Northwest Airlines Annual Report 1981

Northwest Orient Airlines Annual Report 1981
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Northwest Orient Airlines now serves 16 countries.
From The President
The 55th Annual Report to Shareholders
Northwest Airlines earned a net profit
of $10,460,000 in 1981. This was a
favorable result against the back-
drop of rising costs, recession-
softened traffic, severe price-cutting
by some carriers, and reduced air
traffic control capacity following the
PATCO strike. With a $26 million
improvement in operating income
and a S3 million gain in net earnings
over 1980, Northwest Airlines was one
of only four major U.S. carriers to
report a net profit for 1981.
Progress in 1981
Significant progress was made in a
number of areas to strengthen the
company and enhance its ability to
meet the serious challenges now
at hand.
We took delivery of two Boeing
727-200's early in the year. Final
payments of $20 million were made
from internally provided funds. Major
ground equipment additions were
also made during the year.
We met competition from old
and new carriers alike and
increased our market share of total
traffic through an aggressive
marketing program which included
a new advertising look.
We began new services: Boston
to London; Twin Cities to Oslo; Los
Angeles nonstop to Tokyo; Tokyo to
Guam; and Taipei to Manila. We
also began a new cargo service
to Houston.
Your company's unique financial
strength shows in the fact that total
debt of all kinds represented only
13% of invested capital at year end;
and our long-term debt, now down
to $12.5 million, contrasts widely with
debt of many other airlines now in
the hundreds of millions in
most cases.
Difficulties in 1982
The a irline industry is in crisis as we
move into 1982. The deepening
economic slump has brought two
successive years of depressed traffic,
and strong measures are required
4
to fend off crippling effects of the
continuing downturn. We have
already begun.
Company officers' salaries have
been frozen at the level set over a
year ago in January 1981.
Six hundred management
employees have already started a
new program entitled "Ten Percent
More Work-Not Ten Percent Less
Pay''. Under this plan, effective from
mid-February, each manager will
work an extra half-day per week.
Cutbacks in some poor flights have
been made in February and March
to accommodate the deepening
recession in traffic.
Along with these cutbacks, job
reductions equivalent to 560 fewer
employees for the near term have
been accomplished by unpaid
leaves of absence; advanced
vacations; and approximately 200
layoff notices.
These efforts will do much to keep
Northwest Airlines in shape to retain
its strong position in the industry.
Fleet Update
While soaring interest rates and
depressed profits have occasioned
a delay in new fleet orders at this
time, Northwest Airlines has none-
theless embarked on a strong
program to increase the capacity
and economic value of its present
fleet of 106 passenger airplanes.
In recent months Northwest Airlines
began a major modification and
seat reconfiguration program with its
fifty-two 727-200 aircraft. In addition
Northwest has implemented plans to
improve seating capacity in its 24
Boeing 7 47's and 22 McDonnell
Douglas DC-10 aircraft during 1982
and 1983.
New slimline, lighter seating,
providing greater comfort levels
than before, improved the Boeing
727-200 capacity from 128 to 146
passenger seats. The airline's 7 47
reconfiguration will increase
capacity from 367 to 394 seats
while providing a more spacious
and comfortable executive class
compartment which broadens the
appeal to business travelers.
The DC-10 modification to follow in
1983 will involve complete refurbish-
ment of the aircraft's interior and an
improved seating capacity from the
current 236 to a total of 292 seats.
Northwest Airline's modification
program to improve its total
passenger fleet seating capacity
will provide a gain of new seats
equivalent to 14 new airplanes at an
overall cost of S33,000,000. This
additional capacity in Northwest
Airlines aircraft plus complete rework
of the DC-10 interiors will require a
low capital cost outlay of about
S 12,000 per seat compared with the
new-airplane cost of $150,000 to
$200,000 per seat.
New Officers Elected
Two corporate officer changes have
been made in the past year. Bruce
Fillips was elected Vice President-
Comptroller and James Thorne was
elected Vice President-Properties.
A special note of gratitude must be
extended to Lyman E. Wakefield, Jr.
who retired this year from our board
of directors. Elected a member of
the board in March 1954, Lyman E.
Wakefield, Jr. served with distinction
as a director of Northwest Airlines for
more than 27 years.
In Summary
We have an outstanding fleet, a
sound route structure, excellent
facilities and a highly trained and
dedicated group of employees.
We thank you for your confidence in
1981 and we will work to maintain
your trust as we direct our efforts to
maximize the opportunities for
Northwest Airlines throughout 1982.
-=;.,
Jr- ir-7
M. Joseph Lapensky
President and Chief Executive Officer
March 26, 1982
Marketing Highlights Northwest Orient's 1981
marketing efforts were
directed toward expanding
the airline's share of high-yield
commercial traffic while
heightening its emphasis on
customer service and
convenient scheduling.
Responding to an
increasingly competitive
environment, Northwest
restructured its already strong
sales department. A new
Market Planning Division was
created enabling Northwest
to improve its planning and
execution of marketing
strategies appropriate in the
price-sensitive, deregulated
environment of today.
New market strategies
included strengthening of
existing traffic hubs and
introducing service in
selected new markets, while
utilizing flexible pricing
policies and service
combinations to increase
traffic and market share.
Advertising
Northwest Orient initiated a
major reorganization of its
domestic system advertising
agencies with the appoint-
ment of Grey Advertising, Inc.
and Colle McVoy, Inc.
Geirongerfjord in Norway.
Grey's priority assignment was
to reposition Northwest Orient
Airlines in the domestic
marketplace. This effort
resulted in what may well
be Northwest's most
effective communication
package ever.
After assessing results of
an intense nationwide
research project, Northwest
developed a significant
advertising strategy to
increase identity and market
share by concentrating
advertising weight in eight
major domestic stronghold
markets. Substantial television
time was purchased in these
5
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Marketing Highlights
(continued)
New nonstop service from
Los Angeles to "lokw. on the
airtine named for the-Orient.
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cities. "The World Is Going Our
Way" was chosen as the
overall advertising theme to
highlight the strong work
ethic, fiscal conservatism
and efficiency which
characterizes Northwest and
underscores the resultant
benefits to the travel-
ing public.
"The American Winner" was
introduced as the airlines'
campaign theme throughout
Europe embodying charac-
teristics similar to the domestic
campaign.
Post advertising research
demonstrates substantially
improved consumer aware-
ness of Northwest Airlines as a
major worldwide carrier with
one of the most modern, well-
maintained fleets in the
industry.
Convention, Incentive and
Charter Sales Increase
Convention, Incentive and
Charter Sales showed strong
gains in 1981. Northwest
Airlines has continued to
maintain industry leadership
in the Convention and
Incentive market. Anticipating
the needs of the expanding
corporate meetings market,
Northwest refined its
nationwide convention
coordination service to
include greater emphasis
on arranging air travel for
business meetings. The new
program called Northwest
Orient Meeting Services,
provides the corporate
planner with toll-free phone
access to a network of
experienced cont erence
and convention consultants.
In addition, Northwest has
developed special incentive
air fares to attract more
national corporations to the
airline's European and
Orient destinations.
