Northwest Airlines Annual Report 1995

Northwest Airlines Corporation
1995 ANNUAL REPORT
About the Company
orth, t Airlin i th , orld' fourth larg t
airlin with dome tic hub in Detroit,
inn apoli / t. Paul and emphi and
ian hub in Tok o and O aka.
r1ine together with major airline
alliance and orthwe t rlink partner , erve more
than 390 citi in O countrie on ix continents. The
airline ha more de tination in ia than any other
. . airline including the most non top flights
between the .. and Japan. With KLM R yal Dut h
Airlin s orthw t Airlin rv more than 80 citi
in Europe, Africa and the Middl Ea t from 11 .S.
gat way through a Europ an hub in Am Lerdam.
With Ala ka Airlines and its Airlink partn r , orthw st
Airline erve more than 240 U .. citie .
orthwe t Airlines is one of the world's largest
international air freigh t carriers with a dedicated fl eet
of eight main-deck freigh ter aircraft.
The Vision of Northwest Airlines
To build together the world's most preferred airline with the best people;
each committed to exceeding our customers' expectations every day.
The Mission of Northwest Airlines
The people of orthwest Airlines will provide reliable, convenient and
consistent air transportation that meets or exceeds customer expectations and
earns a sustainable profit.
Reliable m eans safe, clean, on-time air transportation created by the best people
providing friendly, professional, consistent and caring service. A cornerstone
of orthwest's reliability is prompt and appropriate service recovery when, despite
our best efforts, something goes wrong.
Convenient means making it as easy as possible for customers in the markets
we serve to do business with us, with the best schedules and the simplest
access to our network.
Consistent means delivering reliable and convenient service every time
the customer flies or ships on our airline.
Condensed Financial Highlights
(Dollar amoun in million . xc pt p r har dat
Financial
Op ratinrr R ,enu e
Op r ' n
tock
p rati
Extra rdinan It m:
Income
Earninrr P r ommon har :
Pri m ary
Fully Dilut d
Operating Statistics
h dul d
(A :\1) (million )
(RP:--1) (million )
R '" nu 1
Re, nu e r :\Iile
Re enues & Expenses
9-00
9000
bJ) VJ
t: t:
-oo
..::; 0
~ :.:
... -
~j 000
0Y7-
roo
7000
19 199-:l:
d mp n ti n
00
700
600
-oo
'-1
--10 E
0
300 u
t:
200
-
--
'-1
10 z
0
-100
Op rarino- R \' nu ...- ~ t Inc m
Op rarino-
(excludi1 ed
Campen
1
1-
L
VJ
t:
.2 0
-
j
Y7-
- 00
VJ
=
~
j
Y7-
10 0
9 084.9
7,704.7
47 .0
.1 2.7
902.2
342.1
3.02
2. 5
91.3
7.472.0
62.515.2
71.5
49.3
12.42C
2 246.3
.66c
.Uc
Cash Flm\ from Operations
Long-Term Debt
199-:l: 19 -
.1
Alfred A. Checchi
Co-Chairman
Gary L. Wilson
Co-Chairman
In 1994, after five years of private ownership, orthwe t
Airline Corporation was reintroduced to the public
equity market. Our remarks in the 1994 Annual Report
de cribed the vvide ranging efforts of our 45,000
employees to develop the company' trategic assets
and create the New orthwest.
Last year's discussion focused on past achievements.
Thi year we focus on the future - specifically the
philosophy underlying the decisions by which your
company's resources will be directed.
A large corporation, particularly one providing a vital public service like air
transportation, has many constituencies with differing interests:
Customers seek safe, clean, reliable, convenient, consistent and competitively
priced air ervice.
Employee seek job security, fair wage and a good work environment.
Investors seek market-level financial returns.
Municipalities eek reliable access to the world air transportation network.
Government seeks tax and fee based revenues and compliance with federal, state,
and local laws and regulations.
To meet all these interests requires that we pur ue strategie that strengthen
orthwe t financially and operationally and reduce its ri k profile in the changing
air transportation industry. We seek to maximize the margin by which orthwest
can meet the claims of all of its various constituents through the application of
trategic, operational and financial management.
2
Our emplo 1
ee focu their ffor on th following:
Efficiency - the margin er at d b ti, n r ,. nu and th of the human,
material and financial re ource n c ary t produc the produ t , e prmide.
Stability- th enainty of a hi ,ing futur a h fl w .
Growth - the rate at whi h we ma, increa th e ca h flow .
In directino- orthwe t for efficien y. we k to m ake a and capital
mor producti\'e and thereby ma,-ximize the pread b tireen unit co t and
unit revenue.
To achieve tabilit:y ,re pur ue operatino- and financial trategie that reduce
our ri k profile making u mor omp titi\' and pr par d for chang in th
external emironment.
And" e pur u trat gi ma.x.imiz th 1 ng-t rm gr ,,th of th company
income tream alwa ' mindful that the e trateo-ie mu t produce adequate
return on im e ted capital,, th b lm, indu try average ri k.
Over the long t rm the trate ie "ill be t meet the objecti, e of our
con tituents. Shareholder value will be er ated a a r ult four ability to meet
the claim of orthwe t" emplo ee . cu tomer . th municipalitie whi h we
ene and federal tate and local gmernmen .
Over the pat ix year the compan paid 14.2 billion in employe alarie and
benefits. ince the owner hip change in July 19 9, orth,re t ha increased
emplo rment b ' more than 19 percent and made larg trid in imprmin the
,,ork emironment. The people of orth,, t for their part produced mea urabl
better enice for the company cu tomer ,rho ha\'e become far more
di criminating and demanding in the qualit) of enice which the ' require.
T
orthwe t met the high qualil:) tran portation requirements of 265 n1illion
pa senger while increa ing its revenue per aYailable eat mile abm e the
indu tr average.
i\r
leeting the need of municipalitie the com pan , prmided tran portation link
among 152 citie a ix percent increa e mer 1994 and wa able to tructure
innorntiYe cooperative financial arrangements in i Detroit, Minneapoli / St. Paul
and femphis hub .
3
During the past ix years Northwe t generated more than $4 billion of federal,
tate and local taxes and nearly 500 million of user fee , conducting it elf at all
time con i tent with the responsibilitie of a good corporate citizen.
Decisions at orthwest are mea ured against their ability to contribute to the
margin of meeting all of these diver e and demanding responsibilities.
We wi h to thank you, ou.r shareholders, for your support of our collective efforts
over the past year. We believe that orthwest i well po itioned to continue it
growth trajectory and add substantial future value for all its constituents. We are
particularly excited by the prospective benefits from our planned 1996 and
1997 focus on our Pacific markets, and by the cooperative efforts to improve
productivity initiated by several of our employee group .
AB you read through thi 1995 Annual Report we hope that you will agree that the
employee of Northwe tare doing an extraordinary job building this company.
They are strengthening the three pillars of efficiency, stability and growth; the
foundation upon which long-term value is built. They continue to improve
product quality while maintaining capital investment discipline. They are
cooperating to develop more efficient ways to reduce the costs of doing business
while continuing to build upon the unique trategic assets of orthwest Airlines.
And they are targeting low ri k, low-capital intensive growth opportunities which
strengthen the orthwest Airlines franchise and contribute to increasing the
growth and stability of the company's earnings stream.
Over the past year, the employees of orthwest added to their cumulative efforts
of prior year to make Northwest a better place for all the people and all the
constituencies who depend upon the continued health and growth of this
enterprise. We thank the 45,000 employees of orthwe t Airlines and salute their
professionalism.
Offa~-
Alfred A. hecchi
Co-Chairman
~f~
Gary L. Wilson
Co-Chairman
4
John H. Dasburg
Pre ident and Chief Executive Officer
To Our Shareholder :
orthwest Airline experi nc d another ucces ful year
in 1995 as a re ult of our trategies, the commitm nt
and hard work of the people of orthw t Airline , and
the trong demand for our product. Let' xamin
each of the e three critical elem nt underlying
our succes .
STRATEGIES
Product Strategy - Our cu tomer t 11 u th y want air transportation that i
con istently conv nient and reliable. They define conv nience a frequent
air ervice between ea ily acce ible airport . To fill thi need we manufacture
connections through our hubs wh r we have the competitive advantage of
convenient tran fer and frequent ervice. Thu we have concentrated our
domestic flying through three large and effi ient connecting hub in Detroit,
Minneapolis/ St. Paul and Memphi .
o other .S. airline concentrates uch a high percentage of flying through
it hubs. In 1995, more than 98 percent of all orthwe t flights connected at
our dome tic hub compared with 89 percent in 1991.
We serve the high-growth Pacific market through our major hub in Tokyo.
Additionally, via our transatlantic alliance with KLM, we make connection
with Europe, Africa, and the Middle Ea t through our Am terdam hub.
Increased service to hubs i key to our product trat gy. For example, in
1995 we inaugurated ervice connecting our Detroit and Minneapoli / St. Paul
hub with five new Canadian de tination . We now offer ervice to more
Canadian cities than any other .S. carrier.
5
operating Strategy - Ju t a convenience i achieved through a focused
hub-and-spoke y tern, reliability i achieved by people. Our customers tell
us they want afe, clean air tran portation that arrive on time, with luggage.
They want professional, friendly and caring service, and prompt and appropriate
service recovery when, despite our best efforts, something goes wrong. And
increasingly they are telling u they are delighted when we exceed their expectations.
People Strategy - While it is natural to identify commercial aviation with aircraft,
our product is convenience and service. Therefore, our most important strategy
is to focu on the people of orthwe t Airline . We are inve ting in hiring the
best people, providing appropriate training, and creating an environment that
promotes high self-esteem and focuses on cu tomer ervice.
The people of orthwest have achieved extraordinary customer service results.
They have made their company - for an unprecedented six straight years -
the on-time leader among the seven largest U.S. network airlines. This
achievement is in part re pon ible for another first - the lowest number of
con umer complaints for 1995 among the seven largest U.S. network airlines.
On-time arrival is critical to customer satisfaction and to the efficient operation
of our hub-and-spoke system.
International Strategy - Commercial aviation i becoming increasingly global.
Ther fore, we place great emphasis on our 48 years of experience doing business
in Japan, where v,re link the U.S. to Asia via hubs in Tokyo and Osaka. orthwest
provides more transpacific capacity between the U.S. mainland and Japan than
any other carrier. We are expanding our presence in other Pacific markets with
the fir t ever nonstop service between the U.S. and Beijing, beginning in
May, 1996.
In addition to the KLM alliance, our new alliances with Al ska Airlines and
Asiana Airlines also permit us to expand and attract additional passengers to our
international route system. Alliances remain a key opportunity to extend the
reach of our system.
6
Financial Strategy- For the second con ecutive year, Northw st Airline had the
highest profit margin among the large U.S. network carrier .
In 1994 and 1995, orthwest Airline generated sub tantial operating cash flow that
reduced d bt and improved our balance sheet. During 1995, we reduced long-term
debt by more than 40 p re nt and significantly improv dour d bt amortization
schedule. Financial trength give u acces to fund to grow and provide increased
ervice to our customer and growth opportuniti for our p ople.
To further improve our balance heet we will maintain our highly di ciplined
inve tm nt strat gy. W will mak only tho inv tm nt that earn uperior
returns. orthwest has inve ted in market where w hav hi tori pr nc and
can provide frequent service. We al o erve oth r markets with alliance partner
that can provide our high standards of service and where no capital inv tm nt i
required. Return on capital improv d fr m 7.70 p re nt in 1994 to 10.85 percent
in 1995, which w b li v to be the highe t among the even largest U . .
network carriers.
Inve tor have hown confid nee in orthw t' futur pro pect . Our stock price
more than tripled, to close 1995 at $51 per har .
COMMITMENT AND HARD WORK
Our return to profitability and financial tr ngth was hard won. Th
determination and di ciplin demon trated by our people remain a key to
controlling co t . Excluding tock-based compen ation, unit co t increa ed only
two percent in 1995.
To maintain our focu on cost savings we have initiated several productivity
improvement initiatives that fall generally into three categorie : investing in
technology that has a time-specific and mea urabl payback, improving our
proce ses by working marter, and negotiating with our labor groups to updat
contractual work rules that benefit veryone.
Credit for the company's out randing 1995 performance belongs to all the peopl
of orthwest Airline who ro e time and time again to the challenges of the pa t
year. I thank them all and commend them for their dedication and the re ult
they produced.
7
STRONG DEMAND FOR NORTHWEST AIRLINES PRODUCT
In general, 1995 wa a good year for commercial aviation. Figure for the mo t
recent 12-month period show that industry demand in orth America grew by
ix p re nt whil capacity grew by four percent. Our performance outpaced the
indu try. Demand (revenue passenger miles) for orthwest increased eight percent
while capacity grew by only three percent.
Creative marketing program helped increa e orthwest's pas enger unit
revenues 7.5 percent in 1995 which exceeded the average for our major
competitor for each of the last eight consecutive quarters. ConnectFir ti one of
our programs to encourage connection through domestic hubs. ConnectFirst
offer free upgrade to Fir t Cla and extra WorldPerks Bonus Miles for each
connecting flight. Our World Busine s Class service, offering extra comfort and
amenitie , ha gained wide acceptance from our international customer .
We are also inve ting in facilitie to make connecting through our hubs quicker
and more comfortable. We opened new WorldClubs in Detroit and
Minneapolis/ St. Paul, two ne,,v passenger lounges at Tokyo's arita International
Airport, and a new terminal for our Airlink partners in Detroit. A new customs
facility in the main terminal at Minneapolis/ St. Paul will open in 1996 to make
international connections even more convenient.
FUTURE PROSPECTS
orthwest Airline will further develop our hub trategy, as a pure network
carrier, providing convenience and reliability to our customers. Particular focus
will be on further expansion in high growth Asian markets.
"v\T
e will continue to develop alliances with other carriers as an important method
for adding convenience while minimizing capital commitments and eliminating
the ri k of operating losses from expansion effort outside our core hub markets.
8
We will look to orthw t argo to expand ignificantly it ontributi n t ur
profits by building on it strong pr ence in ia. Alr ady on of th l ading
airfreight op rator betwe nth . and ia and within ia, argo i w 11
po itioned to grow with dynami ian nomi
And we will focu on t chnologi al advanc m nts, pr c improv m nts and
work rule updat to b com an ever mor productiv C mpany.
The performance of orthwe t Airlin v r th prior two year fore fully
demon trat th f tiv n of our trat gi and our v luti n int a high
quality rvic provider. All 45,000 of u har a c mmi tm nt L building th
world' most pr rr d gl bal airline. The ati fa tion we nj y from la t y ar'
achievements will in pir new ac omplishm nts in 1996.
Thank you for your intere t and upport.
~_jjp~
John H. Da burg
Pre iden t and hief Exe cu ti e Officer
9
Focus on Productivity
n 199,), Lh .. airline indu Lry enjoyed a trong
r cov ry from th billion of dollar in losse
in urr d betwe n 1990 and 1993. ln fa t, 1995 wa
th mo t profitabl year in airlin indu try hi tory.
u tainable, predictabl growth in earning and ca h
Dow dep nd on continued traL gic focu and
p raLing di iplin ; critical to in r a ing the margin
b tw n R v nu p r vailabl eat l[il (RAS ) and
Co L per Availabl M).
\Nhil orthw L
' r cent revenu growth ha be n
out tanding and furth r incr a e are anti ipat d , the
key to great r future profit o-rowth i improving
produ tivity. Iner a ino- productivity i the principal
m an by which Lh ompany can ontinu to improve
ervi. e to u tom r 'while t adily d creasing the
r al o L - and thu th pri - of that rvi
Productivity improv m nt is e ential Lo nabl
orthwe t Airline to achie e d ir d profitability level
and deliv r return t inv tors that are superior to
oth r air tran portation companie and omp Litiv
with oth r apital-inten ive rvi e indu trie .
Productivity bnprovement at Northwest Airlines
orthwe t ha 1 cl th . . airline indu try in
re tru Lurino- it route y t m Lo cone ntrat r ur s
n mark L ,vh re it ha di tin t comp titiv advantages
that produc uperior return . Th route re tructurings
undertaken over the prior three years have largely
r deploy d xi ting r our Lo more profitable
route , r ulting in ignificantly in r a eel unit rev nu ,
and improv d a et productivity. In addition, Nonhw
ha aggr ivel managed expen, e to r aliz on of th
lowe t unit op rating o t among th laro- U.S.
arrier . The 1993, 1994 and 199- rout r tructuring
irnplemenLaLion of r ativ and f ctiv marketing
trategi and rioorou o t conLrol ha combin d to
pr du e unit revenue and maro-in increa
10
New Productivity Improvement Initiatives
Th next wave of productivity improvements will
emanat principally from three ources:
Inve tment in technology that improve efficiency.
Improvement in work proc
unproductiv time.
that r duce
Modification to contractual work rul s through an
ongoing labor-management dialogu to adapt to
changing conditions.
Unit Operating Revenue and Cost
10.00 - - - - - - - - - - - - - - - - - - - -
RAM
9.50 - -
CAM
9.00
i
:
.50
8.00
r: I
I
7.50
1993 1994 1995
Productivity-Enhancing Technology
ResI et, a new reservations sy tern now being
cl veloped in orthw t reservation centers i a
technology investment that increa s reservation sal
agent productivity a well as customer rvice. Re et
dram atically implifies the proce s of getting fligh t and
far information for customers, by significantly
reducing the number of k ystroke required to execute
compl x command . Because the system r quire
wer, ea ier-to-rem mber command , it ave agent
(and customer ) tim on th phon and allows them
to concentrat on s lling - by quickly offering
alternative flight , for in tance.
Aircraft Situation Di play ( D) i another productivity-
enhancing technology further de elop d at Northw t
la t ear. D i a real-ti me tra king tool u d by flight
di pat h . It pr vide flight di pat her with a nap h t
of a flight en route, including aircraft po ition, , eather
information and critical flight operation data.
Di patcher u e the y tern to rout plan around
inclement, eather and to work with air traffic
controll r to minimize flight plan change or landing
holds that inconvenience pa enger and burn extra
fuel. To date, the airline' investment of approximately
100,000 in ASD ha netted annual co t aving
approaching 2.5 million.
In 1996, Iorthwe twill introduc electronic ticketing
(' ticketle travel"). ltimately, electronic ticketing
will reduce distribution co ts, improve operating
effici ncy, peed airport check-in, r duce lo t ticket
and enhance revenu r porting. v\lh n fully
implemented, el ctronic ticketing i expected to
ave the airline in exce s of 20 million annually.
11
Process Improvements Increase Productivity
orthwe t ha al o targeted work proce .
improvem nL a a major ou rc of produ n 1L-y gain .
For xample, throughout 199 , th airlin ' T hnical
Op ration group (T h Op ) , th ar a re p n ible for
hea\ main tenanc of orth, e L
' aircraft, ha been
ammmg pro to id ntif
potential time and o t aving opp rtuni ti without
omprorni ing afet . mong the propo ed initiati e
are om thaL would dramati all r du th tim
required to complete engin ov rhaul , h ea\
main t nanc ch k and oLh r tim and labor
inten ive proje ts while maintaini n afety and quality
tandard . T daL with th a tiv inv lv m nt of th
International ociation of Ma hini ts ( M) and all
T hni al Op rati n mploy , ignificant potential
annual aving ha e be n identified.
The h a\ maint nanc h k i an xhau tive proce
which in olv tripping the aircraft to bar m tal,
in pecting it for defe t , per rming cheduled
maintenance, making ne ary repair and rebuilding
the airplane . During 199 , in a joint -com pan
effort, th p opl at orthwe t' tlanta maintenan e
ba e completed hea maintenanc che k on three
DC-9 aircraft in 45 day - a 29 percent improvement
in a proce that previou ly required 63 day . By
adopting many of the process improvements and
technique u ed in Atlanta, orthwest's Minneapoli /
t. Paul maintenance ba e completed a DC-10 major
maintenance check in 18 days, half the time
previou ly required.
Changi,ng to Meet New Challenges
Modifying work rule to reflect changing conditions
and new challenge is a third source of productivity
improvement at Iorthwest. ,1any work rule changes
are contract issue governed b the collective
bargaining process and therefore mu t be negotiated.
Northwe t and its union have negotiated a number of
change in work rules that have re ulted in revenue
growth, improved productivity and new position .
In tlanta, for example, the ucce ful trial period that
produced three DC-9 hea, maintenance checks also
re ulted in a letter of agreement to implement an
employee recommended operating pattern of four
ten-hour da per week.
12
In Memphi , the IAM worked creatively with orthwest
to ubmit a competitive bid to ground-handle the KLM
MD-11 u ed to provide Memphis-Amsterdam ervice.
