Northwest Airlines Annual Report 1979

NORTFIWEST ORIENT AIRLINES
CITIES SERVED BY NORTHWEST ORIENT
orth America
Anchorage
Atlanta
Billings
Bismarck/Mandan
Boston
Bozeman
Butte
Chicago
Cleveland
Detroit
Edmonton
Fairbanks
Fargo/Moorhead
Ft. Lauderdale/Hollyvvood
Fort Myers
Grand Forks
Great Falls
Helena
Honolulu
Las Vegas
Los Angeles/Long Beach/Ontario The Orient
Madison
Miami Hong Kong
Milwaukee Manila
Minneapolis/St. Paul Okinawa
1issoula Osaka
ew Orleans Seoul
ew York Taipei
ewark Tokyo
Orlando
Philadelphia
Phoenix Europe
Pittsburgh
Portland Amsterdam
Rochester Copenhagen
St. Louis Glasgo\v/Prestwick
San Francisco/Oakland/San Jose Hamburg*
Seattle/Tacoma Manchester
Spokane Oslo*
Tampa/St. Petersburg/Clearwater Shannon*
Washington. D.C./Baltimore Stockholm
Winnipeg * Spring, 1980
DESCRIPTION OF BUSINESS
Northwest 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 app10ximately 30,218 route miles and
serves directly cities in 21 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
Sweden, Denmark, England, Netherlands and
Scotland. Authorizations to serve Shanghai,
Beijing, and other points in continental China
rernam in effect although presently inoperative.
1979 1978*
Total Operating Revenues ............. . $1,310 558,000 $ 790.162,000
Operating Income ..................... . 55,352,000 67,285,000
et Earnings for the Year .............. . 72,475,000 61,841.000
Per Common Share .... . ........... . . 3.35 2.86
Per Dollar of Revenues .. ......... ... . 5. Set 7.8cJ;
Stockholders' Equity ......... .. ....... . 849.122,000 793.691 ,000
Per Common Share ................. . 39.24 36.70
Dividends Paid ....................... . 17.306,000 16,210,000
Operating Expenses:
Per Available Ton-Mile .............. . 29.4ct 27.9ct
Per Revenue Ton-Miles .............. . 63.4q: 65.7
Revenue Traffic:
Passengers Carried ............... . .. . 11,636,000 6.575 ,000
Passenger- files Flown .............. . 13.298,161.000 7.018,305.000
Ton-Miles, Mail, Freight & Express ... . 626.401,000 377.851.000
Common Shares at Year End ........... . 21,640.000 21.626,000
Employees:
umber at Year End ................ . 12.814 10,680
Total Wages and Benefits Paid ....... . $351.403 000 $222,188,000
*Operating results were affected by a major strike which extended from April 29 through August 15. 1978.
4 Boeing 747F
Freighters
All cargo aircraft capable
of carrying a structural
pay load of 262,900 pounds.
22 Boeing 747
Fan-Jets
12 with range of 5,460
miles with 369 passengers.
5 with ran ge of 6.670
miles with 363 passengers.
5 with range of 6,900
mi !es with 369 passengers
NORTHWEST ORIENT'S
FAN-JET FLEET
Total 110 as of De emb r 31. 19 79
2 2 McDonnell Douglas
DCl0-40 Fan-Jets
Range of 5.100 mile
with 236 passengers.
46 Boeing 727-200
Fan-Jets
Range of 1.760 miles
with 128 passengers.
16 Boeing 727-100
Fan-Jets
Range of 2.060 miles
with 93 passengers.
3
53rd Annual Report to the Shareholders
N orthwest Airlines' net
earnings of $72,475,000
were the second highest
in the company's history.
Revenues of $1,310,558,000 were
an all time record. This
performance placed Northwest
Airlines fourth in net earnings
among U.S. airlines for 1979,
although the company ranked
only eighth in total operating
revenues.
Coming in the face of an order
issued by the federal government
which grounded the U. S. airlines'
DC10 fleet, including Northwest
Airlines' 22 DCl0-40 aircraft.
from June 6 through July 13, we
feel that 1979 results were very
good.
Also, as detailed below, the
company undertook a major
expansion of routes and services
during 1979. The very substantial
start-up costs of these new
services were all charged to
current operations during the
year; and the major development
burden is now behind us. Thus,
we can look ahead in the coming
years to profitable integration of
these new routes into a larger and
more competitive Northwest
Airlines.
Route Development Plan
At the company's annual meeting
last May we outlined our 1979
route development and operating
plan as including three main
features:
1. Expansion of our domestic
system with new opportunities
under deregulation.
2. Inauguration of our first-ever
routes to Europe.
3. Expansion of schedules over
new routings in the Pacific.
Expansion Well Developed
We have made considerable
progress in developing these
4
expansion plans. Five new cities
were added to Northwest Airlines
domestic route structure in 1979.
St. Louis and Orlando in January;
Las Vegas in February; Phoenix in
November; and Ft. Myers in
December.
Five new cities in Europe were
linked to Northwest Airlines'
system in 1979 with transatlantic
747 passenger service from New
York to Copenhagen and
Stockholm, and a separate flight
pattern from Boston to Glasgow
and Copenhagen. In the fall,
freighter service was added to
Amsterdam and Manchester.
Also, as planned, Northwest
Airlines inaugurated the first
nonstop service to Seoul, Korea
from the United States in the
spring of 1979. Later in the year
we began new nonstop flights
from Honolulu to Osaka, Japan
continuing to Taipei. These
important new services in the
Orient markets will serve to
enhance the strong position
Northwest has built over three
decades of transpacific service.
New Route Authority
Early in 1980 the Civil
Aeronautics Board selected
Northwest Airlines as the U. S.
carrier to provide new nonstop
service between Minneapolis/St.
Paul and London in the Wild Card
Route Case. Subject to
confirmation of the CAB order by
the President of the United States,
service to London will begin on
June 1, 1980.
The year ahead will also see
further expansion of our
transatlantic services to three new
European cities; Shannon, Ireland;
Hamburg, Germany; and Oslo,
Norway. Thus, for the first time in
its history Northwest Airlines will
be able to mount a comprehensive
service pattern for passengers and
cargo linking a growing domestic
system with key markets in
northern Europe. This new
opportunity will bring continued
revenue growth over the years
ahead.
New Aircraft Coming
Deli very was accepted on seven
new Boeing passenger aircraft
during 1979 - five 7 47-200B's
and two 727-200A's.
In 1980, as previously
announced, Northwest Airlines
will take deli very of seven more
new Boeing aircraft; four
727-200A's; two 747-200B
passenger planes and one 747F
all-cargo freighter.
A decision on ordering new
generation jet aircraft which offer
the new advantage in fuel saving
design and engine technology will
be made in the months ahead.
Financial Condition
Northwest Airlines continues to
maintain perhaps the strongest
balance sheet in the entire air
transportation industry. At the
end of 1979, stockholders equity
stood at $849,122,000, and long
term debt at only $100,000,000.
This favorable debt/equity ratio
positions your company very well
for the turbulent days ahead, and
for expansion of routes and
services as new opportunities
present themselves.
As always, Northwest Airlines
continues to maintain careful
control of all operating expenses,
and throughout 1979 operated at
the lowest cost per available t.on
mile of any trunk airline.
Also noteworthy, as we look
ahead to the coming year, is the
fact that as of March 1, 1980 -
and for the first time i!)- many
years - all union-represented
A view across the river from Hamburg's city center
shows the lovely character of this thriving German city.
employees of Northwest Airlines
were under contract with no
bargaining in progress.
Two Officers Promoted
Two corporate officers were
promoted in recognition of their
excellent contributions to
Northwest Airlines.
John F. Horn was named Vice
President-Properties; and Steven
D. Wheeler was promoted to
Secretary of the Corporation, both
on January 3, 1980.
