Northwest Airlines Annual Report 2000

2000
Northwest Airlines
Our cover depicts the new Detroit terminal,
due to open in 2001.
N O RT H W EST A I R LI N ES 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 and KLM Royal Dutch Airlines) offer customers a global airline
network serving more than 785 cities in 120 countries on ix continents.
Table of Contents
THE NEW DETROIT TERMINAL (PAGE 8)
will feature many new conveniences, among them
elevated tram cars to transport passengers
between gates.
To Our Shareholder ... . ... pages 2-5
Operational Excellence ........ . ...... . ... . ..... . . . . . . . pages 6-7
Investment for the Future. . .. page -15
Alliance Development ...... pages 16-17
I\T
A Cargo .. .... ..... . ........ . ...... .. . . page 1
fLT Vacation . ................ page 19
Focus on People .. .. . ............... ... ............... . ..... pages 20-23
Board of Directors . ......... ............ . . ............ pages 24-25
enior Officers ..... .. . .................... .. . . ...... page 25
Vi ion and Mis ion .. .. ............... . . .... . . . . ... . .. page 26
Financial Report . ... . ... . ............... .. ... . . . .. page 27
Stockholder ' Information ..... . ........ .... ... . . . ............ page 70
Route Maps . . .. .... ... ...... . .................. .. . . .. back cover
Annual Report 2000
CONDENSED FINANCIAL HIGHLIGHTS
Northwest Airlines Corporation Year Ended December 31
(Dollars in millions, except per share data)
FINANCIALS
Operating Revenue
Operating Expen e
Operating Income
Operating 1fargin
Net Income
Earning Per Common hare:
2000
$ 11 ,415
10,846
569
5.0 0
256
Ba ic $ 3.09
Diluted 2.77
Iumber of Common har Out tanding (million) 85.1
OPERATING STATISTICS
ch duled ervice:
vailable eat ile M) (million )
Re, enue Pa enger ile (RPM) (million )
Pa enger Load Factor
Revenue Pa enger (million )
Revenue Yield Per Pa enger Mile
Pa nger Revenue Per cheduled
Cargo Ton Mile (million )
Operating Revenue Per Total M (RA 1)
Operating Expen e Per Total 1 ( M)
103,356
79,128
76.6
58.7
12.04c
9.21
2,501
10.01
9.33
Operating Income (Loss)
millions
Cash Flows from Operations
millions
$1 ,200
1,000
800
600
400
200
0 ~.....::...~.::...::...----,,...,......_,._~..,.,_,,._____.
'96 '97 '99 '00
-200
'98
Financial Highlights
$2,000
1,600
1,200
800
400
'96 '97 '98 '99 '00
1999
10 276
6.9%
300
3.69
3.26
4.6
99,446
74 16
74.6%
56.1
11.5
.64~
2 336
9.44
.71
Long-Term Debt
millions
$5,000
4,000
3,000
2,000
1,000
Percent
Change
11 .1
13.4
(1. )pts.
3.9
6.7
2.0 pt.
4.6
4.0
6.6
7.1
6.0
7.1
'96 '97 '98 '99 '00
Northwest Airlines
A MESSAGE FROM THE CHAIRMAN
,\ new L
earn ha a umecl Lhe LOp leadership po ition al l onhwe L Airline . The l onhwc t Board of Director
ele Led Richard r\ncler,on hief ex cu tiv offi r and Doug L
een land pr ident.
J ohn Da burg wa pre ident and chief xe utiv offi er in e 1990. We tb ankjohn for his leader hip in building a
global network and guiding 1 onhw L th rough the decade of the 1990 .
Planning for a chang in leader hip ha b en a pri ri ty fo r the onhw t board . vVe have long recognized that
cl v lapin a ound u c sion trategy and implem ming iL at the right tim i among o ur mo L important dutie .
Accorclino-ly, w previou ly id ntified Richard and Doug a talem ed , seasoned leader r ady L
o a um e critical role at
1 orthwe t. Too-e ther, th e , offer com plementar kill that make th em an out L
anding team . Having worked with
them both oY
er the pa t decade, I am confident we hav in place traL
egic, d ci ive and highly energetic leader wh o
will rve the com pany extreme! well for the long term.
a North, est ex cu Live vice pre ident and our chief operating offi cer, Richard has been responsible for our
op ration ince 199 . Doug, al o fo rmer! a 1 orthwe t executive vice pre ident and ur chief corporate officer
ince 1999. ha led our corporate taffand guided the formation and implementation of our alliances with KLM
Royal Dutch Airlin e and Continental Airline . Their deep knowledge of the company and the industry, combined
with their pro\'en leader hip kill , enabled u to make thi change confident that th transition wo uld be mooth
and orderly.
Richard and Doug have been in trumental in de io-ning and implementing the trategies that have served 1 onhwest
well durino- a period of normou change and challeno-ing conditions in the airline indu try. The e core strategie
remain fundamentally unchan ged and are further di cu ed in our letter to hareholder . The board is anticipating
great benefits to all Nonhwest take holders from the vigo r and enthusia m of thi new leadership.
Gary L. Wil on
Chairman of Lhe Board
Annual Report 2000
TO OUR SHAREHOLDERS
In the ear 2000, rising fuel price , record air traffic lev I and ren wed attemp at indu try con olidation d fin d
the competitive land cape for our company. gain t chi backdrop, lorthw t Airline delivered trong operating
and financial performance. v\Te car1ied more pas enger , flew more mile and g nerat d more r venue than at any
point in our histor . Our operating margin, xcludino- fuel expen e and non-recurring item , wa the be t of the
network carrier . We ranked first i.n on-time p rformance through mo t of the ar and improved our ranking n
all the customer atisfaction mea ure tracked b)' the .. Department of Tran portation (DOT).
The mi ion of 1 orthwest A..irline is to pro\'ide reliable, convenient and on i tent air tran portaLion that exceed
customer expectation and earn a substantial profit. To fulfill this mis ion, we ha\'e de ignated five area for
empha i - our heckli t for the Futur - that reflect continued and c n i t nt implementation of our core
trategie . The e five focu area and our ke achievements in each of them ar de cribed below.
R LJ N A G R EAT A I R LI N E - We will provid afe, clean, on-tim air cran ponation with dependabl
luggage service, coupled with friendly, profe ional, con i tent and ca.ring u-eatm nt. Our promi e f reliability includ
prompt, appropriate service recovery when, de pite our be t efforts, \\'e do not meet our cu comer ' e 'pectation .
v\ e focu relentle ly on being tl1e indu try' on-time-arrival 1 ad r. From 1990 tl1rough 2000, Northw t Airlin was
exactly that, ba ed on DOT ta.ti tic for . network canier . Throughout 2000, w wer one of tl1e I ading car1i r in
on-time performance, fewe t con umer complaints, lowe t level of mi handled luggage and lea t involuntary denied
boarding . On a compo ite of tl1e e mea ure of operational integ1ity, we were the indu cry leader in 2000.
P LJ T ( LJ ST O M E RS FI RS T - \ e will maintain our industr -lead in a- u comer Fir t plan, d livering
clear, conci e communication about flight tacus. \-\'e will crive to be the fir t choice airline for pa enger and
hipper , with innovative products. orthwe t ha been inve ting millions of dollars in new technologie that help
cuscomers conveniently buy tickets, ea e check-in and improve the boarding process.
In 2000, we became the fir t major airline to inu-oduc onlin ch ck-in via our web it . Dome tic customer can now
obtain a boarding pas at their home or offices, bypa ino- check-in line at the airport. Northwe t cuscomer now
al o enjoy the convenience of electronic ticket e en when their itinera1ie include travel on multiple carriers. \-\re
are leading the development of interline e-ticketing capabilitie and with allianc parmer Continental Airline
operate the indu try' largest interline e-ticket network.
v\e are also enhancing in-flight comfort for customers with tl1e introduction of enhanced v orld Business Cla ~ "
ervice. The centerpiece of this service is more per onal space - enou0 h to comfortably,, ork, relax or leep in
flight. Thi product, which, e began rolling out in 2000, al o offers higher quality food ervice and other pa enger
amenitie . The improvements re tore v\ orld Busines Class as the industry-leading product on trans-Pacific routes
and a product leader in tl1e trans-Atlantic market.
Letter to Shareholders
Northwest Airlines
FOCUS ON PE O PL E - B Laking care of Norlhwest people - our greatest a et - we will Lak b tter
car of our ustomer . V-le will achieve this objective through enhanced communications, fair and progressiv labor
relation , ~tate-of-Lhe-an training and continued improvements t mployee ervice and facilitie .
Durina th year, we r a bed a new five-year agreement with our flight attendants. Seven f the eight contracts
overing ur .S. and anadian employ e have updated agreem nts, and our mechanic , cleaner and custodians
w re in th ratifi at.ion proce for a new contract as we beaan printing thi report.
Th qualit)' of our service ultimately rest on the qualit'y and enthusia m of our people. Throughout this report we
recognize 14 employ e for their out tanding effort on behalf of our ompany and our customer . They are the
recipients of th 2000 President's Award our highest distinction.
B LJ I L D O LJ R N ET WO R K - We will create robust, profitable and ustainable growth by expanding
ervice from each Northwe t hub and by building our alliances with other carriers. We will aggressively develop
argo, our fa test growi1w bu ines , which produced a 17 percent increase in revenues in 2000.
1 orthwest is the leader in creating global networks. Long-term alliances are the most economic way to expand
gl bally du to r enue, co t and capital ynergie that are hared by the partners. World coverage also diver ifies
ri k among international regions. Diversity has ser eel us well as strong dome tic and trans-Atlantic markets helped
offset Asian weakne in 1998, while in 1999 and 2000 the re urging A ian economie helped off et tran -Atlantic
over capacity.
The Continental Airlines alliance provide Northwest access to additional domestic hubs in ewark and Houston
and aenerate significant incremental revenue witl1 minimal capital e, pense for both carriers. Together, our systems
have a 21 percent share of the U.S. market, which is equivalent to United Airline , American Airlines or Delta.
We have extended our Continental alliance agreement through 2025 and received from Continental a special
cla s of preferred stock tl1at provide adequate protection of our mutual interests in this partnership. Vl/e are
very entlrn iastic about our partnership wi.tl1 Continental. The alliance is on schedule to achieve our projected
500 million in annual joint benefit.
In 2000, we expanded our ian route network through enhancing our exi ting alliances with Air China and Japan
Air Sy tern and a new alliance with I falaysia Airlines, the fir t between a U.S. and A ian carrier to be granted
antitrust immunity by the DOT. Antitru t immunity permit
tl1e partner to pur ue unlimited economic and
operatio 1al coordination and thus offers both the
traveling public and tl1e alliance partner great
benefits. Northwest and Japan Airlines
established a long-term cargo alliance.
Richard H. Ander on
Gary L. Wil on
Dougla M. Steenland
Annual Report 2000
Going forward, our operating reliability and effi iency, a , II a our cu tom r ' in-flight omfort, will ben fiL from
planned addition to our fleet. Early in 2001, w announced order for 52 ne, air raft, including 24 comfortable and
reliable Airbu 330-300 wide-bod aircraft and 20 757-300 aircraft. Deliv rie on the order b gin in 200_ and
continue through 2006. ombined with other planned acqui iti n , we will be taking deliver ofa new air raft
approximate! every two week for the next fi ars.
SE ( LJ RE O LJ R F LJ T LJ RE - W will en ur u tainable finan ial tabili through a ommitmenL co
improve profitability and create hareholcl r valu . We will xecute our trategie LO improve financial performance by
increa ing revenues in high potential area for 'pan ion - uch a cargo - and aggre ivel)' conuolling co
orthwest is the only .S airlin with con truction of ne, runwa)' and terminal faciliti at all of its hub . To enhance
cu tamer ervi and operating efficienc , the large t fa ilil:)1 expan ion and r n wal in nh, t' hi tor i
underway at our dome tic hub in Detroit, Minn apoli / t. Paul and l\Iemphi , and in our international hub , Tokyo
and Amsterdam.B I far the mo t dramatic i the con. tru tion of the new terminal in Deuoit. \'\'hen the Late-of-th -an
terminal open in December it will be th mot effici nL pa enger-conn ctin hub in the world. Becau e ofD u it'
unique geograph ic po ition thi new airport will be the connecting hub of hoice ford me Li de ti.nations and for
international flights to both Europe and ia for travel r from ea L of the lid we t.
LOOKING AH EA D - W are confronting an ov rly taxed Air Traffic ontrol y t m ( T )
infra tructure. Thi i a principal cau e of dela , which lead to pa en er fru uation with our indu tr ' 1orthwe t
will continue to take a leader hip role in working with the Federal viation dmini Lration to find long term
olution to ATC problem . We upport the indu try po ition that the AT hould b reorganiLed L er ate am re
performanc -based model. The eventual oluti n hould involve a vernm nt own d entit) with ind p ndent
authority to budg t, plan for growth and manage its work force.
Averag jet fuel co t hav xceed d Gulf War price for more than one ,ear due to the action of the OPE cart I.
We encourage the new admini uation to adopt policie and take action LO coumer OPEC dictating oil price . Allowing
a cartel of foreign producers to control the price of oil i bad for the American e onom and it con umer . Thi i
particularly important to our indu tr a the U .. economy tagnate in 2001 and r v nu com und r pr ur
We celebrate our 75th year of ervice in 2001. Thi is a ignifi ant mile tone in an indu tr where market force
continuall re hape the competitive land cap . 1o other .. airline ha operated independently under one name
as long a Northwe t Airline .
We look forward to better erving our cu tomer , emplo ee and harehold r . Thank you for your int r t
and upport.
(~~-/~
Gary L. Wil on
Chairman of the Board
Richard H . Anderson
Chief Executive Officer
Dougla M. Steenland
Pre ident
5
Northwest Airlines
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Air Travel Consumer Report
On-tim p rformance i the ingle mo t important factor
influencing cu torn r sati faction with an airline.
1orthw st Airline ranked fir tor econd in on-time arrival
among the nation' network carrier for nine of th 12 month
in 2000, according to . Department of Tran portation (DOT)
data. Thi consi tent performance also implifie da -to-day
operation and reduce operating co ts.
In a com po ite mea ure of operational integrity for on-time
performan e, involuntar denied boarding , con umer
omplaint and mishandl d luo-gage, 1 orthw t rank d fir t
among the .S. n t:work arrier in both 1999 and 2000.
A key pan of our mi ion i to provid a prompt and appropriat
re pon e if som thing goe wrong. According! , Nonhwe t ha
complemented i olid operational performanc with indu tr ,_
ading ervice r cover I initiative under the banner of it
u tomer Fir t program.
Annual Report 2 0 0 0
Our u tomers Fir t initiati\'e al o ha e included numerou innontion de i!!ned to make air tra,el a ier.
For xarnple, Portable uent Work tation (P :W ) carried by ~onhwe t airp rt per onnel in Detroit,
i\Iinneapoli / t. Paul, :.Iemphi , ~ wark and New York/ La Guardia enabl traYe] r to a,oid airp n line .
In tead, rmi.ng ~orthwest agent can check cu comer in and prmide their boarding pa e u ing hand-held
per onal computer. 0;onhwe ti the on ly major airlin u ing thi type of hand-held work cation , which i al o
u ed where pa seng r ,. lume r quire exua taff, such a convention and pecial vents.
On-Time Performance
Portable Agent
Workstations increase
convenience.
President's Award Winner
Kathleen Nolan
Customer Service Supervisor
Boston
Kathleen Nolan starts each day with a fresh and energetic commitment to
Northwest customers. That attitude is so infectious that 26 of her Boston
colleagues nominated her for the President's Award. Her dedication to
luggage service has made a significant difference in Boston.
(_ Nort_:west Airlines
Investment for the Future
AIRPORT IMPROVEMENTS NEARING COMPLETION
nl't1oit huh opn.1tiL111~ will shift la1c1 thi~ n;1r to :1 Ill'\\'., I.'.! billion ll'rmin.tl, lhl' l.1rgl'SI single
puhl1< 111ll k, project in 1hr ltiston of' lichig.111. The lt'nllin,tl will Sl'l'H' orthwl'sl ,\irlinl'~ and i1,
,1llt,111t l p.u t1H1~. which togrtlH'r an lnnTaqing :>(i(l d,1ilv clqiartuns in '.!00 I. The Ill'\\' 1crn1in:tl
will k.1ttlll' n g,1tes. IO(i ticketing posi1inns, '.! I ntrbside rhl'ck-in st,111cls. I~ luggagl' c:11011,l'b
.111cl lour \\'O! ldCl11bs. 1\ 1H11 IOO-rnu111 lto1rl in the trr111i11:tl is pn~jl'rtl'd l'or a '.!00'.! rn111pklin11 .
l'ltc 11111 ll'I 111i11,tl 11ill oll\1 i111rr11.11mnal-10-do11Hs1ic ro111Hrtio11~ 11ithi11 !Ill' ~.tnH f'.1rili1\'.
Otltr, ,111 prn t i111prnH'ttll'I\I~ ll'ill inrludl' .1 fourth p.tralkl I u11w:1\ 1ll:11 will L
nabll' .1 '.!:1 jH'1C1111
in< H',1,1 111 c.1p.1rit1 ,llld du.ti . ~i111ul1,1ncnus 1
.1kco1Ts and L111clings. 11e11 in inrlc111l'11t ll'l',tlhl'1 .
P,e id nt's Aw < rd Winn ,
Carla L. Glenn
Flight Attendant
Detroit
Carla Glenn set a positive tone and inspire a team spirit to assure consi tent ervice
delivery to cu tamers on her flights. She has maintamed an outstanding record throughout
her more than 30-year cateer and is known as the ultimate professional in meeting the
needs of passenger and fellow crew members onboard the aircraft. Carla also can be
counted on to implement a flawless recovery plan when things do not go as planned.
Annua l Report 2000
Construction is on schedule
for the new Northwest Airlines
terminal in Detroit, the
premier airline hub facility
in the United States.
Northwest Airlines
A more luxurious design standard
for new WorldClubs was introduced
in 2000 with the opening of this 11,000
square foot facility at Minneapolis/
St. Paul International Airport.
Memphis improvements include 15 new Northwest
gates, the redesign of eight gates to accommodate
regional jet service, a new WorldClub and the addition of
11 new ticket counters.
AL Iinn apolis/ L. Paul In tern ational Airport, $2.4 billion in
airport funded improvemenls are und r way. The improv menL
include a 50 percen t increase in parking, 15 new j et gales, 30 new
co mmut r gat s, 10 additi nal orthwest tick t counters and a
spectacular new WorldClub~ the airport' third. Like Detroit, the
Minneapolis/ SL. Paul lnL rn ational Ai r1 ort features international
arrival , departures and conn ections with dome tic flights within
the same facility. A new skyway and au tomated peopl mover
hort n tran it time between concour e and the parking garage.
