Northwest Airlines Annual Report 1982

NORTHWEST ORIENT AIRLINES ANNUAL REPORT 1982
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FROM THE PRESIDENT
THE 56TH ANNUAL REPORT
TO SHAREHOLDERS
Northwest Airlines reported net earnings of $5,019,000 in
1982, making this carrier one of only three major U.S.
airlines to record a profit for the year.
Although net earnings were down from the
$10,460,000 posted in 1981 , our 1982 earnings were
realized in the face of an extremely difficult
environment-the weak state of the U.S. and worldwide
economy; extensive fare discounting on an industry-wide
basis; and increased competition for the generally lower
traffic available. More importantly to Northwest, a difficult
26-day strike by our machinists' union in May-J~ne
adversely affected operating income during those
months, and to some extent in July.
These conditions notwithstanding, we succeeded in
increasing Northwest's passenger-miles for the year by
1 O percent, improved our passenger load factor to nearly
60 percent; and we continued to hold the line on
operating expenses.
PROGRESS IN 1982
Northwest Airlines made progress in several important
areas of our operation to strengthen the company:
The last of Northwest 's $100,000,000 term loan was
retired late in 1982, making NWA the only major U.S.
airline to carry no long-term debt at year end.
We continued our program to increase aircraft seating
capacity and to improve passenger comfort at a cost
far less than the purchase of new aircraft. When this
program is completed in 1984 we will have added
2,840 new seats to our fleet-the equ ivalent of 14 new
airplanes. In addition , weight reduction from the
installation of lighter seats will result in fuel savings.
We established a new airline planning department
designed to coordinate Northwest's route development,
scheduling and pricing policies.
We settled the new machinists contract on reasonable
pay terms and with several concessions from the
union, including cross utilization of employees;
redefin ition of jobs for greater productivity; job transfer
restrictions; and extended contract duration.
Altogether, we successfully negotiated long:term
contracts with twelve union groups in 1982, covering
more than 65 percent of our unionized work force.
ROUTE DEVELOPMENT IN 1982
Northwest became the only airline offering full-size
Boeing 747 nonstop flights between New York and
Tokyo. We also increased to daily ou r nonstop service
between Los Angeles and Tokyo, and increased the
frequency of nonstop flights between Seattle and Seoul,
Korea. All in all , we provided 50 transpacific passenger
and cargo round trips per week in 747 aircraft from New
York, Chicago, Los Angeles, Seattle, Anchorage and
Honolulu to points in the Orient.
We also strengthened our domestic system by adding
eight new cities-for the most part feeding our growing
hub and spoke operation at the Twin Cities. With the
addition of Denver, Dallas/Ft. Worth , Omaha, Wichita,
Kansas City, San Diego, West Palm Beach and Grand
Rapids, we now serve 57 cities in 28 states, extending
also to 14 foreign countries.
Freighter services were added at San Francisco to
strengthen our West Coast-Orient market, and at Atlanta
providing that city with its only 747 all-cargo service.
Finarly, Oslo was added as our new Scandinavian
freighter destination.
NEW OFFICERS-NEW DIRECTOR
We accomplished strengthening of our top management
team during the past year. Steven G. Rothmeier was
named executive vice president-finance and
administration and was elected as a member of
Northwest's Board of Directors. Thomas J. Koors was
elected executive vice president-marketing and sales
early in 1983. William A. Kutzke was elected vice
president of the newly created airline planning
department and Terry M. Erskine was elected vice
president of industrial relations to handle all union
contract negotiations and related matters. Bjarnie R.
Anderson was elected to the post of vice
president-Washington.
Robert A. Charpie president of Cabot Corporation of
Boston was elected to Northwest Airline 's Board of
Directors at its January 28, 1983 meeting.
OUTLOOK
Fare discounting and a weak economy will continue to
bear adversely on our financial results until we see a
meaningful upturn in U.S. and world business, perhaps at
some point in 1983. However, Northwest Airlines is fully
prepared to maintain its strong position in the industry
during the coming year. Many airlines are in difficult straits
with overwhelming debt loads and inadequate cash flow,
but your company stands strong and ready for whatever
may come-be it continued hard times or a surge of new
prosperity.
Northwest Airlines is staffed with highly trained, and
dedicated employees whom we thank for their outstanding
work in 1982. To our shareholders-we appreciate your
continued confidence and we will do everything possible
to make 1983 a successful year for Northwest Airlines.
Sincerely,
'7Ji,P.~
M.J. Lapensky
President and Chief Executive Officer
March 25, 1983
or ,es ir ines is e on air ine o o er rec i ing sleeper
sea s in E ecu 1 'e c ass
6
MARKETING HIGHLIGHTS
STRATEGIC PLANNING PAYS MARKETING DIVIDENDS
Northwest's aggressive marketing program is a key to
increasing traffic and revenues. Since the advent of
deregulation, Northwest has made significant progress
developing as a marketing-oriented company. Northwest will
continue to generate those areas of traffic flow it lacked prior
to deregulation and will capitalize on its current strengths in
domestic and international markets.
The key support tool for Northwest's marketing efforts was
the airline's advertising plan. In the United States a
proliferation of low fares escalated toward year end.
Northwest's domestic advertising, already geared to
segmented marketing, provided ongoing tactical support to
each of the system's 57 on-line markets in a manner designed
to protect those markets without further escalating fare wars.
Coincident advertising introduced Northwest to eight new
domestic markets and by year end the airline's service identity
was established in these markets.
Other successful campaigns included Free Flight Plan II and
the winter-vacation Sunship promotion. Northwest introduced
an expanded Free Flight program in 1982 designed to
encourage the repeat traveler. The new program permits
flyers to earn round-trip transportation to any of the 75 cities
served by Northwest in 28 states and 14 foreign countries
except Canada. Northwest's Free Flight Plan 11 is unique
among free-travel programs in that it is based simply on the
nurflb,er of segments traveled, not complicated mileage
computations. In addition, it is the only free-travel program
extended to th~ passenger's professional travel planner.
As part of Northwest's winter-vacation Sunship promotion,
special first-class Sunship fares to Florida, California and
Arizona were offered in northern states between January and
March 31 , 1983. A Northwest Sunship ticket entitled the holder
to the added incentives of one free night of lodging at
participating Holiday Inns when two additional nights were
purchased, and one day free use of a rental car.
INCENTIVE AND CHARTER SALES SHOW GROWTH
Northwest's incentive travel sales increased dramatically in
1982 as travel continued to be the number one motivational
tool used by large corporations and dealerships to increase
sales. International guaranteed airfare agreements were
signed with major incentive houses across the United States
to spur incentive sales.
In early 1982, Northwest transported more passengers to
Las Vegas on a charter or sc;heduled basis than any other
carrier. Eight weekly 7 4 7 charters to Las Vegas dominated the
upper midwest market. In other markets, Northwest charters
were involved with transporting professional football teams,
corporation and leisure travel programs, cargo and live
animals.
The past year also marked the successful introduction of
part charters. Under this program, limited seat inventory on
regularly scheduled flights to Honolulu is contracted to tour
operators.
Due to the recession, convention , conference and meeting
attendance became discretionary in 1982 as many businesses
sought to reduce their expenses. In response, Northwest
introduced new convention air-fare programs, designed to
meet the heightened airline price competition and encourage
delegate attendance.
TRAVEL AGENTS AND COMMUTER AIRLINES
IMPORTANT TO MARKETING PLAN
Sales by retail travel agents account for about 80 percent of
Northwest's total passenger sales, and the company is
strongly emphasizing the development of automated
reservation and ticketing programs for travel agents.