Charter Sales increased by
7 3 % with the operation of
747 charters to San Juan
and Las Vegas through a
major midwest tour operator.
Fare Agreements Reached
Northwest Orient Airlines
concluded special low fare
"Round The World" agree-
ments with eight airlines to
further enhance its inter-
national traffic.
In the U.S., economic
conditions led to increased
fare competition. One-way,
deep discount fares
replaced the round-trip
advance purchase d iscount
fares. Where necessary,
Northwest Orient met the
low-fare competition.
Northwest continues to offer
substantial savings on first-
class, executive and
economy-class fares to
London through its Boston
and Twin Cities gateways.
These routes play a key role
in generating new business
through the London market
and contributed greatly to
Northwest's 45.5% increase in
Atlantic passenger revenue.
Tour Sales
Northwest's Tour Sales carried
out a program to position its
tour products in a way to
attract more discretionary
traffic during an economi-
cally sluggish year.
Tourism to Northwest's Orient
destinations showed good
growth in 1981. Although
Northwest did not fly directly
into the People's Republic
of China, travel to China
became a highlight in
promotional efforts for
Pacific travel.
In the Atlantic market,
Northwest's tour programs
produced strong traffic gains
in the Twin Cities-London
market during the peak
summer season of 1981.
The Boston-London nonstop
route complemented the
potential of the Twin Cities-
London segment by building
a strong nationwide tour base
for 1982 and beyond.
More contract bulk
agreements were reached
with major tour operators to
stimulate leisure traffic in
the domestic 48 states and
to Hawaii.
Cargo Market Share
Expanded
In spite of a stagnant
economy, Northwest Airlines
expanded its cargo market
share by anticipating
freighter service needs in
key world markets.
In 1981, Northwest provided a
necessary link in the energy
equipment supply chain by
inaugurating 7 47 all-freighter
service between the oil rich
North Sea development
through Prestwick, Scotland
and Houston, Texas, and
linked the Texas oil equipment
supply base with the oil rigs of
Alaska's North Slope through
Anchorage and on to the
oil-producing areas in South-
east Asia.
With a continuing improve-
ment in yield, freight ton-miles
were up 16.4 percent for
1981, led by a gain of 44
percent for Atlantic ton-miles.
Pacific ton-miles were up 12
percent and domestic ton-
miles climbed 13 percent in
this period.
Total freight revenue for 1981
was up 16.6 percent for the
year, with increases of 5.5
percent in domestic revenue,
28 percent in Pacific revenue
and 17 percent in Atlantic
revenue.
Freighters continue to carry
the majority of our freight
revenue ton-miles with 56
percent of the total moving
in the 747F.
Northwest's position in the
eastbound transatlantic
Northwest's computerized engine testing facil ity.
cargo market was
strengthened when final
approval was obtained from
airport authorities in Boston for
construction of the most
advanced state-of-the-art
cargo facility. Northwest's
already strong position in the
East Coast's high-technology
electronic components
market will be enhanced by
this facility.
Plans were laid during
1981 for the opening of the
San Francisco market to
Northwest's 7 47 freighter
service during early 1982. This
promises a substantial market
share of high-technology
electronic equipment moving
from California to the Orient.
In addition, shipments of
California produce continue
to expand through this
gateway.
Recognizing that much of
westbound transpacific
freight is moved by Japanese
freight consolidators,
Northwest transferred key
Orient employees to serve as
International Customer
Service Managers in the
major shipping communities
of New York, Chicago, Los
Angeles and San Francisco.
7
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Report of
Ernst & Whinney,
Independent
Auditors
Notice to
Stockholders
Northwest Airlines, Inc.
8
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, 1981 and 1980, 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, 1981. 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 c ircumstances.
In our opinion, the financia l statements referred to above present fairly the
consolidated financial position of Northwest Airlines, Inc. and subsidiaries at
December 31 , 1981 and 1980, 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, 1981, in conformity with generally accepted accounting principles
applied on a consistent basis.
Saint Paul, Minnesota, February 18, 1982
Any person who either owns, as of December 31 of the year preceding issuance of
this annual report, or subsequently acquires, beneficially or as trustee, more than
5 per centum, in the aggregate, of any class of the capital stock or capital of the air
carrier, shall file with the Civil Aeronautics Board (CAB) a report containing the
information required by Section 245.12 of the CAB's Economic Regulations on or
before April 1, as to capital stock or capital owned as of December 31 of the
preceding year, and, in the case of stock subsequently acquired, a report under
Section 245.13 of such Economic Regulations, within 10 days after such acquisition,
unless such person has otherwise filed with the CAB a report covering such
acquisition or ownership.
A bank or broker which holds, as trustee, more than 5 per centum of any class of the
capital stock or capital of an air carrier to the extent that it holds such shares on the
last day of any quarter of a calendar year, shall file with the CAB, within 30 days after
the end of the quarter, a report in accordance with the provisions of Section 245.14
of the CAB's Economic Regulations. Any person required to report under the CAB's
regulations who grants a security interest in more than 5 per centum of any class of
the capital stock or capital of the air carrier shall, within 30 days after granting such
security interest, file with the CAB a report containing the information required in
Section 245.15 of the CAB's Economic Regulations.
Any stockholder who believes that he may be required to file such a report may
obtain further information by writing to the Director, Bureau of Operating Rights, Civil
Aeronautics Board, Washington, D.C. 20428.
Co-Registrars and Transfer Agents: Northwestern National Bank, Minneapolis, MN,
Northwestern Trust Co., f'lew York, NY.
Stock Listed: Common Stock listed on New York Exchange, Pacific Coast Stock
Exchange and Midwest Stock Exchange. There were 9,113 stockholders of record as
of March 10, 1982.
Statements of Year Ended December 31 1981 1980 1979
Earnings
Operating Revenues
Northwest Airlines, Inc.
Pa ssenger $1 ,521 ,856 S 1,347,830 S 1,067,214
(In Thousands)
Freight 221 ,691 190,837 160,716
Ma il 59,786 57,305 38,685
Charter a nd other transportation 21 ,766 16,303 15,093
Nontra nsport 29,191 27,055 28,850
1,854,290 1,639,330 1,310,558
Operating Expenses
Flying operations 858,997 776,862 526,887
Ma intena nce 156,450 139,833 111 ,647
Passenger seNice 147,650 133,922 114,654
Aircraft a nd traffic servicing 248,766 226,153 198,509
ReseNations, sa les a nd advertising 271 ,344 229,148 169,341
Administrative and general 35,847 33,468 27,767
Depreciation a nd a mortization 133,489 124,078 106,401
1,852,543 1,663,464 1,255,206
OPERATING INCOME (LOSS) 1,747 (24,134) 55,352
Other Income (Expenses)
Interest, net of ca pita lized interest
of ( 1981 - $6 72; 1980-$3,393;
1979-$6,240) (14,135) (15,831) (1,635)
Gain on sa le of flight equipment 16,975 143 15,544
Other 3,322 3,719 15,099
6,162 (11,969) 29,008
EARNINGS (LOSS) BEFORE INCOME TAXES 7,909 (36,103) 84,360
Income taxes (credit)-Note D (2,551) (43,187) 11 ,885
NET EARNINGS $ 10,460 s 7,084 s 72,475
Average shares of Common Stock
outsta nd ing during the year 21,656 21 ,646 21 ,632
Ea rnings per share of Common Stock $.48 S.33 $3.35
See notes to financ ia l statements.
