Northwest Airlines Annual Report 1999

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A N N U A L E P O R T
~NORTHWEST
'-:.::,J A I R L I N E S
N N U A L R E P O R T
Northwest Airlines is the world's fourth largest airline with domestic
hubs in Detroit, Minneapolis/St. Paul and Memphis, Asian hubs in Tokyo
and Osaka, and a European hub in Amsterdam. Northwest Airlines and
its alliance partners, including Continental Airlines, serve more than
750 cities in more than 120 countries on six continents and offer
customers an industry leading global airline network.
L
.......... Table of Contents
Letter to the Shareholders .
Delive1ing \i hat Customers Want ....
Enhancing Our Fleet, Rebuilding Our Facilities .
Expanding Our Reach.
orthwest Airlines Cargo Positioned for Growth
orthwest Airlines - An Industry Leade in ew Technology .
MLI Inc. - Providing Worldwide Leisure Travel Value
Board of Directors . ....... ... .... . .
Senior Officers
Vision and Mission .
Financial Report .
SLOckholders' Information .
Guiding Principles ..... .
Route Maps . . . ..... . .... .
. pages 2- 5
. . ....... pages 6- 9
. . .. pages 10-13
. . . pages 14-15
.... . pages 16- 17
. . pages 18-20
. . page 21
. . ..... ...... pages 22-23
......... page 23
. . page 24
. .. . .... . .... . .. pages 25- 62
. page 63
. ... .. .. ........ .. page 64
. .. . .. back cover

CONDENSED FINANCIAL HIGHLIGHTS 0
Northwest Airlines Corporation
(Dollars in millions, except per share data)
FINANCIALS
Operating Re,enues
Operatino h.--pense
Operatino Income (Lo
Operatin ,\larni.n
et Income (Lo )
Earning (Lo ) Per Common hare:
Basic
Diluted
1 umber of Common hares Outstandino (million )
OPERATING STATISTICS
Scheduled enice:
A,ailable eat [\files (A [) (millions)
Re,enue Passenger [\liles (RP 1) (millions)
Pa senger Load Factor
Re,enue Passenoers (millions)
Re,enue Yield Per Passenger 11ile
Passenger ReYenue Per cheduled A [\1
Cargo Ton 1iles (millions)
Operating Re,enue Per Total AS1'1 (RA 1'1)
Operating hrpense Per Total A 1 (CA 11)
( 1999 ANNUAL REPORT
(1\
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Year Ended December 31
1999
10,276
9 562
714
6.9%
300
3.69
3.26
84.6
99 446
74,168
74.6%
56.1
ll .58C
8.64C
2 336
9.44t
8.71C
1998
9.0-+5
9,236
(191)
(2.1)%
(2 5)
(H )
(H )
-+.0
91,311
66.73
73.1 %
50.5
l l.26C
.23C
1,95-+
9.12C
9.21C
Percent
Change
13.6
3.5
9.0 pt .
.9
11.1
1.5 pts.
11.1
2.
5.0
19.5
3.5
(5.4)
OPERATING INCOME (LOSS)
millions
CASH FLOW FROM OPERATIONS LONG-TERM DEBT
S1 ,200
1,000
800
600
400
200
200
'95 '96 '97 '99
'98
millions
S2,000
1,600
1,200
800
400
'95 '96 '97 '98 '99
millions
S5,000
4,000
3,000
2,000
1,000
'95 '96 '97 '98 '99
ORTHWEST AIRLINES
Letter to the Shareholders y
From the Chairman and the President & CEO
In this letter, ,\e would like to review the significant achievements of onhwest Airlines in 1999, particularly
with respect to our return to industry operational leadership in on-time performance and luggage handling.
Our employees did a terrific job of renewing customer confidence in onhwest by getting passengers to
their destinations on time, \\ith their luggage.
We continue to imprO\'e Northwest's product. A key aspect of this product improvement is simplitri.ng and
moderni:ing the fleet. onhwest took deli\'ery of 34 aircraft in 1999 including four new Boeing 7 4 7-400s
that expanded trans-Pacific capacity. We accepted our first Airbus A319. This new 124-seat aircraft
complements the 150-seat A320s already in the fleet.\ e retired the MD-80 fleet during 1999 and have
announced plans to retire the 727 fleet by 2003, when onhwest will have 150 A319s/A320s -
the laraest fleet of these highly efficient aircraft in the world. We have completed interior refurbishment
of all DC9 aircraft and will ha,e all 747-200 aircraft fitted with new interiors, including the industry's
large t overhead bins, in 2000.
To enhance service on the ground, the largest facilities e1rpansion and renewal in orthwest's
history is underway at our three domestic hubs in Detroit,
1inneapolis/St. Paul and Memphis, and in our
international hubs, Tokyo and Amsterdam. By far the
most dramatic is the construction of the new
terminal in Detroit. When the state-of-the-an
terminal opens in 2001 it ,\rill be the most efficient
passenger connecting hub in the world.
Because of Detroit's unique
geographic position this new
airport ,\rill be the connecting
hub of choice for domestic
destinations and for
international flights to both
Europe and Asia for travelers
from east of the Mississippi
and the Midwest.
Gary L. Wilson - Chairman
John H. Dasburg - President &
Chief Executive Officer
( 1999 ANNUAL REPORT
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onhwest is an industry leader in the uses of technology for product impro\ement. Our web site,
W\\ v.mva.com, is recognized as the best in the industry. It is comprehensi\'e and easy to use. , orth\\est
had a nearly two-fold increase in e-commerce re\enues during 1999.
As inflation-adjusted air fares decline, more people are flying, leading to more crowded airports and aircraft.
To help alleviate the situation, mo t customers are now using E-Tickets. 1 We are rapidly mcreasing electronic
service centers where customers can comemently obtain boarding passes, make seat changes and check
luggage. This easy-to-use touch screen technology help mimm1=e line for check-m and free 'onhwe t
service per onnel to assist customers with non-routine needs.
Air Transport World, the leading industry publication, pre ented its Airlme Technology i\lanagement Award to
1 onhwest for our techniques in turbulence plotting and aYoidance, ensurina a afer and smoother trip for
passengers. ! onhwest is one of a handful of airlines that has a t.leteorology Department dedicated to
this activity.
Travelers have complained about deteriorating sen1ce throughout the airline industry. . T
orthwest has
implemented programs that are steadily imprO\ing customer ati faction.
+ Northwest's Customers First Plan was umeiled in December and is recogni=ed as the best m the
industry. The purpose of this plan is to help make the I
lorth,\est travel experience easier, more
understandable and more enjoyable.
+ \ e ha\'e increased training for front-line employees to improve customer sen1ce.
+ Our meal senice policy was expanded to include more flights and choices.
+ e have eliminated the expiration date for \VorldPerks frequent flyer miles.
While modem aircraft, airports, and technology are crucial aspects of our product, people are the most
important. The outstanding operational performance we experienced in 1999 results from the professionalism
and dedication of orthwest people. In this annual report \ e introduce the 1-+ employees selected for the
1999 President's A, ard. These award winners average 23 years of orthwest e;,,.'J)erience. They represent the
quality of our people in prO\iding the senri.ce customers expect.
(A\ NORTHWE T AIRLINES)
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We hope to settle the two remaining open labor contracts in 2 000. In June 1999, we reached a tentative
agreement with our flight attendants union but, unfortunately, it was not ratified. Also in June 1999, a new
union was certified to represent mechanics, cleaners and custodians. We commenced negotiations with that
union in October, following the union's internal governance procedures.
orthwest is the leader in creating global networks, and alliance implementation proceeded well in 1999.
Long-term alliances are the most economic way to expand globally due to revenue, cost and capital synergies
that are shared by the partners. World coverage also diversifies risks among international regions. Diversity
has served us well as strong domestic and trans-Atlantic markets helped offset Asian weakness in 1998,
while in 1999 the resurging Asian economies helped offset trans-Atlantic over capacity
We are very enthusiastic about our partnership with Continental Airlines. Domestically the alliance delivered
the benefits we had projected with the two carriers sharing about equally more than 160 million in net
contribution. We expect this to increase significantly over the next several years as the alliance continues to
progress. Together, orthwest and Continental have a domestic market share equivalent to American,
United, or Delta.
In Europe, KLM is proceeding with its alliance with Alitalia. Meanwhile, Northwest, KLM, and Alitalia were
granted anti-trust immunity by the U.S. government, which makes it possible for Alitalia to join the highly
successful trans-Atlantic joint venture between Northwest and KLM. orthwest will begin serving Alitalias
hubs in Milan and Rome from Detroit in April. Continental will begin selective code-sharing with KLM in
2000. orthwest, combined with its alliance partners, has a strong presence in the trans-Atlantic market.
In Asia, our expanding alliances with Air China and Japan Air System continue to benefit passengers
and provide increased revenues for the airlines. Northwest also signed a new alliance agreement with
Malaysia Airlines. Northwest is among the leaders in trans-Pacific market share and the leading
U.S. carrier to Japan - by far Asias largest market.
orthwest is a major U.S. cargo carrier and a leader in the trans-Pacific freight market. In 1998 we committed
to expand cargo because of high, profitable growth in resurgent Asian markets. We have increased our
dedicated 74 7 cargo fleet by 25 percent to make better use of our highly efficient Anchorage cargo hub.
We are also developing synergies with our European alliance partners who are major intercontinental
cargo carriers. orthwest cargo ton miles increased 20 percent to more than two billion in 1999.
( 1999 ANNUAL REPORT
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As we move into the new century, government continues to be our industrys biggest challenge. Increased air
traffic is taxing an inadequate government controlled Air Traffic Control System (ATC). This is a principal
cause of delays, which lead Lo passenger frustration with our industry. A new financing or ownership system
for ATC must be adopted so that Lhe necessary investment in badly needed ATC improvements and other
infrastructure projects can be made.
Jet fuel now exceeds Gulf war prices due LO the actions of Lhe OPEC canel. We urge the government LO
release petroleum from the Strategic Petroleum Reserve or Lake OLher reLahatory actions Lo coumer OPEC
dictating oil prices. Allowing a canel of foreign producers to control the price of oil is bad for the Amencan
economy and iLs consumers.
We look forward to better serving our customers, employees and shareholders as we move into Lhe
new millennium.
Thank you for your interest and support.
~f~
Gary L. Wilson
Chairman
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John H. Dasburg
President & Chief Executive Officer
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, I I
In this annual report we introduce
the 14 employees selected for the
1999 President's Award.
They represent the quality of our
people in providing the service
customers expect.
r
RTHWEST

I
AIRLINES
Delivering What Customers Want ~
ENHANCED RELIA BILITY
Thanks to the concerted efforts of the more than 55,000 men and women of orthwest Airlines, the
company's operational performance improved significantly in 1999. For the full year, 79. 9 percent of
orthwest's domestic flights arrived within fifteen minutes of scheduled arrival time. In the 1990s Northwest
was the most on-time airline among the nation's major network carriers according to U.S. Department of
Transportation staListics. orthwest cancelled only 2. 2 percent of its flights during 1999, one of the best
records among the major airlines. luggage handling ranked third among the network carriers and improved
2 7 percent over 1998.
On-board and on the ground, orthwest continues to focus on improving the customer's travel experience.
orthwest increased flight attendant staffing levels on all 747-200 flights and added a second interpreter on
all f1ights to and from Japan. Systemwide, in-flight meals include more choices in both World Business Class5
M
and Coach Class. ew interiors were installed in widebody aircraft, including the largest overhead bins in
the industry.
On-Time Arrivals 1990-1999
85%
75
80.6%
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Flights arriving within 15 minutes of schedule - U.S. Department of Transportation
Air Travel Consumer Report.
On-time reliability up 7%
l, Luggage handling improved 2 7%
( 1 9 9 9 ANNUAL REPORT 0
MORE CONVENIENCE
On the ground, orthwest is making travel easier and more comenient. E- en7ce Centers-1 in 135 locauons
at 19 domestic airports help onhwest passengers to check-in and recet\'e boarding passes electronically.
Installation of E-Senri.ce Centers w1.ll nearly double m 2000.
Travelers can now use these self-senrice kiosks to upgrade LO First Class on available !11ghts through the
electronic purchase of E-Firsts
I
upgrades.
Adding further convenience for time-constrained customers,
onhwest introduced a 11ight status paging sen7ce that
enables travelers with alphanumeric pagers or Sprint PC
phones to receive information about arrival and departure
times and gates up to four hours in advance.
Northwest is using portable computers that will issue
boarding passes on the spot.
PRESIDENT'S AWARD WINNER
Melody Daly
Reservations Sales Agent
Tampa, Florida
Melody's delivery of excellent customer service and team spirit sets a new benchmark for the
Northwest Tampa reservations center. For more than 22 years, Melody has developed a sales
technique that made her one of the reservations divisions top three performers. Melody delivers
quality as well as quantity She has received more rhan 30 letters from customers complimenting
her attitude and service. Her team spirit also encourages other agents in their performance.
TO BI GIN i
ror ~ purpo.-.~.
plieoM~ortd- -
..... ..........,
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1
Ken Jackson
Stock Clerk
Minneapolis/St. Paul
As a third shift stock clerk in one of
the air/mes major hangar operatwns,
Ken provides excellent support for
eight maintenance shops and 125
mechanics. Ken also is an outstanding
citizen. During ten of his 19 years at
Northwest Ken has been a Big Brother,
donating two weekends a month to
work with and mentor boys who need
a better chance. Ken inspires his
manager and sets the standard for
great service to others.
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N E S
A COMMITMENT TO CUSTOMER SERVICE
lorthwest developed and began implementing a Customers First service plan to improve the travel experience.
The plan includes a comprehensive training program, completed in December 1999, involving all of orthwest's
front-line managers and employees. Highlights of orthwestS Customers First plan include:
+ A Customer Guide designed to assist travelers with their orthwest experience, from making
a reservation through completion of their flight. The guide is available in printed form and on
our web site at ,vww.nwa.com~
+ A streamlined customer relations process with one central point of contact to resolve all customer
complaints in a timely manner.
.+ A new rule for non-refundable tickets which will allow customers who meet the fare ticketing
requirements to guarantee their reservation and fare and to have until the end of the next day to
exercise an option to receive a full refund.
The customer guide is
available at airport ticket
counters or online.
PRESIDENT'S AWARD WINNER
Hal Peterson
F
light Attendant
Detroit
Hal has received numerous customer commendations and laudatory notes from fellow flight
attendants. W
ith 20 years of on-board service experience, he is a role model for superior customer
service. In addition to his civic activities, Hal volunteers his time as the Detroit Coordinator of the
Critical Incident Stress Management Program. A joint initiative of Northwest and the International
Brotherhood of Teamsters, the program otters services to flight attendants who experience a
work-related incident.
( 1 9 9 9 ANNUAL RE P ORT
AWARD-WINNING FREE TRAVEL PROGRAM
To build and sustain customer loyalty, orthwest continues to enhance its \VorldPerks' frequent llyer
program. In 1999, the company introduced ne\ \ orldPerks Elite' tiers - Platinum, Gold and Silver.
These ne, tiers make onhwest \ orldPerks the industry's most rewarding elite program. Among those
rewards are an industry first - Elite Personal Privileges .... Elite Personal Privileges provide WorldPerks Elite
members with special discounts at a variety of restaurants, clubs, retailers and other \'enues. World Perks
Direct"' offers orthwest customers the ability to manage their frequent llyer mileage from the airline's
web site, ww, .nwa.com.
The \ orldPerks program received a special "Industry Impact Award" for the provision that miles will
~

Industry Impact Award
not expire.
WorldPerhs was
desima,ted best
free travel
program in Asia
by Time Asia.
WorldPerks Elite tiers - Platinum, Gold and Silver.
Additional industry leading reward programs are:
Elite Personal Privileges and WorldPerks Direct.
PRES IDEN T S AWARD WINNER
Yuzo Tanaka
Customer Service Supervisor
Tokyo's Narita International Airport
Tanaka-san is one reason that Northwest operates punctual airline service in Japan. He was
instrumental in the success of three 1999 initiatives that achieved significant customer service
improvements. For 11 years, Tanaka-san has met the challenges to exceed our customers'
expectations every day. He also boosts the morale of the other customer service employees
at Tokyo's Narita International Airport.
0
NORTHWEST AIRLINES )
The Boeing 747-400s
delivered were named for
major Northwest destinations.
Enhancing Our Fleet, Rebuilding Our Facilities ~~~
A total of 34 passenger jets were added to the orthwest and regional Airlink fleets in 1999.
On average, we added a passenger jet every 11 days. Meanwhile, airport improvement projects
in progress at orthwest's domestic and international hubs will result in more convenience for
orthwest passengers.
FOUR BOEING 747-400S , 10 AIRBUS A319S AND SEVEN A320S
JOIN THE FLEET
At the end of 1999, the orthwest fleet totaled 410 aircraft. During the year, we took delivery of four Boeing
7 4 7-400 passenger jets, the premier aircraft used in trans-Pacific routes. orthwest now has 14 7 4 7-400s
and 19 747-200s. A complete interior refurbishment of the 747-200s will be finished in the second quarter,
2000. These new interiors include the industry's largest overhead bins. We are also in the process of
installing new interiors in all 20 DC10-30s used primarily on trans-Atlantic routes.
orthwest also took delivery of 10 new Airbus A319s and seven new Airbus A320s during 1999. The A319s
have common systems with the Airbus A320, which orthwest already operates extensively on its domestic
route system. Northwest's fleet of 80 Airbus aircraft is now the world's largest. Over the next three years
another 70 Airbus jets will be delivered. orthwest retired its McDonnell-Douglas MD-80s during 1999 and
will retire its Boeing 727s by 2003.
The first 10 Airbus A319s
were delivered in 1999.
New aircraft and refurbished interiors
mean greater comf art and qficiency.
(~_1_9_9_9 __
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FREIGHTERS ARE AMONG OTHER DELIVERIES
T
onh,\ est also recentl) added two 7-+ 7-200 freighters to its cargo fleet and two additional DC10-30s for its
widebody passenger fleet. The aircraft will all be operational in 2000. , onhwest's 1999 irnestments in fleet
expansion total more than 1 billion.
REGIONAL AIRLINE PARTNERS OFFER MORE JET SERVICE
1onhwest Airlink customers are enjoying significantly increased jet service on aircraft that connect them to
worldwide destinations at orthwest's three domestic hubs. Express Airlines, which provides connecting
service primarily through the lemphis hub, will be the launch customer for the Canadair CRJ200 aircraft.
Express will operate at least -+2 of the 5-+ CR]s. 1'1e aba Airlines, the onhwest Airlink carrier operating
primarily from Detroit and linneapolis/St. Paul, began offering jet service on RJ Ss in 1997. Current plans
call for delivery of the 36 RJ85s to 1'1esaba to be completed in 2000.
Northwest and Airlink
Fleet Additions
35
30
25
20
15
10
5
A passenger jet
delivered on average
every 11 days in
1999
JAN FEB MAR APR MAY JU
NE JUL
Y A
U
G S
EPT OCT N
O
V D
E
C
CUMULATIVE JET AIRCRAFT DELIVERIES IN 1999
PRESIDENT'S AWARD WINNER
Ernest Schwenke
General Inspector
Minneapolis/St. Paul
During his 30-year career at Northwest, Ernie has led significant jet engine
maintenance innovations. Many techniques involve using sophisticated electronic
diagnostic inspections rather than time-consuming engine teardowns. Another innovation
is an engine turning tool that allows one inspector to perform an inspection that required
two inspectors before.