Northwest is participating in the MARS/PLUS multi-access
and American Airlines SABRE reservation systems, which
permit nearly 7,000 U.S. travel agents to access Northwest's
flight schedules in a more efficient manner. The company is
also in the process of negotiating agreements to enhance its
participation in the reservation systems of four other U.S. and
Canadian airlines. In addition, Northwest is involved with or
developing plans for automated reservation systems in
England, Ireland, Scotland, Japan and Hong Kong .
Airline deregulation has resulted in a tremendous increase
in the number of commuter carriers and in the number of
cities they serve. Northwest is working to establish closer
working relationships with these carriers to provide additional
interline feed potential from cities not served by Northwest.
FIELD AND TOUR SALES REFLECT MARKETING
STRENGTH OF NORTHWEST
Northwest's field sales organization includes 59 sales offices
handling nearly 58,000 accounts. This organization was
expanded in 1982 by the addition of four sales districts in
Kansas City, Omaha, Fort Lauderdale and Denver.
The Sales Support Team Program that was developed in
1981 for North Dakota was expanded to all offices in Montana,
plus Edmonton, Winnipeg and Orlando. Field Sales also
continued its extensive sales and promotions training program
for all reservation sales personnel in New York, Tampa,
Minneapolis/St. Paul, Seattle and Los Angeles.
Northwest's Tour Sales division reported substantially higher
revenues and traffic in 1982. These gains were partially due to
Northwest's expansion into new domestic markets such as
Denver, where a strong base of business from tour operators
and wholesalers was established during the year. The strength
of the U.S. dollar and increased buying power overseas also
made international travel extremely attractive for tour
passengers in 1982.
An example of transatlantic tour development was the
consolidation of Northwest service to London, Glasgow and
Shannon, Ireland, into a single tour itinerary in 1982. This
generated over 5,000 passengers and an expanded program is
planned for 1983. The Peoples' Republic of China was also a
popular destination for Northwest tour travelers in 1982. Tours
featuring China, but also including visits to other Northwest
destinations in the Orient, recorded sizeable increases during
the year.
CARGO SALES
Northwest is the third largest air-cargo carrier in the United
States in terms of freight ton-miles and sixth largest in the
world. Freighters generate the majority of Northwest's freight
revenue ton-miles, with 60 percent of the total moving in the
747F. In addition, all of Northwest's passenger 747s and
DC-1 Os are equipped to handle efficient cargo containers.
Due to the prolonged impact of the weak global economy
and the 26-day strike by Northwest's Machinist's Union, total
freight ton-miles declined 2.6 percent in 1982. Total freight
revenues were also down 7.5 percent in comparison to 1981.
Northwest's cargo sales respond directly to the level of
economic activity in the United States and abroad. This
sensitivity to prevailing economic conditions explains the lower
volume of cargo business in 1982 and is why this segment
should be an early beneficiary of a strengthening economy.
However, significant strides were made in increasing the
average daily utilization of all-freighter aircraft. These
improvements resulted from a thorough analysis of air-
freighter scheduling which , in turn, led to a number of
schedule changes. Moreover, to further penetrate its share of
the air freight market, Northwest expanded its service into
several key world markets.
The inauguration of 747 freighter service to San Francisco
positioned Northwest in the strategic West Coast-Orient
market. With service already in place at Los Angeles and
Seattle, Northwest is a major participant in the growing
volume of trade with the nations of the Pacific basin. In
addition, shipments of California produce continue to expand
through the San Francisco gateway.
In October, Northwest also inaugurated service to the two
important freight hubs of Atlanta and Oslo. The new service to
Atlanta, which bolsters Northwest's growing presence in the
Sunbelt, provides the city with its only all-cargo 7 4 7 service.
Distributors in the Southeast now have superior overnight
export-import service with the Orient and Europe.
Oslo replaced Stockholm as Northwest's Scandanavian
freighter destination. This move is intended to help Northwest
capitalize fully on the developing global market for Norwegian
seafood.
Northwest continued to bolster its position in the energy-
related Houston market and took steps that should further
strengthen its market share of the freighter service linking the
Texas oil equipment supply industry with oil fields in the North
Sea, Alaska's North Slope and Southeast Asia. Earlier in the
year, an oil rig flex joint weighing 66,952 pounds was boarded
in Houston and flown to the North Sea. This was the largest
piece of cargo ever moved by Northwest's cargo system.
Northwest also became a major competitor in the livestock
and meat charter market in 1982. In June, 300 Holstein
breeder heifers were shipped from Minneapolis to Seoul,
South Korea, thus clearing the way for future air exports of
livestock from the Upper Midwest. Later in the year, Northwest
shipped 3,200 pounds of steaks and roasts from Minneapolis
to London, becoming the first air carrier to ever transport
meat to the United Kingdom.
Ground was broken for a new $5 million Northwest cargo
facility at Boston 's Logan Airport. The new Boston facility at
Bird Island Flats will occupy seven acres adjacent to the
airport, include 60,000 square feet under roof with plant
maintenance facilities and parking capability for two 7 4 7
freighters. At New York's JFK Airport $7.7 million will be spent
in 1983 to modernize the cargo-handling system. Other
Northwest cargo terminal enhancements are being completed
in Milwaukee, Honolulu, Ft. Myers, Orlando, New Orleans and
Winnipeg, Canada.
Robert J. Wright
Robert J. Wright, vice president of sales retired early in 1983
after 37 years of service with Northwest Airlines. He began
his career in Seattle in 1946 and soon was transferred to
Anchorage. During the next 12 years Wright held sales
positions of increased responsibility in Wash ington, D.C.,
Cleveland, Honolulu, Detroit and Minneapolis/St. Paul. He was
elected vice president of sales in 1961 . Robert J. Wright 's
ab1l1ty to get things done earned him the respect of his fellow
employees and also of his marketing associates throughout
the airline industry.
7
New York to Tokyo non-stop service was inaugurated in 1982.
Northwest operates the only fu ll size 747 in the market and
expanded frequencies to four times each week and in 1983 to
5 times each week.
SERVICE HIGHLIGHTS
NEW INTERNATIONAL AND DOMESTIC ROUTES
In 1982 Northwest marked its 35th year of service to the
Orient and became the only airline offering full-size, Boeing
747, non-stop service between New York and Tokyo.
Inaugurated on the basis of two round-trips per week, the
service was later increased to four per week. This new service
also allows Northwest to offer one-stop, same airline service
to seven other cities in the Orient: Hong Kong, Seoul, Manila,
Taipei , Okinawa, Osaka and Guam. The daily non-stop New
York-Tokyo service brings the number of non-stop and one-
stop flights in the New York-Tokyo market to nine each week.
In addition, daily non-stop service between Los Angeles and
Tokyo, and additional Seattle-Seoul non-stop service , were
added to the existing daily non-stop flights between Chicago,
Seattle and Tokyo. Northwest remains the only U.S. airline
operating non-stop service between Chicago and Japan.
Further improvements in Northwest's service to the Far East
are planned for 1983.
Northwest began service to the Orient in 194 7 and by 1982
provided 50 transpacific passenger and cargo round trips
each week from the gateways of New York, Chicago, Los
Angeles, Seattle, Anchorage and Honolulu.
In another expansion of its international routes, Northwest
added new non-stop flights from Miami to Copenhagen , which
continue to Stockholm. The added frequency and convenience
of this new service on full-size 747s supplements Northwest's
extensive transatlantic schedule, which included 29 flights per
week in each direction during the peak season of 1982.
Northwest now offers non-stop or direct service to eight
European cities from the Twin Cities, Boston and other U.S.
cities.
Northwest strengthened several areas of its domestic
service in 1982. Altogether, Northwest added eight new cities
to its 37,000-mile route system. The airline now serves 75
cities in 28 states and 14 foreign countries.