Northwest was able to win the business, gain the
revenue and put more people to work. During the year,
the IAM also helped boo t productivity by
implementing a fre z on assignment bidding. Thi
helped reduce movement within the work force and
costly re-training that can disrupt work flow.
Similarly, since 1993, the Air Line Pilots Association
and Northwest have negotiated more than 40 side
agreements to their contract to improve pilot
scheduling and utilization.
Advance in technology, combined with the dedication
and imagination of the people of orthwest, will
continue to deliver improvement in productivity.
orthwe t' focu on productivity reflects the shared
und rstanding among its employee-owners that, to
attract the capital the company needs to prosper and
thu provide job ecurity, orthwest mu t con i tently
deliver profitable growth and attractive returns
to investors.
1995 In Review
orthwe t Airlines achieved record 1 v 1 of
operating r v nue and net income in 199 .
Operating rev nu totaled 9.1 billion, up
9.1 percent from 1994. t income, in luding
extraordinary it m, totaled 392.0 million, up 32. 7
percent from 1994. Refl cting a continuing fo u
on hub-ba ed flying, orthwe t increa d r v nu
pa eng r mile .0 per ent to 62.5 billion although
capacity increa d onl 2.9 p rcent to 7.5 billion
a ailable eat mile (A M) . Throughout they ar,
mark ting and promotion programs focu d on
incr a ing demand among price- en itiv lei ur
trav ler without diluting higher margin bu ine
trav 1. a r ult, re enue per in r a ed 7.3
p re nt to 9.58 c nt from .93 c nt in 1994 whil
r venue yield per passenger mile improved to 12.42
cent from 12.11 cents in 1994. The e revenue
increa were complem nt d by T
orthwe t'
continued mpha i on c ntrolling co t . E 'eluding
non-ca h, tock-based compen ation expen e,
operating xpen p r total M incr a d a mode
2.0 p r nt to .11 c nt , primarily a a r ult of
in d revenu , pa nger load and chang
in urr ncy exchang rates.
Th rough a vari ty of tran actions completed in 199 ,
orthwe t reduced long-term debt b more than
40 percent, and ub tantiall improved i debt
amortization chedul . Further information about th
compan 's financial performance and po ition i
includ din the Financial Review beginning on pag 31
of thi report.
Expanded ervice and uccessful marketing and
promotion program helped increase traffic. w
flying to 15 dome tic and international markets i
ummarized in th operational review on the
following page . orthw t con tinues to empha ize
alliance and code- hare agreements with other
dom tic and oversea carriers to provide traveler
aml , convenient ervice to additional markets
while continuing to concen trate flying through
orthwe t hubs and to minimize capital inve tment in
rou te t m expan ion.
13
In 1995, orthwe t xpand d rvice through it
partn r hip with KLM with th launch of the fir t
v r n n t p tran atlantic service from Memphi .
orthw t al began op rating daily Wa hington
Dulle -Am terdam ervic , r ch duling th flight to
b tl r ac ommodate tra 1 r . Further enhancing
ervi to Europ , orthw t ha added convenient
onn ting rVl to ight G rman iti through a
od - har agr emenL with Eurowing .
In orth America, orthwe L added Ala ka Airline a
a
and od - hare agreement ann unced in eptember
199 . Th agr m n t bring LOg th r Ala ka trong
min the Pacifi orthwe t, Ala ka and the
v of the . . with
Pa ific Lem, omprehen ive .. rout tern and
r ic to Europ and b ond via orthw t' alliance
with KLM.
Northv,,e t ignificantly nhan d onn cti n to Japan
rvi e b t\ en Tok o, 0 aka and th
1994 marketing and od - har agr m nt with
iana Airline enabled orthw t to maintain a
ignifi ant portion of it Kor an tran pacifi pr nc
d pit a 1991 deci ion to down ize operati n in
eoul and r deplo the r urc to J apan.
During 1995, T
orthwe t received two of the 15
cheduled 757 aircraft from Boeing. Financing
commitm nts are alr ady in place for all of these
aircraft. orthwe t al o took delivery of four DC-1 0-30
The e u ed aircraft offer an economical mean to
add long-range, widebody capacity to the fleet at
approximately one-fourth th capital cost of a
comparable new aircraft.
The airline undertook a maj or program to totally
refurbish all 106 DC-9-30 aircraft. The fir t 15 were
completed in 1995, at a co t far le than purcha ing
new aircraft.
North American Operations
Record-Settino- Pe1forma11ce
orthwc, t Airline, Nonh American op ration Look
induslry honor during 1995 in a t ', on-Lim , rvic
and us lo mer , atisfa [ion.
;,;onlrne-r recei\' d an x eptional r port from th
Federal , viati n Admini tration (F ) duri1w th
uional vi:nion afety In p ction
Program ( A IP) audit. rthw t' 1995 1 II
report ,,a: an improvement upon th airlin 1992
report, which u th time wa, th b tin the hi tory of
lhis F \ program. 1 orthw , t' p rformanc on lh
N IP audit r CT
ommitm nt w t' n one guiding
prin ipl - ~ mpromi '.
For the , ixth con e utive year, orth
neri an route ' tern wa, fir tin on-Lim
p rfonnance arnono th , ev n laroe t . airlin
ba, d on tati ti , ornpil d b th .. Department of
nn portation ( T) r th dom tic operation of
the ten rep rt .. airline . In addition, in 1995
I onhw t al w tin id nc of
u torn r mplainL, amono- th e\' n laro-e, t
airlin rdi1w t D
lnracterized by r ord load , touo-h competition and
e\' ral p riod of v r ' har h w ath r, u taini1w the
indu try' b ' t d me ti on-time p r rmanc and
a hieving fir t pla e fini he - on ke , cu torn r
trul , r markable
ac ornpli hm nt . hey r ulted fr m th fo u ,
di iplin and dedi ation f orthw t p opl n the
oTmmd and in th air.
New Fl) ing Leverages North Anierican Hubs
ln k pino- with iL trat t build on the tre1wth of
it I rth Am ri an hub operation , orthw t
a ed ervi from it dome tic hub
apoli / t. Paul and 11 mphi .
rthw , t add d e\'en n w rout and fiv n w
, c
nadian de tination und r th "op n ki "
.. and Canada, makino-
. . arri r b tw n th
and ,anada. ew n n top rv1 , a initiat d
b nre n Minn apoli / t. Paul and Monu al,
n and alo-ar .
14
ew non Loi flio-ht con n ting Detroit with Ouawa
and Halifax w r al o added.
L year-end orthw L offer d more than 464 daily
jet and Airlink d parture from D troit and mor
than 461 daily d parture from Minneapoli / t. Paul,
up from ap1 r xirnaL ly 445 and 4_0 re pectively at
year-end 1994.
dclitional ervic wa initiated betwe n
i\Iinneapoli / t. Paul and Raleigh-Durham, olorado
pring and Fairbank . Northw t xpancled iL rvice
b nve n 1Iinn apoli / t. Paul and Anchorage to daily
yea r-roun cl.
In North America, our
strategy is to strengthen
and grow our hubs in
Detroit, Minneapolis/St.
Paul and Memphis.
The airlin ontinu d to build it po 1t1on a Memphi '
"h m town" airline. new flight chedul initiated in
1994 and a erie uc e ful marketing and local
pr nc program led to an incr a e of even percent
111 orthwe t' , har f local booking for th ear.
Durino- 199- , 1 orthw t initiated a major c l - hare
relation hip with Ala ka Airlin ntered around both
airlin ' op ration in eattle. Th n w agreement
cov r ome 290 flight each day erving 3 citie ,
making it one of the larg t uch agreement ever
exe ut d b tween two major U .. airlin . The
agreement nhan e orthwe t 'V\T t Coa t
tran pacifi op ration , olidifying both airlin '
mark t po ition in the Pacific orthwe t and in the
tate of Ala ka. Und r oring it mpha i on eattle a
a Pacifi gateway, th a -re ment fulfill orth, e t
objectiv t improve it \/\T
e t oa t pre en e and
tr ngth n it d f r J apan and ia route .
Marketing Initiatives Build Traffic
North\\ t o n tinu d to build r v nue through
innovative marketino- program .
ConnectFirst " offer p cial b n fit in luding
"\1
\ orldP rk mil ag bonu e and nfirm d fir t-
cla upgrade , to pa eno- r , h o conne t through
orthwe t' Detroit, Minn apoli / t. Paul and
!J mphi hub.
MilesAbove ~
1 of r "\1
\ rldPerk mileao-e for al to
buin for u e in in ntiv and oth r pr m tion
In addition th airlin of red a numb r of uc ful
promoLion including th 199
g nerat d mor than four tim
numb r of booking during th
ummer ale that
th 'norm l' or ba
11-da , ti k ting p riod.
orthwe t continued it trat gy of of ring bri f
fr qu nt and car full , targ t d 1 i ur fare al . Thi
allm Northwe t to maintain far lev 1 capabl f
upp rting fr quent and nice
while still making air travel a ibl t pric -
lei ur u tomer . \ T
hile makino- baro-ain far
available, th strateg I avoided ignifi ant dilution of
bu ine tra, el revenu and re ult d in a - .6- p re nt
incr a in dom tic r v nu p r availabl at mil .
Fleet Upgrade Underway
In a 1 199 rthw gan a
proce to refurbi h it fl t of 1 hi
proce invoh repla m nt of all ea la, atorie
ov rhead bin , ide,, all pan ls, carp ting window .
galle , partition and ceiliiw pan 1 hu h-kitting of
the air raft ngin and n , exterior paint. The fir t
ompl ted aircraft nter d rvic in ugu t. The
r maining D -9-30 in the Iortlrn e t fle tar
cheduled to compl te th thorotwh interior makeover
b ' December 1996. Thi refurbi hment plan will bring
North\\ e t' ntir D -9- 0 fl et into Stao-e III noi
omplian and of r cu L
orn r mor omfortabl
at larg r overh ad bin and wid r ai 1 . "\ 7hil
man , of th chang to the int rior of th air raft will
bett r accommodat p opl with di abiliti mo t of
the chano- nhanc a tl1etic and increa e
co1w ni nc for all pa ng r . Pa eno-er urv ed on
15
the c mfon and appearance of th n w int n r ha\'e
re ponded" ry po iti, 1 .
New Minnesota and Detroit Facilities
Iorthw L laun h cl everal other proj
u Lomer ervice.
to irnprm
Th includ d a _ milli n ph ' ical faciliLie
pr -ram at the Detroit hub, a ne,, orth\\
"\1
\ orld lu b on Lh airport' on ur and a n w
r gi na l airlin rminal.
The airlin ' larg
:C t) a L Iinn ap t. Paul, with more
than doubl the pac of the two lub it r plac d.
rthw t al b a-an n tru ti n of~ o n w fa iliti
in th tat of 1Iinn ota: th Iron Rang R
n t r, n ar hi h lm; and an achanced Le hnol gy
air raft h m 1
-maint nan ba 320
fle t more effi ientl , at Lhe DuluLh International
Airport. B tl1 ar h dul d t b c rnpl t d in 1996.
The hi holm r nt r, h dul d to begin
taki1w all in April i xp ted to mplo ' mor tl1an
nd of 1996 and mor than 600 b ,
tl1 ear 2000. Facilit uipm nt provi ioning
and , ork pro e
being de igned to redu e cy le time and m ximiz
ffici nc' on routine air raft maint nanc .
Emplo rm nt at th maint nanc ba e i exp red to
reach 0 b , tl1 end of 1999.
To Juneau Ta Anchorage Ta Fairbanks
Halifax
Northwest Airlines
North American Route System
Northwest Airlines service
Operated by Alaska Airlines and Horizon Air
St. Moorten
To San Francisco To Seattle
Los Angeles
Grand C
ayman
To Acapulco
To lxtopo/Zihuotanejo
16 17
Pacific Region Operations
orthwe t Airline improved it profitability in
th Pacific Region in 1995 a it continued to
build on it trong comp titive po ition in
Japan ba ed on nearly ~o year of service to A ia.
orthwe t ha exten ive authoritie to carry air traffic
b tw en Japan and a many a 16 .. gateways and
between Japan and other ian de tination . Over the
year , orthwe t ha , orked diligently to maximiz
its pr nee in th Japane e market. Today, in addition
to linking eight .S. gateways and 10 Asian and
icrone ian d tination via Tokyo, orthwe t also
operate non top service from the .S. to Osaka,
Fukuoka, and 1 agoya. It portfolio of 316 per week
takeoff and landing lots at ew Tokyo International
Airport ( arita) xceed that of it next largest non-
Japane e competitor, United Airline , by almo t 50
p rcent and i the large t of any non-Japanese airline.
Other orthwe t non top d tination include Seoul,
Hong Kong and in May Betjing.
Northwe tin 1995 doubled nonstop Detroit-Tokyo
flight to D ice daily. Weekl non top flight were
initiat d b tween inneapolis/ St. Paul and Tokyo.
Service at Osaka' Kan ai International Airport was
increa ed from 18 to 35 flights per week. And non top
flight w re increased from three to four time per
week from Seattle to O aka.
Customer u age of onhwest ervice continued
to grow in 1995. For the fourth ear in a row,
orthw t' Japan tations boarded more than one
million pa enger , a mil tone reached in October,
Total Passenger Segments (000's)
199 4,882 ( 11 % Growth)
1994 4,400 (0% Growth)
Flight Segments (000's)
1995 17.3 (3% Growth)
1994 16.8 ( 1 % Growth)
18
one month earlier than in 1994. Abou t 10 percent of
all air traveler d parting J apan fly N orthw L, th
larg t share among all foreign airlin rving Japan.
Our strategy in the
Pacific Regjon is to preserve
and enhance the market
position which Northwest
has developed during five
decades in Japan and
elsewhere in Asia.
Focu ed marketing activiti attracted additional
pa enger . Strong selling and service effort during
the Japan "Golden Week" h oliday travel period helped
to realize a 17 percent incr as in pa nger boarding
and a 15 percent increase in revenue over Golden
v\T
eek 1994. Pa senger continued to b attracted
to orthwest World Busine s Cla S rvic , fir t
launched in the Pacific Region in 1994. World Bu ine
Cla s is an enhanc d bu ine cla product which
feature a roomier, mor comfortable eat, greater
di tance betwe n eats and greater seat recline - all
conducive to more restful long-haul flight . Th rvice
also atur enhanc d m nus, a per onal video sy tern,
an expanded library of in-flight reading materials and
other travel amenitie .
orthwe t al o gen rat d additional revenu by
reconfiguring its 10 747-400 to increase at capacity
from 383 to 418 and increa ing daily utilization of the
fleet. Th 74 7-400 fleet is u ed primarily on service
connecting Detroit and Tokyo, Osaka, Seoul and
Betjing.
o rthwcst o ntinu cd to ex1 and its Sl n ic' lo C hin~
1.
Fin' ~
1 lditio n;1l \\'Cckh Crcquen ies L
o C hi1n, :1w;1rckcl
to th e :1irlin1..' lw the .S. I C] :1r1rn1..' nt o !' T r;rnsi o n :Hi < n
in l m)-1. bro u;ht the :1irli1w's to t:11 to 11i1w. On
Lw l, l ~)~)() lo rthwcst will eco nw th,' first l .S.
:1irliuc l ) o pcr:1te sustained no nstop sen i c to (.hi11~
1
wh e n [ktro it-Be ijing f1ig hts ;1\'e ina ug ur;1l<..' I.
l uring- the yc :1r N o rthwest cst:1blislw I new m :1rkl' tin g
:1g-r ' 'm c nts in :1clditio n to o ur \ si:111;1 pa rtnership. with
two intc rn:Hi< n;\l ;1irli1w p;1rt11l' rs further soli lifvin; its
p rcsc n c in th e P:1eific Regio n . \n :1gTcc m c nt with
l :1cific lsbnd \\'i;1tio n c nh:rn ccs o rthwcst's prese nce
:1s a p ro\'idcr o f sc r\'i c to (,u:1m , \ 1i,111 :rnd Ro t:1,
islands loca le I in th e lo rthcrn ~laria n,1s th~
ll ,ire
poi ubr with J1pa ncsc lei ur ' Lr~
we l ' rs. To I ro\'id e
:1ckliti o n,1I capacity - an l improve pr )[it,1bilit ' - o n
th e J al ,111-\'ac 1tio n rou Le. o rth\\ 'Sl rcco n fig ured l he
interiors (.) Cthre,' 7.1- - 100 ;1ir-r~1rt LO gain L1 acklit io nc
ll
sew ; per I l;111 c. .\11 :1
g r1..'l'111e nl with ,\ir N w Z ':1bn I
l n )\'ick s lo r1hw1..'Sl ,;i\u:1bk m :1rl e ll res ' 11 c in tlw
So11th P;1cific. It l'.' l1..'11cls o rthwests \\ o rldPn l s Cre,
tr:1\'1..' I progr:un to i11 l11cl ' ,\i r l ew 1/,e<
il:111 l's,'. te nsi,e
S< 11th P:1cific ro11tc s,st,' m :rncl calls Co r th e two :1irlincs
10 sh;1r1..' ;1iq o n f:1cilities ;rn I o rt't-r _
joi n t s:tl es a nd
m:1rk1..' ting s11ppo rt.
l o rtlrn,'sl s str:1tq.i;, in tll<..' l\ 1ci fie Regio n wi 11 o n tin 11e
to 1
on1
s 0 11 m axi 111i1ing tlw o mp ' ti tin' positio n
d e,1..' lo pe I me r :ii m ost fin ' ck ;1ck s or se n i -c. \ it;1\ to
this str:1tegy ;1rc stro n g r1..'btio nshi1 s with go,1..' rn111 e nts.
:1\li;mce l ;1rtne rs. to ur 0 11..' r:1to rs ~111 I :1irline ust )rne rs
- r ' btio nsh ips built thro ug h s1
: nsiti\' stn\'ar !shit .
rnutu~
\lly l roclucti,l' working :1grecnw nts ~
incl c,cclk nl
usto rne r s ' n ic '.
Northwest Airlines Japan Route System
Tokyo Routes
Nagoya Routes
Osaka Routes
Fukuoka Routes
19
loMinnoapolis
lo N
ow York
r
lo Dolroil
loSanFroncisco
lo L
os A
ngolo
Atlantic Region Operations
orthwe t Airline in 1995 continued to
strengthen its competitive po ition in the
Atlantic Region through its transatlantic
alliance with KLM Royal Dutch Airlines. Operating
with antitru t immunity from the U.S. government, the
two airlines collaborate on all aspect of ervice,
including pricing scheduling, product development
and marketing. nder the airline ' joint venture
agreement, ortl1we t and KLM operate ben.veen
11 U.S. citie and Amsterdam, KLM's hub airport.
Amsterdam i trategically well located a both a major
point of origin and de tination for many people
traveling bet:\,veen Europe and orth America and as a
connecting point to and from cities across Europe, the
Middle Ea t and Africa.
Joint route linking Amsterdam with Northwe t' t:\,vo
major orth American hubs in Minneapolis/ St. Paul
and Detroit have proven especial! successful. During
1995, service to Am terdam was expanded to t\,\Tice
daily from Detroit and from Minneapolis/ St. Paul
during tl1e summer. orthwest and KLM launched
joint Memphi -Amsterdam nonstop service, the first
regularl scheduled intercontinental ervice out
of Memphis.
In 1995, orthwest assumed operation from KLM of
tl1e Am terdam-Washington Dulle route, increasing
service frequency from tl1ree time per week to daily.
By re-scheduling the flights, ortl1west has provided a
more convenient Dulles departure time and better
connections to onward flight from Amsterdam. The
enhanced service link v\Tashington to more than
65 de tinations in Europe, tl1e Middle East, Africa
and India.
Service connecting orth America and Amsterdam will
be increa ed in 1996. Memphis-Am terdam flight will
grow from four times a week to daily and joint service
bet:\,veen Amsterdam and San Francisco will be expanded.
20
Other n w Atlantic Region service launched during
1995 included w ekly seasonal nonstop service
b t:\,veen Minneapoli / St. Paul and Frankfurt and a
econd daily nonstop flight bet:\,v en Detroit and
Frankfurt. T
ew nonstop service ben.veen D troit and
London Gat\,\Tick was al o initiated. Strong traffic on
thi route led to an expansion from even to nine
weekly flights. orthwe t implemented a no- moking
policy on all tran atlantic nonstop flights.
In the Atlantic Regjon,
Northwest Airlines' strategy
is to develop alliances and
code-share agreements to
maintain presence and
improve convenience.
Further enhancing service to Europe, orthwest has
added convenient connecting service to eight German
cities through a code-share agreement with Eurowing .
Torthwest's flight codes appear on Eurowing ' service
bet:\,veen Am terdam and T
urenberg, Stuttgart,
Du seldorf, Leipzig, Hannover, Dortmund, Paderborn
and Dresden. The code-share ervice is available for
travelers who use orthwest and KLM' joint service to
Amsterdam from Minneapolis/ St. Paul, Detroit,
Memphis, Boston, Washington Dulles and other
U.S. points.