William (Bill) Rogerson
Captain
Detroit
"We recently had the great pleasure of
flying with Captain William Rogerson
from Detroit to Vancouver. He was an
extremely competent pilot as well as a
tremendous goodwill ambassador for
North1vest Airlines, making the flight a
fabulous adventure for everyone on
board." This is a typical letter
recognizing Bill's piloting skill and his
devoted commitment to his passengers
during his 27-year career. One of Bill's
favorite things is to photograph kids in
his cockpit, later sending them the
photo with a certificate.
AIRLINES
AIRPORT IMPROVEMENTS BENEFIT NORTHWEST PASSENGERS
Passengers traveling through orthwest's domestic and international hub airports will see major improvements
in airport facilities and amenities in the near future.
DTW J
ln Detroit, orthwests busiest hub, construction of the Midfield Terminal is proceeding on schedule toward
a 2001 opening. When complete, the new world-class terminal - in effect, a new airport for Detroit - will be
the best hub facility in the United tates with 99 gates. The $1.2 billion project includes a new terminal with both
international and domestic gates in one facility, new airfield connections to improve ground handling efficiency,
a vastly e 'panded parking lot and a fourth parallel runway. Passengers are already benefiting from new taxiways
that reduce flight delays and one of the best deicing facilities in the world.
Underscoring the importance of Michigan and Detroit to its global operations, orthwest established a regional
headquarters in downtovm Detroit. The regional headquarters brings together orthwest's regional sales, human
resources, external communications, government affairs and administrative staff.
MSP
At Minneapolis/St. Paul International Airport, a new runway scheduled for completion by 2003 will increase
airport capacity by 25 percent. Another runway will be extended to better accommodate long-haul nonstop
service from Minneapolis/St. Paul to destinations such as Tokyo and Osaka. In 2002, 15 new jct gates will be
added to the airports Green Concourse and a people mover will be added to expedite travel within the terminal.
Additional parking is being added at the airport and roadways are being reconstructed to ease passenger access.
MEM
In Memphis, onhwest is Joining with the Memphis-Shelby County Airport Authority to expand the A Concourse
to better serve the airport's growing connect traffic. In October, international flights from Memphis will begin
using a new 11,100-foot runway. ew jet bridges will also be installed to accommodate the CRJ200 regional jets
that orthwest Airlink partner hrpress is bringing into its fleet. These improvements will support a 25 percent
increase in orthwest service from Memphis, beginning in 2000.
( 1999 ANNUAL REPORT

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C NRT_
At Tokyo's arita International Airport, one of lorthwest's Asian hubs, orthwest has moved its departure
and arrival facilities to new and improved check-in facilities in the orth Wing of arita Passenger Terminal
One. The new facilities offer passengers smoother check-in and more space. orthwest also opened a third
airport lounge at arita for First Class and World Business Class5
M
passengers.
r AMS
Amsterdam's Schiphol Airport, already one of the best hub airports in the world, continues to improve.
Four of the airport's piers are being renovated to add gates for customer convenience. The terminal's new
central lounge opened in September 1999. The new facilities include tax-free shops, restaurants and other
amenities. A fifth runway becomes operational in 2003.
$3.5 billion will be invested in Northwest
hub fadlities in the next 3 years. l,
The new Detroit Midfield Terminal will have 74 gates on the main concourse and
25 commuter gates when it opens in 2001 .
James Hawk
Equipment Service Lead
Washington, D.C
. (Dulles)
Innovative customer commitments
characterize Jim's 32 years with
Northwest, especially to the airline's
largest single customer, the U.S.
Postal Service. (Northwest mail
revenues increased 4.5% in 1999
over 1998.) Jim has served as a
certified ramp trainer, ground
security coordinator and special
luggage project leader during his
career. Most recently he consulted
with KLM Royal Dutch Airlines to
assist in processing luggage
through its hub in Amsterdam and
to integrate the KLM operation into
Northwest's at Dulles.
AIRLINE S
Expanding Our Reach Y
In 1999, orthwest strengthened its network through existing alliances and the addition of several new
alliance partners. Alliances have been shown to provide air travelers with more air service at lower air fares.
The alliance partners also imprm e the travel experience through code-sharing, integration of frequent flyer
programs and reciprocal airport lounge access. Alliances permit dramatic expansion in service without the
constraints of large capital investments. The carriers benefit from route and schedule coordination, joint
marketing, sharing of airport facilities and services and joint procurement of certain goods and services.
Implementation of the innovative alliance between orthwest and Continental Airlines continued in 1999.
Today, orthwest and Continental share codes on nearly 4,000 flights serving more than 275 cities and
exchange more than 2,000 passengers daily. The orthwest/Continental alliance today provides code-share
service to 225 domestic destinations and more than 50 international destinations.
The enhanced code-sharing agreement with Japan Air System links orthwest's extensive trans-Pacific
route system with JASs domestic routes, connecting Osakas Kansai Airport to Okinawa and Fukuoka.
Japan Air System operates more domestic routes in Japan than any other carrier while orthwest provides
the most service between the United States and Osaka, with connections from there to the
Philippines, Malaysia and Taiwan.
Further strengthening its network reach in Asia, orthwest signed an alliance agreement
with Malaysia Airlines in September 1999. orthwest is currently the only U.S. airline
serving Malaysia, having inaugurated service to Kuala Lumpur in February 1999.
PRESIDENTS AWARD WINNER
W
illiam Dilgart
Customer Service Agent
Detroit Metro Airport
As an international coordinator, Bill monitors trans-Pacific flights to and from
Detroit Metro Airport. He utilizes his extensive knowledge to maximize payloads,
which helps passengers and freight arrive at their destinations on schedule. For over
30 years, Bill has developed excellent rapport with the dispatch department and with
international widebody crews to ensure an efficient operation.
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orthwest and Malaysia Airlines will provide code-share service on flights between Los Angeles and Kuala
Lumpur. The two carriers have requested antitrust immunity from the U.S. Department of Transportation
and plan to expand code-share service in the future to include domestic U.S. and domestic Malaysian routes.
orthwest and Air China completed the first full year of service under a code-sharing alliance initially
signed in 1998. Air China is China's largest international airline. During the year, code-share service was
expanded to include multiple points in the interior of the U.S. In addition, passengers on code-share
flights now benefit from easier check-in, and the issuance of boarding passes for all flight segments.
orthwest begins nonstop flights between Detroit and Shanghai in April 2000. The service will provide
the fastest and most convenient connections from the eastern United States to Shanghai and w1ll carry an
Air China flight code. orthwest and Air China plan to inaugurate code-share ser\'ice on domestic routes
in China during 2000.
The tripartite alliance of orthwest, KL 1 and Alitalia was granted antitrust immunity in December by the
U.S. Department of Transportation, paving the way for the three carriers to collaborate in aligning their
routes and schedules to optimize service and efficiency. Northwest announced new service between Detroit
and both Rome and 1ilan starting in April 2000.
Complementing the expanded service across the Atlantic is orthwest's new partner agreement with
Cyprus Airways. Under the agreement, r orthwest and Cyprus will provide code-share ser\'ice and frequent
flyer cooperation to make travel to and from Cyprus via Amsterdam easier and more convenient.
An agreement for a
trans-Atlantic alliance of
Northwest, Alitalia and
KLM was signed by
representatives of the
three airlines.
~NORTHWEST
~ A I R L I N E s~
Continental
Airlines~
.:::
KLM Royal DJtcr Airlines
Allitalia
rl RIRCHINR
~ AMERICA WEST AIRLINES.
BRAATHENS
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CYPRUS AIRWAYS
(!!: eurowings
#l-mala11~lfl
Northwest increased its fleet
of freighters from eight to ten
in 1999. Pictured below is the
ninth aircraft, with a special paint
scheme that reflects Northwest's
commitment to expanding
cargo service in the Pacific,
where demand is strong.
AIRLINES
Northwest Airlines Cargo Positioned for Growth +++
orthwest Ai.rli.nes Cargo, one of the largest freight carriers in the Pacific, is well positioned for
growth in the coming decade, benefiting from recoveries in Asian economies. Nearly 70 percent
of orthwest's cargo revenues are derived in the Pacific region.
AN EXPANDED CARGO FLEET
orthwest recently underscored its commitment to cargo customers by adding two 74 7-200 freighters
to the cargo fleet. The 1 orthwest Airlines Cargo fleet now includes 10 Boeing 7 4 7-200 freighters. All of these
aircraft are dedicated to the Pacific region, \.\rith up to 23 roundt1ip trans-Pacific frequencies every week.
With this expanded fleet, orthwest Airlines Cargo offers shippers and freight forwarders rhe best
network coverage between the United tates and Asia and \.\rill support additional service between
Hong Kong, Taipei, Chicago, San Francisco and the latest city to receive freighter senrice, Shanghai.
In addition, our Cargo hubs in Anchorage and at Tokyo's arita International Airport allow easy cross-
loading of cargo shipments for improved yield management and higher load factors.
More capacity increases
CargoS network strength.
( 1999 ANNUAL REPORT {";;'\
~ - -----------,o
NEW CARGO SERVICES BUILD ON ALLIANCE NETWORK STRENGTHS
onhwe L irline Cargo improved iL produeL offering LO customer by launch111g an l C'\pand1ng key
dom L
i and imernmional product . onhwc L conunucs to work \\'Ith 1ppl1n argo 1rl111cs L
o o .pand
on alr ady uc e ful cod - haring ervicc on cargo night aero s the r,1ed'ic. ln coopcrauon \\ uh alliance
parLner omin mal irline , argo introduced an e:-..panclccl network for ns s,1111e- lav, m,111 1x1ekagc
xpr pr du L. The new ervi e combine onhwe L
's \llP -ervice wnh onuncntal's Q I KPAK . en 1 c
L
O r ach more L
han 230 de tination throughout the nitecl -LaLes. \Vorktng \\ 1th other onhwc L ,1ll ian c
partner , argo launched an w Limc-d nnitc produ L line 1dcnu al Lo tho c offered b) KL l ,ugo ,rnd
Alitalia Cargo. The elect proclu L rcpr cm the fir L L
rul ' 1mcgratcd alliance product m the cargo 111du. Lr).
mauer where cu L
omer buy elect produ L LO move thei r freight , the ' an courn l111 similar service
among the e key allianc panner .
PRESIDENT'S AWARD WINNER
Francis Lui
Managing Director - Northwest Airlines Cargo
China, Asia and Hong Kong
Northwest Airlines Cargo Select 1s the name of our new international
product line. Launched jointly with alliance partners KLM and Alitalia,
Select is a three-tier, time-definite product line that gives customers more
control over when each shipment arrives at a destination. At the same
time, Select gives Northwest more flexibility in managing shipment
routing, which leads to improved service levels and increased revenues.
In a career that spans 31 years, Francis has continuously applied his strategic leadership to
improve the performance and profitability of Northwest. Francis developed a loyal Northwest Airlines
Cargo customer base in Hong Kong, a seasonal market, where cargo carriers struggle during the
off-peak months. During some weeks of 1999, Northwest's freighters departed with full loads from
Hong Kong, while some competitors canceled flights due to lack of demand.
Marv Yackley
Lead Plant Maintenance Mechanic
Minneapolis, St. Paul
Marv's current responsibility, to
maintain safe and re/table deicer
equipment, is probably his most
cntical - especially for an airline
operating in the wintry conditions
of Minneapo/i St. Paul and Detroit.
In his 33 years as a ma,ntenance
mechanic, Marv has become known
as one of the industry's premier
e perts in the maintenance of the
sophisticated boom trucks that must
operate ,n nature's most grueling
conditions. His genU1ne concern for
safety has earned Marv the respect
of colleagues, manufacturers and
other airlines a:
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NORTHWEST AIRLINES )
~ - - - - - - - - ~
The February issue of Air
Transport World honored
Northwest with the Airline
Technology Management Award
for leadership in the field of
turbulence plotting.
AUOWUSTO
DEMONSTRATE HOW
OUR AWARD-WINNING,
SOPHISTICATED
WEATHER-FORECASTING
SYSTEM ACTUALLY
WORKS.
Northwest Airlines - An Industry Leader
in New Technology b
orthwest's innovations in technology improve safety, generate new revenue, decrease distribution
and servicing costs, protect and enhance market share, and develop new marketing and
alliance relationships.
RECOGNIZED FOR TURBULENCE PLOTTING TECHNOLOGY
Air Transport World selected orthwest Airlines in 1999 to receive its Airline Technology Management Award.
This award recognizes outstanding achievements in the application of technology to airline industry challenges
and, in onhwest's case, acknowledges the work of the airline's meteorological staff in developing techniques
for accurately predicting turbulence, including "clear air" turbulence in which no storm conditions are
imminently present. onhwest uses this turbulence plotting data to provide pilots with early warning of
potential problem areas, which then provides flight crews with sufficient time to obtain routing changes and
to ensure passengers are safely in their seats.
Northwest named
Airline of the Year in
the field of technology.
( 1 999 A NNU AL REP O RT
~
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- - - - - - - - - - - j ~
WORLDSPAN EXTENDS NORTHWEST'S E-COMMERCE REACH
As one of the three owners of \ ORLDSPA. , a leading global distribution reser\'ation system . onh,\est
is well positioned to benefit from the continuing growth in the travel and tourism industry, as well as
the industry's continued rapid adoption of electronic commerce. >lonhwest owns a 33. 7 percent stake
in \YORLDSPA; which, through its three lines of business (Global Distribution stem, e-commerce, airline
sen ices), prO\ides products, senices and technology to travel agency, airline rental car, hotel and other
customers in exchange for booking and subscription fees. \\ ORLDSPA. also offers full airline hosting seni ces
to Northwest, its affiliates and other airlines. It also prO\ides seni ces directly on the internet to third parties
and consumers.
\ ORLD PA. supports 1onhwest's e :panded role in fast-gro,,ing electronic commerce applications.
For instance, \YORLDSP
,Vs high \olume resenations and booking system is used for corporate web sites
and other travel-related applications, including \\"\\'W.m\a.com~ and the intemets two largest travel sites,
priceline.com and E:\l)edia.com. The company also creates its O\rn, branded e-commerce products such
as\\ ORLDSPAi\ TRIP H.\~A
GER~ an internet-based desktop self-booking tool for corporate tra,elers, and
\\'ORLDSPA. Go5
~
1! This tool, the first of its kind, enables a travel arranger to access - on one screen -
both resenations functions and travel-related information found any,\here on the internet, as \\ell as
e-mail and fax capabilities. In 1999, \ ORLD P
A/\ was the fastest growing computer resen-ation system
in the U. . and in Europe.
PRESIDENTS AWARD WINNER
Murray Johnson
Account Executive
Washington, D.C
.
A member of the sales team in Washington, D.C
., Murray is continuously selling and
promoting the benefits and value of flying Northwest. Last year he convinced a large
corporate travel agency to convert to Northwest's W
oR
LDSPAN system, the largest such
conversion of the year. One trait that distinguishes his 14 years of service is how Murray
provides assistance to other colleagues in field sales without seeking any credit for himself.
Dennis Kephart
Mechanic
Atlanta Maintenance Base
Dennis is known as one of the most
knowledgeable and skilled DC9
aircraft systems mechanics in the
world. His performance for more than
31 years is one reason for the
excellent maintenance record of the
DC
9 fleet. It is common to have a
group of individuals watching him
to learn what he does. He is always
willing to explain the how and the why.
Karyl Cogswell
Manager - Schedule Distribution
Minneapolis/St. Paul
Karyl oversees every aspect of filing
and implementing Northwest's flight
schedule in the airline's reservations
system, WoRLDSPAN, and other
industry computer reservations
systems. As Northwest has launched
new service and the industry has
moved toward partnerships and
alliances, Karyl has found solutions to
each new issue or problem. During
her more than 20 years of service, she
has been an inspiration to both
Northwest and alliance colleagues.
AIRLINES
AWARD-WINNING WWW.NWA.COM FURTHER ENHANCED
orthwest's award-winning web site makes it fast and easy for customers to book their own travel online.
The site's home page now features direct links LO the information and services customers access most
frequently, including CyberSaver fares, flight and gate information, WorldWeb Reservations and WorldPerks
Direct~M offering customers the ability to buy tickets and arrange for WorldPerks award travel. Customers can
complete transactions in just three steps, directly from the site's home page. Continuing a consistent trend,
\V\vw.nwa.com was recognized as the leading airline web site in 1999.
The improvements in speed and convenience, including features now available on hand held computers, are
generating a higher volume of online sales and a high number of repeat customers. Ticket sales through
\V\V\V.mva.com in 1999 were more than double the 1998 level and accounted for approximately 15 percent
of all direct sales.
orthwest complements the business-to-consumer functions of www.nwa.com with business-to-business
functions. Through www.nwa.com, for instance, corporate travel managers and travel agents can access a
segmented part of the web site to manage travel on orthwest for employees of their respective companies.
In 5,ember 1999, orthwest introduced E-Business Perks, the internet booking system accessible frJm
www.nwa.com and targeted at smaller business accounts which plan all of their travel on the web.
orthwest, along with Continental, KLM, and Alitalia, will continue to implement additional
features to enhance the internet travel planning process worldwide.
Through "opt-in" e-mail functions, for instance, orthwest customers can now receive
notification not only of CyberSaver fares, but also other fare sales, promotions and special
offers from orthwest WorldPerks partners.
PRES IDENT'S AWARD WINNER
Bruce Koski
Manager - Customer Service
Midland/Bay C
ity/Saginaw, Michigan
Nearly 30 years ago, Bruce began his Northwest career working as a luggage handler.
Now his exemplary leadership keeps one of the airline's best performing airport
operations humming in Michigan. He also serves as liaison for important customers,
including charters for the NFL's Philadelphia Eagles. Bruce has worked tirelessly to
support local charitable agencies and was instrumental in the disaster relief Northwest
provided for victims of hurricane Andrew.
( 1 9 9 9 A II N U A L R E P O R T
~
~--------------10
MLT Inc. - Providing Worldwide Leisure Travel Value
MLI lnc. develops and markets vacation programs that include air transportation, hotel accommodations,
car rentals, sightseeing options and much more. These programs are used to increase the sale of . lorthwest
services, offer a quality tour product and promote new onhwest destinations.
MLI lnc. offers two distinct product lines: onhwesL Airlines WorldVacauons ' and MLT Vacations.
'orthwest Airlines WorldVacations combines the strength of onhwest, KLM and other airline partners
worldwide route network with ML
T's land buying power. WorldVacations offers a vast array of destinauons
throughout the U.S., Canada, Mexico, the Caribbean, Europe and Asia. MLT Vacations offers charter service
to the most popular destinations throughout the U.S., Mexico, the Caribbean and Costa Rica from nine
U.S. origin markets. MLT Inc. offers value-conscious customers an affordable, quality vacation.
Consumers and travel agents are able Lo access bmh product lines via the world wide web. WorldVacations
packages are available for review on the l :onhwesL WorldVacations homepage at www.nwaworld1acaLions.com
and MLI Vacations' products and services can be browsed at www.mltvacations.com.