9
Statements of December 31 1981 1980
Financial Position Assets
Northwest Airlines, Inc.
(Dollars In Thousands) Current Assets
Cash and short-term investments $ 34,570 $ 20,514
Accounts receivable, less allowance of $1 ,700
(1980-$1,600) 138,112 124,957
Flight equipment spare parts, less allowance for
depreciation of $23,369 (1980-$19,883) 41,418 42,654
Maintenance and operating supplies 18,868 16,920
Prepaid expenses 11,583 7,332
TOTAL CURRENT ASSETS 244,551 212,377
Other Assets 50,498 37,445
Property and Equipment
Flight equipment 1,992,015 1,995,168
Less a llowance for depreciation 881,050 794,673
1,110,965 1,200,495
Advance payments on new flight equipment 9,166
1,110,965 1,209,661
Other property and equipment 190,397 169,423
Less allowance for depreciation 104,030 96,367
86,367 73,056
1,197,332 1,282,717
$1,492,381 $1,532,539
10
December 31 1981 1980
Liabilities and Stockholders' Equity
Current Liabilities
Commercial paper $ 45,551 s 34,168
Accounts payable and accrued expenses 152,183 142,343
Employee compensation 36,030 30,141
Air traffic liability 88,233 107,013
Income taxes 1,735 800
Current maturities of long-term debt 50,000 37,500
TOTAL CURRENT LIABILITIES 373,732 351 ,965
Long-Term Debt-Note B 12,500 62,500
Deferred Credits and Other Liabilities
Income taxes-Note D 256,014 260,100
Other 17,625 18,932
273,639 279,032
Stockholders' Equity-Note C
Common Stock S1 .25 par value, authorized
40,000,000 shares; issued and outstanding
21,661,367 shares (1980-21,647,280 shares) 27,077 27,059
Capital surplus 125,256 124,940
Retained earnings 680,177 687,043
832,510 839,042
Commitments and Contingencies-Note F
$1,492,381 $1 ,532,539
See notes to financia l statements.
11
Statements of Year Ended December 31 1981 1980 1979
Changes in Funds Provided
Financial Position Net earnings $ 10,460 s 7,084 s 72,475
Northwest Airlines, Inc. Items not affecting working capital :
(In Thousands) Depreciation and amortization 133,489 124,078 106,401
Increase (decrease) in deferred
income taxes (4,086) (53,228) 22,669
TOTAL FROM OPERATIONS 139,863 77,934 201,545
Proceeds from sale of flight equipment
less gain included in earnings 6,274 433 2,818
TOTAL PROVIDED 146,137 78,367 204,363
Funds Used
Flight equipment and other
property additions 50,676 145,709 193,634
Advance deposits on aircraft 9,1 66 96,503
Cash d ividends 17,326 17,317 17,306
Reduction of long-term debt 50,000 37,500
Other 17,728 9,136 15,708
TOTAL USED 135,730 218,828 323,151
INCREASE (DECREASE) IN
WORKING CAPITAL $ 10,407 $( 140,461) $(118,788)
Changes in Working Capital Consist of
Increase (decrease) in current assets:
Cash and short-term investments $ 14,056 S (54,069) $( 109,445)
Receivables 13,155 13,525 31,650
Recoverable income taxes (21,726) 21,726
Inventories 712 17,875 5,058
Prepaid expenses 4,251 3,608 (2,334)
32,174 (40,787) (53,345)
Increase (decrease) in current liabilities:
Commercial paper 11,383 34,168
Accounts payable and accrued
expenses 9,840 (21 ,057) 64,098
Other accrued liabilities 6,824 1,594 (14,485)
Air traffic liability (18,780) 47,469 15,830
Current maturities of long-term debt 12,500 37,500
21 ,767 99,674 65,443
INCREASE (DECREASE) IN
WORKING CAPITAL $ 10,407 $( 140,461) $(118,788)
See notes to financial statements.
12
Statements of
Stockholders'
Equity
Northwest Airlines, Inc.
(In Thousands)
Notes to Financial
Statements
Northwest Airlines, Inc.
Common Stock Capital Retained
Shares Amount Surplus Earnings
Balance January 1, 1979 21 ,626 $27,033 S 124,551 $642,107
Exercise of stock options 14 16 246
Net earnings for 1979 72,475
Cash dividends-S .80 a share (17 ,306)
Balance December 31 , 1979 21,640 27,049 124,797 697,276
Exercise of stock options 7 10 143
Net earnings for 1980 7,084
Cash dividends-S .80 a share (17 ,317)
Balance December 31, 1980 21,647 27,059 124,940 687,043
Exercise of stock options 14 18 316
Net earnings for 1981 10,460
Cash dividends-S .80 a share (17,326)
Balance December 31 , 1981 21,661 $27,077 S 125,256 $680,177
See notes to financial statements.
December 31 , 1981
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 after elimination of inter-company accounts and
transactions.
Short-Term Investments: Short-term investments are stated at cost which approximates
market and amounted to $19,098,000 and $1,943,000 at December 31, 1981 and
1980, 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 aircraft.
Pension Plans: The Company has several noncontributory pension plans covering
substantially all of its employees. The Company's policy is to annually fund pension
costs accrued, which includes amortization of prior service costs over periods of ten
to 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.
13
Notes to Financial
Statements
Northwest Airlines, Inc.
14
Note A-Accounting Policies (continued)
The Company uses the flow-through method of accounting for investment credits.
Investment credits not applied on tax returns are offset against deferred income taxes
to the extent they are applicable to deferred taxes becoming payable in the
investment credit carryover periods.
Operating Revenues: Passenger and cargo revenues are recognized when the
transportation is provided.
Earnings Per Share: Earnings per share are based on the average number of shares
of Common Stock outstanding. No material dilution would result upon exercise of
outstanding stock options.
Note 8-Long-Term Debt and Credit Arrangements
Long-term debt consists of borrowings from banks payable $12.5 million quarterly
beginning April 1, 1981. Interest is paid based on a formula related to prime
commercia l loan rates; however, total interest shall not exceed H's% per annum
over the term of the loan. The debt matures in 1983.
The Company has line of credit arrangements with banks for short-term borrowings
up to $125,000,000 through April 15, 1982. Borrowings under the credit lines bear
interest at tr.1e prime rate. Commitment fees which are 3/s % per annum on
outstanding bala nces of commercial paper amounted to $171,000 in 1981. At
December 31 , 1981, $45,551,000 of the lines were assigned to support outstanding
commerc ia l paper.
