Northwest Airlines Annual Report 1980

NORTI-IWEST ORIENT AIRLINES
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 approximately 38 ,500 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, Tuiwan, Hong Kong and the
Philippines and countries in Europe including Sweden. Denmark. England,
Netherlands. Ireland. Germany. Norway, and Scotland.
Northwest Airlines Highlights
1980 1979 1978
Total Operating Revenues ... $1 ,639,330,000 $1,310,558,000 $790.162 ,000
Operating Income (Loss} . .. . (24,134 ,000}
Net Earnings for the Year . ... 7,084 ,000
Per Common Share . . .33
Per Dollar of Revenues .4
Stockholders Equity ... . . . . 839,042 .000
Per Common Share . . .... 38.76
Dividends Paid . . . . . .
. . 17,317 .000
Operating Expenses:
Per Available Ton-Mile . 37.0C
Per Revenue Ton-Mile . 80.6C
Revenue Traffic:
Passengers Carried . . 11.501 ,000
Passenger-Miles Flown ... . I 3 .8 I 0.889 .000
Ton-Miles. Mail & Freight . . . 667,260,000
Common Shares at Year End 21 ,647 ,000
Employees:
Number at Year End .. . ... 12,748
Wages and Benefits Paid . . . $403 .4 52,000
55,352 ,000
72 .4 75 ,000
3.35
5.5
849,122 ,000
39.24
17,306.000
29.4C
63 .4C
11 ,636 ,000
67,285,000
61 ,841,000
2.86
7.8
793 ,691 ,000
36.70
16,210.000
27.9C
65 .7C
6,5 75.000
13,298. 161,000 7.018,305 ,000
626.401 ,000 377 ,851 .000
21 ,640,000 21 ,626,000
12,814 10,680
$3 5 I .403 ,000 $222 .188,000
*Operating results were affected by a major strike which extended from April 29
through August 15. 1978.
2
Trooping of the colors; London , England .
3
From the President-
the 54th annual report to shareholders
Northwest Airlines 1980 net
earnings of $7,084 ,000. although
down sharply from the previous
year. compared favorably in the
industry. Your company was one of
only three U.S. trunk carriers to
report a net profit. Our relatively
good performance was achieved in
the face of a world-wide airline
recession marked by badly
depressed traffic and escalating fuel
costs which combined to bring the
worst financial results ever to the
airline industry at home and abroad.
Progress in 1980
In many areas. Northwest Airlines
made progress despite a down-
profit year.
We accepted delivery of three
Boeing 747 's and four 727-200's
which required final delivery
payments of $154 .000,000 during
the year.
The NWA fleet reached a cost
base of nearly $2 billion, and all
aircraft are wholly-owned with no
encumbrances of any kind.
Cash flow continued to strengthen
our financial condition and debt
amounted to only 16% of equity at
the end of 1980.
Our new Atlantic routes made real
progress in the second year and
new services were begun-nonstop
from Twin Cities to London and on
to Hamburg, plus new flights to
Shannon and to Oslo.
During 1980 planning for the next
up-turn in general traffic remained
the key effort of Northwest Airlines.
To this end we have restructured our
headquarters sales group to
strengthen a growing list of
marketing programs and to enhance
our identity as a major domestic-
international carrier. Three new
4
sales divisions for marketing
planning. field sales and commercial
sales have been established; and a
new emphasis on stronger
advertising will emerge in 1981 .
Employee Productivity
Employee compensation is a major
item of operating expense and
Northwest Airlines-already holding
the most favorable cost record-
continued to strive for improved
productivity and service excellence.
Here the key has been
implementation of advanced training
for a wide range of employees and
application of more modern
equipment in the work place. In
1981 . new automatic call distributor
systems and faster computers will
speed reservations traffic and will
add other features to better serve
our customers.
New Officers Elected
Three corporate officer changes
have been made in the past year.
Brent Baskfield was elected Vice
President-Public Relations; Ben H.
Lightfoot was elected Vice President
-Maintenance and Engineering; and
John F. Horn was named Vice
President-Orient Region in Tokyo.
Mr. Horn's appointment was to
replace Reginald C. Jenkjns who has
served Northwest Airlines extremely
well for 34 years in the Orient, and
since 197 2 as Vice President in
Japan. He will be takjng a new
assignment in the U.S. during 1981.
Outlook for 198 I
Traffic trends across the industry in
early 1981 have been poor-down
from 1980. Notwithstanding.
Northwest Airlines has maintained a
favorable market participation as
the only trunk carrier with year-to-
year traffic gains in the fall and
winter months just past.
We will continue to develop our
market opportunities in a five fold
program for 1981 which will be
designed to-
Build on our dominant position at
Minneapolis-St. Paul reaching new
markets and enhancing traffic
volume in old markets with multiple
hub and spoke connections at the
Twin Cities.
Protect our strong domestic
markets with more frequent and
highly competitive schedules.
Consolidate traffic gains in
European markets. The coming year
will see addition of only one new
segment-Boston to London-and
no new cities in Europe. Boston and
New York will receive full connecting
patterns for Europe from cities in
our domestic network.
Increase our Orient role with new
service between Tokyo and Guam.
Plan for the longer range future
with a decision on the acquisition of
new fuel-efficient aircraft for the
mid 1980's.
To Our Friends
We thank our customers for their
patronage and all our employees for
their skill and expertise which is
combined with real dedication and
hard work. With the continued
confidence and support of our
shareholders I am certain that 1981
will be a good year for Northwest
Airlines and will continue our
position of leadership in the
industry.
"71irf"ir-7
M. Joseph Lapensky
President and
Chief Executive Officer
March 27, 1981
Marketing Highlights
Our marketing mission in 1980 was
to strengthen our leadership
position further by inaugurating new
programs that maximize service to
our passenger and cargo customers.
With continued airline deregulation
during 1980, special effort was
directed toward maintaining our
strong route structure.
Fares
Discount air fares, requiring advance
purchase and a limited stay at the
destination, continued to be the
dominant mode of vacation travel,
both domestically and
internationally. At Northwest
Airlines, for example, the new
service to London featured the most
competitive First and Economy
Class air fares available from most
U.S. cities.
Strong Tour Sales
Broad expansion in the transatlantic
market triggered strong growth in
leisure traffic for Northwest Airlines.
The Group 100 Fare, announced
early in 1980, brought such
tremendous initial response from
tour operators that the number of
available seats was expanded
by 15 ,000.
Atlantic
New service to Oslo was
inaugurated successfully in 1980.
And in response to the high
demand, the 1981 Oslo schedule will
be expanded from two weekly
services from New York to include a
non-stop from Minneapolis-St. Paul.
London and Hamburg service
showed consistent improvement
despite early delays. Service was
hampered initially by short
notification as to the operating
authority, and London fares were
approved by the British government
just weeks before service start-up.
Traffic in 1981 is expected to
increase significantly because of our
ability to obtain advance bookings.
Pacific
In the Pacific, Northwest Airlines
6
R.Y NORTHWEST TO RORIDA
WE'LL THROW IN LONDON
Two London tickets for the price of one
if you fly us to Florida.
@ NORTHWEST ORIENT
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Two tickets to Shannon, Ireland or Prestwick, Scotland
for the price of one if you fly us to Florida.
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@ NORTHWEST ORIENT
was selected by the U.S.