Daily round-trip service was inaugurated between
Minneapolis/St. Paul and Denver, Dallas/Fort Worth , Omaha,
Wichita and Kansas City. Northwest entered the San Diego
market, inaugurating service to Los Angeles, Seattle and
Minneapolis/St. Paul. In addition, service was introduced
between Grand Rapids, Michigan and Detroit, Washington D.C.
and Minneapolis/St. Paul, and daily, non-stop service was
added between Seattle and Denver. Also in 1982, Northwest
expanded service between Minneapolis/St. Paul and New
York, Washington , D.C., San Francisco, Spokane, Seattle and
several cities in North Dakota. Northwest became the only
airline offering daily, non-stop, low-fare, roundtrip service
between Chicago and Washington, D.C.'s Dulles Airport.
Northwest also expanded its Florida service in 1982,
introducing two direct flights daily from Minneapolis/St. Paul
and Chicago to West Palm Beach, via Northwest's Tampa/
St. Petersburg hub. West Palm Beach became the seventh
Florida city served by Northwest.
To further expand its Florida service, Northwest signed an
agreement with Dolphin Airways of Tampa providing air
travelers with superior service to many key cities in Florida.
Under this agreement, Dolphin is using Northwest's gate and
ticket-counter facilities at Tampa, Orlando, Miami and New
Orleans, thus facilitating connecting service between
Northwest and Dolphin through these cities. This will benefit
travelers by offering lower fares, greater convenience in
booking reservations and easier connecting service to many
Florida destinations.
AUTOMATED SYSTEMS EXPANDED
Northwest continued making strides in 1982 as an industry
leader in the area of automated systems employing state-of-
the-art computer technology. Resulting from strategic planning,
much of this activity focused on major enhancements to the
$15 million POLARIS computerized reservations system that
was activated in 1981 . Other advancements to upgrade the
airline's communications capabilities as well as refining and
expanding the extensive on-line computerized data base are
under way.
One such commun ications improvement underway is
Northwest's computerized flight planning system in which all
of the complex factors governing every Northwest flight will
be pre-programmed into the computer system. Computerized
flight plans are already used for Northwest's international
flights and will now be extended to shorter domestic routes.
As an automated system, this program has the potential for
significant fuel savings , since all manual calculations and
estimates on such factors as required fuel loads will be
eliminated.
In addition to enhancing its computerized flight planning
system, Northwest is developing its own high-speed private-
line weather distribution network. Weather data will be
programmed into Northwest's systemwide computer system
and distributed via computer terminals to every point served
by Northwest aircraft. This will result in significantly faster
weather communications and will be totally owned and
operated by Northwest.
Automated Ticket Printers and Call Distribution System
By mid-1983, new state-of-the-art, fully automated ticket
printers will be installed at all Northwest airport ticket
counters and city ticket offices. An enhancement to the
POLARIS system, these high-volume printers produce a more
legible ticket at faster speeds. About 115 of these printers
will replace the 30 existing machines. The greater number of
machines, combined with their improved capabilties, will
permit this automated system to handle nearly 95 percent of
Northwest's ticket printing needs.
Northwest's Automatic Call Distribution System (ACD) was
completed in 1982 with the installation of sophisticated,
electronic telephone systems at the New York and Los
Angeles reservations centers. The rerouting of customer
calls from a busy reservation center to one where a ticket
agent is available can now be accomplished between the six
centers from coast to coast. Each costing more than $1
million, the ACD system will greatly reduce reservation
response time, permit call load balancing , increase
reservation sales productivity and insure reliability and its
uninterruptible back-up power supply.
An additional improvement implemented by Northwest in
1982 to benefit its customers was the introduction of a new,
single 800 (800-225-2525) number in 1982 for making
reservations anywhere in the continental United States,
Puerto Rico and the Virgin Islands.
Cargo Container Control System
Every Northwest DC-10 and Boeing 7 4 7 is equipped to
handle cargo containers, which represent the most efficient
way to handle large volumes of freight. A new, fully
automated control system is being implemented which will
track Northwest's container fleet and monitor where
containers are positioned at any given moment around the
9
NORTHWEST ORIENT AIRLINES ROUTE SYSTEM
- Route system prior to deregulation
- Routes added after deregulation
Beijing
(Peking)
Edmonton
burg
12
SERVICE HIGHLIGHTS (continued)
world . The result of this computerized system will be higher
utilization of the container fleet as well as the ability to
provide containers when and where they are needed.
NEW SERVICES FOR BUSINESS PASSENGERS
Northwest Airlines introduced Executive Suite service, a new
concept in business travel between the United States and
Scandinavia, Ireland and Scotland. It offers all the amenities of
first class travel at a business class fare.
Northwest Airlines executive class is the only business
class service in the airline industry to offer reclining sleeper
seats without additional charge. Northwest executive class
service is offered on all international flights and occupies
Zone Band the upper deck section of the airline's 747
aircraft. Other features include advance seat selection,
special check-in, upg rading to first class on the domestic
segments of the flight-space permitting -Regal Imperial
cocktail and dining service. Executive suite and executive
class have gained wide customer acceptance.
INCREASED SEATING CAPACITY AND COMFORT
Northwest continued its program of increasing aircraft seating
capacity and improving passenger comfort at a total cost far
less than that for purchasing additional airplanes.
Reconfiguration work on the fleet of 24 Boeing 747s will be
completed in 1983, with work on the 22 McDonnell-Douglas
DC-1 Os beginning this spring and scheduled for completion in
early 1984. Together with the increased seating capacity
attained on the 727-200 aircraft in 1982, these new seating
reconfiguration programs will result in total seat additions
equal to 14 new aircraft: seven new 727-200s, five new
DC-10s and two new 747s.
The 7 4 7 reconfiguration increased capacity from 367
to 394 seats on each plane. In additon, the executive-class
compartment was made more spacious, has specially
designed seats and provides the business traveler with seating
in either the upper lounge or main deck of the aircraft.
The DC-10 conversion in 1983 and 1984 will involve
complete refurbishment of the aircraft's interior and an
inc rease in seating capacity from 236 to 293 seats. This will
be achieved by reducing the first-class cabin to 22 seats and
installing 271 new slim-line, lightweight seats in the tourist
section. Weight reductions from the new, nine-abreast tourist
seating will recover conversion costs in a short period of time
due to savings in fuel costs.
The program of increasing seating capacity will result in a
gain of 2,840 seats for the entire fleet at a cost of nearly $33
million. This will require a low capital outlay of $12,000 per
seat, compared with the new aircraft cost of $150,000 to
$200,000 pe r seat. All of the seating reconfiguration and
refurbishment will be performed by Northwest maintenance
personnel at the airline's main overhaul base in
Minneapolis/St. Pau l.
FACILITIES
Underscoring Northwest's commitment to superior customer
service, Northwest implemented its own passenger and
boarding ramp operations during the year at Grand Rapids,
Dallas/Fort Worth, San Diego, Wichita, Kansas City and
Omaha.
At Minneapolis/St. Paul, a $54,000 modification to an
existing hangar made it capable of handling a 747, thus
permiting a delay in constructing an eighth hangar at a cost of
$18 million.
The development of an alternative glycol-filling system that
halves the amount of time required for refilling spray trucks
that de-ice aircraft was implemented at Minneapolis/St. Paul.
This new system enables Northwest maintenance personnel to
do a better job of keeping up with de-icing requirements and
minimizing flight delays.
Reginald C. Jenkins
Reginald C. Jenkins, formerly vice president-Orient region ,
retired after 35 years of service with Northwest Airlines.
Jenkins was a true pioneer of early NWA days in the Orient
beginning his career in 1947 as flight superintendent in
Shanghai. In 1970 he was elected vice president-Orient
region, a position he held until a brief assignment at the
General Office. During his long career in the Far East,
Reginald Jenkins was a leader in the aviation community in
Japan, and under his leadership Northwest Airlines grew to its
dominant position in the Orient .
orthwest 's state-of-the-art high temperature vacuum furnace is
used to temper metals.