Note C-Stockholders' Equity
Shares
1981 1980
Cumulative Preferred Stock, $25 par value:
Authorized 1,000,000 1,000,000
Issued None None
Common Stock options at prices which were not less than 100% of market at date of
grant are as follows:
Shares Price Per Share
Outstanding at January 1, 1980 90,395 $19.13/24.00
Exerc ised (7,691) 19.13/24.00
Lapsed (18,939) 19.13/24.00
Outstanding at December 31, 1980 63,765 22.75/24.00
Exercised (14,087) 22.75/24.00
Lapsed (5,560) 22.75/24.00
Outstanding at December 31, 1981 44,118 22.75/24.00
Options exercisable:
At December 31 , 1980 63,765 22.75/24.00
At December 31, 1981 44,118 22.75/24.00
Shares available for stock option and other plans were 308,787 and 303,227 at
December 31, 1981 and 1980, respectively.
Notes to Financial
Statements
Northwest AirU
nes, Inc.
Note D- Taxes on Earnings
(Dollars In Thousands)
Reconciliation of the Company's effective income tax rate and the statutory federa l
income tax rate follows :
Statutory rate applied to pre-tax income
Add (deduct):
Investment tax credit earned
Rate change on timing d ifferences
Other
Total income tax expense (credit)
1981
S 3,637
(4,837)
(1,390)
39
$(2,551 )
Year Ended December 31
1980 1979
S( 16,607) $38,806
(24,554)
(1,521 )
(505)
$(43, 187)
(27,396)
(553)
1,028
$11 ,885
Federal, foreign and state income taxes (credit) consisted of the following:
1981 1980 1979
Current Deferred
Federal provision
(credit) S 22 $(3,598)
Foreign 788
State (207) 444
$603 $(3, 154)
Current Deferred
$9,274 $(52,222)
620
(825) (34)
$9,069 $(52,256)
Current Deferred
$(14,516) $23,175
695
825 1,706
- - -
$(12,996) $24,881
The deferred income tax expense (credit), which results from timing d ifferences in
recognizing items for financial reporting and income tax purposes, consists of
the following:
1981 1980 1979
Accelerated depreciation S 1,919 $ 3,273 $19,1 76
Investment tax and other credits (11 ,064) (60,218) (2,431)
Prepaid expenses 1,525 1,958
Interest 5,452 6,217 6,101
Deferred employee benefits (25) (1 ,893) 2,752
Rate change on timing differences (1 ,160) (318) (553)
Other 199 (1 ,275) ( 164)
$(3, 154) $(52,256) 24,881
Investment tax cred its of $72,924 not applied on tax returns but offset against
deferred income taxes at December 31, 1981 will expire $535 in 1990; $1 ,268 in 1991;
$7,878 in 1992; $6,320 in 1993; $27,395 in 1994; $24,732 in 1995; and $4,796 in 1996.
Note E-Commitments
The Company does not lease any aircraft or related flight equipment.
Leased property consists of space in a ir terminals, land and buildings at a irports,
and ticket, sales and reservation offices under noncancelable operating leases
which expire in various years through 2029. Portions of these faci lities are subleased
under noncancelable operating leases expiring in various years through 1991 .
15
Notes to Financial
Statements
Northwest Airlines, Inc.
16
Note E-Commitments (continued)
Future minimum rental commitments at December 31, 1981 for noncancelable
operating leases with initial or remaining terms of one year or more, of which
$263,774,000 is for air terminal and airport facilities, are as follows:
1982
1983
1984
1985
1986
Thereafter
Sublease rental income
Rental expense for all operating leases consisted of:
1981
Minimum $25,238,000
Sublease rental income (917,000)
$24,321,000
Note F-Contingencies
1980
$24,352,000
(988,000)
$23,364,000
S 18,435,000
17,024,000
16,243,000
15,665,000
14,666,000
189,471,000
271,504,000
(6,426,000)
$265,078,000
1979
$22,029,000
(842,000)
$21,187,000
The Company is a defendant in a class action brought in 1970 in federal court in
Washington, D.C. by certain of its female cabin attendants alleging violations of
certain provisions of the Equal Pay Act of 1963 and the Civil Rights Act of 1964. The
trial judge held that provisions of both statutes had been violated by the Company.
The Company appealed that decision. The Court of Appeals for the District of
Columbia affirmed the trial judge on all substantive issues and remanded the case
for further consideration by the trial court. 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 then remanded to the trial court. In subsequent
proceedings, the Court of Appeals has held that the original decision by the trial
court was not a final decision and both the rulings of the trial court and the Court of
Appeals may be reconsidered under appropriate circumstances.
On remand the trial court decided that a three year rather than a two year statute of
limitations is applicable to the alleged Civil Rights Act violations thereby increasing
the Company's potential liability for back pay by the additional year, has 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, has 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, and has
denied a motion by plaintiffs to award a higher rate of compound interest in place of
lower simple interest originally awarded by the trial court. Other matters remain to be
decided by the trial court before a final judgment can be entered. When a final
judgment is entered, either party may seek appellate review of that final judgment.
The ultimate outcome of the litigation cannot be predicted and, therefore, no
specific amount of ultimate liability may be estimated as probable. The Company
estimates that its ultimate liability may range from approximately $1 million to
approximately $50 million.
Notes to Financial
Statements
Northwest Airlines, Inc.
Note F-Contingencies (continued)
The Company brought an action against the unions that represented the plaintiffs in
the class action described above seeking contribution from the unions for any liability
for which the Company may ultimately be held responsible. The Supreme Court held,
in a decision dated April 20, 1981, that unions may not be held liable in a suit for
contribution by an employer under either the Civil Rights Act of 1964 or the Equal Pay
Act of 1963.
The Company is also involved in other legal actions relating to environmental issues
(primarily noise and a ir pollution), a lleged employee discrimination, and other
matters relating to the Company's business. While the Company is unable to predict
the ultimate outcome of these actions, it is the opinion of management that their
disposition will not have a material adverse effect on the Company's financial position.
Note G - Pension Plans
The Company's pension expense was S27,254,000 in 1981, S33,692,000 in 1980 and
S29,691,000 in 1979.
Actuarial assumptions were revised in 1981 princ ipally to update rates of pay
increase and investment return to levels more reflective of actual plan experience.
These changes reduced pension expense for 1981 by approximately S9.8 million.
Accumulated plan benefit information, as estimated by consulting actuaries using a
7 % interest assumption, and plan net assets for the Company's plans are:
Actuarial present value of accumulated plan
benefits:
Vested
Non-vested
Net assets available for benefits
Note H-Export Sales
Year Ended December 31
1981 1980
$323,205,000
30,362,000
$353,567,000
$363,213,000
$273,038,000
41,988,000
$315,026,000
S343, 765,000
Northwest Airlines, Inc. is a scheduled air carrier engaged in commercial
transportation of passengers, freight and mail, and operates under certificates of
public convenience and necessity issued by the Civil Aeronautics Board. Export
sales were $453,000,000 in 1981, S375,000,000 in 1980 and S255,000,000 in 1979,
principally associated with countries in Asia and Europe. Revenue from sales
consummated in foreign countries is considered to be export sales.
17
Notes to Financial
Statements
Northwest Airlines, Inc.