Department of Commerce to
operate a 747F all-cargo charter to
Peking to transport exhibits and
displays to the first U.S. industrial
exhibition to be held in the Peoples
Republic of China (PRC) . In addition,
Northwest carried over 200 officials
and technicians of the U.S. firms
participating in the exhibition. Under
Northwest Airlines' auspices, 500
travel agents visited the PRC in
1980, and our numerous tour
programs were very positively
received.
Northwest Airlines' "Visit USA Pass"
stimulated traffic across both the
Pacific and Atlantic. The pass
provided for extensive travel within
the U.S. for a fixed fare.
Record Agency Revenue
Sales by retail travel agents
continued to grow at a record rate,
and once again travel agents
represented the largest single
source of revenue. Approximately
65 percent of Northwest Airlines'
passenger revenue is generated by
travel agent sales.
Nearly I 0,000 agency employees
attended Northwest Airlines' unique
Travel Fairs. Held in dozens of major
U.S. markets, these fairs enable
wholesale tour operators and other
suppliers of Northwest Airlines'
travel services to meet directly with
retail travel agents.
New Market Development
Throughout 1980, concerted effort
was directed to developing off-route
markets. Sales representation
agreements have been implemented
or are pending with major travel
development firms in the Middle
East, Australia, Southeast Asia,
Argentina, Italy and Central Europe.
Convention/Charter Sales
The two divisions, convention and
charter sales, were consolidated to
maximize operating efficiencies and
market impact. And at year-end,
Northwest Airlines had retained its
leadership position in the
convention and incentive travel
market. A total of 948 groups
composed of 37,610 passengers
traveled Northwest Airlines during
1980. Revenues came to $7,785 ,000,
a 13.05 percent increase over 1979.
Charter sales produced an
additional $7,904 ,000, bringing the
combined total to $15 ,087,000 for
the year.
Special Incentive Group fares were
introduced in 1980 to support an
ever-expanding international route
system. These fares enabled client
companies to obtain competitively
priced group travel in Europe and
the Orient for their corporate
incentive contests. The excellent
response in 1980 has resulted in
further development of our incentive
marketing plans for 1981.
Florida Promotions
A major campaign was staged in
1980 to increase traffic on routes
from the Midwest and East Coast to
Florida. Early results indicate
substantial volume increases from
the three-phase program .
The first phase offered a 5 5 percent
discount on tickets to Florida
purchased during a specified time
period in October, 1980, for travel to
Florida after January I, 1981 . Phase
two promoted two tickets to
London for the price of one.
Qualifications included purchase of
tickets to Florida plus proof of travel
to Florida during specified times.
"Win a Jet" to Florida was kicked off
in January as the third phase of the
campaign. The contest winner,
announced in May, receives free use
of the full capacity of a 727 aircraft
to Florida plus three days for the
entire party at a luxury hotel and
$10,000 cash .
New Executive/VIP Programs
Full-fare passengers flying Northwest
Airlines on business trips continue to
represent one of our most important
sources of revenue. To serve these
passengers. Northwest Airlines
introduced two new services
in 1980.
Northwest Executive Class was
established for full-fare Economy
Class passengers on all 7 4 7
international flights. This elevated
class provides for preferred seating,
baggage allowance equal to that of
First Class. a special check-in facility,
complimentary cocktails. free
movies and other amenities.
The VIP Traveler is a program
designed for the frequent passenger
of Northwest Airlines. traveling
anywhere on our system . Eligible
travelers. indentified by our district
sales office personnel. are provided
a special identification card.
baggage tags and boarding pass
stickers. thus enabling flight
attendants and station personnel to
recognize them immediately. The
VIP traveler receives personal
copies of all Northwest Airlines
schedules and is eligible for special
discounts on hotel rooms and
car rentals.
Cargo Miles Increase
Total freight revenue ton- miles
increased 5. 3 percent in 1980 over
the previous year. A 17.8 percent
growth in international freight ton-
miles reflected increased cargo
traffic across both the Pacific and
the Atlantic. Contributing most
significantly to revenue increases
was the transatlantic freighter
service. which exhibited I 02 percent
growth over 1979.
The expanded fleet of 7 4 7 freighters
allowed Northwest Airlines to step
up frequency across the Pacific by
20 percent and the Atlantic by 50
percent. It also provided for more
consistency in our domestic freighter
schedule. By the end of the year.
more than half of our freight ton-
miles had moved on 747F aircraft.
With our excellent equipment
resource. strong growth is expected
in cargo revenues during 1981 .
Further expansion of domestic and
international routes is being
explored. The projection for 1981 is
that cargo will account for I 5
percent of Northwest Airlines
revenue, representing a 2 5 percent
increase over cargo's current
contribution .
New Sales Support
Restructuring of the headquarters
sales department was designed to
strengthen our sales capabilities and
our identity as an international
carrier. What was formerly a single
division has become three divisions;
Field sales, Market planning, and
Commercial and International sales.
7
Valuable sales support is being
provided by new sales offices in
Phoenix, Denver and Toronto. In
Tokyo an innovative sales program
produced $1,500,000 in revenue
from new accounts by year-end. The
program involved temporary
assignment of Northwest Airlines
employees to direct sales solicitation
of agency and commercial accounts
in outlying areas not covered by
regular sales personnel. These
employees, who work at Tokyo's
Narita Airport, assume their sales
duties during periods of decreased
activity at the airport.
8
People Plus Computers
Numerous improvements in our
automated systems have played a
vital role in enabling employees to
service passenger and cargo
customers more efficiently. For
example. new Automatic Call
Distribution systems in Minneapolis
and Chicago reservation offices
resulted in significantly faster
reservation service for customers
throughout the Midwest. Automated
reservation systems replaced slower
teletype operations in Orient
locations. Expansion of the central
computer system caused a dramatic
7 5 percent increase in reservation
handling capacity, from 20 to 3 5
transactions per second. And a
cohost agreement. linking our
computer directly with that of other
major airlines. enables us to display
our schedules in front of thousands
of key travel agents who participate
in the system.
Statements of Earnings
NORTHWEST AIRLINES, INC.
Year Ended December 31
{In Thousands) 1980 1979 1978*
Operating Revenues
Passenger $1,347,830 $1,067,214 $557.401
Cargo 190,837 160,716 87,077
Mail 57,305 38,685 18,944
Charter and other transportation 16,303 I 5,093 10,997
Mutual Aid -0- -0- 104,864
Nontransport 27,055 28,850 10,879
1,639,330 1,310,558 790,162
Operating Expenses
Flying operations 776,862 526,887 24 I .740
Maintenance 139,833 111,647 72,233
Passenger service 133,922 114,654 60,749
Aircraft and traffic servicing 226,153 198,509 117.410
Reservations, sales and advertising 229,148 169,341 100,615
Administrative and general 33,468 27,767 25.160
Depreciation and amortization 124,078 I 06.40 I 104,970
1,663,464 1.2 55,206 722,877
OPERATING I NCO ME (LOSS) (24,134) 55,352 67,285
Other Income (Expenses)
Interest. net of capitalized interest
of (1980-$3.393; 1979-$6.240;
1978-$4,679)-Note A (15,831) (1,635) (3,376)
Gain on sale of flight equipment 143 15,544 34,290
Other 3,719 15,099 10,836
(11,969) 29,008 41.750
EARNINGS (LOSS) BEFORE INCOME TAXES (36, I 03) 84,360 109,035
Income taxes (credit)-Note D (43,187) I 1.885 47,194
NET EARNINGS $ 7,084 $ 72.475 $ 61,841
Average shares of Common Stock
outstanding during the year 21,646 21,632 21,618
Earnings per share of Common Stock $.33 $3.35 $2.86
See notes to financial statements
*Operating resutts were affected by a major strike which extended from April 29 through August 15, 1978.