MLI Inc. opened a new state-of-the-an reservations and operations facility last !ovember. The center,
located in Minot, D, will enable MLT to efficiently serve consumers and travel agents veil into the future.
ltlLT Inc. offers t:to distinct
product tires - I Jorth :,est Arri' ries
World /acations and ltlLT /acations.
(;;\ NORTHWEST AIRLINES )
~ ; - - - - - - - - - - - - - ~
Board of Directors
Gary L. Wilson
Chairman
orthwest Airlines Corporation
Elaine L. Chao
Distinguished Fellow
Heritage Foundation
Dennis F Hightower
Professor of Management
Graduate School of Business
Administration, Harvard University
V A. Ravindran
President
Paracor Finance, Inc.
John H. Dasburg
President & Chief Executive Officer
orthwest Airlines Corporation
Alfred A. Checchi
Member - Board of Directors
orthwest Airlines Corporation
George J. Kourpias
Retired International President
International Association of
Machinists & Aerospace Workers
Michael G. Ristow
Captain
orthwest Airlines, Inc.
Ray W Benning, Jr.
Director Airline Division
International Brotherhood
of Teamsters
James G. Coulter
Managing Director
Texas Pacific Group
Frederic V Malek
Chairman
Thayer Capital Partners
Leo M. van Wijk
President & Chief Executive Officer
KLM Royal Dutch Airlines
Richard C. Blum
Chairman & President
Richard C. Blum & Associates, Inc.
Doris Kearns Goodwin
Historian & Author
Partner
Dorsey & Whitney
DIRECTORS EMERITUS
Thomas L. Kempner
Chairman & Chief Executive Officer
Loeb Partners Corporation
Melvin R. Laird
Consultant
The Readers Digest Association, Inc.
( 1999 ANNUAL REPORT

~-- - - - - - - - - - - - - - - < 23
Senior Officers
John H. Dasburg
President & Chief Executive Officer
Richard H. Anderson
Executive Vice President & Chief Operating Officer
Mickey P Foret
Executive ice President & Chief Financial Officer
President - orthwest Airlines Cargo
J. Timothy Griffin
Executive ice President - Marketing & Distribution
Philip C. Haan
Executive ice President - International, Sales &
Information Ser\'i.ces
Douglas M. Steenland
Executive ice President & Chief Corporate Officer
Raymond J. ecci
Executive ice President - Customer Service
President - Michigan Operations
Thomas J. Momchilov
Senior ice President - Human Resources
A I RL I NES
The Vision of Northwest Airlines
To build together the world's most pref erred airline with
the best people; each committed to exceeding our customers'
expectations every day.
The Mission of Northwest Airlines
The people of Northwest Airlines will provide reliable,
convenient and consistent air transportation that meets or
exceeds customer expectations and earns a sustainable profit.
Reliable means safe, clean, on-time air transportation created
by the best people providing friendly, professional, consistent and
caring service. A cornerstone of Northwest's reliability is prompt
and appropriate service recovery when, despite our best eff arts,
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.
FINANCIAL REVIEW
In 1999, Northwest rebounded from 1998'.s labor disruptions and
strike-related operational and financial difficulties. orthwest's
available seat miles, revenue passenger miles and load factor
reached record levels in 1999 and on-time performance and
other operational integrity measurements improved to near
industry leading levels. orthwest also continued its industry
leading alliance innovation in 1999 by implementing code-
sharing relationships with Continental Airlines and Japan Air
System, expanding its alliance with Air China and signing a
new alliance agreement with Malaysia Airlines.
1999 PERFORMANCE
Northwests available seat miles increased 8.9% in 1999 to a
record level of 99. 4 billion ASMs.
Scheduled RPMs and ASMs
load
factor
( 1999 ANNUAL REPORT(:;;\
~
- - - - - - - - ~
In the Atlantic entity, orthwest increased its capacity by 22.2 %
in 1999 as the joint venture with KLM grew. Revenue passenger
miles in the Atlantic entity were up 2 4. 2 % with load factor
averaging 80.8%. Northwest expects to increase capacity in the
Atlantic in 2000 as we begin serving Alitalia's hubs in Milan and
Rome from Detroit.
FINANCIAL RESULTS
Although still recovering from the impact of the 1998 labor
disruptions and strike, Northwest reported a 1999 operating profit
of $714 million, a $905 million improvement over 1998. et
income improved $585 million to $300 million. Cash flow from
operations increased significantly from 1998 to $1.26 billion.
Cash Flow from Operations
millions
millions
110,000 ASMs RPMs -- Load Factor BO% $2,000
100,000
90,000
80,000
70,000
60,000
50,000
'93 '94 '95 '96 '97 '98 '99
Northwest also achieved record revenue passenger miles of
74.2 billion RPMs, an increase of 11.1 %, and a record load
factor of 74.6%, as demand exceeded capacity additions.
International operations experienced the strongest gains,
primarily resulting from improvement in Asian economies
and significant Northwest growth in the Atlantic entity. Pacific
operations produced an 80.2% load factor, up 4.3 points, as
leisure traffic improved early in 1999 and business traffic began
to improve later in the year. Northwest expects to increase
capacity in the Pacific in 2000 to accommodate anticipated
increases in demand. With its strong and growing Asian hubs in
Tokyo and Osaka, Northwest is uniquely positioned to benefit
from the improvement in the Asian economies.
75
70
65
$1 ,607
1,500 $1 ,372
$1 ,259
1,000
500
$337
$88
'93 '94 '95 '96 '97 '98 '99
As a result of achieving record operating levels, vigilant cost
controls and efficiency initiatives, particularly in the area of
distribution, Northwest resumed its position as an industry
leader in providing low cost network air transportation.
Operating cost per seat mile improved by 5.4% in 1999 to
8.71 cents per ASM, less than 1 % higher than 1997'.s 8.63 cents
per ASM.
Complementing 1999's 5.4% cost per ASM improvement,
Northwest reported a 5% improvement in system unit passenger
revenue. Northwest was able to achieve above industry average
domestic unit revenue m the second half of 1999. We believe
there is significant opportunity for revenue per ASM
improvement in 2000.
~
NORTHWEST AIRLINES )
~ . - - - - - - - - - - "
Passenger Revenue per ASM
cents
9.50
9.00 8.87
8.50
8.25
8.00
7.59
7.50
7.00
'93 '94 '95
OPERATING MARGIN
9.16
9.00
8.23
'96 '97 '98
8.64
'99
The 5.4% unit cost improvement and 5% passenger unit
revenue improvement in 1999 resulted in a nine point
improvement in l 999's operating margin to 6. 9% from the
negative 2.1 % in 1998.
Operating Margin
12%
10.1% 10.1%
3.5%
'93 '94 '95
-4
10.7%
11 .3%
'96 '97 '98
(2.1%)
6.9%
'99
For the period 1993 through 1997, orthwest had the highest
operating margin among the six largest passenger airlines in
the U. . With Asian economies recovering and orthwest
continuing to benefit from its aggressive cost controls and
alliance initiatives, we believe that orthwest is well positioned
to continue its historic operating margin performance.
EARNINGS PER SHARE
Over the la t fifty years, orthwest has been one of the most
consi tently profitable airlines in the U. . ince 1948 orthwest
has only failed to report a profit during two periods. The first
was the Gulf ar period and the other was related to the labor
strike in 1998. v hile 1999s 3.26 earnings per share did
not reflect a full recovery from 1998, the $6.74 improvement
from l 998's $3 .48 reported loss per share reflects substantial
improvement and the airline is well positioned for further recovery
Diluted EPS
$6
$4.52
$2.90 $2.90
$3.26
'93 '94 '95 '96 '97 '98 '99
-2
($2.85)
-4
($3.48)
FLEET INITIATIVES
orthwest continued to simplify and modernize its fleet in
1999 by retiring and replacing certain fleet types no longer best
suited for the Company's route structure and by refu1-bishing
other aircraft in its existing fleet. Several major fleet transactions
and decisions were completed in 1999.
- orthwest took delivery of four new Boeing 7 4 7-400s.
- The freighter fleet was increased from eight to ten freighters
with the acquisition of two Boeing 7 4 7-200 freighters.
- orthwest took delivery of seven 150-seat Airbus A320
aircraft.
- orthwes took delivery of the first ten of its initial order for
50 124-seat Airbus A319 aircraft.
- Two DCl0-30 aircraft were acquired to meet market growth
plans in the Atlantic.
- orthwest's Airlink affiliate Mesaba took delivery of 11 AVRO
RJ85 regional jets.
- orthwest ordered 54 new SO-seat regional jets to be
delivered to a commuter affiliate starting in April 2000,
with options for up to 70 additional aircraft.
- orthwest decided to replace its fleet of 31 Boeing 727-200
aircraft and exercised options for 18 A319s and 12 A320s
from Airbus to replace these aircraft in 2002 and 2003.
- Hushkitting was completed on the entire DC9 and 72 7 fleet.
- orthwest retired its fleet of eight MD-80 aircraft.
- orthwest replaced the interiors of its 7 4 7-200 fleet, initiated
a program to refurbish the interiors of its 757 fleet and neared
completion of a program to refurbish the interiors of the
DCl0-30 fleet.
CAPITAL STRUCTURE MANAGEMENT
As a result of s~gnificant earnings improvement in 1999 and
selected financing transactions, orthwest ended 1999 with
$2.32 billion in cash and available revolving credit facilities.
Liquidity
millions
$2,500
2,000
1,500
1,000
500
$1,259
$380
'93 '94
In 1999, orthwest:
$2,322
$2,119
$1,479 $1,484
$1,159
'95 '96 '97 '98 '99
- Completed a public offering for $4 21 million of pass-through
trust certificates at a blended 7.16% rate to finance the
acquisition of four new Boeing 7 4 7-400 aircraft delivered
in 1999.
- Issued $200 million 8.52% unsecured notes due in 2004.
- Accessed a new capital market for the first time with a retail
issuance of S 14 3 million 9 .5% unsecured bonds, which
mature in 2039.
- Financed 21 new Airbus A319 and A320 aircraft with a
public offering of 5555 million of pass-through trust
certificates at a blended 7. 7 4% rate.
- Completed a public offering of $240 million of pass-through
trust certificates to finance 14 AVRO RJ85 regional jets at a
blended cost of 8.39%.
- Completed long-term leveraged lease financing through sale
and leaseback of 23 aircraft.
- Fully repaid its 5825 million revolving credit facility and
S562 million in aircraft bridge financing.
( 1999 ANNUAL REPORT
- - - - - - - - - 27
ALLIANCE DEVELOPMENTS
orthwest continued its industry leading role in creating and
implementing global alliance networks as a way to diversify
risk and increase its core business while minimizing capital
investment. In 1999 several initiatives were taken to increase
long-term profitability and shareholder value.
- orthwest and Continental implemented their code-share
alliance creating $160 million of joint benefits with expectations
of $250 million in 2000, and over $500 million in annual
joint benefits when fully developed.
- orthwest received anti-trust immunity for a tripartite trans-
Atlantic joint venture with alliance partners KLM and Alitalia.
- Alliances with Air China and Japan Air System were
expanded and a new alliance agreement was reached with
Malaysia Airlines.
- orthwest initiated the expansion of its profitable cargo business
in 1999, increasing its cargo fleet by 25% and initiating
alliance discussions with several international cargo airlines.
OUTLOOK
orthwest has resumed its role as an industry leader in
operating performance. lts fleet is being simplified and
modernized and its facilities are being expanded. The
~orthwest product is being significantly improved and
customer conveniences are being enhanced with industry
leading initiatives in technology. The Company's cost structure
is among the lowest of major U.S. network airlines and revenue
has rebounded from the strike-affected 1998 performance.
Seven of orthwests nine labor contracts have been signed with
terms of four to six years and the remaining two are being
negotiated. orthwest continues to be an industry leader in
alliance development and implementation and this experience
will now be applied to its profitable cargo business.
-orthwest has an experienced management team that is focused
on improving customer service, employee relations and
shareholder value. We are confident that we have positioned the
Company to take advantage of our global alliance developments
and the economic recovery in Asia.
f---
N_ O
_ R
_ T
_ H
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E_ s_ T __
A_ I _ R
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
orthwest Airlines Corporation (" WA Corp." and, together
with its subsidiaries, the "Company") reported net income of
$300 million for the year ended December 31 , 1999, compared
with a net loss of $285 million in 1998. Diluted earnings per
common share were $3.26 in 1999 compared with a diluted loss
per share of $3.48 in 1998. Operating income of $714 million
was reported in 1999 compared to an operating loss of
$191 million in 1998. orthwest Airlines, Inc. ("Northwest")
is the principal indirect operating subsidiary of WA Corp.,
accounting for more than 95% of the Company's 1999
consolidated operating revenues and expenses.
The year ended December 31 , 1998 was affected by labor-related
disruptions which included a pilots' strike. Because of these
events, year-over-year comparisons are not useful to measure
the underlying operating and financial performance of the
Company. However, for continuity of reporting, the traditional
comparisons are presented herein. The Company estimated
the impact in lost revenue and incremental expenses to be
approximately 1.04 billion on a pre-tax basis for the year
ended December 31, 1998.
RESULTS OF OPERATIONS -1999 COMPARED TO 1998
Operating Revenues - Operating revenues increased 13.6%
($1.23 billion). System passenger revenue (excluding Express
Airlines I, Inc. ("Express") revenues of $104 million and
$94 million for the years ended December 31 , 1999 and 1998,
respectively) increased 14.3% ($1.075 billion) primarily
attributable to an increase in Northwest's scheduled service
ASMs and an increase in orthwest's passenger RASM, both
of which resulted from improved operational performance in
1999 and the recovery from the 1998 labor disruptions. The
increase in passenger RASM was partially offset by the residual
effects of lower premium traffic in early 1999 and lower Atlantic
yields caused by industry-wide capacity growth throughout 1999.
Domestic passenger revenue increased due to more capacity and
higher yields. Capacity increased as a result of normalized
aircraft utilization and improved operational performance.
Pacific passenger revenue was higher due to increased yields
caused by a 15. 7% strengthening of the yen and the recovery
from the 1998 labor disruptions. The average yen per U.S. dollar
The following analysis by market is based on information reported to the U.S. Department of Transportation ("DOT") and
excludes Express:
System Domestic Pacific Atlantic
1999
Passenger revenue (in millions) $ 8,588 $ 5,940 $ 1,802 $ 846
Increase!(decrease) from 1998:
Passenger revenue (in millions) $ 1,075 $ 750 $ 182 $ 143
Percent 14.3 % 14.4 % 11.2 % 20.4 %
Scheduled service ASMs (capacity) 8.9 % 11.4 % (.7)% 22.2 %
Passenger RASM 5.0 % 2.7 % 12.0 % (1.4)%
Yield 2.8 % 2.3 % 5.9 % (3.0)%
Passenger load factor 1.5 pts. .3 pts. 4.3 pts. 1.3 pts.
exchange rate for the ' ar ended De mber 31 , 1999 and 199
was 115 and 133, re pectively. Capa ity \ as decrea ed in 1999
in re_ pon e to the continued weak Asian e anomic environm nt
and increa ed competition and was off et b , the r covery from
the labor disruptions. Pas enger load fa Lor increa d -+.3 point
in 1999 a the Company began to experience an increa in
demand in the second half of 1999.
Atlantic passenger revenue in rea ed due to an in rea e in
capa ity, which resulted primarily from ne\ flying and wa
partially offset by decreased yield caused by overall indu try-
wide capacity gro, th. Th ne, flying included incr ase in
Minneapolis/ t. Paul-Amsterdam and Detroit-Amsterdam ervic
Cargo revenue increased H.-+% ( 91 mi.Ilion) due LO a 19.5 r
o
increase in cargo ton miles v hich \ as partially offset by a -+.3%
decrease in cargo revenue p r Lon mile due to the weaker Asian
economic environment. The Companys ninth Boeing H 7 freighter
entered servi e in eptember 1999. A tenth fr ighter has been
acquired and is scheduled Lo enter ervic in 2000. Other
revenue increased 6. % ( 55 million) due Lo a high r volume of
business for MLI Inc. and increased passenger and cargo
charters which was partially off et by 10\ er KLM joint venture
alliance settlements.
Operating Expenses - Operating e, pen es incr ased 3.5%
($326 million). Operating capacity increased 8.9% Lo
99.57 billion total service A Ms whi h contributed to the 5.4%
decrease in operating expense per total ervice A M. alaries,
wages and benefits increased -+.0% ($132 mi.Ilion) due primarily
to wage and benefit increases from settled comracts with
collective bargaining units and an increase in average full-time
equivalent employees of 2.7%, partially offset by 1998
provisions for retroactive compensation related to collective
bargaining agreements.
Aircraft fuel and taxes increased 8.6% ($94 million) due LO an
8.6% increase in fuel gallons consumed. Commissions increased
6.4% ($44 million) due to higher revenues, partially offsel by a
lower effective commission rate caused by a shift in revenue
mix, a decrease in the percenL
age of commissionable LickeL sales
and changes Lo the Company's commission rate structure which
(~_1 _9_9_9 __
A_N_N_u_A_L __
R_E_P_o_R_T-------1
were effe Liv in OcLOber 1999. Thee chancres arc e timated LO
reduce commis ion expcn b , approximately O million
during 2000. ir raft maimenance, material and r pair
decrea ed 16.6% ( 126 million) due Lo fev er engine and
airframe overhaul and lower than anticipated co L a
with out idc air raf L maintenanc . DepreciaLion and
amorti.:aLion in rea ed 11.9% ( 51 million) due LO addiLi nal
owned aircraft and air raft modification . Other expense
(the principal ompon nL f \ hicl1 in lud outside ervi. e ,
elling and marketing expen e , pa enger food, personnel,
adverLi ing and promotional exp n e , communication expenses
and uppli ) in rea ed 3.9% ($ 5 million) due primarily LO
increa cd busine s for 1LT lnc. and increased variable co t
a ociaLcd \ ith in rea ed apaciLy, which , ere partially offset by
reduced claims and adverti mg and promotion . Addinonally,
199 included a fleet dispo iLion charge of 66 million for
the ac eleraLed reLiremem of even of the Company' oldest
Boeing H 7 aircraft.
0th r In come and E, pense - Inter L expense increa ed 15.2%
( 50 million) primarily due to additional borrov ngs. Earning
of affiliated companie in reased $77 million primarily from Lh
Companys recognition of its share of Comin mal Airlines, lnc.
("Continental") and W ORLDSPAN earning . Other income
increa ed primarily due LO a $48 mi.Ilion gain from the sale
of a portion of orthwest' investmem in Equam
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Operating Revenues - Operating revenues d creased 11.5%
($1.18 billion). ysLem pa senger revenue (excluding Express
revenues of $94 million and $100 million for the years ended
December 31, 1998 and 1997, respectively) decrea ed 13.9%
($1.209 billion) p1imaiily amibutable to a decrease in orthwest'
scheduled service A Ms and a decrease in Northwest's pas enger
RA M due to the labor disruptions. The decrease in RA M was
also a result of a weaker Asian economic environmenL and
weaker foreign currency exchanger L
es.