18
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 , 1981:
(In Thousands) Earnings
Net (Loss) Per
Operating Operating Earnings Share of
Revenues Expenses (Loss) Common
Stock
1981
First quarter s 418,939 s 438,017 S (7,384) S (.34)
Second quarter 470,802 467,461 3,402 .16
Third quarter 527,322 498,174 17,537 .81
Fourth quarter 437,227 448,891 (3,095) (.15)
$1 ,854,290 $1 ,852,543 S 10,460 S .48
1980
First quarter s 358,104 s 389,923 S( 10,903) S (.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
S 1,639,330 $1 ,663,464 s 7,084 s .33
The changing c ircumstances 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 1980 net earnings amounted to $2,149,000 (S .10 per share).
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 CHANGING PRICES", THE COMPANY MUST PROVIDE
SUPPLEMENTAL INFORMATION CONCERNING THE EFFECT 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 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:
Notes to Financial
Statements
Northwest Airlines, Inc.
Note J-Supplemental Information on the Effects of Changing Prices (Unaudited)
(continued)
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: (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, 1981
(Dollars In Thousands)
Operating revenues
Depreciation and amortization
Other operating expenses
Gain on sale of flight equipment
Other expenses, net
Earnings (loss) before income taxes
Income tax credit
Net earnings (loss)
Other Information
Purchasing power gain from holding net
monetary liabilities during the year
As Reported
in the
Primary
Statements
S 1,854,290
133,489
1,719,054
(16,975)
10,813
1,846,381
7,909
2,551
S 10,460
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
Adjusted
for General
Inflation
$1,854,290
223,392
1,719,054
(7,552)
10,813
1,945,707
(91,417)
2,551
S (88,866)
Adjusted
for General
Inflation
S 38,876
Adjusted for
Changes in
Specific
Prices
(Current
Costs)
S 1,854,290
262,075
1,719,054
10,813
1,991 ,942
(137,652)
2,551
S (135,101)
Adjusted for
Changes in
Specific
Prices
(Current
Costs)
S 38,876
$316,474
213,874
S 102,600
At December 31, 1981, current cost of property and equipment, net of accumulated
depreciation, was $2,530,814,000 (historical amount-$ 1,197,332,000).
19
Notes to Financial Note J-Supplemental Information on the Effects of Changing Prices (Unaudited)
Statements (continued)
Northwest Airlines, Inc. Five Year Comparison of Selected Supplementary Financial Data Adjusted for
Effects of Changing Prices
In Average 1981 Dollars
(In thousands of
Year Ended December 31
dollars, except 1981 1980 1979 1978 1977
per share data)
Operating revenues S 1,854,290 $1,809,374 $1,642,116 $1,101,536 S 1,570,397
Historical Cost
Information
Adjusted for General
Inflation
Net earnings (loss) (88,866) (69,189) 16,335
Per share data ( 4.10) (3.20) .75
Net assets at
year end 1,552,650 1,622,243 1,659,633
Current Cost
Information
Net earnings (loss) (135,101) (98,758) (25,014)
Per share data (6.23) (4.56) ( 1.15)
Excess of increase in
specific prices of
property and
equipment over
increase in the
general price level 102,600 - 150,280 42,699
Net assets at
year-end 2,1 79,059 2,223,397 2,182,717
Other Information
Purchasing power
gain from holding net
monetary liabilities
during the year 38,876 58,209 59,315
Cash dividends
declared per
common share .80 .88 1.00 1.05 .75
Market price per
common share
at year-end 27.00 26.21 34.62 39.73 35.46
Average consumer
price index 272.4 246.8 217 .4 195.4 181 .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 J-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 1981. 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 1981 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 d ifferent issue than income adjusted for
general inflation. The specific prices of the Company's property have risen at a
d ifferent 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.
Income Taxes
Current tax laws do not recognize deductions for current cost depreciation expense;
therefore, no adjustments have been made to the provisions for income tax.
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 d iminished 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 93% 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
10 Year Summary Years Ended December 31 1981 1980 1979 1978 t 1977 1976 1975 1974 1973 1972t
Northwest Airlines, Inc. Operating Revenues
(Dollars In Thousa nds Passenger $ 1,521,856 s 1,347,830 s 1,067,214 s 557,401 s 861,053 s 786,414 s 659,849 s 628,488 s 476,794 s 277,891
Except Per Share Figures) Freig ht 221,691 190,837 160,7 16 87,077 121,185 119,882 88,308 76,157 55,280 34,694
Mail 59,786 57,305 38,685 18,944 29,894 25,137 23,280 22,91 1 18,415 13,309
Charter and other transportation 21 ,766 16,303 15,093 10,997 25,87 1 25,955 29,019 27,322 28,517 20,009
Nontransport 29,191 27,055 28,850 115,743 8,352 6,420 107 4,1 13 5,342 46,598
TOTAL OPERATING REVENUES $ 1,854,290 s 1,639,330 s 1,310,558 s 790, 162 s 1,046,355 s 963,808 s 800,563 s 758,991 s 584,348 s 392,501
Operating Expenses
Depreciation a nd amortization $ 133,489 s 124,078 s 106,401
. s 104,970 s 103,152 s 102,713 s 98,880 s 96,213 s 87,642 s 81,054
Other 1,719,054 1,539,386 1,148,805 617,907 838,619 758,147 651,983 584,993 445,401 296,348
TOTAL OPERATING EXPENSES $ 1,852,543 s 1,663,464 s 1,255,206 s 722,877 $ 941,771 $ 860,860 s 750,863 s 681,206 s 533,043 s 377,402
Operating income (loss) $ 1,747 s (24,134) s 55,352 s 67,285 s 104,584 s 102,948 s 49,700 s 77,785 s 51 ,305 s 15,099
Interest expense (14,135) (1?,831) (1,635) (3,376) (6,518) (14,035) (16,120) (19,554) (14,758) (8,356)
Other income and (deductions)-net 20,297 3,862 30,643 45,126 55,078 9,351 13,509 40,148 19,133 10,510
Earnings (loss) before taxes $ 7,909 s (36,103) s 84,360 s 109,035 s 153,144 s 98,264 s 47,089 s 98,379 s 55,680 s 17,253
Income taxes ( credit) (2,551) (43,187) 11 ,885 47,194 60,425 46,527 3,693 33,631 3,830 (429)
Net Earnings1 $ 10,460 s 7,084 s 72,475 s 61,841 s 92,7 19 s 51,737 s 43,396 s 64,748 s 51,850 s 17,682
Earnings per average share1 $ .48 s .33 s 3.35 s 2.86 s 4.29 s 2.39 s 2.01 s 3.00 s 2.40 s .83
Cash dividends 17,326 17,317 17,306 16,210 10,804 9,707 9,710 9,722 9,722 9,620
Dividends per share .80 .80 .80 .75 .50 .45 .45 .45 .45 .45
Stockholders' equity 832,510 839,042 849,122 793,691 747,672 665,744 623,677 589,991 534,965 492,837
Number of shares outstanding at