9
Statements of Financial Position
NORTHWEST AIRLINES, INC.
(Dollars In Thousands)
ASSETS
Current Assets
Cash and short-term investments
Accounts receivable, less allowance of$ I .600 ( 1979-$1. 500)
Recoverable income taxes
Flight equipment spare parts. less allowance for depreciation
of $19 .88 3 ( 1979-$17.600)
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
10
1980
$ 20,514
124,957
-0-
42,654
16,920
7,332
212,377
37,445
1,995,168
794,673
I ,200,495
9,166
I ,209,66 I
169,423
96,367
73,056
1,282,717
$1,532,539
December 31
1979
$ 74,583
111.432
21,726
32.461
9,238
3,724
253.164
26. l I 3
1,779,770
685,214
1.094,556
96,503
1.191.059
147,231
88.646
58,585
1,249,644
$1,528.921
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commercial paper
Accounts payable and accrued expenses
Employee compensation
Air traffic 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 $1.2 5 par value, authorized 40,000,000 shares; issued
and outstanding 21,647,280 shares (1979-21.639. 589 shares)
Capital surplus
Retained earnings -
Commitments and Contingencies-Notes E and F
See notes to financial statements
$
1980
34,168
142,343
30,141
107,013
800
37,500
351,965
62,500
260,100
18,932
279,032
27,059
124,940
687,043
839,042
$1,532,539
December 3 I
$
1979
-0-
I 63 ,400
29,347
59,544
-0-
-0-
252 ,291
100,000
313 ,329
14,179
327,508
27,049
124,797
697 ,276
849,122
$1.528,921
II
Statements of Changes in Financial Position
NORTHWEST AIRLINES, INC.
Year Ended December 31
{In Thousands) 1980 1979 1978
Funds Provided
Net earnings $ 7,084 $ 72,475 $ 61,841
Items not affecting working capital:
Depreciation and amortization 124,078 I 06,401 104,970
Increase {decrease) in deferred income taxes (53,228) 22,669 29,311
TOTAL FROM OPERATIONS 77,934 201,545 196,122
Proceeds from sale of flight equipment less
gain included in earnings 433 2,818 6,795
Other -0- -0- 5,509
TOTAL PROVIDED 78,367 204,363 208,426
Funds Used
Flight equipment and other property additions 145,709 193,634 52,299
Advance deposits on aircraft 9,166 96,503 98,106
Cash dividends 17,317 17,306 16,210
Reduction of long-term debt 37,500 -0- -0-
Other 9,136 15,708 -0-
TOTAL USED 218,828 323,151 166,615
INCREASE {DECREASE) IN WORKING CAPITAL $(140.461) $(118,788) $ 41,8 I I
Changes in Working Capital Consist of
Increase (decrease) in current assets:
Cash and short-term investments $ (54,069) $( I 09.445) $ 54,311
Receivables 13,525 31,650 (3,631)
Recoverable income taxes (21,726) 21,726 -0-
Inventories 17,875 5,058 (805)
Prepaid expenses 3,608 {2,334) 350
(40,787) (53,345) 50,225
Increase (decrease) in current liabilities:
Commercial paper 34,168 -0- -0-
Accounts payable and accrued expenses (21,057) 64,098 (2,019)
Other accrued liabilities 1,594 (14,485) 13,501
Air traffic liability 47.469 15,830 932
Current maturitie of long-term debt 37,500 -0- (4,000)
99,674 65,443 8,414
INCREASE (DECREASE) IN WORKING CAPITAL $(140,461) $(118,788) $ 4 I ,811
See notes to financial statements
12
Statements of Stockholders' Equity
NORTHWEST AIRLINES, INC.
Common Stock Capital Retained
(In Thousands) Shares Amount Surplus Earnings
Balance January 1, 1978 21 ,607 $27,008 $124 ,188 $596.4 76
Exercise of stock options 19 25 363
Net earnings for 1978 6 I .841
Cash dividends-$. 7 5 a share (16 ,210)
Balance December 31, 197 8 21 ,626 27 ,033 124,551 642 ,107
Exercise of stock options 14 16 246
Net earnings for 1979 72,475
Cash dividends-$.80 a share (17 ,306)
Balance December 31, 197 9 21 ,640 27 ,049 124,797 697 ,276
Exercise of stock options 7 10 143
Net earnings for 1980 7,084
Cash dividends-$.80 a share (17 ,317)
Balance December 31, 1980 21 ,647 $27,059 $124 ,940 $687 ,043
See notes to financial statements
Application of Investment Tax Credit
NORTHWEST AIRLINES, INC.
Available* Appliedt
and Reflected on
(Period) in Earnings Tax Returns
1979 $27,396,000 $24,964,000
1980 24,554,000 (35,663 ,000)
TOTAL $51 ,950,000 (10,699,000)
Applied on Returns (I 0,699,000) f
I
To be Applied $62,649,000
*The Company uses the flow-through method of accounting for investment credits and records the credits as a
reduction of income tax expense in the year earned.
tlnvestment credits are applied on tax returns as allowed by income tax regulations. Credits not applied
currently are offset against deferred taxes.
13
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
December 31, 1980
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
subsidiaries aher elimination of inter-company accounts and transactions.
Short-Term Investments: Short-term investments are stated at cost which approximates market and amounted
to $1 ,943 ,000 and $65 ,146,000 at December 31, 1980 and 1979, respectively.
Flight Equipment and Property: Provision for depreciation is computed by the straight line method over the
estimated useful lives of the assets. 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 aircrah.
Pension Plans: The Company has several pension plans covering substantially all of its employees. The policy is
to fund pension costs accrued inclL-s;ling 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.
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 AND CREDIT ARRANGEMENTS
Long-term debt consists of borrowings from banks payable $ I 2. 5 million quarterly beginning April I, I 98 I.
Interest is paid based on a formula related to prime commercial loan rates, however. total interest shall not
exceed 7% per annum over the term of the loan. The debt matures $50 million in 1982 and $12.5 million in
1983. The Company was in compliance with the covenants of the debt agreement at the end of both years. The
restriction on retained earnings was deleted from the agreement in 1980.
The Company has line of credit arrangements with banks for short-term borrowings up to $99,000,000 through
April 15, 198 I. Borrowings under the credit lines bear interest at the prime rate. Commitment fees which are %
per annum on outstanding balances of commercial paper amounted to $112,000 in 1980. At December 31. 1980,
$34,168,000 of the lines were assigned to support outstanding commercial paper.