Outlook For 1980
Fourth quarter 1979 earnings were
down sharply and three main
factors will influence the airline
industry's performance and that of
Northwest Airlines during 1980:
1. Jet fuel prices.
2. The current traffic recession.
3. Second year effects of
deregulation.
The cost of jet fuel, about 42
cents per gallon in January 1979,
is now nearing 90 cents per gallon
- and rising rapidly. Today, 42
percent of every revenue dollar is
taken by aviation jet fuel.
Coupled with rapid increases in
the price of fuel, the current
recession in traffic may well make
it difficult to pass through the full
cost increase to the traveling and
shipping public. These factors
will limit airline profits during
1980.
Your company, however. is
better equipped than most of its
competitors to face uncertain
conditions ahead because of its
outstanding fleet of aircraft, its
demonstrated ability to control
costs and its unrivaled financial
strength.
Blarney castle is a
familiar sight to
tourists who have
visited County
Cork, Ireland.
Frogner Park in
Oslo features some
of the most unique
sculpture in all of
Europe.
In 1980. as in the past,
Northwest Airlines will continue
to rank among the industry's top
performers.
Sincerely,
M. Joseph Lapensky
President and
Chief Executive Officer
March 15, 1980
5
SERVICE HIGHLIGHTS
Deregulation Brings New Routes
and New Competition; NWA Adds
Facilities for Future Growth
The advent of airline deregulation
saw orthwest Airlines expand its
route system substantially in 1979
- and also saw other carriers
begin service on NWA's routes.
In all, five new U.S. cities were
added - Orlando, St. Louis , Las
Vegas, Phoenix and Fort Myers. In
Europe, new WA facilities were
established at Amsterdam and
Manchester.
Because Boston has become a
major hub of operations, both
domestically and internationally,
orthwest Airlines acquired
expanded facilities at Boston
Logan Airport's south terminal at
a cost of more than $1 million.
This increased the gate capacity
from two to five aircraft and
permitted improved service to the
public.
At ew York's Kennedy airport,
the WA terminal building was
dramatically upgraded in support
of the new orth Atlantic routes.
A completely new baggage claim
area was constructed. Another
jetway was added. The ticket
counter was completely refurbished.
At Northwest Airlines' home
base in Minneapolis/St. Paul,
existing facilities were improved
with the addition of a third
baggage claim carrousel. The
ticket counter was completely
renovated and a handling system
was installed that provides much
better passenger service.
Reservations System
Improved
The combination of heavy traffic,
introduction of new and complex
discount fares and a lengthy strike
against one of the nation's largest
6
airlines placed a heavy burden on
all airlines' reservations systems
in 1979. orthwest was no
exception.
To improve customer service
and to provide for additional
reservations capacity needed in
the future , Northwest Airlines has
launched a $14 million program.
The new Insta Res/Series 80
computer system, when
completely installed in early 1981,
will provide a 100 per cent
increase in the rate of transactions
per second, a 12-time increase in
the storage capacity of the
computer memory and more than
triple the speed of NWA's present
computer system.
In addition to implementing the
full range of passenger service
functions, the new system will
provide new advanced automatic
fare quotation and teleticketing
programs.
ew reservations offices were
completed in Los Angeles,
consolidating San Francisco
operations as well as handling Las
Vegas and Phoenix, and in
Tampa, which now handles
A $14 million computer expansion
program was begun by NWA in 1979.
Sleeper seats have been installed in
NWA's fleet of 747s for added comfort.
activities formerly headquartered
in Miami. The latter office also
handles Atlanta, Fort Myers, Fort
Lauderdale, Orlando and New
Orleans.
Aircraft Refurbished
NWA's aircraft fleet has not been
ignored in the program to
improve the company's facilities
and service.
More than $10 million is being
spent on a complete
refurbishment of the airline's
Boeing 7 4 7 passenger fleet. No
mere facelift, this program calls
for complete renovation -
removal of all seats, new
carpeting and interior wall panels
and new galley equipment. Cost
per aircraft is in excess of
$500,000 for this project.
Another improvement in NWA's
747 fleet came with the program
to install "Sleep er Sea ts" in the
upper deck lounges of these
aircraft. These seats permit
passengers to recline some 50
degrees if desired and also have
an adjustable legrest for additional
comfort.
New Routes Begun
Deregulation of the airline
industry brought about several
ways to obtain new domestic
routes: dormant authority,
automatic market entry and the
traditional selection process.
orthwest Airlines took
advantage of these provisions to
inaugurate new service in several
important markets:
WA began service between
San Francisco and Seattle on
April 29 and between Los Angeles
and Seattle on June 8.
Service between the Twin
Ci ties and Phoenix was started
Nov. 15 with one round trip daily.
This pattern was increased to two
daily round trips on Dec. 18.
Fort Myers' service was
introduced Dec. 18 on these
routings: Twin Cities-Chicago-Fort
Myers; Boston-Orlando-Fort Myers
and Fort Myers-Tampa-Chicago-
Winnipeg .
Expansion of baggage claim facilities has
improved service in Minneapolis/St. Paul.
China Interest Strong
Northwest Airlines continues to
pursue a strong interest in
Two high ranking officials of the People's
Republic of China visit the cockpit
on a charter flight conducted by WA.
restoring its ervice to the
People's Republic of China, which
was suspended in 1949.
Visits to the People's Republic
to meet with aviation and tourism
officials were made by WA's
senior management in 1979.
These visits followed earlier visits
by sales executives who arranged
very successful PRC tour
programs working with Pacific
Delight, a long-time tour operator
in the Orient.
orthwest Airlines was also
selected to provide a special
charter aircraft when Vice Premier
Kang Shien, one of the PRC's
foremost petroleum experts, and
Song Zhenming, minister of
petroleum, participated in an
eleven day tour of important U.S.
energy installations . The tour
covered Pittsburgh; New Orleans;
Dallas/Fort Worth; Midland,
Texas; Liberal, Kansas; Denver,
Billings , Spokane and Anchorage.
An artist's drawing of WA's new reservation center at Tampa/St. Petersburg,
which handles the southeastern U.S.
And, in ovember of 1980,
orthwest Airlines will carry 800
to 1,000 representatives of some
200 major U. . firms - along
with their exhibits and displays -
to the first U.S. industrial
exhibition to be held in the PR .
People Most Important
Despite the investment of millions
of dollars in new computer
systems, ground equipm nt and
facilities and aircraft, people
remain the most important single
factor in delivering airline service
to the custom r. In a very busy
1979, orthwest Airlines hired a
total of 2,817 persons - and
promoted 2,662 others.
A total of 558 new flight
attendants were employed in 1979
as new rout s and excellent traffic
stimulated growth. This wa in
addition to 2 31 new
transportation agents, 223 new
equipment service employees and
2 83 reservations agents as WA
continued to upgrade its service.
During 1979 negotiations were
conducted, and successfully
concluded, with three of
orthwest Airlines' largest labor
unions - Brotherhood of Railway
and Airline Clerks, International
Association of Machinists and
International Brotherhood of
Teamsters' Airline Division.
Collectively, these unions
represent nearly 9,000 of NWA s
12,814 employees.
ew agreements were also
signed with the unions
representing orth west Airlines'
meteorologists , technicians ,
foremen, flight dispatchers, radio
and teletype operators and
Canadian agent personnel.
At the annual 2 5-year service
award banquet last ovember 10,
a total of 188 long-time WA
employees were honored.
The recognition that people
remain the most important single
factor in this servic business will
continue to shape management
decisions as we enter the highly
competitive era of the 1980's.
7
Newon
Northwest.
BOSTON PHILADELPHIA
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SlartlngFeb. 1
NEW ORLEANS
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Hi, Las Vegas!
We're your
new airline.
