Northwest Airlines Annual Report 1986

orthwest Airlines celebrated its 60th year of service in 1986. To mark this milestone, a historical
supplement to the 1986 annual report has been prepared that features photographs of the
people, events and aircraft that contributed to the airline's rich and vaned history as America's
oldest airline with continuous name identification.
Northwest's first flight on October 1, 1926, hauled airmail between Minneapolis/St. Paul and
Chicago with passenger flights beginning in July 1927. Since then, Northwest operated bomber modification
plants and military cargo routes dunng World War II, pioneered the Great Circle route to Asia, developed a
nationwide route system and, 1n 1979, inaugurated service to Europe. Today it is the only US airline
serving multiple destinations in both Asia and Europe.
Much has happened since Northwest's first bi-plane flight 1n 1926, but unchanged is the
airline's commitment to affordable, efficient, service-conscious air transportation.
Contents
Highlights
Letter to Shareholders
Operations Review
Management's Discussion
and Analysis
Financial Statements
Notes to Financial Statements
Report of Independent
Accountants
Stock Price and Dividend
Information
Ten.Year Summary
Directors and Officers
1
2
6
16
22
27
33
33
34
36
Corporate Profile
NWA Inc. is the parent of six
transportation-related subsidiaries:
Northwest Airlines, Inc.; Northwest
Aircraft Inc.; MainlineTravel, Inc.,
and the newly formed Northwest
Aerospace Training Corporation,
Northwest PARS, Inc. and Northwest
Computer Services, Inc. Principal
activities include commercial pas-
senger and freight transportation;
aircraft purchasing, sales and leas-
ing; tour wholesaling of vacation
travel packages; flight crew training
for Northwest and other clients
worldwide, and sales and service of
a computerized reservations system.
NWA lnc.'s principal subsidiary,
Northwest Airlines, became
America's fifth largest airline in 1986
through its acquisition of Republic
Airlines in the largest transaction in
the history of commercial aviation.
Northwest now provides scheduled
passenger and freight transportation
at 135 cities in 40 U.S. states and 19
foreign countries. Its route system
spans 261,334 miles with flights on
three continents. Northwest is the
leading U.S. airline transporting
passengers across the Pacific and is
the largest hauler of air freight
among U.S. combination airlines.
NWA Inc. is headquartered in
Eagan, Minnesota, near
Minneapolis/St. Paul International
Airport. Its common stock is traded
under the NWA symbol on the New
York Stock Exchange.
Highlights
1986
Financial
Operating Revenues $3,589,174,000
Operating Expenses 3,422,529,000
Operating Income 166,645,000
Operating Margin 4.6%
Net Earnings 76,941,000
Per Share 3.26
Stockholders' Equity 1,105,916,000
Per Share 46.29
Dividends Paid 19,645,000
Number of Shares Outstanding at Year End 23,890,000
Statistical (Scheduled)
Passengers
Revenue Passenger Miles
Available Seat Miles
Passenger Load Factor
Yield Per Revenue Passenger Mile
Ton Miles-Mail, Freight and Express
Operating Expenses
Per Available Seat Mile
Per Available Ton Mile
Number of Employees at Year End
1986 $166.6
1985 $771
1984 $96.3
1983 $68.9
1982 $(8.4)*
Operating Income (In Millions)
Operating results we.re affected by a 29-day strike.
23,167,000
28,814,957,000
48,408,440,000
59.5%
10.14
1,253,847,000
6.8
41.2
33,427
1986 $76 9
1985 $73 l
1984 $56 0*
1983 $50.1
1982 $5.0**
Net Earnings (In Millions)
After extraordinary charge of $30.9 million
from the settlement of a lawsuit.
**Results were affected by a 29-day strike.
Percent
1985 Change
$2,655,491,000 35.2
2,578,404,000 32.7
77,087,000 116.2
2.9% 1.7 pts.
73,119,000 5.2
3.18 2.5
947,001,000 16.8
43.49 6.4
19,586,000 0.3
21,774,000 9.7
14,539,000 59.3
22,341,334,000 29.0
37,148,562,000 30.3
60.1 % (0.6) pts.
9.64 5.2
1,100,124,000 14.0
6.8
39.8 3.5
16,864 98.2
1986 18 I
28 i;
1985 1- I
2 '!
1984 ,!. 7
198
1983 29 5
1- 7
1982 2b ~
l'i 7
Capacity and Traffic-Scheduled (In Billions)
A\ ailable Seat l'vltles
Revenue Passenger Miles
To Our
Shareholders
WA Inc., through its principal subsidiary,
Northwest Airlines, Inc., continued its 37-year
trend as an airline industry profit leader. NWA
Inc. posted 1986 earnings of $76.9 million, or
$3.26 per share, on annual revenues of $3.59 billion. The 1986 profits were reduced by approximately
$12 million due to a change in tax laws that limited allowable 1986 investment tax credits.
Always at the forefront of the airline industry, NWA Inc. undertook dramatic steps in
1986. Following a carefully crafted business plan, NWA Inc. fashioned a foundation that will solidify
its leadership position into the 21st century.
NWA Inc. accurately forecasted an industry-wide trend toward consolidation, then led the
industry by announcing, on January 23, 1986, a plan to acquire Republic Airlines. This $862 million
transaction was the largest in the history of commercial aviation and was the first of several airline
mergers and acquisitions that have changed the stmcture of commercial air travel.
Your companys management had recognized that, to join the ranks of the nations
megacarriers, it must not only continue its aggressive internal expansion but also must quickly acquire
the necessary cntical mass to defend its routes and capitalize on growth opportunities. Thus, on
October 1, 1986-the very.day the airline celebrated the 60th anniversary of its inaugural airmail flight-
Northwest melded Republics flight schedule into its own, becoming one of Amenca s largest airlines.
Despite our initial integration difficulties, the benefits of the merger were demonstrated clearly
during the remainder of the year as Northwest year-over-year traffic increased 70 percent in October,
83 percent in November and 79 percent in December. Significantly, traffic dunng the fourth quarter was
11 percent greater than the two airlines generated individually during the fourth quarter of 1985-concrete
evidence of the expected, positive synergy developed by the Republic acquisition.
2
As it examined potential merger partners, Northwest focused on its need for an expanded,
though carefully structured, domestic route network that was strong in its own nght and that also could
support Northwest's established and growing international service. From Republic, Northwest acquired
traffic centers at Detroit and Memphis and was able to enlarge the Northwest hub at Minneapolis/St.
Paul. Passengers flow through these three key airports across the 135-city system. The merger brought to
Northwest a fleet of 171 narrow-bodied aircraft that allows the airline to carefully match aircraft size with
market demand, ensunng maximum productivity from the company's 314-aircraft fleet.
Concurrent with the Republic acquisition, the executive management of NWA Inc.
was restructured both to accommodate the vastly enhanced operations and to chart the continued
development of the corporation. Steven G Rothmeier, previously president and chief executive officer,
was named chairman of the board and chief executive officer, and James A. Abbott, executive vice
3
left, John F. Horn, President and
Chief Operating Officer; Steven G.
Rothmeier, Chairman and Chief
Executive Officer
president of finance and administration and general counsel, was named vice chairman and general
counsel. John F Hom, who held the position of executive vice president of corporate planning and
international, was elected president and chief operating ofh'cer.
Further strengthening Northwest was the leadership gained from a number of former
Republic executives who joined Northwest in marketing, finance, maintenance and engineenng, and
government affairs.
A particularly dynamic marketing staff emerged through the combination of Northwest
and Republic personnel. Northwest's ''Look To Us" advertising campaign and the grouping of the airline's
business traveler products under the WorldPerks, WorldClubs and WorldClass themes have emphasized
Northwest's global route structure and its commitment to quality customer service.
1986 marked Northwest's third year as the leading US airline 1n the Pacific. In fact, its third-
quarter Pacific load factor reached 75 percent-the best quarterly performance in Northwest's 39 years of
trans-Pacific operations. The integration of the Republic and Northwest domestic flight schedules enables
Northwest to solidify its number one US airline position in the Pacific. Further, Northwest's strategic
plan calls for continued expansion in the Pacific in 1987 with Bangkok, Thailand, being served nonstop
from Tokyo and with the opening of a Detroit-Tokyo nonstop route, both in ApnI
In addition to the Republic acquisition, NWA Inc. took bold steps last year in three
areas to ensure its position as a leader in a broad range of transportation services. Investments in these
areas include 50 percent ownership in the TWA PARS computerized reservations system, formation
of Northwest Aerospace Training Corporation as a flight training unit for Northwest and others, and
agreement for up to JOO Airbus A320 aircraft, to be delivered between 1990 and 1995, plus other aircraft
acquisitions. These important developments are discussed 1n detail in other sections of this
annual report.
4
Viewing the Far East as a pivotal focus of world trade, Northwest last year decided
to expand its position as the only major US. passenger airline with a commitment to an all-cargo
operation. Two more all-cargo Boeing 747 aircraft were ordered. The new freighters, which will increase
the cargo fleet to eight Boeing 747Fs, will be delivered in mid-1987 in time to capitalize on peak demand
for trans-Pacific cargo service.
NWA Inc. made a considerable and carefully calculated investment in its future in 1986 and
is poised in 1987 and beyond to benefit from that decision. Nevertheless, the best investment the corporation
has is in its people. The size of NWA Inc., as a result of the merger, nearly doubled in the past year to
almost 33,500 dedicated, industn"ous employees who stnve diligently to serve the traveling and
shipping public.
The Republic acquisition, PARS transaction, formation of Northwest Aerospace Training
Corporation, Airbus agreement, freighter purchases, and quality of the NWA Inc. work force enable us
to enter 1987 with confidence.
Sincerely,
Steven G. Rothmeier JohnF Hom
Chairman and Chief Executive O/h"cer President and Chief Operating Officer
March 20, 1987
5
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A New
Competitive
Position in
\_ the Airline
....,..,..,._
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= Industry
ith approximately 1, 600 daily departures
to 135 cities over a 261,334-mile route system
spanning three continents, Northwest joined
the ranks of the megacamers in 1986.
