los Ang el s
On tar io/Po rtland / attle/ ac ram nto/
San Diego.
27
Orient Region Highlights
NWA Opens New Hotel at Narita Airport;
Trans Pacific Traffic Continues Strong Growth
The past year was one of 'grand openings' and
continued growth for the division of Northwest
Airlines commonly called 'The Orient Region'.
Created 31 years ago when NWA acquired its
rights in 1947 to serve Japan, Korea, mainland
China and the Philippines, the Orient Region is
headquartered in Tokyo.
NW A Hotel Opens
In 1978, NWA's Orient Region saw the long-
delayed opening of Narita International Airport
take place on May 20. The very next day, the Orient
Region staff opened the airline's new Narita Inter-
national Hotel.
With 212 rooms, the hotel was designed primar-
ily to accommodate NWA's international passen-
gers transiting Tokyo to other destinations.
Situated on 25 landscaped acres, the hotel is just 15
minutes from Narita International Airport.
Osaka Gets 747's
Another 'opening' took place on April 24 when
Osaka's airport began permitting operations by
Boeing 747 aircraft. This had not been permitted
previously and, as a result, Northwest had been
forced to use a Boeing 727-200 to provide service
between Osaka and Tokyo and Taipei.
Today, NWA conducts its operations into and
out of Osaka exclusively with Boeing 747 equip-
ment.
Tokyo-Chicago Non-Stops
on-stop 747 service between Tokyo and Chicago
was increased to daily frequency on December 1,
1978 by orthwest.
This service, which is the fastest way to and from
Tokyo for most American cities east of the Missis-
sippi River, has been exceptionally well received
since it was inaugurated on June 8, 1977.
Today, NWA operates four daily 747 flights
across the Pacific in each direction - a total of 28
times each week. In addition, 747 service is pro-
vided twice weekly between Tokyo and Anchor-
age.
Tour Sales Strong
Orient tour sales were very strong in 1978. As an
example, orthwest's exclusive 'Orient Escapade'
28
program produced nearly 4,000 passengers alone
during the first four months of 1978 - making it
the most popular Orient tour sold in North
America.
Tours from Japan to the U.S. mainland and Hon-
olulu showed a total of 41,292 passengers during
the first four months of 1978 and 30,245 passen-
gers during the last four months of 1978.
Cargo Grows Too
Air freight shipments to and from the Orient also
registered encouraging gains during 1978- espe-
cially in west-bound traffic, which helped create a
better balance in movements.
An NWA 747F freighter set a west-bound single
plane record on September 3, 1978 when it carried
179,314 pounds of cargo. East-bound, NWA's
freighters frequently carry in excess of 200,000
pounds of cargo.
NWA's exclusive ability to cool the 747F's main
deck has permitted the carriage of fresh and frozen
seafood to Japan. In September of 1978 alone, a
total of 500,000 pounds of seafood was carried on
NWA's scheduled freighter service without the
need for special containers.
Left top
HONG KONG STREET SCENE ... Three' NWA cargo
sales executives pause to review their day's activity in
a do wntown section of Kowloon. Two Northwest air
freight containers are shown on a Star Air Freight
truck in the background.
Right top
RESERVATIONS NERVE CENTER ... Serving the fi v e
million residents of Hong Kong as well as much of
southeast Asia is this NWA reservations center lo-
cated at No. 2 Ice House Street on Hong Kong Island .
Right center
LOTS OF LIFT . .. One of NWA's four Boeing 747F
all-cargo freighters a waits loading at Hong Kong's Kai
Tak airport w hile a Northwest cargo executive checks
a container.
Bottom
WA 's NARITA HOTEL .. . Just 15 minutes from
Tokyo's new Narita International Airport lies North-
west Airline's new Narita Hotel. With 212 rooms, it is
situated on 2 5 lov ely landscaped acres .
Northwest Orient's Fan-Jet Fleet
Total 106 as of December 31, 1978
30
1 7 Boeing 747 Fan-Jets
12 with range of 5,460 miles
with 369 passengers.
5 with range of 6,670 miles
with 363 passengers.
4 Boeing 747F Freighters
All cargo aircraft capable of
carrying a structural payload
of 262,900 pounds.
44 Boeing 727-200 Fan-Jets
Range of 1,760 miles with
128 passengers.
19 Boeing 727-100 Fan-Jets
Range of 2,380 miles with
93 passengers.
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
+++++++
The Directors
of Northwest
Orient Airlines*
The Officers
of Northwest
Orient Airlines*
" 1
\sof,\,larch I!'i . 1~)79
James H. Binger t
Former Chairman of the
Executive Committee, Honey ell, Inc.
inneapolis. Minnesota
(Manufacturer of automation y terns)
E. . Blanch, Jr. t
Pre ident & hief E ecuti e Officer
E. . Blanch Company
inneapolis, 1innesota
(Re-insurance brokerage)
Raymond H. Herzog t
Chairman of the Board, 3M Company
t. Paul, innesota
(Multi-notional manufacturing)
Melvin R. Laird t
Senior Counsellor. Reader's Digest, Inc.
Washington, D.C.
(Magazine publi hing)
M. Joseph Lapensky
Pre ident & hief E 'ecutive Officer
James A. Abbott
ice President-Law
Robert W. Campbell
ice President-Budgets
J. William Campion
ice Pr sid nt-Regulator Proceedings
Ro K. Erickson
Vic Pr sid nt-Publi Relation
Rob rt J. Gli chin ki
ic Pr sident- ommunications
and omput r
John . Horn
islanl \ i Pr id nl-Prop rli
int nan e
ring
'o-R .gi . trars and Trans er gen ! :
James . Land, Jr. t
Financial Consultant
ew York, 8\ York
M. Joseph Lapensky
President & Chief E, ecutive Officer
orth, est Airlines , Inc.
t. Paul, inne ota
Donald G. Mc eely t
President, Space Center. Inc.
St. Paul. Minne ota
(Real estate)
Donald W. Nyrop t
Consultant to
orthwe t irlines. Inc.
St. Paul. Minnesota
Lyman E. Wakefield Jr. t
Chairman of the Board. Resource Tru t Co.
Minneapoli . Minn sota
tMember, Audit Committee
Reginald C. Jenkins
ice Pre ident-Orient Region
T. J. Koors
ice Pre id nt-Transportation
William A. Kutzke
ice Pr sident
Thomas E. McGinnit
ic President-Pm ha ing and tore
Bryan G. Moon
i e Pre id nt- dv rti in
Jam F. R desk
\ ic Pr id nt-P r onn
te en G. Rothm ier
ice Pr id nl-Finan and Tr a ur r
Rob rt E. tri t
Vi Pr id nt- omplr Iler
nD.\\h lr
A ta nt ' crelary
Rob rt). \\'right
\ i r Pre id nt-S,1 le.
orlh\\PSlt' rn , '.1tionc1 l 13,111 . , lin nc,1 pol1s. :--.11 nnpsol,1
orlh\\ c's lc'rn Trust Co . , C' \\ York. .. 1
P \\ York.
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