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New S42 Super Coach Fartt
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Wfire Northwest ...
your new way to
Mpls./St. Paul.
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INTRODUCTORY FARE
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@ NORTHWEST ORIENT
NWA Sets Revenue Record of Glasgow-Copenhagen markets.
$1.3 Billion as Transatlantic Service
Is Introduced and Five New U.S.
Cities Are Added to System
8
It was a year of records and of
new services in 1979 as orth west
Airlines' sales and marketing
efforts produced operating
revenues of $1,310,558,000 and a
system total of 11,636,000
passengers - both all-time highs.
Inauguration of orthwest
Airlines' new transatlantic service
from Boston to Scotland came on
February 10 when all-cargo 747F
service was introduced, followed
by extension of this service to
Copenhagen on March 2.
Transatlantic passenger service
was inaugurated by orthwest
Airlines on March 31 on a routing
of ew York-Copenhagen-
Stockholm. On April 29, additional
service began in the Boston-
The second major marketing
program centered on introduction
of Northwest Airlines' service to
five new U.S. cities in 1979 - St.
Louis , Las Vegas, Orlando,
Phoenix and Fort Myers.
TransAtlantic Advertising
Establishing Northwest Airlines as
a new transatlantic operator was
P.Ssential in both the U.S. and
European markets . This priority
resulted in the largest annual
advertising expenditure ever by
Northwest Airlines - a total of
$12,809,000, up from the previous
high of $10,203,000.
ational media in the U.S.
carried the message of our new
transatlantic routes. In Europe,
advertising was launched in five
countries.
This advertising gave emphasis
to the exceptional comfort
advantages of orthwest Airlines '
747 aircraft which feature wider
seats , fewer seats and roomier
aisles than our competitors.
A roomier ride to
your favorite sun.

-
KAWAII CALIFORNIA
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@ NORTHWEST ORIENT
Price Competition Keen
Both in the five new U.S. cities
added to orth, est Airlines
domestic system in 1979 and in
all other of our markets as , ell.
airline deregulation had a major
impact.
One of the most dramatic
results was the keen price
competition as airlines vi d for
customers in both new, and old,
markets.
There v.ras a marked increase in
the number and types_ of discount
and promotional fares offered and.
as a result. far greater emphasis
was given to price advertising
than in the past.
Tour Programs Expanded
ith start-up of transatlantic
service, orthwest Airlines' tour
programs have expanded to
include Europe in addition to the
U.S. and the Orient.
V\ ith the U.S. rapidly becoming
a travel bargain for Europeans,
new tour programs were
developed centering on Florida -
the single most popular tour
destination for our travelers from
Scandina ia and the United
Kingdom.
8\\ tour programs to the
People's Republic of China were
pioneered b orth\1
vest Airlin
- the first advertised in over 20
years. The \t\ ere immediately
oversubscribed.
Travel Agency Partnership
Travel agents continue to be the
large t single source of revenue
for orthwest Airlines.
In recognition of that fact e
have continued our very
successful program of Travel
Fairs. In 1979 approximatel
8,000 travel agents attended these
trade shows which feature not
only our services, but those of
tour and cruise operators and
other travel-related services as
well.
To improve our service to the
travel agent communit ,
1 orth\ est Airlines has launched a
14 million computer services
CHINA
An opportunity of a lifetime
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NORTHWEST ORIENT
program to provide faster
response time and more detailed
information to agents.
Linked to this project is the
de elopment of a new automated
reservations system in the U. .
which will pro ide tra el agents
direct acces to our reser ations
information. The s stem is being
developed in conjunction , i th
International Telephone and
Telegraph.
9
FINANCIAL REVIEW AND MANAGEMENT ANALYSIS FOR 1979
Revenue
Total operating revenues in 1979
reached an all time record of
$1,310,558,000 compared with
$790,162,000 in 1978 and
$1,046,355,000 in 1977 - the
previous record for operating
revenues. Comparisons of
individual revenue categories for
the current year and 1978 are not
meaningful due to the 109-day
pilot strike against the Company
in 1978.
ew revenue records were
established in the passenger and
cargo areas where, for the first
time, orthwest exceeded $1.0
billion in passenger revenue and
$199 million in cargo and mail
revenue. The record revenue
levels reflected both increased
traffic and increased fares and
rates granted by the Civil
Aeronautics Board.
System scheduled revenue
passenger-mile yield increased to
8.03q; compared with 7.94<t in
1978 and 7.76<t in 1977. Cargo
revenue ton-mile yield in 1979
increased to 31.23<t from 27.55<t in
1978 and 26.22ct in 1977.
The Civil Aeronautics Board
approved domestic 48-state
cumulative passenger fare
increases of 26. 8% for orthwest
in 1979. In addition,
Mainland-Alaska fare increases
and Mainland-Hawaii fare
increases totaled 19.3% and 25.3%
respectively. orthwest's Pacific
and Atlantic operations also
benefited from fare increases
ranging from 6. 5% to 8. 5% in the
Pacific and 17. 7% to 20.9% in the
Atlantic. Passenger fare increases
were due in large part to the Civil
Aeronautics Board's improved
procedure for increasing prices
due to rapidly escalating fuel
costs. The Ci-il Aeronautics Board
also approved freight rate
10
increases totaling 21 % for
domestic rates , 12-16% for Pacific
rates , and 23% for Atlantic rates.
Expenses
Operating expenses in 1979 were
$1,255,206,000 compared with
$722,877,000 in 1978 and 1977
expenses of $941 ,771,000.
Continuing inflationary pressures
required constant cost control
surveillance in all areas.
Operating expense per available
ton mile increased to 29.43<t in
1979 from 2 7. 86rt in 1978 and
22.92<t in 1977. This increase in
unit production expense was in
large part due to the exorbitant
fuel cost increases experienced
during the year. Northwest's total
jet fuel bill amounted to
$395 ,260,000 in 1979. The average
cost per gallon of jet fuel rose to
78.17rt in December, 1979 from
41 .67<t per gallon in January, 1979
or an 87.6% increase.
Depreciation and amortization
expenses totaled $106,401 ,000 in
1979 compared with $104,970,000
in 1978 and $103,153,000 in 1977.
This increase in depreciation and
amortization expense reflected the
addition of new, more modern
aircraft which was partially offset
SOURCE AND DISTRIBUTION OF REVENUE
(Percent of Total - Dollars in Millions)
SOURCE DISTAi BUTI ON
-
./ y-.,.7-,.. .-,
Earnings and Income Taxes
Charter and Other 3.4% $43.9 6.4% $84.4
~
Freight and Express
Commissions
7.7% $100.8
12.3% $160.7
~
Depreciation and Amortization
8.1% $106.4
Passenger - 1st Class
8.9% $117.4
Landing Fees, Rentals,
Materials and Services
20.8% $272.3
Passenger - Coach
72.5% $949.9 Employee Wages and Benefits
26.8% $351.4
Fuel and Oil
30.2% $395.3
b> the di posal of older. less
producti, e aircraft. Inflation
trends continue to increase co t
in the airline industry.
particularlJ in \\ ages. rentals. and
cost of materials and supplies in
addition to the marked cost
increases in jet fuel.
Earnings and Dividends
Net earnings in 1979 \\ere
72.4 75,000. the second highest in
the Compan:'.) 's historJ. or 3.35
per a erage share of common
stock outstanding. This compares
\\ith 61.841.000 or 2.86 per
share in 1978 and 92.719.000 or
$4.29 per share in 1977. The 1979
earnings figure of North,\ est
Airlines is the fourth highest in
Sales Price of
Common Shares
Quarter 1979 1978
1st High 29 26
Lo 233/s 21
2nd High 28 32 1
-'s
Lo 26 23
3rd High 34 371/s
Lo 307
/s 26
4th High 283/s 32
Low 26 223/s
EMPLOYEE COMPENSATION
Thousands of Dollars
the U. . airline industr:'.) for the
ear, this despit the fact that
orth,\ est is the eighth largest
airline in the industr:'.).