In fem phis, orthwest launched the large t single service increase
in its hi tory, adding a fourth bank of fligh ts accounting for 104 new
takeoffs and landings daily. With this 25 p rcent increase in ervice,
Memphis gained additional daily non top service to 44 destinations.
Memphi was the number one hub in the U.S. in 2000 for
on-tim arrivals.
Memphis airport funded renovations total "400 million, including
a 13,000-foo t runway which opened in late 2000 to accommodate
additional arrivals and departure . The new runway also will enhance
long-range flying from Memphis to international destinations.
President's Award Winner
Lex Cralley
Lead Mechanic - Plant Maintenance
Minneapolis/St. Paul
Throughout his 13-year career, including service in Memphis and Boston as well as the
Twin Cities, Lex Cral/ey has displayed and lived Northwest's values and guiding principles.
In his present position, Lex and his crew of third shift mechanics are responsible for maintaining
383 pieces of motorized ground equipment. Lex and the crew renovated and upgraded two
maintenance shops in 2000 and he ensured that his crew was appropriately recognized for
their accomplishments.
Annual Report 2 0 0 0
At Tokyo's arita airport, 600 million in hub improvement are
currently under way. In 2002, orthwe t and alliance partner
KLM will relocate airport operations to Satellite 3 in Terminal 1,
which ha been de igned by Northwest in cooperation with the
ew Tokyo International Airport Authority to better serve our
18 daily flights. In 2003, we will expand to include atellite 5,
which is an extension of Satellite 3.
Northwest's Tokyo hub will move to the
new Satellite 3 in 2002 and expand into
Satellite 5 in 2003.
SATELLITE 4 SATELLITE 1
Am terdam's chiphol Airport serve a T
orthwe t' European
hub by virtue of orthwest' highly integrated alliance with
KLM Royal Dutch Airline . Already regarded a one of Europe'
premier hub airports becau e of its ease of connections and its
shopping, dining and entertainment option , Schiphol is now
undergoing improvements to accommodate ubstantially
higher pas enger and cargo capacity, with particular empha i
With KLM, Northwest offers service between Amsterdam
and 13 U.S. cities. From Amsterdam, the airlines serve
108 destinations in Europe, Africa and India.
on the airport' luggage sorting sy tern and the con truction of a
fifth runway.
Hub Airport
improvements total
nearly $6 billion.
President's Award Winner
Eric McMahon
Manager - Customer Service
Amsterdam
Eric McMahon volunteered tor a temporary assignment in Amsterdam and is making a difference
every day in improved luggage reliability from Northwest's European hub. He first established a detailed
communications link with all destinations served from Amsterdam, vastly improving the quality of
information available on luggage status and service recovery. He also has researched and developed
new processes to expedite cargo shipments on flights to Europe from Detroit.
Airport Improvements
Northwest Airlines
NEW AIRCRAFT ADDED TO FLEET
The fir t of 24 Airbu 330-300 aircraft will begin ani\'i.ng in 2003 a part of an order for 52 new aircraft,
one of the large Lin orthwe t hi tory. Th twi.n-ai le 330 wi.11 repla e our D 10-30 fleet a ro the
tlantic and offer 10 percent more capacity, wi.th 302 pa enger - 34 in World Bu ine Class~'1
compared with 26 in the D 10. The new aircraft will feature a new, more paciou interior and in
Coach la no pa nger i ever more than one eat away from an ai I . Beyond tate-of-th -an
technology, the A'330-300 ha the !owe t operating co t per eat of any long-range jetliner
e\'er de igned.
In addition LO the A330, the recent order include two Boeing B747-400 aircraft for tran -Pacific
route , 20 Br7-300 , which will replace Nonhwe t' DCl0-40 fleet on dome tic routes, and i
additional Airbu A319 . ccelerated 2001 deli\'erie of previou ly ordered B7 7-200 aircraft and
Airbu 320 aircraf will allow u to retire our Boeing 727 a year earlier than initially planned,
moving forward ome of the cost saving and efficiencie that will re ult from op rating
and maintaining ju Lone fleet type in the 150- eat category.
The . orthwe t Airlin fle t, including Airlinkjet aircraft, con i ted of 469 aircraft at the end of 2000.
By the end of 2004, that total will increa e to 56- aircraft. The aircraft deliver chedule for the next
five year will m and livery of a new aircraft about ever 1
two week .
President's Award Winner
Theodore F. Mallory Ill
Director - Chief Pilot Regulatory Compliance
General Manager, NATCO
Ted Mallory walks the talk every dar, in multiple Northwest roles. As NATCO general manager he contracts with
other airlines for pilot training at Northwest Aerospace Training Corporation, among the world's largest aircraft
simulation facilities. Now in his 30th year, he took on another major assignment as a primary resource for
regulatory matters affecting flight operations. Captain Mallory is an expert in human factors and crew resource
management training. His dynamic leadership is recognized throughout the industry as evidenced by his many
appointments to chair industry training committees and task forces.
Annual Report 2000
WORLD BUS IN ES S CLASS sM EN HANCE D FOR GREATER COM FOR T
World Busines Cla customer on both Northwest and KL\1 Royal Dutch Airline are traveling in ea that
offer nearly a 30 percent increase in per onal pace and a full 150 degree of seat recline, making it more
comfortable for pas enger to relax or Jeep in flight. Northwe t' wide-body aircraft ha\'e been reconfigured
to accommodate the increa ed pace. All of KLM' wide-body aircraft will be reconfigured by :vlay 2001.
~orthwe t and KLM, the only airline alliance offering a co-branded premium bu ine clas product,
introduced the improvements in World Bu ine Cla ervice in September 2000. The enhancements include
greater choice and premium quality in meal ervice. In 2001 , N rthw t international flights will be taf cl
with a purser to en ure that cu tomer receive the be t po sible ervice.
Initially offered in 1994, the original v orld Bu ine Cla service helped differentiate the 1
orth\ e t/ KLM
alliance from competing airline alliance .
The international fleet
has been equipped with
a new digital audio
system offering greater
choice and quality and
premium headsets in
World Business Class.
More Personal Space
14
Northwest Airlines
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lJ pclatc Frcqu ,t FI
1 ]) I ,I( l I
LEADERSHIP IN TECHNOLOGY
In 2000, we became the first network airline to permit online
check-in via the Northwest Airlines web site, nwa.com. Northwe t
Improved Access to NWA
cu tamer in the U.S., with acce s to the Internet and a ptinter, can
now create their own boarding pa e from the convenience of their
home or offices. If there is no luggage to check, customer can
bypas all airport lines and walk traight to the gate for boarding.
Enhancement to the nwa.com web site make it possible to reach
nearly every feature in d1ree or fewer mou e-clicks. Sales through
nwa.corn continue to grow dramatically, accounting for nearly
400 million in revenue in 2000, doubling from the 1
ear before.
Al o growing dramatically are sales of -Ticket ~" which
accounted for nearly 60 percent of all tickets for North we t
in 2000, including rough] 75 percent of all domestic tickets.
nwa.com is repeatedly
recognized as the best
web site in the industry.
@NORTHWES'I
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E-Tickets are the catalyst for e-commerce at orlhwe t, improving
service and reducing co ts. That' wh orth, e tis er ating int rline
e-ticketing capabilities which allow customers Lo use electronic LickeL
even when their itinerarie include travel on more than one carrier. In
Annual Report 2000
fa
October 2000, Northwe t and alliance partner Continental Airline launched the
industry' largest interline E-Ticket network. a re ult, traveler can not only make
connections on an E-Ticket, but can al o u e eiLher Northwest or Continental E- rvice
Center for check-in. We expect toe tabli h interline e-ticketing capabilitie with other
carriers in 2001. E-Tickets will be available to all de tinations erved b Northwest
To help travelers avoid airport check-in
lines, Northwest has deployed more than
225 E-Service Centers5
M
systemwide.
These centers enable travelers
globally once KLM launches it e-ticketing capabilitie in the fir t half of 2001. to obtain boarding passes, check-in
luggage and change seat assignments
all without waiting to see a gate agent.
O
ur E-Service Centers handled more
than 4 million check-ins in 2000.
WorldPerks frequent flyer members can now fully manage their accounts online through
WorldPerks Direc "at mva.corn. Through WorldPerks Direct, cu tomer can enroll
themselves in the WorldPerks progran1, check mileage balance and accow1t historie , book
award travel and report mileage di crepancie . with our new
WorldPerks partner MilePoi.nt, we also have begw1 offe1ing travelers
exciting new way to redeem WorldPerks mile . MilePoi.nt.com
enable WorldPerk members to u e WorldPerk miles toward
purcha es from many of the web's most popular retailers.
A new WorldPerk database was successfully launched in July.
The enhancements increase Northwe t' knowledge of customer
needs and provide customer more option for the u e of their
WorldPerks miles. The new ystern al o further ecures the
accuracy and operational integrity ofWorldPerk .
E-Servi ce
President's Award Winner
David Linnes-Bagley
Applications Consultant
Minneapolis/St. P
aul
Dave Linnes-Bagley was a key leader
in establishing a new customer
focused WorldPerks database.
A 21-year employee, fellow team
members acknowledge him tor
his leadership and willingness
to tackle the tough projects,
including his work on Y
2K
preparations. David's innovations
also helped to control costs through
new business-to-business technology.
Northwest Airlines
AL LI ANCES EXTEND OUR NETWORK
onhwe Land Conlin ma! irline ~ rmed a groundbr aking allian betw en
major dome tic carri r in 199 . bouL one milli n cu tom r are exchang cl
ea h year b tween the two canier ' n twork . Th alliance add onhwe L
code- hare hub in ke . market , Newark and Hou ton. It al o provide
cu tamer eamle s conn cting ervice LO Continental's exten ive Latin
American nenvork. Our combined network provide om pre hen ive coverage
of 1 orth America, Latin America, ia and Europe.
orthwe t achieve competitive ize through ode-share aureem nt with ConLinental and
its other alliance partners. These agreement n arly triple the number of citie erved and
nearly quadruple the daily frequencie available from onhwe t.
orthwe t ha alliance relation hip with more than nvo dozen carrier . Alliance maximize
the reach of orthwe t' global nenvork. Today, Northwe t, in combination with it alliance
partner , erve more than 7 5 de tination in 120 countrie on ix continent .
Alliance Development
Continental
~
ORTHWEST
A I R LIN ES. Airlines~
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AMERl(A WEST AIRLINES BRAATHENS
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AIRLINES
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JET AIR\NA'V
President's Award Winner
Lisa Perry
Account E
xecutive
Billings
-.f:.:
KLM Royal Dutch A1rl1nes
Allitalia
"f:j
CY PRUS A IRWAYS
J.M
B*:X:J>:.,;l.7'..
Lisa Perry's efforts to promote Northwest and her contributions to the communities and economies throughout
Montana earned her the distinction of Montana's Tourism Person of the Year 2000. She has served three terms
on the Governor's Tourism Advisory Council, including two as chair. Her promotion of official delegations
representing Montana on overseas trade missions includes the Governor's delegation to Japan, and other
delegations to China, Taiwan and elsewhere in Asia.
Annual Report 2000
::-Jorthwe t' allianc with KLY.1 Royal Dutch Airline i the mo t advanced and deeply integrated
tran -Atlantic alliance in the indu try, enabling A'orthwe L to extend its network eamle 1 into Europe, the
Middle East, India and Africa. ince 1993, the alliance ha operated with antitrust immunity, which allow the
carrier to jointl price and market their ervice , and i governed b a long-term alliance agreement.
Operating a a true joint enture under which both airline hare profi equal! , the alliance' operation
ha e more than doubled ince 19 9 and now encompa 32 daily flights erving 162 citie .
Of particular importance to our net\ ark' reach are our alliance with Air hina and Japan Air y tern for
tran -Pacific code-share and intra-countr connection in hina and Japan, re pectivel .
Late in 2000, our alliance with ::Vfalay iaAirline was granted antitru t immunity by the G. . Department of
Tran portation. Thi too i a groundbreaking alliance - the fir t alliance between a ' .. and ian carrier
to enjo antitru t immunity. With antitru t immunity now in place, we will expand code- hare ervice.
Y.!alay ia Airline i the large t carrier erving outhea t ia.
President's Award Winner
Jie "Claire" Xia
Ticketing Supervisor
Beijing
Claire Xia has a way of converting passengers into lifelong loyal Northwest customers as she assists
U.S. expatriates and local Chinese with complex ticketing issues. Claire is similarly skillful in
managing Nor1hwest's major ticketing agency partners. She regularly works late or on weekends on
various special issues. Her dedication and spirit inspire all those in her office.
Global Convenience
Northwest Airlines
NWA Cargo
NWA CARGO PREPARED FOR RAPID GROWTH
1 orthwe t Airline Cargo, Inc. seek to be the fir t choice for air cargo tran portation.
Cargo revenue were 857 million in 2000, an increa e of 17.1 percent over 1999. This rapid
increase was driven by improved management of trans-Pacific capacity to match the strongest
traffic flows in Asia, and improved collaboration ,vith KLM Cargo to maximize trans-Atlantic
load factor .
During 2000, N A Cargo took steps to trengthen it competitive position and t0 prepare
for the rapid growth of international trade. To improve chedule frequency and coverage,
a cargo alliance wa launched with Japan Airlines Cargo, one of the largest and mo t
quality-focused air cargo carrier in Asia. To supplement it cargo hub in Tokyo, A Cargo
expanded and enhanced its cargo hub operation in Anchorage with a new facility, with
capacity to triple Northwest' freighter operation .
Northwest i the only U.S. pa senger carrier to operate a fleet of Boeing 74 7 all cargo
freighter . Since 1999, Northwest ha increased the freighter fleet by 50 percent with the
acqui ition of four aircraft. Two of the additional aircraft are now in service and the other
two will enter revenue ervice in 2001. Northwest's 2001 cargo revenue is expected to exceed
1 billion for the first time in the Company's history.
President's Award Winner
Michael McKinley
District Manager - Cargo Operations & Customer Service
Anchorage
The Anchorage cargo hub, under Mike McKinley's leadership, plays a critical role to keep the cargo network running
on schedule. He led the planning and implementation of the new Anchorage facility in October, the implementation of
a fourth freighter crossload operation and is active in the Anchorage community on behalf of Northwest. Mike has
one of the most motivated work groups at Northwest, a direct reflection of his leadership and professionalism.
Annual Report 2000
MLT VACATIONS INC. - CHANGING AND GROWING
YI.LT Inc., a, holly owned sub idiary of orthwe t Airline Corporation, develop and markets vacation program
that include air tran portation, hotel accommodations, car rentals, ightseeing option and much more.
LT Vacation Inc. offer two product line . Northwest Airline WorldVacation '1 utilize cheduled air ervice
on Northwest and KL f to offer a \.vide election of vacation de tination in Europe, Asia, entra1 America, Mexico,
the Caribbean, Canada and the nited State with custom-made, package-priced vacation . Worry-Free Vacation
offers charter ervice from 12 U .. 01igin markets to the mo t popular vacation de tination in entral America,
Mexico, the Caribbean and the ' nited tate . The e vacation program , in addition to providing a competitive
and quality tour product, increase the ale of~orthwe t ervices and promote and upport new and exi ting
Northwest de tination .
YI.LT acations Inc. experienced significant growth and change in 2000.
The transition of call center and office operation to Minot, ~D was completed.
Vlorry-Free acations expanded into four additional origin markets - olorado pring , Honolulu, La ega and
Memphis. Additional origin will be added in 2001.
Tra el agent and con umer web ite were launched providing online booking capabilitie for both program .
Revenue have exceeded expectation .
Added technology enhanced the efficiency of call handling, reduced both elling and operational co ts, and
increased the wa s MLT acations Inc. products are old.
www.nwaworldvacations.com
www.worryfreevacations.com
MLT Vacations
Northwest Airlines
President's Award Winner
Richard E. Dudley
Equipment Services Employee
Boston
Rich Dudley's energy, enthusiasm, positive
attitude, persistence, and commitment to the
safety and welfare of his fellow employees are
well known. Rich has developed a singular
expertise in the areas of injury prevention
and the sate performance of ramp and
counter activities through behavioral
change. He shares with his colleagues
his knowledge of the safest procedures
tor loading and unloading luggage,
mail and cargo as he
continues to enhance his
own education and
experience. His self-
initiated work in these
areas has demonstrated
that one person can make
Northwest is investing in more training for manager and front line
customer ervice personnel, more frequent communication about
goals and re ult , improved employee facilities and meaningful
r cognition program .
orthwe t's leading position in Cu tomers First reports from the
Department of Transportation is a mea ure of how well our people
have been trained and equipped to work together.
This focus on people is one of the five elements of our Checklist
for the Future. The other items on the checkli t include: run a
great airline, put cu tomer first, build our network and secure
our future.
"Catch the Spirit," a new training program for
Northwest's 14,000 ground operations employees
emphasizes meeting customers' needs through better
communication, coordination, and collaboration with
other work groups.
Entering 2001 , onhwest has finalized even of eight labor
contracts for its .S. and Canadian emplo ees. In June 2000,
, e signed a new five-year agreement with the International
Brotherhood of Teamster , which rep re ents our 11 000 flight
attendants. this annual report went to pre , a new contract
with the Aircraft 1echanic Fraternal ociation, representing
mechanics, custodian and cleaner , wa in the ratification proce
P resident's Awar d Winner
Debbie L. Danielson
Manager - Central Reservations Control
Minneapolis/St. Paul
Debbie Danielson began her career in 1967 as a reservations sales agent and
has worked in almost every area of reservations. She is highly respected and
valued by customers, peers, agents, and management staffs throughout the
company and is constantly striving to improve performance and service to
customers. In addition to her systems knowledge, she advises many
departments in managing schedule changes, irregular operations and the
VIP program. Her expertise has helped establish procedures for identifying,
notifying and tracking passengers and also has improved the hiring and
recruiting process.
Training, Communications
Annual Report 2000
President's Award Winner
Emory "Pinky" Alexander
General Inspector
Atlanta Maintenance Base
For most of his 40 years at Northwest, "Pinky" Alexander's
enthusiasm to meet new challenges has made him a
mainstay in the Northwest inspection department. Pinky
was responsible for all Stage Ill hushkitting conversions
for JTBD engines, used on Northwest's fleet of 172 DC9
aircraft. His technical expertise and certification for JTBD
engine maintenance have led to cost savings of up to
$275,000 per engine for Northwest, and additional
revenue from performing these same procedures
for other airlines.
Northwest Airlines
IN MEMORIAM
President' s Award Winner
1 orthwest's focus on people extends beyond our company to
include the communitie we erve. That' why we created the
orthwest AirCares charitable support program.