14
FINANCIAL HIGHLIGHTS AND MANAGEMENT DISCUSSION FOR 1982



OPERATING REVENUES
Total operating revenues for 1982 increased $23,278,000 to a
record $1,877,568,000. 1981 revenues totaled $1,854,290,000,
a 13 % increase over 1980. Passenger revenues from
scheduled operations for 1982 totaled $1 ,567,986,000, a 3%
increase over the prior year. Revenue passenger-miles
increased 10% over 1981 while the yield (revenue per
passenger mile) decreased 6.4% to 10.
The 10% gain in revenue passenger miles was achieved
with a 5.8% increase in available seat miles, resulting in a 2.3
percentage point increase in load factor to 59.7% .
While passenger fare increases of up to 10 % were
implemented in many markets during 1982, the yield actually
declined 6.4 %, reflecting a greater availability and use of
special discount and promotional fares. Price wars continued
to plague the industry in 1982.
Freight revenues decreased $16,673,000 to $205,018,000
as revenue ton-miles declined 2.6 % and the yield per ton-mile
slipped 5% . 747F freighter operations were limited during the
strike and price competition in freight was as severe as price
competition for passenger service. Mail revenues increased by
$665,000 over 1981 to $60,451 ,000 and charter and other
transportation revenues increased $12,992,000 to
$34,758,000.
OPERATING EXPENSES
Total operating expenses were $1 ,885,943,000 in 1982
compared with $1 ,852,543,000 in 1981 and $1 ,663,464,000 in
1980. The moderate 1.8% increase in 1982 reflects the
results of Northwest's continued emphasis on cost control, a
reduction in fuel expense, and the 26 day machinists strike.
Operating expenses per available ton-mile decreased to 40.7
from 41 .0<t in 1981, and Northwest continues to be the most
efficient trunk carrier in the industry.
Aircraft fuel expense decreased 5.1 % to $667,074,000 in
1982 as the average price per gallon declined 5.3<t. This was
a sharp turnaround from 1981 and 1980 where the average
fuel price per gallon increased 12.6(!; and 35.5<t respectively.
Agency commissions expense rose 7 .6 % in 1982 reflecting
modest increases in commission rates and a significant
increase in the ratio of travel agents sales to total sales. Other
cash expenses including salaries and related costs increased
6.3% over 1981 .
Depreciation and amortization expense totaled
$136,651,000 in 1982 compared with $133,489,000 in 1981
and $124,078,000 in 1980. Northwest continues its
conservative policy of depreciating 727 aircraft over 1 0 years
and wide body aircraft over 15 years. The impact and effect of
inflation and changing prices is discussed in Footnote J to the
financial statements.
EARNINGS AND DIVIDENDS
1982 earnings were $5,019,000 ($.23 per share), compared
with $10,460,000 ($.48 per share) in 1981 and $7,084,000
($.33 per share) in 1980.
Operating revenues increased 1.3% while operating
expenses rose 1.8 % , resulting in an operating loss of
$8,375,000 in 1982 compared to a $1,747,000 profit in 1981 .
Gain from the sale of flight equipment, combined with reduced
interest expense, produced earnings before income taxes of
$688,000 for the current year.
Interest expense in 1982 decreased by $6,919,000 to
$7,216,000 as a result of the repayment of all long-term debt.
At December 31 , 1982, Northwest was the only U.S. major


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I~ II



.. .
carrier with no long-term borrowings. Gain from disposal of
property was $12,425,000 in the current year, down
$4,550,000 from 1981 . 1980 gains totaled $143,000. The 1982
gain reflects the sale of five Boeing 727-1 00C aircraft while
the 1981 gain resulted from the sale of seven such aircraft.
No additional aircraft dispositions are planned.
For the third year in a row, the continuing U.S. recession
has had a depressing effect on the demand for air travel. This
has created excess capacity within the industry, and certain
carriers have resorted to extreme fare discounting in order to
fill empty seats. While Northwest has avoided initiating below-
cost fares, it has met the competition whenever necessary to
preserve market share and achieve maximum revenues. This
has resulted in reduced revenue yields in 1982. In addition to
suffering from some of the problems that plagued the rest of
the industry during 1982, Northwest also experienced reduced
traffic levels as a result of a 26 day machinists strike which
extended from May 22, 1982 to June 17, 1982. However, in
spite of these negative factors, Northwest still achieved a
modest profit and was one of only three U.S. major carriers to
report positive earnings for 1982.
Northwest Airlines continued its dividend policy in 1982 with
quarterly payments for the 28th consecutive year. Cash
dividends of 80<t per share were paid during 1982 totaling
$17,332,000. Northwest common stock is principally traded on
the New York Stock Exchange. A table showing sales
prices and dividends paid per share in 1982 and 1981 is
included in the accompanying graphs and charts.
TAXES ON EARNINGS
Income tax credits were $4 ,331 ,000 in 1982 compared with
$2,551,000 in 1981 and $43,187,000 in 1980. Earned
15
16
FINANCIAL HIGHLIGHTS AND MANAGEMENT DISCUSSION FOR 1982 (continued)
investment tax credits totaled $3,128,000 in 1982, $4,837,000
in 1981 , and $24,554,000 in 1980. Investment tax credits are
applied on tax returns as allowed by income tax regulations.
Credits not currently applied are offset against deferred
income taxes, and as of December 31, 1982 these credits
totaled $60,585,000. No investment tax credit benefits were
"sold" during 1982 as Northwest believes it will be in a
position to apply all of its credits on tax returns. The Company
continues to use accelerated depreciation methods for income
tax purposes as provided by law.
CASH FLOW, LIQUIDITY, AND CAPITAL RESOURCES
In 1982 Northwest revised the format of its Statement of
Changes in Financial Position to better reflect its sources and
applications of cash . Changes in financial position for 1981
and 1980 are also provided in this new format.
Cash generated from operations in 1982 totaled
$132,895,000 compared with $139,863,000 in 1981 and
$77,934,000 in 1980. Included in cash from operations are the
benefits from the Company's policy of owning its equipment
rather than leasing, which in 1982 provided cash through
depreciation and amortization totaling $136,651 ,000. Cash and
short-term investments declined by $2,070,000 to $32,500,000
in 1982 as the Company repaid $62,500,000 of long-term debt
and expended $17,332,000 in shareholders' dividends and
$55,070,000 for property additions. Outstanding commercial
paper at the end of the year was $40,593,000 below the prior
year, while $43,528,000 in interest receivable was collected.
While no new aircraft were acquired during 1982, five used
727 's were purchased.
During 1982 the Company retired its remaining long-term
debt, and at December 31 , 1982 was the only U.S. major
carrier with no long-term debt on its balance sheet. In
February, 1983, Northwest sold $100,000,000 of 7 %
Convertible Subordinated Debentures due in 2007 which are
convertible into common stock at a rate of $50.75 per share.
Northwest presently has no orders or commitments for the
purchase of additional aircraft, and the proceeds from the
debenture sale are being used to reduce outstanding short-
term borrowings and for general corporate purposes. With the
debenture proceeds, a commercial paper rating at the highest
A-1/P-1 level, and stockholders' equity in excess of
$820,000,000 the Company believes it will have no difficulty in
generating adequate cash to meet future corporate needs. At
December 31 , 1982, Northwest had $143,000,000 in bank
lines of credit. Book value per share of common stock
outstanding was $37.85 at December 31 , 1982 compared with
$38.43 at the end of the prior year.
FUEL EFFICIENCY INCREASES
1978 ........ .
1979 .
1980 .
1981 . .. ... . .
1982 .