~
NORTHWEST AIRLINES )
~ - - - - - - - ~
The following analysis by market is based on information reported to the DOT and excludes Express:
System Domestic Pacific Atlantic
1998
Passenger revenue (in millions) $ 7,513 $ 5,190 $ 1,620 $ 703
Increase!(decrease) from 1997:
Passenger revenue (in millions) $ (1,209) $ (692) $ (573) $ 56
Percent (13.9) % (11.8) % (26.1) % 8.6 %
Scheduled service ASMs (capacity)
Passenger RA M
Yield
Passenger load factor
Domestic passenger revenue was lower due to decreased capacity
and yields resulting from the labor disruptions.
Pacific passenger revenue decreased due to the labor disruptions,
an unfavorable general economic environment in the Pacific and
weaker Asian currencies, of which the largest impact was due to
the Japanese economy and yen. The average yen per U.S. dollar
exchange rate for the years ended December 31, 1998 and 199 7
was 133 and 120, respectively, a weakening of the yen of 9.4%.
In response to the continued weak Asian economic environment,
lower demand and increased competition, the Company reduced
capacity in the region during 1998.
Atlantic passenger revenue increased due to an increase in
capacity which resulted primarily from new flying (including
service to Mumbai and Delhi, India from Amsterdam) and the
initiation of Philadelphia-Amsterdam and Seattle-Amsterdam
service and increases in Minneapolis/St. Paul-Amsterdam and
Detroit-Amsterdam services, offset by a decrease in RASM as a
result of the labor disruptions.
Cargo revenue decreased 19.7% ($155 million) due to 14.4%
fewer cargo ton miles and a 6.2% decrease in cargo revenue per
ton mile due to the labor disruptions, a weaker Asian economic
environment and weaker Asian currency exchange rates. Other
re enue increased 30.7% ($189 million) due to increased revenue
from KLM joint venture alliance settlements and MLT Inc.
Operating Expenses - Operating expenses increased 1.8%
( 167 million). Operating capacity decreased 5.9% to
91.4 billion total service ASMs which contributed to the 6.7%
(5.8) % (6.3) % (12.1) % 22.2 %
(8.6) % (5.8) % (15.9) % (11.1) %
(7.0) % (5.4) % (13.4) % (5.4) %
(1.2) pts. (.3) pts. (2.2) pts. (5.1) pts.
increase in operating expense per total service ASM. Salaries,
wages and benefits increased 7.8% ($237 million) due primarily
to an increase in average full-time equivalent employees of
4.0%, retroactive compensation related to collective bargaining
agreements and the impact of settled contracts. Aircraft fuel
and taxes decreased 21.3% ($297 million) due to a 17.4%
decrease in the average fuel price per gallon from 64.86 cents
to 53.60 cents and a 6.0% decrease in fuel gallons consumed
as a result of the labor disruptions. Commissions decreased
19 .1 % ($163 million) due to lower revenues as a result of the
labor disruptions, a lower effective commission rate caused by a
shift in revenue mix and changes to the Company's commission
structure which began in September 1997. Aircraft maintenance,
materials and repairs increased 22. 7% ($141 million) due to
higher utilization of outside suppliers as a result of increased
scheduled overhauls and timing of check cycles, and decreased
employee productivity due to the labor disruptions. Other
expenses increased 12.2% ($239 million), due primarily to
increased business for MLT Inc., claims, advertising and
promotions, as well as the accelerated retirement of seven of
the Company's oldest Boeing 7 4 7 aircraft, which resulted in a
fleet disposition charge of $66 million recorded in the fourth
quarter. See Note 1 to the Consolidated Financial Statements
for additional discussion of the fleet disposition charge.
Other Income and Expense - Interest expense-net increased
33.3% ($78 million) primarily due to additional borrowings to
fund the Company's cash requirements. The foreign currency
loss for the year ended December 31, 1998 was primarily
attributable to balance sheet remeasurement of foreign
currency-denominated assets and liabilities. Other income
increased primarily due to the sale of an equity investment in
GHI Limited.
LIQUIDITY AND CAPITAL RESOURCES
At December 31 , 1999, the Company had cash and cash
equi alents of 7 49 million and borrowing capacity of
1.57 billion 1:1nder its re olving credit facilities, providing
total available liquidity of $2.32 billion.
Cash flows from operating activities '- ere 1.26 billion for
1999, an increase of $1.17 billion compared with 1998 due
primarily to improved operational performance, lower pension
contributions, an 84 million dividend from W ORLDSPA
and
an increase in working capital. Cash flows from operating
activities were $88 million for 1998 and $1.61 billion for 1997.
et cash used in investing and financing activities during 1999,
1998 and 1997 was $990 million, $348 million and
$1.43 billion, respectively.
Investing Activities - Investing activities in 1999 consisted
primarily of the purchase of seven Airbus A320 aircraft, ten
Airbus A3 l 9 aircraft, four Boeing 74 7 -400 aircraft, 11 A VRO
RJ85 aircraft and two used DClO aircraft, the purchase off
lease of four DC9-50 aircraft, costs to commission aircraft
before entering revenue service, engine hushkitting, aircraft
modifications, deposits on ordered aircraft and ground
equipment purchases.
Investing activities in 1998 consisted primarily of the purchase
of 13 Airbus A320 aircraft, ten AVRO RJ85 aircraft, and three
used DCl0 aircraft, costs to commission aircraft before entering
revenue service, engine hushkitting, aircraft modifications,
deposits on ordered aircraft and ground equipment purchases.
On ovember 20, 1998, A Corp. issued 2.6 million shares
of common stock and paid $399 million in cash to acquire the
beneficial ownership of 8. 7 million shares of Class A Common
Stock of Continemal. The Company funded its investment in
Continental with cash from its general working capital.
Investing activities in 1997 consisted primarily of costs to
commission aircraft before entering revenue service, deposits
on ordered aircraft, the refurbishment of DC9 aircraft, engine
( 1999 ANNUAL REPORT~
--- ----------lo
hushkitting, ground equipment purchases, the acquisition of
Express, the purchase off lease of four aircraft and the purchase
of eight AVRO RJ85 aircraft, one DCl0-30 aircraft and three
DC9-30 aircraft.
Financing Activities - Financing activities in 1999 consisted
primarily of the public issuance of 200 million of unsecured
notes, the public issuance of $14 3 million of 40-year senior
unsecured quarterly interest bonds (which are callable after
five years), the long-term leveraged operating lease financing
through sale and leaseback of four Boeing 7 4 7-400 aircraft,
seven Airbus A320 aircraft, two Airbus A3 l 9 aircraft and
ten AVRO RJ85 aircraft and various secured aircraft and
ground equipment financings , offset by full repayment of the
825 million revolving credit facilities and $562 million of
aircraft deli ery bridge financing, and the payment of
scheduled debt and capital lease obligations.
During 1999, the Company completed three public offerings
totaling 1.22 billion of pass-through trust certificates to
finance the acquisition of 39 ne\ aircraft delivered in 1999 or
scheduled for delivery in 2000. The cash proceeds from the
pass-through certificates were deposited ,vith an escrow agent
and enable the Company to finance or refinance (through either
leveraged leases or secured debt financing) the acquisition of
these aircraft. If le, eraged leases are obtained for these aircraft
under which the aircraft will be sold and leased back to
1 orthwest, the pass-through certificates ,vill not be direct
obligations of A Corp. or orthwest. At December 31 ,
1999, the Company had utilized $196 million as secured debt
financing and 679 million in long-term leveraged operating
leases. The remaining $342 million is in escrow and not recorded
as an asset or direct obligation of A Corp. or l orth\vest.
The Company has two secured bank revolving credit facilities.
A core facility provides a credit line of $835 million available
until December 2002 , of which $160 million is subject to
renewal in December 2000 and 2001. Any portion not renewed
by individual participating banks becomes at that time available
for drawdown as a term loan maturing in December 2002 .
An additional facility of $750 million was a ailable until
February 2000, at which time it\ as renewed as a $500 million
facility expiring in February 2001.
NORTHWEST AIRLINES )
32 > - - - - - - - - - - - - -
Financing activities in 1998 included the Company's repurchase
of its remaining Common Stock held by KLM, the public
issuance of $400 million of unsecured notes, the incurrence
of $240 million of debt secured by six Boeing 757 aircraft,
the payment of debt and capital lease obligations, and the
sale and leaseback of 13 A320 aircraft and four AVRO RJ85
aircraft. During the third quarter, in anticipation of potential
labor disruptions, the Company borrowed the $2.08 billion
available under its credit facilities, and subsequently repaid
uch borrowings. In October 1998, the Company borrowed
$835 million to fund its cash requirements.
On May 1, 1998, NWA Corp purchased from KLM the remaining
18.2 million shares of NWA Corp. Common Stock The Company
had previously agreed to repurchase the shares over a three-year
period ending in September 2000. The purchase price of
$780 million was paid with a combination of $337 million of
cash and three senior unsecured 7.88% notes.
Financing activities in 1997 pertained primarily to NWA Corp.'s
repurchases of its Common Stock and eries A and B Preferred
Stock, the public issuance of $250 million of unsecured notes,
the sale and leaseback of eight AVRO RJ85 aircraft and the
payment of debt and capital lease obligations. In September 1997,
the Company repurchased 6.8 million shares of NWA Corp.
Common Stock held by KLM for $2 73 million. Concurrently, all
of WA Corp.'s Series A and B Preferred Stock held by KLM
and other holders was repurchased for $251 million. Both
repurchases were funded using existing cash resources.
ee Note 3 to the Consolidated Financial Statements for
maturities of long-term debt for the five years subsequent to
December 31, 1999.
Capital Commitments - The current aircraft delivery schedule
provides for the acquisition of 111 aircraft over the next seven
years. ee Note 10 to the Consolidated Financial Statements for
additional discussion of aircraft capital commitments. Other
capital expenditures, including costs to commission presently
owned aircraft that have not yet entered revenue service, and
aircraft modifications, are projected to be approximately
$350 million in 2000, which the Company anticipates funding
primarily with cash from operations
Working Capital - The Company operates, like its competitors,
with a working capital deficit, which aggregated $ 1.51 billion at
December 31, 1999. The working capital deficit is primarily
attributable to the $1.42 billion air traffic liability for advance
ticket sales.
OTHER INFORMATION
Labor Agreements - Approximately 90% of the Companys
employees are members of collective bargaining units. In 1998
and 1999, the Company signed seven new agreements with its
domestic collective bargaining groups. The terms of the new
agreements range from four to six years. Contract negotiations
commenced in October 1999 with the Aircraft Mechanics
Fraternal Association ("AMFA"), which represents the
Company's mechanics. In February 2000, the Company and
AMFA jointly requested mediation from the National Mediation
Board. The Company is presently in mediated negotiations with
the union representing its flight attendants. The Company
believes that mutually acceptable agreements can be reached
with these labor groups, but because the terms of the agreements
will be determined by collective bargaining, the Company
cannot predict the outcome of the negotiations at this time.
Income Taxes - Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury regulations
limit the amounts of net operating losses ("NOLs"), alternative
minimum tax net operating losses ("AMTNOLs") and credits
that can be used to offset taxable income (or used as a credit)
in any single tax year if the corporation experiences more than
a 50% ownership change, as defined in the Code, over a
three-year testing period ending on the testing date. See Note 9
to the Consolidated Financial Statements for information
regarding income taxes and NOLs, AMTNOLs and credits.
Management believes that an offering of outstanding common
stock by existing stockholders in November 1995 triggered an
ownership change, but that no ownership change occurred
before that time. If an ownership change did occur as a result of
that offering, management believes that, even as limited by the
Code, the Company would use the NOLs, AMTNOLs and
credits significantly earlier than their expiration and the annual
limitations would not adversely impact the Company However,
if the Internal Revenue Service were to successfully assert that
an ownership change had occurred on any date prior to
November 1995 (including August 1, 1993 when the Company
entered into labor agreements that provided stock for labor cost
savings), the Company'.s ability to use its NOLs, AMTNOLs and
credits would be significantly impaired because the value of
NWA Corp_'s stock on certain prior testing dates was relatively
low and a low value would adversely affect the annual limitation.
Detroit Midfield Terminal - The Company is_ managing and
supervising the design and construction of a $1.2 billion
terminal at Detroit Metropolitan Wayne County Airport. The
new terminal is scheduled to be completed in 2001 and will
add 7 4 gates and a regional jet aircraft facility as well as over
55 shops and restaurants, four WorldClubs5
M,
larger ticketing
areas, a 12,000-space parking facility and significant luggage
handling system upgrades. The new terminal has been funded
by the County's issuance of general airport revenue bonds
payable primarily from future passenger facility charges and
federal and State of Michigan grants. The Company and the
County have entered into agreements pursuant to which the
Company will lease space in the new terminal for a term of
30 years from the date the terminal opens.
Regulation - In April 1998, the DOT issued proposed
competition guidelines, which would severely limit major
carriers' ability to compete with new entrant carriers. In
addition, the Department of Justice is investigating competition
at major hub airports. The outcomes of the DOT guidelines and
the investigations cannot be predicted. However, to the extent
that restrictions are imposed upon Northwest's ability to respond
to competition, Northwest's business may be adversely impacted.
Year 2000 - The Company has successfully completed its
Year 2000 project and transitioned into the new year with no
Year 2000-related service interruptions.
New Accounting Standards - See ote 1 to the Consolidated
Financial Statements for recent accounting standards.
( 1999 ANNUAL REPORT (:;;\
~---------o
Forward-Looking Statements - Certain statements made
throughout the Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-
looking and are based upon information available to the
Company on the date hereof. The Company through its
management may also from time to Lime make oral forward-
looking statements. ln connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995, the Company is hereby identifying important factors that
could cause actual results to differ materially from those
contained in any forward-looking statement made by or on
behalf of the Company. Any such statement is qualified by
reference to the following cautionary statements.
It is not reasonably possible to itemize all of the many factors
and specific events that could affect the outlook of an airline
operating in the global economy Some factors that could
significantly impact expected capacity, load factors, revenues,
expenses and cash flows include the airline pricing environment,
fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other
carriers, actions of the U.S. and foreign governments, foreign
currency exchange rate fluctuations, inflation, the general
economic environment in the U .5. and other regions of the
world and other factors discussed herein.
Developments in any of these areas, as well as other risks and
uncertainties detailed from time to time in the Company'.s
Securities and Exchange Commission fi.lings, could cause the
Company's results to differ from results that have been or may
be projected by or on behalf of the Company. The Company
cautions that the foregoing list of important factors is not
inclusive. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. These
statements deal with the Company's expectations about the future
and are subject to a number of factors that could cause actual
results to differ materially from the Company's expectations.
(;"?\ NORTHWEST AIRLINES )
~ f - - - - - - - - - - ~
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from
adverse changes in the price of fuel, foreign currency exchange
rates and interest rates as discussed below. The sensitivity
analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they
consider additional actions management may take to mitigate its
exposure to such changes. Actual results may differ. See Note 14
to the Consolidated Financial Statements for accounting policies
and additional information.
Aircraft Fuel - The Company's earnings are affected by changes
in the price and availability of aircraft fuel. In order to provide a
measure of control over price and supply, the Company trades
and ships fuel and maintains fuel storage facilities to support its
flight operations. The Company also manages the price risk of
fuel costs primarily utilizing futures contracts traded on regulated
exchanges and fuel swap agreements. Market risk is estimated
as a hypothetical 10% increase in the December 31 , 1999
cost per gallon of fuel based on projected 2000 fuel usage
which would result in an increase to aircraft fuel expense of
approximately $110 million in 2000, net of gains realized from
fuel hedge instruments outstanding at December 31 , 1999,
compared to an estimated $80 million at December 31 , 1998.
As of December 31, 1999, the Company had hedged
approximately 24% of its 2000 fuel requirements, compared
to 10% at December 31 , 1998.
Foreign Currency - The Company is exposed to the effect of
foreign exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated operating revenues and expenses.
The Company's largest exposure comes from the Japanese yen.
From time to time, the Company uses financial instruments to
hedge its exposure to the Japanese yen. The result of a uniform
10% strengthening in the value of the U.S. dollar from
December 31 , 1999 levels relative to each of the currencies in
which the Company's revenues and expenses are denominated
would result in a decrease in operating income of approximately
$53 million for the year ending December 31 , 2000, net of
gains realizable from yen hedge instruments outstanding at
December 31 , 1999, compared to an estimated $60 million
decrease at December 31 , 1998. This is due to the Company's
foreign currency-denominated revenues exceeding its foreign
currency-denominated expenses.
The Company also has a foreign currency non-cash exposure.
An increase to other income caused by the remeasurement of
net foreign currency-denominated liabilities and the increase to
common stockholders' equity deficit due to the translation of net
yen-denominated liabilities resulting from a 10% strengthening
in the value of the U.S. dollar is not material for 1999 and 1998.
This sensitivity analysis was prepared based upon projected
foreign currency-denominated revenues and expenses and
foreign currency-denominated assets and liabilities as of
December 31 , 1999 and 1998.
In 1999, the Company's yen-denominated revenues exceeded
its yen-denominated expenses by approximately 45 billion yen
(approximately $391 million) and its yen-denominated liabilities
exceeded its yen-denominated assets by an average of eight billion
yen (approximately $70 million) compared with 38 billion yen
(approximately $286 million) and 16 billion yen (approximately
$125 million), respectively, in 1998. In general, each time the
yen strengthens (weakens), the Company's operating income is
favorably (unfavorably) impacted due to net yen-denominated
revenues exceeding expenses and a non-operating foreign
currency loss (gain) is recognized due to the remeasurement
of net yen-denominated liabilities. The Company's operating
income in 1999 was favorably impacted by approximately
$45 million due to the average yen being stronger in 1999
compared to 1998 and negatively impacted in 1998 by
approximately $20 million due to the average yen being weaker
in 1998 compared to 1997. The yen to U.S. dollar exchange
rate at December 31 , 1999, 1998 and 1997 was 102 yen to $1 ,
113 yen to $1 and 131 yen to $1 , respectively. There was no
material impact on 1999 and 1998 earnings associated with the
Japanese yen financial instruments utilized to hedge its 1999
and 1998 net yen-denominated cash flows. As of December 31,
1999, the Company had entered into forward contracts to
hedge approximately 31 % of its 2000 yen-denominated sales,
compared to 35% at December 31 , 1998, which also represents
approximately 95% of the Company's excess of yen-dominated
revenues over expenses in 1999 and 2000.
Interest - The Company's earnings are also affected by changes
in interest rates due to the impact those changes have on its
interest income from cash equivalents and short-term
investments and its interest expense from floating rate debt
instruments. The Company has mitigated this risk by limiting
its floating rate indebtedness to approximately 34% and 46% of
long-term debt and capital leases at December 31, 1999 and
1998, respectjvely. If long-term interest rates average 10% more
in 2000 than they did during 1999, the Company's net interest
expense would increase by approximately $10 million,
compared to an estimated $14 million for 1999 measured at
December 31 , 1998. If short-term interest rates average 10%
more in 2000 than they did during 1999, the Company'.s
interest income from cash equivalents and short-term
investments would increase by approximately $4 million
A N N U A L REPORT
compared to an estimated $3 million for 1999 measured at
December 31 , 1998. These amounts are determined by
considering the impact of the hypothetical interest rates on
the Company'.s floating rate indebtedness, cash equivalent and
short-term investment balances at December 31, 1999 and 1998.