Gain from disposals of propert
\\ as 15.544.000. down from
34.290.000 in 1978 and
51,054.000 in 1977 du to a
reduction in the number of
aircraft sold.
orth,\ est irlines continued
its dividend payment policJ in
1979 with quarterly pa ments for
the 25th consecutive :'.) ear. The
cash dividend \\ as increased to
. 80 per share in 1979 and totaled
17,306.000.
The principal market in \\ hich
orth west common stock is
traded is Th ew York tock
E change. A table shm\ ing the
sale price ranges for the ears
1979 and 1978 and th di idends
paid per share for the same
periods is included in the
accompan ing graphs and charts.
Taxes On Earnings
Income taxes on earnings in 1979
were 11,885.000 compared to
47.194.000 in 1978 and
$60.425.000 in 1977. In estment
tax er dit earned amounted to
27.396.000. a significant increase
from the 6.320.000 in 1978 and
14.851.000 in 1977. The
Company continues to use
accelerated depreciation method
for income tax purposes.
Dividends
OPERATING REVENUES AND EXPENSES
Per Share
1979 1978
$.20 S.1875
.20 .1875
.20 .1875
.20 .1875
M1ll1ons of Dollars REVEN UES 1111
EXPENSES -
1500
1400
32
30
28
26
24
22
20
18
AVERAGE WAGES A.ND
FRINGE BENEFITS
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
PER EMPLOYEE
1975 1976 1977 1978 1979 1975 1976 1977 1978 1979
11
ACTUAL AND BREAK-EVEN PASSENGER LOAD FACTOR STOCKHOLDERS' EQUITY VS. LONG-TERM DEBT
Percent ACTUAL 1111 Millions of Dollars EQUITY 1111
56
55
54
53
52
51
50
49
48
47
46
45
44
43
42
41
BREAK-EVEN 1111 DEBT 11111
900
1975 1976 1977 1978 1979
800
700
600
500
400
300
200
100
0
1975
FINANCIAL REVIEW FOR 1979 (Continued from page 11)
Cash Flow
Funds generated in the current
year from all sources amounted to
$204,363,000. Benefits from the
Company's policy of owning its
own equipment rather than
leasing provided funds through
depreciation which with
amortization amounted to
$106,401 ,000 in 1979.
Application of funds in 1979
totaled $323.151 ,000 and
consisted primarily of flight
equipment and ground property
additions, advance deposits on
aircraft and cash dividends. Seven
new aircraft were added to the
orthwest fleet in 1979.
Traffic and Services
Scheduled operations in 1979
reflected gains in both traffic and
capacity over 1978 and 1977.
Growth in passenger and cargo
traffic resulted from increased
12
operations after the 1978 strike
and route expansion resulting
from deregulation and
inauguration of Atlantic services.
Northwest carried a record
11,636,170 passengers in 1979.
Financial Condition
The Company continued to
improve its financial position in
19 79 and retained its ranking as
one of the strongest carriers in the
airline industry. Although
orthwest is not immune from the
fuel cost problems and general
economic conditions that caused
the industry considerable
financial discomfort in 1979, the
Company was able to produce the
second highest profits in its
history.
orthwest's debt to equity ratio
on December 31, 1979 was 11.8%.
This favorable debt equity ratio is
one of the lowest, if not the
1976 1977 1978
lowest, in the U.S. airline
industry.
1979
Long-term debt totaled
$100,000,000 with repayment
beginning in April 1981 and
terminating in January 1983.
Stod:holders equity at December
31, 1979 was $849,122,000
compared with $793,691 ,000 in
1978. The book value per average
common share increased to $39.24
from $36. 70 a year ago.
Present financial arrangements
are expected to cover the purchase
from Boeing Aircraft of two B-747
passenger aircraft, one B-747F
all-cargo airplane and four
B-727-200 passenger jet aircraft
for delivery in 1980. These
airplanes with spare engines will
require an expenditure of
$208,579,000 of which
$96 503,000 has been deposited
with Boeing at year end.
Statements of Earnings
NORTHWEST AIRLINES, INC.
(In Thousands)
Operating Revenues
Passenger . ............................................ .
Cargo ... ... ........................................... .
Mail . .... ..... ........................................ .
Charter and other transportation ........................ .
Mutual Aid .. .. . . . . .. ................................. .
ontransport .......................................... .
Operating Expenses
Flying operations ....................... ............. . . .
1v1aintenance .......................................... .
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 (1979 - $6,240; 1978 - $4.679) - Jote A .. .
Gain on sale of flight equipment ........................ .
Other .......................... ........ . ..... ......... .
Earnings Before Income Taxes ........................... .
Income taxes - ote D ................................. . .
Net Earnings ................ ... ......... .. .......... .... . s
Average shares of Common Stock outstanding
during the year ........................................ .
Earnings per share of Common Stock ........ .. ............ .
See notes to financial statements
Year Ended December 31
1979
1,067.214
160.716
38.685
15.093
-0-
28.850
1.310.558
526.887
111.647
114.654
198.509
169.341
27.767
106.401
1.255.206
55.352
1.635)
15.544
15.099
29.008
84.360
11.885
72.475
21 .632
$3.35
1978 *
$557.401
87,077
18,944
10,997
104.864
10.879
790,162
241.740
72,233
60.749
117.410
100.615
25,160
104,970
722,877
67.285
3.376)
34,290
10.836
41,750
109.035
47,194
$ 61.841
21.618
$2.86
xOperating results were affected by a major strike \,hich extended from April 29 through August 15. 1978.
13
Statements of Financial Position
NORTHWEST AIRLINES, INC.
(Dollars In Thousands)
ASSETS December 31
Current Assets
1979 1978
Cash and short-term investments .... . .. . . . ... ..... ...... . $ 74,583 $ 184,028
Accounts receivable, less allowance of $1 ,500
(1978 - $1 ,400) . . ...... ..... . ..... ... .. ...... .. .. .. . . 111,432 79,782
Recoverable income taxes ...... .. . .... . .... . ........... . 21 ,726 -0-
Flight equipment spare parts , less allowance for
depreciation of $17,600 (1978- $17,340) . ...... ...... . 32,461 28,980
Maintenance and operating supplies . .. . .. ... .. .... ..... . 9,238 7,661
Prepaid expenses . .. .. . . .. .. . . .... . .. . .. . . ...... . .. ... . . 3,724 6,058
Total Current Assets 253 ,164 306,509
Other Assets . ... . ..... . . . .. .. . ...... . . ... ... . .......... . . 26,113 19,566
Property and Equipment
Flight equipment .. . ........ .. . ....... . . . . .......... . . . . 1,779,770 1,525,442
Less allowance for depreciation . .. . . .................... . 685 ,214 602 ,827
1,094,556 922,615
Advance payments on new flight equipment - Note E .. . . 96,503 98,106
1,191,059 1,020,721
Other property and equipment ....... .... ....... ... .... , . 147,231 129,588
Less allowance for depreciation ...... . ..... . .. . . .... .... . 88,646 83,519
58,585 46,069
1,249,644 1,066,790
$1 ,528,921 $1 ,392,865
14
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses ..... .. .......... .
Employee compensation ......... . ........ ........ . .... .
Air traffic liability ..................................... .
Income taxes .......................................... .
Total Current Liabilities
Long-Term Debt - ote B ........... ...... .. .. .......... .
Deferred Credits and Other Liabilities
Income taxes - ote D ................. ........ ....... .
Other . ... .... . .. . ...... . ................. .. ........ ... .