Northwest Cargo
orthwe t aro- 1ad anoth r
fi . 1 - ,vith i 1d
hi r reduction of b
apaci , m orthw t pa eno-er air raft du
record pa eno- r load . a r ult d
1.- billion pound of caro-o in 199 ent
reduction from 1994. Op rating a fl t of ight Bo ing
747 freighter and rel ring on the bell '-freio-ht apa i
of th , orld fourth large t airline 1 orth'i\ e t
1995 gro re 7 4 million (including hart r
re nue) a counting for .3 percent of the compan
total revenu . Total mail r v nu incr a d to a
record 136 million.
v\Thil dome tic and tran atlantic re enu w re lm, r
than in 1994 due to high pa ng r load , I orthv1re t
Cargo r alized trong a-rm, th during tl1e ear in t'i o
ke markets, intra- ia and b t'i een ortl1 America
and ia er d primaril by main-d ck freio-ht r . In
the intra- ia mark t net r enue in r a d
21
p r nt, and
ult .
d
r nt
ignifi ant
portion of 1, tal r , nu . Op ratino-
prin ipall a awl a, 1 lift o apa i ,
aro-o i fo u d on tl1 international fr io-ht fon ard r
communi ening tl1e .. and A ia. Th uniqu
t and n t'i ork apabilit) p rmi
ombination f
ian market origin and d tination , ,, hi h
are erved b a ari of lift capabiliti , routino- and
departure and arri, al tim tl1u ati f)ring th n ed
of mo t air freight hipp r .
, ral of orth,, t argo produ t a hi , d r ord
p rformanc in 1995. Cargo international ouri r
product g n rat d r ord re, enue topping 1994
Northwest Cargo has a
dedicated fleet of 74 7
freighters and twice the
international capacity
of any other US.
combination carrier.
results by 38.8 percent. ortlw,,est's domestic airport-
to-airport product, which is called V.I.P. had a record
year in 1995 with revenue increasing 10.7 percent and
pound increa ing 14.0 percent over 1994. During
1995, Iorthwest Cargo as urned cargo ground
handling re pon ibility for KLM in Hong Kong and for
nited Parcel Service in Tokyo.
22
Northwe t Cargo's strategic advantages include:
A dedicated cargo fleet and the complementary
capacity and network scope of the Northwest
passeng r fleet
A favorable r putation a one of the mo t
experienced transpacific and intra-A ia cargo carrier
Exten ive authorities to fly into and beyond Japan
Freighter cros loading and passenger aircraft cro
connection operations at the Narita hub.
orthwest Cargo's future growth focuse on the Pacific
region. U.S. exports to Japan account for nearly half of
the airfreight industry's total westbound traffic.
orthwest Cargo today is among the top two carriers in
tonnage flown between the U.S. and Japan. Hi torically
Hong Kong, too, i a major market for dedicated
freighter ervice. While Hong Kong erves as a
significant export center for China's explosive growth
in manufacturing, orthwest Cargo also seeks to
expand its operations in China through
commencement of freighter service to Shanghai, one
of China's mo t advanced commercial centers.
Northwest Aerospace Training Corporation (NATCO)
ero pace
C
N T 0 ). a wh lly-
f 1 rth w t Airlin
in 1 - to prmid
11
t ub idiary
ntinu d
'rline
11 a full rn pil t and cir er " .
trammo- pr o-ra111 n ioht di r nt air raft typ
tat -of-the-art ' la r om '' in lude _6 full-
flio-ht i111ulat r and training d ,i at it Eao-an,
r-.linn ta, h adquan r and t\rn ID 2 i111ulat r in
Lona- B a h . alifornia.
orthw t Airlin prmided 60 p r ent of \T O
r , nue in 19 - . Th oth r 10 p r nt c 111 fr 111
11 airlin . non-airline j top rat r and o-m rnm nt
a . 11 of whi h mak u1 NA o OT wino-
111 r . Work' tabli h iL lf a a
1 ading training nt r for pilot' and er w 111e111b r
fr 111 ar und the world. N, T O in rea d it reY nu
fr 111 n n- orthw
Durino- th y ar. N T
by ix p re nt.
ntinu d Lo xpand it
T tal oluti ns" of ri1w -lin trainino- and
u rt a t re pilot u-aini1w
ar rlin trainin
. It
r our 111anao 111 nt Lrainino-. flio-ht att ndant
rn training and upp rt and
y tern ontr 1 produ t and nric
NATCO, an industry
leader; provides training
and support solutions to
airlines around the world.
Other 199 5 highlights included:
The doubling of market hare by NATCO'
Technical Service Division, which markets simulator
support ervices;
The continued importance of Asia as a growth
market for ATCO, which in 1995 provided airline
training ervices to six airlines in China and
five airlines in Taiwan. ATCO is working closely
1995
1994
1993
NATCO Growth Chart
113 Companies Served
1 00 Companies Served
95 Companies Served
24
with Asian airlines and government agencies to
develop and implement a full range of safety and
efficiency programs modeled after orthwe t
Airlines Flight Operations training curriculums.
Th signing of contracts to train pilots from three
Russian airline . As We tern manufacturers continue
to place aircraft in Russia, ATCO is w 11 placed to
capture training and support contract . In addition
to providing comprehensive pilot training programs
for Russian crews from ATCO's Eagan, Minnesota
facility, the company i discussing development of
training facilities within Russia to help prepare crews
for ATCO's simulators.
Looking ahead, ATCO is responding to the need for
better training facilities and safety programs for
regional airlines. Plans to provide a full range of
training and safety related program to regional
carriers are being solidified.
1995
1994
1993
Annual Simulator Utilization
76.2%
67.2%
68.4%
MLT Inc.
LT Inc., a wholly-owned indirect subsidiary
of orthwest Airlines Corporation, i
among the largest vacation wholesale
companie in the nited State . It two major
vacation package product lines, orthwe t
WorldVacations and MLT Vacations, offer air
transportation, accommodations, car rentals, show
and tours. Travelers can mix and match a variety of
components, such as lift tickets and equipment
rental at ki de tination , wedding package in La
Vegas and fixed-price , three-course meal in Paris,
to create personalized, pre-paid vacation package
in one easy step.
MLT seeks to be the leading
provider of quality leisure
travel products and services,
recognized for excellence,
innovation and total
customer satisfaction.
MLT's growth derives from two primary strategic
thru ts: supporting travel to new and expanding
leisure destinations offered by Northwest; and
identifying strategic charter routes and providing
complete land options at all charter destinations.
25
MLT in 1995 reported growth in vacation packages
to Europe, Hawaii, Mexico and ski destinations. Las
V, gas continued to rank as MLT' top de tination.
In addition, MLT introduced WorldVacations
packages to T
ova Scotia and Vancouver, Canada,
building on Northwest' new rout betw en the
U.S. and anad a. ore growth is expected in 1996
with the addition of package to Montreal, Toronto,
Ottawa, Edmonton and Calgary.
MLT offer orthwest WorldVacation package to
138 de tination throughout A ia, Canada, the
Caribbean, Europe, Mexico and the U.S. MLT
Vacation feature year-round and ea onal charter
air vacation from 15 citie to 38 destination .
mong those de tination are locations in the
Caribbean and Mexico and .S. citie in Alaska,
Arizona, California, Florida, evada and tah. MLT
Vacation al o offer Caribbean crui es, which
during the 1995-96 ea on are being expanded from
one to three itineraries.
MLT Inc. Operating Revenue ($000)
1995 $349,718
1994 $341,462
1993 $312,530
1992 $281,906
Northwest AirCares
hrough the orthwest AirCares charitable
support program, orthwe t Airlines in 1995
demon trated it ongoing commitment to
enrich the quality of life in the communities it erves.
Working with a different non-profit organization
during each quarter throughout the year, orthwest
AirCares builds awareness - and helps to raise funds
through on-board campaigns - for it charitable
partners. On every flight, a flight attendant or a video
describe the mission of the featured organization. An
article in Torthwe t' in-flight magazine, WorldTraveler,
provides additional d tail. An envelope i al o included
for pas enger contributions. To encourage donations,
Northwest offer 500 WorldPerk bonus miles to
anyone who donat a WorldPerks FlyWrit ticket or
makes a cash contribution of 50 or more.
The four organizations benefiting from the orthwe t
AirCares program in 1995 included:
The American Red Cross
The American Red Cross, v,,hich for over a century ha
r acted quickly in time of crisis, is the large t private,
non-profit humanitarian organization in th U.S. Its
work has saved live and restored hope to people in
local communities aero s the U.S. and around the world.
26
Epilepsy Foundation of America
The Epil p y Foundation is dedicated to helping
families cope with the range of is ues surrounding the
treatment, education and social development of
children with seizure disorder . Epilepsy is a common
neurological disorder that affects one of every
100 people, most of whom are children.
Share Our Strength (SOS)
Share Our Strength is one of the nation's largest non-
profit hunger relief organizations. Its goals are to
alleviate and prevent hunger in the United States and
around the world. During 1995, orthwest AirCares
helped ponsor two successful 'Jam Against Hunger"
concerts in Minnesota to assist SOS's mission.
Toys for Tots
Created by the U.S. Marine Corp Reserve in 1947,
Toy for Tot annually provides millions of toys to
needy children throughout the country. orthwest
AirCares assists the Toys for Tots campaign by
encouraging passengers to contribute to the cause and
promoting the organization through national
adverti ing. The annual Toys for Tots collection effort,
held in nearly 200 communities natiomvide, brings in
more than seven million new toys each year to kids
who otherwi e might not enjoy a new toy at Chri tma .
The 1995 Toys for Tots Foundation drive succeeded in
Toys for Tots
o-a the ring a pproxima tel 1.1 milli
the previou ar.
In addition to it four in-flio-ht harity partn r ,
orthwe t upport oth r proje . Earl
in 1995 d liv r d ap1 roximat ly
00 000 pound of reli f uppli donat d b '
11eriCar a non-profit r li f ao- nc ' to a
earthquake recover ' in Kobe, J apan. Donat d it m
rano-ed from temporar , hou ing to cann d
vVhil Am ri ar provided the uppli
Kobe, Japan
donated th u e of tvvo fr ighter aircraft and
orthwest emplo , volunt er d ountl h our to
aid th r li f effort. In addition, , orking tog th r,
AmeriCare and rthwe t AirCar conduct d a
t, o-week fund-raising and a, arene
included a full pao-e adverti m nt in
television announcements during th
27
app ali1w for a i tan for Kob vi tim ; in-flight
announ m nt and ,id o ; and a pl dg b 1 1 rth"
t mat ng r ontributi n .
0th r rganiz, rthw t
\ir ar ' supp th I ar a " 11. p rti n f
r v nu fr m 11 fa r al ,, a d i nat d to
1 l oro-a1 1 . in ludino-
Our 1 , Lh
F on f
r h Fund.
o, in laun hi artn r hip, itl EF in
Fran , 1 nhw t d nat d _ .G r ,, ry ld n
Flight :J l in Fran Lo Lh oro-anization durin Lhe la t
two rn nth fth year.
Initial din 1992
organization that refl 1w ' t' value and
mmunity ar haritabl upp rt
program i increa inE;l ' known for it d di ation and
inn vati n. In 1995, itr iv l the" ld n B 11"
aw rd, th t I r
H o pitality al
Internati nal.
rthw upp rt i n L limit l to th
a tiviti pon o r d by Air ar s. Thr uo-h out th ' ar
orthw L mplo ee volunt r thou and of hour to
mmunit:y au h , al
nit d w ay, upporting a broad ra1w
that addre d .
Employee Recognition
"Always upport and in pire each other" i a guiding
principle of orthwest Airline . The company's employee
recognition program upport and in pire by ingling out our
be t. The major honors bestowed on orthwe t employee in
1995 were:
Honor Roll, a quarterly publication that recognized all
13, ~75 employee who received a commendation from a
cu tomer, co-worker or upervi or.
The Caring Award honored 10 employees for exceeding
the call of duty to deliver outstanding customer service.
The Global Partner Award recognized six orthwe t and
six KLM employees for providing outstanding ervice to
advance the Northwest/ KLM alliance.
S rvice Anniversary Award Pins were pre ented to 1,130
employee who celebrated 23 to 25 years with orthwest
in 1995.
The Support and Inspiration Award was presented to five
employees who demon trated Northwest's Guiding
Principle by supporting and inspiring their colleagues.
The Excellence Award honored 13 employees who
contributed extraordinarily to orthwest's profitability
and ucce s.
Awards and Recognition
Summary of the most ignificant award and recognition
earned by Northwest during 1995 in these categories:
Recognition from Customers
Best Frequent Flyer Program - JD. Power survey of airline
customer satisfaction
"A+" for ervice to WorldPerks domestic and international
reservations agents from Inside Flyer magazine
Ashington-Pickett Crystal Pyramid Award of Merit for
Best Overall Service
The Lo Angeles Business Travel Association' first
biannual airline appreciation award
Recognition from Communities
"Company of the Year" award from the Memphis
Convention Bureau
The Memphis Convention and Vi itors Bureau presented
orthwest with the President's Award, recognizing the
airline for its omni-bank schedule and for the start-up of
orthwe t/ KLM service to Amsterdam
AmeriCares, the international disaster relief organization,
presented the Heroic Action Award to the employee of
orthwe t for their lifesaving contribution to the relief
efforts in Kobe, J apan, following the devastating
earthquake
Citation from Mayor of Kobe, Japan
28
"Gift of Sight" Award from Guide Dogs of America
The Atlanta maintenance base received the Environmental
Achievement Award from the Georgia Water and Pollution
Control Association. The award was presented for
out tanding environmental achievement in the ategory of
indirect discharge physical/ chemical treatment.
Recognition from Industry Peers
The Grand Prix Award presented by a panel of J apanese
travel industry officials in Travel Management magazine,
named Northwest the best in ternational airline erving
Japan for its numerous marketing activitie in 1995 to
stimulate J apan's out-bound tourism market
Sapphire Award for onboard safety video from Onboard
Services Magazine
Three Golden Bell Travel Industry Awards given by tl1e
Hospitality Sales and Marketing Association International
to or"thwest for the airline's AirCares program and its
World Business Class marketing communications
A PATA Gold Award given by the Pacific Asia Travel
Association for orthwest's World Business Class marketing
communications program
orthwe t's Aircraft Situation Display (ASD) i a finalist in
the Apple Enterprise Awards. ASD provides fligh t
dispatchers with a real-time snapshot of a flight situation
President's Award Winners
In 1 gg-, Pre id nt and E John Da burg pr nL d th
Pre ident' \ ard to eight Northwe L people. Thi award
honor and recognize mploy who hav ntribut cl
ignificantly to Northw t' mi i n, g al and guiding
prin ipl . The h n ree and their a hi vements w r :
Ed Archer, Bo Lon dir cl r-custom r
ervice and ground p ration . ch r l d
the p ople of hi talion through a
ch all nging 1
ear and th aftermath of pasL
prob) m that could hav di tract d
mployee with out th right focu. and
in piration. Bo ton p op! cam tog ther
to reach all the tation' performance goals for th fir t
quarter of 199-.
million in a\'ing .
peration
utomation divi i n. B urn h lp d
develop the Aircraft ituation Di play
( D). Flight Di patch u D, in pan,
to re-rout aircraft ar und inclemenL
weather. After inv ting 100, 00 in
D, Northwe t ha r aliz d 2.5
Kathryn Cinkle, .Yfinneap Ji / t. Paul
re ervati n al agent. inkl mast red
th c mpl xity of the mark ting
an
in piration to her co-worker . h was
featured on a training vid o that highligh
her technique and per onal touche . And h ld
1. million of ticke -by-mail, ju t h rt f h r per nal -
and ambitiou - goal of 2 million.
Lauretta Moritz-Crisler, .Yfemphi flight
attendant. After am ther topp d
breathing on her flight, om flight ere\\'
member immediate! applied em rgenc '
aid. Moritz- ri ler, meanwhil car d r
the , oman' 1- and 3-year-old children.
Th plane diverted to R ch ter, .Yfinn .,
but doctor at the .Yfa o linic were unable to revive the
mother . .Y101itz- ri ler tra eled , ith the father and children
to their Twin itie ' home, where he continued to help and
con ole them.
29
Morris "Moe" Moultrie, Washington
i\'ati nal quipment servi chi f. Moultrie
pla d a key role in r ruiting two other
airlin s, ' Jntin ntal and meri a st, to
ontracL wiLh , rorthw st Lo handle th ir
ground ervi at Wac,hingLon ~ational
irport. He r peatedl y showed ffi ials of
Lhe.e two airlin around ,;\lorthw st' talion fa iii tie and
inLrodu d th ~m Lo f llow mploy es. H ~ show d th ~m th ~
high qualit ' of . ervi e th ould exp ct by onLra ting
\,ith i\'orthwest.
Masao uzuki,Japan dire tor- argo.
WiLhin hour of th Kobe earthquake,
uzuki fl w Lo nearby c,aka. For v ral
days h report d v ry few hours Lo
or Js in Tok o and
inn L. Paul on damage. and
injuri d uzuki work d Lir l . ly to
oordinate with h adquart r and Japane e us tom to bring
and di tribute -oo,000 pound of r lief uppli LO Kob
hipped by ~orthw . t.
eldon, .vfinn eapoli / t. Paul
pil t. V,T ]don \\'a th captain fa Jlight
wh n th plan xp rienc d difficultie .
' nd r \'\T ]don'. leader hip, th thr e r w
m mb r work d tog th r to ontrol the
aircraft. The effort required trem ndou
. fully land d the
plane afely, without harm to pa. enger. rew or aircraft.
Yoshinori Yamaguchi, Tokyo manager-
tati n perati n . Yamaguchi w rked , ith
th J apan g \' rnm nt and airport
auth riti to gain appr val r N rthwe t
t xpand i Azuma I ung and in reas
by 10 percent i gat u . H e d veloped
go dr lati n ,,~thJapan fficial that
re ulted in better media r lation r ;\ rthwe tin T k
Yamaguchi led the ef rt to er at a committ inJapan r
emergen preparedne that help d make . rthv e. t th
fir t non-:Japane airlin t participate in th airp rt'
peri die mergency drill.
Employee Profile
1995 1994 1993
Flio-ht Attendant 8,844 8,603 8,688
Mechanics 6,640 6,495 6,413
Equipment Service Emplo ees 5,682 5,378 5,092
Pilot 5,255 4,965 4,984
Cu tom r S rvic gent 5,162 4,997 4,849
Re ervation Sale gent 3,242 3,017 3,385
Management 3,094 3,020 2,808
ecretarie / lerk 2,394 2,355 2,375
Other 1,827 1,805 1,955
Groom r / Cleaner 1,348 1,296 1,242
ubsidiarie - primarily MLT 846 986 855
T Ion-contract 790 r6 712
Total 45,124 43,673 43,358
30
Financial Review
In 1995 orthwest Airline Corp ration continued
its complementary operating and financial
strategies to maximize shareholder value. Through
targeted deployment of as ts into markets of
competitive advantag , co t ef ctiv fleet planning,
rig rous cost control, and strategic capital structur
manag ment, orthwest ha increased r turn on a s ts
while improving strat gic and operating flexibility.
Maximize Return on Assets
orthwe t eeks to maximize return on a sets by
deploying existing a ts where th y can g nerat
maximum returns, and by inv ting in additional a s
only when they can pr du e uperior r turns. in
1992, orthwest has led .. n twork carrier by
focu ing on core strategic ass t5 and expanding
international alliance and d -share agreements.
ome of th maj r 1995 highlights ar di. u d in
detail through ut thi Annual Report.
Operating Activities -As w look rward, route
tructure development ha po iti ned orthwe t w 11
for a planned 7% capacity growth for 1996.
Appr ximately half of this gr wth will b new flying.
The remainder of the in remental capacity will r ult
from the carryforward of 1995 gr wth and th
addition of incremental seating capacity to exi ting
elected aircraft.
In th context of its c ntinuing focus on area of
competitive trength, orthwe ti pursuing a number
of m aningful cost reduction and productivity
improvement opp rtunitie . Th se initiativ in 1996,
which include proce s impr vement5, automation and
technological improvemen , will h lp th mpany
build upon th traffic and unit r venue advantage it
currently enjoy .
31
AB a re ult of . imilar ff orts in prior years, orthw st's
p rating ost p r available s al mile (ex Juding sto k-
based ompensation) has in reas d only 2% from J 994
to 1995. hi increase was entir Jy r Jat ~d Lo higher
r v nu sand Joad factors, and a strong r rn.