A key element in Northwest's growth was its decision-announced January 23, 1986-
to acquire Republic Airlines. The $862 million acquisition was the largest transaction in the history of
civil aviation. Northwest recognized that, despite vigorous internally generated growth, it must combine
with another airline to establish sufficient market presence to retain its leadership position in the airline
industry. Thus it sought a merger partner with a strong domestic route network and with a fleet of
aircraft that would complement Northwest.
6
Republic met this set of cntena and became the proper choice.
Through the Republic acquisition, Northwest added more than 60 US cities to its schedule of
flights plus five international destinations-two each in Canada and Mexico and one in the Canbbean.
Domestic flights focus on three traffic centers-Detroit, Minneapolis/St. Paul and Memphis-each
offenng more than 200 daily departures with nonstop service to more than 60 cities each. In addition
to a focused domestic route system, Northwest also acquired from Republic a vaned fleet mixture that
allows the airline the flexibility of matching properly sized aircraft to each city's seat demand. Republic's
171 aircraft averaged 105 seats, while the Northwest pre-merger fleet averaged 228 seats. Today's
Northwest fleet is well tailored to serve both Lis domestic and international routes.
A Three-Hub
System
-~- Promoting
Domestic and
International
Growth
orthwest flights reach destinations in 40
US states and 19 foreign countnes. Northwest
remains the largest US passenger airline across
the Pacific and the largest freight camer among
US airlines that carry both passengers and cargo. Northwest also is the only US airline serving multiple
destinations in both Asia and Europe.
These impressive statements are indicative of Northwest's continued growth since its first
airmail flight 60 years ago. That 350-mile route from Minneapolis/St. Paul to Chicago was the forerunner
of a route system that today spans 20 time zones and crosses the international dateline.
The route system underwent a fundamental restructunng in 1986 through the acquisition
of Republic Airlines. Domestic flights now flow passengers through three traffic centers-Detroit with 262
flights a day, Minneapolis/St. Paul with 249 and Memphis with 208.
iD NORTHWEST INTERNATIONAL ROUTE MAP
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Important new nonstop service has been
added in 1987 to Northwest's expanding global
system, including Detroit-Tokyo, Tokyo-Bangkok,
Memphis-Montego Bay and Memphis-Grand
Cayman. New trans-Atlantic nonstop service
includes Boston-Oslo, Boston-Frankfurt and
daily nonstop Boston-Dublin service.
,,,,,/
Another significant element in Northwests domestic system is its Northwest Air/ink
marketing partnersh1iJs with regional air camers. Northwests far-flung US and international route
system ,:c; extended to another 85 domestic cities via Northwest Air/ink service. By matching their flight
schedules with Northwest, Air/ink partners offer convenient connections to and from Northwest
flights, thus linking more of America to the Northwest !->)'Stem.
Express Airlines I is a Northwest Air/ink at both Memphis and Minneapolis/St. Paul.
Mesaba Aviation carries passengers to and from Northwest at the Minneapolis/St. Paul hub. In Detroit,
Air/ink flights are offered by Simmons Airlines. Northwest and Big Sky Airlines exchange passengers
at Billings, 81:smarck and Spokane.
A special arrangement exists with Pacific Southwest Airlines, pn'ncipally for international
travelers using Northwest's extensive trans-Pacific service. Connections are available at Northwest's West
9
Coast international gateways for flights to two dozen cities in California, Oregon, Washington, Nevada,
Arizona and New Mexico.
Northwests potent market presence, particularly in Detroit, Minneapolis/St. Paul and
Memphis, results in a route system that not only is strong domestically but also is a significant contnbutor
to the success of Northwests international flights. Consolidating passengers at these three hubs permits
Northwest to efficiently marshal traffic for its international services from JO US gateways: Boston, New
York, Chicago, Detroit, Minneapolis/St. Paul, Seattle/Tacoma, San Francisco, Los Angeles, Memphis
and Honolulu. Detroit will become a trans-Pacific gateway in Apn'/ 1987 when nonstop service is
inaugurated to Tokyo.
The effectiveness of the new route structure was demonstrated in the fourth quarter of
1986. Dunng the final three months of the year, traffic grew nearly 77 percent year-over-year on capacity
increases of 71 percent, resulting in a systemwide load factor improvement of two points. The domestic
load factor alone rose nearly five points.
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Enhanced
Marketing
Abilities
Through
PARS
ore than 80 percent of Northwest's passenger
sales last year were generated by travel
agencies and virtually all of these sales were
made by travel agents using computerized
reservations systems. Thus, Northwest recognized that ownership of a reservations system is as
important to an airline as its flying assets. As a result, Northwest became, at year-end, half owner
of PARS, formerly the reservations network of Trans World Airlines.
The $140 million investment means that PARS can be developed into a leading travel agency
and airline reservations system. Through aggressive mar-
keting, the PARS system can expand beyond its present
share of more than 3,800 of the nation's 29,000 travel
agencies. Already Northwest has sold more than 250 PARS
terminals to one of America's leading travel services for
installation at 43 key locations.
As the number of PARS subscribers enlarges
so too will the revenue generated by seg-
ment booking fees that each airline
pays for selling its products through the
PARS system. Northwest will share in these profits or elect to
reinvest them into expanding the capabilities of the PARS system.
Northwest took a major step toward
strengthening its marketing abilities in 1986
by acquiring a 50 percent interest in PARS, a
leading travel agency and airline reserva
tions system.
While the overall potential of PARS is impressive, of significant importance is Northwest's
ability to tap the PARS data base to learn more about the travel patterns of passengers booked by PARS
This, combined with information purchased from other travel agency computer reservations systems, will
assist the airline with pndng, seat inventory control, flight scheduling, long-range forecasting and
marketing programs. Northwest will take advantage of PARS' capabilities for its own reservations system
during 1988.
11
Leadership
in Worldwide
. Flight
Training
n 1986 NWA Inc. formed a wholly owned subsidiary
to capitalize on Northwest's established reputation for
supenor airmanship and to meet the challenges of a
projected pilot shortage for the world's airlines. The
result is the Northwest Aerospace Training Corporation (NATCO), a facility that will train Northwest pilots
and will provide crew training to other airlines, governments and corporations on a contract basis.
NATCO undertook several impressive formative steps in late 1986 and early 1987.
Construction is under way on a $19. 6 million training center, adjacent to NWA Inc. World Headquarters,
with occupancy set for late 1987. The center, when expanded to full design capacity, will house 32 full-
flight simulators. Nine new high-technology simulators were ordered in the largest single simulator pro-
12
curement in the history of commercial aviation. The simulator contract, representing a $50 million invest-
ment, includes construction of simulators for two of Northwest's airliners of the future: the Boeing 747-400
and the Airbus A320-200. In addition, the company has contracted to modify and upgrade the 12
simulators it currently owns.
Also, NATCO has agreed to open a division in Grand Forks, North Dakota, to participate in
a joint venture with the Center for Aerospace Sciences (CAS) at the University of North Dakota. Advanced
flight simulators will be placed at NATCO 's North Dakota division for the training of entry-level pilots up
to turbojet ratings. Through the joint venture program, CAS and NATCO will develop computen'zed flight
training systems and undertake research that would benefit the aerospace industry.
The goal of NATCO is to become one of the world's leading flight training centers.
13
The Airbus
A320-200:
Building a
Fleet for the
Future
n October 1, 1986, Northwest announced plans
to acquire up to JOO Airbus A320-200 aircraft to
be delivered between 1990 and 1995. The A320
agreement, which is valued at $3. 6 billion, offers
Northwest two cn'tical components: an advanced and efficient 150-seat jetliner to serve Northwest into
the next century, and valuable flexibility in long-term fleet planning.
Operationally, the A320 will consume fuel at a rate approximately 50 percent less per
seat mile than the predominant aircraft in the Northwest fleet, providing fuel efficiency unmatched by any
aircraft in its category. The A320, which made its initial flight Febmary 22, 1987, incorporates advanced
design concepts and technology that make it the safest and quietest airliner aloft. Adopting a fly-by-wire
flight control system using side-stick controllers in the cockpit, the A320 will give Northwest crews and
passengers wind shear protection and constant, guaranteed flying qualities as seven real-time computers
assess, coordinate and respond to the pilots' flight control inputs.
The A320 offers more than technological supenonty. The agreement also gives Northwest
flexibility in its fleet planning. Northwest now is committed to JO A320-200s. The remaining 90 aircraft
are available to Northwest in blocks of 15 that Northwest can confirm or cancel. Because of the confirm
or cancel provisions, Airbus lndustn'e is shanng the risk with Northwest in developing a competitive fleet
by giving the airline the advantage of adjusting its aircraft requirements based on future market and
economic needs. The first confirmation is required in 1987
for airplanes to be delivered m 1991 and
1992, with the balance of the confir-
mations beginning in 1990 for
airplanes to be delivered from 1992
through 1995.
With this phased delivery schedule, Northwest
can reduce the lead time in forecasting air travel trends
and economic fluctuations before deciding whether to
acquire the A320s. The A320s added to Northwest's fleet
either can provide increased capacity or can replace older,
less efficient aircraft. This flexibility is vitally important to
effective airline management.
Northwest gained a subs1antial degree of
flexibility in planning for future fleet needs
through the decision to acquire up to 100
advanced-technology Airbus A320-200
aircraft for delivery between 1990 and 1995.
Fleet Schedule
fleet as of No. of On
\larch I, 1987 Seats Owned Leased Total Order
Airbus A320 150 100
Boeing
727-100 118 9 9
727-200 146 71 71
747 400 27 5 32
747-400 430 10
747F 5 6 2
757 184 9 20*+- 29 7
l\1cDonnell Douglas:
DC-10 284 19 20
MD-80 143 7 8
DC-9-50 122 16 12 28
DC-9-30 100 56 8 64
DC-9-10 78 31 3 34
Convair 580 48 13 13
Total 263 51 314 119
*Ten A '320 are under firm order Sub1ect to confrrmation by
the Compam an additional 90 deli1 erv positwns are
available betueen /991 and 1995
* *The Company plans to transfer operating leases for six
Boeing 7:;7 aircraft to a third part} during 1987.