Stockholders' Equity - ote C
Common Stock $1.25 par value, authorized 40.000.000
shares; issued and outstanding 21.639.589 shares
(1978 - 21.626,284 shares) ......... ... .. . ............ .
Capital surplus .......................... . ............. .
Retained earnings ........................ . ....... .... . .
Commibnents and Contingencies - otes E and F
See notes to financial statements
December 31
1979
163.400
29.347
59.5H
-0-
252.291
100.000
313.329
14.179
327.508
27 ,049
124.797
697.276
849.122
$
1978
99,302
27.909
43,714
15,923
186.848
100,000
290,660
21.666
312,326
27,033
124,551
642,107
793,691
$1.528.921 $1,392,865
15
Statements of Changes in Financial Position
NORTHWEST AIRLINES, INC.
(In Thousands)
Funds Provided
Net 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 ........................................ .
Other .......... ... ... .. ........... ........... ......... .
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 .............................. .
Air traffic liability ................................... .
Current maturities of long-term debt .................. .
Increase (Decrease) in Working Capital ................... .
See notes to financial statements
16
Year Ended December 31
1979
$ 72 ,475
106,401
22 ,669
201 ,545
2,818
-0-
204,363
193,634
96,503
17,306
15,708
323 ,151
$(118,788)
$(109,445)
31 ,650
21 ,726
5,058
2,334)
53,345)
64 098
14,485)
15,830
-0-
65 ,443
$(118,788)
1978
$ 61,841
$
$
(
104,970
29,311
196,122
6,795
5,509
208,426
52,299
98,106
16,210
-0-
166,615
41,811
54,311
3,631)
-0-
805)
350
50,225
2,019)
13,501
932
4,000)
8,414
$ 41 ,811
Statements of Stockholders' Equity
NORTHWEST AIRLINES, INC.
(In Thousands)
Balance January 1, 1978 .. . . ....
Exercise of stock options . . ....
Net earnings for 1978 . .. . . . ...
Cash dividends - $. 75 a share .
Balance December 31, 1978 ... . .
Exercise of stock options ......
Net earnings for 1979 . .... .. . .
Cash dividends-$.80 a share .
Balance December 31 , 1979 .....
See notes to finan cial statements
APPLICATION OF INVESTMENT TAX CREDIT
Available* Appliedt
and Reflected on
Period in Earnings Tax Returns
1979 .. . ... . . . .. . . $27,395,700 $24,964,200
Applied on ._J
Returns . . . . . . . . 24,964!200
To be Applied .... ~ 2!431!500
*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 ap-
plied currently are offset against deferred taxes.
Common Stock Capital Retained
Shares Amount Suq~
lus Earnings
21,607 $27,008 $124,188 $596,476
19 25 363
61,841
16,210)
21 ,626 27,033 124,551 642,107
14 16 246
72,475
( 17,306)
21,640 $27,049 $124,797 $697,276
NORTHWEST AIRLINES FLEET
Year End On Order
Aircraft Type 1979 1978
B727 & B727C-100 .... 16 19
B727-200 .. .. . ... .... 46 44 4
DC10-40 . .. . .... . . ... 22 22
B747 .. . ... . . ... . . . . . 22 17 2
B747F ... . . . . ... . ... . 4 4 1
Total . . .. .. .......... 110 106 7
See Note E to financial statements
17
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
December 31, 1979
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-
idiaries after elimination of inter-company accounts and transactions.
Short-Term Investments
Short-term investments are stated at cost which approximates market and amounted to
$65,145.610 and $171,690,041 at December 31, 1979 and 1978, respectively.
Flight Equipment and Property
Provi ion 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 47 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 e penditures for maintenance and repairs to operating expense. Expendi-
tures which materially increase values or extend useful lives are capitalized. Book value of assets
old 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 delivery of
n w aircraft is capitalized and amortized over the useful life of the aircraft.
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
In ome taxes are provided at statutory rates to earnings before income taxes regardless of when
such taxe are paid. Deferred income taxes arise principally from timing differences between
financial and ta
-x methods of accounting for depreciation and capitalized interest.
The Company use th flow-through method of accounting for investment credits. Investment
redit not applied on tax returns are offset against deferred income taxes to the extent they are
applicabl to deferr d ta es becoming payable in the investment credit carryover periods.
Operating Revenues
Pas eng r and cargo revenues are recognized when the transportation is provided.
18
Notes to Financial Statements
Note A - Accounting Policies (Continued)
Earnings Per Share
Earnings per share are based on the a, erage number of shares of Common Stock outstanding. o
material dilution \\ ould result upon e 'ercise of out tanding tock options.
Note B - Long-Term Debt
Long-term debt consists of borro\\ ings from banks pa) able $12.5 million quarterly beginning
April 1. 1981. Interest is paid based on a formula related to prime commercial loan rates.
havvever. total interest shall not e ceed 7 3/a % per annum over the term of the loan. The debt
matures $37.5 million in 1981. $50 million in 1982 and $12.5 million in 1983.
The CompanJ was in compliance with the co enants of the debt agreement at the end of both
years. At December 31. 1979. approximately $226.000.000 ofretained earnings was unrestricted
under the terms of the agreement.
Note C - Stockholders' Equity
Cumulative Preferred Stock. $25 par alue:
Authorized ........ ..... .. ...... ................. . .. . .. .
Issued ......................... .... . ...... . .... . ...... .
Common Stock options at prices v\ hich were not less than
100% of market at date of grant are as follows:
Outstanding at January 1 . 1978 ....................... .
Granted ..... . ........ . ............................ .
Exercised ......... . ........................... . ... .
Lapsed .......... .. ........................... ... .. .
Outstanding at December 31. 1978 .................... .
Exercised ........ ..... ......... ... .............. .. .
Lapsed ................ . . . .......... . .............. .
Outstanding at December 31. 1979 .................... .
Options exercisable:
At December 31. 1978 .............. .......... ..... . .
At December 31. 1979 ........ ... ..... ... ... ... ..... .
Shares
1979
1.000.000
1978
1.000.000
Tone
one
Shares Price Per Share
77.300 $19.13/20.06
75.680 22. 75/24.00
( 19.598) 19.13/20.06
( 28.472) 19.13/24.00
104.910 19.13/24.00
( 13.305) 19.13/24.00
( 1.210) 24.00
90.395 19.13/24.00
33.250 $19.13
55,295 19.13/24.00
Shares available for stock option and other plans were 284.288 and 283,078 at December 31, 1979
and 1978. respectively.
19
Notes to Financial Statements
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:
Applied on tax return .............................. .
Refund for carryback to prior 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
1979 1978
$11,968,200 $39 ,918,700
( 9,549,200) ( 6,319,800)
(15,415.000) -0-
-0- (16,103,800)
(12.996,000) 17,495,100
27,312,300 13,595,300
2,431,500) -0-
-0- 16,103,800
24,880,800 29,699,100
$11,884,800 $47,194,200
$ 2,211,800 $ 388,500
22,669,000 29,310,600
$24,880,800 $29,699,100
The Company's effective tax rate was 14.1 % for 1979 and 43.3% for 1978. The rates are lower than
the statutory federal rate primarily because of investment tax credits earned.
Note E - Commibnents
The Company does not lease any aircraft or related flight equipment.
At December 31, 1979 the Company had contracted to purchase two B 747-200B, one 747-200 F
and four B 727-200 jet aircraft and spare engines for delivery in 1980 for which deposits of
$96,503,000 have been made with the manufacturers. Additional expenditures of $110,345,000
will be required 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 years
through 2010. Portions of these facilities are subleased under noncancelable operating leases
expiring in various years through 1991.