Revenue
Ton-Miles
Per Gallon
2.81
3.05
3.15
3.43
3.66
STOCK PRICES AND DIVIDENDS
Sales Price of
Common Shares
Quarter 1982 1981
1st High . $32 $31 5/8
Low . 22 1/4 23 3/4
2nd High . 31 3/4 38 3/4
Low . 24 28
3rd High . 34 32 3/4
Low . 23 7/8 26
4th High 50 3/4 33 1/4
Low 29 26 1/4
Percent
of Increase
Over 1978
9%
12%
22%
30%
Dividends
Per Share
1982 1981
- - - -
$.20 $.20
$.20 $.20
$.20 $.20
$.20 $.20
Th nucl us of Northw st ' glob I multi pro or
comput r comple .
18
FINANCIAL HIGHLIGHTS AND MANAGEMENT DISCUSSION FOR 1982 (continued)
TRAFFIC AND SERVICE
Despite the weak traffic demand within the industry and a 26
day machinists strike, Northwest was still able to produce a
10% gain in scheduled passenger traffic over the prior year.
Freight traffic declined 2.6 % from 1981 . The increase in
passenger traffic resulted from the expansion of the domestic
route structure with the addition of eight new cities in 1982,
and from strong growth in the Pacific where the Company
increased its market share.
FINANCIAL CONDITION
With its strong balance sheet which includes $820,605,000
of stockholders' equity, Northwest continues as one of the
strongest carriers in the airline industry. Even though
Northwest incurred a major strike and was affected by many
of the negative conditions which were common throughout the
industry, the Company was able to produce positive
earnings for the 34th consecutive year.
Because of its strong balance sheet, excellent liquidity,
modern fleet of aircraft, dedicated people and efficiency of
operations, Northwest stands apart from many of its
competitors in its ability to compete and profit in a deregulated
environment. While the results for 1983 will be largely
dependent upon the health of the U.S. and world-wide
economy, Northwest is well positioned to benefit significantly
from an economic upturn.
SELECTED Fl NANCIAL DATA
(In Thousands)
Operating Revenues ...
Net Earnings
Total Assets
Long-Term Debt .
Per Common Share:
Earnings
Cash Dividends
. . . . . . . .
NWA's new $1 .1 million computerized machining center.
Year Ended December 31
1982* 1981 1980 1979
$1,877,568 $1,854,290 $1 ,639,330 $1 ,310,558
5,019 10,460 7,084 72,475
1,377,387 1,492,381 1,532,539 1,528,921
12,500 62,500 100,000
.23 .48 .33 3.35
.80 .80 .80 .80
*Operating results were affected by major strikes which extended from April 29, 1978
to August 15, 1978 and May 22, 1982 to June 17, 1982.
1978*
$ 790,162
61 ,841
1,392,865
100,000
2.86
.75
STATEMENTS OF EARNINGS
NORTHWEST AIRLINES, INC.
(In Thousands)
Year Ended December 31
Operating Revenues
Passenger .
Freight ...
Mail .
Charter and other transportation .
Nontransport .
Operating Expenses
Flying operations .
Maintenance .
Passenger service .
Aircraft and traffic servicing .
Reservations, sales and advertising .
Administrative and general . . ....... .
Depreciation and amortization .
OPERATING INCOME (LOSS) .
Other Income (Expenses)
Interest, net of capitalized interest
(1982-$1,681; 1981-$672; 1980-$3,393)-Note A ..
Gain on sale of flight equipment .
Other ... . .. .
EARNINGS (LOSS) BEFORE INCOME TAXES .......... .
Income tax credit-'Note D ..
NET EARNINGS .
Average shares of Common Stock
outstanding during the year .
Earnings per share of Common Stock .
*Operating results were affected by a major strike which
extended from May 22, 1982 to June 17, 1982.
See notes to financial statements.
1982*
$1,567,986
205,018
60,451
34,758
9,355
$
1,877,568
838,693
149,749
158,816
265,764
298,611
37,659
136,651
1,885,943
(8,375)
(7,216)
12,425
3,854
9,063
688
(4,331)
5,019
21,662
$ .23
1981 1980
$1 ,521 ,856 $1 ,347,830
221 ,691 190,837
59,786 57,305
21 ,766 16,303
29,191 27,055
1,854,290 1,639,330
858,997 776,862
156,450 139,833
147,650 133,922
248,766 226,153
271 ,344 229,148
35,847 33,468
133,489 124,078
1,852,543 1,663,464
1,747 (24,134)
(14,135) (15,831)
16,975 143
3,322 3,719
6,162 (11 ,969)
7,909 (36,103)
(2,551) (43,187)
$ 10,460 $ 7,084
21 ,656 21,646
$ .48 $ .33
19
20
STATEMENTS OF FINANCIAL POSITION
NORTHWEST AIRLINES, INC.
(Dollars In Thousands)
December 31
ASSETS
Current Assets
Cash and short-term investments .
Accounts receivable, less allowance of $1 ,800
(1981-$1 ,700) .
Flight equipment spare parts, less allowance for
depreciation of $27,086 (1981-$23,369) .
Maintenance and operating supplies .
Prepaid expenses .
TOTAL CURRENT ASSETS .
Other Assets .
Property And Equipment
Flight equipment . . ..... .
Less allowance for depreciation .
Other property and equipment .
Less allowance for depreciation ..
. . . .....
......... .. ..
1982 1981
$ 32,500 $ 34,570
143,647 138,112
41,417 41,418
20,171 18,868
14,597 11 ,583
252,332 244,551
10,159 50,498
1,996,925 1,992,015
977,854 881,050
1,019,071 1,110,965
199,161 190,397
103,336 104,030
95,825 86,367
1,114,896 1,197,332
$1,377,387 $1,492,381
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commercial paper . . . . . . . . . ........ .
Accounts payable and accrued e penses ..
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~
25 par value authorized 40,000,000
shares; issued and outstanding 21 678 458 shares
(1981-21 ,661 ,367 shares) . . .............. .
Capital surplus .. .. ... .
Retained earnings ........ .
Commitments And Contingencies-Notes E and F
See notes to financial statements.
$
1982
4.958
173,357
40,016
77.205
2 790
298 326
247,239
11 ,217
258,456
27 098
125,643
667,864
820,605
$1,377 387
1981
45.551
152.183
36,030
88,233
1,735
50,000
373,732
12,500
256.014
17,625
273,639
27,077
125,256
680,177
832,510
$1,492,381
21
22
STATEMENTS OF CHANGES IN
FINANCIAL POSITION
NORTHWEST AIRLINES, INC.
(In Thousands)
Year Ended December 31
Cash Provided
Net earnings . . . . . . . . . .
Add (deduct) non-cash items:
Depreciation and amortization .
Decrease in deferred income taxes .
TOTAL FROM OPERATIONS .
Decrease in interest receivable .
Increase (decrease) in accounts payable
and accrued expenses .
Net book value of property dispositions .....
'
. . . .
. .
. . . . . . .
Other . . . . . . . .
TOTAL CASH PROVIDED . .
. . . . . . . . . . . . . . ....... . ...
Cash Used
Flight equipment and other property additions ......
Decrease (increase) in commercial paper .
Reduction of long-term debt including current maturities .
Decrease (increase) in air traffic liability .
Increase in accounts receivable ..
Dividends ............
Other . ...... .
TOTAL CASH USED . ....... . . '
. . . . . .
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS . . . . . . . .
See notes to financial statements.
1982 1981 1980
$ 5,019 $ 10,460 $ 7,084
136,651 133,489 124,078
(8,775) (4,086) (53,228)
132,895 139,863 77,934
43,528
21,174 9,840 (21,057)
4,731 6,274 433
5,450 8,394 28,226
207,778 164,371 85,536
55,070 50,676 154,875
40,593 (11,383) (34,168)
62,500 37,500
11,028 18,780 (47,469)
5,535 13,155 13,525
17,332 17,326 17,317
17,790 24,261 35,525
209,848 150,315 139,605
$ (2,070) $ 14,056 $ (54,069)
STATEMENTS OF STOCKHOLDERS'
EQUITY
NORTHWEST AIRLINES, INC.