Management's Discussion and Analysis of Financial Condition and Results of Operations
As part of an approved plan of reorganization, Northwest
Airlines, Inc. ("Northwest") became a wholly owned subsidiary
of NWA Inc. ("NWA") in 1984. The creation of NWA as a holding
company did not result in any changes in the operation of
Northwest, and the shareholders of Northwest automatically
became shareholders of NWA.
In October 1985 NWA purchased Mainline Travel, Inc.
("MLT"). MLT is a major wholesaler of low-cost vacation
travel packages.
On August 12, 1986, NWA purchased all of the outstand-
ing stock of Republic Airlines, Inc. ("Republic"), a major U.S. air
carrier. Airline operations of Northwest and Republic were com-
bined on October 1, 1986, and Republic was merged into North-
west in November 1986. Airline operations comprise over 97%
of consolidated operating revenues and expenses of NWA.
Consolidated financial statements of the Company include
results of operations for Republic since August 12, 1986, which
accounts for the majority of the increase in revenues and
expenses from 1985 to 1986. Other significant factors affecting
NWA's consolidated results are discussed below.
Results of Operations
Earnings and Dwidends NWA's 1986 consolidated net earnings
totaled $76,941,000 ($3.26 per share) and compare with net earn-
ings of $73,119,000 ($3.18 per share) in 1985 and $55,964,000 ($2.44
per share) in 1984. The 1984 earnings reflect an extraordinary
charge of $30,903,000 ($1.30 per share) resulting from the settle-
ment of a 15-year old lawsuit (see Note H of Notes to Consoli-
dated Financial Statements).
1986
1985
1984 $2 44*
1983 $2.19
1982 - $.23**
Net Earnings per Share
* After extraordinary charge of $1.30 per share from the
ettlement of a lawsuit.
**Results were affected by a 29-dav strike.
$3.26
$3.18
Total operating revenues increased 35.2% to $3,589,174,000
during 1986, primarily from substantial growth in passenger
revenues. Operating expenses grew 32. 7% to $3,422,529,000
resulting in operating income of $166,645,000 compared with
$77,087,000 in 1985. 1984 operating income was $96,276,000.
The 1986 operating margin of 4.6% increased from 2.9% in
1985 and 3.9% in 1984.
In 1986 NWA paid dividends to shareholders totaling
$19,645,000 (90 per share) continuing an unbroken string of
quarterly cash dividends paid for over 31 years. This compares
with $19,586,000 (90 per share) in 1985 and $17,933,000 (82.5
per share) in 1984.
NWA common stock is principally traded on the New York
Stock Exchange. A table showing sales prices and dividends
paid per share in 1986 and 1985 is included on page 33.
Operating Revenues Passenger revenues for 1986 rose
35.6% to $2,920,458,000, representing more than 81 % of total
operating revenues. This resulted from a 29.0% increase in traf-
fic (revenue passenger miles) and a 5.2% increase in yield (reve-
nue per passenger mile) from 9.64 in 1985 to 10.14 in 1986. 1985
passenger revenues of $2,154,394,000 were 8.5% greater than
1984 due to a 13.0 % increase in traffic and a 4.0% decline in
yield. The acquisition of Republic in 1986, together with a strong
economy and discount fares which stimulated leisure travel,
contributed to the growth in traffic.
While the industry had recently been experiencing some
price increases, competitors introduced fare reductions effective
February 1, 1987, which undercut supersaver fares. The new fares
are subject to certain restrictions, including nonrefundabilitv, a
Saturday stay requirement and roundtrip ticket purchase. While
it is believed the new fares will increase traffic levels, their ulti-
mate impact on 1987 vields and passenger revenues is unknown
at this time.
1986 $3.59
$3 l2
1985 $2 {j{j
i:? ,8
1984 $2 45
$2 15
1983 $2 20
$2 1
3
1982
Operating Revenues and Expenses (In Bil11ons)
Revenues Expenses
*Operating results were affected by a 29-day stnke.
16
The 29.0% increase in revenue passenger miles in 1986
compares with a 30.3% increase in capacity (available seat miles),
resulting in a slight drop in passenger load factor to 59.5 % from
60.1 % in 1985. Load factor in 1984 was 60.5%. Break-even pas-
senger load factors were 56.0% in 1986, 58.0% in 1985 and
57.6% in 1984
Freight revenues increased 23.9% to $406,726,000 in 1986
due to a 15.4% increase in freight ton miles and a 7.2% increase
in yield per ton mile. 1985 freight revenues totaled $328,400,000
and were 7.6% lower than 1984, due to an 8.2% decrease in freight
ton miles and .3% increase in yield per ton mile. Mail revenues
increased 9.2% to $87,459,000 in 1986 and compare with
$80,126,000 in 1985 and $58,339,000 in 1984.
Charter and other transportation revenues increased
39.6% to $78,110,000 in 1986, primarily due to combined airline
operations, increased charters and increased cancellation fee
revenues. Charter and other transportation revenues totaled
$55,959,000 in 1985 and $38,559,000 in 1984, with the 1985
increase primarily due to a higher level of military charter activ-
ity. Other revenues totaled $96,421,000 in 1986, $36,612,000 in
1985 and $7,741,000 in 1984. Revenues of MLT subsequent to its
purchase in October 1985 are included in other revenues and
account for the majority of the increase in 1986 and 1985.
Operating Expenses Salaries and benefits, which represent
30.1 % of operating expenses in 1986, increased $313,306,000,
or 43.8%, in 1986 and $75,566,000, or 11.8%, in 1985. The 1986
increase was largely due to the acquisition of Republic. The
1985 increase resulted from increased employees, wages and
payroll taxes. Full-time equivalent employees numbered 33,427
at December 31, 1986; 16,864 at December 31, 1985 and 15,185
at December 31, 1984.
1986 - - - - - - - - - - - - - - - - - 1022.9
1985 - - - - - - - - - - - - - - - 886.4
1984 - - - - - - - - - - - - - - - - 965.9
1983 - - - - - - - - - - - - - 835.2
1982 - - - - - - - - - - 600 2
Freight Ton Miles-Scheduled (In Millions)
17
During 1985 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 87-
Employers' Accounting for Pensions. The Company will pro-
spectively adopt the new expense and disclosure portion of the
standards in the first quarter of 1987. Based on a preliminary
review, it is expected that pension expense in 1987 will increase
under the new requirements.
Fuel, oil and taxes decreased $81,933,000, or 11.4%, in 1986
due to a 32.9% decline in the average fuel price partially offset
by a 17.0% increase in gallons consumed. The 3.7% increase in
1985 fuel expense reflects a 9.3% increase in gallons consumed
partially offset by a 5.3% decline in the fuel price per gallon.
Expansion of service, together with the net addition of 181
aircraft in 1986 and 11 aircraft in 1985 resulted in the additional
fuel consumption. Fuel prices averaged 55.78 in 1986, 83.07
in 1985 and 87.76 in 1984. Instability of fuel prices is expected
throughout 1987.
Commission expenses increased $146,090,000 due to
increased revenues, higher levels of sales by commission agents
and increased commission rates. Increased rentals and landing
fees in 1986 reflect the combination with Republic. Departures
increased 81.9% in 1986 over 1985. The Company also assumed
15 aircraft operating leases from Republic and entered into 9
additional operating lease agreements in 1986, resulting in
increased r_ental expense. There were no operating leases for
aircraft in 1985 or 1984.
1986 ~~~~~~~~~111111111111~
5
~
6.~
o
-----sg s
Passenger load Factor (Percent)
Actual Break Even
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Aircraft maintenance materials and repairs increased
$62,117,000, or 55.6%, in 1986 with the acquisition of Republic,
higher level of operations and aircraft modifications.
Depreciation and amortization expense rose 32.7% in
1986 to $242,213,000 compared with $182,563,000 in 1985 and
$167,203,000 in 1984. The 1986 increase was primarily the result
of additional depreciation for assets purchased in the Republic
acquisition and for nine additional 757s under capital leases
while the 1985 increase reflects the addition of 11 new 757
passenger aircraft.
Other operating expenses increased $259,542,000, or
62.2%, in 1986 and $83,026,000, or 24.9%, in 1985. Both years
reflect higher marketing and passenger service expenses. In
addition, 1986 includes a full year, and 1985 a partial year, of
MLT expenses.
Other Income (Expense) Other income (expense) in 1986
includes $17,231,000 of integration expense, representing non-
recurring costs associated with the combination of Northwest
and Republic Airlines. Interest expense totaled $76,537,000
in 1986 compared with $19,873,000 in 1985 and $4,268,000 in
1984. Increases in both years reflect higher levels of debt and
capital lease obligations. See Cash Flow, Liquidity and Capital
Resources for further discussion of the increase in debt because
of the acquisition of Republic. The gain on disposition of assets
was $14,722,000 in 1986; $2,780,000 in 1985 and $19,864,000 in
1984. The 1985 and 1986 gains resulted from the sale of miscel-
laneous assets, whereas the 1984 gain resulted primarily from
$2 920,458 Passenger
81 4%
$49-t 185 Cargo
13 8%
$17-1 ,53 1 Charier 3nd Other
4 3w
1986 Sources of Operating Revenues (In Thousands)
18
the sale of three DC-10 aircraft. Other nonoperating items pro-
duced income of $9,141,000 in 1986 and $8,000 in 1985, and
expense of $1,698,000 in 1984.
Income Taxes Income taxes were $25,300,000 in 1986
compared with a credit of $8,376,000 in 1985 and expense
of $2,427,000 in 1984 (after a $28,094,000 income tax credit
resulting from an extraordinary item). Earned investment tax
credits totaled $22,266,000 in 1986, $37,749,000 in 1985 and
$23,576,000 in 1984. The Company estimated that 1986 earn-
ings were reduced by approximately $12 million due to changes
in the tax laws that limited allowable investment tax credits. The
Company also passed the benefit of approximately $22.5
million of investment tax credits to lessors of certain of its air-
craft in 1986. Investment tax credits are applied on tax returns as
allowed by income tax regulations. Credits not currently applied
are offset against deferred taxes for accounting purposes, and as
of December 31, 1986, these credits totaled $55,379,000. Under
the Tax Reform Act of 1986, these investment tax credit carry-
forwards will be reduced by 17% in 1987 and an additional
17% in 1988.