Fleet Initiatives - orthw st continued iLc:; strategy of
id ntifying and mpJ ying th aircraft b t suiLJd Lo
th Company's rout stru ture whil making th
J
most
effi ient us of invest d apital. S veral major fleet
transa Lions w re ompl L d during the year.
orthw st arranged the early d liv~ry of] 5 n w
757-200 air raft alr ady on ord r from Bo 'ing, two
of whi h w r d ]iv r din 1995, with th ~ r maind r
s hedul d for deliv ry in J 996. This tran a tion also
in Judd the r scheduling of or th right tors h e>dul
(with . ub tiluti n righL5), 25 Bo ing 757-200 air -raft
and~ ur Boeing 747-400 air raft, from deliv 'ry in
th 1996-199 peri d t 2002 and b yond.
In February 1996, orthw st sign d a memorandum
of understanding with Airbus that in Jud s th
J
pur has f 20 highly ffi i nt A320 air -raft to b
d ]iv r din 1998 and 1 , and a r vi d d liv ry
sch dule (with substitution rightc:;) for 1 A3 0
air raft to 2004 and 2005.
-Y orthw t has had su ess with the DC-9-30
refurbishm nt program begun in 1994. This
pr gram all w th mpany to ontinu ~ to op rat
this highly reliabl air raft profitably, whil for going
th substantial in stm nt r quir d for new air raft.
During 1995, signifi ant n w profitabl flying for
100 at air raft was identifi din luding he new
anadian routes. In J 9 5, orthwe t
pti n to a quir an additional t nu d D ' 9-9.fJ
aircraft, s hedul d for delivery in 1996 and l 97.
In ord r to tak advantag of additional profitable
rout opportunitie orthw st acquired five u ed
D -10-30 aircraft. Th aircraft will serve our new
India rvic , and additional fr qu ncies to London
and Am t rdam.
Re ults - Op rating results continued to improve. 1995
op rating in om of $902 million and net income of
$392 milli n w r Company records. However, these
r ults were ignificantly impacted by the increase in
the mark t valu of common tock earned by our
mployee in 1995, and expensed to our 1995 financial
r ults. The Company' wage avings period is
h dul d to nd in late 1996 and stock will no longer
be given to employ s in lieu of wages. If the wage
avings had ended on January 1, 1995, the Company's
1995 operating income and net income would have
increa ed to approximately $1.1 billion and $514
million, respectively. This is because the value of the
tock charged to the 1995 financial results was worth
approximately $193 million more than the labor cost
avings. Excluding the impact of the employee stock
charge, operating margins improved 3.9 points or
35% over 1994.
....
~
Q,)
u
I-<
Q,)
~
Northwest Operating Margin Excluding
Stock Charge
20 - - - - - - - - - - - - - - - - - - - -
15.19
15
11.26
10
5 4.65
-5.04
0
1993 1994 1995
-5
1992
-10
32
As in 1994, a major contributor to thi strong
performance ha been revenue per ASM which has
improved 26% ince 1992.
Northwest Revenue per ASM
10 - - - - - - - - - - - - - - - - - - - -
9.58
9.5 - - - - - - - - - - - - - -- - -- - -
9
8.5
8
7.5
7.59
8.23
8.93
I
7--------------------
1992 1993 1994 1995
Capital Structure Management
orthwest' capitalization strategy is designed to
minimize capital costs while allowing the Company to
maintain adequate levels of liquidity and create a
prudent debt amortization schedule.
In 1994, orthwest accomplished several major
financings including a $265 million initial public equity
offering designed to strengthen our capital base and
expand our access to the public capital markets.
This momentum continued in 1995 as the Company
used $1.5 billion in operating cash flow and $2.5
billion in financing transactions to reduce total debt
(including capital leases) by $1.6 billion or 33%.
Highlights of 1995 financing activities include:
The prepayment of the $837 million balance of the
1989 initial acquisition loan, which was funded in
part by an unsecured $300 million bank facility with
favorable term . This transaction also released
collateral with a market value of approximately
$6 billion.
The innovative restructuring of a non-recourse
obligation on certain of the Company's Tokyo land
holdings which resulted in $696 million being
removed from long-term debt and reclassified as a
Mandatorily Redeemable Preferred Security.
Northwest recorded an extraordinary gain of
$62 million in this cross-border financing.
The completion of a $247 million secondary offering
of common stock which increased the shares held by
the public, thereby improving the liquidity of the
Company's stock.
A $97 million preferred for common tock exchange
with Bankers Trust Corporation which strengthened
orthwest's balance sheet by adding approximately
$97 million to common tockholders' equity. It also
removed over $169 million of cash requirements
during the period 1998-2002.
Syndication of a $320 million 20-year bank bridge
revolving loan facility that will minimize th cost of
acquiring 15 757-200 aircraft.
The Airbus and CFM International Memoranda of
Understanding (MOU) includ th elimination or
re cheduling of $470 million of exi ting debt to
beyond 2000 at lower interest rate . Financing for
the 20 new A320 aircraft on attractive terms was als
arranged.
orthwest's strong cash flow generation and aggre siv
debt retirement served to further improve the
Company' debt amortization chedule. The following
graph illustrates that the Company' debt amortization
schedule has improved dramatically since 1993.
[I)
c::
0
a
::g
fF7-
1600
1400
1200
1000
800
600
400
200
Northwest Amortization Schedule
Jul- '93
Dec - '9
000
1996 1997 1998 1999 2000
Dec - '95 Assumes completion f Airbus/ FMI MO
33
Results - Northwest's financial management is focu ed
upon maintaining ad quate levels of hquidity, reducing
ind btedness and releasing en cum b r d as ts which,
collectiv ly, ar int nd d to enhan e verall financial
stability and flexibility, and increa the valu of
common equity.
After the 1995 financing transaction , liquidity at year-
end was appr ximately $1.2 billion.
The major credit rating agencie. respond d w 11 to
orthwest' strong financial p rformance. Both M dy's
Investors Service and tandard & Poor's 'orporation
raised Northwest's long-term un ur d debt rating
two notch to Ba2 and BB-, re pectively, whil Fitch
and Investor rvic rais d Northw st to BB-.
ash fl w from operation impr ved fr m $337 million
in 1993 to $1.38 billion in 1994 and $1.46 biJli n in 1995.
Cash Flow from Operations
1500 1,379.2 J ,460.
1200
~ :1
f
0 900
::S
j
600 1
fF7-
300
337.3
I
,,
000 I !
]993 )994 )9 5
In addition, fully di tribut d earning per hare has
ignificantly impro ed from 1993 through 1995 and
increa ed 85% from 1994 to 1995.
Fully Distributed EPS (1
>
6.50 - - - - - - - - - - - - - - - - - - - -
Q) 5.18
I-.
(,:I
4.50
..c=
V). 2.80
I-.
Q)
0.. 2.50
'JJ
I-.
(,:I
:::= -1.40
0 0.50
A
-1.50
1993 1994 1995
(1) For further information ee Management's Discussion and Analysis.
Finally, total debt levels have declined markedly since
1993 from 5.37 billion at December 31, 1993 to
$3.31 billion at December 31, 1995.
Balance Sheet Debt and Capital Lease Obligations
6000 - - - - - - - - - - - - - - - -
5,366.0
4 903 8
'JJ
5000
Q
0
s 4000
~ 3,308.3
~
3000 ;
I i
2000
1993 1994 1995
34
Outlook
orthwest has excellent opportunities to further
improve return on assets by continuing to focus on
areas of competitive strength, particularly our hubs.
orthwest' greatest growth opportunity is in the
Pacific. As the largest carrier in the U.S.-Japan market,
the Company is well positioned to share in the
economic rebound that is occurring in Japan.
Furthermore, Northwest's strategic Asian presence
provides an ideal opportunity to participate in high-
growth Pacific markets such as China, where the
Company recently gained authority to fly non-stop
from Detroit to Beijing.
Northwest is now well positioned with efficient aircraft,
rapidly decreasing debt, and relatively modest future
capital commitments. The Company will review future
capital investment opportunities as they arise and will
make additional investments if they are consistent with
the objective to produce superior returns. Cash flow
from operations in excess of that which the Company
believes can be invested at superior returns will be
used to reduce debt.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
rp r tion "N \A , rp ... r th
r p rt din
it n
milli n r th ,ear r. th
high t annual 1 v 1 in th mpai1:- hi -t ry. In me
b for xtra rdinary item in r as d by "'-1 -.6 rnilli n
c mpar d ,rith 199-t Op blY
im pa t d by n in
milli n n t 111 n
b, in th pri fth
. Ex lu in re
m ". u.ld ha 1. _7 billion.
orthi\ e t Airlin , In . ( ,.
op rating indir
a untino- r mor than
con lidat d p ratin r , nu
Company' op rating r u l
b both o-en ra.l and indu tr e
Small flu tuation in yi ld p r r
( RPM" and o t p r a,ailabl
ha, e a signifi n t imp a t on pr
an
Results of Operations-
1995 Compared to 1994
Opera tin O"
Reven u 'S. Op ra o- v nu
billion, an improvem nt 0. million
Rev nue per total u 111
pas ng r r ,. nu (i\hi hr pre
op rating r v nu 0.7%
due to a _.9o/c in r a
a 7. % incr ase in pa r , nu
s n . ce SM whi h , . bl to
in t m iield and
pass nger load factor.
p rforma.11 continu d
to reflect orthw t fo u n mark ts ,vh r tl1
Compan has trateoi advantag . Effe tiv pri ing
initiati, incr ased traffi a.long ,,, th u s fol n
introductions to s ven Canadiar1 iti ar1d t London
Gatwick from D troit. e,, 0 aka fl, 110-, furth r
de elopm nt of dom ti hub and air raft
reconfiguration all ,.., d for in r a d traffic a , 11.
De pite traffi grv th ld remain d tron; b au
capaci , grmvth v.ra on en trat d in ar f tra tegi
adva11tag . Fa tors contributing t eld tr ngth
in Jud solid p rforman of orth, t' v\ rld
Bu ine Clas produ tin int rnati na.l mark ts a11d
fa orabl Japane n x hai10- r t .
Th mp iti n fth
in a h f th p t tl1r
mp 11y - op r tino- re, nu -
Passenger revenue
D 111 -ti
Pa ifi
Tran -atlanti
Cargo re, enue
O ther re, enu e
Total p rating
.. u- i ummariz d ,,:
1995
56.1
23.8
5.5
8.3
6.3
100.0
199-1
.-1
9.1
6.7
f ~ . l billi n in
primaril)
1 3,
- .--1
-.1
9.
6.-
d
d2.l ' andp rloadfatr
;.:; p ints witl1 ut n o- riv ly
t billi n du to
fa a - .l tc
11 t
d
6
maril\
to r venu idental
n ird par d
hart r a ti,i. .
Opera ti 71 a E.xp 111 rea d
6 .2 millio Whi
billi . .
op rating xp r to
7 __ o/c . Ex ludi1w sto k-bas d . . b th
p 1iods p rating xp n 2.0
laro- t i1 in 1 ad ar1d
d1 J apai1es n. ges and
b i d 6.5 milli n (3. a.11
har1dl
traffi
qu.iv
hi h " r la.1 d to
. 2.1 . d
t d r a d p n i n
d mpl y
f
47 .0 million and 1 7.2
million durin - 1995 and 1994, r pe tiv l . The sto k-
ba d mp n ali n p n i a function of hares
arn d b mploy during th p riod and the
p riod- ndin mmon tock pric , which in r a ed to
h 1.00 p r har at D emb r 29, 1995 from $15.75
p r har at D mb r 30, 1994. Commi ion
d 70.3 milli n (9.1 %) a a re ult of a 10.7%
in pa ng I r v nu and a higher Pacific
ommi ion rat , off: t by the favorable
impa t f th new d me tic commi ion tructur
impl m nt d in February 1995 by Northwest. Aircraft
fu l oil and taJ es increa d $31.0 million (2.9%), du
primaril to a 3.0% in r a in gallon con um d,
off: t b 1 w r pri . In Octob r 1995, th United
tate (" . . ") in rea ed tax on aircraft fuel by
4.3 c nts p r gallon. This n w taJ increa d the
p rating xpens s for th fourth quarter
12.1 million and unl u p nded by the
o-ov mm nt will i th Company's annual
ng pro imat l $48 million ba d
thv d fuel umption. Other
r ntal and landing in 0.2 million
(9.2%) du hang , in foreign currency
rea d volum and rate for
landing D p n ( th principal
mp n nt of whi h in lud outsid ervic
pa eno- r food, Hing and mark ting, personn land
ommuni ation e pen e ) increased 8 .2 million
( .2%), du primaril to incr a d volum and rat
for lliiw and mark ting fee and outside rvic .
Other Income and Expense. In stmen t income increa d
b 30.r.; million (72.3%) du to incr a d inv t d
a h. Th foreign urrenc lo s of 36.9 million wa
attributabl to a 27.6 million lo on th balanc h t
r m a ur m nt of foreign urren y-denominated
a ts and liabiliti and a $9.3 milli n harge for
J apan n ollar option contra ts. Th 29.7 million
unfavorabl hang in other-net for 1995 wa larg 1
du to mi. llan ous li n ino r venues rec iv d in
1994 and lo relat d to an equity in e tment in an
affil iat in 199r.;.
tin m r 1995 includ d a 49.9 million n t
'tra rdinar gain " hi h r lat primaril to the
r stru turincr of the Compan ', financing arrang m nt
with resp t to rtain property wn din Japan.
t E L on olidat d Financial Lal ments.
36
Results of Operations-
1994 Compared to 1993
Op rating r sults improved sub tantially with operating
incom increa ing $558.0 million to $830.4 million.
et income increas d $410.8 million to $295.5 million.
The improved profitability was primarily the result of a
$390.5 million increase in pa senger revenue over 1993.
Operating Revenues. Op rating revenues were $8.32
billion, an improvement of $460.0 million (5.8%) .
R venue per total service ASM increased 8.5%. System
pa senger revenue increa ed 5.9%. The increase was
primarily attributable to a 6.3% increase in system yield
and a 2.1 % (1.4 points) increase in passenger load
factor, partially off: et by the impact of a 2.5% decrease
in capacity a mea ured by scheduled service ASM .
Domestic passenger revenue of $4.73 billion increased
351.4 million (8.0%) primarily because domestic yield
increa ed 6.7% to 13.98 cents and passenger load
factor increased by 2.2% (1.4 points). Pacific passenger
r v nue d er a ed .5% to $1.83 billion, due to a 6.1 %
decrea e in cheduled service ASMs, offset by the
impact of a 4.2% increase in yi ld and a 1.7% (1.2
points) increa e in pa enger load factor. Tran atlantic
passenger revenue increased 12.0% to $448.4 million,
primarily du to a 7.9% increase in yield and a 4.1 %
(3.1 points) increase in pa enger load factor.
argo revenu incr a ed $21.0 million (2.9%) due to
an 18.0 million increase in freight revenue and a
3.0 million incr as in mail revenue. Other revenue
increased by $48.5 million (9.5 %) due to incr ased
pa enger charter r v nu , transportation service
charg s and other incidental service provided to
third partie .
Operating E penses. Op rating expen d dined
98.0 million (1.3%) while operating capacity
d er a d 2.6% to 85.8 billion total service ASMs and
p rating p nse per total rvice ASM increased
1.0%. Salarie , wages and b nefits decrea ed 111.8
million ( 4.6%) primarily due to the labor cost saving
r sulting from the labor agreements which became
f tive Augu t 1, 1993. on-cash tock-ba ed
mplo ee compensation expense wa $107.2 million
and $93.1 million during 1994 and 1993, respectiv ly.
ommis ions for 1994 incr a ed 52.1 million (7.3%)
primarily as a r sult of a 5.9% increa e in pa eng r
revenue. Aircraft fuel, oil and taxes decreased $107.2
million (9.2%), due to a 9.4% decrease in average fuel
price per gallon to 56.23 cents and a .5% decrease in
gallons consumed. Aircraft maintenance materials and
repairs increased $28.0 million (7.6%) due to the
timing of maintenance activities and increased engine
parts usage. As a consequence of its DC-9-30
enhancement program discussed below, effective
January 1, 1994, the Company extended the
depreciable lives of its DC-9-30 aircraft. The net effect
of the revision and certain other changes was to reduce
1994 depreciation as discussed in Note A to
Consolidate<;! Financial Statements. Other expen e
increased $74.5 million ( 4.6%), due primarily to
increased advertising related to the launch of the
Northwest/KLM World Business Class product, and
increased computer reservation system fees.
Other Income and Expense. Interest expense increased
$12.8 million (3.4%), primarily due to an increase in
the weighted average interest cost of long-term debt
(from 6.7% in 1993 to 7.6% in 1994) caused by higher
market interest rates and an increase in fixed rate debt
from 32.8% to 51.2% of outstanding debt, partially
offset by the impact of a decrea e in total outstanding
debt. Investment income increased by $22.8 million
due to increased invested cash. The foreign currency
loss of $20.2 million was primarily attributable to
balance sheet remeasurement of foreign currency-
denominated assets and liabilities. The $38.8 million
decrease in other-net income was largely due to a
$46.4 million foreign tax refund received in 1993
related to commissions.
Liquidity and Capital Resources
At December 31, 1995 the Company had cash and cash
equivalents of $850.9 million, unrestricted short-term
investments of $120.0 million and borrowing capacity
of $187.6 million under its revolving credit facility,
providing total available liquidity of $1.16 billion. Cash
flow from operating activities was $1.46 billion for
1995, $1.38 billion for 1994 and $337.3 million for
1993. Net cash used in investing and financing
activities during 1995, 1994 and 1993 was $1.08 billion,
$1.05 billion and $442.4 million, respectively.
Financing Activities. In October 1995 the Company
completed a restructuring of its financing arrangement
related to certain property the Company owns in
37
Japan. As a result, long-term debt decreased by $695.9
million and was replaced by a $622.0 million non-
recourse obligation with longer maturities which is
reflected in the Company's balance sheet as a
Mandatorily Redeemable Preferred Security of
Subsidiary which holds solely non-recour e obligation
of Company. In December 1995 the Company also
retired the 1989 acquisition loan by prepaying the
remaining $837 million loan outstanding using
proceeds from a new credit facility and available funds.
The new credit facility includes an unsecured $300
million term loan and an unsecured $200 million
revolving credit facility. Th r placement of the
acqui ition loan by the new credit facility re ulted in
the release of security int rests on a substantial portion
of the Company's assets as well as improved financial
terms and flexibility. As a result of 1995 financing
activitie , long-term debt was reduced by $1.5 billion.
Alo during 1995, Bankers Tru t New York Corporation
exchanged 1,727 hares of th Company's eries B
Preferred Stock for 2,050,000 shares of th Company's
common stock. In Novemb r 1995, 5,937,525 har of
existing Class A Common tock were sold to th pubJic
in a secondary offering by certain selling to khold rs.
The Company received no proceeds from this offering.
During 1994 the Company complet d more than $1.78
billion in capital market transaction , including an
initial public offering of common stock and refinancing
of existing indebtedness, all of which resulted in
substantially rescheduling its debt maturities.
See ote C to Consolidated Finan ial Stat ments for
maturities of long-term debt for the five years
subsequent to December 31, 1995. At Dec mber 31,
1995 there were no borrowings outstanding under the
Company's revolving credit facility; however, the
amount available to borrow has been reduced by $12.4
million due to the issuance of 1 tters of credit.
Investing Activities. Investing activities for 1995 resulted
in a $245.7 million use of cash and included $556.9
million of property additions. The property addition
pertain primarily to deposits and purchases for sale-
leaseback transactions related to Boeing 757 aircraft
and the modification of DC-9 aircraft. During J 994 and
1993, capital expenditures were primarily~ r aircraft
modification , spare parts and non-aircraft pr perty
and, in 1994, the acquisition of 21 used DC-9-30 aircraft.
Capital Commitments. The current aircraft delivery
schedule provide for the acqui ition of 78 aircraft,
including 13 Boeing 757-200 aircraft to be delivered in
1996. See ote I to Con olidated Financial Statements
for a di cus ion of aircraft capital commitments. on-
aircraft capital expenditure are projected to be 250
million for 1996, which the Company anticipates
funding primarily with cash from operations.
The Company adopted programs to hushkit and
modify its 106 DC-9-30 aircraft and 35 DC-9-50 aircraft
to meet noi e and aging aircraft requirements. Capital
expenditures for engine hushkits and aging aircraft
modifications were 61 million in 1995 and are
expected to aggregate $264 million during the next
five years for these aircraft. The Company has also
elected to upgrade aircraft systems and refurbish
interior for the 141 DC-9 aircraft. Capital
expenditures as ociated with upgrading systems and
interior refurbishment were 27 million in 1995 and
are expected to aggregate $261 million during the next
five years. The Company ha arranged upplier
financing of up to $225 million for DC-9 engine
hushkit shipsets.