Northwe t KidCares is a unique AirCares program. Through
KidCare , WorldPerks<!!' miles donated by orthwe t customers
are used to provide free air travel for a seriously ill child and one
parent or guardian to obtain the medical treatment needed by
the child. In addition to the generous upport of North we t
WorldPerks member , Northwest ha added its own KidCares
donations of 1.5 million miles.
l orthwe t also work ea h quarter with a different nonprofit
organization in a public awarene sand onboard mileage and
fund-rai ing campaign. On every Northwest flight, pa engers
learn about the charity partner through a flight attendant
announcement or in-flight video. In addition, Northwe t's
inflight magazine, Worlc/Traveler;" feature an article de cribing
the organization and include an envelope for pas enger
contribution . Since its inception, AirCare donor have
contributed more than , 7 million in ca h and travel.
Annual Report 2000
Make-A-Wish Foundation
Northwest provided transportation for twelve-year-
old Yuichi Tanigawa and his family between
Osaka, Japan and Honolulu as part of his
Make-A-Wish dream.
During 2000, the organization participating in the Northwe t
AirCare program included:
The National SAFE Kids Campaign~ which work at the
gra roots level to help prevent childhood injury.
The Make-A-Wish Foundation and Make-A-Wish of Japan,
which grant ,vishe to children under age 1 uffe1ing ,vith
life-threatening illnesse .
The STARBRIGHT Foundationrn which create products and
program that help se1iou l ill children confront the medical
and emotional challenae they face.
AmeriCares, which i a nonprofit worldwide disa ter relief and
humanitarian aid organization.
For inforn1ation about AirCare or Kid Cares vi it ,,,,w.nwa.com~
Northwest AirCares
AmeriCares
Since 1992, Northwest has supplied transportation
for AmeriCares disaster relief airlifts. Here, former
First LadY, Barbara Bush honors Northwest and
Chairman Gary Wilson at the 2000 AmeriCares
Celebration of Hope gala.
President's Award Winner
Mayumi Koyama
Assistant Manager - In-flight Services
Tokyo
Mayumi Koyama is a morale booster for the
employees and management at in-flight services
in Japan through her many kind deeds and her
encouragement of others. As a key member of the
in-flight "Service Matters Expert Team," she
has, on countless occasions, supported
employees who are working in
Northwest's Pacific region, whenever
they need help. She is a skillful
problem solver in critical situations
where the departure of a flight
depends on her quick thinking
and action.
Northwest Airlines
Chairman
North, e t Airline Corporation
Jame G. Coulter
Managing Director
Texa Pacific Group
George]. Kourpias
Retired International Pre i.dent
International sociation of
Machini ts & Aero pace Worker
V. A. Ravindran
Chairman , Pre ident
Paracor Company, Inc.
Ray W. Benning,Jr.
Director, Airline Division
International Brotherhood
of Teamsters
John H. Dasburg
Chairman, President &
Chief Executive Officer
Burger King Corporation
Frederic V. Malek
hairman
Thayer Capital Partner
Michael G. Ristow
Captain
North we t Airlines, Inc.
Richard C. Blum
Chairman
Richard C. Blum & Associates, Inc.
Doris Kearns Goodwin
Historian & Autho1
Walter F. Mondale
Partner
Dorsey & Whitney LLP
Leo M. van Wijk
Pre ident & Chief Executive
Officer
KLM Royal Dutch Airline
Alfred A. Checchi
Member, Board of Dir ctors
I orthwest Airlines orporation
Dennis F. Hightower
Retired Bu ine Executive
DIRECTORS EMERITUS
Thomas L. Kempner
Chairman & Chief Executive Officer
Loeb Partner Corporation
Melvin R. Laird
Con ultant
The Readers Digest ociation, In c.
Annual Report 2000
Senior Officers
Richard H. Ander on
ChiefExecutive Offi er
Douglas M. tcenland
Pr sident
Mickey P. Foret
Executive Vic President, Chief Finan ial Officer
Chairman & Chief Executiv Officer
Northwest Airline argo In c.
Stephen E. Gorman
Executive Vice Pre. idem - Technical I erations &
Flight perations
J. Timothy Griffin
Ex cutive Vice Presid nt - Marketing & Distribution
Philip C. IIaan
Executive Vice Presidem- Int rnational , ales &
In formation ervic s
Douglas C. Birdsall
enior Vice Pre ident-AJliances
Robert A. Brodin
en ior Vi e Pre. iden t - Labor R latiom
Hiram A. Cox
Senior Vice Pr sident & Controller
Mary Carroll Linder
enior Vice Pre idenl- Corporate ommunication
Daniel B. Matthews
enior Vice Pre id nt & Trea. urer
Dirk . McMahon
Senior Vice Pre ident- Ground Operation
Thomas]. Momchilov
enior Vice President - Human R sources
Andrea Fischer ewman
Senior Vice President- Government Affairs
Raymond]. V, cci
Pre idenL- Michigan Operations
Northwest Airlines
To build together the first choice airline and global alliance
network with the best people; each committed to exceeding our
cust01ners' expectations every day.
Our Mission
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 with
luggage, 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 efforts, something goes wrong.
CONVENIENT means making it as easy as possible for customers in
the markets we serve to do business with us, with the best schedules
and the simplest access to our network.
CONSISTENT means delivering reliable and convenient service
every time the customer flies or ships on our airline.
Annual Report 2000
FINANCIAL TABLE OF CONTENTS
Financial Review ....... . ........... . .... .... ............. . ... .. ..................... . .. page 28-31
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ . ...... .. ............... . ................. pages 32-37
Quantitative and Qualitative Disclosure About Market Ri k ................ . ..... . page 38-39
Con olidated Balance Sheets .... ... ... ............... . .................................. . page 40-41
Con olidated Statements of Operation .................................................... page 42
Con olidated Statements of Cash Flows ............................... .. ................... page 43
Consolidated Statements of Common Stockholders'
Equity (Deficit) ............ . ....... .. ......... . ... ... .... . .. . ......... .. . .. ........... page 44
ote to Consolidated Financial Statements ........ . ... .. ................. .. ............... pages 45-67
Report of Ernst & Young LLP, Independent Audi tor . . . ........... . ................. . .... page 68
Five-Year Summary ..................................................................... page 69
Stockholders' Information .............................................................. page 70
27
Northwest Airlines
FINANCIAL REVIEW
orthwest et numerous record in 2000, as it op rated more
air raft and carri d more pa engers and cargo than al any point
in iL hi tory. Fae d with an environment of record-high fuel
price and op rational challenge , Northwe L remained focused
on executing it strategi s to expand its bu ine profitably
and creat hareowner value. orthwe t continued to lead
the indu ' tr in operational reliability, innovative alliance
deYelopm nl and customer convenience improvement.
2000 PERFORMANCE
orthwe t continued to grow its business profitably as available
seat miles increa ed 3.9% to a record 103.4 billion ASMs.
Scheduled RPMs and ASMs
millions C::, ASMs . . RPMs _._ Load Factor
110,000
100,000
80%
In the ALlantic, orthwe t and KLM continue to benefit from
the indu try' most integrated and advanced joint venture
allianc . The Atlantic joint venture capacity wa increased by
5.4% in 2000. Demand exceeded the capacity increa es, with
record orthwest revenue passenger mile of 11.2 billion,
re ulting in an 82.3% load factor and a 15.6% improvement
in pas enger revenue.
The year 2000 wa also record-setting for the Cargo operation.
Northwest's Cargo operation saw record ton-miles, pounds
carried, revenue and yield performance. These improvements
re ulted from the Company's key strategic initiatives, a trong
and growing Pacific network, and improved Asian economies. In
addition, orthwe t improved its Cargo network by establishing a
long-term cargo alliance with Japan Airlines that will increase
cargo profitability for both airlines with minimal incremental
investment. The Company also gained additional lucrative rights
to increa e cargo flying to China.
90,000 75 orthwe t is the only U.S. based pa enger airline operating
80,000
70,000 70
60,000
50,000
'96 '97 '98 '99 '00
The demand for 1 orthwe t' ervice outpaced capacity addition
as revenue pa enger mile , up 6.7%, reached a record 79.1 billion
RPMs, resulting in an indu try leading and Northwest system record
load factor of 76.6%. Thi record traffic was pread aero all
orthwe t geographical en ti tie , with the dome tic load factor at an
all-time hio-h 72.9%, and the Pacific load factor at a record 81.7%.
Pacific operation continued to show strong financial
improvement, re ulting primaril from recovering Asian
economies and Northwe t' lmique po ition inJapan. Strong
Pacific demand re ulted in ear-over-year double-digit percentage
improvement in orthwe e's pa enger revenue, yield and unit
revenue. ortl1we t' trategic ian hub in Tokyo, its coveted
acce to a la.rue developing China market and its global alliance
parmer , uniquely po ition the Com pan to benefit from the
econ mic up ide in th recovering Asian market .
dedicated freighter aircraft. Cargo accounts for over 7% of total
operating revenue and is expected to grow to near $1 billion in
annual revenue in 2001.
FINANCIAL RESULTS
Despite tl1e significantly higher energy costs, 2000 was a
financially succe ful year for Northwest. Excluding non-recurring
items, Northwest reported $694 million in operating income and
296 million in net income. Energy prices near all-time historical
high resulted in 55% higher average fuel prices or $622 million
in additional pre-tax expense year-over-year. If fuel prices had not
increased year-over-year, orthwest would have reported $1.3
billion in operating income and $690 million in net income,
which would have been a Northwest record financial performance
and a 160% improvement over 1999. Year 2000 operating margins
on a fuel neutral ba is would have been 11.5%, re ulting from
strong revenue performance and focused cost management.
Operating Margin
Excluding Non-Recurring Items
16%
12 10.7%
11 .3% 11.5%
6.9%
6.1%
0.3%
00 .__---' ...
,9 ...
5:_____; ...
,9 ...
7:___--==
,9=
8----' ...
,9
...
9 :_____; ...
, o...t.
o :_____; ...
,o...t.
o :-..---"
(fuel neutral)
While producing the e strong results in the face of record energy
prices, 1 orthwest wa able to maintain its enviable co t leader hip
position. As a result of orthwest' industry leading operating
reliability, stringent co t control and efficiency initiative , the
Company continued to maintain one of the lowe t co t tructures
in the indu try.
Operating cost per ASM of9.33 cents per eat mile was up 7.1 %,
primarily due to higher fuel costs, but excluding fuel , unit costs
rose only .8%.
Operating Expense per Seat Mile
cents 0 Unit Costs - Unit Costs (ex-fuel)
10.00
9.21 9.33
9.00
8.00
7.00
6.00
5.00
'96 '97 '98 '99 '00
nit cost performance benefited from the continued reduction
in distribution expen es. orthwest has been a leader in the
development and application of technology to maximize
distribution through the most economic cost channels.
This has led to significant avings in commission expense.
Annual Report 2000
Commission Rates
as a % of Passenger Revenue
10.0% 9.5% 9.2%
8.6%
7.8%
7.5
6.2%
5.0
2.5
0.0
'96 '97 '98 '99 '00
omplementing 2000's cost control performance, orthwest
reported a 6.6% improvement in sy tern unit pa ~enger revenue.
onhwe t' dome tic unit revenue growth of 6.4% exceeded the
indu try average, while international unit growth improved an
impres ive .6%.
Passenger Revenue per Seat Mile
cents
9.50
9.16
9.00
9.00
8.50
8.23
8.00
7.50
7.00
'96 '97 '98
9.21
8.64
'99 '00
The dome tic entity enjoyed a strong yield environment, while the
Pacific entity continued to perform above expectation
1orthwest' Pacific passenger unit revenue grew 12.1 % year-over-
year, largely due to orthwest' strategic Pacific franchise and the
continued economic recovery in Asia.
1 orthwest continues to allocate resource to areas that promise
the greatest long-term growth in return to shareholders. Over the
last fifty years, Northwest ha been one of the mo t consi tently
profitable airlines in the, orld. Despite the record-high energy
Northwest Airlines
price . 1
orthwe t reported diluted earnings per hare of 3.21 in
2000, excluding non-recurring items. eutralizing for the impact
of year-over-year record-high fuel prices, orthwe t would have
reported 7.4 in diluted earnina per hare.
Diluted EPS
$10
(2)
(4)
(6)
$4.52
'96
$5.29
'97
($3.48)
'98
FLEET INITIATIVES
$7.48
'99 '00 '00
(fuel neutral)
r orthwest continued its flexible fleet strategy of employing the
aircraft best suited to the Company' route tructure, at the lowest
capital cost and the optimal economic benefit.
As a re ult of that trategy, orthwest announced a major aircraft
order injanuar 2001 that will improve the Company' return
on capital and ianificantl improve profits and ca h flows
from operations.
Major fleet initiatives completed include:
orthwe t placed an order for 24 Airbu A330s to replace its
transatlantic DCl0-30 . The more economical A330 will reduce
operating costs while improving passenger and cargo capabilities.
Aircraft deliverie will start in 2003 and run through 2006.
The Company ordered 20 Boeing B757-300 aircraft and
announced the planned retirement of its dome tic DCl0-40
fleet of21 aircraft. The B757-300 has the lowest eat-mile cost
of an ingle-ai le jetliner and, due in part to improved fleet
commonality, will ignificantly reduce training, maintenance
and other operating expenses. Deliveries start in 2002 and
will continue through 2004, when the entire DCl0-40 fleet will
be retired.
orthwest placed an order for two Boeing B747-400s to be
delivered in 2002. These aircraft will provide for future
Pacific growth.
ortl1west exercised options for six Airbu A3 l 9 for delivery in
2002 to accelerate the retirement of its less efficient Boeing
B727 fleet and provide for domestic growth opportunities. The
B727 fleet will be completely retired by 2004.
The freighter fleet was increased from ten to twelve freighters
with the acqui ition of two late-model Boeing B747-200 aircraft,
which are scheduled to begin service in mid-2001.
orthwest took delivery of ten 125- eat Airbus A319 aircraft to
replace retiring DC9s and provide for growth.
orthwe t Airlink affiliate, Express Airline , took delivery of
nine 50-seat CRJ-200 regional jets. Mesaba, also a Northwest
Airlink affiliate, took delivery of seven AVRO RJ85 69-seat
regional jets.
CAPITAL STRUCTURE MANAGEMENT
A key element of orthwest's financial strategy is to minimize
capital costs while maintaining adequate levels of liquidity in
order to maximize strategic and operating flexibility.
At year-end, before the receipt of 582 million in cash from the
sale of its holdings in Continental Airlines common stock in
January and February 2001, Northwest had $693 million in cash.
Total cash combined with the Company's unsecured credit facility
provided for $1.81 billion in total available liquidity at year-end.
In 2000, orthwe t completed several major transactions to meet
our financial strategy. The Company:
Established a new 1.125 billion five-year unsecured credit
facility. The new credit facility replaced an existing shorter-term
secured facility at lower cost with improved flexibility.
Completed a public offering of $522 million of pass-through
certificates (EETC) to finance the acquisition of 13 new Airbus
A319s and refinance six existing Boeing B757s.
,ompleLed structured long-term leveraged leas finan ing on
22 new air raft.
Obtained manufa turer supported finan ing ommitments for
new aircraft order..
Continued to improve its balance sh et by redu in g total debt by
$465 million and in creasing equity by $283 million.
Debt Outstanding
millions
$5,000
4,000
3,000
c:) Debt --- % of Debt to Revenue
$4,656 60%
50
40
Annual Report 2000
or1hwest and KLM laun h cl an improved World Business Cla1,s
servi in late 2000. The , n hanc cl s rvice will f al urea new
business class product that offers 60 in h s or grc:aLer of
personal spa e, along with CJ hers rvi and am ,nity upgrade:-,
that rank among thC' lwst in th industry.
rf h Company is making significant improv,rn('nts in iu; thr, ,
<lorn 'S ic hub'> - D lroit, Minneapolis/St. Paul and Mernphi'i,
and its international hubs in rfokyo and Armtndarn. arly
. 6 billion in infrastructur , upgrades, which al( almost entirely
financ d through publi sourc s, wil l enhanc u<;torn r
conv,nience and in r as airport capabilitie'i. orthwes1's
domestic hubs will still rank in th five Jowe'>L-C()St .S. hubs,
whil pr(Jviding onhwe<,L and iL', allian e partner<,
3
o unconstrain d growth opportunities.
2,000
20 0 UT LOOK
1,000 10
ALLIANCE AND OTHER DEVELOPMENTS
In 2000, orthwest mad significant advancem nts to improv iL<,
competitive position to enhance the long-term finan ial stability
and sustainable growth of the enterpri5 as th industry addr,sses
consolidation issues.
The alliance agr ement with Continent.al was xtend cl through
2025. orthwest received preferr d stock from Continental that
provides protection of the alliance relationship. The alJiance is
progressing on schedu le to achieving 500 million in projected
annual joint benefits.
orthwest combined with i s partner Air China has 2.5 w ekJy
flights betwe n China and the U.S., which is more than any
other carrier.
, orthwest and j apan Airlines established a long-term
carg alliance.
1onhwest continu s to b an ind 1stry leader in CJrrrating
p ,rformanc . Th airline i'> strategically w II p<J'>itionc:d as a
strong and ind p ndent carrier in an volving mark tplac tha1
will in Jude industry cm<,o]idati<m. The Company'.<, pc,werful
global allian n lwCJrk, including ii'> l<>ng-term allianc s with
Comin ntal and KLM, ensure'> orthwesl will 1 ,main a vial>],
omp titiv force in the indw, ry.
orthwest ontinu .'> to ffJc:u<; on its cc;rc: slrength'>, hy kveraging
it'> hub fran his and strategic a'>'><:ls for sw,tainabl gmwth and
long-term profitability. Th, airline r,main, at th, !or frnnt in
t hnological innovation , focus cl <>n r ducing <J':iL'> and improving
ustomer conv nience. The Cc>mpany ha.'> be n inv ,sting
significantly in mod rnizing iL'i fle t and upgrading its pr<>du
top rsCJnalize and improv th ust<Jm 0
r's 1ravel experi n e.
onhw st's 0
xp ri need manag'm ,nt team r main'> cJmrnitt d
to enhan ing shar own r value. W ar' confid nl that as w move
into the 21st entury, Northwest wi ll r main an industry J adcr,
apit.alizing on i s strategic str ngths to improve uslorn rs rvi e,
build employee relations and inc.reas shareown r value.
Northwest Airlines
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
orthwe t Airlines orporation ( "NWA orp." and, toge th r
with it con olidated ubsidiaries, the "Company") reported net
income of 256 million for the year ended D cember 31, 2000,
compared with 300 million in 1999. Diluted earnings per
common share were 2.77 in 2000 compared with $3.26 in 1999.
Operating income was 569 million in 2000 compared with
$714 million in 1999. Higher fuel prices negatively impacted the
ear ended December 31, 2000 by approximately $622 million on
a pre-tax basis compared to 1999.
In the fourth quarter of 2000, the Company recorded a non-
recurring pre-tax, non-cash fleet dispo ition charge of $125
million related to the accelerated retirement of a portion of its
DCl0 fleet. Diluted earnings per hare, excluding this non-
recurring charge were $3.63.