(In Thousands)
Balance January 1, 1980 .
Exercise of stock options .
Net earnings for 1980 .
Cash dividends-$.80 a share .. . . . . . ... . .. .
Balance December 31 , 1980 ......... .
Exercise of stock options ..
Net earnings for 1981 .
Cash dividends- $.80 a share .
Balance December 31 , 1981 ........... . . .
Exercise of stock options ...
Net earnings for 1982 .
Cash dividends-$.80 a share .
Balance December 31 , 1982 .
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
December 31, 1982
NOTE A-ACCOU~TING 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
$18,330,000 and $19,098,000 at December 31 , 1982 and
1981 , respectively.
Flight Equipment and Property: Provision for depreciation is
computed by the straight line method over the estimated
useful lives of the assets. Useful lives are estimated at fifteen
years with 10 % residual values for 7 4 7 and DC-10 aircraft and
ten years with 15 % residual value for 727 aircraft. Useful lives
of buildings vary from 5-30 years and other equipment from
4-10 years. Depreciation of flight equipment spare parts,
rotables and assemblies is provided by the straight line
Common Stock
Shares Amount
Capital
Surplus
Retained
Earnings
21 ,640
7
$ 27,049
10
$124,797
143
$697,276
7,084
(17,317)
21 ,647
14
27,059
18
124,940
316
687,043
10,460
(17,326)
21 ,661
17
27,077
21
125,256
387
680,177
5,019
(17,332)
21 ,678 $ 27,098 $125,643 $667,864
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.
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.
23
24
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE A-ACCOUNTING POLICIES (continued)
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.
Reclassifications: Certain amounts in the 1981 and 1980
financial statements have been reclassified to conform with
1982 presentation.
NOTE B-LONG-TERM DEBT AND CREDIT
ARRANGEMENTS
The Company has line of credit arrangements with banks for
short-term borrowings up to $143,000,000 through April 15,
NOTE C-STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $25 par value:
Authorized ..
Issued .
1983. Borrowings under the credit lines bear interest at the
prime rate. Commitment fees which are 3/8 % per annum on
outstanding balances of commercial paper amounted to
$170,000 in 1982. At December 31, 1982, $4,958,000 of the
lines were assigned to support outstanding commercial paper.
Long-term debt at December 31, 1981 consisted of
borrowings from banks payable $12.5 million quarterly. Interest
was payable based on a formula related to prime commercial
loan rates; however, total interest could not exceed 7 7/8 %
per annum over the term of the loan. The balance of the loan
was repaid during 1982.
In February 1983, the Company sold $100 million of 7 %
Convertible Subordinated Debentures due in 2007. The
debentures are convertible into Common Stock at a rate of
$50.75 per share.
1982
1,000,000
None
Shares
1981
1,000,000
None
Common Stock options at prices which were not less than 100% of market at date of grant are as follows:
Outstanding at January 1, 1981 .
Exercised .
Lapsed .
Outstanding at December 31 , 1981 .
Granted .
Exercised .
Lapsed .
Outstanding at December 31 , 1982 .
Options exercisable:
At December 31 , 1981 ......... .
At December 31 , 1982 .
Shares
63,765
(14,087)
(5,560)
44,118
130,000
(17,091)
(2,700)
154,327
44,118
27,027
Price Per Share
$22.75/24.00
22.75/24.00
22.75/24.00
22.75/24.00
23.31
22.75/24.00
23.31
$22. 75/23.31 /24.00
$22.75/24.00
22.75/24.00
Shares available for stock option and other plans were 181,487 and 308,787 at December 31, 1982 and 1981, respectively.
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE D-TAXES ON EARNINGS
(In Thousands)
Reconciliation of the Company's effective income tax rate and the statutory federal income tax rate follows:
Year Ended December 31
1982 1981
Statutory rate applied to pre-tax income . $ 316 $ 3,637
Add (deduct):
Investment tax credit earned .
Rate change on timing differences .
Other ..
Total income tax credit .
Federal, foreign and state income taxes (credit) consisted of the following :
(3,128)
(1 ,152)
(367)
$ (4,331)
(4,837)
(1 ,390)
39
$ (2,551)
1980
$ (16,607)
(24,554)
(1 ,521)
(505)
$ (43,187)
1982 1981 1980
Current Deferred Current Deferred Current
- - -
Federal provision (credit) . . $1 ,619 $ (6,821) $ 22 $ (3,598) $9,274
Foreign . . . .... . ....... . . . . . . . .
855 788 620
State . . . . . . . . . .
. 1,009 (993) ~ 444 (825)
$3,483 $ (7,814) $ 603 $ (3,154) $9,069
- - -
- - - - - -
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 :
Accelerated depreciation .
Investment tax and other credits .
Prepaid expenses . . ........ .
Interest . .
Deferred employee benefits .
Rate change on timing differences ..
Other .
1982
$ (3,947)
13,127
(51)
(18,724)
3,437
(1 ,152)
(504)
$ (7,814)
1981
$ 1,919
(11 ,064)
1,525
5,452
(25)
(1 ,160)
199
$ (3,154)
Investment tax credits of $60,585 not applied on tax returns but offset against deferred income taxes at December 31 , 1982
will expire $514 in 1993; $27,373 in 1994; $24,724 in 1995; $4,796 in 1996; and $3,178 in 1997.
Deferred
$ (52,222)
(34)
$ (52,256)
1980
$ 3,273
(60,218)
1,958
6,217
(1 ,893)
(318)
(1 ,275)
$ (52,256)
25
26
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE E-COMMITMENTS
The Company does not lease any aircraft or related flight
equipment.
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 2011 . Portions of these facilities are subleased
under noncancelable operating leases expiring in various
years through 1991.
Future minimum rental commitments at December 31, 1982
for noncancelable operating leases with initial or remaining
terms of one year or more, of which $295,820,000 is for air
terminal and airport facilities, are as follows:
1983 . ...... .
1984
1985 .
1986 .
1987 .
Thereafter .
Sublease rental income
$ 22,761,000
22,144,000
19,782,000
18,635,000
17,727,000
208,332,000
309,381 ,000
(5,424,000)
$303,957,000
Rental expense for all operating leases consisted of:
1982 1981 1980
Minimum . $29,571 ,000 $25,238,000 $24,352,000
Sublease
rental income . (1,075,000) (917,000) (988,000)
$28,496,000 $24,321 ,000 $23,364,000
NOTE F-CONTINGENCIES
The Company is a defendant in a class action brought in 1970
in federal court in Washington, D.C. by certain of its female
cabin attendants alleging violations of certain provisions of the
Equal Pay Act of 1963 and the Civil Rights Act of 1964. The
trial judge held that provisions of both statutes had been
violated by the Company. The Company appealed that decision
and 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 Courts of Appeals. That petition was
denied on February 21, 1978. The case was then remanded to
the trial court.
On remand the trial court resolved several outstanding
issues and determined an award of damages to each of the
plaintiffs. Judgment was entered on November 30, 1982 with
total awards amounting to approximately $52.4 million. Both
the Company and the plaintiffs have filed appeals to the U.S.
Court of Appeals for the District of Columbia Circuit. However,
if the plaintiffs prevail and the Company does not prevail on
the appeals, the ultimate liability might be increased by an
amount which the Company cannot presently quantify.
The ultimate outcome of this 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 $1,000,000 to
$52,400,000 plus plaintiffs' attorneys fees and court costs and
interest accruing on part of the judgment after November 30,
1982.
The Company is also involved in other legal actions relating
to environmental issues (primarily noise and air pollution),
alleged 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 $23,469,000 in 1982,
$27,254,000 in 1981 and $33,692,000 in 1980.