Effects of the Tax Reform Act of 1986 The Tax Reform Act of
1986 will affect future cash flows, results of operations and the
Company's financial position. Certain provisions of the Act, such
as the repeal of investment tax credits, the reduction of invest-
ment tax credit carryforwards, the lengthening of depreciable
lives for property and equipment and the new alternative mini-
mum tax, will result in larger future U.S. income tax payments
for the Company. Partially offsetting these negative provisions,
however, will be the reduction in future corporate income
tax rates.
$635,937 ~U( I Otl dnd Taxts
18.6)6
~ 1,028 4 78 Salar1Ps ,111d Benefits
30.l '(,
~l 0-12,103 RfftdiS L..rnd17g FPtS
.lO I'(, \l<llen,11' 1d 0th r
$17.l,798 Commissions
13 8 l(,
212 213 Dtprl'l lt 'ln df'<l Arr-ort ldll( 1
7 JOI
1986 Distribution of Operating Expenses (In Thousands)
The change in depreciable lives and the new alternative
minimum tax will generally only affect the timing of future U.S.
income tax payments while the repeal of investment tax credits,
the reduction of investment tax credit carryforwards and the
reduction in future corporate tax rates will result in permanent
tax differences as compared to previous tax laws.
As of December 31, 1986, the Company had on order
approximately $1 billion worth of equipment which will qualify
as transition property under the Act. As transition property, this
equipment will qualify for investment tax credits, as reduced by
the Act, and shorter depreciation lives than would be allowed
under the new tax law.
The Financial Accounting Standards Board has proposed
certain changes in the manner in which income taxes are to be
accounted for under generally accepted accounting principles.
These changes, when coupled with the new tax Act, will result
in a net decrease in the Company's deferred tax liability. This
decrease will result when book/tax timing differences, which
have been previously recorded at 46 % federal tax rates, are
adjusted to reflect the lower future federal tax rates under the
Act. Partially offsetting this decrease will be the effect of the
reduction in investment tax credit carryforwards.
Inflation and Changing Prices The Company is capital
intensive, with flight equipment and related inventory as
major assets. Because property, equipment and inventory are
recorded at cost, depreciation would be understated during infla-
tionary periods and net income overstated to the extent current
costs exceed original cost. The acquired assets and liabilities
of Republic were written up to fair market value in accordance
with generally accepted accounting principles, thereby eliminat-
ing this impact on these assets in 1986.
1986 - - - - - - - - - -
1985 - - - - - - --
1984 - - - - - - -
$2.15
$1 98
Passenger Revenues by Geographic Region (In Billions)
Domestic Pacific Atlantic
$2 92
19
Financial Condition Stockholders' equity at December 31,
1986, totaled $1,105,916,000, up $158,915,000 from December 31,
1985. This represented a book value per share of $46.29 and
$43.49 at December 31, 1986 and 1985, respectively. Increases
in equity resulted primarily from 1986 net earnings and the con-
version of $100 million principal amount of 7% subordinated
debentures, partially offset by dividend payments of $19,645,000.
In connection with the call for redemption of the 7 % deben-
tures, 1,970,324 shares of common stock were issued.
Long-term debt, excluding current maturities, totaled
$808,684,000 at December 31, 1986, and long-term obligations
under capital leases were $577,548,000. These debt and lease
obligations were $332,992,000 and $161,101,000 at December 31,
1985, respectively. The 1986 balance includes debt and lease obli-
gations of $412,447,000 assumed in the acquisition of Republic
Airlines. The former Republic debt is secured by certain aircraft
and engines, while the remaining NWA and Northwest obligations
(other than leases) are unsecured. At December 31, 1986, capital-
ization consisted of 55.6% long-term debt (including capital
lease obligations) and 44.4% equity as compared with 34.3%
long-term debt and 65.7% equity at December 31, 1985.
In February 1987 the Company sold 3 million shares of
previously unissued common stock to the public. Proceeds of
$197,610,000 will be used for general corporate p_
urposes. Man-
agement presently expects that such purposes include making
the proceeds available for early payment in February 1988 of
Equipment Trust Notes due in 1990 and 1993 (in the aggregate
principal amount of $150 million), the purchase of aircraft and
the reduction of outstanding commercial paper obligations.
1986 - - - - - - - - - - - - - - - - - s5 6%
1985 - - - - - - - - - - - 34.3%
1934 - - - 10.1 %
1983 - - - 10.5%
1982 0%
Debt* as a Percent of Total Capitalization
Includes capital lease obligat1ons.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Cash Flow, Liquidity and Capital Resources Cash and short-
term investments at December 31, 1986, were $126,096,000
compared with $45,842,000 and $49,564,000 at December 31,
1985 and 1984, respectively. Operations provided cash of
$310,794,000 in 1986, $221,432,000 in 1985 and $215,413,000
in 1984.
During 1986 the Company acquired all of the outstanding
stock of Republic for approximately $862 million. When adjusted
for the amount of cash provided by Republic, the Company's net
cash outlay was approximately $674 million. In order to finance
the acquisition, NWA entered into a revolving credit agreement
on April 3, 1986. This agreement with a group of major banks
provides for the availability of up to $500 million in unsecured
short-term borrowings to July 1, 1989, with the available amount
periodically decreasing thereafter until the final termination
date of July 1, 1992. In addition, the Company sold $200 million
of senior unsecured notes in July 1986.
Later in the year, NWA established a commercial paper pro-
gram. By use of the program and by the application of internally
generated funds, the Company reduced its borrowings under
the NWA revolving credit facility from $500 million to $50
million at year end.
Northwest also has a revolving credit facility with a group
of major banks which provides for an additional $500 million of
unsecured borrowings. There were no amounts outstanding
under this agreement at December 31, 1986 or 1985.
1986 - - - - - - - - - 55.8
1985 - - - - - - - - - - - - - -
83.1
87.8
1984 - - - - - - - - - - - - - -
1983 - - - - - - - - - - - - - - -
92.6
1982 - - - - - - - - - - - - - - - - -
Average Price per Gallon of Fuel
102.6
20
Terms of the revolving credit agreements provide that
available borrowings shall be reduced by any amounts of com-
mercial paper outstanding. As of December 31, 1986, there was
$559,001,000 available for borrowing under the two revolving
credit agreements.
On December 29, 1986, the Company purchased from Trans
World Airlines, Inc. a 50% interest in the PARS computerized
reservations system at a cost of $140 million. The investment
fulfills an important long-range Company goal of major owner-
ship participation in a computerized reservations system mar-
keted to travel agents. PARS has been structured as a marketing
company and a service company. Other airlines will be offered
ownership interests in the marketing company in the interest of
making it an industry-wide system. To fully realize the potential
of this investment, Northwest will adopt the PARS system for
its internal reservations operation during 1988.
Additions to property and equipment, excluding those
acquired from Republic, totaled $668,906,000 in 1986. Aircraft
deposits of $249,495,000 had been made with manufacturers as
of December 31, 1986. As part of the acquisition of Republic, the
Company received 6 Boeing 757s, 18 Boeing 727s, 8 McDonnell
Douglas MD-80s, 126 McDonnell Douglas DC-9s and 13
Convair 580s.
Nine new Boeing 757-200 passenger aircraft were placed
into service during 1986 with ten more scheduled for delivery
in 1987 through 1989. The fmancing of the nine aircraft qualified
as "finance leases" under provisions of the tax code. Northwest
was the first airline to use this type of lease, which provides for
the ability to have a low, fixed price purchase option at the end of
the lease term. For accounting purposes these leases are treated
as capital leases while for tax purposes they are treated as
operating leases.
1986 1177 3
705.0
1985 997 I
Sf,7 R
1984 1012 7
599 6
1983 836 4
511 4
1982 629.8
177 ~
All Cargo Operations (In Millions)
Available Ton Miles Revenue Ton Miles
In order to standardize the engines on the fleet of Boeing
757 aircraft, the Company plans to transfer operating leases for six
Boeing 757s acquired from Republic to a third party during 1987.
During 1986 the Company purchased and subsequently sold
and leased back under operating leases three new Boeing 747 air-
craft. The Company also sold and leased back, under operating
leases, three 747 aircraft (including one freighter) which had
been in its fleet for several years.
In addition to the ten 757s mentioned previously, the
Company has purchase commitments for two Boeing 747-200
freighter aircraft to be delivered in 1987, ten new-generation
Boeing 747-400 passenger aircraft for delivery in 1988 through
1990, and ten Airbus A320-200 aircraft for delivery in 1990 and
1991. Committed expenditures for these aircraft and related
equipment will be approximately $342,586,000 in 1987;
$385,763,000 in 1988; $458,422,000 in 1989; $489,673,000 in
1990 and $130,674,000 in 1991. It is anticipated that five Boeing
757s scheduled for delivery in 1987 will be financed with oper-
ating leases. Financing for the remaining aircraft has not been
determined at this time.
The Company has the right to purchase up to 90 additional
Airbus A320 aircraft, on which deposits of $900,000 have been
paid. These aircraft can, at the Company's option, be delivered in
blocks of 15 from 1991 through 1995. Amounts to be paid under
the options, assuming all aircraft are purchased, will approximate
$3.25 billion. With this agreement, the Company has positioned
itself to replace some of its less efficient aircraft, or expand its
fleet, or in the event of unfavorable economic conditions, not
take delivery of all aircraft.
21
Capital commitments for 1987 and thereafter principally con-
sist of scheduled aircraft acquisitions. In addition, the Company
continues to make improvements to ground facilities including
terminal improvements and modifications to office buildings.
During 1986, the Company completed construction of a new $17
million NWA Inc. World Headquarters building serving as cor-
porate offices for approximately 1,200 employees.
In October 1986 the Company created a subsidiary to market
flight training services. Northwest Aerospace Training Corpora-
tion (NATCO) will have the capability to operate up to 32 flight
simulators and training devices. A $19.6 million high-technology
facility is being constructed next to NWA's World Headquarters.