Substantially all of the Company's results of operations are
attributable to its principal indirect operating subsidiary,
orthwest Airlines, Inc. (" orthwest"), which accounted for
approximately 95% of the Company's 2000 consolidated
operating revenues and expenses and the following discussion
pertains primarily to Northwest.
RESULTS OF OPERATIONS-
2OOO COMPARED TO 1999
Operating Revenues - Operating revenues increased 11.1 %
1.14 billion). System passenger revenue increased 10.9%
935 million), excluding Express Airlines I, Inc. ("Express"),
primarily attributable to a 3.9% increase in scheduled service
ASMs and a 6.6% increase in pas enger revenue per ASM
("RASM"). ASMs increased primarily due to the net addition of
14 aircraft in 2000. System passenger load factor increas d to a
record 76.6% for the year ended December 31, 2000. Express
revenues were 130 million and $104 million for the years ended
December 31, 2000 and 1999, re pectively.
Domestic passenger revenue increased due to a higher passenger
load factor, more capacity and higher yields. Domestic passenger
load factor increased 2.1 points to a record 72.9%, primarily due
to favorable indu try market conditions. Capacity increa ed as a
result of additional aircraft.
Pacific passenger revenue was higher due to increased capacity
and higher yields driven by Asia's recovering economic
environment. The average yen per U.S. dollar exchange rate for
the years ended December 31, 2000 and 1999 was 108 and 115,
respectively, a 6.5% strengthening of the yen. The yen per
U.S. dollar exchange rate wa 117 at February 28, 2001. Pacific
passenger load factor increased 1.5 points to a record 81.7% as
the Company continued to experience increased demand.
Atlantic passenger revenue increased as a result of more capacity
and a higher passenger load factor. Capacity increased as a result
of new flying, including the initiation of Detroit-Italy service and
higher frequency in Minneapolis/St. Paul-Amsterdam service, as
well as improved operational performance.
Cargo revenue increased 17.1 % ($125 million) due to a 7.1 %
increase in cargo ton miles and a 9.4% increase in cargo revenue
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
2000
Passenger revenue (in millions) $ 9,523 $ 6,455 $ 2,090 $ 978
Increase I (decrease) from 1999:
Passenger revenue (in millions) $ 935 $ 515 $ 288 $ 132
Percent 10.9 % 8.7 % 16.0 % 15.6 %
Scheduled service ASMs (capacity) 3.9 % 2.2 % 3.4 % 14.1 %
Passenger load factor 2.0 pts. 2.1 pts. 1.5 pts. 1.5 pts.
Yield 4.0 % 3.3 % 10.2 % (.6) %
Passenger RASM 6.6 % 6.4 % 12.1 % 1.3 %
per ton mile. The Company' tenth Boeing 747 freighter entered
ervice in August 2000. Also in 2000, the Company acquired two
additional Boeing 747 aircraft, which are being converted into
freighters and are scheduled to begin revenue service in the
summer of 2001. Other revenue increased 6.2% ($53 million)
due to a higher volume ofbusine s for MLT Inc., which was
partially offset by lower KLMjoint venture alliance settlements.
operating Expenses - Operating expenses increased 13.4%
($1.28 billion). Operating capacity increa ed 4.0% to 103.52
billion total service ASMs due to planned capacity increases.
Operating expense per total ASM increased 7.1 %, excluding the
fleet disposition charge, and increased only . 7% when the impact
of higher fuel prices is also excluded.
Salaries, wages and benefits increased 6.4% ($217 million) due
primarily to wage and benefit increa e from settled con tracts with
collective bargaining units and an increase in average full-time
equivalent employees of 2.6%. Aircraft fuel and taxes ro e 57.2%
($681 million) due to an increase of 55.0% in average fuel cost
per gallon to a record 82.99 cents, net of hedging transactions,
and 3.6% higher fuel gallons con urned as a result of higher
capacity. Hedging transactions reduced fuel costs by 119 million
in 2000. Commissions decreased 9.9% ($73 million) primarily
due to lower rate resulting from changes to the Company's
commission structure, which were effective in October 1999,
and a lower percentage of commissionable tran action partially
offset by commission on higher passenger revenues. Internet
sales represented approximately 8.0% of passenger revenue in
2000 compared with approximately 5.0% in 1999. Aircraft
maintenance materials and repairs increased .8% ($5 million)
due to a 1999 non-recurring credit of $34 million related to
lower than anticipated costs associated with outside aircraft
maintenance, offset by lower scheduled engine and airframe
overhaul in 2000. Higher scheduled engine and airframe
overhaul costs are expected in 2001. Depreciation and
amortization increased 23.4% ($117 million) due to the fleet
disposition charge of 125 million related to the accelerated
retirement of a portion of the DCl O fleet recorded in the fourth
quarter. See Note 1 to the Consolidated Financial Statements for
additional discussion of the fleet disposition charge. Aircraft
Annual Report 2000
rentals increased 19.2% ($68 million) due to additional leased
aircraft. Other xpense (the principal components of which
include outside services, selling and marketing expenses,
passenger food, personnel expenses, advertising and promotional
expenses, communication expenses and supplies) increased
10.7% ($242 million) due primarily to increas d business for MLT
Inc. and higher variable co l as ociated with expanded capacity.
Other Income and Expense - lntere t expense decrea ed 7.7%
($29 million) primarily due to reduced borrowings and lower
interest rate . Earnings of affiliated companies increased 9.5%
($8 million) due largely to th Company' hare of higher
WORLD P I earnings. Other income increased primarily due
to a $58 million gain from the sale of a portion of Northwest's
investment in priceline.com in 2000, partially offset by a
48 million gain from the sale of a portion of orthwest's
inve tment in Equant .V. during 1999.
RESULTS OF OPERATIONS -
1999 COMPARED TO 1998
The year ended December 31, 1998 was affected by labor-related
di ruption , which included a pilots' strike. Becau e 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. 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.
operating Revenues - Operating revenues increased 13.6%
($1.23 billion). System passenger revenue increased 14.3%
($1.08 billion), excluding Express, primarily attributable to an
increase in cheduled ervice ASMs and an increase in 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. Expres revenues were $104 million and
$94 million for the years ended December 31, 1999 and 1998,
respectively.
34
Northwest Airlines
The following analysi b market i based on information reported to the DOT and excludes Express:
System Domestic Pacific Atlantic
1999
Pa senger revenue (in millions) $ 8,588 $ 5,940 $ 1,802 $ 846
Increase/(decrease) from 1998:
Pa enger revenue (in millions) $ 1,075 $ 750 $ 182 $ 143
Percent 14.3 % 14.4 % 11.2 % 20.4 %
Scheduled service ASMs ( capacity)
Passeng r load factor
Yield
Passenger RASM
Domestic pa senger 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 the recovery from the 1998 labor disruptions and a
15.7% strengthening of the yen. The average yen per U.S. dollar
exchange rate for the years ended December 31, 1999 and 1998
was 115 and 133, respectively. Capacity was decreased in 1999 in
respon e to the continued weak A ian economic environment and
increa ed competition and wa offset by the recovery from the
labor disruptions. Passenger load factor increased 4.3 points in
1999 as the Company began to experience an increase in demand
in the second half of 1999.
Atlantic pa senger revenue increased due to an increase in
capacity, which resulted primarily from new flying and wa
partially offset by decreased yields caused by overall industry
wide capacity growth. The new flying included increases in
Minneapoli / St. Paul-Am terdam and Detroit-Amsterdam service.
Cargo revenue increased 15.3% ($97 million) due to a 19.5%
increase in cargo ton miles which was partially offset by a 3.5%
decrease in cargo revenue per ton mile due to the weaker Asian
economic environment. The Company's ninth Boeing 747
freighter entered service in September 1999. Other revenue
increased 6.1 % ( 49 million) due to a higher volume of business
for MLT Inc. and increased passenger charters, which was partially
off et by lower KLMjoint venture alliance settlements.
operating Expenses - Operating expenses increased 3.5%
( 326 million). Operating capacity increased 8.9% to 99.57 billion
8.9% 11.4 % (.7) % 22.2 %
1.5 pts. .3 pts. 4.3 pts. 1.3 pts.
2.8 % 2.3 % 5.9 % (3.0)%
5.0 % 2.7% 12.0 % (1.4) %
total ervice ASMs which contributed to the 5.4% decrease in
operating expense per total service ASM. Salaries, wages and
benefit increased 4.0% ($132 million) due primarily to wage and
benefit increases from settled contracts with collective bargaining
units and an increase in average full-time equivalent employees
of 2.7%, partially offset by 1998 provision for retroactive
compensation related to collective bargaining agreements.
Aircraft fuel and taxes increased 8.6% ($94 million) due to an
8.6% increase in fuel gallons consumed. Commissions increased
6.4% ($44 million) due to higher revenues, partially of et by a
lower effective commission rate caused by a shift in revenue mix,
a decrease in the percentage of commissionable ticket sales and
change to the Company's commission rate structure which were
effective in October 1999. Aircraft maintenance materials and
repairs decreased 16.6% ($126 million) due to fewer engine and
airframe overhauls and lower than anticipated costs associated
with outside aircr.Jt maintenance. Depreciation and amortization
increased 1.4% ($7 million) due to additional owned aircraft and
aircraft modifications. Additionally, 1998 included a fleet
disposition charge of $66 million for the accelerated retirement
of seven of the Company's oldest Boeing 747 aircraft. Other
expenses increased 6.0% ( 129 million) due primarily to
increased business for MLT Inc. and increased variable costs
associated with increased capacity, which were partially of et by
reduced claims and advertising and promotions.
Other Income and Expense - Interest expense increased 15.2%
( 50 million) primarily due to additional borrowings. Earnings
of affiliated companies increased $75 million, mostly from the
Company's recognition of its share of Continental and
WORLDSPA.i, earnings. Other income increased primarily due
to a 48 million gain from the sale of a portion of orthwest's
inve tment in Equant .V.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash and ca h equivalenLS
of 693 million and borrowing capacity of 1.12 billion under its
un ecured re olving credit facilities, providing total a ailable
liquidity of . 1.81 billion.
Operating activities in 2000 generated 893 million. The decrease
of $366 million in operating ca h flows from 1999 was due
primarily to higher than normal sale proceed of frequent flyer
mile in exce s of revenue and an 84 million dividend from
WORLDSPA.i's', both in 1999, with higher pension contribution ,
a $27 million dividend from WORLD PAX and a decrea e in
working capital in 2000. Cash flows from operating activitie were
1.26 billion for 1999 and 88 million for 1998. et cash used in
inve ting and financing activities during 2000, 1999 and 1998 wa
$949 million, 990 million and $348 million , respectively.
Investing Activities - Inve ting activitie in 2000 con i ted primarily
of the purchase often AirbusA319 aircraft, even AVRO RJ85
aircraft and two used Boeing 747-200 aircraft (which will be
converted to freighters), co ts to commi sion aircraft before
entering revenue ervice, aircraft modification , depo its on
ordered aircraft, facilities improvements and ground equipment
purchases, partially of et by the sale of a portion of the
Company's investment in priceline.com.
In addition to the purchased aircraft discu sed above, the
Com pan took delivery of nine Bombardier CRJ200 aircraft and
two used DCl0 aircraft during 2000. The e aircraft were financed
with operating leases.
On January 22, 2001 , the Company sold to Continental 6.7 million
shares of Continental Clas A Common Stock held by the Company
for 450 million in cash. Sub equently, Continental effected a
recapitalization as a result of which the Company' remaining
2.0 million hare of Continental Clas A Common Stock were
converted into 2.6 million hare of Continental Cla B Common
Stock. In conjunction with the e transactions, the term of the
alliance agreement between 1 orthwest and Continental was
extended through 2025. ub equent to year-end, the Company
old the remaining 2.6 million share for 132 million. ee Note
Annual Report 2000
13 to the Con olidated Financial Statements for additional
discussion of the e transaction .
Investing activitie in 1999 consisted primarily of the purchase of
seven Airbu A320 aircraft, ten Airbus A319 aircraft, four Boeing
747-400 aircraft, 11 AVRO RJ85 aircraft and two used D 10
aircraft, the purchase off lea e of four D 9-50 aircraft, costs to
commi ion aircraft before entering revenue service, engin
hushk.itting, aircraft modifications, depo its on ordered aircraft
and ground equipment purchases.
Investing activi tie in 1998 con i ted primarily of the purcha e of
13 Airbus A320 aircraft, ten AVRO RJ85 aircraft, and three u eel
D 10 aircraft, cost to commis ion aircraft before entering
revenue ervice, engine hu hkitting, aircraft modification ,
depo its on ordered aircraft and ground equipment purchase .
On ovember 20, 1998, , A orp. i sued 2.6 million hares of
common stock and paid 399 million in cash to acquire the
beneficial ownership of .7 million share of las A Common
Stock of Continental. The Company funded its inve tment in
Continental with ca h from its general working capital.
Financing Activities - Financing acti,~tie in 2000 consi ted primarily
of payment of debt and capital lease obligation , including
165 million in term loan prepayments, and the long-term
leveraged operating lease financing through sale and lea eback
of ten Airbu A3 l 9 aircraft and three VRO RJ85 aircraft.
The Company' ecured credit facilitie were replaced on
October 24, 2000. The new 1.125 billion un ecured agreement
consists of (i) a 725 million five-year revolving credit facility,
(ii) a 150 million 364-day revolving credit facility renewable
annually at the option of the lender and (iii) a $250 million
364-day revolving credit facility renewable ann uall at the
option of the lender ; however, to the extent any portion of the
S250 million facility is not renewed for an additional 364-day
period, the Company may borrow up to the entire non-renewed
portion of the facility and all uch borrowing mature in
October 2005. The credit facilities are available to finance the
working capital n eds of the Company and for other general
corporate purposes.
During 2000, the Company completed an offering of 522 million
of pass-through certificate to finance the acqui ition of 13 new
Airbus A3 l 9 aircraft delivered or cheduled for delivery throurrh
May 2001 and to refinance ix Boeing 757 aircraft delivered in
Northwest Airlines
1996. The ca h proceed from the pas -through certificates were
depo ited with an e crm agent and enable the Company to
finance or refinance (through either leveraged lease or ecured
debt financing) the acquisition of these aircraft. If leveraged
leases are obtained for the e aircraft, under which the aircraft
will be sold and leased back to Northwe t, the equipment notes,
which are the assets of the pass-through trusts, are not direct
obligations of A Corp. or orthwest. At December 31, 2000,
the Company had 174 million in proceeds from the offering
held in escrow and not recorded as an asset or direct obligation
of NWA Corp. or orthwest.
Financing activities in 1999 consisted primarily of the public
issuance of 200 million of unsecured notes, the public issuance
of 143 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 747-400 aircraft, seven Airbus A320 aircraft, two
Airbus A319 aircraft and ten AVRO RJ85 aircraft and various
secured aircraft and ground equipment financings, offset by full
repayment of the 825 million revolving credit facilitie and
$562 million of aircraft delivery bridge financing, and the
payment of cheduled 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 new aircraft delivered in 1999 and 2000.
Financing activities in 1998 included the Company's repurchase
of its remaining Common Stock held by KLM, Lhe public issuance
of 400 million of unsecured notes, the incurrence of $240 million
of debt ecured by ix Boeing 757 aircraft, the payment of debt
and capital lease obligations, and the sale and lea eback 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 then
existing credit facilities, and subsequently repaid such borrowings.
In October 1998, the Company borrowed $835 million to fund its
cash requirements.
On May 1, 1998 NWA Corp. purcha ed from KLM the remaining
1 .2 million share of NWA Corp. Common Stock held by KLM.
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, all of which have
been repaid.
See Note 3 to the Consolidated Financial Statements for
maturitie of long-term debt for the five years subsequent to
December 31, 2000.
Capital Commitments-In]anuary 2001, the Company entered
into agreements to purchase 52 new aircraft, some of which will
be used to replace most of the DCl0 fleet. The aircraft consist
of 24 A330 aircraft, 20 Boeing 757 aircraft, two Boeing 747-400
aircraft and six A3 l 9 aircraft. Deliveries of the A330 aircraft will
begin in 2003 and continue through 2006, deliveries of the 757
aircraft will begin in 2002 and continue through 2004 and the
A319 aircraft and 747 aircraft will be delivered in 2002. Financing
commitments from the manufacturers have been arranged for
most of these aircraft.
The current aircraft delivery schedule, including the aircraft
discussed above, provides for the acquisition of 117 aircraft over
the next six years, with 22 aircraft in 2001. See Note 10 to the
Consolidated Financial Statements for additional discu sion 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 $310 million in 2001, which the
Company anticipates funding primarily with cash from operations.
The Company currently has an effective shelf registration
statement for the issuance of $975 million of unsecured debt
and equipment trust certificates.
Working Capital - The Company operates, like its competitors,
with negative working capital, which aggregated to $1.50 billion
at December 31, 2000. This position is primarily attributable to
the $1.31 billion air traffic liability for advance ticket sales.
OTHER INFORMATION
Labor Agreements - Approximately 90% of the Company'
employees are members of collective bargaining units. Under
direction from the ational Mediation Board (" MB"), the
Company was in mediated negotiations with Lhe Aircraft
Mechanics Fraternal Association ("AMFA"), which represents the
Company' mechanics. On February 9, 2001, the NMB relea ed
1 orthwest and AMFA from mediated negotiations after AMFA
rejected the MB's offer of binding arbitration. The MB
notified orthwest and AMFA that a 30-day "cooling off"
period would begin on February 10, 2001, and tl1at beginning
at 11:01 PM CST on March 11, 2001 either side could re ort to
self-help remedies which could include, but are not limited to,
a strike by the members of AMFA.
On March 9, 2001, President Bush, following the recommendation
of the NMB, announced tl1e establishment of a Presidential
Emergency Board ("PEB"). The establishment of a PEB stopped
any self-help remedies and started the process during, hich the
PEB reviews the positions advocated b orthv est and AlvfFA and
proposes a solution. On April 9, 2001, prior to the issuance of tl1e
PEB's recommendation, the Company and AMFA reached a
tentative agreement, which i subject to ratification by Ai\tfFA
member hip. The PEB recommendation will be deferred pending
ratification of the tentative agreement. If the tentative agreement
is not ratified, the PEB will make its recommendation to the
President on May 14, 2001 and if the PEB recommendation i not
accepted by both parties and unless Congre take additional
action, either party will be permitted to resort to self-help
remedies 30 days after the PEB makes its recommendation to the
President. A prolonged work stoppage, if it were to occur, could
have a material adverse impact on the Com pan .
Detroit Midfield Terminal - The Company is managing and
upervising the design and construction of a 1.2 billion terminal
at Detroit Metropolitan Wayne County Airport. The new terminal
is scheduled to open in December 2001 and will offer 106 ticket-
counter positions and 97 gates as well as over 80 shops and
re taurants, four WorldClubs, an 11,500- pace parking facility and
luggage handling sy terns. The new terminal has been funded by
the issuance of general airport revenue bonds by Wayne County
payable p1imarily 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.