Certain estimates relating to actuarial assumptions were
changed in 1982 and 1981. The changes resulted in reduced
pension expense of approximately $10.2 million and $9.8
million in the respective periods. Approximately $7.2 million of
the 1982 change occurred in the fourth quarter. The changes
in estimates have no effect on pension benefits to employees.
Accumulated plan benefit information, as estimated by
consulting actuaries, and plan net assets for the Company's
plans are:
Year Ended December 31
Acturarial present
value of accumulated
1982 1981
plan benefits:
Vested . $323,122,000 $323,205,000
Non-vested . 30,067,000 30,362,000
$353,189,000 $353,567,000
Net assets available
for benefits . $470,826,000 $363,213,000
The interest rate used in computing the present value of
accumulated plan benefits for all participants was 7 % in 1981 ..
In 1982, a separate securities portfolio with an actual earnings
rate of 14 % was established for the payment of retirees'
pension benefits. Because of the dedicated portfolio, the
interest rate used in computing the present value of
accumulated plan benefits for retirees was adjusted to 14 % in
1982, thus decreasing the present value of December 31,
1982 accumulated plan benefits by approximately $31 million.
No change was made in 1982 in the 7 % interest rate
assumption for all other participants.
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE H-EXPORT SALES
Northwest Airlines, Inc. is a scheduled air carrier engaged in
commercial transpor1ation of passengers, freight and mail, and
operates under certificates of public convenience and
necessity issued by the Civil Aeronautics Board. Export sales
were $536,000,000 in 1982, $453,000,000 in 1981 , and
$375,000,000 in 1980, principally associated with countries in
Asia and Europe. Revenue from sales consummated in foreign
countries is considered to be export sales.
NOTE 1-QUARTERL Y RESULTS OF OPERATIONS
(Unaudited)
The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31 , 1982:
1982*
First quar1er ..................... .
Second quarter .
Third quarter . . ....... .
Fourth quarter .
1981
First quarter .
Second quarter . . . - .......
Third quarter ......
Fourth quarter . . ..... - ....
Operating
Revenues
. $ 415,438
414,106
574,995
473,029
$1 ,877,568
.. $ 418,939
. ....... 470,802
527,322
437,227
$1 ,854,290
(In Thousands)
Operating
Expenses
$ 451 ,588
419,290
527,103
487.962
$1 ,885,943
$ 438,017
467,461
498,174
448,891
$1 ,852,543
*Operating results were attected by a major strike which extended from May 22, 1982 to June 17, 1982.
See also Note G.
Net
Earnings
(Loss)
$ (1 7,968)
(1,453)
27,010
(2,570)
$ 5,019
$ (7,384)
3,402
17,537
(3,095)
$ 10,460
Earnings
(Loss) Per
Share of
Common
Stock
$ (.83)
(.07)
1.25
(.12)
$ .23
$ (.34)
.16
.81
(.15)
$ .48
27
28
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
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.
STATEMENT OF EARNINGS ADJUSTED FOR
CHANGING PRICES
Year Ended December 31, 1982
(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 ...
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 ..
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: (1) the effect of both
general inflation and specific p~ice changes on properties and
related depreciation expense, and (2) the effect of general
inflation on monetary assets and liabilities.
As Reported
in the
Primary
Statements
$1,877,568
136,651
1,749,292
(12,425)
3,362
1,876,880
688
4,331
$ 5,019
Adjusted
for General
Inflation
$1,877,568
240,952
1,749,292
(5,135)
3,362
1,988,471
(110,903)
4,331
$ (106,572)
Adjusted
for General
Inflation
. ...... . . . . .. $ 13,638
Adjusted for
Changes in
Specific Prices
(Current Costs)
$1,877,568
296,313
1,749,292
3,362
2,048,967
(171,399)
4,331
$ (167,068)
Adjusted for
Changes in
Specific Prices
(Current Costs)
$ 13,638
$ 330,688
97,789
$ 232,899
* At December 31 , 1982, current cost of property and equipment, net of accumulated depreciation, was $2,605,193,000
(historical amount-$1 , 114,896,000).
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE J-SUPPLEMENTAL INFORMATION ON THE
EFFECTS OF CHANGING PRICES (UNAUDITED)
(continued)
FIVE YEAR COMPARISON OF SELECTED
SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR
EFFECTS OF CHANGING PRICES
(In Average 1982 Dollars)
(In thousands of dollars,
except per share data)
Operating revenues .....
Historical Cost Information
Adjusted for
General Inflation
Net earnings (loss) .
Per share data ..
Net assets at year-end .
Current Cost Information
Net earnings (loss) .
Per share data .
Excess of increase in
specific prices of property
and equipment over increase
in the general price level .. .. . . . '
. . ' .
Net assets at year-end .. ' '
.. . .. .
Other Information
Purchasing power gain from holding net monetary
liabilities during the year .
Cash dividends declared per common share .
Market price per common share at year-end .
Average consumer price index .
. . '
. '
. .
.
Year Ended December 31
1982 ___
19_8_1 1980 1979 1978
$1 ,877,568 $1 ,967,971 $1 ,920,301 $1,742,789 $1 ,169,068
(106,572)
(4.92)
1,560,326
(167,068)
(7.71)
232,899
2,315,733
13,638
$ .80
47.00
289.1
(94,314)
(4.35)
1,647,838
(143,384)
(6.61)
108,890
2,312,651
41,259
$ .85
28.66
272.4
(73,431)
(3.40)
1,721 ,698
(104,813)
(4.83)
159,493
2,359,707
61 ,778
$ .94
27.82
246.8
17,336
.80
1,761 ,380
(26,548)
(1.22)
45,317
2,316,533
62,951
$ 1.06
36.74
217.4
$ 1.11
42.17
195.4
29
30
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
NOTE J-SUPPLEMENTAL INFORMATION ON THE
EFFECTS OF CHANGING PRICES (UNAUDITED)
(continued)
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.
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 1982. 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
1982 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.
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
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 91 % 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.
ACCOUNTANT'S REPORT
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 ,
1982 and 1981 , 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 , 1982.
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 , 1982 and 1981 ,
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 , 1982, in conformity with generally
accepted accounting principles applied on a consistent basis.
Saint Paul, Minnesota
February 17, 1983
NOTICE TO STOCKHOLDERS
Northwest Airlines, Inc.
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 acquistion, 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., New York,
NY.
Stock Listed: Common Stock listed on New York Exchange,
Pacific Coast Stock Exchange and Midwest Stock Exchange.
There were 7,771 stockholders of record as of March 10,
1983.
31
32
10 YEAR SUMMARY*
NORTHWEST AIRLINES, INC.
(Dollars in Thousands Except Per Share Figures)
Years Ended December 31
Operating Revenues
Passenger
Freight
Mail
Charter and other transportation
Nontransport
TOTAL OPERATING REVENUES
Operating Expenses
Depreciation and amortization
Other
TOTAL OPERATING EXPENSES
Operating income (loss)
Interest expense
Other income and (deductions)-net
Earnings {loss) before taxes
Income taxes (credit)
Net Earnings1
Earnings per average share1
Cash dividends
Dividends per share
Stockholders' equity
Number of shares outstanding at end of year
Book value per share at end of year
Assets and Long-Term Debt
Flight property at cost
Flight property at net book value
Total assets
Long-term debt
Unit Expenses
Per available ton-mile
Per Revenue ton-mile
Per cent of operating revenues
Statistics-Scheduled Services
Revenue plane-miles (000)
Available seat-miles (000)
Revenue passenger-miles (000)
Passenger load factor
Revenue passengers carried
Freight ton-miles (000)
Total revenue ton-miles (000)
Statistics-Total Operations
Revenue plane-miles (000)
Available ton-miles (000)
*Not covered by Accountants' Report.