In addition to training flight crews to meet the future growth of
Northwest, NATCO will capitalize on Northwest's reputation for
professional airmanship by offering governments, airlines and
other corporations quality flight instruction on a contract basis.
The Company has contracted for 9 new flight simulators, and
upgrades to 12 simulators already owned, for approximately $69
million. It is estimated that over 80% of the simulator utilization
will be for training of Northwest pilots. The simulators are
scheduled for delivery in 1988 and 1989.
The Company believes that internally generated funds,
lease financings and borrowings will provide sufficient capital to
meet all present commitments. The Company has substantial
assets that are unencumbered, which could provide collateral
for future financings if needed.
NWA Inc. Consolidated Balance Sheets
(Dollars in thousands)
ASSETS
Current Assets
Cash and short-term investments
Accounts receivable, less allowances (1986-$4,500; 1985-$2,300)
Flight equipment spare parts, less allowances (1986-$44,450; 1985-$40,230)
Maintenance and operating supplies
Prepaid expenses
Property and Equipment
Flight equipment
Less accumulated depreciation
Advance payments for flight equipment
Other property and equipment
Less accumulated depreciation
Property and Equipment Under Capital Leases-Note D
Flight equipment
Less accumulated amortization
Other Assets
Investments in affiliated companies-Note B
Other
22
December 31
1986 1985
$ 126,096 $ 45,842
467,843 248,794
108,581 52,955
33,395 22,985
44,527 22,311
- -
780,442 392,887
3,473,883 2,617,263
1,493,838 1,356,033
- - --
1,980,045 1,261,230
249,495 239,292
2,229,540 1,500,522
695,350 365,769
179,257 148,493
516,093 217,276
623,581 167,290
22,322 1,406
-
601,259 165,884
144,537 1,660
50,983 41,777
195,520 43,437
$4,322,854 $2,320,006
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commercial paper
Revolving line of credit-Note C
Accounts payable and other liabilities
Air traffic liability
Accrued compensation and benefits
Current maturities of long-term debt
Current obligations under capital leases
Long-:ferm Debt-Note C
Long-Term Obligations Under Capital Leases-Note D
Deferred Credits and Other Liabilities
Income taxes-Note F
Other-Note D
Stockholders' Equity-Note E
Preferred stock, $1.00 par value, authorized 5,000,000 shares; outstanding-none
Common stock, $2.00 par value, authorized 60,000,000 shares;
outstanding-23,890,095 shares in 1986 and 21,774,251 shares in 1985
Additional paid-in capital
Unearned compensation
Retained earnings
Commitments and Contingencies-Notes D, G and H
The accompanying note<; are an integral part of these statements.
23
December 3/
1986 /985
$ 390,999 $ 152,191
50,000
551,016 262,915
298,819 131,912
130,981 59,936
16,725 3,996
17,844 6,189
1,456,384 617,139
808,684 332,992
577,548 161,101
237,853 246,213
136,469 15,560
374,322 261,773
47,780 43,549
212,580 111,318
(3,874)
849,430 792,134
1,105,916 947,001
$4,322,854 $2,320,006
NWA Inc. Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Operating Revenues
Passenger
Freight
Mail
Charter and other transportation
Other
Operating Expenses
Salaries and benefits
Fuel, oil and taxes
Commissions
Rentals and landing fees
Aircraft maintenance materials and repairs
Depreciation and amortization
Other
Operating Income
Other Income (Expense)
Integration expense
Investment income
Interest expense, net of capitalized interest (1986-$18,145;
1985-$7,799; 1984-$5,446)
Gain on disposition of assets
Other-net
Earnings Before Income Taxes and Extraordinary Item
Income Tax Expense (Credit)-Note F
Earnings Before Extraordinary Item
Extraordinary Item
Loss from settlement of litigation (less applicable income tax credit
of $28,094)-Note H
Net Earnmgs
Earnings Per Share-Primary and Fully Diluted
Before extraordinary item
Extraordinary item
Net Earnings Per Share
The accompanying notes are an integral part of these statements.
24
Year Ended December 31
1986 1985 1984
$2,920,458 $2,154,394 $1,984,999
406,726 328,400 355,336
87,459 80,126 58,339
78,110 55,959 38,559
96,421 36,612 7,741
3,589,174 2,655,491 2,444,974
1,028,478 715,172 639,606
635,937 717,870 692,160
473,798 327,708 305,679
191,573 106,220 98,044
173,859 111,742 111,903
242,213 182,563 167,203
676,671 417,129 334,103
3,422,529 2,578,404 2,348,698
166,645 77,087 96,276
(17,231)
5,501 4,741 7,214
(76,537) (19,873) (4,268)
14,722 2,780 19,864
9,141 8 (1,698)
(64,404) (12,344) 21,112
102,241 64,743 117,388
25,300 (8,376) 30,521
76,941 73,119 86,867
(30,903)
$ 76,941 $ 73,119 $ 55,964
$ 3.26 $ 3.18 $ 3.74
(1.30)
$ 3.26 $ 3. 18 $ 2.44
N
WA Inc. Consolidated Statements of Changes in Financial Position
(Dollars in thousands)
Funds Provided
Earnings before extraordinary item
Add (deduct) non-cash items:
Depreciation and amortization
Increase (decrease) in deferred income taxes
Total From Operations Before Extraordinary Item
Extraordinary loss before tax benefit of $28,094
Total From Operations
Net book value of property dispositions
Increase m capital lease obligations
Issuance of long-term debt
Increase in commercial paper
Issuance of common stock upon debenture conversion, net of costs
Deferred gain on sale and leaseback
Increase in revolving line of credit
Increase (decrease) in air traffic liability
Increase in accounts payable and other liabilities
Increase (decrease) in accrued compensation and benefits
Other
Total Funds Provided
Funds Used
Acquisition of Republic:
Flight equipment and other property
Debt and lease obligations
Other long-term liabilities
Working capital other than cash
Net acquisition cost
Additions to property and equipment
Investment in PARS
Reduction and conversion of long-term debt
Increase in accounts receivable
Increase (decrease) in flight equipment spare parts
Dividends
Other
Total Funds Used
Increase (Decrease) in Cash and Short.'.ferm Investments
Cash and short-term investments at the beginning of the year
Cash and short-term investments at the end of the year
The accompanving notes are an integral part of these statements.
25
$
$
Year Ended December 31
1986 /985 1984
76,941 $ 73,119 $ 86,867
242,213 182,563 167,203
(8,360) (34,250) 20,340
310,794 221,432 274,410
(58,997)
310,794 221,432 215,413
395,282 775 20,672
309,761 167,290
284,679 236,988
238,808 134,357 17,834
98,964
77,936
50,000
25,192 28,012 (1,033)
14,827 31,861 16,282
10,141 (54 853) 63,926
2,751 29,628 5,894
1,819,135 795,490 338,988
1,422,807
(455,753)
(55,336)
(237,770)
673,948
668,906 693,116 345,844
140,000
124,943
34,832 51,958 7,171
33,027 5,502 (942)
19,645 19,586 17,933
43,580 29,050 21,104
1,738,881 799,212 391,110
80,254 (3,722) (52,122)
45,842 49,564 101,686
126,096 $ 45,842 $ 49,564
NWA Inc. Consolidated Statements of Stockholders' Equity
(In thousands)
Balance January 1, 1984
Exercise of stock options
Increase in par value from $1.25 to $2.00 per share
Net earnings for 1984
Cash dividends-$.825 per share
Other
Balance December 31, 1984
Exercise of stock options
Net earnings for 1985
Cash dividends-$.90 per share
Other
Balance December 31, 1985
Exercise of stock options
Conversion of debentures
Restricted stock grant
Net earnings for 1986
Cash dividends-$.90 per share
Other
Balance December 31, 1986
The accompanying notes are an integral part of these statements.
26
Common Stock
Shares Amount
21,716 $27,145
38 55
16,308
(4) (9)
21,750 43,499
30 60
(6) (10)
21,774 43,549
74 148
1,970 3,940
78 155
(6) (12)
23,890 $47,780
Additional
Paid-In Unearned Retained
Capital Compensation Earnings
$126,474 $ $700,570
840
(16,308)
55,964
(17,933)
(183)
110,823 738,601
753
73,119
(19,586)
(258)
111,318 792,134
2,603
95,024
3,977 (3,874)
76,941
(19,645)
(342)
$212,580 $(3,874) $849,430
' NWA Inc. Notes To Consolidated Financial Statements
Note A - Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements
include the accounts of NWA Inc., Northwest Airlines, Inc. and
all other 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 $95,023,000
and $16,528,000 at December 31, 1986 and 1985, respectively.
Flight Equipment Spare Parts: Flight equipment spare parts
are priced at average cost. An allowance for depreciation is pro-
vided at rates which depreciate cost, less residual value, over
the estimated useful lives of the related aircraft.
Property, Equipment and Depreciation: Owned property and
equipment are stated at cost. Property and equipment acquired
under capital leases are stated at the lower of the present value of
minimum lease payments or fair market value at the inception
of the lease. Provision for depreciation is computed by the straight-
line method over the estimated useful lives of the assets. Esti-
mated useful lives range from 5 to 15 years for flight equipment
and 3 to 30 years for other property and equipment; residual
values range from zero to 15%. Property and equipment under
capital leases and leasehold improvements are amortized over
the lease terms or the estimated useful lives of the assets,
whichever is less.
Pension Plans: The Company has several noncontributory
and contributory pension plans covering substantially all of its
employees. The pension costs accrued for defined benefit plans
include amortization of prior service costs over periods of 10 to
40 years. It is the Company's policy to annually fund at least the
minimum pension contribution as required by the Employees
Retirement Income Security Act.
Income Taxes: Income taxes are provided at statutory rates
applied to earnings before income taxes regardless of when such
taxes are paid. Deferred income taxes arise principally from tim-
ing differences between financial and tax methods
of accounting.
The Company uses the flow-through method of accounting
for investment tax credits. Investment tax credits not applied
currently on tax returns are offset against deferred income taxes
to the extent they are applicable to deferred taxes becoming
payable in the investment tax credit carryover periods.