Mesaba Holdings, Inc. - On ovember 1, 2000, the Company
offered to purchase all of the outstanding common stock of
Mesaba Holdings, Inc. not already owned by the Company at a
Annual Report 2000
price of$13 per share, or an aggregate purchase price of
approximate I 190 million. Mesaba's Board of Directors has
formed a special committee to evaluate the offer.
Forward-Looking Statements - Certain statements made throughout
Management' Discu ion and Anal sis of Financial Condition and
Results of Operations are forward-looking and are based upon
information available to the Compan on the date hereof. The
Company through its management may al o from time to time
make oral forward-looking statements. In connection with the
" afe harbor" provi ions of the Pri ate Securities Litigation
Reform Act of 1995, the Company i hereb identifying important
factor that could cau e actual re ults to differ materially from
tho e contained in any forward-looking statement made by or on
behalf of the Company. Any uch statement i qualified by
reference to the following cautionary statements.
It is not rea onably possible Lo itemize all of the many factors
and specific event that could affect the outlook of an airline
operating in the global economy. Some factors that could
significantly impact expected capacity, load factors, revenue ,
expenses and ca h flow include the airline pricing environment,
fuel costs, labor negotiation both at the Compan and other
carriers, low-fare carrier ex pan ion, capacity decision of other
carriers, actions of the .S. and foreign government , foreign
currency exchange rate fluctuation , inflation, the general
economic environmenc in the .S. and other regions of the world
and other factor discussed herein.
Developments in any of these areas, a well as other risk and
uncertainties detailed from time to time in tl1e Company's
Secmitie and Exchange Commis ion filings, 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 tl1e foregoing list of important factors is not inclu ive. The
Company undertakes no obligation to publicly update or revi e
any forward-looking tatement , whether as a result of new
information, future events or othenvi e. These tatements deal
with the Company's expectation about the future and are ubject
to a number of factors that could cause actual re ults to differ
materially from the Company's expectations.
Northwest Airlines
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The ri k inh rent in the Company's market risk en itive
in truments and positions i the potential las arising from
adver e change in the price of fuel, foreign currency exchange
rate and intere t rates a di cus ed below. The ensitivity analyses
pre ented do not con ider the effects that uch adverse changes
may have on overall economic activity nor do they consider
additional action management may take to mitigate its exposure
to such changes. Actual re ults ma differ. See Note 14 to the
Con olidated Financial Statements for accounting policies and
additional information.
Aircraft Fuel - The Company' 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 ship fuel and maintain fuel storage facilities to support its
flight operations. The Company also manages the price risk of
fuel co ts primarily utilizing futures contracts traded on regulated
exchange and fuel wap agreements. Market ri. k is estimated as a
hypothetical 10% increase in the December 31, 2000 cost per
gallon of fuel based on projected 2001 fuel u age, which would
result in an increase to aircraft fuel expense of approximately
180 million in 2001, compared to an estimated 110 million at
December 31, 1999. As of December 31, 2000, the Company
had hedged approximately 12% of its fir t quarter 2001 fuel
requirements, compared to 20% of the first quarter of 2000
and 24% of the full year 2000 at December 31, 1999.
Foreign Currency - The Company i expo ed to the effect of
foreign exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated operating revenues and expense .
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 Japane e yen. The result of a uniform
10% trengthening in the value of the U.S. dollar from
December 31, 2000 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
;70 million for the ear ending December 31, 2001, net of
gain realizable from yen hedge instrument outstanding at
December 31, 2000, compared to an estimated 53 million
decrease at December 31, 1999. This is due to the Company's
foreign currenc -denominated revenues exceeding its foreign
currency-denominated expense, .
The Company also has a foreign currency non-ca h expo ure. The
result of a 10% weakening in the value of the U.S. dollar would
result in a decreas to other income cau ed by the remeasurement
of net foreign currency-denominated liabilities of an estimated
$17 million in 2001 compared with an estimated $14 million at
December 31, 1999. This ensitivity analysi was prepared based
upon projected foreign currency-denominated revenues and
expenses and foreign currency-denominated assets and liabilities
as of December 31, 2000 and 1999.
In 2000, the Company's yen-denominated revenues exceeded
its yen-denominated expenses by approximately 54 billion yen
(approximately $525 million) and its yen-denominated liabilities
exceeded its yen-denominated assets by an average of 11 billion
yen (approximately 100 million) compared with 45 billion
yen (approximately 386 million) and eight billion yen
(approximately $70 million), respectively, in 1999. In general,
each time the yen trengthens (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. Tl1e
Company's operating income in 2000 was favorably impacted by
approximately $70 million due to the average yen being stronger
in 2000 compared to 1999 and in 1999 by approximately
$45 million due to the average yen being stronger in 1999
compared to 1998. The average yen to U.S. dollar exchange rate,
including hedge activity impact, during December 31, 2000, 1999
and 1998 was 104, 117 and 132, respectively. The Japanese yen
financial instruments utilized to hedge net yen-denominated
cash flows resulted in gains of $23 million in 2000 and losses of
$14 million in 1999. As of December 31, 2000, the Company had
entered into forward contracts to hedge approximately 38% of
its anticipated 2001 yen-denominated sales, compared to 31 % at
December 31, 1999, which also repre ents approximately 100%
of the Company's excess of yen-denominated revenues over
expense in 2000 and 2001.
Interest - The Company's earnings are also affected by change in
interest rate due to the impact tho e changes have on it interest
income from cash equivalents and sh rt-term investments and its
interest expense from floating rate debt instruments. The
Company has mitigated this risk by limiting it floating rate
indebtedness to approximately 21 % and 34% of long-term debt
and capital leases at December 31, 2000 and 1999, respectively.
The Company used financial in truments to hedge its exposure
to interest rate fluctuations on the variable rate portion of its
pass-through certificates issued in 2000. If long-term floating
interest rates average 10% more in 2001 than they did during
2000, the Company' net interest expense would increase by
approximately 6 million, compared to an estimated $10 million
for 2000 measured at December 31, 1999. If short-term intere t
rate average 10% more in 2001 than they did dming 2000,
the Company's interest income from cash equivalents and
short-term investments would increase by approximately
$9 million compared to an estimated 4 million for 2000
measured at December 31, 1999. These amounts are determined
Annual Report 2000
by con idering the impact of the hypothetical interest rates on the
Company' floating rate indebtedness, cash equivalent and hort-
term investment balances at December 31 , 2000 and 1999.
Market risk for fixed-rate indebtedness is estimated a the
potential increa e in fair value resulting from a hypothetical
10% decrea e in interest rates and amounts to approximately
$70 million during 2001 , compared to an estimated 77 million
for 2000 mea ured at December 31 , 1999. The fair value of the
Company' indebtedness were estimated using quoted market
price or discounted future cash flows based on the Company's
incremental borrowing rates for similar types of borrowing
arrangements.
39
Northwest Airlines
CONSOLIDATED BALANCE SHEETS
Northwest Airlines Corporation
(In millions)
ASSETS
Current Assets
Cash and ca h equivalents
Re u-icted hort-term inve unents
Accounts receivable les allowance
(2000- 16: 1999- 16)
Flio-ht equipment pare parts, less allowance
(2000- 131 1999- 131)
Deferred income taxe
Maintenance and operating upplies
Prepaid e. pen es and other
Total current assets
Property and Equipment
Flight equipment
Le s accumulated depreciation
Other property and equipment
Less accumulated depreciation
Total property and equipment
Flight Equipment Under Capitnl Leases
Flight equipment
Less accumulated amortization
Other Assets
Inve tments in affiliated companies
International route , les accumulated amortization
(2000- 310; 1999- 2 6)
Other
Total Assets
The accompanying note are an imegral part of the e consolidated fin ancial statements.
$
2000
693
35
534
313
108
103
228
2,014
6,498
1,896
4,602
1,826
794
1,032
5,634
846
281
565
836
657
1,171
2,664
$ 10,877
December 31
$
1999
749
41
521
348
116
79
209
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
Annual Report 2000
December 31
(In millions, except share data) 2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Air traffic liability $ 1,307 s 1,422
Accounts payable 592 494
Accrued compensation and benefits 549 523
Accrued aircraft rent 229 222
Accrued commissions 106 95
Other accrued liabilities 482 449
Current maturities of long-term debt 191 312
Current obligations under capital leases 62 60
Total current liabilitie 3,518 3,577
Long-Term Debt 3,051 3,354
Long-Term Obligations Under Capital Leases 494 537
Def erred Credits and Other Liabilities
Deferred income taxe 1,353 1,222
Long-term pension and postretirement health care benefits 882 542
Other 558 535
2,793 2,299
Mandatorily Redeemable Preferred Security of
Subsidiary Which Holds Solely Non-Recourse
Obligation of Company -Note 5
(Redemption value 2000-$61 O; 1999-3692) 558 626
Preferred Redeemable Stock
(Liquidation value 2000-S234; 1999-3245) 232 243
Common Stockholders' Equity (Deficit)
Common stock, $.01 par value; shares authorized-315,000,000; share issued
(2000-110,088,522; 1999-109,576,810) 1 1
Additional paid-in capital 1,459 1,454
Accumulated deficit (94) (349)
Accumulated other comprehensive income (loss) (5) (9)
Treasury stock (2000-26,994 364 shares; 1999-27,497,612 share ) (1,130) (1,149)
231 (52)
Total Liabilities and Stockholders' Equity (Deficit) $ 10,877 10,584
~------<( Northwest Airlines )
CONSOLIDATED STATEMENTS OF OPERATIONS
Northwest Airlines Corporation
Year Ended December 31
(In millions, except per share amounts) 2000 1999 1998
Operating Revenues
Passenger $ 9,653 8,692 $ 7,607
argo 857 732 635
Other 905 852 803
Total operating revenue 11,415 10,276 9,045
Operating fapenses
Salari s, wag sand benefits 3,610 3,393 3,261
Aircraft fuel and taxes 1,872 1,191 1,097
Commis ion 663 736 692
Aircraft maintenance material and repairs 640 635 761
Depreciation and amortization 617 500 493
Other rentals and landing fees 513 486 450
Aircraft rentals 423 355 345
Other 2,508 2,266 2,137
Total operating expen e 10,846 9,562 9,236
Operating Income (Loss) 569 714 (191)
Other Income (Expense)
Interest ex pen e (350) (379) (329)
Intere t capitalized 23 16 17
Interest of mandatorily redeemable preferred security holder (27) (27) (22)
Investment income 62 40 79
Earnings of affiliated companies 92 84 9
Other, net 66 39 7
Total other income (expense) (134) (227) (239)
Income (Loss) Before Income Taxes 435 487 (430)
Income ta.x expense (benefit) 179 187 (145)
Net Income (Loss) 256 300 (285)
Preferred stock requirements (1) (1) (1)
Net Income (Loss) Applicable To Common Stockholders $ 255 $ 299 $ (286)
Earnings (Loss) Per Common Share:
Basic $ 3.09 $ 3.69 $ (3.48)
Diluted $ 2.77 $ 3.26 $ (3.48)
The a ompaming notes are an imegral part of the econ olidated financial tatements.
Annual Report 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
Northwest Airlines Corporation
Year Ended December 31
(In millions) 2000 1999 1998
Cash Flows From operating Actiuities
let income (lo s) $ 256 300 $ (285)
Adjustments to reconcile net income (lo s) to
net ca h provided by operating activitie :
Depreciation and amortization 617 500 493
Income tax expen e (benefit) 179 187 (145)
et refund (payments) of income taxe (61) (65) 8
Pension and other postretirement benefit contribution
(in exce s of) less than expen e 72 166 (26)
Sale proceed of frequent flyer mile le s than revenue (161) (42) (78)
et earnings of affiliate (65) (9)
Other, net (26) (5) 11
Change in certain assets and liabilitie :
Decrease (increa e) in accounts receivable (31) 103 44
Decrea e (increase) in flight equipment pare parts (2) 12 (46)
Decrease (increa e) in upplie , prepaid expen e and other (54) (57) 91
Increase (decrea e) in air traffic liability (27) 250 (140)
Increa e (decrease) in accounts payable and other liabilitie 140 (71) 113
Increase (decrease) in accrued liabilities 56 (19) 57
et ca h provided by operating activities 893 1,259 8
Cash Flows From Investing Actiuities
Capital expenditures (672) (1,038) (1,068)
Purchase of hort-term inve tments (194) (288) (257)
Proceeds from maturities of shon-term inve tments 198 330 641
Proceeds from sale of property, equipment and other assets 97 63 29
Investments in affiliated companie (14) (13) (415)
Other, net 6 (27) (43)
et cash used in investing activitie (579) (973) (1,113)
Cash Flows From Financing Actiuities
Payment oflong-term debt (1,268) (1,681) (1,732)
Payment of capital lease obligations (60) (57) (618)
Payment of hort-term note pa able (102)
Repurchase of common and preferred stock (437)
Proceeds from long-term debt 614 779 2,910
Proceeds from sale and leaseback tran actions 387 1,095 669
Other, net (43) (51) (27)
Net ca h provided by (used in) financing activitie (370) (17) 765
Increase (Decrease) In Cash and Cash Equivalents (56) 269 (260)
Cash and cash equivalents at beginning of period 749 480 740
Cash and ca h equivalents at end of period $ 693 $ 749 s 480
A\'ailable to be borrowed under credit facilitie $ 1,116 $ 1,573 $ 1,004
The accompanying notes are an integral part of these consolidated financial tatements.
Northwest Airlines
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Northwest Airlines Corporation
Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive Treasury
(In millions) Shares Amount Capital Deficit Income (Loss) Stock Total
Balancej anuary 1, 1998 103.8 $ 1 $ 1,274 $ (362) $ (102) $ (1,122) $ (311 )
et los (285) (285)
Other comprehensive income 34 34
Comprehensive loss, net of tax (251)
Common Stock carrying value over
repurchase price 68 68
Shares issued to purchase an interest in
Con tin en ta! Airlines, Inc. 2.6 65 65
Accretion of Series C Preferred Stock (1) (1)
Tax benefit related to stock issued
to employees 12 12
Series C Pref erred Stock converted to
Common Stock 1.4 46 46
Common Stock held in rabbi trusts 32 (152) (120)
Other 1.2 16 (1) 15
Balance December 31, 1998 109.0 1 1,445 (649) (68) (1,206) (477)
Net income 300 300
Other comprehensive income 59 59
Comprehensive income, net of tax 359
Accretion of Series C Preferred Stock (1) (1)
Series C Preferred Stock converted to
Common Stock .6 19 19
Common Stock held in rabbi trusts (11) 57 46
Other 1 1 2
Balance December 31, 1999 109.6 1 1,454 (349) (9) (1 ,149) (52)
et income 256 256
Other comprehensive income 4 4
Comprehensive income, net of tax 260
Accretion of Series C Preferred Stock (1) (1)
Series C Preferred Stock converted to
Common Stock .3 11 11
Common Stock held in rabbi trusts (11) 19 8
Other .2 5 5
Balance December 31, 2000 110.1 $ 1 $ 1,459 $ (94) $ (5) $ (1,130) $ 231
The accompanying note are an integral part of these consolidated financial statements.
Annual Report 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation - orthwest Airlines Corporation
("NWA Corp.") is a holding company whose principal indirect
operating subsidiary is orthwest Airline , Inc. (" orthwest").
The consolidated financial tatements include the accounts of
A Corp. and all con olidated ubsidiaries (collectively, the
"Company"). All ignificant intercompany transactions have
been eliminated. In estments in 20% to 50% owned companie
and A Funding, LLC are accounted for by the equity method.
Other inve tments are accounted for by the cost method.
Certain prior year amounts have been recla sified to conform to
the current year financial statement presentation.
Business - orthwest's operations comprise approximately 95%
of the Company's consolidated operating revenue and expenses.
orthwest is a major air carrier engaged principally in the
commercial transportation of passengers and cargo, directly
serving more than 155 cities in 24 countries in orth America,
Asia and Europe. orthwest's global airline network includes
domestic hubs at Detroit, inneapoli / St. Paul and Memphi ,
an extensive Pacific route sy tern with hubs at Tokyo and Osaka,
a trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM"),
which operates through a hub in Amsterdam, and a global
alliance with Continental Airlines, Inc. ("Continental").
Flight Equipment Spare Parts - Flight equipment pare parts are
carried at average co t. 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 Depreciation - Owned property and
equipment are stated at cost. Property and equipment acquired
under capital leases are stated at the lower of the present value of
minimum lease payments or fair market value at the inception of
the lease. Property and equipment are depreciated to residual
values using the straight-line method over tl1e estimated u eful
lives of the assets, which 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 i less. Property and equipment
under capital leases are amortized over the lease term or the
e timated useful lives of the as ets.
The Company accounts for certain airport lea es under the
Emerging Issues Task Force ("EITF") Issue o. 99-13, Application
of EITF Issue No. 97-10, The Effect of Lessee Involvement in Asset
Construction, and FASB Interpretation No. 23, Leases of Certain
Pmperty Owned IYy a Governmental Unit or Authority, to Entities that
Enter into Leases with Governmental Entities, which require the
financing related to certain airport construction projects
committed to after September 23, 1999, to be recorded on the
balance sheet. The e capitalized expenditure are recorded in
other property and equipment with the corresponding obligation
included in long-term obligation under capital lease .
Airframe and Engi,ne Maint,ena,nce - Routine maintenance, airframe
and engine overhauls are charged to expense as incurred, except
engine overhaul costs covered by third-party maintenance
agreements, which are accrued on the ba i of hour flown.
Modification that enhance the operating performance or extend
the useful Ii e of airframe or engines are capitalized and
amortized over the remaining estimated u eful life of the as et.
International Routes - Int rnational route are amortized on a
straight-line basi , generally over 40 years. Governmental policy
and bilateral agreements between nation regulate international
operating route authorities and alliance . hange in such
policies or agreements could materially impact orthwe t.
Impairment of Long-Lived Assets- - The Company evaluates
impairment of long-Ii ed a e in compliance with taternent
of Financial Accounting Standards ("SFAS") 10. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed OJ The Company record impairment losses on long-lived
assets used in operations when events and circum tances indicate
the assets might be impaired and the undi counted cash flows
estimated to be generated by tho e assets are les 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 December 2000, the Company decided to accelerate the
retirement of 21 DCl0-40 and six DCl0-30 aircraft, replacing
them with recently ordered Airbu A330-300 and Boeing 757-300
aircraft. As a result of this deci ion, the Company recorded a non-
cash fleet disposici.on charge of $125 million in depreciation and
amortization. The Company considered recent tran actions
involving ales of similar aircraft and market trend in aircraft
di positions to reduce the aircraft net book value to reflect the fair
45
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market value of the e as ets. The fleet di position charge included
a 29 million write-down of related spare parts to their e timated
fair market value.