14
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTE C-STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $2 5 par value:
Authorized
Issued
1980
1,000,000
None
Shares
1979
1,000,000
None
Common Stock options at prices which were not less than I 00 % of market at date of grant are as follows:
Shares Price Per Share
Outstanding at January I, 1979 104,910 $19. I 3/24.00
Exercised (13,305) I9.13/24 .00
Lapsed (1,210) 24.00
Outstanding at December 3 I, 1979 90,395 19.13/24.00
Exercised (7,691) 19.13/24.00
Lapsed (18,939) 19.13/24.00
Outstanding at December 31, 1980 63 ,765 22.75/24.00
Options exercisable:
At December 31, 1979 55 ,295 $19.13/24.00
At December 31, 1980 63,765 22.75/24.00
Shares available for stock option and other plans were 303,227 and 284,288 at December 31, 1980 and 1979,
respectively.
NOTED-TAXES ON EARNINGS
(In thousands)
Reconciliation of the Company's effective income tax rate and the statutory federal income tax rate (46% in 1980
and 1979; 48% in 1978) follows:
Statutory rate applied to pre-tax income
Add (deduct):
Investment tax credit earned
Other
Total income tax expense (credit)
1980
$(16,607)
(24 ,554)
(2,026)
$(43,187)
Federal, foreign and state income taxes (credit) consisted of the following:
1980
Current Deferred Current
Federal provision $9,274 $(52,222) $(14,516)
Foreign 620 695
State (825) (34) 825
$9,069 $(52,256) $(12,996)
Year Ended December 3 I
1979 1978
- - - -
$38,806 $52,337
(27,396) (6 ,320)
475 1,177
$11,885 $47,194
1979 1978
Deferred Current Deferred
$23,175 $14,730 $28,503
690
1,706 2,075 1,196
$24,881 $17,495 $29,699
15
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTED-TAXES ON EARNINGS (continued)
The deferred income tax expense (credit). which results from timing differences in recognizing items for financial
reporting and income tax purposes, consists of the following:
1980 1979 1978
Accelerated depreciation $ 3,273 $19,176 $11,768
Investment tax credit (60,218) (2,431) 16,104
Prepaid expenses 1,958
Interest 6,217 6,101 3,407
Deferred employee benefits (1,893) 2,752 (2,422)
Other (1,593) (717) 842
$(52 ,2 56) $24,881 $29,699
Investment tax credits not applier!- on tax returns but offset against deferred income taxes at December 31. I 980
will expire $4,379 in 1984; $6,320 in 1985; $27,396 in 1986; and $24,554 in 1987.
NOTE E-COMMITMENTS
The Company does not lease any aircraft or related flight equipment.
At December 31. 1980 the Company had contracted to purchase two B 727-200 jet aircraft for delivery in 1981
for which deposits of $9.166,000 have been made with the manufacturers. Additional expenditures of
$19. 786,000 will be required in 198 I.
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 2029. Portions of
these facilities are subleased under noncancelable operating leases expiring in various years through 1991.
Future minimum rental commitments at December 31, 1980 for noncancelable operating leases with initial or
remaining terms of one year or more. of which $240,942,000 is for air terminal and airport facilities,
are as follows:
1981
1982
1983
1984
1985
Thereafter
Sublease rental income
Rental expense for all operating leases consisted of:
Minimum
Sublease rental income
16
1980
$24,352,000
(988,000)
$23,364,000
1979
$22,029,000
(842,000)
$21,187,000
$17,460,000
15,946,000
14,693,000
14,220,000
I 3,736,000
172,832,000
248,887,000
(5,657,000)
$243,230,000
1978
$16,568,000
(724,000)
$15,844,000
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
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 196 3 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 determination 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 was remanded to the trial court to decide the unresolved issues and to identify specific
plaintiffs and the amounts to which they are entitled.
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 increasing the Company's potential
liability for back pay by one additional year. On remand the trial court also determined that plaintiffs under the
Equal Pay Act are entitled to liquidated damages equal in amount to the back pay which the court had already
awarded. The trial court also ruled that longevity acquired by plaintiffs prior to the effective dates of the Equal
Pay Act and the Civil Rights Act should not be considered in calculating back pay.
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 a final decision
by the trial court. 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. 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 petitioned the Supreme Court of the United States to review the
Court of Appeals decision. The petition was granted and the matter was argued before the Supreme Court on
December 3. 1980 after submission of written briefs. The Supreme Court's decision is pending. 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 $33 ,692,000 in 1980, $29.691.000 in 1979 and $27 .941.000 in 1978.
The Company makes annual contributions to its pension plans equal to the amounts accrued for pension
expense. including amortization of past service cost over 30 years. Accumulated plan benefit information, as
estimated by consulting actuaries, and plan net assets for the Company's plans at December 31. 1980 are:
17
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTE G-PENSION PLANS (continued)
Actuarial present value of accumulated plan benefits:
Vested
Non-vested
Net assets available for benefits
$273,038,000
4 l.988,000
$315,026,000
$343,765,000
The interest assumption used in determining the actuarial present value of accumulated plan benefits was 7% for
1980. FASB Statement No. 36 requires this interest assumption for the first time in the I 980 report.
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.
Export sales were $375,000,000 in 1980, $255,000,000 in 1979 and $132,000,000 in 1978, principally associated
with countries in Asia. Revenue from sales consummated in foreign countries is considered to be export sales.
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, 1980:
(In Thousands) Earnings
Net {Loss) Per
Operating Operating Earnings Share of
Revenues Expenses {Loss) Common Stock
1980
First quarter $ 358, I 04 $ 389,923 $(10,903) $(.50)
Second quarter 382,056 401,002 {5,203) {.24)
Third quarter 481.718 456,455 17,475 .81
Fourth quarter 417,452 416,084 5,715 .26
$ I.639,330 $1,663.464 $ 7,084 $ .33
1979
First quarter $ 279,183 $ 263,700 $17,353 $ .80
Second quarter 343,795 296,628 34,138 l.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
The changing circumstances in the airline industry caused by the impact of deregulation and increased fares
resulted in a significant increase in advance ticket purchases and a corresponding increase in advance payment
of related travel agent commissions. Accordingly, in the fourth quarter of 1980, the Company deferred
$4,256,000 in commissions paid applicable to revenue to be realized in future periods. The impact on net
earnings amounted to $2 .149.000 {$.10 per share).
18
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTE )-SUPPLEMENTAL INFORMATION ON THE EFFECTS OF CHANGING PRICES (Unaudited)
AS REQUIRED BY FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) STATEMENT NO. 33 , "FINANCIAL
REPORTING AND CHANGING PRICES", THE COMPANY MUST PROVIDE SUPPLEMENTAL INFORMATION
CONCERNING THE EFFECT OF CHANGING PRICES ON fTS FINANCIAL STATEMENTS. The disclosures are
intended to address two different aspects of an inflationary environment: (I) 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 information reflecting both types of inflation measurements.
IT IS IMPORTANT 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 DATA.
The Company believes that the following information is essential for a proper understanding and assessment of
the data presented:
THE SUPPLEMENTAL INFORMATION ON CHANGING PRICES DOES NOT REFLECT A COMPREHENSIVE
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: (I) the effect of botfz 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, 1980
(Dollars f n Thousands)
Operating revenues
Depreciation and amortization
Other operating expenses
Other expenses, net
Loss before income taxes
Income tax credit
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 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
As Reported
in the Primary
Statements
$1 ,637.330
124,078
1,536,598
11 ,969
I ,672 ,645
(35 ,315)
(42 ,797)
$ 7,482
Adjusted for
Adjusted Changes in
for General Specific Prices
Inflation (Current Costs)
$1.637,330 $1,637,330
193.459 220,249
1,536,598 1,536,598
11.969 11 ,969
1,742 ,026 I ,768,816
(104,696) (131,486)
(42 ,797) (42 ,797)
$ (61 ,899) $ (88 ,689)
$ 52 ,739 $ 52 ,739
$ 401,447
265 ,290
$ 136,157
19
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTE I-SUPPLEMENTAL INFORMATION ON THE EFFECTS OF CHANGING PRJCES (Unaudited)
(continued)
* At December 3 I, I 980, current cost of property and equipment, net of accumulated depreciation, was
$2,439,412,000 (historical amount-$1.282,7I7,000).