The Company anticipates hushkitting 20 Boeing
727-200 aircraft and is evaluating similar alternatives
in order to comply with noise and aging aircraft
regulatory requirements for 34 of its remaining
Stage II aircraft. If comparable programs are adopted
for all such aircraft, the Company estimate the
required additional co ts over the next five years would
be approximately 225 million for engine hushkits
and aging aircraft modifications.
Labor Agreements. The labor co t savings agreements
discussed in ote B to Consolidated Financial
Statements improve the Company's 1993 to 1996 cash
flow from operating activities and will expire on
various dates from August through ovember 1996. At
the end of the Wage Savings Period, wage scales will
revert to 1993 levels and may further increase pursuant
to formulas set forth in the labor cost savings
agreements which incorporate other airlines' labor
rates. Had the labor cost savings agreements not been
in effect for 1995, operating income would have
increased by approximately $193 million as the 4 78.0
million of stock-based compensation expense would
not have been incurred and salaries, wages and
benefits would have been approximately 285 million
38
higher. Additionally, the Company's labor contract with
each of its unions becomes amendable as each labor
cost savings agreement expires. Con equently, future
labor wage rates and costs will be subject to collective
bargaining. While the Company cannot predict the
precise wage rates that will ultimately be in effect
(since such rate will be determined by the formulas
referenced above and by collective bargaining),
management believes that its labor co ts will remain
competitive in comparison to the largest U.S. carriers.
The Company ha identified and continue to identify
variou work rule changes and productivity
improvements which, if incorporated into new labor
agreements and work processes, would mitigate some
of the effect of the wage rate increases. Management
believes that the good relations between the Company
and its employee and their representatives will provide
a constructive framework for the upcoming collective
bargaining.
Financial Position. At December 31, 1995 the Company
had a common stockholders' equity deficit of
$818.8 million and, like its competitors, operated
with a working capital deficit which aggregated
502.4 million. The working capital deficit is
attributable primarily to the air traffic liability for
advance ticket sales. The Company has taken a variety
of actions whic~ have substantially improved operating
performance, financial position and liquidity over the
past four years.
Other Information
Fully Distributed Earnings Per Share. The effect of the
accounting for stock-based compensation on the
Company's operating results and earnings per share
may make it difficult to compare its earnings with
other companies. Accordingly, management believes
the follo-wing proforma "fully distributed" earnings
per share amount, which excludes stock-based
compensation and the unfavorable pro forma impact
of the expiration of the labor cost savings and includes
all the shares to be issued to its employees, provides
additional information and makes analysis between
years more comparable. On a fully distributed basis,
the Company's net income applicable to common
stockholders would have been $701.4 million ( 6.13
per share) in 1995. The fully distributed earnings per
share for 1995 includes the effect of .51 per share
increase re ulting from the January 1995 exchange of
the Company's preferred stock for common stock and
a l1-
.-l-l p r share in rea, r sultin_; from th net g;~1in
on th xtinguishme-nt of debt.
illCO/lll' ]a.\(1
ri ns ~~c:.1 :! and '3c 3 of th lnt rnal
f 19c 6 th ,od ") and th
th reund r imp se limitations on the
rd ;:unount of net L p rating losses
L "). alternatiYe minimum nx net opt'rating
kr, - ... lT OLs'' and credits th l an be used Lo
ffs t ta.:: abl in m ( or u - d as a crt'dit) in ;my sing-1
year if th orporation e.perienc s more than ,1 50
ownership chang , as d fined th rein. o,er a threL-
year te ting p ri d ending c. n \llW testing- date.
te H to n olidat d Finan ial tatements Cor
Lion r g-ardino- in com ta.xe - and L -.
Ls and redir:.
of ring f mllst,mding
ornmon t k b xi ' tin; to kh ld r: in l O\Tmber
199, t.rigo-er d an ownership hang . but tku no
m1 urred pri r to uch off.>ring. If
sud no- in fa to urred as a result
of tl offeri1w, nnnag rnent belieYes
by Lions 3 2 and' c3 of the
IT OL - and r dits would be us ,ct
ig,1ifi antly a.rli r than th ir expiration, and the
n w uld not hay a 111at rial ad\'erse
impact n tl1 ompany. However, if the Int rnal
R v nu w r to uc sfully ass rt that an
own rship hano- had urred n any prior date,
in luding ugu t 1, 1993 (the d:it of Lh labor ost
m nts), tl1e impairm nt of th Company's
ability t u e it OL , lTN L and redit
i nifi ant b cau the value of
ck u rtain pri r t stino- dat
ct th annual limitations
rib d abm , a r lati, l I
low, and such low value
would be u -ed in ornputing th annual limitations
witl1 r sp ct to los in urr d prior to th t sti1w dat
roreion Cllrrency. In g n nl a h tim the yen
trengtl1ens (, eak n ) , th mpan n-going
op rating incom i favorabl (unfa, rabl ) impa t d
and a on -tim n n p ratino- for ian curr n I los
(o-ain) i r ogniz d du to th rm a ur m nt of n .t
en liabiliti s. Th Compan ' 199,:; n-denominated
r v nu eded it en-d norninat d e 'penses b
appro imat 1 62. billion n (appro, imat I 64-l
milli n) nd it n-d nomin t d liabiliti ex e ded
it n-d nominal d a ~vat D mb r 31, 199,:; b
39
approxim:lteh 1 .5 bi.Ilion yen approximately bO
milli n . The ven lo .. dollar c.change rate ,H
December , 1. 1990. 199-l and E)<.)3 was 103 \'en lo ::i;l.
100 Yen t ::;il and ll~ ,en to l. re pcctiYeh-.
[ :,c cf Fi11n11cial ill tru 11101/ . ln order to mitig~He its
exposure to foreign e. hange rate flu tuations, the
,ompa1w bcg;m using a collar optit n strateg-y to hedge
its anti ipated yen-den minattd 1Pt c~1sh flows in IJ~H.
During l 99,1. the impa t on earnings or the J1 ancse
Yen ollar option cont1~1 ts was ,1 pretax rcali1cd los, or
lt-9.3 million. A of Dec mber ~) l. 1995. th " Comp.my
had no o tion collars utstandin~; h wen~r. it ma\'
elect frc. m time ll time to hedge ~1 porti n of itt l ~ 96
,en cash nm,s a - deemed ,1 pr priate. ln tb ordinar\'
course of busint' s, Lhc Company m~mage the prin.
risk or Cud cost: utili ing both regulat d . h~
mgc
traded futures c ntracts and fuel wap ap;r 'enwnts.
Gains or los, es on hedge on trans ~1re dcf'tTcd until
th re-Luc fu I i1went rv is t . pcnsed. s of D embt'r
31, l 99,1. the Company lud no m~Ht rial hedo-es l<.. r
ruture fuel requirt'.menc.
Pc11sio11 Di rou 11I Rat'. be dccrea:e in the discount rate
u:cd to detcrmin the ,<. mp,rnv's pension expense
fr m 9.15 Cn 199J Lo .... 10 fc r 1996 is the priman-
cause ofa project.c>d 65 million in rease in 1996
pen ion expense.
,0111111i sio11s. ln Fcbruarv 199~J ortlrncst implenPnted
;1 new domestic c nunission structure" hi h limits
Lanclard commissions Lo a maximum Jf ~5 for each
me-wa ti ket and 50 i r ea h round-trip ticket for
d mes Li l r~1\ el. Antitrust litio-ation challenging- the
new com mis ion tn1 tur is pending. ee ote J to
onsolidated Fitnncial t:i.tern nts.
.. Tra11sportatio11 Tax. The .S. 10 pas 'engtr ticket
ta.,
, appli able Lo domestic travel, th 6.25 dom "stic
G1roo, a 1
bill ta,x and th 6 per pass 1wer
international departur ta.,
, expired on D ember l,
1995. Consequ ml I the ,ornpan cea ed collecting
thes taxes (, hi h ao-gregated 50-l.R million in 1990)
n Januar 1, 1996. 1.anao-ement beli ve that omc
form of thcs tax s, ill likel be reinstated in l 996 on
a prospe tive b,1 i and that it is unlik I thc1t ,m
r instatement "'"ill be retroactive.
Consolidated Balance Sheets
orth, st irline~ orporation
(In million )
Assets
Current Assets
Ca h and cash equivalents
Short-term investment
A counts receivable less allowance
(1995-$21.5; 1994-$19.5)
Flight equipment spare parts, less allowance
(1995-$111.8; 1994-$86.2)
Deferred income taxes
Prepaid expenses and other
Property and Equipment
Flight equipment
L ss accumulated depreciation
Other property and equipment
Less accumulated depreciation
Flight Equipment Under Capital Leases
Flight equipment
Less accumulated amortization
Other Assets
Investments in affiliated companies
International routes, less accumulated
amortization (1995-$192.0; 1994-$168.0)
Other
The accompanying note are an integral part of these consolidated financial statements.
40
December 31
1995
$ 850.9 $
260.7
700.3
268.0
82.8
175.5
2,338.2
4,050.7
953.5
3,097.2
1,487.4
505.2
982.2
4,079.4
940.9
230.8
710.1
154.1
775.7
354.8
1994
468.0
601.9
640.4
226.7
88.0
160.2
2,185.2
3,695.0
820.8
2,874.2
1,465.9
435.5
1,030.4
3,904.6
940.9
193.3
747.6
156.6
798.1
278.0
1,284.6 1,232.7
$ 8,412.3 $ 8,070.1
(In millions, except hare data)
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Air traffic liability
Accounts payable and other liabilitie
Accrued compen ation and benefits
Accrued commissions
Accrued aircraft rent
Current maturities of long-term debt
Current obligation under capital lea e
Short-term borrowings
Long-Term Debt
Long-Term Obligations Under Capital Leases
Def erred Credits and Other Liabilities
Deferred income taxe
Long-term pension and postretirement health care benefits
Other
Mandatorily Redeemable Pref erred Security of Subsidiary Which
Holds Solely Non-Recourse Obligation of Company - Note E
(Redemption value - 715.4)
Redeemable Preferred Stock
Series and B
Series C, liquidation value (1995- 322.4; 1994-$185.0)
Common Stockholders' Equity (Deficit)
Common stock, $.01 par value; share authorized- 315,000,000;
hares issued and outstanding (1995-91,345,808; 1994-84,333,437)
Additional paid-in capital
Accumulated deficit
Other
41
$
December 31
1995
888.4
790.8
361.6
214.7
173.2
329.7
62.1
20.1
2,840.6
2,137.4
779.1
772.5
831.1
306.5
1,910.1
618.4
656.9
288.6
$
1994
761.1
607.4
418.2
172.0
177.3
334.2
52.7
23.8
2,546.7
3,679.3
837.6
768.5
462.4
351.3
1,-82.2
703.7
91.3
945.5 795.0
.9 .8
970.7 636.6
(1,517.8) (1,910.9
(272.6) (97.2
(818.8) (1,370.7)
$ 8,412.3 $ 8,070.1
Consolidated Statements of Operations
orthwe t Airline orporati n
Year End d Dec mber 31
(In million amounts) 1995 1994 1993
Operating Revenues
Passenger $ 7,762.0 $ 7,010.1 $ 6,619.6
Cargo 751.2 755.8 734.8
0th r 571.7 559.0 510.5
9,084.9 8,324.9 7,864.9
Operating Expenses
Salaries, wages and benefits 2,412.1 2,325.6 2,437.4
Stock-based employee compensation 478.0 107.2 93.1
Aircraft fuel, oil and taxes 1,083.8 1,052.8 1,160.0
Commission 840.5 770.2 718.1
Aircraft rentals 338.9 337.8 349.5
Other rentals and landing fees 476.2 436.0 412.1
Aircraft maintenance materials and repairs 395.4 396.0 368.0
Depreciation and amortization 358.1 357.4 417.3
Other 1,799.7 1,711.5 1,637.0
8,182.7 7,494.5 7,592.5
Operating Income 902.2 830.4 272.4
Other Income (Expense)
Interest expense (401.2) (387.2) (374.4)
In tere t capitalized 13.9 3.5 2.4
Investment income 72.7 42.2 19.4
Foreign currency loss - net (36.9) (20.2) (37.1)
Other - net (0.1) 29.6 68.4
onrecurring special charges (74.3)
(351.6) (332.1) (395.6)
Income (Loss) Before Income Taxes, Interest of Preferred
Security Holder and Extraordinary Item 550.6 498.3 (123.2)
Income tax expense (benefit) 204.0 202.8 (7.9)
Interest of _ereferred securi!}'. holder 4.5
Income (Loss) Before Extraordinary Item 342.1 295.5 (115.3)
et gain on extinguishment of debt (less applicable
income taxes of 29.4) 49.9
Net Income (Loss) 392.0 295.5 (115.3)
Preferred stock require men ts (57.8) (59.3) (92.2)
Exchange of preferred stock 58.9
Net Income (Loss) Applicable to Common Stockholders $ 393.1 $ 236.2 $ (207.5)
Earnings (Loss) Per Common Share:
Primary
Before effects of extraordinary item and exchange
of preferred tock $ 3.02 $ 2.92 $ (2.82)
et gain on extinguishment of debt .53
Exchange of preferred stock .62
Earnings (loss) per common share $ 4.17 $ 2.92 $ (2.82)
Fully diluted
Before effect of extraordinary item and exchange
of preferred tock $ 2.85 $ 2.87 $ (2.82)
et gain on extinguishment of debt .49
Exchange of pref erred tock .58
$ 3.92 $ 2.87 $ (2.82)
are an integral part of the e con olidated financial tatements.
42
Consolidated Statements of Cash Flows
orthwest Airlines Corporation
Year Ended December 31
(In millions) 1995 1994 1993
Cash Flows From Operating Activities
Net income (loss) $ 392.0 $ 295.5 $ (115.3)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 358.1 357.4 417.3
Income tax expense (benefit) 204.0 202.8 (7.9)
Net refund (payment) of income taxe (116.9) (22.2) 15.4
Stock-ba ed employee compensation 478.0 107.2 93.1
Pension and other postretirement benefit payments
(in excess of) less than expen e (97.6) 33.2 87.2
Nonrecurring special charges 68.5
Other - net (62.0) 18.8 38.7
Changes in certain assets and liabilities:
Decrea e (increase) in accounts receivable (56.0) 89.8 (14.6)
Increase in flight equipment spare parts (59.7) ( 45.2) (.3)
Decrease (increase) in prepaid expenses and other 28.3 233.9 (155.0)
Increase (deuease) in air traffic liability 127.3 (35.2) 77.4
Increase (decrease) in accounts payable and other liabilities 243.3 149.7 (143.9)
Increase (decrease) in accrued compensation and benefits 21.8 (6.5) (23.3)
et cash provided by operating activities 1,460.6 1,379.2 337.3
Cash Flows From Investing Activities
Capital expenditures (556.9) (152.5) (81.1)
Purchases of short-term investments (659.3) (992.1)
Proceeds from maturities of short-term investments 991.4 452.2
Other - net (20.9) (2.3) ( 4.3)
et cash used in investing activities (245.7) (694. 7) (85.4)
Cash Flows From Financing Activities
Payment of long-term debt and capital lease obligations (1,279.3) (1,493.7) (124.8)
Proceeds from long-term debt 352.1 1,182.0
Proceeds from sale and leaseback transactions 100.0 10.9
Issuance of common stock 249.1
Decrease in borrowings under revolving credit facility (272.2) (221.0)
Other - net (4.8) (32.2) (11.2)
et cash used in financing activities (832.0) (356.1) (357.0)
Increase (Decrease) In Cash And Cash Equivalents 382.9 328.4 (105.1)
Cash and cash equivalents at beginning of period 468.0 139.6 244.7
Cash and cash equivalents at end of period $ 850.9 $ 468.0 $ 139.6
Cash and cash equivalents and unrestricted short-term
investments at end of period $ 970.9 $ 968.3 $ 139.6
Available to be borrowed under revolving credit facility $ 187.6 $ 290.8 $ 240.1
The accompanying notes are an integral part of these consolidated financial statements.
43
Consolidated Statements of Common Stockholders' Equity (Deficit)
rthw t Airlin Corporation
(In milli n ) Common Stock
Shares Amount
Balance January 1, 1993
tlo
52.7 $ .5
A crued cumulative dividends
on Series A, B and C
Pre rred Stock
In-kind dividends on Series B
Pre rred Stock, 14%
Accretion of discount on Series
C Preferred Stock
Tran lation adjustments, net
of incom taxes
Pension liability adjustment,
net of income taxes
Shares i ued to Series A and B
Preferred stockholders 5.3
Other
Balance December 31, 1993 58.0
Net income
Is uance of common stock 20.4
Shares earned by employees
including shares issued to
employee benefit plans 5.8
Accrued cumulative dividends
on Series A and B
Preferred Stock
Accretion of discount on
Series C Preferred Stock
Tax benefit related to stock
issued to employees
Translation adjustments, net
of income taxes
Pension liability adjustment,
net of income taxes
Other .1
Balance December 31, 1994 84.3
et income
E chang of preferred stock
for common stock
Shares earned by employees
including shares i sued to
employee benefit plans
A rued cumulative dividends
on Serie A and B
Preferred Stock
Accretion of discount on
Serie C Preferred Stock
Tax ben fit related to stock
issued to employees
Translation adjustments net
of incom taxes
Pension liability adjustment,
net of income taxes
Series C Preferred Stock
con erted to common stock
0th r
Balance December 31, 1995
2.0
3.4
.5
1.1
91.3
.1
.6
.2
.8
.1
$ .9
Additional
Paid-In
Capital
$ 232.2
16.3
4.7
253.2
248.9
121.4
10.0
3.1
636.6
37.9
280.3
2.1
8.1
5.7
$ 970.7
Accumulated
Deficit
$ (1,924.7)
(115.3)
(63.3)
(26.6)
(.8)
(16.4)
(2,147.1 )
295.5
(54.5)
(4.8)
(1,910.9)
392.0
58.9
(50.3)
(7.7)
.2
$ (1,517.8)
The c mpanying note are an integral part of these consolidated financial tatement .
44
Other Total
$ ( 40.5) $ (1,732.5)
(115.3)
(13.4)
(78. 7)
( 4.6)
(137.2)
(14.1 )
53.9
.2
(97.2)
1.7
(179.1)
2.0
$ (272.6) $
(63.3)
(26.6)
(.8)
(13.4)
(78. 7)
.1
(2,030.5)
295.5
249.1
121.4
(54.5)
( 4.8)
10.0
(14.1)
53.9
3.3
(1,370.7)
392.0
96.8
280.3
(50.3)
(7.7)
2.1
1.7
(179.1)
8.1
8.0
(818.8)
Notes to Consolidated Financial Statements
orthwest Airlines Corporation
Note A- Summary of Significant Accounting Policies
Basis Of Presentation: orthwe t Airlines Corporation
("NWA Corp.") is a holding company who e principal
operating indirect sub idiary i orthwest Airlines, Inc.
(" orthwe t"). The consolidated financial tatemen
include the accounts of 'A Corp. and all subsidiaries
( collectively, the "Company"). All ignificant
intercompany tran action have been eliminated.
Investments jn 20% to 50% owned companie are
accounted for by the equity method. Other
inve tments are accounted for by the co t method.
Certain amounts for 1994 and 1993 hav been
reclassified to conform with the 1995 financial
statement pre entation.
operations: orthwe t's operation compri. e more than
96% of the Company' con olidated operating
revenues and expen es. orthwe ti a major air carrier
engaged principally in the commercial transp rtation
of passengers and cargo, directly serving more than
150 citie in 18 countries in T
orth Ameri a, Asia and
Europe. orthwest' global airline netw rk includes
domestic hubs at Detroit, inneapoli / t. Paul and
Memphis, an extensive Pacific r ute ystem with a hub
at Tokyo, and a transatlantic alliance with KLM R yal
Dutch Airline . Operating revenue from foreign
operations, primarily in the Pacific region, totaled
approximately 3.17 billion, 2.83 billion and :2.81
billion in 1995, 1994 and 1993, respectively.
Flight Equipment spare Parts: Flight equipment par
parts are carried at average co t. An allowance for
depreciation i provided at rates which depreciate cost,
less residual value, over the estimated u eful lives of
the related aircraft.
Property, Equipment And Depreciation: Owned property
and equipment are stated at cost. Property and
equipment acquired under capital lease are tat d at
the lower of the present value of minimum lease
payments or fair market value at the incepti n of the
lease. Property and equipment are depreciated to
residual values using the straight-line meth d ver the
estimated useful lives of the a sets. Estimated u eful
li es generally range from 4 to 25 years for flight
45
equipment and 3 to 32 year for other property and
equipment. Leasehold improvements are amortized
over the remaining period of the lease or the estimated
ervice life of the related ass t, whi hever is less.