end of year 21 ,661 ,367 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
Book value per share at end of year $ 38.43 s 38.76 s 39.24 s 36.70 $ 34.60 s 30.81 s 28.87 s 27 .31 s 24.76 s 22.81
Assets and Long-Term Debt
Flight property at cost $ 1,992,015 $ 1,995,168 s 1,779,770 $ 1,525,442 $ 1,510,447 s 1,448,402 s 1,420,670 s 1,282,556 $ 1,216,632 s 1,008,041
Flight property at net book value 1,110,965 1,200,495 1,094,556 922,615 962,957 924,537 977,062 907,935 861 ,231 682,020
Total assets 1,492,381 1,532,539 1,528,921 1,392,865 1,299,451 1,151,562 1,215,146 1,121 ,153 1,085,632 920,418
Long-term debt 12,500 62,500 100,000 100,000 100,000 122,000 246,000 213,900 284,000 208,000
Unit Expenses
Per available ton-mile 41.0 37.0 29.4 27.9 22.9 21 .6 20.6 19.9 15.8 16.9
Per revenue ton-mile 84.7 80.6 63.4 65.7 54.4 50.5 50.2 48.2 42.5 49.6
Per cent of operating revenues 99.9% 101.5% 95.8% 91 .5% 90.0% 89.3% 93.8% 89.8% 91.2% 96.2%
Statistics- Scheduled Services
Revenue plane-miles (000) 120,139 120,709 116,105 66,420 111,271 108,474 104,104 105,295 108,853 79,025
Available seat-miles (000) 24,813,981 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
Revenue passenger-miles (000) 14,251 ,932 13,810,889 13,298,161 7,018,305 11 ,100,412 10,758,683 9,471,282 9,173,875 8,007,850 4,565,618
Passenger load factor 57.4% 55.5% 55.3%
. 49.1% 48.3% 48.4% 45.3% 45.8% 40.9% 35.2%
Revenue passengers carried 11 ,144,785 11 ,501,148 11 ,636,170 6,574,901 10,354,808 9,818,343 8,865,263 8,948,373 7,987,299 5,150,636
Freight and express ton-miles (000) 616,285 529,434 504,753 302,153 458,143 467,399 386,309 317,437 251,865 150,973
Total revenue ton-miles (000) 2,186,815 2,048,349 1,956,217 1,079,681 1,676,470 1,647,317 1,428,381 1,330,803 1,140,983 672,035
Statistics-Total Operations
Revenue p lane-miles (000) 120,761 121,243 117,027 67,471 114,643 112,279 107,721 110,519 115,726 84,098
Available ton-miles (000) 4,519,768 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
Not covered by Accountants' Report.
tStrikes a dversely affected 1972 and 1978.
1 See Financial Highlights pages 24 through 27 for Management's Discussion of the Summary of Operations.
22 23
Financial
Highlights and
Management
Discussion for 1981
Revenues
Total operating revenues
increased 13% in 1981
to a new record of
$1,854,290,000. The prior
year's revenue of
$1,639,330,000 was a 25%
improvement over 1979's
$1,310,558,000 total.
Scheduled passenger
revenues for 1981 increased
$174,026,000 due to a 3.2%
increase in traffic and a 9.4%
increase in yield (revenue per
passenger mile) from 9.76 to
10.68. In 1981 Northwest was
one of only two major U.S.
a irlines to achieve a traffic
gain in the second con-
secutive year of traffic
decline for the industry.
24
Passenger
- Cooch $1 ,388.0 74.9%
Passenger
- First Class 133.9 7.2
- Freight 221.7 12.0
- Mail 59.8 3.2
- Charter and
Other 50.9 2.7
$1 ,854.3 100.0%
- - - - -
Sources of 1981
Operating Revenues
(Dollars in Millions)
Northwest implemented
passenger fare increases in its
domestic markets during 1981
including a 15% increase in
the 48 states; a 15% increase
Mainland-Alaska; and a 16%
increase Mainland-Hawaii.
Fare adjustments on inter-
national routes were also
implemented during the year
with Atlantic fares increasing
22% and Pacific fares 10%.
However, offsetting these
general fare increases was
the increased availability of a
greater number and variety
of special d iscount fares
resulting from continued price
competition. The use of these
special discounts during 1981
increased dramatically over
the prior.year with a depres-
sive effect on revenue per
passenger mile.
Freight revenues increased
by $30,854,000 to
$221,691,000 during 1981
which resulted entirely from a
16.4 % increase in freight
volume. Mail revenues
increased by $2,481,000 over
the prior year to $59,786,000
and charter and other
transportation revenues
increased $5,463,000 to
$21,766,000.
Expenses
Operating expenses for 1981
totaled $1,852,543,000
compared with
$1,663,464,000 in 1980 and
Fuel and Oil S702.7 37.9%
Employee Wages
and Benefits 444.0 24.0
- Landing Fees.
Rentals. Materials
and Services 401 .7 21 .7
- Commission 170.6 9.2
- Depreciation and
Amortization 133.5 7.2
$1,852.5 100.0%
- - - - -
Distribution of 1981
Operating Expenses
(Dollars in Millions)
$1 ,255,206,000 in 1979. As a
result of Northwest's cost
control the rate of increase in
these expenses moderated
during 1981. The current year
total increase was 11.4% over
the prior year. The increase in
1980 operating expenses
over 1979 was 32.5%.
Operating expenses per
available ton-mile increased
to 41 .0 in 1981 from 37.0
in 1980 and 29.4 in 1979.
Northwest continues to be the
most efficient trunk carrier in
the industry.
Northwest's jet fuel bill for 1981
amounted to S 702,700,000
compared to $631,273,000 in
1980 and $395,260,000 in
1979. The average cost of jet
1977 1978 1979 1980 1981
Revenues
in E cess
of
E penses
- E penses
in E cess
of
Re enues
- 1977 1978 19791980 1981
Equi
in E cess
of Deb
Revenues and
Expenses Deb
-
1900
1800
1700
1600
1500
1400
1300
1200
11 00
1000
900
800
700
600
Operating
Revenues and Expenses
(Dollars in Millions)
fuel in 1981 was $1 .077 per
gallon compared to SG.951 in
1980, an increase of 13.2%.
Fuel costs began to
moderate in late 1981. The
impact and effect of inflation
and changing prices is
discussed in Footnote J to
the financial statements.
Depreciation and
amortization expenses
totaled $133,489,000 in 1981
compared with $124,078,000
and $106,401,000 for 1980
and 1979, respectively. This
increase in depreciation and
amortization expense reflects
the addition of two new fuel
efficient a ircraft in 1981
following the purchase of
seven new a ircraft in 1980.
900
0
Stockholders'
Equity vs. Long-Term Debt
(Dollars in Millions)
Earnings and Dividends
Net earnings of $10,460,000
in 1981 are up 47.7% from
1980 earnings of S 7,084,000.
1979 net earnings were
$72,475,000. Earnings per
average share of common
stock outstanding were 48
in 1981, 33 in 1980 and
$3.35 in 1979.
Gain from disposal of
property was $16,975,000
in the current year, up
substantially from the 1980
gain of $143,000. 1979 gains
totaled S 15,544,000. The 1981
gain reflects the sale of seven
Boeing 727-100C aircraft. Five
additional B-727-100C aircraft
are scheduled for sale in
1982. No a ircraft were sold
in 1980.