Five Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices
In Average 1980 Dollars
{In thousands of dollars,
Year Ended December 3 I
except per share data) 1980 1979 1978 1977 1976
Operating revenues $ I.637,330 $1,487,791 $998,014 $1,422,812 $1,395,119
Historical Cost Information
Adjusted for General Inflation
Net earnings (loss) (61,899) 14,800
Per share data (2.86) .68
Net assets at year end I .473,746 I ,503,287
Current Cost Information
Net earnings {loss) (88,689) {22,663)
Per share data (4.09) (1.04)
Excess of increase in specific prices of
property and equipment over increase
in the general price level I 36.157 38,686
Net assets at year-end 2,018.404 1,977.2 I 2
Other Information
Purchasing power gain from holding net
monetary liabilities during the year 52,739 53,741
Cash dividends declared per
common share .80 .91 .95 .68 .65
Market price per common share
at year-end 23.75 31.37 36.00 32. I 3 43.06
Average consumer price index 246.8 217.4 195.4 181.5 I 70.5
Statement of Earnings
The accompanying supplemental statement of earnings presents income data under three measurement
methods. These are:
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.
20
Notes to Financial Statements
NORTHWEST AIRLINES, INC.
NOTE }-SUPPLEMENTAL INFORMATION ON THE EFFECTS OF CHANGING PRICES (Unaudited)
(continued)
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 1980. 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 1980 constant dollars and remain unchanged from those amounts presented in the primary
financial statements.
c. Adjusted for Changes in Specific Prices (Current Costs)-lncome under current cost accounting attempts to
deal with a different issue than income adjusted for general inflation. 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 stockholders.
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
applying the annual rate of change in the CPI to the average current cost balances of properties.
Current Cost Measurements
The current cost 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.
21
IO Year Summary*
NORTHWEST AIRLINES, INC.
Years Ended December 31
(Dollars in thousands except per share figures) 1980 1979 1978t 1977 1976 1975 1974 1973 l972t 1971t
Operating Revenues
Passenger $ 1,347,830 $ 1,067,214 $ 5 57,40 I $ 86 I ,053 $ 786,414 $ 659,849 $ 628,488 $ 476,794 $ 277,891 $ 331,966
Cargo 190,837 160,716 87,077 121,185 119,882 88,308 76,157 55,280 34,694 39,641
Mail 57,305 38,685 18,944 29,894 25,137 23,280 22,911 18,415 13,309 19,443
Charter and other transportation 16,303 15,093 10,997 25,871 25,955 29,019 27,322 28,517 20,009 31,588
Non transport 27,055 28,850 115,743 8,352 6,420 107 4.113 5,342 46,598 2,881
TOTAL OPERATING REVENUES $ 1,639,330 $ 1,310,558 $ 790,162 $ 1,046,355 $ 963,808 $ 800,563 $ 758,991 $ 584,348 $ 392,501 $ 425,519
Operating Expenses
Depreciation and amortization $ 124,078 $ I 06,40 I $ 104,970 $ 103,152 $ 102,713 $ 98,880 $ 96,213 $ 87,642 $ 81,054 $ 77,245
Other 1,539,386 I, 148,805 617 ,907 838,619 758,147 651,983 584,993 445,40 I 296,348 330,108
TOTAL OPERATING EXPENSES $ 1,663,464 $ 1,255,206 $ 722,877 $ 941,771 $ 860,860 $ 750,863 $ 681,206 $ 533,043 $ 377,402 $ 407,353
Operating income (loss) $ {24,134) $ 55,352 $ 67,285 $ I 04,584 $ 102,948 $ 49,700 $ 77,785 $ 51,305 $ 15,099 $ 18,166
1 nterest expense (15,831) (1,635) (3 ,376) (6,518) (14,035) (16,120) (19,554) (14,758) (8,356) (13,051)
Other income and (deductions)-net 3,862 30,643 45, I 26 55,078 9,351 13,509 40.148 19,133 10,510 6,685
Earnings (loss) before taxes $ (36,103) $ 84,360 $ I 09,035 $ 153,144 $ 98,264 $ 47,089 $ 98,379 $ 55,680 $ 17,253 $ 11,800
Income taxes (credit) (43,187) 11,885 47,194 60,425 46,527 3,693 33 ,631 3,830 (429) (9,561)
Net Earnings1 $ 7,084 $ 72,475 $ 61,841 $ 92,719 $ 51. 73 7 $ 43,396 $ 64,748 $ 51,850 $ 17,682 $ 21,36 I
Earnings per average share1 $ .33 $ 3.35 $ 2.86 $ 4.29 $ 2.39 $ 2.01 $ 3.00 $ 2.40 $ .83 s 1.01
Cash dividends 17,317 17.306 16,210 10,804 9,707 9,710 9,722 9,722 9,620 9,518
Dividends per share .80 .80 .75 .50 .45 .45 .45 .45 .45 .45
Stockholders' equity 839,042 849,122 793,691 747,672 665,744 623,677 589,991 534,965 492,837 477,054
Number of shares outstanding at
end of year 21,647,280 21.639,589 21,626,284 21,606,686 21 ,606,036 21,604,136 21,604,136 21,604,136 21,604,136 21,149,756
Book value per share at end of year2 $ 38.76 $ 39.24 $ 36.70 $ 34.60 $ 30.81 $ 28.87 $ 27.31 $ 24.76 $ 22.81 $ 22.56
Assets and Long-Term Debt
Flight property at cost $ 1,995,168 $ 1,779,770 $ 1,525,442 $ 1,510,447 $ 1,448,402 $ 1,420,670 $ 1,282,556 $ 1,216,632 $ 1,008,041 $ 1,012,568
Flight property at net book value 1,200,495 1,094,556 922,615 962,957 924,537 977 ,062 907,935 861.231 682,020 709,433
Total assets 1,532,539 I, 528,921 1.392,865 1,299.451 1,151.562 1.215,146 1,121.153 1,085 ,632 920,4 I 8 944,302
Long-term debt 62,500 100,000 100,000 100,000 122,000 246,000 2 I 3.900 284,000 208,000 252.500
Unit Expenses
Per available ton-mile 37.0 29.4 27.9 22.9 21.6 20.6 19.9 15.8 16.9 14.5
Per revenue ton-mile 80.6 63 .4 65.7 54.4 50.5 50.2 48.2 42.5 49.6 42. 1
Per cent of operating revenues 101.5% 95 .8% 91.5% 90.0% 89.3% 93.8% 89.8% 91.2% 96.2% 95.7%
Statistics-Scheduled Services
Revenue plane-miles (000) 120,709 116.105 66.420 111.271 I 08.474 104,104 105,295 I 08,853 79,025 100,992
Available seat-miles (000) 24,904,355 24,028,928 14,302,037 22,968,489 22,228,259 20,910,966 20,016,107 19,593 ,379 12,963 ,054 15,614,614
Revenue passenger-miles (000) 13,810,889 13,298,161 7,018,305 i I, 100.412 I 0,758,683 9,471.282 9,173,875 8,007,850 4,565,618 5,553,043
Passenger load factor 55.5% 55.3% 49. 1% 48 .3% 48.4% 45.3% 45.8% 40.9% 35.2% 35.6%
Revenue passengers carried 11,501,148 11,636,170 6,57 4,90 I 10,354,808 9,8 I 8,343 8,865,263 8,948,373 7,987 ,299 5, I 50,636 6,089 ,273
Freight and express ton-miles (000) 529,434 504,753 302,153 458, I 43 467,399 386,309 317,437 251.865 150,973 161,345
Total revenue ton-miles (000) 2,048,349 1,956,217 1,079,68 I 1,676,470 1.647,317 I ,428,381 1,330,803 1,140,983 672 ,035 813,403
Statistics-Total Operations
Revenue plane-miles (000) 121,243 117,027 67,471 114,643 112,279 107,721 110,519 115,726 84 ,098 I 10,045
Available ton-miles (000) 4,495,666 4,265,640 2,594,632 4,109,110 3,982,743 3,642,650 3,431,038 3,370,694 2,236,069 2,806,407
'ot covered by Accountants' Report
tStrikes adversely affected 1972 and 1978 and the strike recovery period in 1971 following a strike in 1970.