27
Operating Revenues: Passenger and freight revenues are
recognized when the transportation is provided. The value of
sold but unused tickets is included in current liabilities.
Earnings Per Share: Primary earnings per share were based
on the weighted average number of common and common
equivalent shares outstanding of 26,915,000 in 1986; 25,360,000
in 1985 and 23,735,000 in 1984. This included shares for the
assumed conversion of the 7 % convertible subordinated
debentures due in 2007 and 2010 totaling 5,035,000 in 1986;
3,552,000 in 1985 and 1,971,000 in 1984. Common equivalent
shares also included the dilutive effect of the assumed exercise
of stock options. Earnings were adjusted for interest relating to
the debentures, net of income taxes, amounting to $10,793,000
in 1986; $7,423,000 in 1985 and $1,973,000 in 1984. Fully
diluted earnings per share were equivalent to primary earnings
per share.
Reclassificatrons: Certain amounts for 1985 and 1984
have been reclassified to conform with the 1986 financial state-
ment presentation.
Note B- Business Acquisitions Republic: On August 12,
1986, the Company acquired all of the outstanding stock of
Republic Airlines, Inc., a major U.S. air carrier, for approximately
$862,000,000. After deducting Republic's cash, the acquisition
resulted in a net cash outlay of approximately $674,000,000.
The acquisition was recorded using the purchase method of
accounting and, accordingly, the purchase pnce was allocated
to the assets and liabilities acquired based on their estimated fair
market value at the date of acquisition, largely determined by
an independent appraisal. The fair market value of the net
assets acquired was in excess of the acquis1t1on cost which
resulted in a reduction of the amount assigned to property and
equipment. The 1986 consolidated financial statements of the
Company include results of operations for Republic since
August 12, 1986.
On October 1, 1986, the airline operations of the Company's
two major operating subsidiaries, Northwest and Republic, were
combined. As a result, the Company accrued $17,231,000 of non-
recurring costs associated with the combination. In November
1986 Republic was merged into Northwest.
NWA Inc. Notes to Consolidated Financial Statements - Continued
The following presents the unaudited pro forma results of
operations of the Company as if Republic had been acquired at
the beginning of the periods presented (in thousands, except
per share data):
Operating revenues
Earnings
Earnin~s per share
Year Ended December 31
1986
$4,694,412
95,231
3.94
1985
$4,389,888
47,499
2.17
The above table includes additional interest expense as
if funds borrowed in connection with the acquisition had been
outstanding from the beginning of each year. Not included in
the table is a 1985 extraordinary gain of $62,175,000 ($2.45 per
share) resulting from a pension plan termination by Republic.
This proforma financial information is not intended to reflect
results of operations which would have actually resulted had
the purchase of Republic been effective on the dates indicated.
It is not intended to be indicative of future results and does
not reflect any synergy prior to the actual combination of
Northwest and Republic.
PARS: On December 29, 1986, the Company acquired a 50%
interest m the PARS computerized reservations system, previously
wholly owned by Trans World Airlines, Inc., for $140,000,000
which is included in other assets. The reservations system
serves more than 3,800 subscribing travel agencies.
MLT: On October 1, 1985, the Company acquired all of the
common stock of Mainline Travel, Inc., a wholesaler of vacation
travel packages. The transaction, which is not material to the
Company's financial results, was accounted for as a purchase.
28
Note C - Long-Term Debt and Credit Agreements Long-term
debt consisted of the following at December 31 (in thousands):
8.625 % notes due 1996
9% notes due 1992
9.15 % notes due 1998
10.125 % notes due 1988
Convertible subordinated debentures:
7.5% due 2007 (a)
7.5 % due 2010 (b)
Installment notes (c)
Equipment trust notes (c):
14.625 % due 1990
15.125 % due 1993
9% due 1993
Other
Debt premium (c)
Total long-term debt
Less current maturities (d)
1986 1985
$200,000 $
50,000
50,000
7,992
175,000
107,137
75,000
75,000
20,400
37,518
27,362
825,409
16,725
$808,684
50,000
11 ,988
100,000
175,000
336,988
3,996
$332,992
On July 1, 1984, Northwest Airlines, Inc. entered into a
revolving credit agreement with a group of major banks which
provides for unsecured borrowings up to $500,000,000 through
June 30, 1988. This amount decreases periodically thereafter to
the termination date of July 1, 1994. Interest on borrowings is,
at the Company's election, the lower of various formula rates
or the prime rate as defined until June 30, 1991, and the
formula rate or prime rate plus % thereafter. Commitment
fees ranged from 1/i6
% to 1/s % per annum on the unused credit
and amounted to $595,000 in 1986. There were no outstanding
borrowings at December 31, 1986 and 1985.
On April 3, 1986, NWA Inc. entered into a revolving
credit agreement with a group of major banks which provides
for unsecured borrowings up to $500,000,000 to July 1, 1989.
This amount decreases periodically thereafter to the termination
date of July 1, 1992. Interest on borrowings is, at the Company's
election, the lower of various formula rates or the prime rate as
defined until July 1, 1992. Commitment fees ranged from
6
%
to
% per annum on the unused credit and amounted to
$166,000 in 1986. The balance outstanding at December 31,
1986, which is classified as a current liability, totaled
$50,000,000 at an interest rate of 6.985 % , which
was in effect until February 1987.
The terms of the revolving credit agreements provide that
available borrowings shall be reduced by any amounts of com-
mercial paper outstanding.
(a) In February 1983 the Company issued $100,000,000 of
7.5% convertible subordinated debentures due in 2007. The
debentures were convertible into common stock at a rate of
$50.75 per share. In December 1986 the Company called these
debentures for redemption. As a result of the call for redemp-
tion. $99,168,000 principal amount of the debentures was con-
verted into 1,953,930 shares of the Company's common stock.
In addition, 16,394 shares were issued to an underwriter in
connection with a standby purchase arrangement.
(b) In June 1985 the Company issued $175,000,000 of 7.5%
convertible subordinated debentures due in 2010. The deben-
tures are convertible into common stock at a rate of $57.00 per
share. Subject to certain restrictions, the Company may redeem
the debentures at prices ranging from 106.75% of the principal
amount in 1987 to 100% in 2005. Annual sinking fund payments
of $7.500,000, less the amount of debentures converted
or redeemed, are required beginning in 1995.
(c) The installment notes and equipment trust notes
were assumed with the acquisition of Republic. The debt was
revalued as of the acquisition date using market interest rates
ranging from 8.8 % to 12.5%. The resulting adjustment has been
recorded as a debt premium and 1s being amortized as a reduc-
tion of interest expense over the term of the debt. These notes
are secured by certain aircraft and engines.
29
The installment notes have final maturity dates from
1987 through 1998 at a weighted average interest rate of 15.0%.
The 9% equipment trust notes due 1993 require semiannual
sinking fund payments of $1,575,000 from 1987 through 1992
and $1,500,000 at maturity plus interest. The Company may make
additional semiannual sinking fund payments up to $1,575,000
and may pay off the remaining balance in full on or after
May 1, 1988, at a premium.
(d) Current maturities of long-term debt due for the next five
years are as follows (in thousands):
1987
1988
1989
1990
1991
$16,725
17,426
12,759
87,644
18,169
The Company was in compliance with the covenants of all
debt agreements at the end of the year. Dividends are restricted
to 3% of stockholders' equity at the beginning of the year.
NWA Inc. Notes to Consolidated Financial Statements - Continued
Note D - Leases The Company leases space in air
terminals; land and buildings at airports; ticket, sales and reser-
vations offices; and other property and equipment under non-
cancelable operating leases which expire in various years through
2025. Portions of these facilities are subleased under noncancel-
able operating leases expiring in various years through 1997.
At December 31, 1986, the Company leased 52 of its 312
aircraft, 31 of which were capital leases. Under 33 of the lease
agreements, the Company has the option to purchase the air-
craft at prices approximating fair market value at the end of the
lease term, with 14 of the lease agreements providing for pur-
chase options ranging from approximately 10% to 20% of the
lessor's cost.
During 1986 the Company sold six Boeing 747-200 aircraft
and leased them back under operating leases. The proceeds
from the sales, which totaled $465,415,000, exceeded the net
book value of the aircraft by $77,936,000. This gain has been
deferred and is being amortized over the terms of the leases.
Rental expense for all operating leases consisted of
(in thousands):
Gross
Sublease rental income
1986
$101,619
(6,816)
1985
$44,330
Q,818)
1984
$39,884
(1,079)
$ 94,803 $42,512 $38,805
At December 31, 1986, future minimum lease payments
under capital leases and noncancelable operating leases with
initial or remaining terms of more than one year were as follows
(in thousands):
- - -
Capital Operating
Leases Leases
1987 $ 51,068 $ 126,141
1988 55,787 120,868
1989 60,358 104,632
1990 59,030 120,653
1991 53,191 100,926
Thereafter 741,687 1,517,937
1,021,121 2,091,157
Less sublease rental income 15,084
Less amounts representing interest 425,728
Present value of future minimum capital
lease payments and minimum rental
commitments $ 595,393 $2,076,073
30
Note E- Stockholders' Equity The Company has stock
option and incentive plans for officers and certain key employ-
ees. There were 914,400 and 197,000 shares of common stock
available for stock option grants at December 31, 1986 and 1985,
respectively. All of the options granted expire on various dates
through 1991. Common stock options at prices that were not
less than 100% of market at the date of grant were as follows:
Price Per
Shares Share
Outstanding at December 31, 1984 179,947 $23.31-$44.06
Granted 158,000 42.19
Exercised (29,710) 23.31- 44.06
Canceled or expired (10,500) 42.19- 44.06
Outstanding at December 31, 1985 297,737 23.31- 44.06
Granted 205,500 47.69- 48.50
Exercised (73,881) 23.31- 47.69
Canceled or expired (500) 42.19
Outstanding at December 31 , 1986 428,856 23.31- 48.50
Options exercisable:
At December 31, 1985 86,663 23.31- 44.06
At December 31, 1986 428,856 23.31- 48.50
During 1986, the Company granted 77,600 shares of
restricted common stock to certain officers of NWA Inc. and
Northwest Airlines. Until 1990, certain restrictions limit the abil-
ity of the officers to dispose of the stock. The estimated value of
the restricted stock is being amortized as additional compen-
sation expense over the term of the grant.