20
Notes to Financial Statements
Note E - Commibnents (Continued)
Future minimum rental commitments at December 31 , 1979 for noncancelable operating leases
with initial or remaining terms of one year or more. of which $243.673.000 is for air terminal and
airport facilities, are as follows:
1980
1981
1982
1983
1984
$ 15.650.000
15,303.000
14.344.000
13.392,000
13.063.000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.721.000
250,473.000
Sublease rental income . . . . . . . . . . . . . . . . ( 6.815.000)
$243.658.000
Rental expense for all operating leases consisted of:
Minimum ............................................... .
Sublease rental income . . ................................. .
Note F - Contingencies
1979
$22,029.000
( 842.000)
$21.187,000
1978
$16.568,000
( 724,000)
$15 .844,000
The Company is a defendant in a class action brought in 1970 in federal court in\\ ashington.
D.C. by c;;ertain 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 iolations
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 revie\\ 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.
21
Notes to Financial Statements
Note F - Contingencies (Continued)
On remand the trial court decided that a three year rather than a two year statute of limitations of
the District of Columbia is applicable to the alleged Civil Rights Act violations thereby increas-
ing the Company's potential liability for back pay by one additional year.
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 utlimately 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. The Court of Appeals for the District of Columbia affirmed the lower court with
respect to the Equal Pay Act claim and interjected an issue, which was raised by the defendants
on appeal, of whether the Company's claim under the Civil Rights Act is barred because the
claim was asserted too late. The Company has petitioned the Supreme Court of the United States
to review the Court of Appeals decision. The Supreme Court has not acted on the petition. The
outcome of this 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 $29,691 ,000 in 1979 and $27,941 ,000 in 1978. Unfunded
prior service costs at January 1, 1979 were estimated by consulting actuaries to be $30,625,000.
The market value of the assets in all pension funds was $252 ,681,000; $7,971,000 less than the
vested benefits estimated by the consulting actuaries.
Note H - Export Sales
Northwest 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 $255,000,000,
principally associated with countries in Asia. Revenue from sales consummated in foreign
countries is considered to be export sales.
22
Notes to Financial Statements
Note I - Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations for the two years
ended December 31, 1979:
(In Thousands) Earnings
Operating Operating et Per Share of
Revenues Expenses Earnings Common Stock
1979
First quarter .. ..... .... ...... $ 279 ,183 $ 263 . 700 $17,353 $ .80
Second quarter ... .... ....... 343,795 296,628 34.138 1.58
Third quarter .. ...... .. ...... 354,122 338,815 18,956 .88
Fourth quarter ... .... ........ 333 ,458 356.063 2,028 .09
$1,310,558 $1 ,255.206 $72.475 $3.35
1978
First quarter .. . . . . ..... ...... $ 275.616 $ 250,983 $16,563 $ .77
Second quarter .............. 160.310 140,145 20,546 .95
Third quarter ........ . .... ... 115,804 111.247 11,552 .53
Fourth quarter .. ... ... .. . .... 238,432 220,502 13.180 .61
$ 790,162 $ 722 ,877 $61 ,841 $2.86
Note J - Supplemental Information on the Effects of Changing Prices (Unaudited)
AS REQUIRED BY FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) STATEMENT
NO. 33, "FINANCIAL REPORTING AND CHA GI G PRICES", THE COMPANY MUST PRO-
VIDE SUPPLEMENT AL INFORMATION CONCERNING THE EFFECTS OF CHANGING PRICES
ON ITS FINANCIAL STATEMENTS. The disclosures are intended to address two different
aspects of an inflationary environment: (1) the effect of a rise in the general price level on the
exchange value or purchasing power of the dollar (called " general inflation") and (2) the specific
price changes in the individual resources used by the Company. Because there is presently no
consensus on which aspect of inflation (if any) should be reported. FASB has devised an
experiment requiring certain large, publicly held companies to present supplemental informa-
tion reflecting both types of inflation measurements.
IT IS IMPORT ANT THAT FINANCIAL STATEMENT USERS UNDERSTAND WHAT THE
INFLATION-ADJUSTED DATA IS INTENDED TO REPRESENT, AND ALSO RECOGNIZE ITS
INHERENT LIMITATIONS. THE COMPANY HAS SERIOUS RESERVATIONS ABOUT THE
USEFULNESS OF THIS DAT A.
The Company believes that the following information is essential for a proper understanding
and assessment of the data presented:
23
Notes to Financial Statements
Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued)
THE SUPPLEMENT AL INFORMATION ON CHANGING PRICES DOES NOT REFLECT A COM-
PREHENSIVE APPLICATION OF EITHER TYPE OF INFLATION ACCOUNTING. During the
experimental period the FASB decided to focus on those items most affected by changing prices,
that is: (1) the effect of both general inflation and specific price changes on properties and related
depreciation expense, and (2) the effect of general inflation on monetary assets and liabilities.
Statement of Earnings Adjusted for Changing Prices
Year Ended December 31, 1979
(Dollars In Thousands)
Operating revenues ................ .
Depreciation and amortization ...... .
Other operating expenses ........... .
Gain on sale of flight equipment .... .
Other income, net .................. .
Earnings (loss) before income taxes .. .
Income taxes ...................... .
Net earnings (loss) ................. .
Other Information
Purchasing power gain from holding net
monetary liabilities during the year
Increase in specific prices ( current)
costs) of property and equipment
As Reported
in the Primary
Statements
$1,310,558
106,401
1,148,805
15,544)
13,464)
1,226,198
84,360
11,885
$ 72,475
held during the year* ............................. .
Less effect of increase in general
price level ........................................ .
Excess of increase in specific prices
over increases in the general price
level .. . ... . ...................................... .
Adjusted
for General
Inflation
$1,310,558
161,793
1,148,805
( 11,501)
( 13,464)
1,285,633
24,925
11,885
$ 13,040
Adjusted
for General
Inflation
$ 47,349
Adjusted for
Changes in
Specific Prices
(Current Costs)
$1,310,558
183,299
1,148,805
-0-
13,464)
1,318,640
8,082)
11,885
$( 19,967)
Adjusted for
Changes in
Specific Prices
( Current Costs)
$ 47,349
$275,281
241,196
$ 34,085
*At December 31 , 1979, current cost of property and equipment, net of accumulated deprecia-
tion, was $2,119,178,000 (historical amount - $1,249,644,000).
24
Notes to Financial Statements
Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued)
Five Year Comparison of Selected Supplementary Financial Data
Adjusted for Effects of Changing Prices
In Average 1979 Dollars
Year Ended December 31
1979 1978 1977 1976 1975
(In thousands of dollars, except per share data)
Operating revenues . . . . . . . . $1 ,310,558 $879,126 $1 ,253 ,320 $1 ,228,926 $1,079,667
Historical Cost
Information Adjusted
for General Inflation
Net earnings ............. .
Per share data ............ .
Net assets at
year-end ...... ... ...... .
Current Cost Information
Net earnings (loss) ........ .
Per share data ...... . ... .. .
Excess of increase in
specific prices of
property and equipment
over increase in the
general price level . ..... .
Net assets at year-end ..... .
Other Information
Purchasing power gain
from holding net
monetary liabilities
during the year ... .... .. .
Cash dividends declared
per common share ...... .
Market price per common
share at year-end ....... .
Average consumer price
index .... .... .. ... ... .. .