In 199 , the Company accelerated the retirement of its seven oldest
Boeing 747 aircraft and recorded a non-ca h fleet disposition
charge of 66 million in depreciation and amortization. The e
retirement were earlier than scheduled as a result of decrea ed
demand in the Pacific, the timing of major overhauls and the
opportunity to accelerate the delivery of certain new Boeing
747-400 aircraft in partial replacement of the retired aircraft. The
Company con idered recent transactions in olving 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
a sets. The fleet di position charge included a 14 million write-
down of related spare parts to their estimated fair market value.
Frequent Flyer Program - The e timated incremental cost of
providing travel awards earned under Northwest's WorldPerk
frequent fl er program is accrued. The Company also sells
mileage credits to participating companies in its frequent flyer
program. A portion of such revenue is deferred and amortized as
tran portation is provided.
Operating Revenues - Passenger and cargo revenues are recognized
when the transportation is provided. The air traffic liability
repre ents the estimated value of old but unused tickets and is
regularly evaluated by the Company.
Advertising-Advertising costs included in other operating
expen e , are expensed as incurred and were $127 million, $124
million and 137 million in 2000, 1999 and 1998, respectively.
Employee Stock options - The Company uses the intrinsic value
method prescribed by Accounting Principles Board Opinion
I o. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for employee stock options. Under
the intrin ic value method compen ation expense is recognized
only to the extent the market price of the common tock exceeds
the exercise price of the stock option at the date of the grant.
Foreign Currency -As ets and liabilitie denominated in foreign
currency are remeasured at current exchange rate with resulting
gains and losses generally included in net income. The Preferr d
Security (see ote 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 income
(los ) , 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 difference between
the tax and financial reporting bases of assets and liabilities.
Use of Estimat.es - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principle 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.
Holding Company Reorganization - On November 20, 1998, NWA
Corp. effected a holding company reorganization. As a result,
orthwest Airlines Holdings Corporation (formerly known as
orthwest Airlines Corporation and prior to the reorganization
the publicly traded holding company, "Old NWA Corp.") became
a direct wholly-owned ubsidiary of NWA Corp. and NWA Corp.
became 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 ovember 20,
1998 refer to Old NWA Corp. and the Common Stock and Series
C Preferred Stock of Old NWA Corp., respectively.
Annual Report 2000
NOTE 2-EARNINGS (LOSS) PER SHARE DATA
The following table sets forth the computation of basic and diluted earnings (los ) per common share for the years ended
December 31 (in millions, excep t share data):
NUMERATOR:
Net income (loss) applicable to common
stockholders for basic earnings (loss) per share
Effect of dilutive securities - Series C Preferred Stock
Net income (loss) applicable to common stockholders after
assumed conversions for diluted earnings (loss) per share
DENOMINATOR:
$
$
2000
255 $
I
256 $
1999
299 $
1
300 $
1998
(286)
(286)
Weighted-average shares outstanding for basic
earnings (loss) per share 82,629,233 81,255,097 82,341,741
Effect of dilutive securities:
Series C Preferred Stock
Shares held in non-qualified rabbi trusts
Employee stock options
Adjusted weighted-average shares outstanding and
assumed conversions for diluted earnings (loss) per share
6,941,938 7,378,216
2,183,978 3,031,275
500,317 373,012
92,255,466 92,037,600
For additional disclosures regarding the Series C Preferred Stock, shares held in rabbi trusts and employee stock options,
see otes 6 and 7.
82,341,741
Northwest Airlines
NOTE 3-LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt a of December 31 consisted of the following (in millions, with interest rates as of December 31, 2000):
2000 1999
Unsecured notes due 2004 through 2008, 8.2% weighted average rate (a) $ 847 $ 847
Pas -through trust certificates due through 2019, 8.2% weighted-average rate (b) 579 196
Secured notes due through 2009, 8.1 % weighted average rate 349 349
Aircraft notes due through 2016, 6.0% weighted average rate (c) 331 347
Equipment pledge notes due through 2013, 8.4% weighted-average rate 300 556
NWA Trust No. 2 aircraft notes due through 2012, 9.8% weighted average rate (d) 241 251
Sale-leaseback financing obligations due through 2020, 9.9% imputed rate (e) 223 223
NWA Trust No. 1 aircraft notes due through 2006, 8.6% weighted average rate (f) 161 180
Senior unsecured quarterly interest bonds due 2039, 9.5% (g)
Secured notes due through 2016 (h)
Term loans
Unsecured note due 2000
Other
Total debt
Less current maturities
Long-term debt
(a) 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 of7.625% notes
due ~005 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.
(b) In June 2000, the Company completed a public offering
of $522 million in pass-through trust certificates to finance
13 new Airbus A319 aircraft delivered or scheduled for delivery
through May 2001 and to refinance six Boeing 757-200 aircraft
delivered in 1996. In 1999, the Company completed public
offerings of $795 million in pass-through certificates to finance
seven Airbus A320, 14 Airbus A319 and 14 AVRO RJ85 aircraft.
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 which the aircraft will
be sold and leased back to orthwest, the equipment notes, which
a.re the assets of the pass-through trusts, are not direct obligations
of NWA Corp. or orthwest.
143 143
240
165
100
68 69
3,242 3,666
191 312
$ 3,051 $ 3,354
At December 31, 2000, $579 million of the escrowed proceeds
had been used to finance 25 aircraft owned by Northwest. The
equipment notes issued for these aircraft are direct obligations of
Northwest. Interest on the pass-through certificates is payable
semi-annually. Sale and leaseback transactions have been completed
on 22 other aircraft. The Company also had 174 million in
proceeds from the offering held in escrow and not recorded as
an asset or direct obligation ofNWA Corp. or Northwest.
(c) During 1998, tht> 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 with fully-clefeased 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 A.LE.) 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 orthwest. The aircraft were
simultaneously leased back to orthwest.
Financing of 352 million wa obtained through the i suance of
, 176 million of 9.25% Cla A Senior Aircraft ote , 66 million
of 10.23% Class B Mezzanine Aircraft Notes, 44 million of
11.30% Clas C Mezzanine Aircraft otes and 66 million of
13.875% Clas D Subordinated Aircraft otes. The Class D notes
were repaid in December 1997. The notes are payable semi-
annual! from rental payments made by orthwest under the
lease of the aircraft and are ecured by the aircraft ubject to the
lease as well a the lea e itself.
(e) In March 1992, the Company completed agreements with the
Minneapoli / St. Paul Metropolitan Airports Commis ion ("MAC")
for the sale and leaseback of various corporate assets. The sale-
lea eback agreements, which are accounted for as debt, call for
increa ing quarterly payments over a 30-year term and include a
provision which gi es the Company the option to repurchase the
assets. The agreements vvith the MAC are part of a group of
financing arrangements with the State of Minnesota and other
government agencies.
(f) In March 1994, orthwest 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 Notes. The aircraft were simultaneously
leased back to Northwest. The notes are payable semi-annually
from rental payments made by orthwest under the lease of the
aircraft and are ecured by the aircraft subject to the lease as well
as the lea e itself.
(g) In August 1999, the Company completed the retail issuance of
143 million of senior unsecured quarterly interest bonds,
maturing in 2039. These bonds may be redeemed by Northwest
beginning in 2004 without penalty.
(h) In August 1998, the Company borrowed $240 million under
an existing credit facility. The floating rate note were secured by
six Boeing 757 aircraft. This facility was paid off with proceeds
from the issuance of the June 2000 pass-through certificates.
Annual Report 2000
Maturities of long-term debt for the five years subsequent to
December 31, 2000 a.re as follows (in millions):
2001
2002
2003
2004
2005
191
143
129
486
348
The Com pan 1's Credit Agreement provides for un ecured
revolving credit facilities con is ting of a five- ear revolving
credit facility and two 364-day revolving credit facilitie . The
725 million five- ear revolving facility ($9 million of which has
been utilized as letters of credit a of December 31, 2000) is
a ailable until October 2005. The $250 million 364-day revolving
credit facility expires in October 2001 and i renewabl annually
at the option of the lenders; however, to the extent any portion
of this facility i not renewed for an additional 364-da period,
the Company may borrow up to th entire non-renewed portion
of the facility and all such borrowing mature in October 2005.
The $150 million 364-day revolving credit facility expires in
October 2001 ai1d is renewable annually at the option of the
lenders. Borrowing under these unsecured credit facilities b ar
intere tat a variable rate equal to the London Interbank Offered
Rate plus 1.5%. Commitment fees are payable by the Company on
the unused portion of these revolving credit facilities at a variable
rate equal to .35% at December 31 , 2000, and are not considered
material. At December 31, 2000, $1.12 billion wa available under
these revolving credit facilities.
The Credit Agreement contain certain financial covenants,
including limitations on secured indebtedness (but which do
not apply to secured indebtedness for new aircraft ai1d airport
facilities) and certain equity redemption and dividends, as well as
requirements to maintain certain financial ratios. The Company
also agreed to maintain a pool of assets unencumbered during the
term of this Credit Agreement.
At December 3), 2000, the Company was in compliance with
the covenant of all of its debt and lease agreements. Various
assets, principally aircraft, having an aggregate book value of
$2.7 billion at December 31, 2000, were pledged under various
loan agreements.
Northwest Airlines
The weighted-average interest rate on hort-term borrmving
out tandino- at December 31 were 6.57%, 5.83% and 5.99% for
2000, 1999 and 199 , re pectively.
Ca h payment f intere t. net of capitalized intere t, aggregated
312 million, 342 million and 277 million in 2000, 1999 and
199 , re pectively.
Manufacturer financing obtained in connection with the
acqui ition of aircraft, which is considered non-cash, was
r 4 million, 5~3 million and 408 million in 2000, 1999 and
199 , respectively.
NOTE 4-LEASES
The Company lease under noncancelable operating lea e
certain aircraft, pace in airport terminals, land and buildings at
airports, ticket, sale and re ervation offices, and other property
and equipment, which expire in a.rious years through 2029.
Certain aircraft and portions offacilitie are subleased under
noncancelable operating lea es expiring in various years
throuo-h 2020.
Rental expense for all operating leases for the years ended
December 31 con isted of the following (in million ) :
Gross rental expense
Sublease rental income
Net rental expense
2000
$ 765
(110)
$ 655
1999
$ 650
(88)
562
1998
$ 630
(87)
$ 543
At December 31, 2000, the Company leased 126 of the 424 aircraft
it operates. Of these, 21 were capital leases and 105 were
operating lease . Ba e term lease expiration dates range from
2002 to 2009 for aircraft under capital leases, and from 2001 to
2023 for aircraft under operating leases. The Company's aircraft
lea e can generally be renewed for terms ranging from one to
eight years at rate based on the aircraft's fair market value at the
end of the lea e term. 116 of the 126 aircraft lease agree men ts
pro\'ide the Corn pan with purchase option at the end of the
lea e term which approximate fair market value.
At December 31, 2000, future minimum lea e payments
under capital lea es and noncancelable operating leases with
initial or remaining terms of more than one year were as follow
(in million ) :
Capital
2001
2002
2003
2004
2005
Thereafter
Less sublease rental income
Total minimum operating
lease payments
Le amounts representing
interest
Pre ent value of future
minimum capital
lease payments
Less current obligations
under capital leases
Long-term obligations
under capital leases
Leases
$ 106
280
87
62
51
146
732
176
556
62
$ 494
Operating Leases
Aircraft Non-aircraft
$ 517 $ 138
534 134
527 123
523 118
513 109
4,977 947
7,591 1,569
487 29
$7,104 $1,540
The above table includes operating leases for 37 aircraft operated
and leased by Express Airlines I, Inc., a wholly-owned subsidiary,
and 74 aircraft operated by and subleased to Mesaba Aviation, Inc.
("Mesaba"). Base term lease expiration dates range from 2002 to
2019. These aircraft leases can generally be renewed for terms
ranging from one to eight years at rates based on the aircraft' 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
building the Company own in Tokyo. A newly formed
con olidated ubsidiar of the Compan (the "Subsidiary")
entered into aJapane e busines arrangement de ignated under
Japane e law as a tokumei kumiai ("TK"). Pur uant to the TK
arrnng ment, the hold r f then )n-rec urse obligation
r -uu tured uch obligation and then assigned Litle to rnd
mrner hip of u h oblio-ation to the ubsidiary as opcrat r under
the TK arrangement in exchange for a preferred interest in the
profit' and returns of capital from the business of the ' ubsidi, rv
(the "Preferred e uritv"). The re tru cured non-r onr.e
obligation is t.hc ole a et of the ubidiary. A. a r sult or this
restructuring, the origi1nl holder of such n n-r course obligation
a ed to b a direct reditor of the ompanv and th
obli0 ation i reflected in the C mpanv's Con olidated Balan e
heet as ~hndatarily Red emable Preferred S curit\' of ub, idiar
'1\'hi h Hold ol I on-R our e Obligation or Company.
onhwest irlines Holdings Corporation has guaranteed the
oblicrati n of the ubsidiar to distribute pa~1.nents on the
Preferred ecurit:y pur uant to the TK arrangement if and to the
extent. payments are received by the ubsidiary.
Th re tru tur cl obligat.:ion mature in three approximately equal
annual in tallm nts du in 2005, 2006 and 2007. ln addition to
these in tallmen , ash paym nts of int. r st and prin ipal ar
made emi-annually throu0
110ut the term. The rate of interest
Yarie from period to period and is capped at 6%. The obligation
i non-recourse to the Company. The ,ornpany has Lhe ability
(exercisable at an , time after eptember 30. 2001) t Lransfrr the
property in full saLi faction of all ornpany obligations related t
the financing.
The carr ring value is b ing accret d ov r 12 year from
October 199 to th ultimat maturity value of70.16 billion yen
( 610 million ba ed on the December 31, 2000 exchange rate).
Such acer cion is included a a omponent of Interest of
mandatorily redeemable preferred security hold r.
NOTE 6-PREFERRED, REDEEMABLE AND
COMMON STOCK
Series C Preferred Stock -A part f labor agreernent r ach din
1993 the Com pan I
issued Lo trusts for th b n fit of part.:icipaLing
emplo ees 9.1 million bar sofa n w cl s or rie C cumulative,
voting, co1w rtible, r deem a bl preferred tock, par value of $.01
per shar (the "Series C Pr ferred Stock") and 17.5 million share -
of omrnon to k and provided the union group with three
po itions on the Board of Directors. W ,orp. ha auLhorized
25 million hare of ries C Pr ~ rred to k. The Series C
Pr ~ rred tock ranks s nior Lo ornmon tock with r s1 cl to
Annual Report 2000
liquidation and certain di, idend rights .. \s long as the Common
St d. is publi h- traded, no diYidends accrue on the ' eries C
Preferred tock. Each sbar of the eries C Pref rred ' tock i
co1wenible at an" Lime into l.36-l share , of Common Stock. ,\.: of
December ~1 l. '.2000. --l. l million shares of eries C Pr 'frrred t< ck
h,l\'e been < n\'erted into Common tocl:- and the remaining
5.0 million shares outsLanding are onYcniblc into 6., million
shares of Common , tock. During '.:?000 . . 2 million shan:s of erics
Preferred tock \\e1-e 01wcned into.: million 'hares or
Common Stock.
All th, out tanding shares or eries . Preferred ' to k are
required to be rcdt'cmed in 20():) for a pro rat,1 share or actual
wage s:wings ( ~2:13 million as or December ::I l. 2000) . 't\,.\\'A Corp.
has the option to redeem , u h shares in cash. bv the is:uance
or additional Common to k. orb, the use or cash and :to k.
deci ion to i .. ue onlv ,1dditional Common tock rnwt be
approved lw a majority of the three directors elected bv the
holder or the Serie: C Preferred Stock. If 1 \\'A Corp. fail to
redeem the erics C Preferred tock. di,idends \\"ill accrue at th
higher of (i) 12 or (ii) the high ::-t pcnaltv rate on a1w then
outstanding series of pref rred :tock. and the t mp! wet' unions
will receive three additional Board of Directors positiow. he
fmanci,11 statemt>nt a1-rYing value or the Serie- C Preferred Stock
is being a creted twer ten years commencing ugust 199'.1 to the
ultimate redemption amount. Prior to 200'.~. \\'A ,orp. at its
option may redeem in \\'hole or in pan the Series C Preferred
tock at its liquidation value.
Common Stoch - The Company was required to adopt the
provisions ofElTF Issue o. 97-1--l. Arrou11ti11gforDefirrcd
Co111pe11 a/ion . lrm11ge111enls 117,err' l11101111ls Earned arl' 1-J.l'ld
in a Rabbi Trust on e1 tember 30. 1998. As a re ult. the ,ompany
revised its on olidation or the asset , and liabilities of the non-
qualified rabbi Lrusts. The 2.0 and 2.5 million shares of Common
Stock as f December 31, 2000 and 1999. re I ectivel '. that are
h Id in the tnn1 arc recorded similar to trca"ury stock and the
deferred compensation liability is recorded in other long-term
liabiliti s. Th' ,om pan ' lected to record the difference b 'tween
the market value of the common shares and the historical cost of
the shares in the trusts at the date of aclc pt ion 1s a credit to
common stockholders' cquit de(icit. net of tax. ftcr th
adoption date, but prior to settlement through either
conuibution t qualified trusts r diversification, increase or
Northwest Airlines
decrease in the deferred com pen ation liability will be
recognized in earning to the extent the Common Stock market
price exceed the average histo1ical cost of th share of $38.04
per hare or fall below the September 30, 1998 price of $25.06
per hare, re pectivel . For the purpose of computing diluted
earnings per share, the shares held by the rabbi trusts are
con idered potentially dilutive ecuritie . The Company has
clas ified the diversified as ets held by the rabbi trusts 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 right expire or are redeemed, each new
hare of Common Stock issued by NWA Corp., including the
hares of Common Stock into which the Series C Preferred Stock
i convertible, will include one right. Upon the occurrence of
certain events, each right entitles the holder to purchase one one-
hundredtl1 of a hare 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 lnve tors) 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
per on 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 ovember 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
of the Company. 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 option
with the exercise price equal to the market price of the Common
Annual Report 2000
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):
2000 1999 1998
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 5,067 $ 31.79 4,059 $ 32.41 5,204 $ 27.09
Granted 1,959 25.05 1,499 29.75 509 43.35
Forfeited (620 ) 33.67 (428) 33.16 (485) 33.36
Exercised (171 ) 15.05 (63) 14.29 (1 169) 13.08
Outstanding at end of year 6,235 29.94 5,067 31.79 4,059 32.41
Exercisable at end of year 2,425 30.28 2,252 27.78 1,910 24.35
Reserved for issuance 16,806 10,948 7,948
Available for future grants 5,613 2,092 163
At December 31, 2000:
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Shares Contractual Life Price Shares Price
$ 4.740 to $25.125 2,664 7.6 years $ 21.12 773 $ 13.60
25.406 to 39.375 2,755 7.4 33.58 1,189 35.18
40.000 to 64.406 816 6.8 46.45 463 45.55
The weighted-average fair value of options granted during 2000,
1999 and 1998 is $10.77, $11.84 and $17.65 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 6.4%,
5.1 % and 5.5% for 2000, 1999 and 1998, respectively, and expected
lives of six year and volatility of 30% for all years presented.