Property and equipment under capital leases are
amortized over the lease terms or the estimated useful
Jive of the assets. Effectiv January 1, 1994, the
ompany revi ed estimated salvage values and
depr ciable live for c rtain aircraft to better refle L
curr nt e timat s, principally as a r sult of its D 9-30
nhancem nt program. Th net ffect was to r duce
depr ciation xp nse for th tw lv month nded
December 31, 1994, by 49.7 million ( '21,1 miJlion net
of tax or .38 p r hare).
Airframe And Engine Maintenance: R utin maintenance
and airframe and engin overhauls are harged to
expen ea incurred. Modification. that enhance the
operating performan e r xtend the useful live. of
airframe or engines are capitaliz d and am rtiz d
over the remaining u eful life of the asset.
International Routes: Internati nal routes are am rtized
on a straight-line ba is, generally v r 40 y ars.
Frequent Flyer Program: The stimated increm n tal cost
of pro iding travel awards arnecl under rthw st's
orldP rk frequent flyer program i a crued. The
ompany ells mileage credits to participating
companies in its frequent flyer program. A porti n of
uch revenu is d erred and amortized as
transportati n i provided.
Postretirement Health Care Benefits: The ompany
provide medical, dental and life insurance benefi s to
certain eligible retiree and their dependen . The
expected future c st f pr viding such po tretirement
benefits i accrued v r the ervice life of active
employees.
Foreign Currency: Asse and liabilities denominated in
foreign currency are remeasured at current exchange
rates with resulting gain. and los e generally included
in net inc me.
The Preferred Security (see Note E) and other assets
and liabilities of certain properties located outside of
the United States ("U.S.") whose cash flows are
primarily in the local functional currency are
tran lated at current exchange rates, and translation
gains and losses are recorded directly to common
stockholders' equity deficit. The cumulative foreign
translation loss net of tax was $39.3 million as of
December 31, 1995.
operating Revenues: Passenger and cargo revenues are
recognized when the transportation is provided. The
air traffic liability represents the estimated value of sold
but unused tickets which is regularly evaluated by the
Company.
Effective with the first quarter of 1995, certain air
transportation discounts to customers, previously
classified as commissions, are classified as reductions to
passenger revenue. The reclassifications have no
impact on either operating income or net income and
conform the Company's financial reporting with the
reporting practices of other U.S. airlines. The
commission reclassifications were $818 million and
$784 million for the twelve months ended December
31, 1994 and 1993, respectively.
Advertising: Advertising costs, included in other
operating expenses, are expensed as incurred and were
$119.4 million, $120.4 million and $95.2 million in
1995, 1994 and 1993, respectively.
Other Income (Expense): The 1993 financial results
included $94.3 million of nonrecurring special
charges, of which $74.3 million was classified as other
income (expense) and $20.0 million was classified as
salaries, wages and benefits. These charges included
aircraft order cancellations of $48.7 million, financing
fees of $13.7 million, write-downs of other assets of
$11.9 million and early retirement pension benefits of
$20.0 million.
46
Income Taxes: The Company accounts for income taxes
utilizing the liability method. Deferred income taxes
are primarily recorded to reflect the tax consequences
of differences between the tax and financial reporting
bases of assets and liabilities.
Earnings (Loss) Per Share: Primary earnings per share is
based on the weighted average number of common
and common stock equivalent shares outstanding and
includes the common stock shares earned by
employees. Common stock equivalents include the
dilutive effect of the assumed exercise of stock options
using the treasury stock method. Primary earnings per
share in 1995 and 1994 is based on 94,302,528 shares
and 80,888,543 shares, respectively. For fully diluted
earnings per share, both net income applicable to
common stockholders and weighted average shares
outstanding are adjusted as if the Series C Preferred
Stock earned by employees was converted to common
stock. Fully diluted earnings per share in 1995 and
1994 is based on 102,241,106 shares and 84,492,067
shares, respectively.
Pursuant to Securities and Exchange Commission
rules, common shares and stock options issued by the
Company and the Series C Preferred Stock and
common shares earned by employees within one year
prior to an initial public offering have been included
in the earnings per share calculation as if they were
outstanding for all prior periods using the treasury
stock method. Weighted average shares were
65,494,013 in 1993.
Use of Estimates: The preparation of consolidated
financial statements in conformity with generally
accepted accounting principles requires management
to make estimates and assumptions that affect the
amounts reported in its consolidated financial
statements and accompanying notes. Actual results
could differ from those estimates.
New Accounting Standard: Effective January 1, 1996, the
Company will adopt Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of' ("SFAS 121"). The Company does not
expect the adoption of SFAS 121 to have a material
effect on its consolidated financial statements.
Note B - Labor Cost Savings Agreements
The Company's employee unions ratified amended
labor agreements which provide for wage and other
compensation savings (the "Actual Savings") by
domestic employees, including management, and
other cost reductions aggregating approximately $886
million over a 36 to 39 month period (depending on
the labor group) (the 'Wage Savings Period")
commencing August 1993. As part of an overall revised
compensation plan provided by the amended labor
agreements, the Company agreed, among other things,
to issue to . trusts for the benefit of participating
employees 18,214,419 shares of a new clas of Series C
cumulative, voting, convertible, redeemable preferred
stock ( the "Series C Preferred Stock") and to provide
the union groups with three positions on the Board of
Directors. The Company has authorized 25,000,000
shares of Series C Preferred Stock, par value $.01 per
share. Although these shares will be issued to trusts for
the benefit of employees in seven installments, the
holders have the right to vote as if all shares were
issued.
Pursuant to a one-time special conversion right
exercised in February 1994, the Company will issue to
certain of such trusts approximately 17.8 million shares
of common stock (in lieu of approximately 9.3 million
of the shares of Series C Preferred Stock that would
have otherwise been issued). Information with respect
to the shares i sued to tru ts for the benefits of
employees is as follows (in millions):
Series C Pref erred Stock Common Stock
Shares Shares Financial Shares Shares Financial
to be Out- Shares Statement to be Out- Shares Statement
Issued standing Earned Amount Issued standing Earned Amount
Balance January 1, 1993 $ $
Stock to be issued to trusts for
the benefit of employees 18.2
Shares earned by employees 2.5 93.1
Accretion and other 6.2
Balance December 31, 1993 18.2 2.5 99.3
Exercise of special conversion
option (9.3) (1.4) (62.7) 17.8 2.8 62.7
Shares earned by employees 2.9 48.5 5.0 58.7
Shares issued to trusts (3.0) 3.0 (5.8) 5.8
Accretion and other 6.2
Balance December 31, 1994 5.9 3.0 4.0 91.3 12.0 5.8 7.8 121.4
Shares earned by employees 2.9 197.7 5.5 280.3
Shares issued to trusts (1.8) 1.8 (3.4) 3.4
Series C Preferred Stock
converted to common stock (.4) (8.1) .5 8.1
Withdrawals from trusts (2.0)
Accretion 7.7
Balance December 31, 1995 4.1 4.4 6.9 $ 288.6 8.6 7.7 13.3 $ 409.8
47
The Series C Preferred Stock rank junior to Series A
and B Preferred Stock and senior to common stock
with respect to liquidation and certain dividend rights.
As long as the Class A Common Stock is publicly
traded, no dividend accrue on the Series C Preferred
Stock. Each share of the Series C Preferred Stock is
convertible at any time into 1.364 shares of common
tock. Consequently, at December 31, 1995 the
aggregate 8.5 million shares of Series C Preferred
Stock outstanding and to be issued are convertible into
approximately 11.6 million shares of common stock.
Series C Preferred Stock is redeemable in 2003 for a
pro rata share of Actual Savings (projected to
approximate $404 million in total for the Series C
Preferred Stock which has not yet been converted,
including shares which have not yet been earned) .
The financial statement carrying value of the Series C
Preferred Stock is being accreted over ten years
commencing August 1993 to the ultimate redemption
amount for the Series C Preferred Stock. The
Company has the option to redeem in cash, issue
additional common stock, or use a combination
thereof, to satisfy the redemption requirements. A
decision to issue only additional common stock must
be approved by a majority of the three directors
elected by the holders of the Series C Preferred Stock.
If the Company fails to redeem the Series C Preferred
Stock, dividends accrue at the higher of (i) 12% or (ii)
the highest penalty rate on any then outstanding series
of preferred tock, and the employee union recei e
three additional Board of Directors positions.
Commencing at the end of the Wage Savings Period in
1996, the Actual Savings cease and the Company at its
option may redeem in whole or in part the Series C
Preferred Stock. The consent of the holders of the
Series A and B Preferred Stock, if still outstanding,
must be received in order to redeem the Series C
Preferred Stock.
48
Because of applicable accounting requirements, th e
Company must recognize compensation expense for
each year based on the values at the measurement date
of the Series C Preferred Stock and the common stock
earned by employees. The final measurement date for
1995 and 1994 was December 31, 1995 and 1994,
respectively, and the final measurement date for 1996
will be November 30, 1996. Such non-cash stock-based
compensation expense is calculated each month by (1)
determining the aggregate current value of all Series C
Preferred Stock and common stock earned by
employees since the previous J anuary 1 using current
per share values as of the balance sheet date and then
(2) subtracting the non-cash compensation previously
recognized since January 1. Any increase ( decrease) in
share value will increase ( decrease) non-cash
compensation expense and the recorded effect in any
month of a change in share prices will be a function of
all shares earned since the previous January 1. Such
changes in share values may be unrelated to the
period's performance or cash flows.
Note C - Long-Term Debt and Short-Term Borrowings
Long-term deb t con isted of the following (in million , 'With intere t rates as of December 31, 1995) :
December 31
1995 1994
Term loan due through 1999, 7.1 % (a) $ 300.0 $
Term loan du e through 2000 (a) 964.8
Land mortgage due 2000 (b) 695.9
Secured notes due through 2000 8.3% , eighted average rate (c) 348.9 435.3
N\ 'A Tru t o . 2 aircraft note due through 2012, 10.6o/c , eighted average rate ( d) 345.0 352.0
Equipment pledge note due through 2013 9.8% , eighted average rate 307.9 326.6
Sale-lea eb;3.ck financing obligations due through 2020, 9.9% imputed rate (e) 263.0 263.5
ATru t o. 1 air raft note due through 2006, 8.6o/c , eighted a erage rate (f) 230.4 239.1
8.6r o/c un ecured note due 1996, net of di count (199 - 3. ; 1994- 9.7) 196.2 190.3
Term certificates due 1999 6.7% (g)
n ecured notes due through 1999, 12.1 %
Hushkit financing due through 2001 7.6% (h )
O ther
Total long-term debt
Les current maturitie
(a) In December 1995, the Company entered into a
new credit agreement (the "Credit greement' ) that
provided an un ecured 300 million floating rate term
loan. The principal under the term loan i payable in
einiannual in tallments through December 1999. The
proceed of the term loan, together with other fund
of the Compan 1
,
were u ed to prepa ' the remaining
$837 million of outstanding indebtedne sunder the
Company' 19 9 bank credit facility which financed the
original leveraged bu -out of the Company.
The Credit greement al o provides an un ecured
200 million re, olYing credit facili scheduled to
expire in December 199 . A commitment fee (.r% at
December 31 1995) i pa 'able by the Compan I on the
unu ed portion of the re ohing credit facilil) at a
floating rate per annum determined" th reference to
the Company' un ecured debt rating. At December
31 199-, 187.6 million remained available to be
borrowed, a a re ult of the i uance on behalf of the
Compan of 12.4 million of letter of credit.
(b ) In October 199- , the Compan ' re tructured the
non-recour e financing arrangement related to certain
49
175.0 175.0
89.0 140.0
12.3 12.3
199.4 218.7
2,467.1 4.013.5
329.7 334.2
$ 2,137.4 $ 3 679.3
property it owns in Japan. The re tructured obligation
i reflected on the Compan, Con olidated Balance
Sheet a "?vfandatorily Redeemable Preferred Security
of Sub idiar ' which hold olel , non-recour e
obligation of Com pan . " See Note E.
(c) In 1990 the Company i ued floating rate note to
certain manufacturer . Principal repa rrnents are due
quarter! through 2000.
(d) In December 1994, the Compan I completed a
tructured aircraft financing tran action in which 13
Airbus A320 aircraft, ere tran ferred from orthwe t
( ubject to exi ting indebtedne ) to an owner tru t
,\ 'A Tru t o. 2). A limited partner hip of which
orthwe ti the limited partner and Norbu Inc. (an
affiliate of Air bu Indu trie A.l.E.) i the general
partner, is the ole equity participant in the mvner
tru t. All proceed from the transaction "'"ere u ed to
repa equipment pledge note which had previou 1
been i sued to finance the acqui it:ion of the e aircraft
b ~orth, e t. The aircraft were imultaneou 1, leased
back to North, e t.
Financing of 352 million was obtained through the
i uance of 176 million of 9.25% Cla A Senior
Air raft ot , 66 million of 10.23% Class B
Mezzanine Aircraft ote , 44 million of 11.30% Cla
M zzanine Aircraft otes and 66 million of
13. 75% Cla D Subordinated Aircraft otes. The
note ar pa able miannually from rental paym ents
made by Iorthwest under the lease and are secured by
the aircraft ubject to the lea e a well a the lea e
its lf.
(e) In March 1992, the Company completed
agreements with the Minneapolis-St. Paul Metropolitan
Airports Commi ion ("MAC") for the sale and
lea eback of arious corporate assets. The ale-
leaseback agreements, which are accounted for a debt,
call for increasing quarterly payments over a 30-year
term and include a provi ion which gives the Company
the option to repurcha e the assets.
The agreements with the MAC are part of a group of
financing arrangements with the State of Minnesota
and other government agencies. In December 1994,
the Company and the State of Minnesota entered into
agreements whereby the Company will build and
operate a reservations center in Chisholm, Minnesota,
and a maintenance facility in Duluth, Minne ota. Both
facilities were under construction at December 31,
1995 and are expected to become operational in
pril 1996 and October 1996, respectively. The tate of
Minne ota and other government entities have agreed
to provide debt and lease financing of approximately
52 million related to these facilities.
50
(f) In March 1994, orthwest consummated a
financing transaction in which six Boeing 747-200 and
four Boeing 757-200 aircraft were old to an owner
trust (NWA Trust o. 1) of which NWA Aircraft
Finance, Inc., an indirect subsidiary of the Company, is
the ole equity participant. A portion of the purchase
price was financed through the issuance of 1 77
million of 8.26% Class A Senior Aircraft otes and $66
million of 9.36% Class B Subordinated Aircraft otes.
The aircraft were simultaneously lea ed back to
Northwest. The notes are payable semiannually from
rental payments made by orthwest under the lease
and are secured by the aircraft subject to the lease as
well as the lease itself.
(g) In March 1994, orthwest agreed to sell certain
receivables on an ongoing basis to orthwest Capital
Funding Corp., an indirect ubsidiary of the Company,
which has issued through a master trust $175 million
of floating rate Term Certificates. These privately
placed certificates require payment of interest only
during their term with the principal due in 1999 and
are ecured by the purchased receivables and re tricted
cash.
(h) In August 1994, the Company entered into a credit
agreement to finance engine hushkit shipsets for DC-9
aircraft. The credit facility allows for borrowings up to
225 million prior to December 31, 1998. Interest is
payable quarterly. Generally, amounts borrowed during
each annual period through 1998 are payable in
quarterly installments over the six years following each
such annual period.
In February 1996, the Company entered into
memoranda of understanding ("MOU") providing for,
among other things, the rescheduling of certain debt
maturities. rhe consummation of the transactions set
forth in the MOU is subject to the satisfaction of
certain conditions. Maturities of long-term debt for
the five years subsequent to December 31, 1995, and
the revised maturities as impacted by the MOU are
as follows (in millions):
As of Adjusted
December 31, for
1995 MOU
1996 $ 329.7 1996 $ 279.7
1997 21 .7 1997 143.7
199 397.1 199 211.7
1999 455.2 1999 3 0.2
2000 102.1 _ooo 60.
The d bt and l a ag f th
r m nts o ompan
contain c rtain re trictive covenants including
limitation on indebtedne s capital e p nditur
equity redemption and the declaration of divid nd ,
a w 11 a require men ts to maintain ertain finan ial
ratio includincr collat ral cm erage ratio . t
December 31, 1995, the Compan , a in omplian
with the cov nan ts of all of its debt and 1 a
agr em nts. arious assets, principall aircraft, having
an aggregate book alue of 2.2 billion at De mber
31, 1995, wer pledged under ariou loan acrr ments.
Ca h payments of intere t, net of capitaliz d int rest
aggregated 365.6 million in 1995, 332.7 million in
1994 and 322.9 million in 1993.
The maximum and average outstanding balances of
hort-term borrowing , u ed primaril for financing
fuel hedging activitie and aircraft in urance
premium , and the weighted average interest rate
during 1995, 1994 and 1993 were as follow (dollar in
million ) :
Maximum amount of
borrowings outstanding
1995 1994 1993
during period $50.5 $46.4 $10.0
Average daily borrowings
during period $23.1 $17.8 $ 4.8
Weighted average interest
rate on borrowing
during period 5.81 % 5.95% 4.18%
51
Note D - Leases
rtain air raft pa in airport
t rminal ; land and building at airp rts tick L al
and r r ation offi e and oth r prop rty nd
equipm nt und r non an elable op rating l e
, hich xpir in ariou ar thr ugh 202 . Portion of
certain facilitie ar ubl a d und r noncan elabl
p rating 1 a e 'piring in variou ar through 2020.
t D c mb r 31 19 5 th ompan l a d 142 of th
3 0 air raft it op rate . Of th e, 34, r capital lea e
and 10 , r perating lea e . E, piration dat range
from 1997 t 200 for aircraft und r apital l a , and
from 1996 t 2016 r air raft und r op rating lea e .
Th Compan ' air raft l a can g n rall b
r n , d for t rm ranging from one to thr ar at
rate ba d on the air raft' fair mark t, alue at the
nd f th 1 as t rm. Eighty-thr f the 142 air raft
1 a a r em nts provid the mpan with purcha e
ption at the end of th 1 a t rm which
approximate fair mark t valu
Rental exp n e for all op
(in million ) :
Gro rental e pen e
Sublea e rental income
$
$
Year End
1995 1994
601.9 $ 578.8
(57.6) (57.2)
544.3 $ 521 .6
r 31
1993
$ 583.3
(57.9)
$ 525.4
At December 31, 1995, 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 millions):
Capital Operating
Leases Leases
1996 $ 122.0 $ 469.1
1997 124.6 466.0
1998 115.1 422.9
1999 106.2 385.5
2000 104.1 372.9
Thereafter 697.6 4,361.5
1,269.6 6,477.9
Less sublease rental income 53.5
Total minimum operating
lease payments $ 6,424.4
Less amounts
representing interest 428.4
Present value of future
minimum capital
lease payments 841.2
Less current obligations
under capital leases 62.1
Long-term obligations
under capital leases $ 779.1
Note E - Mandatorily Redeemable Preferred Security
of Subsidiary Which Holds Solely Non-Recourse
Obligation of Company
In October 1995, the Company completed a
restructuring of its yen-denominated non-recourse
obligation due in full in 2000 and secured by land and
buildings the Company owns in Tokyo. A newly formed
consolidated subsidiary of the Company ( the
"Subsidiary") entered into a Japanese business
arrangement designated under Japanese law as a
tokumei kumiai ('TK"). Pursuant to the TK
arrangement, the holder of the non-recourse
obligation restructured such obligation and then
assigned title to and ownership of such obligation to
the Subsidiary as operator under the TK arrangement
in exchange for a preferred interest in the profits and
returns of capital from the business of the Subsidiary
( the ''Preferred Security"). The restructured non-
52
recourse obligation is the sole asset of the Subsidiary.
As a result of this restructuring, the original holder of
such non-recourse obligation is no longer a direct
creditor of the Company and the Company's
obligation is reflected in the Consolidated Balance
Sheet as "Mandatorily Redeemable Preferred Security
of Subsidiary which holds solely non-recourse
obligation of Company." NWA Corp. has guaranteed
the obligation of the Subsidiary to distribute payments
on the Preferred Security pursuant to the TK
arrangement if and to the extent payments are
received by the Subsidiary.
The maturity of the restructured obligation has been
extended to three approximately equal annual
installments each due in 2005, 2006 and 2007. In
addition to these installments, cash payments on the
restructured obligation will be payable semiannually at
the rate of 4% per annum until March 31, 2000 and at
a rate based upon a floating long-term Japanese prime
rate ( capped at 6%) thereafter. During the first three
years, one-fourth of the cash payments will be applied
to reduce the obligation. The obligation remains non-
recourse to the Company. In addition, the Company
retains the ability ( exercisable at any time after
September 30, 2001) to transfer the property in full
satisfaction of all Company obligation related to the
financing.