$13,040
$ .60
$1,324,008
$(19, 967)
$ (.92)
$ 34,085
$1 ,741,563
$ 47,349
$.80
$26.13
217.4
$.83
$30.54
195.4
Statement of Earnings
$.60
$27.60
181.5
$.57
$37.11
170.5
$.61
$30.07
161.2
The accompanying supplemental statement of earnings presents income data under three
measurement methods. These are:
25
Notes to Financial Statements
Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued)
a. As Reported in the Primary Statements - This amount is net earnings as reported in the
primary financial statements on the historical cost basis of accounting. Under generally
accepted accounting principles the effects of changing prices generally are not recognized
for assets and liabilities.
b. Adjusted for General Inflation - This represents the historical amounts of revenues and
expenses stated in dollars of the same (constant) general purchasing power, as measured by
the average level of the Consumer Price Index (CPI) for 1979. Under this measurement
method, historical amounts of depreciation expense and the gain on the sale of properties
are adjusted to reflect the change in the level of the CPI that has occurred since the date the
related properties were acquired. The amounts of revenues and other costs and expenses
already approximate average 1979 constant dollars and remain unchanged from those
amounts presented in the primary financial statements.
c. Adjusted for Changes in Specific Prices (Current Costs) - Income under current cost
accounting attempts to deal with a different issue than income adjusted for general infla-
tion. The specific prices of the Company's property have risen at a different rate than the
general inflation rate as measured by the CPI. Current cost accounting measures properties
at their current cost (rather than their historical cost) at the balance sheet date; depreciation
is computed on average current cost for the year.
Purchasing Power Gain From Holding Net Monetary Liabilities During the Year
When prices are increasing, the holding of monetary assets (e.g ., cash and receivables) results in
a loss of general purchasing power. Similarly, liabilities are associated with a gain of general
purchasing power because the amount of money required to settle the liabilities represents
dollars of diminished purchasing power. The net gain in purchasing power is shown separately
in the accompanying supplemental data. The amount has been calculated based on the
Company's average net monetary liabilities for the year multiplied by the change in the CPI for
the year. Such amount does not represent funds available for distribution to shareholders.
Increases in Current Cost of Properties
Under current cost accounting. increases in specific prices ( current cost) of properties held
during the year (including realized gains and losses on those sold) are not included in income
from continuing operations but are presented separately. The current cost increase is reduced by
the effect of general inflation measured by app lying the annual rate of change in the CPI to the
average current cost balances of properties.
Current Cost Measurements
The current rate of property and equipment has been estimated by management using pricing
data furnished to the airline industry by the Air Transport Association. Flight equipment
represents approximately 95% of the property and equipment.
Current cost depreciation is based on the average current cost of properties during the year. The
depreciation methods (straight-line), salvage values and useful lives are the same as those used
in preparing the primary financial statements.
Current cost calculations involve a substantial number of judgments as well as use of various
estimating techniques that have been employed to limit the cost of accumulating the data. The
data reported should not be thought of as precise measurements of the assets and expenses
involved. but instead represent reasonable approximations of the price changes that have
occurred in the business environment in which the Company operates.
Current cost does not purport to represent the amount at which the assets could be sold.
26
Report of Ernst & Whinney,
Independent Auditors
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 , 1979 and 1978, and the related statements of earnings, stockholders'
equity and changes in financial position for the years then ended. Our examination was made in
accordance with generally accepted auditing standards and, accordingly, included such tests of
the accounting records and such other auditing procedures as we considered necessary in the
cir cums tan ces.
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 , 1979 and 1978, 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, 1980
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 E,conomic 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 3 0 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.
27
10 Year Summary*
NORTHWEST AIRLINES, INC.
(Doll,us in thousands except per share figures]
1979 1978t
Operating Revenues
Pa n er
o o o ' o o o o o o o o 0 o o o I ' o o o o o o + o o + o o o o o O ' '
$ 1,067,214 $ 557.401
argo ......... '
................. '
.............. '
.. 160,716 87.077
Mail ... ..... . ' ' '
............. ........... ..... .... '
38,685 '18,944
Chart r and oth r transportation . ' . '
............... '
15,093 10,997
ontra ns port ................... '
................ '
28,850 115.743
Total Operating R v nu s $
Operating Expenses
1,310,558 $ 790.1 G2
D preciation and amortization .................... ' '
$ 106,401 $ 104,9 70
0th r ......... '
............... '
................. ' '
1.148,805 G'I 7.90 7
Total Operating Expenses $ 1,255,206 $ 722.B77
Op rating in ome . ...... ........ '
. .. ........... ... '. $ 55,352 $ 67,285
Interest expense on long-term d bt ........ .. ......... . (1,635) (3 ,376}
0th r incom and (deductions) - net ............... 30,643 45,126
Earning b for ta 'e .............................. ' ' .
$ 84,360 $ lm).035
Income ta ... ' '
............... ' . '
........ .... .. '
.. 11,885 47,194
Net Earnings 1 ~ 1
. . .................. '. $ 72,475 $ 6 l.841
Earning p r av rag har I l l
$ 3.3r.:: $ 2.86
............................
Cash dividend . ' '
............... ' '
.............. ' . '.
17,306 16,210
Divid nds per share .................................. .80 . 75
Stockholders' equil .............. '
..... ........ .. '
... 849.122 793,6~)1
umber of hares out landing al end of y ar ........... 21,6 9,58 21,626.284
Book value per share at nd of y ar !~.
1
. $ 39.24 $ 36.70
Assets and Long-Term Debt
Flight prop rty at cost ... . ... . ....... . ................ $ 1,779,770 $ 1,525,442
Flight prop rty at net book value .. . ............. ...... 1,094,5 6 922,615
Total asset
' o o o o o I ' o o o o o o o o o o o o o o o '
1,528,921 1,3SJ2,865
Long-term d bt .. '
......... '
...... '
.......... ..... .. '
100,000 100.000
Unit Expenses
Per available ton-mile ......... ' ' '
................. . 29.4(/; 27.9
Perr v nu ton-m ile .......................... .. ... 63.4(/; 65. 7(J;
Per cent of op rating revenu es . ' . '
................ '. 5.8% ~H.5%
Statistics - Scheduled Services
Revenue plane-mil s (000) ........................ 116,lOr.:: 6(),420
Available seat-mil s (000) ........ '
... '
............. 24,028,928 14.302,03 7
Revenue passenger-miles (000) ... . ... ............. . '
13,298,161 7,0'18,305
Pa senger load factor ...... . .. . . ... . ............. ' . '
55.3% 4~U%
Rev nue passengers carri d ............ ... .... . . .... 11,636,170 6,574.901
Freight and c pre s ton-miles l 000) ... . ... .... ... . '. 504,753 302. l 53
Total rev nu ton-miles (000) .... '
.............. '.'. 1,956,217 1,079,681
Statistics - Total Operations
Revenue plane-miles (000) . . .... . ................... 117,027 67,471
Available ton-mi les (000) .... . . ' '
.............. '. 4,26 5,640 2,594,632
o t C:O \ '<' l'f' cl by 1\c-countnnt s I-{cport
t Stri~Ps t1 d\t'f'Sl'!\ afrt'lll'd t~J 70 . tD 72 ;incl l!l 7H and the strikn recovery period of t9 71.
111 Sec Financial Review pages IO through 12 for Management's Discu sion and Analysi ofth, Summary of Operations.
1~1 PPr share> figures rnflcc-1 the increase in outstanding shares resulting from tock iss ues in 1970 and 1972.