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In eptember 199 , in conjunction with the labor agreement
reached between Northwest and the Air Line Pilots Association,
International, T
A Corp. establi heel the 1998 Pilots Stock
Op tion Plan ( the 'Pilot Plan"). The Company ha reserved for
i uance 2.5 million share of Common Stock under the Pilot Plan.
Following is a ummary of the Pilot Plan for the years ended December 31 (shares in thousands):
2000 1999 1998
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares
Outstanding at beginning of year 1,497 $
Granted 500
Exercised (10)
Outstanding at end of year 1,987
All outstanding options are exercisable at December 31, 2000 with
a weighted-average remaining contractual life of 8.5 years. The
weighted-average fair value of options granted during 2000, 1999
and 1998 i 11.56, 10.20 and $10.84 per option, respectively.
The fair value of each option grant is estimated as of the date of
grant u ing the Black-Scholes single option-pricing model
assuming a weighted-average risk-free interest rate of 5.9%, 5.8%
and 4.7% for 2000, 1999 and 1998, respectively, an expected life
of six year and volatility of 30%. During September 2001, an
additional 500,000 options will be granted with an exercise price
equal to r.he closing market price of the Common Stock on the
applicable gra.n t date.
The Company has adopted the di closure only provisions of SFAS
o. 123, Accounting for Stock Based Compensation. Had the Company
recorded compensation expense using the fair value method
prescribed by SFAS o. 123, the Company's net earnings (loss)
and earnings per share would ha e been reduced to the pro
forma amounts indicated below:
2000 1999 1998
Price Shares Price Shares Price
26.81 1,000 $ 27.88 $
27.88 500 24.69 1,000 27.88
26.82 (3) 27.79
27.08 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 and 2000. These shares are
subject to forfeiture and will be issued when vested. Unearned
com pen ation, representing the fair market value of the stock on
the measuremen t date is amortized over the four-year vesting
period. As of December 31, 2000, 535,136 shares were outstanding
and not vested.
A long-term in centive performance plan was established in 2000
and awarded 464,000 phan tom stock units to certain key officers.
The units vest over five performance periods upon satisfaction of
certain e tablished performance standards. Each unit represen ts
the right to receive a cash payment equal to the market price of
the Company's stock as defined in the plan . The fair value of the
performance units is equal to the market price on the date of
grant, which was $24.69 for the 2000 grant.
et income (loss) (in millions): $ 244 $ 290 $ (300)
Earning (lo s) per share:
Basic $ 2.95 $ 3.56 $ (3.65)
Diluted $ 2.65 $ 3.15 $ (3.65)
Annual Report 2000
NOTE 8-ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table se forth information with respect to accumulated other comprehensive income (loss) (''OCI") (in million ) :
Foreign Deferred Minimum Accumulated
Currenc , Gain (Loss) Pension OCI of nrealized 0th r
Tran lation on Hedging Liability Affiliated Gain on Comprehen ive
dju tment Companies Inve tment Income (Lo s)
Balance at]anuary 1, 1998 (68) (102)
Before tax amount (11) (33) 98 54
Tax effect 4 12 (36) (20)
et-of-tax amount (7) (21) 62 34
Bawnce at December 31, 1998 (41) (21) (6) (6)
Before ta..x amount (8) 82 9 (5) 15 93
Tax effect 3 (30) (3) 2 (6) (34)
Iet-of-tax amount (5) 52 6 (3) 9 59
Balance at December 31, 1999 ( 46) 31 (3) 9 (9)
Before tax amount 11 3 (30) 13 9 6
Tax effect (4) (1) 11 (5) (3) (2)
et-of-tax amount 7 2 (19) 8 6 4
Balance at December 31, 2000 $ (39) $ 33 $ (19) $ 5 $ 15 $ (5)
NOTE 9-INCOME TAXES
Income tax expense (benefit) con isted of the following for the Reconciliations of the statutor ' rate to the Compan 1's income ta,x
year ended December 31 (in million ) : expense (benefit) for the years ended December 31 are a follows
(in million ) :
2000 1999 1998 2000 1999 1998
Current: Statutory rate applied to
Federal $ 57 $ 75 $ (45) income (loss) before
Foreign 1 3 3 income ta,'Ce $ 152 $ 171 (151)
State 6 3 1 Add (deduct):
64 81 (41) State income tax (benefit)
Deferred:
net of federal benefit 7 8 (6)
Federal llO 98 (90) Non-deductible meals and
Foreign (1) (2) (3) entertainment ll 9 9
State 6 10 (11) Adjustment to valuation
allowance and other
ll5 106 (104)
income tax accruals 5 6
Total income tax Other 4 (1) (3)
expense (benefit) $ 179 $ 187 $ (145)
Total income tax
expense (benefit) $ 179 $ 187 $ (145)
Northwest Airlines
The net deferred tax liabilities Ii ted below include a current net
deferred tax a el of 10 million and 116 million and a long-
t rm net deferred tax liability of 1.35 billion and $1.22 billion as
of December 31, 2000 and 1999, respectively.
ignificant components of the Company's net deferred tax
liability a of December 31 were as follows (in millions):
2000
Deferred tax assets:
Expenses accelerated for financial
reporting purposes $ 341 $
Pension and postretirement benefits 180
Gains from the sale-leaseback
of aircraft 165
Rent expense 90
Travel award programs 55
Lease capitalized for financial
reporting purposes 52
Alternative minimum and foreign tax
credit carryforwards 45
Total deferred tax assets 928
Deferred tax liabilities:
Accounting basis of as ets in
excess of tax basis 1,744
Expenses other than accelerated
depreciation and amortization 412
Other 17
Total deferred tax liabilities 2,173
et deferred tax liability $ 1,245
1999
341
145
154
85
98
67
86
976
1,724
348
10
2,082
1,106
The Company has alternative minimum tax credits of
approximately 43 million available for carryforward to future
years' tax returns. The alternative minimum tax credits have an
unlimited carryforward period. The Company generated and
utilized 1 million of foreign tax credits for both regular and
alternative minimum tax purposes during 2000. 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
i available for carryforward to years beyond 2000.
ection 382 and 383 of the Internal Revenue Code of 1986
as amended (the "Code"), and Treasury regulations limit the
amounts of net operating lo carryforwards ( OLs), alternative
minimum tax net operating lo s carryforwards (AMT OL ) and
credits that can be used to offset taxable income (or used a a
credit) in any single tax year if the corporation ha more than a
50% ownership change (as defined in the Code) over a three-year
te ling period ending on the testing date. During 1994 and 1995,
the Company utilized all of its regular NO Ls and AMTNOLs.
In August 2000, the Company and the Internal Revenue Service
reached an agreement regarding the Company's NOLs that did
not result in a material change in the utilization of the OLs in
any prior years.
NOTE 10-COMMITMENTS
The Company's firm aircraft orders for 117 new aircraft, including
an order placed in January 2001, consists of 24 Airbus A330
aircraft from 2003 through 2006, 12 Airbus A320 aircraft from
2001 through 2004, 54 Airbus A319 aircraft from 2001 through
2003, 25 Boeing 757 aircraft from 2001 through 2004 and two
Boeing 747-400 aircraft in 2002. As of December 31, 2000, the
Company also had firm orders for 45 Bombardier CRJ200 aircraft,
which will be operated by and leased to Northwest Airlink carriers
and the Company has the option to finance these aircraft through
long-term operating leases.
Committed expenditures for these aircraft and related equipment,
including estimated amounts for contractual price escalations and
predelivery deposits, will be approximately $1.29 billion in 2001,
$1.58 billion in 2002, $2.11 billion in 2003, $1.05 billion in 2004,
$825 million in 2005 and $255 million in 2006. Consistent with
prior practice, the Company intends to finance its aircraft
deliveries through a combination of internally generated funds,
debt and leveraged lease financing. Manufacturer financing has
been arranged for most of the committed aircraft and is available
for use at the option of the Company.
Eight of the A330 aircraft may be cancelled and two of the
Boeing 757 aircraft are subject to reconfirmation. The Company
also has options to purchase 70 Bombardier CRJ200 aircraft for
delivery from 2003 through 2007, eight Airbus A330 for delivery
in 2006 and 2007 and 50 Airbus A319 and/or A320 aircraft for
delivery from 2004 through 2007 and 14 rollover option which
would be assigned delivery slots commencing in December 2007
as the initial options are exercised.
NOTE 11-CONTINGENCIES
The ompany is involved in a variety of legal actions relating Lo
antitru t, contract, trad pracLice, nvironmental and other
legal matters pertaining to Lhe Company's business. While Lhe
Company is unable to predict the ultimate outcome of Lh se legal
actions, it is the opinion of managemenL that the disposition of
these matters will not have a material adverse effect on the
Company' Consolidated Financial Statements taken as a whole.
Approximately 90% of the Company's employees are members of
collective bargaining units. Und r direction from the , ational
Mediation Board(" MB"), the Company was in mediated
negotiation with the Aircraft Me hanics Fraternal Association
("Ai\1FA "), which repre ents the Company's mechanics. On
February 9, 2001, the MB released Northwest and Ai\1FA from
mediated negotiation after A.\1FA rejected the NMB's offer of
binding arbitration. The NMB notified Northwest and A,\,ff that
a 30-day "cooling off" period would begin on February 10, 2001,
and that beginning at 11:01 P.\1 CST on .\1arch ] J, 200] either
side could resort to elf-help remedies which could include, but
are not limited to, a strike by the members of A.\1FA.
On March 9, 2001, Pre ident Bush, follov-.-ing the recommendation
of the N.\1B, announced thee tablishment of a Presidential
Emergency Board ("PEB "). The establishment of a PEB stopped
any self-help remedie and tarted the proce s during which the
PEB reviews the po ition advocated by ).'orthwe t and A.\1FA and
proposes a solution, which i anticipated to be by mid- pril. If the
PEB resolution is not accepted by both parties (or if the parties
do not reach ome other agreement), and unless Congre stakes
additional action, either party Vlrill be permitted to resort to self-
help remedie 30 day after the PEB makes its recommendation
to the President. A prolonged work stoppage, if it were to occur,
could have a material adver e impact on the Company. The
Company cannot predict the outcome of the negotiations at
this time.
Annual Report 2000
NOTE 12-PENSION AND OTHER
POSTRETIREMENT HEALTH CARE
BENEFITS
The Company has several noncontributory pension plans
covering substantially al l of i s employees. The benefits for th 'SC
plans are based primarily on years of service and, in som cas s,
employee compensation . It is the Company's policy to annually
fund at least the minimum contribution as required by the
Employee Retirement In come S curity Act of 1974. In 2000
and J998, the Company made r.ontributions of$36 million and
. ]5() million, respectivly, in excess of its minimum rer1uirement.
The Company did not mak, any excess contributions in l 999.
The Company sponsors vario11s cc1ntributory and noncontributory
medical, dental and life insurance ben Ii plan, overing certain
eligible reti1 es and their dependents. The expected future cr1st
of providing '>U h postreLirement hen fi sis a crued ov<:r Lhe
ervice life of active employees. Retired employee'> are nrJt off red
Company-paid medical and dental benefiLs after age 64, with the
exception of certain emplo>1ees who retired prior <J 1987 and
receive lifetime Company-paid medical and dental benefiL,. Prior
to age 65, the retiree share of the C()St of medical and dental
coverage i'> based on a combinatirm ofyears of service and age at
retirement. Medical and dental benefit plans are unfunded and
cosLs are paid as incurred. The pil()t group is provided Company-
paid life insurance coverage in amoun s which decrease based rm
age at retirement and age at time Jf death.
On June J, 2000, Lhe 'ompany amended the pension plan of
contract employees represented by the International Brotherhood
of Teamsters (WJBT"). The plan amendment resulted in an 85%
benefit level increase for JBT workers and is retroactive to
participanLs who terminated after De ember 31, 1992. The plan
liability was remeasured as of June 30, 2000 at a disuJUnt rate of
8.2% and resulted in increases in pemion expeme on a prorated
basis for 200(J of $13 million and on an annual basis of $30 million.
..------;( Northwest Airlines )
The f; Ilowing i a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets
(in million) :
Pension Benefits Other Benefits
2000 1999 2000 1999
Oiange in benefit obligation:
Benefit obligation at beginning of year $ 4,647 $ 5,022 $ 391 $ 376
Service cost 149 167 14 14
Interest cost 397 363 32 27
Plan amendments 157 228 23 8
Actuarial loss (gain) and other 381 (91 7) 96 (12)
Benefits paid (240) (216) (25) (22)
Benefit obligation at end of year 5,491 4,647 531 391
Ownge in plan assets:
Fair value of plan assets at beginning of year 5,166 4,375 5 5
Actual return on plan assets (7) 957
Employer contributions 86 50 25 22
Benefits paid (240) (216) (25) (22)
Fair value of plan assets at end of year 5,005 5,166 5 5
Funded status - overfunded (underfunded) (486) 519 (526) (386)
Unrecognized net actuarial loss (gain) (280) (1,141) 166 72
Unrecogr ized prior service cost 630 527 36 14
et amount recognized $ (136) $ (95) $ (324) $ (300)
Amount recognized in the Consolidated Balance Sheets as of December 31 were as follows (in millions):
Pension Benefits Other Benefits
2000 1999 2000 1999
Prepaid benefit cost $ 89 $ 96 $ $
Intangible asset 376 121
Accrued benefit liability (631) (312) (324) (300)
Accumulated other comprehensive loss 30
et amount recognized $ (136) $ (95) $ (324) $ (300)
The Company's pension plans with accumulated benefit
obligations in excess of plan assets as of December 31 were as
follows (in millions) :
2000 1999
Projected benefit obligation $ 2,064 $ 399
Accumulated benefit obligation 1,923 262
Fair value of plan assets 1,450
Annual Report 2000
Weighted-average assumptions for pension and other benefit as
of December 31 were as follows:
2000 1999 1998
Discount rate 7.9% 8.2% 6.9%
Rate of future compensation
increase 3.9% 3.9% 3.9%
Expected long-term return on
plan assets 10.5% 10.5% 10.5%
For mea urement purposes, a 5.5% annual rate of increase in the per capita co t of covered health care benefits was assumed for 2001.
The rate was a sumed to decrease 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
2000 1999 1998 2000 1999 1998
Service cost $ 149 $ 167 $ 133 $ 14 $ 14 $ 12
Interest cost 397 363 310 32 27 25
Expected return on plan assets (468) (403) (357) (1) (1)
Amortization of prior service cost 55 46 20 1 1
Recognized net actuarial loss
and other events 1 21 30 2 3 3
et periodic benefit cost $ 134 $ 194 136 $ 48 $ 44 40
Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plan . 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 components
Effect on accumulated postretirement benefit obligations
NOTE 13-RELATED PARTY
TRANSACTIONS
Continental Airlines, Inc. - On ovem ber 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. In
connection with the Company's investment in Continental and
orthwest's alliance with Continental, the Company entered into
agreements with Continental which contained certain restriction
1-Percentage-
Point Increase
$ 8
83
1-Percentage-
Point Decrease
$ (7)
(70)
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' Board
of Directors for a ten-year period. Due to the restrictions in these
agreements, the Company accounted for its investment under
the equity method and recognized its interest in Continental's
earnings on a one-quarter lag. The difference between the co t
of the Company's investment and the proportionate share of the
underlying equity of Continental of 319 million was being
amortized over 40 years.
60
Northwest Airlines
On January 22, 2001, pur uant to an agreement reached in
O\'ember 2000, (i) the Company sold to Conlin ntal
approximately 6.7 million hare of the Continental Class A
Common tock held by the Company for $450 million in cash;
(ii) sub equently, Continental effected a recapitalization as a
r ult of which the Company' remaining 2.0 million shares
of Continental Class A Common Stock were converted into
2.6 million share of Continental Cla B Common Stock; (iii)
the Compan and ontinental xtended the term of their
alliance agreement through 2025; and (iv) Continental issued
to the Company a special series of preferred stock that gives the
Company the right to block certain business combinations and
'imilar change of control transaction involving Continental and
a third-party major air carrier during the term of the alliance
agreement. The preferred stock is subject to redemption by
Continental in certain events, including a change of control of the
Company. The Company also entered into a revised andstill
agreement which contain certain restrictions on the Company'
ability to vote and acquire additional shares of Continental
common stock. In December 2000, the Company recorded a
26 million loss in other non-operating income (expense) as a
result of the sale of the 6.7 million hares to Continental. At
December 31, 2000, the remaining 2.6 million shares were being
accounted for as marketable ecurities and 15 million was
recorded in unrealized gains in accumulated other comprehensive
income (loss). Subsequent to year-end, the Company sold the
remaining 2.6 million share for $132 million, as a result of which a
pre-tax gain of 27 million wa recorded in the first quarter of 2001.
Mesaba Holdings, Inc. -The Company owns 27.9% of the common
tock ofMesaba Holding Inc., the holding company ofMesaba,
a I orthwest Airlink carrier. The Company also has warrants to
acquire Me aba Holding , Inc. common stock, and if the Company
were to exercise all its in-the-money warrants when fully vested, its
mvner hip would increase to 35.1 % as of December 31, 2000.
orthwest and M saba igned a ten-year Airline Services
Agreement ("ASA") effective July 1, 1997 under which 1orthwest
determines lesaba's commuter aircraft cheduling and fleet
composition. As of D cember 31, 2000, the Company has leased
-19 aab 340 aircraft, which are in turn sublea ed to Mesaba. In
addition, as of December 31, 2000, the Company has leased 11
and sublea ed 25 AVRO regional jet aircraft to Mesaba under a
Regional Jet Service Arrreement consummated in October 1996.
On November l, 2000, the Company offered to purchase all of
the outstanding common stock of Mesaba Holdings, Inc. al a
price of $13 per share, or an aggregate purchase price of
approximately $190 million. Mesaba's Board of Directors has
formed a special committee to evaluate the offer.
WORLDSPAN-The Company owns a 33.7% interest in WORLDSPAN,
L.P., an affiliate that provides computer reservations services,
which it accounts for using the equity method.
NWA Funding, LLC ("NWF") - During December 1999,
a Receivables Purchase Agreement (the "Agreement") was
executed by Northwest, NWF, a wholly-owned, non-consolidated
subsidiary of the Company, and a certain third-party purchaser
(the "Purchaser") pursuant to a securitization transaction.