At December 31, 1986, the Company had 4,413,431 shares of
common stock reserved for conversion of the 7.5% convertible
subordinated debentures due 2010 and for issuances under
employee stock option and incentive plans.
Note F - Income Taxes Reconciliation of the Company's effec-
tive income tax rate is as follows (in thousands):
Year Ended December 31
1986 1985 1984
Statutory rate applied to earnings
before tax and extraordinary item $47,031 $29,782 $53,998
Add ( deduct):
Investment tax credit earned (22,266) (37,749) (23,576)
Rate change on timmg differences (1,390) (1,444) (1,467)
Other 1,925 1,035 1,566
Income tax expense (credit) before
extraordinary item 25,300 (8,376) 30,521
Tax benefit on extraordinary loss (28,094)
Total income tax expense (credit) $25,300 $ (8,376) $ 2,427
Federal, foreign and state income tax expense (credit)
consists of the following (in thousands):
1986 1985 1984
Current:
Federal $ 20,791 $ (6,039) $ 6,687
Foreign 866 1,855 1,118
State 5,519 (868) 2,889
$27,176 $ (5,0~2) $10,694
Deferred:
Federal $ (2,219) $ (6,061) $ (7,107)
State 343 2,737 (1,160)
!__Q,876) $ (3,324) $ (8,267)
The deferred income tax expense (credit) consists of the
following (in thousands):
1986 1985 1984
Extraordinary loss $ $ 28,094 $(28,094)
Accelerated depreciation 15,255 12,526 5,183
Investment tax and other credits 20,117 (54,891) 15,958
Deferred gain on sale and
leaseback (33,604)
Interest 7,608 3,588 2,505
Deferred employee benefits (10,313) (923) (834)
Deferred 757 training costs 265 4,346
Deferred revenue (2,220) 2,220
Rate change on timing differences (1,390) (1,444) (1,467)
Prepaid commissions 5,709 443 43
Capital leases (4,702) 648
Other 1,399 2,069 (1,561)
$ (1,876) $ (3,324) $ (8,267)
31
Investment tax credits of $55,379,000 not applied on tax
returns but offset against deferred income taxes at December 31,
1986, will expire if not used in the amount of $12,428,000 in
2000 and $42,951,000 in 2001.
Note G- Commitments At December 31, 1986, the Company
had contracted to purchase ten Airbus A320-200 aircraft for deliv-
ery in 1990 and 1991; ten Boeing 757-200 aircraft for delivery
from 1987 through 1989; ten Boeing 747-400 aircraft for delivery
from 1988 through 1990 and two Boeing 747 freighter aircraft for
delivery in 1987. Deposits of $248,595,000 have been made with
the manufacturers, and additional committed expenditures for
these aircraft and related equipment will be approximately
$342,586,000 in 1987; $385,763,000 in 1988; $458,422,000 in
1989; $489,673,000 in 1990 and $130,674,000 in 1991.
The Company has options to purchase up to 90 additional
Airbus A320 aircraft for delivery in 1991 through 1995, on which
nonrefundable deposits of $900,000 have been paid. These air-
craft are subject to periodic reconfirmation or cancellation.
Amounts to be paid under these options, assuming all aircraft
are purchased, will approximate $3,250,000,000.
Note H - litigation and Contingencies As previously reported,
in 1973 a federal trial court in Washington, D.C., held in a class
action by certain female flight attendants that the Company vio-
lated certain provisions of the Equal Pay Act of 1963 and the
Civil Rights Act of 1964. After several appeals the trial court
judgment was affirmed. In January 1985 the Supreme Court of
the United States declined to review the case.
The Company's liability was $58,997,000 including plaintiffs'
attorneys' fees. This amount was reflected as an extraordinary
loss in the fourth quarter of 1984 in the amount of $30,903,000
net of a $28,094,000 tax benefit.
The Company is also involved in other legal actions
relating to environmental issues (primarily noise and air pol-
lution), trade practices, 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.
NWA Inc. Notes to Consolidated Financial Statements - Continued
Note I - Retirement Benefits The Company's pension expense
was $24,613,000 in 1986; $23,242,000 in 1985 and $26,409,000
in 1984.
Certain actuarial assumptions for some plans and the
actuarial cost method for one plan were changed in 1985 which
reduced pension expense in 1985 by approximately $10,200,000.
The change in actuarial method, which comprised approximately
$3,800,000 of the expense reduction, was from the aggregate cost
method to the projected unit credit method. The new actuarial
method is considered to be preferable because it more closely
matches pension expense with the pension benefits actually
earned during the period and because it more accurately
reflects the current funded status of the plan. The changes
had no effect on pension benefits to employees.
Accumulated plan benefit information, as estimated by
consulting actuaries, and plan net assets for the Company's
defined benefit plans were as follows (in thousands):
Actuarial present value of
accumulated plan benefits:
Vested
Non-vested
Net assets available for benefits
December 31
1986 1985
$706,054 $455,014
40,213 58,363
$746,267 $513,377
$997,439 $735,610
The interest rates used in computing the present value of
accumulated plan benefits were either 8% or 8.5% for all plans
except for certain retired plan participants where a 13.75% rate
was used. The rate for retired plan participants was based upon
the actual earnings of a dedicated securities portfolio
established for the payment of their benefits.
In addition to providing pension benefits, the Company pro-
vides certain health care and life insurance benefits for certain
retired employees. The cost of providing those benefits, which is
not material, is expensed when paid.
32
Note J - Sales to Customers in Foreign Countries The oper-
ations of the Company consist primarily of holding stock in
Northwest Airlines, Inc., which is a scheduled air carrier engaged
in commercial transportation of passengers, freight and mail.
Sales to customers in foreign countries, principally in Asia and
Europe, were $733,000,000 in 1986; $658,000,000 in 1985 and
$649,000,000 in 1984.
Note K- Quarterly Results of Operations {Unaudited)
Quarterly results of operations for the years ended December 31,
1986 and 1985, are summarized below (in thousands, except per
share data):
First Second Third Fourth
Quarter Quarter Quarter* Quarter**
1986:
Operating revenues $638,439 $702,472 $1,099,349 $1,148,914
Operating expenses 689,221 674,937 950,534 1,107,837
Operating income
(loss) (50,782) 27,535 148,815 41,077
Net earnings (loss) (16,444) 23,894 59,729 9,762
Net earnings (loss)
per share ( 75) .99 232 .45
1985:
Operating revenues 577,191 692,530 754,535 631,235
Operating expenses 590,793 638,229 692,561 656,821
Operating income
(loss) (13,602) 54,301 61,974 (25,586)
Net earnings (loss) 798 35,318 39,012 (2,009)
Net earnings (loss)
per share .04 1.52 1.55 (.09)
* The Company acquired all the outstanding stock of Republic Airlines,
Inc. on August 12, 1986. Expense of $17 2 million for nonrecurring costs
associated with the combination of Northwest's and Republic's operations
was recorded in the third quarter.
** Net earnings were reduced by approximately $12 0 million due to
a change in tax laws which limited allowable 1986 investment tax credits.
Note L - Subsequent Event During February 1987 the
Company sold 3,000,000 shares of previously unissued common
stock to the public. Net proceeds of $197,610,000 will be used
for general corporate purposes.
Report of Independent Accountants
To the Stockholders and Board of Directors
NWA Inc.
Saint Paul, Minnesota
We have examined the consolidated balance sheets of NWA
Inc. and subsidiaries as of December 31, 1986 and 1985, and the
related consolidated statements of earnings, stockholders' equity
and changes in financial position for each of the three years in
the period ended December 31, 1986. 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 nec-
essary in the circumstances.
In our opinion, the financial statements referred to above
present fairly the consolidated financial position of NWA Inc.
and subsidiaries at December 31, 1986 and 1985, and the con-
solidated results of their operations and changes in their finan-
cial position for each of the three years in the period ended
December 31, 1986, in conformity with generally accepted
accounting principles applied on a consistent basis.
~~~JJ~
Saint Paul, Minnesota
March 3, 1987
33
Stockholders' Information
Stock Prices and Dividends
Sales Price of
Common Shares
Quarter 1986 1985
Dwidends
Per Share
1986 1985
1st High $54 $46 $.225 $.225
Low 43 40
2nd High 53 55 .225 .225
Low 47 37
3rd High 52 59 .225 .225
Low 41 47%
4th High 62 58 .225 .225
Low 52 46
Securities Listed
The Company's common stock is listed on the New York
Stock Exchange, Pacific Stock Exchange, and Midwest Stock
Exchange. There were 5,886 shareholders of record as of
March 5, 1987.
The Company's 7% convertible subordinated debentures due
in 2010 are listed on the New York Stock Exchange.
Registrars and Transfer Agents
Norwest Bank Minneapolis, N.A.
Minneapolis, Minnesota 55480
Norwest Trust Company
New York, New York 10005
Annual Meeting
The 1987 Annual Shareholders' Meeting will be held at NWA Inc.
World Headquarters, 2700 Lone Oak Parkway, Eagan, Minnesota
on Monday, May 18, 1987, at 9:30 A.M.