28
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
$ 92.7 I 9 $
$ 4.29 $
10,804
.50
747,672
21,606,686
$ 34.60 $
$ 1,510,447 $
962,957
1,299,451
100,000
22.9q;
54.4(f,
90.0%
ll 1,2 7 l
22,968,489
11.100 ,412
48.3%
10,354 ,808
458,143
1.676,470
114,643
4,109.110
1976 1975 1974 1973 1972t 1971t 1970t
786,414 $ 659,849 $ 628.488 $ 4 76.794 $ 277 .891 $ 331.966 $ 2fi0.335
119,882 88.308 76.157 55,280 34,694 39,641 30,053
25.137 23,280 22,9'11 18,415 13,309 19,443 18,Sl58
25,955 29,019 27,322 28,517 20,009 31.588 20.800
6.420 107 4,113 5,342 46,598 2,881 48.894
- - - - - -
963,808 $ 800,563 $ 758,991 $ 584,348 $ 392,501 $ 425.519 $ 37~).04()
102 ,7 13 $ 98,880 $ %,213 $ 87,642 $ 81,054 $ 77,245 $ 69,173
758,147 651,983 584,993 445,401 296,348 330,108 258,784
860,860 $ 750,863 $ 681,206 $ 533,043 $ 377,402 $ 407,353 $ 327.957
102.948 $ 49,700 $ 77,785 $ 51,305 $ 15,099 $ 18,166 $ 5'1 ,083
(14,035) (16,120) (19.554) (14,758) (8,356) ('13.051) (6,296)
9,351 13,509 40,148 19.133 l0.510 6,685 (227)
98,264 $ 47,089 $ 98,37S) $ 55,680 $ 17,253 $ 11,800 $ 44,560
46,527 3,693 33,631 3,830 (429) (9,561) 121
51,737 $ 43,396 $ 64,748 $ 51,850 $ 17 .682 $ 21,361 $ 44,439
2.39 $ 2.01 $ 3.00 $ 2.40 $ .83 $ 1.01 $ 2.11
9,707 9.710 9,722 9,722 9,620 9,518 9,465
.45 .45 .45 .45 .45 .45 .45
665.744 623,677 589,991 534,965 492,837 477,054 465,210
21 ,606,036 21,604,136 21,604.136 21,604,136 21,604,136 21,149,756 21,149,756
30.8 1 $ 28.87 $ 27 .31 $ 24.76 $ 22.81 $ 22.56 $ 22.00
l ,448,402 $ 1,420,670 $ 1,282,556 $ 1,216.632 $ 1,008,041 $ 1,012,568 $ 929,181
924,537 977,062 907,935 861,231 682,020 709,433 668,129
1,151,562 1,215,146 1,121,153 1,085,632 920,418 944,302 923,126
122,000 246,000 213,900 284,000 208,000 252,500 260,915
21.6 20.6 19.9 15.8<t 16.9 14.5 18.0
50.5 50.2 48.2ci 42.5ct 49.6(f, 42.1 43.5ct
89.3% 93.8% 89.8% 91.2% 96.2% 95.7% 86.5%
108,474 104,104 105.295 108,853 79,025 100,992 83,177
22,228,259 20,910,966 20,016,107 19,593,379 12,963,054 15,614,614 10,234,060
I 0,758,683 9,471,282 9,173,875 8,007,850 4,565,618 5,553,043 4,506,256
48 .4/c) 45.3% 45.8% 40.9% 35.2% 35 .6% 44.0%
9,818,343 8,865,263 8,948,373 7,987.299 5,150,636 6,089,273 4,682,812
467,399 386,309 317,437 251,865 150,973 161,345 110,215
1,647,317 1,428,381 1,330.803 1,140,983 672,035 813,403 655,339
112,279 107,721 110,519 115,726 84,098 110,045 89.938
3,982,743 3,642,650 3,431,038 3,370,694 2,236,069 2,806,407 1.819,439
29
r
NWA Cargo Revenues Beat Previous Record by 30%;
Transatlantic Service Begins
Cargo and mail revenues of $199
million in 1979 exceeded the best
previous performance by some 30
per cent as orthwest Airlines
continued its strong development
of this phase of its business.
Currently operating four Boeing
747 freighter aircraft, with a fifth
to be delivered in April of 1980,
orthwest Airlines has one of the
largest such fleets in the world
today.
Significantly. v\l A's first
scheduled flight on its
newly-opened routes to northern
Europe was a 747 freighter which
departed Bo ton Feb. 10, 1979 for
Glasgow's Prestwick airport with
150.000 pounds of cargo.
30
In 1979, orthwest Airlines
carried over 3 5 million pounds of
transatlantic air freight and today
provides all-cargo flights to
Amsterdam, Manchester and
Glasgow in addition to
Copenhagen and Stockholm cargo
service on 747 passenger aircraft.
The volume of U.S. exports to
the Orient by air continued to
expand in 1979. Two examples
that illustrate that gro\t\ th are
shipments of cherries,
non-existent in 1977, which
totaled 403 tons in 1979 and
shipments of fresh seafood which
grew from 401 to 1.554 tons in
that same period.
orthvvest Airlines' air freight
growth has been characterized by
an ever-expanding variety of
shipments. These have included
luxury automobiles, like the
Lamborghini car valued at
$150,000 each, to aircraft jet
engines. In 1979, WA carried its
largest ;ingle piece of air freight
ever - a 58,000 pound electric
generator rotor from Prestwick to
Hong Kong, crossing both the
Atlantic and Pacific in the
process.
Truly, air cargo has come of age
today and orthw st Airlines will
continue to innovate in this
rapidly expanding sector of its
business.
THE DIRECTORS
OF NORTHWES
ORIENT AIRLINES*
James H. Binger t
Former Chairman of the
Ex.ecutive Committee. Honevwell. Inc.
1finneapolis. ;'v1innesota -
(Manufacturer of automation systems)
E. W. Blanch. Jr. t
President & Chief Executive Officer
E. \ \ . Blanch Company
Minneapolis. 1'1innesota
(Be-insurance brokerage)
Raymond H. Herzog t
Chairman of the Board. 3P.1 Company
St. Paul. 1'1innesota
(Multi-national manufacturing)
Melvin R. Laird t
Senior Counsellor. Reader's Digest. Inc.
Washington. D.C.
(Magazine publishing)
James . Land Jr. t
Financial Consultant
New York. Ne\\. York
1 f. Joseph Lapensky
President & Chief E,xecutive Officer
Northwest Airlines. Inc.
St. Paul. Minnesota
Donald G. 1c Teely t
President. Space Center, Inc.
St. Paul. P-1innesota
(Real estate)
Donald \ \. yrop t
President & Chief Executive
Officer. 1954-1976; Chairman
& Chief Executive Officer. 1976-1978
Northwest Airlines. Inc.
t. Paul. i'>Iinne ota
Lyman E. vVakefield. Jr. t
\ ice Chairman of the Board.
Resource Trust Co.
Minneapolis. ~1inne ota
t7vfember. Audit Committee
THE OFFICERS OF OR HWEST OR ENT AIRLINES*
1. Joseph Lapensky
President & Chief Executi\e Officer
James A. Abbott
\ 'ice President-Law
Robert \ \ . Campbell
\ ice President-Budgets
J. \\ illiam Campion
\ ice President-Regulatory Proceedins
Rov K. Erickson
Vic'e President-Public Relation
Robert J. Glischinski
\ ice President-Communication
and Computer Senice
Benjamin G. Griggs Jr.
\ ice President-Assistant
to the President
John F. Horn
\ ice President-Properties
\\ illiam E. Huskins. Jr.
\'ice President-11aintenance
and Engineering
x
A of :\larch 15. 1980
Co-Registrars and Transfer gents:
Reginald C. Jenkins
\ ice President-Orient Region
T. J. Koors
\ ice President-Transportation Services
\ \ illiam . Kutzke
\ ice President
Thomas E. McGinnit
\'ice President-Purchasing and Stores
Br an G. Moon
\ ice President-Ad\'ertising
James F. Redeske
\ 'ice President-Personnel
Steven G. Rothmeier
\ ice President-Finance and Treasurer
Robert E. Strite
\ ice President-Comptroller
Ste en D. \ \'heeler
Secretary
Robert J. \\right
\ 'ice Pre ident-Sales
:\orth\\e tern :\"ational Ban . :\finneapoli . :\finne ota
l\'orth\\estern Trust Co .. ~ ,, Yor ' . l\"e,, York
Stock Listed:
Common tock li ted on 1ew York E; chance.
Pacific Coa t tock Exchance and l\Iid,,e t tock E chance
General Office :
:\finn apoli - t. Paul International irport. t. Paul. :\linne ota 55111