Northwe t old $3.68 billion and $122 million of accounts
receivable on a non-recourse basi to NWF during 2000 and 1999,
respectively. The amount of loss recognized related to receivables
securitized at December 31, 2000 was not material. NWF
maintains a variable undivided interest in these receivables and is
subject to losses on its share of the receivable and, accordingly,
maintains an allowance for doubtful accounts. The agreement is a
five-year $85 million revolving receivable purchase facility allowing
orthwe t to sell additional receivables to NWF and NWF to sell
variable undivided interests in the e receivables to the Purchaser.
The fair value of securitized receivables is estimated from the
anticipated future cash flows. The Company records the discount
on the ale of receivables and its interest in NWF's earnings in
other non-operating income (expense).
NOTE 14-RISK MANAGEMENT AND
FINANCIAL INSTRUMENTS
Effective October 1, 1998, the Company adopted SFAS No. 133,
Acco1tnting for 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 requir s 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 lo s be initially reported as a component of other
comprehensive income (loss) in the equity ection of the balance
h et 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 , as immaterial.
llisk Management - The Company principally uses derivative
financial in truments to manage specific risks and does not hold or
i sue them for trading purposes. The notional amounts of financial
in truments summarized below did not repre ent 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.S. dollar value of
foreign currency-denominated operating revenues and expense .
The Company's largest exposure comes from the Japanese yen.
In 2000, the Company' yen-denominated revenues exceeded its
yen-denominated expense by approximate! 54 billion en
( 525 million) . From time to time the ompany uses forward
contracts, collar or put option to hedge a portion of it
anticipated yen-denominated sale . The change in market value
of such instruments have historically been highly effective at
offsetting exchange rate fluctuations in yen-denominated sales.
At December 31, 2000, the Company recorded 31 million of
unrealized gains in accumulated other comprehensive income
(los ) as a result of forward contracts to sell 50.25 billion yen
($500 million) at an a erage forward rate ofl00 yen per dollar
with various ettlement dates through ovember 2001. These
forward contracts hedge approximately 38% of the Company's
anticipated 2001 yen-denominated ales, which also represents
approximately 100% of the Company's excess of en-denominated
revenues over expenses. Hedging gains or losse are recorded in
revenue when transportation is provided. The Japanese yen
financial instruments utilized to hedge net yen-denominated cash
flows resulted in gains of $23 million in 2000 and losses of
$14 million in 1999.
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 counterpartie based on credit ratings,
limits expo ure to a ingle counterparty and monitors the market
position with each counterparty. It is the Company's policy to
participate in foreign currency hedging transaction with a
maximum span of25 month .
Annual Report 2000
Aircraft Fuel - The Com pan i expo ed to the effect of changes
in the price and availability of aircraft fuel. In order to provide
a mea ure of control over price and supply, the Compan trade
and hip fuel and maintains fuel torage facilities to upport its
flight operation . To further manage the price risk of fuel costs,
the Company primaril utilizes future contract traded on
regulated future exchange and fuel swap agreement . The
change in market value of such con tracts have historically been
highl effective at off et.ting fuel p1ice fluctuation . It is the
Cornpan 's policy to participate in hedging tran action with a
maximum span of 12 months.
At December 31, 2000, the Company recorded a nominal amount
of unrealized gains in accumulated other comprehen ive income
(loss) as a result of the hedge 0-!1 uacts,, hich if realized, will be
recorded in fuel e 'pense when the related fuel inventory i utilized
in 2001. As of December 31, 2000, the Compan ' had hedged
approximate! 12% of its first quarter 2001 fuel requirements in the
form of hort-term contracts to secure ongoing operating upplie .
Interest Rate - The Company used financial insuuments to
hedge its expo ure to int.ere t rate fluctuations on the ariable
rate portion of its pa -through certificates is ued in 2000.
As of December 31, 2000, the Company has 2 million of gain
remaining in accumulated other comprehensive income (loss).
Equant N. V. - Equant .V. i an international provider of data
network services to multinational busine es, including de ktop
communications, network services, equipment installation,
software development and others. During 1999, the Company sold
a portion of its investment for a gain of $48 million ($30 million
after ta.,x or $.33 per diluted share). As of December 31, 2000, the
Company holds 443,897 depo itory certificates with an estimated
fair market value of $12 million. Each depository certificate
represents an int.ere tin Equant .V. common shares which are
subject to certain transferability restriction and are carried at
their original cost, which is nominal.
Northwest Airlines
priceline.com - During 1999, the Company ntered into agreem nts
wi.th priceline.com, Inc. to provide ticket inventory for ale
through pri.celine.com' internet site. As part of the agr em nts,
the Compan , received warrants for 2,062,500 shares wi.th variou
e ting requirements. During 1999, the Company exercised
312,500 warrants to purcha e 296,354 shares, which were recorded
as available for ale investments at December 31, 1999. During
2000, the Company sold its hares outstanding from 1999,
additional hare conven ed from warrants exercised during 2000
and a portion of its remaining warrants for a combined gain of
$58 million ($36 million after tax or $.40 per diluted shar ) . The
remaining 625,000 warrants are valued at fair market value which
had a nominal valuation at December 31, 2000.
Fair Values of Financial Instruments - The financial statement carrying values equal the fair values of the Company's cash and cash
equivalents and restricted short-term investments. A of December 31, thee amount were (in millions):
Cash and Cash Equivalents Restricted Short-Term Investments
2000 1999 2000 1999
Held-to-maturity debt securities:
Commercial paper $ 558 $ $ 20 $ 16
Other 6 3
Available-for- ale debt securities 109 695 9 22
Cash 26 54
$ 693 $ 749 $ 35 $ 41
The Company con iders all unrestricted investments wi.th 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 investments. During
2000, there were no purcha es of short-term inve tments classified as available-for-sale securities and proceeds from sale of such securities
were $18 million. There were no purcha es or sales of short-term investments classified as available-for-sale securities during 1999.
The financial statement carrying values and estimated fair values of the Company's financial instruments, including current maturities,
a of December 31 were (in millions):
2000 1999
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $ 3,242 $ 3,286 $ 3,666 $ 3,515
Mandatorily Redeemable Preferred
Security of Subsidiary 558 506 626 536
Series C Preferred Stock 232 204 243 158
The fair value of the Company's long-term debt were e timated using quoted market prices, where available. For long-term debt not
activel traded and the Preferred ecurity, fair alue were estimated u ing discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of securities. The fair value of the Serie C Preferred Stock shares is based on the
a sumed conver ion to Common Stock and valuing such shares at the clo ing quoted market price for Common Stock.
Annual Report 2000
NOTE 15-SEGMENT INFORMATION
The Company is managed as one cohesive busines unit, of which revenues are derived prima1ily from the commercial transportation of
passengers and cargo. Operating revenues from flight egments sen~ng 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):
Domestic
Pacific, principally Japan
Atlantic
Total operating revenues
2000
$ 7,634
2,650
1,131
$ 11,415
1999
$ 6,976
2,280
1 020
$ 10,276
1998
$ 6,093
2,016
936
$ 9,045
The Company's tangible assets con i t primaril of flight equipment, which are utilized aero s geographic markets, and therefore, have
not been allocated.
NOTE 16-QUARTERLY FINANCIAL DATA (UNAUDITED)
naudited quarterly re ults of operation for the years ended December 31, are ummarized below (in millions, except
per share amounts):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2000:
Operating revenues 2,570 $ 2,927 $ 3,178 $ 2,740
Operating income (loss) (3) 252 354 (34)
Iet income (los ) 3 115 $ 207 (69)
Basic earnings (loss) per common share .03 1.40 2.49 (.84)
Diluted earnings (loss) per common share $ .03 1.26 2.23 $ (.84)
1999:
Operating re enues 2,281 $ 2,597 2,843 ~ 2,555
Operating income (loss) (14) 264 370 94
et income (lo s) $ (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
The sum of the quarterly earnings per share amounts does not equal the annual amount reported ince per share amounts are computed
independently for each quarter and for the full year ba ed on re pective weighted average common share outstanding and other dilutive
potential common hare .
Northwest Airlines
NOTE 17-CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following table pre enl condensed con olidating financial information for: (i) Northwest, the guarantor for WA Corp. and (ii) on
a combined ba is, NWA Corp., a holding company, and all other non-guarantor subsidiaries. The principal consolidating adjustment
entries eliminate investments in subsidiaries and inter-company balances and transactions.
Condensed Consolidating Statements of Operations for the years ended December 31 (in millions):
Other Consolidating NWA Corp.
Northwest Subsidiaries Adjustments Consolidated
2000:
operating revenues $ 10,844 $ 790 $ (219) $ 11,415
operating expenses 10,289 761 (204) 10,846
operating income 555 29 (15) 569
Other income (expense) (215) 820 (739) (134)
Income before income taxes 340 849 (754) 435
Income tax expense 138 41 179
Net income $ 202 $ 808 $ (754) $ 256
1999:
operating revenues $ 9,790 $ 702 $ (216) $ 10,276
operating expenses 9,121 632 (191) 9,562
operating income 669 70 (25) 714
Other income (expense) (296) 896 (827) (227)
Income before income taxes 373 966 (852) 487
Income tax expense 149 38 187
Net income $ 224 $ 928 $ (852) $ 300
1998:
operating revenues $ 8,643 $ 626 $ (224) $ 9,045
operating expenses 8,863 576 (203) 9,236
operating income (loss) (220) 50 (21) (191)
Other income (expense) (239) (855) 855 (239)
Income (loss) before income taxes (459) (805) 834 (430)
Income tax expense (benefit) (159) 14 (145)
Net income $ (300) $ (819) $ 834 $ (285)
Annual Report 2000
Condensed Consolidating Statements of Cash Flows for the years ended December 31 (in millions):
O ther Consolidating NWACorp.
orthwest Subsidiaries Adjustments Consolidated
2000:
Net cash from operating activities $ 783 $ ll0 $ 893
Net cash flows from investing activities (540) (32) (7) (579)
Net cash flows from financing activities (319) (58) 7 (370)
Increase (decrease) in cash and cash equivalents (76) 20 (56)
Cash and cash equivalen ts at beginning of period 735 14 749
Cash and cash equivalents at end of period $ 659 34 $ 693
1999:
Net cash from operating activities $ 1,057 $ 202 $ 1,259
Net cash flows from investing activities (954) 215 (234) (973)
Net cash flows from financing activities 194 (445) 234 (17)
Increase (decrease) in cash and cash equivalents 297 (28) 269
Cash and cash equivalen ts at beginning of period 438 42 480
Cash and cash equivalents at end of period $ 735 14 $ 749
1998:
Net cash from operating activities $ ll 7 $ (29) $ $ 88
Net cash flows from investing activities (775) 450 (o/88) (1,113)
Net cash flows from financing activities 579 (602) 788 765
Decrease in Cash and Cash Equivalents (79) (181) (260)
Cash and cash equivalen ts at beginning of period 517 223 740
Cash and cash equivalents at end of period 438 $ 42 $ 480
Northwest Airlines
Condensed Consolidating Balance Sheets as of December 31, 2000 (in millions):
Other Consolidating NWACorp.
Northwest Subsidiaries Adjustments Consolidated
ASSETS
Current Assets
Ca h and ca h equivalents and
restricted short-term investments $ 670 $ 58 $ $ 728
Accounts receivable, net 502 32 534
Other current assets 611 185 (44) 752
Total current assets 1,783 275 (44) 2,014
Property and Equipment 5,280 350 4 5,634
Flight Equipment Under Capital Leases, net 565 565
Other Assets 1,806 4,990 (4,132) 2,664
Total Assets $ 9,434 $ 5,615 $ (4,172) $ 10,877
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Air traffic liability $ 1,247 $ 68 $ (8) $ 1,307
Accounts payable and other liabilities 1,919 74 (35) 1,958
Current maturities of long-term debt and
capital lease obligations 229 24 253
Total current liabilities 3,395 166 ( 43) 3,518
Long-Term Debt and Capital Lease Obligations 3,259 286 3,545
Def erred Income Taxes 1,353 1,353
0th er Liabilities 1,384 114 (58) 1,440
Mandatorily Redeemable Preferred Security 558 558
Redeemable Preferred Stock 232 232
Common Stockholders' Equity (Deficit) 838 3,464 (4,071) 231
Total Liabilities and Stockholders' Equity (Deficit) $ 9,434 $ 5,615 $ (4,172) $ 10,877
Annual Report 2000
Condensed Consolidating Balance Sheets as of December 31, 1999 (in millions):
Other on olidating VA Corp.
1 onhwe t Subsidiarie Adju tments Con olidated
ASSETS
Current Assets
Ca hand ca h equivalen ts and
restricted sh ort-term inve nnen ts 757 32 1 790
Accounts receivable, net 497 23 1 -21
O ther current assets 612 171 (31) 752
Total current assets 1, 66 226 (29) 2,063
Pro,perty and Equipment 5 351 393 -
Flight Equipment Under Capital Leases, net 5 8
Other Assets 1,421 (3 314)
Tow! Assets 9,226 (3,339)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Air traffic liability 1 362 65 (5) 1,422
Accounts payable and other liabilities 1,7-:1:5 62 (24) 1.783
Current maturitie of long-term debt and
capital lease obligation 352 20 372
Total current liabilities 3 459 147 (29) 3 577
Long-Term Debt and Capit,al Lease Obligations 3,585 306 3, 91
Deferred Income Taxes 1,222 1,222
Other Liabilities 1,023 127 (73) 1.077
Mandatorily Redeemable Preferred Security 626 626
Redeemable Preferred Stock 243 243
Common Stockholders' Equity (Deficit) 533 2,652 (3,237) (52)
Total Liabilities and Stockholders' Equity (Deficit) 9,226 4 697 (3,339)
68
Northwest Airlines
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Northwest Airlines Corporation
We have audited the accompanying consolidated balance heets of orthwe tAirlines Corporation as of December 31, 2000 and 1999,
and the related con olidated tatements of operation , common stockholders' equity (deficit), and cash flows for each of the three years
in the period ended December 31, 2000. Thee financial statements are the responsibility of the Company's management. Our
re pon ibility is to expre an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
include asse ing the accounting principle used and significant estimates made by management, as well a evaluating the overall
financial tatement pre entation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
lorthwe tAirline Corporation at December 31 , 2000 and 1999, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the
nited State .
Minneapolis, Minne ota
January 18, 2001
Annual Report 2000
FIVE-YEAR SUMMARY
Northwest Airlines Corporation
Year Ended December 31
2000 1999 1998(1) 1997 1996
Statements of operations
(In millions, except per share data)
Operating revenues
Passenger $ 9,653 $ 8 692 $ 7,607 $ 8,822 $ 8,598
Cargo 857 732 635 789 746
Other 905 852 803 615 537
11,415 10,276 9,045 10,226 9,881
Operating expenses 10,846 9,562 9,236 9,069 8,827
Operating income (loss) 569 714 (191) 1,157 1 054
Operating margin 5.0% 6.9% (2.1) % 11.3% 10.7%
Income (loss) before extraordinary item $ 256 $ 300 $ (285) 606 536
Net income (loss) $ 256 $ 300 $ (285) 597 536
Earnings (loss) per common share:
Basic $ 3.09 $ 3.69 $ (3.48) 5.89'21 5.05'2
)
Diluted $ 2.77 $ 3.26 $ (3.48) 5.29'21 4.52'21
Balance Sheets (In millions)
Cash, cash equivalents and unrestricted
short-term investments $ 693 $ 749 $ 480 1,040 752
Total assets 10,877 10,584 10,281 9,336 8,512
Long-term debt, including current maturities 3,242 3,666 4,001 2,069 2,060
Long-term obligations under capital lea es,
including current obligations 556 597 655 705 772
Mandatorily redeemable preferred security of
subsidiary 558 626 564 486 549
Redeemable stock 232 243 261 1,155 603
Common stockholders' equity (deficit) (3l 231 (52) (477) (311) 93
operating Statistics (4J
Scheduled service:
Available seat miles (ASM) (millions) 103,356 99,446 91,311 96,964 93,914
Revenue passenger miles (millions) 79,128 74,168 66 738 72,031 68,639
Passenger load factor 76.6% 74.6% 73.1% 74.3% 73.1%
Revenue passengers (millions) 58.7 56.1 50.5 54.7 52.7
Revenue yield per passenger mile 12.04 11.58 11.26 12.11 12.53
Passenger revenue per scheduled ASM 9.21 8.64 8.23 9.00 9.16
Operating revenue per total ASM (5J 10.01 9.44 9.12 9.76 9.85
Operating expense per total ASM (SJ
9.33 8.71 9.21 8.63 8.78
Cargo ton miles (millions) 2,501 2,336 1,954 2,283 2,216
Cargo revenue per ton mile 34.26 31.32 32.46 34.54 33.70
Fuel gallons consumed (millions) 2,113 2,039 1,877 1,996 1,945
Average fuel cost per gallon 82.99 53.55 53.60 64.86 67.21
umber of operating aircraft at year end 424 410 409 405 399
Full-time equivalent employees at year end 53,491 51,823 50,565 48,984 47,536
(I) 1998 was affected by labor-relaLed di rupLions which included work actions, a 30-oay per diluLed share).
cooling off pe1-iod, an 18-day cessation of flight operaLions due Lo tl1e piloLS' strike, a (3) No dividends have been paid on Common SLock for any period presemed.
seven-day gradual resumption of CTighL operations and a rebuilding of traffic demand. (4) All staListics exclude xpres Airlines 1, Inc.
(2) Excludes tlie effects of tl1e 1997 extraordinary loss ( .10 per basic share and .08 per (5) Exclude tlie estimaLed revenues and expen e associated witl1 tl1e operation of
dilmed share) and tlie 1996 preferred stock transaction ($.75 per ba ic share and .68 ortliwe t's fl eel of 747 freighter aircraft and MLT Inc.
Northwest Airlines
STOCKHOLDERS' INFORMATION
Common Stock Prices
2000 1999
Quarter High Low High Low
1st 24 6 16 1/s 31 22
2nd 36 20 11/16 35 26
3rd 39 24% 35 23
4th 31 20 29 21
o dividend were declared during the years ended 2000
or 1999.
Stock Listing
The Company' Common Stock i quoted on the Nasdaq
National Market under ymbol NWAC. As of February 28,
2001 the Company had 1 356 stockholders ofrecord.
Registrar and Transfer Agent
Well Fargo Bank Minnesota, .A.
Post Office Box 738
South St. Paul, Minne ota 55075-0738
(800) 468-9716
Annual Meeting
The 2001 Annual Meeting of Stockholder will be held
at the Equitable Life Building ew York, New York on
Thursday,June 28, 2001 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:
Northwest Airlines Distribution Center
(800) 358-3100
E-mail: nwairlines@2rcs.com
Direct all other inquiries to:
Investor Relations
Department A4110
5101 Northwest Drive
St. Paul, Minnesota 55111
(800) 953-3332
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