Market risk for fixed-rate indebtedness is estimated as the
potential increase in fair value resulting from a hypothetical
10% decrease in interest rates and amounts to approximately
$77 million during 2000, compared to an estimated $50
million for 1999 measured at December 31 , 1998. The fair
values of the Company's indebtedness were estimated using
quoted market prices or discounted future cash flows based on
the Company's incremental borrowing rates for similar types of
borrowing arrangements.
(:;;\ NORTHWEST AIRLINES )
~ - - - - - - - ~ -
CONSOLIDATED BALANCE SHEETS
orthwest Airlines Corporation
{In millions)
ASSETS
Current Assets
Cash and cash equivalents
Restricted short-term investments
Accounts receivable, less allowance
(1999-$16; 1998-$23)
Flight equipment spare parts, less allowance
(1999-$131; 1998-$159)
Def erred income taxes
Prepaid expenses and other
Total current assets
Property and Equipment
Flight equipment
Less accumulated depreciation
Other property and equipment
Less accumulated depreciation
Total property and equipment
Flight Equipment Under Capital Leases
Flight equipment
Less accumulated amortization
Other Assets
Investments in affiliated companie~
International routes, less accumulated amortization
(1999-$286; 1998-$263)
Other
Total Assets
The accompanying notes are an imegral pan of these consolidated financial statements.
$
$
1999
749
41
521
348
116
288
2,063
6,374
1,644
4,730
1,761
743
1,018
5,748
846
258
588
690
681
814
2,185
10,584
December 31
$
$
1998
480
48
665
387
114
176
1,870
6,168
1,485
4,683
1,654
678
976
5,659
873
263
610
676
704
762
2,142
10,281
( 1999 ANNUAL REPORT
'--- - - - - - - - - - - 1 37
December 31
(In millions, except share data) 1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Air traffic liability $ 1,422 $ 1,107
Accounts payable 494 683
Accrued compensation and benefits 523 504
Accrued aircraft rent 222 208
Accrued commissions 95 150
Other accrued liabilities 449 433
Current maturities of long-term debt 312 319
Current obligations under capital leases 60 58
Total current liabilities 3,577 3,462
Long-Term Debt 3,354 3,682
Long-Term Obligations Under Capital Leases 537 597
Deferred Credits and Other Liabilities
Def erred income taxes 1,222 1,113
Long-term pension and postretirement health care benefits 542 500
Other 535 579
2,299 2,192
Mandatorily Redeemable Pref erred Security of
Subsidiary Which Holds Solely Non-Recourse
Obligation of Company - Note 5
(Redemption value 1999- $692; 1998- $632) 626 564
Preferred Redeemable Stock
(Liquidation value 1999- $245; 1998- $264) 243 261
Common Stockholders' Equity (Deficit)
Common stock, $.01 par value; shares authorized- 315,000,000; shares issued
(1999- 109,576,810; 1998-108,953,764) 1
Additional paid-in capital 1,454 1,445
Accumulated deficit (349) (649)
Accumulated other comprehensive loss (9) (68)
Treasury stock (1999- 27,497,612; 1998- 28,978,351) (1,149) (1,206)
(52) (477)
Total Liabilities and Stockholders' Equity (Deficit) $ 10,584 $ 10,281
(:;;\ NORTHWEST AIRLINES )
~ 1 - - - - - - - - - - - - - -
CONSOLIDATED STATEMENTS OF OPERATIONS
Northwest Airlines Corporation
(In millions, except per share amounts)
Operating Revenues
Passenger
Cargo
Other
Total operating revenues
Operating Expenses
Sala1ies, wages and benefits
Aircraft fuel and ta,-ces
Commissions
Aircraft maintenance materials and repairs
Other rentals and landing fees
Depreciation and amortization
Aircraft rentals
Other
Total operating e>-.-penses
Operating Income (Loss)
Other Income (Expense)
Interest expense
Interest capitalized
Interest of mandatorily redeemable preferred security holder
Investment income
Earnings of affiliated companies
Foreign currency gain (loss)
Other, net
Total other income (expense)
Income (Loss) Before Income Taxes and Extraordinary Item
Income tax eA1Jense (ben fit)
Income (Loss) Before Extraordina1y Item
Loss on extinguishment of debt, net of taxes
Net Income (Loss)
Preferred stock requirements
Net Income (Loss) Applicable To Common Stockholders
Earnings (Loss) Per Common Share:
Basic
Before effects of extraordinary item
Loss on extinguishment of debt
Eamings aoss) per common share
Diluted
Befor effects of extraordinary item
Loss on extinguishment of debt
Earning CToss) per common share
The accompan)'ing note are an imegral part of these consolidated linancial statements.
1999
$ 8,692
725
859
$
$
$
$
$
10,276
3,393
1,191
736
635
486
478
355
2,288
9,562
714
(379)
16
(27)
40
86
(1)
38
(227)
487
187
300
300
(1)
299
3.69
3.69
3.26
3.26
Year Ended December 31
1998
$ 7,607
$
634
804
9,045
3,261
1,097
692
761
450
427
345
2,203
9,236
(191)
(329)
17
(22)
79
9
(22)
29
(239)
(430)
(145)
(285)
(285)
(1)
(286)
$ (3.48)
$ (3.48)
$ (3.48)
$ (3.48)
1997
$ 8,822
$
$
$
$
$
789
615
10,226
3,024
1,394
855
620
457
396
359
1,964
9,069
1,157
(245)
11
(24)
68
15
2
1
(172)
985
379
606
(9)
597
(14)
583
5.89
(.10)
5.79
5.29
(.08)
5.21
( 1 9 9 9 A N N u A L R E p 0 R T
CONSOLIDATED STATEMENTS OF CASH FLOW
orthwest Airlines Corporation
Year Ended December 31
(In millions) 1999 1998 1997
Cash Flows From Operating Activities
et income Ooss) $ 300 $ (2 5) $ 597
Adjustments to reconcile net income (l ss) to
net cash provided by operating activities:
Depreciation and amortization 478 427 396
Income tax e 'pen e (benefit) 187 (145) 379
et refunds (payments) of in ome ta,"es (6S) 8 (114)
Pen ion and other po tretirement benefit contribution
(in ex es oD less than e cpense 166 (26) (126)
Sale proceeds of frequent flyer miles in e cess of (less than) revenue (42) (7) 388
Other, net 11 68 (3)
Changes in ertain assets and liabilitie :
Decrea e in accounts recei\ able 106 44 40
Decrea e (in rease) in flight equipment spare parts 14 (46) (137)
Decrease (increase) in prepaid e,"\.'Penses and other (S7) 91 (13)
Increase (decreas ) in air traffi liability 2S0 (140) 108
Increase (decrease) in account pa able and other liabilities (102) 8 82
Increase in accrued compensation and benefits 13 86 10
et a h provided by operating activities 1,2S9 88 1,607
Cash Flows from Investing Activities
Capital expenditures (1,038) (1,068) (724)
Purchases of short-term inve tments (288) (257) (632)
Proceeds from maturitie of short-term investments 330 641 469
Investments in affiliated companies (13) (415) (37)
Other, net 36 (14) 38
et cash used in in esting activitie (973) (1,113) (886)
Cash Flows From Financing Activities
Payment of long-term debt (1,681) (1,732) (347)
Payment of capital lease obligations (S7) (618) (61)
Payment of short-term notes payable (102)
Repurchase of common and preferred stock (437) (524)
Proceeds from long-term debt 779 2,910 251
Proceeds from sale and leaseback transactions 1,09S 669 168
Other, net (Sl) (27) (27)
et cash provided by (used in) financing activities (17) 765 (540)
Increase (Decrease) In Cash and Cash Equivalents 269 (260) 181
Cash and cash equivalents at beginning of period 480 740 559
Cash and cash equi alents at end of period $ 749 $ 480 $ 740
Cash and cash equivalents and unrestricted short-term
investments at end of period $ 749 $ 480 $ 1,040
Available to be borrowed under credit facilities $ 1,573 $ 1,004 $ 1,079
The accompanying notes are an integral pan of these consolidated financial statements.
~
NORTH W EST A IRL INE S )
~ ! - - - - - - - - - - ~
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY {DEFICIT)
Northwest Airlines Corporation
Additional
Common Stock Paid-In Accumulated
(In millions) Shares Amount Capital Deficit
Balance ]anuary 1, 1997 97.6 $
Net income
Other comprehensive income
Comprehensive income, net of tax
Repurchase of Common Stock
Common Stock committed to be repurchased
Shares issued to employee benefit plans 3.5
Accrued cumulative dividends on
Series A and B Preferred Stock
Accretion of Series C Preferred Stock
Tax benefit related to stock issued
to employees
Series C Preferred Stock converted
to Common Stock
Other
Balance December 31, 1997
Net loss
Other comprehensive income
Comprehensive loss, net of tax
Common Stock carrying value over
repurchase price
Shares issued to purchase an interest in
Continental Airlines, Inc.
Accretion of Series C Preferred Stock
Tax benefit related to stock issued to employees
Series C Preferred Stock converted to
Common Stock
Common Stock held in rabbi trusts
Other
Balance December 31, 1998
Net income
Other comprehensive income
Comprehensive income, net of tax
Accretion of Series C Preferred Stock
Series C Preferred Stock converted to
Common Stock
Common Stock held in rabbi trusts
Other
Balance December 31, 1999
1.8
.9
103.8
2.6
1.4
1.2
109.0
.6
109.6 $
1
1
1
1
The accompanying notes are an integral part of these consolidated financial statements.
$ 1,150
7
22
29
58
8
1,274
65
12
46
32
16
1,445
19
(11)
$ 1,454
$ (945)
597
(14)
(1)
(362)
(285)
(1)
(1)
(649)
300
(1)
$ (349)
Accumulated
Other
Comprehensive Treasury
Income (Loss) Stock
$ (113) $
11
(102)
34
(68)
59
(273)
(849)
(1 ,122)
68
(152)
(1 ,206)
57
$
Total
93
597
11
608
(266)
(827)
(14)
(1)
29
58
9
(311)
(285)
34
(25 1)
68
65
(1)
12
46
(120)
15
(477)
300
59
359
(1)
19
46
2
$ (9) $ (1,149) $ (52)
( 1999 ANNUAL REPORT ~
.__. ----------16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Northwest Airlines Corporation
("NWA Corp.") is a holding company whose principal indirect
operating subsidiary is Northwest Airlines, Inc. ("Northwest").
The consolidated financial statements include the accounts of
NWA Corp. and all consolidated subsidiaries (collectively, the
"Company"). All significant intercompany transactions have
been eliminated. Investments in 20% to 50% owned companies,
Continental Airlines, Inc. ("Continental") and NWA Funding,
LLC are accounted for by the equity method. Other investments
are accounted for by the cost method.
On November 20, 1998, NWA Corp. effected a holding company
reorganization. As a result, Northwest Airlines Holdings
Corporation (formerly known as Northwest Airlines Corporation
and prior to the reorganization the publicly traded holding
company, "Old NWA Corp.") became a direct wholly-owned
subsidiary of NWA Corp. NWA Corp. is now the publicly
traded holding company. Pursuant to the reorganization, each
share of Common Stock and Series C Preferred Stock of Old
NWA Corp. was converted into one share of Common Stock
and Series C Preferred Stock, respectively, of NWA Corp. with
the same rights and privileges as such shares of Old NWA Corp.
References to NWA Corp., Common Stock and Series C
Preferred Stock for time periods prior to November 20, 1998
refer to Old NWA Corp. and the Common Stock and Series C
Preferred Stock of Old NWA Corp., respectively.
Certain prior year amounts have been reclassified to conform to
the current year financial statement presentation.
Business - Northwest's operations comprise more than 95% of
the Company's consolidated operating revenues and expenses.
Northwest is a major air carrier engaged principally in the
commercial transportation of passengers and cargo, directly
serving more than 150 cities in 21 countries in North America,
Asia and Europe. Northwests global airline network includes
domestic hubs at Detroit, Minneapolis/St. Paul and Memphis,
an extensive Pacific route system with hubs at Tokyo and
Osaka, a trans-Atlantic alliance with KLM Royal Dutch Airlines
("KLM"), which operates through a hub in Amsterdam, and
with Alitalia which operates through hubs in Rome and Milan,
and a global alliance with Continental.
The year ended December 31 , 1998 was affected by labor-related
disruptions which included work actions, a 30-day cooling off
period, an 18-day cessation of flight operations due to the pilots'
strike during the third quarter, a seven-day gradual resumption
of flight operations and a rebuilding of traffic demand.
Flight Equipment Spare Parts - Flight equipment spare parts
are carried at average cost. An allowance for depreciation is
provided at rates which depreciate cost, less residual value,
over the estimated useful lives of the related aircraft.
Property, Equipment and Depredation - Owned property and
equipment are stated at cost. Property and equipment acquired
under capital leases are stated at the lower of the present value
of minimum lease payments or fair market value at the inception
of the lease. Property and equipment are depreciated to residual
values using the straight-line method over the estimated useful
lives of the assets. Commencing with the acquisition of the
parent of Northwest in 1989, estimated useful lives generally
range from four to 25 years for flight equipment and three to
32 years for other property and equipment. Leasehold
improvements are generally amortized over the remaining
period of the lease or the estimated service life of the related
asset, whichever is less. Property and equipment under capital
leases are amortized over the lease terms or the estimated
useful lives of the assets.
Airframe and Engine Maintenance - Routine maintenance and
airframe and engine overhauls are charged to expense as incurred.
Modifications that enhance the operating performance or extend
the useful lives of airframes or engines are capitalized and
amortized over the remaining estimated useful life of the asset.
International Routes - International routes are amortized on a
straight-line basis, generally over 40 years. Governmental policy
and bilateral agreements between nations regulate international
operating route authorities and alliances. Changes in such
policies or agreements could materially impact Northwest.
NORTHWEST AIRLINES )
42 - - - - - - - - ~
Impainnent of Long-Lived Assets - The Company evaluates
impairment of long-lived assets in compliance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The Company records impairment losses
on long-lived assets used in operations when events and
circumstances indicate the assets might be impaired and the
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. The
impairment loss is measured by comparing the fair value of the
asset to its carrying amount.
In 1998, the Company accelerated the retirement of its seven
oldest Boeing 7 4 7 aircraft and recorded a fleet disposition
charge of $66 million in other operating expenses. These
retirements were earlier than scheduled as a result of decreased
demand in the Pacific, the timing of major overhauls and the
oppornmity to accelerate the delivery of certain new Boeing
7 4 7 -400 aircraft in partial replacement of the retired aircraft.
The Company considered recent transactions involving sales of
similar aircraft and market trends in aircraft dispositions to
reduce the aircraft net book value to reflect the fair market
value of these assets. The fleet disposition charge included a
$14 million write-down of related spare parts to their estimated
fair market value.
Frequent Flyer Program - The estimated incremental cost of
providing travel awards earned under Northwest's WorldPerks
frequent flyer program is accrued. The Company sells mileage
credits to participating companies in its frequent flyer program.
A portion of such revenue is deferred and amortized as
transportation is provided.
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 and is regularly evaluated by the Company.
Advertising - Advertising costs, included in other operating
expenses, are expensed as incurred and were $124 million,
$13 7 million and $110 million in 1999, 1998 and 199 7,
respectively.
Employee Stock Options - The Company uses the intrinsic value
method prescribed by Accounting Principles Board Opinion
No. 25, "Accountingfor Stach Issued to Employees" and related
interpretations in accounting for employee stock options. Under
the intrinsic value method, compensation expense is recognized
only to the extent the market price of the common stock exceeds
the exercise price of the stock option at the date of the grant.
Foreign Currency - Assets and liabilities denominated in foreign
currency are remeasured at current exchange rates with resulting
gains and losses generally included in net income. The Preferred
Security (see Note 5) and other assets and liabilities associated
with certain properties located outside of the U.S. whose cash
flows are primarily in the local functional currency are translated
at current exchange rates, with translation gains and losses
recorded directly to accumulated other comprehensive loss,
a component of common stockholders' equity deficit.
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.
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 Standards - On September 23, 1999, the
Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue No.
99-13, "Application of EITF Issue No. 97-10, 'The Effect of Lessee
Involvement in Asset Construction,' and FASB Interpretation No. 23,
Lease of Certain Property Owned by a Governmental Unit or
Authority, to Entities that Enter into Leases with Governmental
Entities," which may require certain future financings related to
airport construction projects to be recorded on the balance sheet.
Previously, these types of transactions were generally accounted
for as operating leases. This consensus generally applies to
construction projects committed to after September 23, 1999.
The Company does not expect this change to have a material
impact on its results of operations or financial condition.
NOTE 2 - EARNINGS (LOSS) PER SHARE DATA
( 1999 A NN UAL REPORT ~
~-----------------i6
The follo\\ing table sets forth the computation of basic and diluted earning (loss) per common share for the years ended
December 31 (in millions, ex ept share data):
NUMERATOR:
Income (loss) before extraordinary item
Preferred stock requirements
Income (loss) applicable to common
stockholders for basic earnings (loss) per share
Effect of dilutive securities - eries C Preferred tock
Income (loss) applicable to common stockholders after
assumed conversions for diluted earnings (loss) per share
DENOMINATOR:
Weighted-average shares outstandingfor basic
earnings (loss) per share
Effect of dilutive securities:
Series C Pref erred tock
Shares held in non-qualified rabbi trusts
Employee stock options
Common stock repurchase obligation
Adjusted weighted-average shares outstanding and
assumed conversions for diluted earnings (loss) per share
1999
$
$
$
300
(1)
299
1
300
81 ,255,097
7,378,216
3,031 275
373,012
92,037 600
$
1998
(285)
(1)
(2 6)
(286)
2,341,741
82 ,341 ,7-+ 1
1997
606
(14)
592
1
593
100 616 605
9,981 ,547
1,319 177
280,253
112,197,582
For additional disclosures regarding the outstanding eries C Preferred tock, shares held in rabbi trusts, the employee stock options
and the KLM option, see Notes 6 and 7.
,___
N_ O
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_ H
_ w
__
E_ S_ T __
A_ I _R
__
L _ I _N
_ E
_ s
_)
NOTE 3 - LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt as of December 31 consisted of the following (in millions, with interest rates as of December 31, 1999):
1999 1998
Revolving er dit facilities due 2002 (a) $ $ 825
Uns cured notes due 2004 through 2008, 8.2 % weighted average rate (b) 847 649
Equipment pledge notes due through 2013, 7.7% weighted average rate 556 483
e ured notes due through 2009, 7.0% weighted average rate 349 349
Aircraft notes due through 2016, 6.0% weighted average rate (c) 347 362
NWA Trust No. 2 aircraft notes due through 2012, 9.8% weighted average rate (d) 251 258
ecured notes due through 2016, 6.9% (e) 240 240
ale-leaseback financing obligations due through 2020, 9.9% imputed rate CD 223 223
Pass-through trust certificates due through 2019, 7.8% weighted average rate (g) 196
WA Trust No. 1 aircraft note due through 2006, 8.6% weighted average rate (h) 180 195
Term loans due 2001 and 2002, 7.7% weighted average rate
enior unsecured quarterly imerest bonds due 2039, 9.5% (i)
Unsecured note due 2000, 7.9% Q)
Other
Total debt
Less cunem maturities
Long-term debt
(a) The Company's Credit Agreement provides for secured
revolving credit facilities consisting of a core and an additional
facility: The core facility consists of a basic and upplemental
revolver. The basic revolver is a $675 million credit facility
available until December 2002, $12 million of which is
unavailable due to outstanding letters of credit. The supplemental
r volver wa originally a $175 million, 364-day revolving credit
facility: In December 1998 and l 999, $10 million and $5 million,
respectively, of the supplemental revolver were converted into
term loan due De mber 2002. The remaining $160 million
was ren wed for another 364 days; however, to the extent this
facility is not renewed in December 2000 for an additional
364-day period, the Company may borrow up to the entire
non-renewed portion of the facility and all such borrowings
mature in December 2002. During 1999, payments of
$660 million and $165 million were made on the basic and
upplcmental revolver, r spectively In February 2000, the
Company renewed its e isling secured $750 million additional
revolving credit facility which reduced the amount available to
$500 million and e, tended the expiration to February 2001.