The initial financial statement carrying value of the
Preferred Security reflects the fair value as of the
closing date of the transaction and is being accreted
over 12 years to the ultimate maturity value of 73.1
billion yen ($710.1 million based on the December 31,
1995 exchange rate). Such accretion is included in the
Consolidated Statements of Operations as "Interest of
preferred security holder." The excess of the financial
statement carrying value of the original non-recourse
obligation over the fair value of the Preferred Security
under the TK arrangement at the date of the
restructuring resulted in a gain of $62 million net of
tax. This gain, together with losses on other debt
extinguishments, is shown as an extraordinary item.
Note F - Series A and Series B Redeemable Preferred Stock
Series A and Series B Preferred Stock issued and outstanding consisted of the following ( dollars in millions):
Accrued
Series A Series B Cumulative
Shares
Balance January 1, 1993 5,000
Stock dividends
Accrued dividend
Balance December 31, 1993 5,000
Accrued dividends
Balance December 31, 1994 5 000
Exchange of preferred tock
for common stock
Accrued dividends
Balance December 31, 1995 5 000
For each of the above series of preferred tock, 10,000
shares are authorized, par value is $.01 per share and
the stated value is $50 000 per share. Both series are
entitled to a preference in voluntary and involuntary
liquidation, in the amount of 50,000 per share, plus
accrued and unpaid dividends. Holders of the Series A
and Series B Preferred Stock have voting rights for the
election of directors.
In 1993, the holders of Series A and Series B Preferred
Stock agreed to extend the final mandatory
redemption dates to August 1, 2002 for Series A and to
August 1, 2003 for Series B Preferred Stock and reduce
the dividend rates. The Series A and Series B Preferred
Stock, including accrued and unpaid dividends, must
be redeemed in three equal installments starting two
years p1ior to the respective final redemption dates.
The Company issued simultaneously 5,270,038 shares
of common stock to the holders of the Series A and
Series B Preferred Stock, which was accounted for at
fair value as a transfer from accumulated deficit.
Commencing July 31, 1993, the Series A and Series B
dividends accrue semiannually at 8% per year and for
the next five years dividends are deferred until
redemption and payable in cash thereafter. Dividends
are cumulative if unpaid, and beginning Augu t 1,
1998, to the extent cash dividends are not paid, the
Amount Shares Amount Dividends Total
$ 250.0 6,321 $ 316.1 $ $ 566.1
532 26.6 26.6
57.9 57.9
250.0 6 853 342.7 57.9 650.6
53.1 53.1
250.0 6,853 342.7 111.0 703.7
(1,727) (86.4) (10.7) (97.1)
50.3 -o.3
$ 250.0 5,126 $ 256.3 $ 150.6 $ 656.9
53
annual dividend rate will increa e er six months by
1/ 2% up to a maximum of 10%.
The Series A Preferred Stock rank enior to the
Series B and Serie C Pre rred Stock and all classe of
common stock witl-i re pect to liquidation and dividend
rights. The Series B Preferred Stock rank enior to the
Series C Preferred Stock and all cla e of common
stock with respect to liquidation and dividend rights.
At any time, at the option of tl-ie Company, the
Serie A (in whole) and Serie B (in whole or in
$50 million increments) Preferred Stock are
redeemable. All outstanding shares of Series A
Preferred Stock must have been previously redeemed
before an optional redemption of any Series B
Preferred Stock is permitted.
In January 1995, the Company consummated an
agreement with Bankers Tru t ew York Corporation
to exchange 1,727 shares of the Company's Serie B
Preferred Stock for 2,050,000 shares of newly issued
Class B Common Stock. This transaction resulted in a
transfer from redeemable preferred stock to common
stockholders' equity deficit of $96.8 million, net of
expenses, and an increase to net income applicable to
common stockholders of $58. 9 million.
Note G - Common Stockholders' Equity (Deficit)
Th Company's classes of common stock consisted of (shares in millions):
Balance at January 1, 1993
Shares is ued to Series A and B Preferred stockholders
Balance at December 31, 1993
I uance of common stock
Shares issued to employee trusts
Conversion of Class B to Class A
Other
Balance at December 31, 1994
Exchange of preferred stock for common stock
Shares issued to employee trusts
Conversion of Clas B to Class A
Conversion of Serie C Preferred Stock
Other
Balance at December 31, 1995
All clas e of common tock rank junior to all classes of
preferred tock with respect to liquidation rights.
Shares of Class B Common Stock are convertible at any
time into an equal number of shares of Class A
Common Stock and vice versa. The Company is
effectively precluded from declaring a dividend on or
repurchasing for cash its common stock by the terms
of the Series A and Series B Preferred Stock.
Authorized shares are 250.0 million and 65.0 million of
Class A and Class B Common Stock, respectively.
In ovember 1995, the Company adopted a
Stockholder Rights Plan (the "Rights Plan") pursuant
to which the Company distributed one preferred share
purchase right a a dividend for each share of common
tock outstanding. As a result, each share of common
tock has attached thereto a right and, until the rights
expire or are redeemed, each new share of common
stock issued by the Company, including the shares of
common stock into which the Series C Preferred Stock
i convertible, will include one right. Upon the
occurrence of certain events, each right entitles the
holder to purchase one one-hundredth of a share of
54
Class A voting Class B non-voting
Par value $.01 Par value $.01 Total
38.6 14.1 52.7
1.1 4.2 5.3
39.7 18.3 58.0
20.4 20.4
5.1 .7 5.8
11.8 (11.8)
.1 .1
77.1 7.2 84.3
2.0 2.0
3.0 .4 3.4
6.2 (6.2)
.4 .1 .5
1.1 1.1
87.8 3.5 91.3
Series D Junior Participating Preferred Stock at an
exercise price of $150, subject to adjustment. The
rights become exercisable only after any person or
group ( other than the trusts holding common stock
for the benefit of employees) acquires beneficial
ownership of 19% or more of the Company's
"outstanding" common stock (as defined in the Rights
Plan) or commences a tender or exchange offer that
would result in such person or group acquiring
beneficial ownership of 19% or more of the Company's
outstanding common stock. If any person or group
acquires beneficial ownership of 19% or more of the
Company's outstanding common stock, the holders of
the rights (other than the acquiring person or group)
will be entitled to receive upon exercise of the rights,
Class A Common Stock of the Company having a
market value of two times the exercise price of the
right. In addition, if after the rights become
exercisable the Company is involved in a merger or
other business combination or sells more than 50% of
its assets or earning power, each right will entitle its
holder ( other than the acquiring person or group) to
re ~
eiYe comml n -1c.xk. of the :lcquiring comp:rns
h:wing a m:1rk.e1 v~
1lue of two timu:; the c.-crcise ric,
of th ' rights. he riglus c.-pirc n 1n'mbe1 LC1. ~00 1
and m,n e redeemed by the Co1n,uw ,11 ~1 price of
.01 per right prior 10 1hc tim' thl'Y bee Hnc
e:-.:ercisablc.
he Coman: Ins tock. c. ption ptms for olli crs and
k. '\' cmplove 'S. \t ccun er :1 1. 1995 :md 19.)-L th ,
Comp,-11w had ~
1,9-t:,..._9'.:..7 sh~1rcs of ,bss .-\ Connnon
St ck res ' ned for issuanc ' und r the pbns. Then:-
were '.....0-l,7:~o and 2--t.G
.6--t7 sh:1rcs ;lY"aibbk ror future
gTa11ts at December '.) 1. 1995 :rn<l l mH. rcspcctiYClv.
The C mpa1w follm,s -\c ounting Principk's Bo:wd
p1mon o. '....,1 . \cc unting for Stock Issued w
Empt )Ces'' (" \PB 25'') in ~
1cmmting for its emplnyc
stock o ti ns. nder APB _5_ ompl'ns,11ion e-xpcnsl' is
recognind to the e. tent th:H the m:irkct price r 1he
conunon sto -k.. exct=:cds the option price on the cbll'. or
grant. It is o-t n<..
'1, 111 1
th ~ rn.p:111 1's policy to g1,rnt
opt ion with the ex.er ise pri e equal to the m:1rkc1
pric ' of th common sto k on thl' d,1t ' of gr,rnt. To the
extent that options are granted with ,rn e:xnci t pric'
l ss than the mark t price or th ' common slock.
omp ----nsation ex pens .... is recognized 0\ er the vesting
period of the oTan t. ,,vhich is generally r ur , :irs. \ll
stock options :xpir ten 1
c;1rs ;1ftcr their gr;1nt date.
I !lowing is ,lCLi i ith resp ' Ct to sto k. options (in
Lhowands, except per share amounts):
Sh;_1r s Pric' Per Sh.ire
Outstanding 1t
Januar l , 199 l or which
l,l 5 w r exercis,1blc
r, ntcd
ForC it ----d
,an ell d
De mber3l , 1994,ofwhich
2,89 L $4 .7L
l - $-8.-16
1,852
(61
( 19)
( 138) $-l.7I
l 35 were exercisable L
I ,52'1
ranl d
Forfi it cl
E
Outstanding at
D cemb r .. l 1995, ofwhi h
rci -ablc
206
( 165)
( I ,0!17)
~ ,509 $4.74 - $39.50
Note H - lncomc Ta.xt:'s
Income t:l.- c.pcnsl' (bo1di1) c-tHtsistcd )r th,
rollowing ,in millions) :
19~F,; 19~)~
Ct1rc ' nt :
reder:1l $ 89. l $ 1 U)
r )reign 3.9 ,1.J
St:lll' 1 .0 5.J
l06.0 ~~-G
Dekrrcd:
Fcdl1:1l 9~3.8 16R. l
lorin-n
.:-,
.7 !).')
S1;11e 3.5 17.S
18().;1,
Total inconw t:1._.,
e:1wnse (h'ndit) $204.0 $ '.:..02.8
l9~U
$ I
:t~
.6
6.
(:tS)
-. '))
( I 2 .. 1)
$ 7.~)
Rl' ' <..H1cili:1tion or th<..' st:1tutory 1
:11 , to the Comp.1ms
inconw ta. c.-pcns( benefit) is ;_1s follo"s (in millions) :
St:1tutoq 1
~
11t' appli -d
to inco1nc loss l ero1-c
income t;.1.-cs, intt-rest
or prcf' ,rrcd SCClll'i( '
holder and e, tta-
ordinar I item
Add (ckduct :
tate incon1 ' t:1.- net
of fed ' ral bcndit
on-d ~ctuctiblc 1neals
and cntcrtainm~nt
Effect < r tcdt rat r;ite
increas, ou d krrt'd
Lax balances
AcUustmcnt to alu,1Lion
allowance. and oth 'r
income ta, accruals
Other
Total income t~
1x
t' xpense (bcn fit)
Yc:ir Endl'd Dl'ccmbcr ~
'\ I
1995
$l92.7
13.6
9.0
( l2.3)
LO
$204.0
16.0
8.9
TO
3.5
12.0
20.8
. I
The net deferred tax liabilities listed below include a
current net deferred tax as et of 82.8 million and
88.0 million and a long-term net deferred tax liability
of 772.5 million and 768.5 million as of December
31, 1995 and 1994, respectively.
Significant components of the Company' net deferred
tax liability were as follows (in millions):
December 31
1995 1994
Deferred tax liabilities:
Financial accounting basis
of assets in excess of tax
basis $ 1,362.2 $ 1 327.3
Expenses other than
depreciation accelerated
for tax purpose 275.1 264.7
Other 14.2 55.3
Total deferred tax liabilities 1,651.5 1,647.3
Deferred tax assets:
Pension and postretirement
benefits 281.4 229.6
Expenses accelerated for
financial reporting
purposes 344.2 213.5
Leases capitalized for
financial reporting
purposes 132.1 155.1
et operating loss
carryforward 38.2 304.3
Alternative minimum tax
credit carryforwards 148.9 36.7
Inve tment tax credit
carryforwards 24.1
Foreign tax credit
carryforwards 17.0 16.0
Total deferred tax assets 961.8 979.3
Valuation allowance for
deferred tax assets (12.5)
et deferred tax assets 961.8 966.8
et deferred tax liability $ 689.7 $ 680.5
56
As of December 31, 1995, the Company has regular net
operating loss carryforwards (" OLs") of $102.8
million available for carryforward to future years'
returns, which will expire in 2008. For tax purposes,
the Company utilized NOL of $711.1 million and
394.4 million in 1995 and 1994, respectively, and
utilized alternative minimum tax net operating losses
("AMT OLs") of $105.1 million, $446.7 million and
35.8 million in 1995, 1994 and 1993, respectively. The
Company has alternative minimum tax and regular
foreign tax credits of 148.9 million and $17.0 million,
respectively, available for carryforward to future years'
tax returns. The alternative minimum tax credit has an
unlimited carryforward period while the regular
foreign tax credits expire through 2000. The Company
utilized its remaining AMT OL carryforwards in 1995,
as well as its remaining investment credit carryforward
and its remaining foreign tax credits available for
alternative minimum tax purposes.
Section 382 and 383 of the Internal Revenue Code of
1986 (the "Code") and the regulations thereunder
impose limitations on the carryforward amounts of
OLs, AMT OLs and credits that can be used to
offset taxable income ( or used as a credit) in any single
year if the corporation experiences more than a 50%
ownership change, as defined therein, over a three-
year testing period ending on any testing date. The
annual limitation on the amount of such OLs,
AMT OLs and credits is calculated in part based on
the value of the Company's stock. Management
believes that the offering of outstanding common stock
by existing stockholders in ovember 1995 triggered
an ownership change, but that no ownership change
occurred prior to the offering. If such an ownership
change in_
fact occurred as a result of the November
1995 offering, management believes that even as
limited by Sections 382 and 383 of the Code, the
NOLs, AMTNOLs and credits would be used
significantly earlier than their expiration, and the
annual limitations would not have an adverse impact
on the Company. However, if the Internal Revenue
Service (the "IRS") were to succe sfully assert that an
ownership change had occurred on any prior date,
including August 1, 1993 (the date of the labor cost
savings agreements), the impairment of the Company's
ability to use its NOLs, AMTNOLs and credit
carryforwards would be significant because the value of
the Company's stock on certain prior testing dates
(which adver ely affects the annual limitation
described above) was relatively low.
In November 1995, the IRS issued propo ed
adjustments to the tax returns of the Company for the
1988 through 1991 tax year . Certain of these
proposed adjustments re ult from a disagreement
between the Company and the IRS as to the timing of
the recognition of approximately $385 million of
taxable income. The IRS has also proposed that the
Company recognize additional taxable income of
approximately $375 million. The Company di agree
with the IRS' proposals. The Company will vigorou ly
contest all of the proposed adjustments and believes its
positions are correct. To the extent the IRS were to
prevail on any of these issues, the Company would
recognize taxable income and utilize net operating loss
carryforwards sooner than otherwise scheduled. For
financial reporting purposes, any adjustments to
taxable income would largely be accounted for as
temporary differences and would not result in a
material charge to income tax expen e.
Note I- Commitments
The Company's aircraft orders as of December 31,
1995 included commitments to acquire 38 Boeing 757-
200 aircraft, 13 in 1996 and 25 in 2003 through 2005,
and 16 Airbus A330 aircraft, eight each in 1999 and
2000. In February 1996, the Company has entered into
memoranda of understanding which provide for the
purchase and financing of 20 Airbus A320 aircraft ( ten
in each of 1998 and 1999). The MOU also provide for
the rescheduling of deliveries of the 16 Airbus A330
aircraft (eight in each of 2004 and 2005) and gives the
Company substitution rights with respect to these
aircraft. The MOU are subject to the satisfaction of
certain conditions. Committed expenditures for these
aircraft and related equipment, including estimated
amounts for contractual predelivery deposits and price
escalations will be approximately (in millions):
57
As of Adjusted
December 31, 1995 forMOU<
1
>
1996 $ 663 $ 672
1997 156 87
1998 95 406
1999 811 384
2000 847
Thereafter 1,889 3,911
Total $ 4,461 $ 5,460
( I ) As umes no conversion of A330 ai rcraft into other Airbu products.
In addition to the above, the Company has or-dered
four Boeing 747-400 aircraft at an aggregate co t,
including related equipment and contractual price
e calations, of approximately $750 million. The
Company may elect to take delivery of these aircraft
as early as 1998 or as late as 2002 and 2003.
Financing has been arrang d for all 1996 aircraft
deliveries. Depo its, primarily related to Boeing 757
aircraft to be delivered in 1996, of $103.5 million at
December 31 , 1995 have been made toward the
purchase of all aircraft on order. Consistent with prior
practice, the Company intends to finance its aircraft
deliverie through a combination of debt and lease
financing.
Note J - Litigation
The Company is involved in a variety of legal actions
relating to antitrust, contract, trade practice,
environmental and other legal matters relating to the
Company's business. While the Company is unable to
predict the ultimate outcome of these legal actions, it
is the opinion of management that the disposition of
these matters will not have a material adverse effect on
the Company's Consolidated Financial Statements
taken as a whole.
Note K- Pension Benefits
The Company ha everal noncontributory pension plans covering substantially all of its employees. Th benefits
for the plan are bas d primarily on year of service and/ or employee compensation. It is the Company's policy
to annually fund at lea t the minimum contribution as required by the Employee Retirement Income Security Act
ofl974.
Then t p riodic pen ion co t of defined benefit pension plans included the following (in millions) :
Year Ended December 31
Service cost - benefits earned during the period
Interest cost on projected benefit obligations
ctual lo (gain) on plan a ets
et amortization and deferral
et periodic pension cost
1995
$ 77.3
237.0
(564.8)
361.8
$ 111.3
1994 1993
$ 89.0 $ 90.0
216.9 207.7
23.4 (197.9)
(188.6) 42.3
$ 140.7 $ 142.1
Th following table sets forth the defined benefit pension plans' funded status and amounts recognized in the
Company's Consolidated Balance Sheets as of December 31 (in millions) :
1995
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
ctuarial present value of:
Ve ted benefit obligations $ 221.9 $2,702.8
onvested benefit obligations 30.0 277.9
Accumulated benefit obligation 251.9 2,980.7
Effect of projected future alary increases 35.5 435.9
Projected benefit obligation $ 287.4 $ 3,416.6
Plan assets at fair value $ 268.5 $ 2,285.1
Les projected benefit obligations 287.4 3,416.6
Projected benefit obligations (in exce s of)
less than plan assets (18.9) (1,131.5)
Unrecognized prior service cost 4.9 218.6
Unrecognized net loss 39.7 727.7
cognize minimum liability (528.5)
Pr paid (accrued) pension cost at December 31 $ 25.7 $ (713.7)
of December 31, 1995 and 1994, plan a el.5 were inve led primarily in equity and debt securities.
1994
Assets Accumulated
Exceed
Accumulated
Benefits
$ 175.8
12.1
187.9
20.6
$ 208.5
$ 220.4
208.5
11.9
4.6
9.2
$ 25.7
$
$
$
$
Benefits
Exceed
Assets
1,960.2
110.5
2,070.7
353.0
2,423.7
1,667.8
2,423.7
(755.9)
233.6
229.0
(138.6)
( 431.9)
sumptions used in the accounting for the defined benefit plan as of December 31 were as follows:
Weighted average di count rate
Rate of increase in future corn pen ation levels
Expected long-term rate of return on plan assets
58
1995
7.10%
3.50%
10.50%
1994 1993
9.15% 7.75%
3.75% 3.10%
10.50% 10.50%
The projected and accumulated benefit obligation
increa ed ubstantially between December 31, 1994
and December 31, 1995 in large part because of the
decrea e in the weighted average di count rate which i
attributable to a decline in long-term interest rates. An
additional minimum liability is required to be recorded
to the extent that a plan's accumulated benefit
obligation le the accrued pension liability exceeds
plan a ets. The minimum liability i recorded a a
long-term liability with a corre ponding intangible
a et ( to the extent of unrecognized prior service cost)
with the difference between the minimum liability and
the intangible as et recorded as a reduction to equity
(net of tax). The cumulati e minimum pension liability
adju tment of 528.5 million ha resulted in a 161.2
million intangible asset included in other a sets and a
$231.0 million net of tax adjustment to common
stockholders' equity deficit at December 31, 1995.