1 See Financial Review pages 2 5 through 2 7 for Managements Discussion and Analysis of the Summary of Operations.
' Per share figures reflect the increase in outstanding shares resulting from a stock issue in 1972.
22 23
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 subsidiaries as of
December 31 , 1980 and 1979, and the related statements of earnings, stockholders' equity and changes in
financial position for each of the three years in the period ended December 31 , 1980. Our examinations were
made in accordance with generally accepted auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the consolidated financial position of
Northwest Airlines, Inc. and subsidiaries at December 31 , 1980 and 1979, and the consolidated results of their
operations and changes in their financial position for each of the three years in the period ended December 31,
1980, in conformity with generally accepted accounting principles applied on a consistent basis.
t~:?:-
February 19, 1981
Notice to Stockholders
Any person who either owns, as of December 3 I 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 24 5 .12 of the CA B's Economic Regulations on or before April I, 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
24 5 .14 of the CA B'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 24 5 .15 of the CA B'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.
Co-Registrars and Transfer Agents: Northwestern National Bank, Minneapolis, MN, Northwestern Trust Co. , New York, NY
Stock Listed: Common Stock listed on New York Exchange, Pacific Coast Stock Exchange and Midwest Stock Exchange.
Number of stockholders as of March 17, 1981 is 10,256.
24
Financial Review and
Management Discussion
for 1980
Revenue
Total operating revenues in 1980
were at a new record level of
$1 ,639 ,330,000 compared with
$1.310,558,000 in 1979 and
$790,162 ,000 in 1978. New records
were established in 1980 for both
passenger and cargo revenue. These
record revenues reflected increases
in traffic and substantial fare and
rate increases granted by the Civil
Aeronautics Board.
System scheduled revenue
passenger-mile yield increased to
9.76C compared to 8.03C and
7.94Cin 1979 and 1978. Northwest's
cargo revenue ton-mile yield in 1980
increased to 36 .49C from 3 l.23C in
1979 and 27 .55C in 1978.
During 1980 the Civil Aeronautics
Board granted fare increases for
travel in the 48 states totaling 44 %.
At the same time Mainland-Alaska
and Mainland-Hawaii fares increased
36 % and 32 % respectively.
Northwest's international operations
also benefited from fare increases of
20% in the Pacific and 24 % in the
Atlantic. These fare increases were a
function of the pass through of
higher operating expenses granted
by the Civil Aeronautics Board and
management's discretion in
implementing allowable fare
increases after weighing relative
price elasticities in the recessionary
economy that plagued the travel
industry in 1980. The Civil
Aeronautics Board also allowed
freight rate increases totaling 9% for
domestic rates. 3 3 % for Pacific
rates, and I 0% for Atlantic rates.
Expenses
Total operating expenses for I 980
amounted to $1.663,464 ,000
compared with $1.255 ,206 ,000 in
1979 and 197 8 expenses of
$722 ,877,000. The marked increases
in expenses were attributable to
continued increases in fuel and labor
costs, in addition to inflationary
pressures in all other operating cost
centers. The impact and effect of
inflation and changing prices is
discussed in detail in Footnote J to
the financial statements.
Northwest's 1980 jet fuel bill
amounted to $631.273 ,000
compared to $395 ,260,000 in 1979.
The average cost per gallon of jet
fuel rose to 97.3C in December, 1980
from 78 .2C in December. 1979. or a
24 .5% increase. Overall operating
expenses per available ton-mile
increased to 3 7.00C in 1980 from
29.43C in 1979 and 27.86C in 1978.
Historically, Northwest is the most
efficient trunk carrier in the industry.
By constantly surveying its cost
control efforts. Northwest achieved
this position again in 1980.
Depreciation and amortization
expenses totaled $124 ,078 ,000 in
1980 compared with $106,401,000
in 1979 and $104 ,970,000 in 1978.
This increase in depreciation and
amortization expense reflected the
addition of seven new fuel efficient
aircraft in 1980 following the
purchase of seven aircraft in 1979.
Earnings and Dividends
Net earnings in 1980 were
$7,084 ,000, down substantially from
1979 net of $72,475 ,000 which was
the second highest in the Company's
history. Earnings per common share
of stock outstanding were $.3 3
compared to $3 .3 5 per share in
Sources of 1980
Operating Revenues
(Dollars in Millions)
Passenger-Coach -------4
$1.220.5 74.5%
Passenger-First Class - - ---t---
$12 7.3 7.8%
Cargo -----------+--
$190.8 11 .6%
1979 and $2 .86 per share in 197 8.
Gain from disposal of property was
$143 ,000, down from $15,544 ,000 in
1979 and $34 ,290,000 in 1978 due
to no aircraft sales in 1980.
The reduction in net earnings, and
the operating loss in 1980, are
typical of the problems faced by the
entire airline industry during the
year, specifically, higher operating
costs and a major U.S. recession
resulting in traffic depression.
Northwest's profitability was further
eroded by several factors. In the
Pacific. an historically profitable
region , there was intense pricing
competition and increased
competition from foreign flag
carriers. In the highly competitive
Atlantic market there were
additional start up costs as a result
of the inauguration of TWin Cities-
London-Hamburg nonstop service.