While Northwest achieved
only a modest increase in net
earnings during the year, a
substantial improvement of
$25,881,000 was made in
operating income. The
problems that plagued the
industry in 1980 continued in
1981, specifically higher
operating costs and a
deepening of the U.S.
recession. The latter resulted
in a traffic depression for the
industry. However, despite
increased competition
systemwide, Northwest was
able to achieve significant
operating improvements in
the Pacific and Domestic
entities. Additional start up
costs were incurred with the
new Boston-London route in
the Atla ntic. With fuel prices
stable, reasonable traffic
growth in the Domestic system
a nd modest yield improve-
ment, coupled with a strong
competitive posture in the
Pacific, further profit
improvements should be
made in 1982.
Northwest Airlines continued
its d ividend payment policy
with q uarterly payments for
the 27th consecutive year.
A cash d ividend of 80 per
share was paid in 1981
which tota led $17,326,000.
Common stock of Northwest is
principally traded on the New
York Stock Exchange. A table
showing the sales prices a nd
d ividends paid per share in
1981 and 1980 is included
in the accompanying g raphs
a nd charts.
Taxes on Earnings
Income tax credits were
$2,551,000 in 1981 and
$43,187,000 in 1980. Income
tax expense in 1979 was
$11,885,000. Earned
investment tax credits were
$4,837,000 in 1981 compared
to $24,554,000 in 1980 and
$27,396,000 in 1979.
Decreased earned invest-
ment tax credits in 1981
reflect the receipt of only two
new a ircraft compared to
seven in 1980. In 1982,
earned investment tax credits
will approximate 1981 levels.
Investment tax credits are
applied on tax returns as
a llowed by income tax
regulations. Credits not
applied currently are offset
against deferred taxes and
as of December 31, 1981,
these credits totaled
$72,924,000. No investment
tax credit benefits were "sold"
during the year as the
Company believes it will be in
a position to apply all of its
credits on tax returns. The
Company continues to use
25
Financial
Highlights and
Management
Discussion for 1981
(continued)
accelerated depreciation
methods for income tax
purposes as provided by law.
Cash Flow, Liquidity, and
Capital Resources
During 1981 funds generated
from all sources totaled
$146, 137;000 including
$23,249,000 of proceeds from
the sale of equipment. Also
included in the total were the
benefits from the Company's
long-standing policy of
owning its own fleet rather
than leasing which provided
funds through depreciation
and amortization of
Sales Price of Dividends
Common Shares Per Share
Quarter 1981 1980 1981 1980
1st High 31 5/a 31 S.20 S.20
Low 23 203/a
2nd High 38 25 S.20 S.20
Low 28 20
3rd High 32 31 S.20 S.20
Low 26 243/a
4th High 33 27 S.20 S.20
Low 26 225/a
26
Guam
$133,489,000. Funds were
used during 1981 to pay off
S37,500,000 of long-term
debt, to acquire over S50
million of flight equipment
and other property, and to
pay over S 17 million in cash
dividends to shareholders.
The Company has no orders
or commitments for the
purchase of additional
aircraft. Funds for working
capital and capital expendi-
ture requirements during the
last three years have been
provided primarily by on-
going business operations.
Capital expenditures during
this period exceeded $390
million and included the
acquisition of eight 7 47
aircraft and eight 727-200
aircraft. With total debt of
all kinds as of December 31 ,
1981, at only 13% of stock-
holders' equity, and the
Company's commercial
paper rating of A-1/P-1, the
highest quality, Northwest
believes it will have no
difficulty in generating
adequate cash to meet
corporate needs. Unused
lines of credit at year-end
totaled $79,449,000.
The Company's remaining
S12.5 million of long-term
oebt is scheduled for
repayment in January 1983.
Stockholders' equity at
December 31 , 1981, totaled
$832,510,000 and the book
value per share of common
stock outstanding was $38.43.
Traffic and Service
During a year when overall
demand for air transportation
was again declining,
Northwest's 1981 scheduled
operations produced gains in
both passenger and freight
traffic compared to 1980
and 1979. This growth was
primarily the result of

New Orleans
Tampa
St. Petersburg
Ft. Myers Ft. Lauderdale
Miami
Berg:n Oslo Helsinki
..
.
olm
Northwest Orient Airlines authorized routes.
improved international
operations with the greatest
growth in the Atlantic.
Prospects for traffic growth in
the Domestic 50 States are
a function of a general
economic upturn in the
second ha If of the year.
Northwest expects significant
traffic increases in both the
Pacific and the Atlantic .
Overall the Company expects
systemwide traffic growth
exceeding the industry
average. Northwest's 1981
3.2% increase in system traffic
also produced an increase in
the Company's total system
market share. This was
accomplished profitably.
During 1981 Northwest carried
11,144,785 passengers.
Financial Condition
Despite the current economic
recession and adverse
Selected Financial Data (In Thousands)
Year Ended December 31 1981 1980 1979 1978. 1977
Operating Revenues S1 ,854,290 $1 ,639,330 S 1,310,558 s 790,162 S1 ,046,355
Net Earnings 10,460 7,084 72,475 61 ,841 92,719
Total Assets 1,492,381 1,532,539 1,528,921 1,392,865 1,299,451
Long-Term Debt 12,500 62,500 100,000 100,000 100,000
Per Common Share:
Earnings .48 .33 3.35 2.86 4.29
Cash Dividends .80 .80 .80 .75 .50
operating results were affected by a major strike which extended from April 29 through August 15, 1978.
conditions affecting the
airline industry during 1981,
Northwest posted a profit for
the 33rd consecutive year.
With its very small debt and
large stockholders' equity,
Northwest remains one of the
strongest carriers in the entire
airline industry. This strong
balance sheet, excellent
liquidity, and modern fleet of
aircraft puts the Company in
a position to respond to
anticipated increases in
demand with the recovery of
the domestic economy. In
the meantime, Northwest
continues its long-standing
history of efficient operation
and stringent cost controls in
an effort to combat the
current period of soft traffic
and cutthroat price
competition.
27
-
Service Highlights
28
More comfortable slimline seating was added to Northwest's 727-200 fleet.
Throughout 1981, Northwest
Airlines continued to build on
its sterling reputation for fine
service and outstanding
revenue leadership.
Northwest's 13,096 employees
exhibited enthusiastic
dedication to customer
satisfaction and contributed
significantly to Northwest's
1981 results.
Automated Systems
Northwest Airlines activated
its new S15 million POLARIS
computerized reservation
system late in 1981.
Recognized as one of the
most advanced in the airline
industry, POLARIS insures
Northwest a leadership
position in respect to full-
function reservation systems.
A major advantage of the
new POLARIS system is its
capability to display more
than half-a-million schedules
and to show availability status
for virtually all direct and
connecting flights throughout
the world.
Northwest's POLARIS
comprehensive North
American fares display data
base is updated weekly by
computer tape, and provides
the most current fare infor-
mation available. The new
hardware and software has
the vast expansion capacity
needed as the airline adds
routes, fares and services.
The efficiency of POLARIS is
unsurpassed, resulting in
increased agent productivity.
New reservations can be
made and stored in a single
input to the computer. The
software in Northwest's new
POLARIS system provides
greater flexibility and ease
of update to respond to
changes in the marketplace.