165 160
143
100 238
69 19
3,666 4,001
312 319
$ 3,354 $ 3,682
Interest is calculated at floating rates based on the London
Imerbank Offered Rate plus 2%. Commitment fees are payable
by the Company on the unused portion of these revolving
credit facilities at a rate per annum equal to .375% and are not
considered material. At December 31, 1999, $ 1. 5 7 billion
was available under both revolving credit facilities.
(b) In March 1997, the Company issued $150 million of 8.375%
notes due 2004 and $100 million of 8.70% notes due 2007.
In March 1998, the Company issued $200 million of 7.625%
notes due 2005 and $200 million of 7.875% notes due 2008.
In April 1999, the Company issued $200 million of 8.52%
notes due 2004. Interest on the notes is payable semi-annually.
(c) During 1998 the Company secured long-term debt
financing on 13 Airbus A320 aircraft delivered during the year.
Interest on the notes is payable semi-annually. The Company
combined these debt financings wi.th fully-defeased German
cross border transactions.
(d) In December 1994, the Company completed a structured
aircraft financing transaction in which 13 Airbus A320 aircraft
were transferred from Northwest (subject to existing indebtedness)
to an owner trust (NWA Trust No. 2). The limited partnership,
of which Northwest is the limited partner and Norbus, Inc
(an affiliate of Airbus Industrie ALE) is the general partner, is
the sole equity participant in the owner trust. All proceeds from
the transaction were used to repay equipment pledge notes,
which had previously been issued to finance the acquisition of
these aircraft by Northwest. The aircraft were simultaneously
leased back to Northwest.
Financing of $352 million was obtained through the issuance of
$176 million of 9.25% Class A Senior Aircraft Notes, $66 million
of 10.23% Class B Mezzanine Aircraft Notes, $44 million of
11.30% Class C Mezzanine Aircraft Notes and $66 million of
13.875% Class D Subordinated Aircraft Notes. The notes are
payable semi-annually from rental payments made by Northwest
under the lease of the aircraft and are secured by the aircraft
subject to the lease as well as the lease itself.
In December 1997, the Company initiated a tender offer for the
repurchase of the 13.875% Class D Subordinated Aircraft Notes.
The offer expired on December 30, 1997 with 99% of the notes
tendered. On January 2, 1998, the notes were repurchased for
$79 million. Consequently, a loss of $9 million, net of $5 million
in income taxes, was recorded as an extraordinary item in 1997.
(e) In August 1998, the Company borrowed $240 million under
an existing credit facility The floating rate notes are secured
by six Boeing 757 aircraft and principal payments are due
semi-annually beginning in 2008.
CD In March 1992, the Company completed agreements with
the Minneapolis/St. Paul Metropolitan Airports Commission
("MAC') for the sale and leaseback of various corporate assets.
The sale-leaseback agreements, which are accounted for as debt,
call for increasing quarterly payments over a 30-year term and
include a provision which gives the Company the option to
repurchase the assets. The agreements with the MAC are part of
a group of financing arrangements with the State of Minnesota
and other government agencies.
(g) In June 1999, the Company completed a public offering
of $555 million in pass-through certificates to finance seven
( 19 99 ANNUAL REPORT~
---- --------6
new Airbus A320 aircraft and 14 new Airbus A319 aircraft.
At December 31 , 1999, the Company utilized secured debt
to finance eight of the A3 l 9 aircraft from these funds
(see ote 10).
(h) In March 1994, Northwest consummated a financing
transaction in which six Boeing 747-200 and four Boeing 757
aircraft were sold to an owner trust (NWA Trust o. 1) of
which NWA Aircraft Finance, Inc. , an indirect subsidiary of
the Company, is the sole equity participant. A portion of the
purchase price was financed through the issuance of $177 million
of 8.26% Class A Senior Aircraft Notes and $66 million of
9.36% Class B Subordinated Aircraft ates. The aircraft were
simultaneously leased back to Northwest. The notes are payable
semi-annually from rental payments made by Northwest under
the lease of the aircraft and are secured by the aircraft subject to
the lease as well as the lease itself.
(i) In August 1999, the Company completed the retail issuance
of $14 3 million of senior unsecured quarterly interest bonds,
maturing in 2039. These bonds may be redeemed by Northwest
beginning in 2004 without penalty
(j) On May 1, 1998, in conjunction with its repurchase of
Common Stock from KLM, the Company issued three senior
unsecured 7.88% notes with principal amounts of $206 million,
$138 million and $100 million. The Company repaid the first
and second notes on September 2 9, 1998 and 1999, respectively
The remaining note is due in September 2000 (see Note 6).
Maturities of long-term debt for the five years subsequent to
December 31, 1999 are as follows (in millions):
2000
2001
2002
2003
2004
$ 312
210
226
135
480
The Company's Credit Agreement contains certain restrictive
financial covenants, including limitations on indebtedness,
equity redemptions and the declaration of dividends, as well
as requirements to maintain certain financial ratios, including
collateral coverage ratios. At December 31 , 1999, the Company
r---
N
_ O
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__
H_ W
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_ s
__
T __ A
__
, _ R _ L_ I _ N_ E_ s ___
)
was in compliance with the covenants of all of its debt and lease
agreements. Various assets, principally aircraft and international
route authorities, having an aggregate book value of $5.2 billion at
December 31 , 1999, were pledged under various loan agreements.
Cash payments of interest, net of capitalized interest, aggregated
$342 million, $277 million and $231 million in 1999, 1998
and 1997, respectively
on-cash manufacturer financing obtained in connection with
the acquisition of aircraft was $597 million, $408 million and
$97 million in 1999, 1998 and 1997, respectively
The weighted average interest rates on short-term borrowings
outstanding at December 31 were 5.83%, 5.99% and 6.24% for
1999, 1998 and 1997, respectively
NOTE 4 - LEASES
The Company leases under noncancelable operating leases
certain aircraft, space in airport terminals, land and buildings
at airports, ticket, sales and reservations offices, and other
property and equipment, which expire in various years through
2029. Certain aircraft and portions of certain facilities are
subleased under noncancelable operating leases expiring in
various years through 2020.
Rental expense for all operating leases for the years ended
December 31 consisted of the following (in millions):
1999 1998 1997
Gross rental expense
Sublease rental income
Net rental expense
$ 650 $
(80)
$ 570 $
630 $
(87)
543 $
627
(80)
547
At December 31 , 1999, the Company leased 114 of the 410
aircraft it operates. Of these, 21 were capital leases and 93 were
operating leases. Base term lease expiration dates range from
2002 to 2009 for aircraft under capital leases, and from 2002 to
2023 for aircraft under operating leases. The Company's aircraft
leases can generally be renewed for terms ranging from one to
eight years at rates based on the aircraft's fair market value at
the end of the lease term. Ninety-nine of the 114 aircraft lease
agreements provide the Company with purchase options at the
end of the lease terms which approximate fair market value.
At December 31, 1999, 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
2000 $ 102 $ 634
2001 103 625
2002 281 626
2003 83 603
2004 58 593
Thereafter 146 5,821
773 8,902
Less sublease rental income (538)
Total minimum operating lease payments $ 8,364
Less amounts representing interest 176
Present value of future minimum capital
lease payments 597
Less current obligations under
capital leases 60
Long-term obligations under capital leases $ 537
The above table includes operating leases for 2 4 aircraft operated
and leased by Express Airlines I, Inc. , a wholly-owned subsidiary,
and 71 aircraft operated by and subleased to Mesaba Aviation,
Inc. ("Mesaba"). Base term lease expiration dates range from
2000 to 2015. These aircraft leases can generally be renewed
for terms ranging from one to eight years at rates based on the
aircraft's fair market value at the end of the lease term.
NOTE 5 - 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 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 th T arrang rn nt in ex: hana f r a pr f rr d int re l
in the profit and reLums f capital fr m th bu ine f the
ubsidiary (th "Preferred tru turcd n n-
recour oblig ti n i the a re ult
of thi re tructuring, the riQinal hold r of u h non-re our-
obligation ce sed t b a dir t reditor f th C mpan and Lh
Compan) s bligation is refl ct d in th lidaL d
Balan heet a "Mandatoril R deernable Pref: rrd e uril 1
of ubsidiary hi h Holds on-R cour e bli aLion
of Company" orthwest Airlin n ha
guaranteed the obligation of the ub idiar to di ttibut pa rmems
on the Preferr d e urit pur uant t th TK arranacment if and
to the extent payments are r c ived by th ub idiar z
The restru tured oblig tion matur s in three appr ximately qua!
annual in tallments du in 2005, 2006 and 2007. In addition t
these installment , ca h payments of intere t and principal are
made semi-annually throughout the term. The rate f int re t
varies from period to p 1iod and is apped t 6%. Th obligation
is non-recourse to the Compan . Th Company ha the abilit
(e,'<ercisable at any time after ptember 30, 2001) t transfer
the property in full satisfaction of all Company obligations
related to the financing.
The carrying value is being accreted o er 12 y ar from
October 1995 to the ultimate maturity valu f 70.60 billi n
yen ($692 million based on Lhe December 31, 1999 exchange
rate). Such accretion is included as a compon nt of "Interest of
mandatorily redeemable pr [erred security holder" in the
Consolidated Statements of Operations.
NOTE 6 - PREFERRED, REDEEMABLE AND COMMON STOCK
Series C Preferred Stock - As part of the 1993 labor
agreements, the Company issued to trnsts for the benefit
participating employees 9 .1 million shares of a new las of
Series C cumulative, voting, convertibl , redeemable prd rred
stock, par value of $.01 per share (the "Series C Preferred
Stock") and 17.5 million shares of Common tock and provid d
the union groups with Lhree positions on the Board of Directors.
NWA Corp. has authorized 25 million shares of eries C
Pref erred Stock. The Se1ies C Preferred tock ranks senior to
Common Lock with respect to liquidation and certain dividend
( 1999 ANNUAL REPORT
~ - - - - - - - - 47
righr-. - lon
0
a th ommon Le k i publi 1 traded , no
di\'id nds accrue on the Serie Preferred wck. fa h hare of
the Serie_ Preferred Stock i ornenible 3L any time imo
1. ..,fr+ share of omm n _ L of De ember 1, 1
3.9 million hares of eric Prefencd -l k ha\c been muted
imo ommon -lO -k and Lhe remainin
0
5.~ million sh:,re
UL L-:inding or conveniblc int 7.1 million hare of ommon
Lo k. Drnina 1 99, .+ million share or _cric Prcf rred
w k \\ r onvened inL .6 million sh. res of omm n SL ck.
11 Lhe ouL tandina shares of cries Preferred SLock arc
r quired LO be rede med in 20 for a pro r;;\La hare r a LUal
avi.ng ($24 million as of December 1, 1 q Q) .
,ption Lo redeem u h hares in a h, b 1
the is uance of add it i nal ommon L, k, or b I th u e :-1[ cash
and sLo k. ue nl ' additional ommon wck
musL be apprwed b a majorny of Lhc Lhrc directors lecLcd b '
th holders of Lh _cri s Pref rred Lock. lf v rp. fails
Lo redeem th ric Pref rred Lo k, dividend will a rue al
Lh higher of (i) 12 % or (ii) Lhe high SL p nalL raLc n an Lhcn
om tandin of pr [erred Lo k, and Lhe emr lo ce unions
,;,,rill receive Lhr additional B ard f Dire LOL po ition . The
financial taLcm m arrying value of Lhe ric Prd rred Lack
i b ing accreted ov r L n year c mmen ing ugusL 1
the ultimaL r dempLion amounL. Prior Lo 200.J, N
it option ma r d m in wh le r in pan Lhe ~ ri s
to l at its liquidaLion value.
3 LO
orp. al
Preferred
Redeemable Com111011 Stodi - n epLernbcr 29, 1 7,
NW orp. entered into an agreemcnL with 1 LM lo repur ha c
for $1.12 billi n ov r Lhr year Lhe 25 million share o[
NWA orp. Common Lo k h ld by KL 1. On that date,
6.8 million hares were repurcha ed for $2 73 million.
oncurr nt wiLh that purchas , all o[ KLM' exi Ling o crnanc
right under variou sLo kholder and oLhcr agr ements \i re
canceled, an l NWA orp. and I LM cm -red inLo a ' U L rnary
stand till agreement. The remaining 18.2 rnillion shar so[
ommon to k to be r pur ha cd v re re la ifi. 1 to redc m bl
common to k from common Lockhold r ' equity d ficiL on Lhal
date. ln addition, on Lhe ame day, NWA rp. r pur based
from KLM and oLh r all of Lh crie A and B Pref rred LO k
ouL Landing for $25 l million in ash.
~
NORTHWEST AIRLINES )
6------------------"
On May 1, 1998, WA Corp. purchased from KLM the
remaining 18.2 million shares of Common Stock which the
Company had previously agreed to repurchase over the three-
year period. The purchase price of $780 million was paid with a
combination of $33 7 million cash and three senior unsecured
7.88% notes. The $68 million excess of the financial statement
carrying value of the redeemable Common Stock over the
repurchase price was transferred to common stockholders'
equity deficit on the same date. As of May 1, 1998, earnings
(loss) per share calculations do not include the 18.2 million
shares repurchased. In certain limited circumstances (e.g., the
failure of the orthwest/KLM alliance to maintain certain
antitrust immunity or orthwest's default under the alliance
agreement), KLM will have an option to buy back from
A Corp. up to 10.1 million shares of Common Stock.
Common Stock - On Ap1il 30, 1998, WA Corp. amended its
Second Amended and Restated Certificate of Incorporation to
combine and reclassify the existing separate classes of voting
Class A and non-voting Class B Common Stock into a single
class of Common Stock.
The Company was required to adopt the provisions of EITF
Issue o. 9 7 -14, "Accounting J or Def erred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust"
on September 30, 1998. As a result, the Company revised its
consolidation of the assets and liabilities of the non-qualified
rabbi trusts. The 2.5 and 4.0 million shares of Common Stock
as of December 31 , 1999 and 1998, respectively, that are held
in the trusts are recorded similar to treasury stock and the
deferred compensation liability is recorded in other long-term
liabilities. The Company elected to record the difference
between the market value of the common shares and the
historical cost of the shares in the trusts at the date of adoption
as a credit to common stockholders' equity deficit, net of tax.
After the adoption date, but prior to settlement through either
contribution to qualified trusts or diversification, increases
or decreases in the deferred compensation liability will be
recognized in earnings to the extent the Common Stock market
price exceeds the average historical cost of the shares of
$38.04 per share or falls below the September 30, 1998 price
of $25.06 per share, respectively For the purpose of computing
diluted earnings per share, the shares held by the rabbi trusts
are considered potentially dilutive securities. The Company has
classified the diversified assets held by the rabbi trust as trading
and recorded them at fair market value.
Stockholder Rights Plan - Pursuant to the Stockholder Rights
Plan (the "Rights Plan"), each share of Common Stock has
attached to it a right and, until the rights expire or are redeemed,
each new share of Common Stock issued by NWA Corp. ,
including the shares of Common Stock into which the Series C
Preferred Stock is 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 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 (25% or more in the case of certain Institutional
Investors (as defined in the Rights Plan)) of NWA Corp.'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
(25% or more in the case of certain Institutional Investors) of
NWA Corp.'s outstanding Common Stock. If any person or group
acquires beneficial ownership of 19% or more (25% or more
in the case of certain Institutional Investors) of NWA Corp.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, Common Stock of NWA Corp.
having a market value of two times the exercise price of the
right. In addition, if after the rights become exercisable NWA
Corp. 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 receive common stock of the acquiring company having a
market value of two times the exercise price of the rights. The
rights expire on November 16, 2005 and may be redeemed by
NWA Corp. at a price of $.01 per right prior to the time they
become exercisable.
NOTE 7 - STOCK OPTIONS
NWA Corp. has stock option plans for officers and key
employees. Options generally become exercisable in equal
annual installments over four or five years and expire 10 years
from the date of the grant. NWA Corp.'s policy is to grant
( 1999 ANNUAL REPORT ~
~ -
- - - - - - - - ~
options with the exercise price equal to the market price of the
Common Stock on the date of grant. To the extent options are
granted with an exercise price less than the market price on the
date of the grant, compensation expense is recognized over the
vesting period of the grant.
Following is a summary of stock option activity for the years ended December 31 (shares in thousands):
Outstanding at beginning of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Reserved for issuance
Available for future grants
At December 31, 1999:
Range of Exercise Prices
$ 4.740 to $29.000
31.125 to 39.875
40.000 to 64.406
1999 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
4,059 $ 32.41 5,204 $ 27.09
1,499 29.75 509 43.35
(428) 33.16 (485) 33.36
(63) 14.29 (1,169) 13.08
5,067 31.79 4,059 32.41
2,252 27.78 1,910 24.35
10,948 7,948
2,092 163
Options Outstanding
Weighted- Weighted-
Average Average
Remaining Exercise
Shares Contractual Life Price
1,326 5.8 years $ 16.70
2,887 8.0 34.40
854 7.7 46.39
1997
Weighted-
Average
Exercise
Shares Price
4,774 $ 20.11
1,454 39.26
(154) 36.24
(870) 7.49
5,204 27.09
1,894 15.55
7,948
187
Options Exercisable
Weighted-
Average
Exercise
Shares Price
934 $ 13.38
1,005 35.81
313 44.98
The weighted-average fair value of options granted during
1999, 1998 and 1997 is $11.84, $17.65 and $16.50 per option,
respectively. The fair value of each option grant is estimated as
of the date of grant using the Black-Scholes single option-pricing
model assuming a weighted-average risk-free interest rate of
5.1 %, 5.5% and 6.1 % for 1999, 1998 and 1997, respectively,
and expected lives of six years and volatility of 30% for all
years presented.
--N_O_
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A_I _ R _L _I _ N
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In eptember 1998, in conjunction with the labor agreement
reached between orthwest and the Air Line Pilots Association,
International, A Corp. established the 1998 Pilots Stock
Option Plan (the "Pilot Plan"). The Company has reserved
for issuance 2.5 million shares of Common Stock under the
Pilot Plan.
Following is a summary of the Pilot Plan activity for the years ended December 31 (shares in thousands):
Outstanding at beginning of year
Granted
Exercised
Outstanding at end of year
All outstanding options are exercisable at December 31 , 1999
with a weighted-average remaining contractual life of 9.5 years.