A return to Northwest's previous
profit levels can be accomplished in
1981 with improved fare and traffic
results in the Transpacific market.
maintenance of high operating
efficiency, and further development
Mail - - - - - - - - --_........, __ .,._
$57.3 3.5%
Charter and Other - - - - - - - - - -
$43 .4 2.6 %
Distribution of 1980
Operating Expenses
(Dollars in Millions)
Fuel and Oil ---------#-------
$63 1.3 38.0%
Employee Wages and Benefits
$403 .5 24 .2%
Landing Fees, Rentals,
Materials and Services ____ """"""" __ _
$369.6 22 .2%
Commissions - - - - - - - - - --------
I35 .0 8.1%
Depreciation and Amortization - - - - - - - - - - - - -
$124 .1 7.5%
TOTAL
$1 ,639.3
100.0%
TOTAL
$1,663.5
100.0%
25
Operating Revenues and Expenses
(Millions of_
Dollars) REVENUES -
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
1976 1977 1978
Stockholders' Equity vs. Long-Term Debt
1979
EXPENSES
1980
(Millions of Dollars) EQUITY - DEBT
900
800
700
600
500
400
300
200
100
0
1976 1977 1978 1979 1980
Sales Price of Dividends
Common Shares Per Share
Quarter 1980 1979 1980 1979
I st High 31 29 $.20 $.20
Low 20 23
2nd High 25 28 .20 .20
Low 20 26
3rd High 3 1 34 .20 .20
Low 24 30
4th High 27 28 .20 .20
Low 22 26
26
of North Atla ntic operations. The
domestic region can also provide
attractive growth and profit
opportunities in 1981 if domestic fuel
costs can be compensated for
through increased revenues.
Northwest Airlines continued its
dividend payment policy in 1980
with quarterly payments for the
26th consecutive year. A cash
dividend of 80C per share was paid
in 1980 totaling $17,317 ,000.
Northwest common stock is
principally traded on the New York
Stock Exchange. A table showing
the sales prices and the dividends
paid per share in 1980 and 1979 is
included in the accompanying
graphs and charts.
Taxes on Earnings
Income tax credits were $43 ,187,000
in 1980 compared to income tax
expense of $11 ,885 ,000 in 1979 and
$47,194 .000 in 1978. Investment tax
credits earned were $24 . 5 54.000
compared with $27.396.000 in 1979
and $6.320,000 in 1978. Investment
tax credits in 1981 will be
significantly lower than in 1980 since
only two new aircraft will be
delivered in 1981 compared to
seven in 1980. The Company
continues to use accelerated
depreciation methods for income
tax purposes.
Cash Flow, Liquidity, and Capital
Resources
Funds generated from all sources
were $78.367,000 in 1980. Benefits
from the Company's policy of

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owning its equipment rather than
leasing provided funds through
depreciation , which with
amortization totaled $124,078.000.
Application of funds in 1980 totaled
$218,828.000 and primarily
consisted of flight equipment and
ground property additions and cash
dividends. Three 7 4 7 aircraft and
four 727-200 aircraft were added to
the Northwest fleet in 1980. With
only two aircraft ordered and
delivered in 1981 , and no further
aircraft commitments. Northwest will
be accumulating cash in the course
of normal business operations. The
Company foresees no problem in its
ability to generate adequate cash to
meet corporate needs. At present
the company has available
$64 ,832 ,000 in unused lines
of credit.
Northwest's debt to equity ratio on
December 31 . 1980 was 16.0%-the
lowest in the U.S. air-line industry.
Long term debt totaled $62 .5
million. Repayment of the term loan
begins in April, 1981 and terminates
in January. 1983. Stockholders
equity at December 31 . 1980 was
$839,042 ,000 compared with
$849 ,122 .000 in 1979. The book
value per average common share
was $38 .76 compared to $39.24 a
year ago.
Traffic and Services
Traffic gains from scheduled
operations for 1980 reflected growth
in both passenger and cargo
resulting from additional
international flying. particularly in
the Atlantic, and improved service
on the domestic system . In a year
when the industry showed
significant traffic declines in a
recessionary environment.
Northwest was one of the few
carriers to experience traffic growth.
Prospects for 1981 remain favorable.
Northwest expects traffic growth
exceeding the industry average.
In 1980 Northwest carried
II , 501 .148 passengers.
Financial Condition
Despite a dismal year for the U.S.
economy and travel market.
Northwest was able to produce a
net profit for the 32nd consecutive
year. Northwest remains one of the
strongest carriers in the airline
industry. The Company is not
immune to the fuel cost problems or
the general economic conditions
that inflicted disastrous financial
results on the entire industry in
1980. However. in the second half of
the year. Northwest was able to
produce better results. With a
continued effort the Company
believes this trend can be carried
forward into 1981 .
Because of its strong balance sheet.
excellent liquidity and efficiency of
operation. the Company is better
prepared than most of its
competitors to maintain a strong
presence in the U.S. and
international air transporation
market. Assuming there is a
reasonable recovery of the domestic
economy in 1981 and no crisis in
international fuel supply and pricing.
Northwest's management is
optimistic of returning to adequate
profit levels.
Selected Financial Data (In Thousands)
Y
ear Ended December 3 1
1
980 1
979 1
978 1977 1
976
Operating
Revenues $1 ,639.3 30 $1.310.558 $ 790. 162 $ 1.046.355 $ 963 ,808
Net Earnings 7,084 72.475 6 1,84 1 92 ,719 5 1,737
Total Assets 1.53 2,5 39 1,528.92 1 1,392,865 I ,299.4 5 I I , 15 1,562
Long-Term
Debt 62 . 500 100.000 100,000 100,000 122 .000
Per Common
Share:
Earn ings .33 3.3 5 2.86 4.29 2.39
Cash
Dividends .80 .80 .75 .50 .45
Operating results were affected by a major strike which extended from April 29 through August 15. 197 8
27
Service Highlights
The favorable results achieved at
Northwest Airlines during 1980
required extraordinary effort in
every operational and technical
area. Throughout the system,
Northwest people exhibited
dedication to the mission of
optimizing service to passenger
and cargo customers.
Emphasis on Training
The focus continues on customer
service, and during 1980, training on
this subject was held for airport
customer service supervisors. A
program of refresher training on
customer service was initiated for
all Northwest Airlines ramp
services supervisors and
transportation agents.
Flight attendants received intensive
in-flight servjce training in the
classroom and on aircraft. With the
emphasis on international routes,
this training provided a program of
service that applies to all
international flights.
28
There also was training provided on
international fares and ticketing,
directed to employees from
gateway airports. And factory
technicians conducted classes for
Northwest Airlines mechanics on
maintenance of sophisticated
passenger loading bridges, cargo
loading equipment and new high
capacity deicers.
Contracts
During 1980 negotiations were
conducted and successfully
concluded with unions representing
four groups of employees. As of
March I. 1980 all union employees
were under contract. Agreements
were signed with Transport Workers
Union for radio and teletype
operators, with the Brotherhood of
Railway and Airline Clerks for
Canadian agents, with Air Line
Employees Association for flight
duplicator instructors and with
Air Line Pilots Association for pilots.
Aircraft
Seven new aircraft were added to
the fleet during the year. Six were
passenger aircraft, including two
Boeing 747s and four 727s, the
remaining was a Boeing 7 4 7
freighter.
A major interior refurbishment
program has been completed for 15
of the 747s, and two additional 747s
will be refurbished in 1981 to bring
these aircraft up to the standard of
the newly delivered aircraft. This
project involves thorough
renovation . including installation of
new carpet. interior wall panels and
galley equipment.
To support 747 and DC-10 engine
overhaul functions, a large vacuum
heat treating and brazing furnace
was installed in July of 1980. The
furnace represents an investment of
over $250,000 that will be
recovered in just two years
through a reduction in outside
vendor charges.