In late 1981, the company
signed contracts for a new
corporate wide video display
screen communications
system.
This new system will be
installed at all company
locations during 1982. The
system features new video
display terminals with
increased capabilities and
larger screens, new admini-
strative printers and new
ATNIATA ticket printers.
Major benefits will include
improved communications
capability at all levels of
the company while at the
same time significantly
reducing line maintenance
and energy costs.
The sixth Automatic Call
Distribution system was
brought on-line in early 1982.
These systems, costing more
than S1 million each, are now
located in reservation centers
in the Twin Cities, Chicago,
Cleveland, Seattle, New York
and Los Angeles. The
Automatic Call Distribution
system reduces reservation
response time, permits call
load balancing, increases
reservation sales productivity
and insures reliability with its
uninterruptible back-up
power supply.
Northwest installed new
telecommunications equip-
ment to accommodate the
speech and hearing-
impaired on its United States
reservation system. The Tele-
communications Device for
the Deaf provides a printed
record of the conversation
and accommodates yet
another d imension for
meeting the needs of the
traveling public.
The usage of MAPPER
Automated Systems was
widely expanded in 1981.
This highly sophisticated data
base and development
system continues to tighten
control of 115,000 expend-
able items in Northwest's
Purchasing and Stores
Department. The MAPPER
system has been used to
generate statistical data
and planning data used in
marketing forecasts. In
addition this year, a new
accounts payable system
was installed.
Seating Capacity Improved
Northwest began a program
to improve 727-200 seating
capacity while enhancing
passenger comfort and
enlarging carry-on luggage
storage facilities. The a irline's
727-200 capacity has moved
from 128 to 146 seats. Total
seat additions are equal to
seven new 727-200 aircraft.
During 1982, reconfiguration
of the Northwest 7 47 fleet will
improve capacity from 367 to
394 seats with the addition of
a tenth seat across in the
airplane's tourist sectio~. This
conforms to the most com-
mon configuration among
worldwide a irlines operating
the 7 47 a ircraft. Northwest's
747 executive class compart-
ment will be made more
spacious and comfortable
with the addition of custom
designed eight-abreast seats.
Executive seating will be
available on the main deck
and the upper lounge of the
aircraft. The luxurious 22
sleeper seats in the first-class
section will remain. The 7 47
seating reconfiguration will
provide increased capacity
equal to two new 7 47 aircraft.
Northwest has also
developed a plan to
reconfigure its DC-10 fleet
throughout 1983. This will
involve complete refurbishing
of the aircraft's interior and
improve seating capacity
from the current 236 to 292
seats. The objective will be
achieved by reducing the
first-class cabin size on the
DC-10, limiting the number of
first-class seats to 22 and
installing 270 completely new,
more comfortable, slimline
lightweight seats in the
expanded tourist section
of the aircraft.
The total conversion project to
expand seating capacity in
Northwest Airlines' passenger
fleet will provide a gain of
2,840 new seats, equivalent
to 14 new a irplanes, at an
overall cost of S33,000,000.
The added seating in all of
the a ircraft, plus the com-
plete rework of the DC-10
interiors, will require a low
capital cost outlay of about
S12,000 per seat compared
with the new airplane cost
of S150,000 to S200,000
per seat.
Weight reduction from
installation of the new, more
comfortable seating will
recover modification costs
over a short period of time.
All of the reconfiguration and
refurbishment work will be
accomplished by Northwest
maintenance personnel at
the airline's main overhaul
base in Minneapolis/St. Paul.
-
.. .
~
.
t t
,
t
, t
,, , t
t t t t
.,
t t ,
11 Ii
29
Service Highlights
(continued)
30
Executive Class Introduced
E
xecutive Class, a superior
service class on Northwest's
transatla ntic and transpacific
flights, has had high accept-
ance. This expanded service
level provides Northwest with
additional appeal to the full-
fare economy passenger.
Free headsets, movies,
amenities kits and beverage
service on international flights,
a long with first-class standby
transportation on connecting
domestic flights are added
attractive incentives in a
competitive marketplace.
New Routes/Services
Northwest Airlines increased
its systemwide market share
of scheduled traffic in 1981
and d id so profitably. New
nonstop passenger service
between Boston a nd London,
Tokyo and Guam, Los
Angeles and Tokyo, Taipei
and Manila and the Twin
Cities and Oslo was
inaugurated in 1981.
Contract Ratified
Flight attendants and the
airline agreed on a ll terms of
a new 3-year labor agree-
ment during 1981. This new
agreement, effective August
1, was ratified by a
majority vote.
Facilities
Northwest ticket counters,
baggage claim and airport
facilities were fine-tuned for
improved customer conveni-
ence. Two additiona l loading
bridges at the Boston gate-
way, installation of first and
executive class check-in
facilities at the Los Angeles
gateway and major
baggage retrieval improve-
ments at the Minneapolis/
St. Paul gateway functionally
underscored Northwest's
commitment to provide
superior customer service.
Training Continues
Nearly 1,000 Northwest
transportation agents
Sunset over Tuman Boy, Gua m.
completed an intense train-
ing program emphasizing
customer service oppor-
tunities, sales techniques and
teamwork. This ongoing
investment in "people power"
continues to show positive
results in the area of
customer relations.
Fuel Conservation
Fuel conservation efforts
continue to be effective as
fuel consumption decreased
11 .6 million gallons despite
the .5% growth in capacity.
However, tota I fuel costs
increased 11.3% as the
average price per gallon
rose 13.2% to $1.077.
The Directors of
Northwest Orient
Airlines
(As of March 26, 1982)
James H. Binger
Former Chairman of the
Executive Committee,
Honeywell, Inc.
Minneapolis, Minnesota
Manufacturer of automation
systems
E. W Blanch, Jr.
President & Chief Executive
Officer
E. W Blanch Company
Minneapolis, Minnesota
Re-insurance brokerage
Raymond H. Herzog
Former Chairman of the Board,
3M Company
St. Paul, Minnesota
Multi-notional manufacturing
Melvin R. Laird t
Senior Counselor,
Reader's Digest Association
Washington, D.C.
Magazine publishing
James N. Land, Jr.
Financia l Consultant
New York, New York
M. Joseph Lapensky
President & Chief Executive
Officer
Northwest Airlines, Inc.
St. Paul, Minnesota
Donald G. McNeely
Chairman of the Board,
Space Center, Inc.
St. Paul, Minnesota
Logistics
Donald W Nyrop
President & Chief Executive
Officer, 1954-1976; Chairman
& Chief Executive Officer,
1976-1978
orthwest Airlines, Inc.
S . Paul, Minnesota
Member, Audit Committee
The Officers of
Northwest Orient
Airlines
(As of March 26, 1982)
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
Bruce H. Fillips
Vice President-Comptroller
Robert J. Glischinski
Vice President-Communi-
cations 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- W:Jshington
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
R. James Thorne
Vice President-Properties
Steven D. Wheeler
Secretary
Robert J. Wright
Vice President-Sales
31
Northwest Orient Airlines World Headquarters: Minneapolis-St. Paul International Airport, St. Paul, MN 55111