The weighted-average fair value of options granted during 1999
and 1998 is 10.20 and $10.84 per option, respectively. The
fair value of each option grant is estimated as of the date of
grant using the Black-Scholes single option-pricing model
assuming a weighted-average risk-free interest rate of 5.8%
and 4.7% for 1999 and 1998, respectively, an e>..7Jected life of
six years and volatility of 30%. In September 2000 and 2001,
an additional 500,000 options will be granted with an exercise
price equal to the closing market price of the Common Stock
on the applicable grant date.
The Company's results assuming the Company had accounted
for its employee stock options using the fair value method,
would have been pro forma net earnings of $290 million and
pro forma basic and diluted earnings per share of $3.56 and
3.15, respectively, in 1999 and a pro forma net loss of $300
million and proforma net loss per share of 3.65 in 1998. The
pro forma effect of SFA 123 is immaterial to the Company's
1997 net income and earnings per share.
1999 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
1,000 $ 27.88 $
500 24.69 1,000 27.88
(3) 27.79
1,497 26.81 1,000 27.88
Shares of restricted stock were awarded at no cost to certain
officers and key employees in 1999. These shares are subject
to forfeiture and will be issued when vested. Unearned
compensation, representing the fair market value of the stock
on the measurement date, is amortized over the four year
vesting period. As of December 31 , 1999, 30,000 shares were
outstanding and not vested.
( 1 999 ANN U AL REP O R T ~
---- --------------<6
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth information with respect to accumulated other comprehensive income (loss) ("OCI") (in millions):
Foreign Deferred Minimum Accumulated
Currency Gain (Loss) Pension OCI of Unrealized Other
Translation on Hedging Liability Affiliated Gain on Comprehensive
Adjustment Activities Adjustment Companies Investments Income (Loss)
Balance at]anuary 1, 1997 $ (40) $ $ (73) $ $ $ (113)
Before tax amount 9 9 18
Tax effect (3) (4) (7)
Net-of-tax amount 6 5 11
Balance at December 31 , 1997 (34) (68) (102)
Before tax amount (11) (33) 98 54
Tax effect 4 12 (36) (20)
Net-of-tax amount (7) (21) 62 34
Balance at December 31 , 1998 (41) (21) (6) (68)
Before tax amount (8) 82 9 (5) 15 93
Tax effect 3 (30) (3) 2 (6) (34)
Net-of-tax amount (5) 52 6 (3) 9 59
Balance at December 31 , 1999 $ (46) $ 31 $ $ (3) $ 9 $ (9)
NOTE 9 - INCOME TAXES
Income tax expense (benefit) consisted of the following for the Reconciliations of the statutory rate to the Company'.s income
years ended December 31 (in millions): tax expense (benefit) for the years ended December 31 are as
follows (in millions):
1999 1998 1997 1999 1998 1997
Current: Statutory rate applied to income
Federal $ 75 $ (45) $ 108 (loss) before income taxes
Foreign 3 3 4 and extraordinary item $ 171 $ (15 1) $ 345
State 3 1 11 Add (deduct):
81 (41) 123 State income tax (benefit) net
Deferred: of federal benefit 8 (6) 19
Federal 98 (90) 237 Adjustment to valuation
Foreign (2) (3) allowance and other
State 10 (11) 19 income tax accruals 6 6
106 (104) 256 Other 8 6 9
Total income tax Total income tax
expense (benefit) $ 187 $ (145) $ 379 expense (benefit) $ 187 $ (145) $ 379
NORTHWEST AIRLINES )
52 ~ - - - - - - - ~
The net deferred tax liabilities listed below include a current net
deferred tax asset of $116 million and $114 million and a long-
term net deferred tax liability of $1.22 billion and $1.11 billion
as of December 31, 1999 and 1998, respectively.
Significant components of the Company's net deferred tax
liability as of December 31 were as follows (in millions):
1999 1998
Deferred tax liabilities:
Accounting basis of assets in
excess of tax basis $ 1,724 $ 1,606
Expenses other than accelerated
depreciation and amortization 348 315
Other 10 16
Total deferred tax liabilities 2,082 1,937
Deferred tax assets:
Expenses accelerated for financial
reporting purposes 341 334
Pension and postretirement benefits 145 85
Gains from the sale/leaseback
of aircraft 154 119
Rent expense 85 77
Travel award programs 98 136
Leases capitalized for financial
reporting purposes 67 80
Alternative minimum and foreign tax
credit carryforwards 86 107
Total deferred tax assets 976 938
Net deferred tax liability $ 1,106 $ 999
During 1995, the Company utilized all of its regular net
operating loss carryforwards ("NOLs"). For tax purposes, the
Company utilized NOLs of approximately $660 million and
$394 million in 1995 and 1994, respectively, and alternative
minimum tax net operating loss carryforwards ("AMTNOLs") of
$11 million and $447 million in 1995 and 1994, respectively.
The Company has alternative minimum tax credits of
approximately $84 million available for carryforward to future
years' tax returns. The alternative minimum tax credits have an
unlimited carryforward period. In 1996, the Company utilized
its remaining foreign tax credit carryforward available for regular
tax purposes. In 1995, the Company utilized its remaining
AMTNOLs, as well as its remaining investment tax credit
carryforward and its remaining foreign tax credit carryforward
available for alternative minimum tax purposes. During 1999,
the Company generated $3 million of foreign tax credit for both
regular and alternative minimum tax purposes. Also, during
1999, the Company utilized all of its 1998 foreign tax credit
carryforward and $1 million of the $3 million in foreign tax
credits generated in 1999 for both regular and alternative
minimum tax purposes. The remaining $2 million of foreign
tax credits generated in 1999 is available for carryforward to
future years.
Sections 382 and 383 of the Internal Revenue Code of 1986,
as amended (the "Code"), and Treasury regulations limit the
amounts of NOLs, AMTNOLs and credits that can be used to
offset taxable income (or used as a credit) in any single tax year
if the corporation has more than a 50% ownership change (as
defined in the Code) over a three-year testing period ending on
the testing date. The annual limitation on the amount of such
NOLs, AMTNOLs and credits is calculated in part based on the
value of NWA Corp.'s stock. Management believes that an
offering of outstanding Common Stock by existing stockholders
in November 1995 triggered an ownership change, but that
no ownership change occurred before that time. If an ownership
change did occur as a result of that offering, management
believes that, even as limited by the Code, the Company would
use the NOLs, AMTNOLs and credits significantly earlier than
their expiration and the annual limitations would not adversely
impact the Company However, if the Internal Revenue Service
were to successfully assert that an ownership change had occurred
on any date prior to November 1995, (including August 1, 1993
when the Company entered into labor agreements that provided
stock for labor cost savings), ;the Company's ability to use its
NOLs, AMTNOLs and credits would be significantly impaired
because the value of NWA Corp.'s stock on certain prior testing
dates was relatively low and a low value would adversely affect
the annual limitation described above.
NOTE 10 - COMMITMENTS
The Company's firm aircraft orders for 111 new aircraft as of
December 31, 1999 includes 12 Airbus A320 aircraft from 2002
through 2004, 58 Airbus A319 aircraft (10 each in 2000 and
2001 and 19 each in 2002 and 2003), 25 Boeing 757-200
aircraft from 200-+ through 2006 and 16 Airbus A330 aircraft
(eight each in 200-+ and 2005). The Company also has firm orders
for aircraft that will be operated by and leased to orthwest
Airlink regional carriers. As of December 31 , 1999, the Company
had firm orders for se,T
en AVRO RJ85 aircraft and 5-+ Bombardier
CRJ200 aircraft. Forty-two of the Bombardier CRJ200 aircraft
wi.ll be operated by Ex-press Airlines I, Inc. , a orthwest Airlink
carrier, which is an indirect wholly-owned subsidiary.
Committed eJ\.-penditures for these aircraft and related equipment,
including estimated amounts for contractual price escalations
and predeli\'ef) deposits, will be approJ\.imately 600 million in
2000, $735 million in 2001 , $1.09 billion in 2002, 1.08 billion
in 2003, 1.26 billion in 200-+ and 1.96 billion in 2005 and
2006. Consistent with prior practice, the Company intends to
finance its aircraft deli\'eries through a combination of internally
generated funds, debt and le,T
eraged-lease financing. Financing
has been arranged for the committed AVRO RJ85 , Bombardier
CRJ200, Airbus A320 and A319 aircraft deli,,eries and is
a\'ailable for use at the option of the Company.
The Company has substitution rights with respect to the Airbus
A330 aircraft. The Company also has options to purchase four
Boeing 7-+ 7--+00 aircraft in 2002, 70 Bombardier CRJ200 aircraft
for delivef)' from 2003 through 2007 and 50 Airbus A319 and/or
A320 aircraft for delivery from 2004 through 2007 and 20 roll-
over options which would be assigned delivery slots commencing
in December 2007 as the initial options are exercised.
During 1999, the Company completed three public offerings
totaling 1.22 billion of pass-through trust certificates to finance
the acquisition of 39 new aircraft delivered in 1999 or scheduled
for delivery in 2000. The cash proceeds from the pass-through
certificates were deposited with an escrow agent and enable the
Company to finance or refinance (through either leveraged leases
or secured debt financing) the acquisition of these aircraft.
If leveraged leases are obtained for these aircraft, under v hich
Lhe aircraft will be sold and leased back to orthwest, the
pass-through certificates will not be direct obligations of
WA Corp. or orthwest. At December 31, 1999, the Company
had utilized $196 million as secured debt financing and
( 1999 ANNUAL REPORT(;;\
..__. ---------6
$679 million in long-term leveraged operating leases. The
remaining 34 2 million is in escrow and not recorded as an
asset or direct obligation of A Corp. or onhwest.
NOTE 11 - CONTINGENCIES
The Company is involved in a variety of legal actions relating
to antitrust contract, trade practice, environmental and other
legal matters pertaining to the Company'.s business.\ hile 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 ha,e a material adverse effect on the
Company's Consolidated Financial tatements taken as a , hole.
ApproJ\.imately 90% of the Company'.s employees are members
of collecti,,e bargaining units. In 1998 and 1999, the Company
signed seven new agreements with its domestic collective
bargaining groups. The terms of the new agreements range
from four to six years. Contract negotiations commenced in
October 1999 with the Aircraft 1echanics Fraternal Association
("A IFA"), which represents the Company'.s mechanics. In
Februaf)' 2000, the Company and A 1FA jointly requested
mediation from the ational [ediation Board. The Company is
presently in mediated negotiations wi.th the union representing
its flight attendants. The Company believes that mutually
acceptable agreements can be reached ,,vith these labor groups,
but because the terms of the agreements will be determined by
collective bargaining, the Company cannot predict the outcome
of the negotiations at this time.
NOTE 12 - PENSION AND OTHER POSTRETIREMENT HEALTH
CARE BENEFITS
The Company has several noncontributory pension plans
covering substantially all of its employees. The benefits for these
plans are based primarily on years of service and, in some cases,
employee compensation. It is the Company'.s policy to annually
fund at least the minimum contribution as required by the
Emplo_ ee Retirement Income Security Act of 1974. In 1998
and 1997, the Company made contributions of $150 million
and $133 million, respectively, in excess of its minimum
requirement. The Compan did not make any excess
contributions in 1999.
,___N_O_R_T_H_w
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The Company sponsors various contributory and noncontributory
medical, dental and life insurance benefit plans covering certain
eligible retirees and their dependents. The expected future cost
of providing such postretirement benefits is accrued over the
service life of active employees. Retired employees are not offered
Company-paid medical and dental benefits after age 64, with
the exception of certain employees 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 is based on a combination of years of service 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 insurance coverage in amounts which
decrease based on age at retirement and age at time of death.
The following is a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets
(in millions):
Pension Benefits Other Benefits
1999 1998 1999 1998
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,022 $ 4,251 $ 376 $ 347
Service cost 167 133 14 12
Interest cost 363 310 27 25
Plan amendments 228 180 8 6
Actuarial (gain) loss (922) 317 (12) 5
Foreign exchange loss 5 7
Benefits paid (216) (176) (22) (19)
Benefit obligation at end of year 4,647 5,022 391 376
Change in plan assets:
Fair value of plan assets at beginning of year 4,375 3,758 5 5
Actual return on plan assets 957 608
Employer contributions 50 185 22 19
Benefits paid and other (216) (176) (22) (19)
Fair value of plan assets at end of year 5,166 4,375 5 5
Funded status - overfunded (underfunded) 519 (647) (386) (371)
Unrecognized net actuarial (gain) loss (1,141) 364 72 87
Unrecognized prior service cost 527 338 14 6
et amount recognized $ (95) $ 55 $ (300) $ (278)
Amounts recognized in the Consolidated Balance Sheets as of December 31 were as follows (in millions):
Pension Benefits Other Benefits
1999 1998 1999 1998
Prepaid benefit cost $ 96 $ 195 $ $
Accrued benefit liability (312) (287) (300) (278)
Intangible asset 121 136
Accumulated other comprehensive income 11
Net amount recognized $ (95) $ 55 $ (300) $ (278)
The Company's pension plans with accumulated benefit
obligations in excess of plan assets as of December 31 were as
follows (in millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
1999 1998
$ 399 $ 451
262 272
3
The plans included above in 1999 are non-qualified plans that
do not require pre-funding.
( 1999 ANNUAL REPORT(;;;'\
~

- - - - - - - - ~
Weighted-average assumptions for pension and other benefits as
of December 31 were as follows:
1999 1998 1997
Discount rate 8.2% 6.9% 7.1%
Rate of future compensation increase 3.9% 3.9% 3.5%
Expected long-term return on
plan assets 10.5% 10.5% 10.5%
For measurement purposes, a 6% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000.
The rate was assumed to decrease gradually to 5% for 2002 and remain at that level thereafter.
The components of net periodic cost of defined benefit plans included the following (in millions):
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
Service cost $ 167 $ 133 $ 113 $ 14 $ 12 $ 10
Interest cost 363 310 287 27 25 24
Expected return on plan assets (403) (357) (301) (1)
Amortization of prior service cost 46 20 20 1
Recognized net actuarial loss 21 26 17 3 3 2
Other events 4 2
Net periodic benefit cost $ 194 $ 136 $ 138 $ 44 $ 40 $ 36
Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans. A one-percentage
point change in assumed health care cost trend rates would have the following effects (in millions):
Effect on total of service and interest cost comp.onents
Effect on accumulated postretirement benefit obligations
NOTE 13 - RELATED PARTY TRANSACTIONS
Continental Airlines, Inc. - On November 20, 1998, the Company
issued 2.6 million shares of Common Stock and paid $399 million
in cash to acquire the beneficial ownership of approximately
8.7 million shares of Class A Common Stock of Continental.
These shares represent 13. 2 % of Continental's outstanding
1-Percentage-
Point Increase
$ 7
55
1-Percentage-
Point Decrease
$ (6)
(46)
common stock and, together with additional Continental shares
for which the Company holds a limited voting proxy, 53.9%
of its fully diluted voting power as of December 31 , 1999.
In connection with the Companys investment in Continental and
Northwests alliance with Continental, the Company entered into
agreements with Continental which contain certain restrictions
(;;;\ NORTHWEST AIRLINES )
~ f - - - - - - - - - - - - - - - -
on the Company's ability to vote shares of Continental common
stock, to acquire additional shares of Continental common stock
and to affect the composition and conduct of Continental's Board
of Directors for a ten-year period. Due to the restrictions in these
agreements, the Company accounts for its investment under
the equity method and recognizes its interest in Continental's
earnings on a one-quarter lag. The difference between the cost
of the Company's investment and the proportionate share of the
underlying equity of Continental of $319 million is being
amortized over 40 years.
Northwest and Continental are operating in the second year of
a 13-year global strategic commercial alliance that connects the
two carriers' networks and includes extensive code-sharing (the
joint designation of flights under the orthwest "NW" code and
the Continental "CO" code), frequent flyer program reciprocity
and other cooperative activities. The airlines continue operating
their two networks under separate identities, while currently
code-sharing to 276 destinations in the U.S. and around the
world. orthwest anticipates that it will continue to increase its
code-sharing with Continental. Other joint activities include
airport facility coordination, joint purchasing and certain
coordinated sales programs.
Mesaba Holdings, Inc. - The Company owns 27.9% of the
common stock of Mesaba Holdings, Inc., the holding company
of Mesaba, a Northwest Airlink carrier. The Company also has
warrants in Mesaba Holdings, Inc. stock and, if the Company
were to exercise all its in the money warrants when fully vested
its ownership would increase to 35.1 % as of December 31, 1999.
orthwest and Mesaba signed a ten-year Airline Services
Agreement ("ASA") effective July 1, 1997 under which
orthwest determines Mesaba's commuter aircraft scheduling
and fleet composition. As of December 31, 1999, the Company
has leased 49 Saab 340 aircraft, which are in tum subleased
to Mesaba. The lease agreements provide the Company with
renewal options ranging from one to five years and purchase
options at the end of the lease or renewal term, which
approximate fair market value.
In addition, as of December 31, 1999, the Company has leased
seven and subleased 22 AVRO regional jet aircraft to Mesaba
under a Regional Jet Services Agreement consummated in
October 1996. The Company has agreed to lease seven additional
AVRO RJ85 aircraft scheduled for delivery in 2000 to Mesaba.
WORLDSPAN - The Company owns a 33.7% interest in
WORLDSPAN, LP., an affiliate that provides computer reservations
services, which it accounts for using the equity method.
NWA Funding, LLC ("NCF") - During December 1999, a
Receivables Purchase Agreement (the "Agreement") was executed
by Northwest, NCF, a wholly-owned, non-consolidated
subsidiary of the Company, and a certain third party purchaser
(the "Purchaser") pursuant to a securitization transaction.
Initially, Northwest sold $122 million of accounts receivable on
a non-recourse basis to NCF NCF sold $73 million of its
undivided interest in such receivables to the Purchaser, subject
to specified collateral requirements. NCF maintains a variable
undivided interest in these receivables and is subject to losses
on its share of the receivables and, accordingly, maintains an
allowance for doubtful accounts. The agreement is a five-year
$85 million revolving receivable purchase facility allowing
Northwest to sell additional receivables to NCF and NCF to sell
variable undivided interests in these receivables to the Purchaser.
NOTE 14 - RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Effective October 1, 1998, the Company adopted SFAS No. 133,
"Accountingfor Derivative Instruments and Hedging Activities,"
which requires the Company to recognize all derivatives on the
balance sheet at fair value. The Company uses derivatives as
cash flow hedges to manage the price risk of fuel and its exposure
to foreign currency fluctuations. SFAS No. 133 requires that for
cash flow hedges, which hedge the exposure to variable cash
flows of a forecasted transaction, the effective portion of the
derivative's gain or loss be initially reported as a component of
other comprehensive income in the equity section of the
balance sheet and subsequently reclassified into earnings when
the forecasted transaction affects earnings. The ineffective
portion of the derivative's gain or loss is reported in earnings
immediately The cumulative effect of adoption was immaterial.
Risk Managem ent - The Company principally uses derivative
financial instruments to manage specific risks and does not
hold or issue them for trading purposes. The notional amounts
of financial instruments summarized below did not represent
amounts exchanged between parties and, therefore, are not
a measure of the Company's exposure resulting from its use
of derivatives.
Foreign Currency - The Company is exposed to the effect of
foreign exchange rate fluctuations on the U .5. dollar value of
foreign currency-denominated operating revenues and expenses.