Fuel Conservation
At a time when fuel cost is a major
determinant of an airline's
profitability, it is essential to
implement every possible measure
of fuel efficiency. At Northwest
Airlines, a comprehensive fuel
conservation program resulted in
impressive savings without
compromising flight safety, adding
to crew workload or creating
passenger discomfort. Savings were
achieved through optimized climb
speeds and cruise altitudes. lowe1
cruise and descent speeds, reduced
operating weights and fuel loads,
increased accuracy of computer
flight planning, 7 4 7 engine
upgrading and many other
measures.
Also very important. was the
increased awareness and effort by
pilots to conserve fuel. From an
analysis based on gallons of fuel
purchased per month, Northwest
Airlines would have spent an
additional $22 ,000,000 on fuel the
first eight months of 1980 if the
fleet had been operated using 1973
flight procedures.
New Routes/Services
Northwest Airlines utilized the
developments in deregulation
activity to expand markets
internationally. Flights were initiated
in April of 1980 to Shannon from
Boston and from New York City.
That was followed in June with
inauguration of the route from
Minneapolis-St. Paul to London and
on to Hamburg.
A new single-class service, utilizing
72 7 aircraft, was introduced during
1980. Ten aircraft fitted for this type
of service offer passengers
maximum convenience and
economy when flying to Chicago's
Midway Airport and to key cities in
our domestic route network.
Expansion of Preclearance
Northwest Airlines continues to
work for the expansion of U.S.
preclearance. Under this procedure,
the international traveler completes
U.S. Customs and Immigration
formalities before boarding the
flight. As soon as the aircraft arrives
in the U.S. . the passenger is free to
leave the airport or make a
connecting flight. The advantages
have been proven in settings, such
as Edmonton, where preclearance
has reduced the online connecting
time from 90 to 2 5 minutes at
Minneapolis-St. Paul.
The Irish Airports Authority at
Shannon is currently seeking U.S.
preclearance. Expansion of this
procedure to Shannon could
encourage the initiation of
preclearance in other European
locations as well as the Orient.
Facilities
In line with the emphasis on
customer service, facilities
throughout the Northwest Airlines
system underwent major
improvements during 1980. A new
airport was opened in Taipei and
new passenger terminals were
opened in Atlanta and Seoul. A Top
Flight Lounge was added at
Boston's airport. and our lounge at
J. F. Kennedy Airport in New York
City was refurbished. Facilities were
added or improved at LaGuardia
Airport in ew York City, at
Chicago's O'Hare Airport and in
Minneapolis, Oslo. Phoenix, Seattle,
Tampa and Tokyo. Improvements in
baggage claim facilities were made
at several airports. including Boston,
J. F. Kennedy, Minneapolis-St. Paul
and O'Hare.
Automated Systems
Expanded computer capabilities had
a positive effect on virtually every
phase of Northwest Airlines
operations in 1980. Effective
utilization of people resources plus
computerized efficiency had the
two-pronged impact of increasing
employee productivity as well as
improving customer service.
New hardware in the headquarters
computer center was coupled with
computerized reservations/
communications equipment
throughout the system-in the
Orient. the United Kingdom and all
major cities in the U.S.
Design of a new fourth generation
reservation system moved rapidly
forward in 1980. When this system
goes online in 1981 . Northwest
Airlines will be thrust into the
forefront with the most modern
passenger service reservations
system in the U.S.
Some of the features of this new
system include more comprehensive
airline schedule displays with the
ability to update schedules quickly;
complete employee training
programs using the computer
terminal (CRT); a fare quotation data
base that will encompass all orth
American published fares as well as
international fares for all online city
pairs for which we store schedules;
and special features to promote
travel agent sales. Future options
include automated airport check-in ;
hotel availability information for
many domestic and international
hotels; a comprehensive flight
operations system plus more
comprehensive revenue
accounting programs.
The computerized automatic call
distribution system , newly installed
in Minneapolis and Chicago, not
only improved customer service but
also increased employee
productivity by at least I 5 percent.
The system provides information on
individual agent productivity and on
overall telephone line usage.
Analysis of this information allows
management to recognize problem
areas and take corrective action
with, for example, additional
training, the addition or deletion of
telephone lines or adjustment of the
number of agents.
Information generated by the
computer also helped us tackle the
issue of baggage handling. Causes of
baggage mishandling were clearly
identified by the computer so that
we could take corrective action and
assure future efficiencies in baggage
delivery and transfer times.
The new year will bring
implementaion of Cargo Central.
This is a computerized system of
control for capacity and loading
equipment as well as a source of
current information on rates and
cargo handling status.
29
The Directors of
Northwest Orient
Airlines (As of March 2 7, 1981)
James H. Bingert
Former Chairman of the Executive
Committee, Honeywell. Inc.
Minneapolis, Minnesota
Manufacturer of automation systems
E.W. Blanch, Jr. t
President & Chief Executive Officer
E.W. Blanch Company
Minneapolis, Minnesota
Re-insurance brokerage
Raymond H. Herzogt
Former Chairman of the Board .
3M Company
St. Paul. Minnesota
Multi-national manufacturing
Melvin R. Lairdt
Senior Counsellor,
Reader's Digest Association
Washington , D.C.
Magazine publishing
30
James N. Land, Jr.t
Financial Consultant
New York, New York
M. Joseph Lapensky
President & Chief Executive Officer
Northwest Airlines, Inc.
St. Paul. Minnesota
Donald G. McNeelyt
Chairman of the Board,
Space Center, Inc.
St. Paul. Minnesota
Logistics
Donald W. Nyropt
President & Chief Executive Officer.
1954-1976; Chairman & Chief Executive
Officer, 1976-1978
Northwest Airlines, Inc.
St. Paul. Minnesota
Lyman E. Wakefield, Jr.t
Vice Chairman of the Board,
Resource Trust Co.
Minneapolis, Minnesota
t Member. Audit Committee
The Officers of
Northwest Orient
Airlines (As of March 2 7, 1981)
M . Joseph Lapensky
President & Chief Executive Officer
James A. Abbott
Vice President-Law
Brent J. Baskfield
Vice President-Public Relations
Robert W. Campbell
Vice President-Budgets
J. William Campion
Vice President-Regulatory Proceedings
Robert J. Glischinski
Vice President-Communciations and
Computer Services
Benjamin G. Griggs, Jr.
Vice President-Assistant to the
President
John F. Horn
Vice President-Orient Region
Thomas J. Koors
Vice President-Transportation Services
William A. Kutzke
Vice President-Washington
Ben H. Lightfoot
Vice President-Maintenance and
Engineering
Thomas E. McGinnity
Vice President-Purchasing and Stores
Bryan G. Moon
Vice President-Advertising
James F. Redeske
Vice President-Personnel
Steven G. Rothmeier
Vice President-Finance and Treasurer
Steven D. Wheeler
Secretary
Robert J. Wright
Vice President-Sales
Scenic canal area near Hamburg. Germany.
2 2 McDonnell Douglas
DCI0-40's
Range of 5.400 miles with 236
passengers
5 Boeing 7 4 7
F Freighters
All cargo aircraft capable of carrying
a structural payload of 261,600
pounds.
Northwest Orient's Fleet
Total 117 as of March 27. 1981
24 Boeing 747's
With ranges up to 6,660 miles with
363 passengers.
5 2 Boeing 727-200's
Range of 1.760 miles with 128
passengers
J 4 Boeing 727-IO0's
Range of 2,350 miles with 93
passengers. or 2. 150 miles with 111
passengers.
31