NWA Inc. Ten-Year Summary
(Dollars m thousands e,ffpt per share f1gures-unaud1ted)
Operating Revenues 1986 1985 /98-/ /983 1982t 198/ 1980 1979 1978t 1917
Passenger $ 2,920,458 $ 2,154,394 $ 1,984,999 $ 1,812,227 $ 1,567,986 $ 1,521,856 $ 1,347,830 $ 1,067,214 $ 557,401 $ 861,053
Freight 406,726 328,400 355,336 289,170 205,018 221,691 190,837 160,716 87,077 121,185
Mail 87,459 80,126 58,339 55,585 60,451 59,786 57,305 38,685 18,944 29,894
Charter and other transportation 78,110 55,959 38,559 36,198 34,758 21,766 16,303 15,093 10,997 25,871
Other 96,421 36,612 7,741 2,856 9,355 29,191 27,055 28,850 115,743 8,352
Total Operating Revenues 3,589,174 2,655,491 2,444,974 2,196,036 1,877,568 1,854,290 1,639,330 1,310,558 790,162 1,046,355
Operating Expenses
Depreciation and amortization 242,213 182,563 167,203 146,908 136,651 133,489 124,078 106,401 104,970 103,152
Other 3,180,316 2,395,841 2,181.495 1,980,242 1,749,292 1,719,054 1,539,386 1,148,805 617,907 838,619
Total Operating Expenses 3,422,529 2,578,404 2,348,698 2,127,150 1,885,943 1,852,543 1,663,464 1,255,206 722,877 941,771
Operating income (loss) 166,645 77,087 96,276 68,886 (8,375) 1,747 (24,134) 55,352 67,285 104,584
Interest expense (76,537) (19,873) (4,268) (3,548) (7,216) (14,135) (15,831) (1,635) (3,376) (6,518)
Other income (expense)-net 12,133 7,529 25,380 8,265 16,279 20,297 3,862 30,643 45,126 55,078
Earnings (loss) before taxes and extraordinary item 102,241 64,743 117,388 73,603 688 7,909 (36,103) 84,360 109,035 153,144
Income tax expense (credit) 25,300 (8,376) 30,521 23,530 (4,331) (2,551) (43,187) 11,885 47,194 60,425
Net earnings $ 76,941 $ 73,119 $ 55,964 tt $ 50,073 $ 5,019 $ 10,460 $ 7,084 $ 72,475 $ 61,841 $ 92,719
Net earnings per share $ 3.26 $ 3.18 $ 2.44 tt $ 2.19 $ .23 $ .48 $ .33 $ 3.35 $ 2.86 $ 4.29
Cash dividends 19,645 19,586 17,933 17,367 17,332 17,326 17,317 17,306 16,210 10,804
Dividends per share .90 .90 .825 .80 .80 .80 .80 .80 .75 .50
Stockholders' equity 1,105,916 947,001 892,923 854,189 820,605 832,510 839,042 849,122 793,691 747,672
Number of shares outstanding at year end 23,890,095 21,774,251 21,749,667 21,715,995 21,678,458 21,661,367 21,647,280 21,639,589 21,626,284 21,606,686
Book value per share at year end 46.29 43.49 41.05 39.33 37.85 38.43 38.76 39.24 36.70 34.60
Assets and Long-Term Debt
Flight equipment at cost $ 4,097,464 $ 2,784,553 $ 2,356,048 $ 2,080,299 $ 1,996,925 $ 1,992,015 $ 1,995,168 $ 1,779,770 $ 1,525,442 $ 1,510,447
Flight equipment at net book value 2,581,304 1,427,114 1,151,930 976,501 1,019,071 1,110,965 1,200,495 1,094,556 922,615 962,957
Total assets 4,322,854 2,320,006 1,754,233 1,602,236 1,377,387 1,492,381 1,532,539 1,528,921 1,392,865 1,299,451
Long-term debt and capital lease obligations 1,386,232 494,093 100,000 100,000 12,500 62,500 100,000 100,000 100,000
Statistics-Scheduled Services
Revenue plane miles (000) 246,711 159,337 143,410 133,699 119,189 120,139 120,709 116,105 66,420 111,271
Available seat miles (000) 48,408,440 37,148,562 32,663,660 29,511,287 26,257,466 24,813,981 24,904,355 24,028,928 14,302,037 22,968,489
Revenue passenger miles (000) 28,814,957 22,341,334 19,772,355 17,711,929 15,675,194 14,251,932 13,810,889 13,298,161 7,018,305 11,100,412
Passenger load factor 59.5% 60.1 % 60.5% 60.0% 59.7% 57.4% 55.5% 55.3% 49.1 % 48.3%
Passengers 23,167,120 14,538,744 13,215,907 12,718,468 11,356,165 11,144,785 11,501,148 11,636,170 6,574,901 10,354,808
Freight ton miles (000) 1,022,864 886,355 965,868 835,197 600,198 616,285 529,434 504,753 302,153 458,143
Passenger and cargo revenue ton miles (000) 4,135,343 3,334,257 3,103,799 2,750,946 2,307,475 2,186,815 2,048,349 1,956,217 1,079,681 1,676,470
Yield per revenue passenger mile 10.14 9.64 10.04 10.23 10.00 10.68 9.76 8.03 7.94 7.76
Statistics-Total Operations
Revenue plane miles (000) 249,168 161,186 144,568 134,870 120,378 120,761 121,243 117,027 67,471 114,643
Available ton miles (000) 8,123,450 6,450,509 5,837,972 5,255,086 4,635,415 4,519,768 4,495,666 4,265,640 2,594,632 4,109,110
Operating expenses per available ton mile 41.2 39 8 40.2 40.5 40.7 41.0 37.0 29.4 27.9 22.9
Number of employees at year end 33,427 16,864 15,185 14,187 13,754 13,096 12,748 12,814 10,680 11,445
t t11kes adl'erseh affected 19?8 and 1982.
ttAhe1 e.\traordinan lose; ol W, 903 or 1 30 per hare resultlflfJ, from the settlem<::nt of a /au $lll/
34 35
Directors and Officers
Board of Directors
of NWA Inc. and Northwest
Airlines, Inc.
James A. Abbott
Vice Chairman of the Board and
General Counsel
NWA Inc. and Northwest
Airlines, Inc.
St Paul, 1\linnesota
James H. Binger
Former Chairman of the
Executive Committee
Honeywell Inc
Minneapolis, Minnesota
Manufacturer of automation
systems
E.W. Blanch, Jr.
Chief Executive Officer and
Partner
E. W. Blanch Company
Minneapolis, Minnesota
Reinsurance brokerage firm
Robert A. Charpie
Chairman of the Board and Chief
Executive Officer
Cabot Corporation
Boston, Massachusetts
Producer of chemicals, metals,
oil and gas
*Raymond H. Herzog
Former Chairman of the Board
3M Company
St. Paul, Minnesota
Multinational manufacturing
John F. Horn
President and Chief Operating
Officer
NWA Inc. and Northwest
Airlines, Inc.
St. Paul, Minnesota
*Melvin R. Laird
Senior Counsellor
Reader's Digest, Inc.
Washington, D.C.
Magazine publishing
* James N. Land, Jr.
Financial Consultant
Short Hills, New Jersey
M. Joseph Lapensky
Chairman of the Board, Retired
NWA Inc. and Northwest
Airlines, Inc.
St Paul, Minnesota
*Daniel F. May
Chairman of the Board, Retired
Republic Airlines, Inc.
Minneapolis, Minnesota
*Donald G. McNeely
Chairman of the Board
Space Center, Inc.
St Paul, Minnesota
Logistics
*G. Frank Purvis, Jr.
Chairman of the Board
Pan American Life Insurance
Company
New Orleans, Louisiana
Insurance
Steven G. Rothmeier
Chairman of the Board and Chief
Executive Officer
NWA Inc. and Northwest
Airlines, Inc.
St. Paul, Minnesota
Richard A. Trippeer, Jr.
Chairman of the Board
Union Planters Corporation
Memphis, Tennessee
Bank holding company
*Wm. Bew White, Jr.
Counsel
Bradley, Arant, Rose & White
Birmingham, Alabama
Law firm
* Members of the Audit Committee
Officers of
Northwest Airlines, Inc.
*Steven G. Rothmeier
Chairman of the Board and Chief
Executive Officer
* John F. Horn
President and Chief Operating
Officer
* James A. Abbott
Vice Chairman of the Board and
General Counsel
* John A. Edwardson
Executive Vice President-
Finance and Chief Financial
Officer
Benjamin G. Griggs, Jr.
Executive Vice
President-Operations
Thomas J. Koors
Executive Vice President-
Customer Service
A. B. Magary
Executive Vice
President-Marketing
Gramer D. Foster
Senior Vice President-
Maintenance and
Engineering
W. Thomas Lagow
Senior Vice President-
Marketing Planning
Brent J. Baskfield
Vice President-Ground
Services
David W. Behrends
Vice President-Cargo
G. Edward Bollinger
Vice President-Purchasing and
Store~
John W. Campion
Vice President-Corporate
Planning
Terry M. Erskine
Vice President-Law & Labor
Relations
*Bruce H. Fillips
Vice President-Comptroller
36
Raymond G. Foss
Vice President-Marketing
Systems
Roger D. Hauge
Vice President-Atlantic Region
Allen W. Johnson
Vice President-Pacific Region
Benjamin H. Lightfoot
Vice President-Technical
Services
*Robert A. Magnuson
Vice President-Treasurer
A. L. Maxson
Vice President-Financial
Planning
Bryan G. Moon
Vice President-Advertising
Donald F. Nelson
Vice President-Flight
Operations
Walter H. Pemberton
Vice President-
Communications & Computer
Services
Allan K. Pray
Vice President-Assistant to the
Chairman
James F. Redeske
Vice President-Personnel
R. Terrence Rendleman
Vice President-Maintenance
Operations
Paul E. Schoellhamer
Vice President-Government
Affairs
R. James Thorne
Vice President-Properties
Lloyd R. Warren
Vice President-Inflight Services
*Steven D. Wheeler
Corporate Secretary
William C. Wren
Vice President-Public Relations
* Also officers of NU,'l\ Inc
Officers of Other Principal
Subsidiaries
Mainline Travel, Inc.
Warren D. Phillips
Chief Executive Officer
Robert L. Daniels
President
Thomas M. Schmidt
Vice President-Finance &
Administration and Treasurer
R. Carol Spalding
Vice President-Operations
Northwest Aerospace
Training Corporation
Benjamin G. Griggs, Jr.
President
H. Thomas Nunn
Executive Vice President and
Managing Director
Northwest Aircraft Inc.
Thomas E. McGinnity
President and Chief Executive
Officer
.
NWA Inc.
2700 Lone Oak Parkway
Eagan, MN