The Company's largest exposure comes from the Japanese yen.
In 1999, the Company's yen-denominated revenues exceeded its
yen-denominated expenses by approximately 45 billion yen
($391 million). From time to time the Company uses forward
contracts, collars or put options to hedge a portion of its
anticipated yen-denominated sales. The changes in market value
of such instruments have historically been highly effective at
offsetting exchange rate fluctuations in yen-denominated sales.
At December 31, 1999, the Company has recorded $9 million of
unrealized losses in accumulated other comprehensive loss as a
result of forward contracts to sell 3 7. 75 billion yen ($368 million)
at an average forward rate of 103 with various settlement dates
through November 2000. Hedging gains or losses are recorded
in revenue when transportation is provided. These forward
contracts hedge approximately 31 % of the Company's anticipated
2000 yen-denominated sales, which also represents approximately
95% of the Company's excess of yen-denominated revenues
over expenses.
Counterparties to these financial instruments expose the
Company to credit loss in the event of nonperformance, but the
Company does not expect any of the counterparties to fail to
meet their obligations. The amount of such credit exposure is
generally the unrealized gains, if any, in such contracts. To
manage credit risks, the Company selects counterparties based
on credit ratings, limits exposure to a single counterparty and
monitors the market position with each counterparty. It is the
Company's policy to participate in foreign currency hedging
transactions with a maximum span of 12 months.
( 1999 ANNU A L REPORT
~
- - - - - - - - - - - - - - - - i
57
Aircraft Fuel - The Company is exposed to the effect of
changes in the price and availability of aircraft fuel. In order to
provide a measure of control over price and supply, the
Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. To further manage the
price risk of fuel costs, the Company primarily utilizes futures
contracts traded on regulated futures exchanges and fuel swap
agreements. The changes in market value of such conlracts have
historically been highly effective at offsetting fuel price
fluctuations. It is the Company's policy to participate in hedging
transactions with a maximum span of 12 months.
At December 31, 1999, the Company has recorded $19 million
of unrealized gains in accumulated other comprehensive loss as
a result of the hedge contracts, which if realized, will be recorded
in fuel expense when the related fuel inventory is utilized
throughout 2000. As of December 31, 1999, the Company had
hedged approximately 24% of its 2000 fuel requirements.
Equant N. V - Equant .V is an international provider of data
network services to multinational businesses, including desktop
communications, network services, equipment installation,
software development and others. As of December 31, 1999
the Company holds 443,897 depository certificates with an
estimated fair market value of $50 million. Each depository
certificate represents an interest in Equant .V common shares
which are subject to certain transferability restrictions and are
carried at their original cost, which is nominal.
In connection with secondary offerings by Equant N.V in
February and December 1999, the Company sold a portion of
its investment for a gain of $48 million ($30 million after tax or
$.33 per diluted share) related to these transactions.
priceline.com - During 1999, the Company entered into
agreements with priceline.com, Inc. to provide ticket inventory
for sale through priceline.com's internet site. As part of the
agreements, the Company received warrants for 2,062,500
shares with various vesting requirements. During 1999, the
Company exercised 312,500 warrants to purchase 296,354
shares, which were recorded as available for sale investments
at December 31, 1999. A $9 million unrealized gain is recorded
------
N_ o_ R
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A_ I _R
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in accumulated other comprehensive loss. The remaining
warrants were accounted for as derivatives under SFAS 133
and valued at fair market value utilizing the Black-Scholes
single option-pricing model and independent valuation. At
December 31, 1999, the Company has recorded $21 million of
unrealized gains in accumulated other comprehensive loss as a
result of the valuation of certain of these warrants, which if
realized, will be recorded in non-operating income.
Fair Values of Financial Instruments - The financial statement carrying values equal the fair values of the Company's cash and cash
equivalents and short-term investments. As of December 31, these amounts were (in millions):
Cash and Cash Equivalents Short-Term Investments
1999 1998 1999 1998
Held-to-maturity debt securities:
Commercial paper $ $ 321 $ 16 $ 19
Other 109 3 23
Available-for-sale debt securities 695 27 22 6
Cash 54 23
$ 749 $ 480 $ 41 $ 48
The Company considers all unrestricted investments with a remaining maturity of three months or less on their acquisition date to be
cash equivalents. The Company classifies investments with a remaining maturity of more than three months on their acquisition date
that are expected to be sold or called by the issuer within the next year, and those temporarily restricted, as short-term iff.,,estments.
There were no purchases or sales of short-term investments classified as available-for-sale securities during 1999. During 1998 there
were no purchases of short-term investments classified as available-for-sale and proceeds from sales were $139 million.
The financial statement carrying values and estimated fair values of the Company's financial instruments, including current
maturities, as of December 31 were (in millions):
Long-Term Debt
Mandatorily Redeemable Preferred
Security of Subsidiary
Series C Preferred Stock
1999
Carrying
Value
$ 3,666 $
626
243
Fair
Value
3,515
536
158
Carrying
Value
$ 4,001
564
261
1998
Fair
Value
$ 4,074
520
196
The fair values of the Company's long-term debt were estimated using quoted market prices, where available. For long-term debt not
actively traded and the Preferred Security, fair values were estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of securities. The fair value of the Series C Preferred Stock shares is based on
the assumed conversion to Common Stock and valuing such shares at the closing quoted market price for Common Stock.
( 1999 ANNUAL R E P O R T ~
~
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NOTE 15 - SEGMENT INFORMATION
The Company is managed as one cohesive business unit, of which revenues are derived primarily from the commercial
transportation of passengers and cargo. Operating revenues from flight segments serving a foreign destination are classified into the
Pacific or Atlantic regions, as appropriate. The following table shows the operating revenues for each region for the years ended
December 31 (in millions):
1999 1998 1997
Domestic $ 6,976 $ 6,093 $ 6,793
Pacific, principally Japan 2,280 2,016 2,671
Atlantic 1,020 936 762
Total operating revenues $ 10,276 $ 9,045 $ 10,226
The Company's tangible assets consist primarily of flight equipment, which are utilized across geographic markets, and therefore,
have not been allocated.
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly results of operations for the years ended December 31 , are summarized below (in millions, except
per share amounts):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999:
Operating revenues $ 2,281 $ 2,597 2,843 2,555
Operating income (loss) (14) 264 370 94
et income (loss) $ (29) $ 120 $ 180 $ 29
Basic earnings (loss) per common share $ (.36) $ 1.47 2.21 .35
Diluted earnings (loss) per common share $ (.36) $ 1.29 $ 1.96 $ .31
1998:
Operating revenues $ 2,429 $ 2,475 $ 1,929 2,212
Operating income (loss) 156 120 (275) (192)
et income (loss) $ 71 $ 49 $ (224) (181)
Basic earnings (loss) per common share $ .72 $ .56 $ (2.91) $ (2.31)
Diluted earnings (loss) per common share $ .66 $ .51 $ (2.91) $ (2.31)
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 shares outstanding
and other dilutive potential common shares.
(";;;;\ NORTHWEST AIRLINES )
~ t - - - - - - - - - - - - ~
NOTE 17 - CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF NORTHWEST AIRLINES, INC.
orthwe t Airlines Holding Corporation and its wholly-owned
subsidiary, Wings Acquisition Corp., were formed and
incorporated by a group of investors in order to acquire all
of the outstanding stock of WA Inc. (the "Acquisition"),
the parent company of orthwest Airlines, Inc. In 1989,
Wings Acquisition Corp. was merged with and into NWA Inc.,
with NWA Inc. being the surviving entity The Acquisition was
recorded using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair
market value at the date of Acquisition, determined primarily
by independent appraisals.
After reflecting these value in the consolidated financial statements of Northwest, condensed consolidated financial information of
Northwest con ists of the following (in millions):
Condensed Consolidated Statements of Operations
Operating revenues
Operating e),._-penses
Operating income (loss)
Other income (ex-pense)
Income (loss) before income taxes and extraordinary item
Income tax expense (benefit)
Income (loss) before extraordinary item
Loss on extinguishment of debt
et income (loss)
Condensed Consolidated Balance Sheet Data
Cunent assets
oncurrent assets
Current liabilities
Long-term debt and obligations under capital leases
Deferred credits and other liabilities
Mandat01ily redeemable preferred security of subsidiary
$
$
$
Year Ended December 31
1999 1998 1997
9,790 $ 8,643 $ 9,883
9,121 8,863 8,774
669 (220) 1,109
(296) (239) (213)
373 (459) 896
149 (159) 343
224 (300) 553
(9)
224 $ (300) $ 544
December 31
1999 1998
1,866 $ 1,602
7,360 7,242
3,459 3,599
3,585 3,955
1,023 1,001
626 564
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the to kholdcr and Board of Direct )r
orthwc t irlincs orporntion
A N N U A
\\ e ha\'c audiLcd Lhc accompanying con-olidatcd bal:mce sheets l r Lrtlrncst .-\irlincs - ,rp 1r,uk,n ,ls lr
Dcccm er 1, 19 q and l L 98, ::md Lhc rebtcd consl hdate l st,ucments ,f lI er,1t1 ,ns. 'ltnnwn sw kht,1[d -rs'
equit' (defi it). o.nd cnsh 11ow [or ca -h Lr the three cars in th, pcriL,d -ndcd l , emh r 1 l, \ l)L 1. rh 'S, l'imtKial
_tat ments arc the re ponsibilit , or the - )LYtpaiws nian,1gem 'nl. m ,--sponsibt!it\' is lL express ,m opini 1n 1.1n
the e fin.anchl Sl:-tlern nLS bacC on our audits.
\ 1
c conducted our audit in ac ordan -c with auditing stand,1rds generally a -cptcd 111 the Uniu.:d St,ucs.
Tho e tan lards require that we I lan and perform the ,mdit to ,btam reasL1 n.1l le ,1ssuLmCL' <1bout \\'hcther the
finan ial statement ar free of material misstatcn ent. \n au lit in -lucks n,1mining, on ,1 lL'St b,tsis. evtLlenc'
upponino the ;-imounts and disclosures in the financi;-il statements. An audit ,1lsL1 in lu(les assessing the
accoumin prin il le u cd and significmt 'Stirnat s made b\' m,111agl'rncnt, ,1s well ,\S e\almting the wer,ill
financial Lal ment pr _entation. v b licvc that 1ur ,rndiLs pw\'i le a re,1somble lx1sis kw our L1pinion.
ln our pinion. Lhc Hnancial statements referred to abo\T present fairly, in all materi.11 res1 ens. the onsolttlated
finan ial posiLion of l rthwe -L Airlines oq orntion at e 'ember 1. \ l)l)() and l ()l18, :rnd thL' ClllSl1lidatcd
r ult o[ it opcrati n and its cash flows [or each Lr the three cars in the period ended rlL ember 1. lL)qq_
in con[ormiL
y, iLh ac ounting l rinciplcs )Cnerally ac q ted in the United Stntes.
~THLLP
Minn apoh , Minn oLa
January 20, 2000
R p 0
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FIVE-YEAR SUMMARY
orthwest Airlines Corporation
Statements of Operations
On millions, except per share data)
Operating revenues
Passenger
Cargo
Other
Operating expenses
Operating income (loss)
Operating margin
Income (loss) before extraordinary item
et income (loss)
Earnings (loss) per common share:
Basic
Diluted
Balance Sheets On millions)
Cash, cash equivalents and unrestricted
short-term investments
Total assets
Long-term debt, including current maturities
Long-term obligations under capital leases,
including current obligations
Mandatorily redeemable preferred security of
subsidiary
Redeemable stock
Common stockholders' equity (deficit) c3J
Operating Statistics C
4l
Scheduled service:
Available seat miles (ASM) (millions)
Revenue passenger miles (millions)
Passenger load factor
Revenue passengers (millions)
Revenue yield per passenger mile
Passenger revenue per scheduled ASM
Operating revenue per total ASM <
5l
Operating expense per total ASM csJ
Cargo ton miles (millions)
Cargo revenue per ton mile
Fuel gallons consumed (millions)
Average fuel cost per gallon
umber of operating aircraft at year end
Full-time equivalent employees at year end
1999
$ 8,692
72S
8S9
10,276
9,562
714
6.9%
$ 300
$ 300
$ 3.69
$ 3.26
$ 749
10,584
3,666
S97
626
243
(S2)
99,446
74,168
74.6%
S6.1
11.S8
8.64
9.44
8.71
2,336
31.01
2,039
S3.5S
410
51,823
(l) 1998 was affected by labor-related d1srupuons which included work actions, a 30-day
cooling off period, an 18-day cessation of flight operations due to the pilots' strike, a
seven-day gradual resumpuon of 01ght operations and a rebuilding of traffic demand.
(2) Excludes the effects of the 1997 extraordinary loss ($. 10 per basic share and $.08 per
diluted share), the 1996 preferred stock transacuon ($. 75 per basic share and $.68
per diluted share), the 1995 preferred stock transacuon ($.64 per basic share and
Year Ended December 31
1998(1)
$ 7,607
634
804
9,045
9,236
(191)
(2. 1)%
$ (285)
$ (285)
$ (3.48)
$ (3.48)
$ 480
10,281
4,001
655
564
261
(477)
91,3ll
66,738
73.1 %
50.5
11..26
8.23
9.12
9.21
1,954
32.39
1,877
53.60
409
50,565
1997
$ 8,822
789
615
$
$
10,226
9,069
1,157
11 .3%
606
597
$ 1,040
9,336
2,069
705
486
1,155
(3ll)
96,964
72,031
74.3%
54.7
12.ll
9.00
9.76
8.63
2,283
34.54
1,996
64.86
405
48,984
1996
$ 8,598
746
537
$
$
9,881
8,827
1,054
10.7%
536
536
$ 5.05(2)
$ 4.52(2)
$ 752
8,512
2,060
772
549
603
93
93,914
68,639
73.1 %
52.7
12.53
9.16
9.85
8.78
2,216
33.70
1,945
67.21
399
47,536
1995
$ 7,762
751
572
$
$
9,085
8,172
913
10.1%
342
392
$ 3.ll(2)
$ 2.90(2)
$ 971
8,412
2,467
841
618
945
(819)
87,472
62,515
71.5%
49.3
12.42
8.87
9.58
8.66
2,246
33.40
1,846
55.66
380
45 ,124
$.58 per diluted share) and the 1995 extraordinary gain ($.55 per basic share and
$.50 per diluted share).
(3) o dividends have been paid on Common Stock for any period presented.
(4) All stat1st1cs exclude Express Airlines I, Inc.
(s) Excludes the estimated revenues and expenses associated with the operation of
Northwest's Oeet of 747 freighter aircraft and MLT Inc.
STOCKHOLDERS' INFORMATION
Common Stock Prices
1999 1998
Quarter High Low High Low
1st 31 1
/ ,. 22 65 5/16
45
2nd 35 26 1
/s 62 3
/16
37
3rd 35 23 44 25 1
/16
4th 29 7/s 21 27 % 18 %
o dividends were declared during the years ended 1999
or 1998.
Stock Listing
The Company's Common Stock is quoted on the asdaq
National Market under symbol AC. As of January 31, 2000
the Company had 1,321 stockholders of record.
Registrar and Transfer Agent
orwest Bank Minnesota, .A.
Post Office Box 738
South St. Paul, Minnesota 55075-0738
(800) 468-9716
( 1999 ANNUAL REPORT(';;;\
~-------6
Annual Meeting
The 2000 Annual Meeting of Stockholders will be held
at the Equitable Life Building ew York, ew York on
Friday, April 28, 2000 at 9:30 a.m.
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
E-mail: nwairlines@4midwest.com
Direct all other inquiries to:
Investor Relations
Department A4 l 10
5101 orthwest Drive
St. Paul, Minnesota 55111
(800) 953-3332
~
NORTHWEST AIRLINES )
~ f - - - - - - - - - - - - ~
The Guiding Principles
+ 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 others.
Recruit and promote to the highest standards of performance
and professionalism.
Build self-esteem and pride in each other
+ Always strive to improve.
Measure against the best.
Solicit and off er ideas for improvement.
Search out and break down barriers that get in the way.
To Fairtlanks
eLihue
Honolulu
Molokai
e Kahului
Lanai City
Kona Hilo
Hawaiian Airlines
Barrow
Alaska Airlines
To Fairtlanks
Northwest Airlines and Partners
North American Route System
-- Northwest Airlines service*
-- Alaska Airlines and Horizon Air service
Hawaiian Airlines service
- - Continental Airlines service
* Regional jet service to Aspen, Fayetteville, Hunstville, Lexington,
Regina and Wichita operated by Mesaba Aviation
Panama City
Halifax
._Re ina
Thief Rive
Grand Forks
To Kalispell
~
To Bozeman
Rapid City
A
To Steamboat Spnngs/Hayden
:;n
/
A:"'
To Aspen
Mesaba Aviation
Havre
Aruba
Kenora
Thunder Bay
Wolf Point
Sidney
City
Glendive
Bismarck
liege
~1~~ffork
e
Greensboro ,.
Portland
ster County/
1te Plains
Raleigh/Durham
P.his
Huntsville
--AmericaWestAirlines
- - AmericanEogle
Los Angeles
American Eagle
& America West Airlines San Diego
Cincinnati
Ev~1
lle t o~sv1lle
Spnngfield/ / ~ Owe sboro
Branson Paducah
Joplin /
Tulsa
Fort Smith
nt
Shreve "dia
Greenville/
Spartanburg
To Houston 1
(Hobby) Laurel/ l'1 anama
Express A1rlmes Lafa1ette Hattiesburg Pensacola City
Presque Isle
Halifax
Business Express/American Eagle
Jakarta
saipan
Guam
.
S
ydney
Pacific Island Aviation
Saipan
:J
Tinian
Rota
G
uam
---:::----------~ ~
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--------------- .... ,, '\,-',
Northwest Airlines and Partners
International Route System
Northwest Airlines service
Northwest Airlines Cargo service
KLM Royal Dutch Airlines service
Continental Airlines service
Alitalia Airlines service
Kenya Airways service
Air China service
Japan Air System service
Gabo San Lucas/
Los Gabos
Puerto
Additional service operated by:
KLM and KLM cityhopper
Sheffield
lxtapa/Zihualanejo
Acapu>--...__
Guatemal~
San
Liberia
Sandefjortl
Kristiansand
Gothenburg
Santiago
M
almo
g
Benin (TegeQ
Buenos Aires
Additional service operated by Longyearbyen
Braathens and KLM exel
H
a
Aber
Ne
H
amburg
London (Stan oven/
London I
Paris (Chs. de G ans =ch
V
(O
rty) /
M
ilan (Malpensa)
Additional service operated by Eurowings
M
urmansk
Amsterdam nover
illl!Sladl
\
ne/Bonn Leipzig/Halle
-----Nurenbery
S
tuttgart
GapeTown /
Dresden
Additional service operated by KLM uk
Glasgow
~edS/13
Manchesl
\
B1
rmmgh
Additional service operated by Alitalia
ToAlns1ertl Hambu jr!aenin
o-Paris ---;-----.1_ a
iki
mezia erme
gio di Galabria
Athens
Malta
' Guam
Jakarta
I . . , I
- . - 5- -, ri n
NORTHWEST
A I R L I N E S
2000 onhwest Airlines Corporation
FI003 I