N ote L - Postretirement Health Care Benefits
The Company sponsors various contributory and
noncontributory medical, dental and life in urance
benefit plans covering certain eligible retiree and
their dependents. Retired employee are not offered
Company-paid medical and dental benefits after age
64, with th exception of certain employee who
retired prior to 1987 and receive lifetime Company-
paid medical and dental benefits. Prior to age 65, the
retiree share of the cost of medical and dental
coverage i based on a combination of year of ervice
and age at retirement. Medical and dental benefit
plans are unfunded and costs are paid as incurred. The
pilot group is provided Company-paid life in urance
coverage in amounts which decrease based on age at
retirement and age at time of death.
et periodic postretirement benefit cost included the
following components (in millions):
Service cost
Interest cost
Actual gain on plan as ets
et periodic
po tretirement
benefit cost
Year Ended December 31
1995
$ 7.3
20.8
(.2)
$ 27.9
1994
$ 6.8
15.1
(.4)
1993
$ 6.1
16.3
(.4)
$ 21 .5 $ 22.0
59
The following table sets forth the plans' combined
funded status and amounts recognized in the
Company' Consolidated Balance Sheets as of
December 31 (in millions):
Accumulated postretirement
benefit obligation:
Retirees
Fully eligible active plan
participants
Other active plan
participants
Plan assets at fair value
Accumulated po tretirement
benefit obligation in excess
of plan assets
Unrecognized net gain (loss)
Accrued postretirement
benefit co t
1995 1994
$ 116.8 $ 81.7
52.7 13.4
116.6 102.2
286.1
5.1
281.0
(65.7)
$ 215.3
197.3
5.0
192.3
10.7
$ 203.0
At December 31, 1995, the weighted average annual
a urned rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is
7.5% for 1996 and is assumed to decrease gradually to
4.5% for 2002 and remain at that level thereafter (a
rate of 8.0% was assumed for 1995) . Thi health care
co t trend assumption has a significant impact on the
amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage
point would increase the accumulated postretirernent
benefit obligation as of December 31, 1995, by 32.5
million and the aggregate of the service and interest
cost components of net periodic postretirement
benefit cost for 1995 by 3.6 million. The weighted
average di count rate used in determining the
accumulated postretirement benefit obligation was
7.10% at December 31, 1995, and 9.15% at December
31, 1994.
Note M - Related Party Transactions
KLM Royal Dutch Airlines ("KLM") own 21,684,099
hare of Clas A Common Stock of the Company at
December 31, 1995. During 1992, orthwest and KLM
igned a Commercial Cooperation and Integration
Agreement. The intent of the agreement is to enhance
the joint pre ence of each airline in the U.S., Europe
and other destinations by integrating the systems and
services of each carrier. orthwest and KLM have been
granted antitrust immunity by the Department of
Transportation, enabling them to coordinate pricing,
cheduling, product development and marketing.
orthwest and KLM ha e implemented code-sharing
(the joint de ignation of flights under the orthwest
''NW" code and the KLM "KL" code) on flights to
certain European, Middle Eastern, African and U.S.
cities, with additional cities planned for 1996. In
addition, Northwest and KLMjointly operate their
transatlantic routes. et settlements, other than
normal interline ticket settlements, related to the joint
transatlantic operations have not been material in any
period. The Company recorded net expenses related
to engine maintenance, airport handling and other
60
transportation-related services provided by KLM of
$12.3 million, $28.8 million and $33.6 million in 1995,
1994 and 1993, respectively.
The Company has an investment in WORLDSPAN, an
affiliate that provides computer reservations services,
which it accounts for using the equity method: The
Company recorded expenses for certain reservation
system services provided by this affiliate totaling $87. 7
million, $86.4 million and $63.6 million in 1995, 1994
and 1993, respectively.
In August 1995, the Company increased its ownership
to 29.7% of the common stock of Mesaba Holdings,
Inc., the holding company of Mesaba Aviation, Inc.
("Mesaba") which operates as a Northwest Airlink.
Northwest has a marketing agreement with Mesaba
under which Northwest determines Mesaba's
scheduling and aircraft routing. In return, Northwest
has agreed to guarantee Mesaba certain pre-tax profit
levels for the years ending March 31, 1996 and 1997.
Note N - Financial Instruments and Risk Management
Fair Values of Financial Instruments. The fimmcial tatement carrying alue and e timated fair alue of th
Compan financial in truments, includino- current maturiti ,a ofD cemb r 31 wer (in million ) :
Cash and Cash Equi alents:
Held-to-maturity debt securitie :
Commercial paper
Other
vailable-for- ale d bt ecuritie
Cash
Short-term Inve tm nts
Held-to-maturity debt curitie :
Commercial paper
Other
Long-term Debt
Mandatoril Redeemable Preferred
Security of ub idiar
Serie A and B Preferred Stock
Series C Preferred Stock
The Corn pan con iders all unre tricted in e tmen ts
with an original maturity of three month or 1 on
their acquisition date to be ca h equi al n . The
Cornpan classifie inve tments with an original
maturity of more than three months that are expected
to be old or called by the i uer within the next ear
and tho e temporaril restricted as hort-terrn
inve tments. At December 31, 1995 and 1994 hort-
term inve tments included $140.7 and 101.6 million,
respectively, of temporaril re tricted in e tments. The
temporarily re tricted investments were pledged as
collateral under variou agreements.
The fair value of the Company's long-term debt were
e timated using quoted market pric , where a ailable.
For long-term debt and pr ferred curitie , oth r
than Series C Preferred Stock, not actively trad d, fair
values were e timated u ing discounted cash flow
analy es ba ed on the Compan ' curr nt incremental
1995 1994
Carrying Fair Carrying Fair
$
$
$
$
$
61
Value Value alue alu
604.7 $ 604.7 $ 436.2 $ 436.2
161.7 161.7 .3 .3
70.1 70.1 20.5 20.5
14.4 14.4 11.0 11.0
850.9 $ 850.9 $ 46 .0 $ 46 .0
1.0 $ 1.0 $ 490.3 $ 490.3
259.7 259.7 111.6 111.6
260.7 $ 260.7 $ 601.9 $ 601.9
2,467.1 $ 2,738.8 $ 4 013.5 $ 3, 27.0
618.4 611.4
656.9 522.9 703.7 520.0
288.6 309.3 91.3 7.0
borrowing rat for irnilar type of ecuritie . The fair
alu of the Serie C Preferred Stock i based on the
a urned con ersion to common stock for th shar
arn d through D c mber 31 1995, and valuing u h
hare at the do ing quoted market price for Cla
Common Stock.
Foreign Exchange Risk Management. The Compan
xpo ed to the effect of foreign e change rate
fluctuation on the alue of foreign currenc -
denominated op rating re enu and xp n e . The
Company' large t po ure to foreign currenc
fluctuations comes fromJapane e en repre enting
approximate! 57% of foreign currenc -0enominat d
net ca h flow. In 1994, the Company began p riodicall
using a collar option trategy to hedge its anticipated
en-0 nominated net cash flow . The collars in ol e
the purchase of Japanese yen put options coupled with
the imultaneous sale of Japan e call options with
identical expiration dates and notional yen amounts. Fuel Price Risk Management. The Company manages the
Realized and unrealized gains and losses on Japanese price risk of fuel costs utilizing both regulated
yen collar option contracts are recognized currently in exchange traded futures contracts and fuel swap
net income. Open contracts are marked to market agreements. Gains or losses on hedge contracts are
based on current forward rates since they do not deferred until the related fuel inventory is expensed.
qualify as hedges for financial accounting purposes. As As of December 31, 1995, the Company had no
of December 31, 1995, there were no outstanding yen material hedges for future fuel requirements.
collar option contracts.
Note O - Quarterly Financial Data (Unaudited)
Unaudited quarterly results of operations for the years ended December 31, 1995 and 1994, are summarized below
(in millions, except per share amounts):
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1995:
Operating revenues $ 2,043.0 $ 2,279.4 $ 2,561.0 $ 2,201.5
Operating income 135.1 247.6 427.0 92.5
Income before extraordinary item 2.6 104.8 231.1 3.6
Net gain on extinguishment of debt 49.9
Net income $ 2.6 $ 104.8 $ 231.1 $ 53.5
Primary:
Before effects of extraordinary item
and exchange of preferred stock $ (.13) $ .96 $ 2.27 $ (.10)
Net gain on exting;uishment of debt .51
Exchange of pref erred stock .65
Earnings per common share $ .52 $ .96 $ 2.27 $ .41
Fully diluted:
Before effects of extraordinary item
and exchange of pref erred stock $ (.10) $ .92 $ 2.11 $ (.09)
Net gain on exting;uishment of debt .47
Exchange of preferred stock .61
Earnings per common share $ .51 $ .92 $ 2.11 $ .38
1994:
Operating revenues $ 1,918.4 $ 2,095.9 $ 2,298.4 $ 2,012.2
Operating income 120.5 207.8 359.2 142.9
Net income $ 18.3 $ 71.3 $ 170.0 $ 35.9
Earnings per common share:
Primary $ .05 $ .68 $ 1.80 $ .23
Fully diluted $ .05 $ .67 $ 1.73 $ .23
The sum of the quarterly earnings per share amounts does not equal the annual amount reported since per share
amounts are computed independently for each quarter and for the full year based on respective weighted average
common share equivalents outstanding.
62
Note P - Condensed Consolidated Financial Information of N orthwest Airlines Inc.
rp. (form rl , '\\ ing H ldino In .) and its,, boll own d ub idiar , '\\ ino- qui ition
rpor t d b ' group of in\' tor in rd r t a quire all of th outstandin t k of
qui ition' ), th par nt om pan of rtl1,, In . In 1
, a m rged " 'th and into In . i\ t11 i\ In . b i1w tl1 nti
th pur h m thod of a u ntino- and a c rdingl ' tl1 ,rn allo at
acquired ba d on th ire timated fair mark t Yalu at th qui ition d t rmin d primaril b ,
ind p ndent apprai al . Th timat d fair mark t valu ts a quir d , a in x of tl1 pur h pri
i\ hi hr ult din non u rr nt a ts b ino r cord d at 6 timat d fair mark t alu on tl1 dat f
cqui ition.
Aft r refl cting th e ne" valu and th r lat d cqui ition ind btedn of f\ In . in th finan ial ~ tat m n
of orth, e t cond n d finan ial information of orth, t on i of th followino- (in milli n ) :
Condensed Consolidated Statements Of Operations
Operating re enues
O perating exp n e
Operating in om
Other income ( e pens
onrecu rring pecial ch arge
Income (los ) before income taxe intere t of
preferred ecuri hold rand extraordinar item
Income tax pen (b nefit)
Intere t of preferred ecurity holder
et gain on extingui h ment of debt
et incom e (lo )
Condensed Consolidated Balance Sheet Data
Curren t as ets
on current a ets
Current liabilitie
Long-term debt and obligation un der capital lease
Deferred credits and other liabilities
Mandatoril redeemable preferred ecurity of sub idiar
63
$ 8,806.6
7 948.2
858.4
(298.1 )
560.3
218.5
4.5
337.3
50.4
$ 387.7
D
1995
$ 1,861.1
5,460.9
2,535.6
2,351.8
1,277.3
618.4
$ 0 7.0
7 266.9
790.1
(2 .9)
501.
19 .2
303.0
$ 303.0
r 31
1994
$ 1 752.4
5,242.1
2 511.5
3,751.7
967.6
$ 7,631.6
7 374.6
2 7.0
(26 .2)
(71.9)
( 0.1)
(r.6)
(54.5)
$ (54.5)
Report of Ernst & Young LLP, Independent Auditors
To th Stockholder and Board of Directors
orthwe t Airline Corporation
We have audited the accompanying consolidated
balance sheets of Northwest Airlines Corporation as of
December 31, 1995 and 1994, and the related
con olidated tatements of operations, common
stockholders' equity (deficit), and cash flows for each
of the three ears in the period ended December 31,
1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
64
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Northwest Airlines
Corporation at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows
for each of the three years in the period ended
December 31, 1995, in confo/i;nity with generally
accepted accounting principles.
Minneapolis, Minnesota
February 23, 1996
Five-Year Summary
1 orth, est Airline Corporation
Statement Of operations
(in millions, except per share data)
Operating revenues
Passenger
Cargo
Other
Total revenue
Operating expen e
Operating income (loss)
Amounts before 1995 extraordinary item
and 1992 cumulati e effect of accounting
change<
ll_
:
1995
$ 7,762.0
751.2
571.7
9,084.9
8,182.7
902.2
Income (loss) $ 342.1
Earnings (lo ) per common hare:
Primary $ 3.02<
2
>
Fully diluted $ 2.85<
2
>
Balance Sheet (in millions)
Cash, ca h equivalents & unrestricted
hort-term inYe tments
Total a ets
Long-term debt, including
current maturitie
Long-term obligations under capital
leases, including current obligations
Mandato1ily redeemable preferred ecurity
of subsidiar
Redeemable preferred tock
Common stockholder ' equity ( deficit) <
3
>
operating Statistics
Scheduled service:
Available eat miles ( SM) (millions)
Revenue passenger mile (millions)
Pas enger load factor
Revenue passenger (million )
Revenue yield per pas enger mile
Pas enger re enue per cheduled ASM
Operating revenue per total ASM14
)
Operating expense per total ASM<
4
>
Operating expen e excluding stock-based
compensation per total ASM<
4
l
Cargo ton rmle (millions)
erage fuel cost per gallon
Number of operating aircraft at ear end
Full-time equivalent emplo ees at year end
$ 970.9
8,412.3
2,467.1
841.2
618.4
945.5
(818.8)
87,472.0
62,515.2
71.5%
49.3
12.42
8.87
9.58
8.66~
8.11
2,246.3
55.66
380
45,124
1994
$ 7,010.1
755.8
559.0
8,324.9
7,494.5
830.4
$ 2.92
$ 2.87
$ 968.3
,o70.l
4,013.5
890.3
795.0
(1,370.7)
85,015.6
57,873.2
68.1%
45.5
12.11
8.25
8.93
8.08
7.95
2,322.3
56.23
361
43,673
Year Ended December 31
1993
$ 6,619.6
734.8
510.5
7,864.9
7,592.5
272.4
$ (115.3)
$ (2.82)
$ (2.82)
$ 139.6
7,571.3
4,437.9
928.1
749.9
(2,030.5)
87,212.5
5 ,130.1
66.7%
44.1
11.39
7.59
8.23
8.00
7.89
2,188.0
62.09
358
43,358
1992
$ 6,277.3
736.2
446.5
7,460.0
7,836.2
(376.2)
$ (970.7)
$ (16.11)
$ (16.11)
$ 244.7
7,545.4
4,271.4
966.0
566.1
(1,732.5)
89,647.3
5 ,624.9
65.4%
43.5
10.71
7.00
7.59
8.10
8.10
2,106.9
64.48
366
45,455
1991
$ 5,861.8
696.8
465.8
7,024.4
7,134.3
(109.9)
$ (320.2)
$ (5.97)
$ (5.97)
$ 16.7
7,956.7
3,252.6
1,004.3
519.8
(545.7)
80,937.7
53,2 3.3
65.8%
41.1
11.00
7.24
7.861!
8.13
8.13
1,925.8
69.75
340
45,620
(l) The 1995 extraordinary item was 49.9 million ( .. 53 per primary share and .49 per fully diluted hare) and the 1992 cumulative effect of accounting change
was 108.8 million ( 1.67 per hare).
<
2
> Excludes effect of the gain on exchange of preferred stock of .62 per primar share and .5 per fully diluted share.
<
3> ~o dividends have been paid on common stock for any period presented.
<4l Excludes the estimated revenue and expense associated with the operation of >lorthwest's fleet of eight 747 freighter aircraft and MLT Inc.
65
Stockholders' Information
Common Stock Prices
1995 1994
Quarter High Low High Low
1 t 28 1/ 2 15 7/ 8 13 1/ 2 11 7/ 8
2nd 35 3/ 4 24 3/ 4 16 1/ 2 11 1/ 2
3rd 42 7/ 8 33 1/ 4 20 1/ 8 13 3/ 8
4th 52 1/ 2 39 3/ 8 21 3/ 8 14 3/ 8
o dividend were declared during the years
ended 1995 or 1994.
Stock Listing
The Company's common stock is quoted on the
asdaq ational Market under symbol NWAC.
There were approximately 5,335 stockholders of
record as of February 29, 1996.
Registrar and Transfer Agent
orwest Bank Minnesota, .A.
Post Office Box 738
South St. Paul, Minnesota 55075-0738
(800) 468-9716
66
Annual Meeting
The 1996 Annual Meeting of Stockholders will
be held at the Equitable Life Building
New York, ew York on Friday, April 26, 1996
at 9:30 AM
Independent Auditors
Ernst & Young LLP
1400 Pillsbury Center
200 South Sixth Street
Minneapolis, Minnesota 55402
Financial Information
A copy of the Company's Annual Report on Form
10-K, without exhibits, will be provided without
charge by directing inquiries to:
orthwest Airlines Distribution Center
Phone (800) 358-3100
Fax (612) 885-8851
Direct all other inquiries to:
Investor Relations
Department A4110
5101 Northwest Drive
St. Paul, Minnesota 55111
(612) 726-2111
Board of Directors
Alfred . Checchi
Co-chairman
Gar L. Wil on
Co-chairman
Richard C. Blum
Chairman & Pre ident
Richard C. Blum & Associates, Inc.
John H . Da burg
Pre ident & Chief Executive Of
ficer
orthwe t Airlines Corporation
Thoma Duey
Retired General Secretary & Treasurer
International A sociation of Machinists
and Aero pace Workers
Marvin L. Gris, old
Retired International Director
Team ters Airline Division
International Brotherhood of Team ters
Thoma L. Kempner
Chairman & Chief Executive Of
ficer
Loeb Partners Corporation
Frederic . Malek
Chairman
Thayer Capital Partners
. Ravindran
President
Paracor Finance Inc.
George J. Vojta
Vice Chairman
Bankers Tru t ew York Corporation
Duane E. oerth
First Vice President
Air Line Pilots Association
Melvin R. Laird
Director Emeritus
Senior Officers
John H. Da burg
President & Chief Executive Of
ficer
icke Foret
Executive Vice Pre ident -
Chief Financial Of
ficer
Michael E. Levine
Executive Vice Pre ident -
i\;larketing & International
illiam D. Slattery
Executive Vice President
Pre ident - orthwe t Cargo & Charter
Donald
Executive Vice President -
Cu lamer ervice & Operation
Richard H. Ander on
enior Vice Pre idenl -
Labor Relation , tate Affair. & Law
Chri topher E. Clou er
enior Vice President - Communications,
Advertising & Human Resources
Jo eph E. Franch t, Jr.
enior Vice Pre ident -
Finance & Trea urer
J. Timoth Griffin
enior Vice Pre ident - i\;larket
? Lanning & ) tems
Philip C. Haan
Senior Vice Pre ident - International
Richard B. Hir t
enior Vice President - CorjJorate Affairs
Ruthie M. McKee
Senior Vice President -
Cu tamer ervice & Line i\;laintenance
Dougla M. Steenland
Senior Vice President -
General Counsel & ecretary
Richard D. Zella
enior Vice President - Technical Operations
John S. Kern
Vice President - Aircraft Operations
Chief afety Officer
67
----
---
---
---
--
Sydney
\\
\\
\\
\\
,,
" ,,
,,
,,
Puerto Vall
lxtapa/Zihuatane
Acap ------ Guat
Northwest Airlines
International Route System
Northwest Airlines service
(operated or code-shared)
Operated by KLM
Operated by Asiana
- - - Northwest Cargo routes
Santiago
Additional code-share service via Amsterdam
Basel
Geneva
M
almo
Homburg
en
---..c::::::,-...._nn
__.ov(!ipzig
n Dresden
Stuttgart
Cape Tow
Lilongwe
Harare
Colombo
The Guiding Principles of Northwest Airlines
Never compromise safety.
Always emphasize cleanliness.
Always put customers first.
Learn what makes a difference to each customer and deliver it.
Resolve customer problems on the spot whenever possible.
Obtain the training and tools we need to serve our customers.
Always support and inspire each other.
Work together to achieve common goals.
Recognize the good work of other .
Recruit and promote to the high est standards of
performance and professionalism.
Build self-esteem and pride in each other.
Always strive to improve.
Measure against the best.
Solicit and offer ideas for improvement.
Search out and break down barriers that get in the way.
The Values of Northwest Airlines
Safety First ...
in all th e services we provide to each other and to our customers
Honesty and Integrity .. .
in all we say and do
Trustworthiness ...
honoring our commitments and doing all that we say we're going to do
Respect for Self, Others, and Property ...
in our behavior toward each other and for company or personal property
Caring ...
for our customers, for each other, and for the communities we serve
Resourcefulness and Innovation ...
in the quality of our services, processes and technology to increase productivity
and revenue, and control costs
Commitment to Profitability ...
to ensure financial stability and our careers
Enthusiasm and Camaraderie ...
in our contributions to the success of each other and orthwest Airlines
Our Values are - Beliefs we share that guide our behavior,
Standards we are expected to uphold,
The foundation for our global business strategy.
FI 0001
This report was produced b ' t.he orporate Communications and Finance depanmenLS or Northwe t Aidine Corporation, u ing rec)'cled paper LO preserve our en\'ironmenL ff:
P,-inted in the U.S.A. Nort.l11vest recycles enough paper producLS in one ear to fill 43 7.J7s.
\,4'