1982t
$ 1,567,986
205,018
60,451
34,758
9,355
$ 1,877,568
$ 136,651
1,749,292
$ 1,885,943
$ (8,375)
(7,216)
16,279
$ 688
(4,331)
$ 5,019
$ .23
17,332
.80
820,605
21,678,458
$ 37.85
$ 1,996,925
1,019,071
1,377,387
40.7
80.3
100.4%
119,189
26,257,466
15,675,194
59.7%
11,356,165
600,198
2,307,475
120,378
4,635,415
tSt rikes adversely affected 1978 and 1982. .
1See Financial Highlights pages 14 through 18 for Management's Discussion of the Summary of Operations.
1981
$ 1,521 ,856
221,691
59,786
21,766
29,191
$ 1,854,290
$ 133,489
1,719,054
$ 1,852,543
$ 1,747
(14,135)
20,297
$ 7,909
(2,551)
$ 10,460
$ .48
17,326
.80
832,510
21,661 ,367
$ 38.43
$ 1,992,015
1,110,965
1,492,381
12,500
41.0
83.9
99.9%
120,139
24,813,981
14,251,932
57.4%
11,144,785
616,285
2,186,815
120,761
4,519,768
1980 1979 1978t
$ 1,347,830 $ 1,067,214 $ 557,401
190,837 160,716 87,077
57,305 38,685 18,944
16,303 15,093 10,997
27,055 28,850 115,743
$ 1,639,330 $ 1,310,558 $ 790,162
$ 124,078 $ 106,401 $ 104,970
1,539,386 1,148,805 617,907
$ 1,663,464 $ 1,255,206 $ 722,877
$ (24,134) $ 55,352 $ 67,285
(15,831) (1,635) (3,376)
3,862 30,643 45,126
$ (36,103) $ 84,360 $ 109,035
(43,187) 11,885 47,194
$ 7,084 $ 72,475 $ 61,841
$ .33 $ 3.35 $ 2.86
17,317 17,306 16,210
.80 .80 .75
839,042 849,122 793,691
21,647,280 21,639,589 21,626,284
$ 38.76 $ 39.24 $ 36.70
$ 1,995,168 $ 1,779,770 $ 1,525,442
1,200,495 1,094,556 922,615
1,532,539 1,528,921 1,392,865
62,500 100,000 100,000
37.0 29.4 27.9
80.6 63.4 65.7
101 .5% 95.8% 91.5%
120,709 116,105 66,420
24,904,355 24,028,928 14,302,037
13,810,889 13,298,161 7,018,305
55.5% 55.3% 49.1 %
11,501, 148 11,636,170 6,574,901
529,434 504,753 302,153
2,048,349 1,956,217 1,079,681
121 ,243 117,027 67,471
4,495,666 4,265,640 2,594,632
1977 1976 1975 1974 1973
$ 861 ,053 $ 786,414 $ 659,849 $ 628,488 $ 476,794
121 ,185 119,882 88,308 76,157 55,280
29,894 25,137 23,280 22 ,911 18,415
25,871 25,955 29,019 27 ,322 28,517
8,352 6,420 107 4,113 5,342
$ 1,046,355 $ 963,808 $ 800,563 $ 758,991 $ 584,348
$ 103,152 $ 102,713 $ 98,880 $ 96,213 $ 87,642
838,619 758,147 651 ,983 584,993 445,401
$ 941 ,771 $ 860,860 $ 750,863 $ 681,206 $ 533,043
$ 104,584 $ 102,948 $ 49,700 $ 77,785 $ 51,305
(6,518) (14,035) (16,120) (19,554) (14,758)
55,078 9,351 13,509 40,148 19,133
$ 153,144 $ 98,264 $ 47,089 $ 98,379 $ 55,680
60,425 46,527 3,693 33,631 3,830
$ 92,719 $ 51,737 $ 43,396 $ 64,748 $ 51,850
$ 4.29 $ 2.39 $ 2.01 $ 3.00 $ 2.40
10,804 9,707 9,710 9,722 9,722
.50 .45 .45 .45 .45
747,672 665,744 623,677 589,991 534,965
21,606,686 21,606,036 21 ,604,136 21,604,136 21 ,604,136
$ 34.60 $ 30.81 $ 28.87 $ 27.31 $ 24.76
$ 1,510,447 $ 1,448,402 $ 1,420,670 $ 1,282,556 $ 1,216,632
962,957 924,537 977,062 907,935 861 ,231
1,299,451 1,151,562 1,215,146 1,121,153 1,085,632
100,000 122,000 246,000 213,900 284,000
22.9 21.6 20.6 19.9 15.8
54.4 50.5 50.2 48.2 42.5
90.0% 89.3% 93.8% 89.8% 91 .2%
111,271 108,474 104,104 105,295 108,853
22,968,489 22,228,259 20,910,966 20,016,107 19,593,379
11,100,412 10,758,683 9,471,282 9,173,875 8,007,850
48.3% 48.4% 45.3% 45.8% 40.9%
10,354,808 9,818,343 8,865,263 8,948,373 7,987,299
458,143 467,399 386,309 317,437 251,865
1,676,470 1,647,317 1,428,381 1,330,803 1,140,983
114,643 112,279 107,721 110,519 115,726
4,109,110 3,982,743 3,642,650 3,431,038 3,370,694
33
34
DIRECTORS AND OFFICERS OF NORTHWEST ORIENT AIRLINES
(As of March 25, 1983)
Directors
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
Robert A. Charpiet
President
Cabot Corporation
Boston, Massachusetts
Production of oil and gas
products
Raymond H. Herzogt
Former Chairman of the Board,
3M Company
St. Paul, Minnesota
Mu/ti-national manufacturing
Melvin R. La1rdt
Senior Counselor
Reader 's Digest Association
Washington, D.C.
Magazine publishing
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
Steven G. Rothmeier
Executive Vice President-
Finance and Administration
Northwest Airlines, Inc.
St. Paul, Minnesota
t Member, Audit Committee
Officers
M. J. Lapensky
President & Chief Executive Officer
James A. Abbott
Vice President-Law
Bjarnie R. Anderson
Vice President-Washington
Brent J. Baskfield
Vice President-Public Relations
Robert W. Campbell
Vice President-Budgets
J. W. Campion
Vice President-Regulatory Proceedings
Terry M. Erskine
Vice President-Industrial Relations
Bruce H. Fillips
Vice President-Comptroller
Benjamin G. Griggs, Jr.
Vice President-Assistant
to the President
John F. Horn
Vice President-Orient Region
Thomas J. Koors
Executive Vice President-
Marketing & Sales
William A. Kutzke
Vice President-Airline Planning
Benjamin H. Lightfoot
Vice President-Maintenance
& Engineering
Thomas E. McGinnity
Vice President-Purchasing
& Stores
Bryan G. Moon
Vice President-Advertising
James F. Redeske
Vice President-Personnel Administration
Steven G. Rothmeier
Executive Vice President-
Finance & Administration
R. James Thorne
Vice President-Properties
Steven D. Wheeler
Corporate Secretary
Northwest's Eight New Cities in 1982
A. Downtown Omaha, Nebraska viewed from the Central Park Mall
B. Worth Avenue in West Palm Beach, Florida
C. Wichita, Kansas aerial view of skyline
D. San Diego, California viewed from San Diego Bay
E. The Harry S. Truman Sports Complex in Kansas City, Missouri
F. Dallas, Texas City Hall
G. The stabile "La Grande Vitesse" by Alexander Calder in downtown
Grand Rapids, Michigan
H. Denver, Colorado Civic Center
NORTHWEST'S EIGHT NEW CITIES IN 1982
~ NORTHWEST ORIENT
Northwest Orient Airlines World Headquarters: Minneapolis-St. Paul International Airport, St. Paul, MN 55111