**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June30, 2003**

 

**Commission file number 0-23642**

 

 

**NORTHWEST AIRLINES CORPORATION**

(Exact name of registrant as specified in its charter)

 

 

| **Delaware**                                                    |   | **41-1905580**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |   | (I.R.S.  Employer Identification No.) |
|                                                            |   |                                  |
| **2700 Lone Oak Parkway, Eagan, Minnesota**                     |   | **55121**                             |
| (Address  of principal executive offices)                       |   | (Zip  Code)                           |

 

 

Registrant’stelephone number, including area code       **(612)726-2111**

 

                                                Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes ý   No o

 

                                                Indicate by check mark whether the registrant is an accelerated filer asdefined in Exchange Rule Act 12b-2.  Yes ý   No o

 

                                                As of June 30, 2003, there were 85,841,579 shares of the registrant’sCommon Stock outstanding.

 

----

 

*Northwest Airlines Corporation*

 
| PART I.  FINANCIAL INFORMATION |                                                                                                                                                                                       |
|-------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                                                                       |   |
| Item 1.                             | Financial Statements                                                                                                                                                                       |   |
|                                |                                                                                                                                                                                       |   |
|                                | Condensed  Consolidated Statements of Operations — Three months and six months ended  June 30, 2003 and 2002.                                                                         |   |
|                                |                                                                                                                                                                                       |   |
|                                | Condensed  Consolidated Balance Sheets — June 30, 2003 and December 31, 2002.                                                                                                         |   |
|                                |                                                                                                                                                                                       |   |
|                                | Condensed  Consolidated Statements of Cash Flows — Six months ended June 30, 2003 and  2002.                                                                                          |   |
|                                |                                                                                                                                                                                       |   |
|                                | Notes  to Condensed Consolidated Financial Statements                                                                                                                                      |   |
|                                |                                                                                                                                                                                       |   |
|                                | The Computations of Ratio  of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and  Preferred Stock Requirements are attached hereto and filed as Exhibits 12.1  and 12.2. |   |
|                                |                                                                                                                                                                                       |   |
| Item  2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                |   |
|                                |                                                                                                                                                                                       |   |
| Item  3.                            | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                |   |
|                                |                                                                                                                                                                                       |   |
| Item 4.                             | Controls and Procedures                                                                                                                                                                    |   |
|                                |                                                                                                                                                                                       |   |
| PART II.  OTHER INFORMATION    |                                                                                                                                                                                       |
|                                |                                                                                                                                                                                       |   |
| Item 1.                             | Legal  Proceedings                                                                                                                                                                         |   |
| Item  2.                            | Changes  in Securities and Use of Proceeds                                                                                                                                                 |   |
| Item  4.                            | Submission  of Matters to a Vote of Security Holders                                                                                                                                       |   |
| Item 6.                             | Exhibits and  Reports on Form 8-K                                                                                                                                                          |   |
|                                |                                                                                                                                                                                       |   |
| SIGNATURE                           |                                                                                                                                                                                       |
|                                |                                                                                                                                                                                       |   |
| EXHIBIT INDEX                       |                                                                                                                                                                                       |

 

2

----

 

PART I.  FINANCIALINFORMATION

 

**Item 1.****          ****FinancialStatements**

 

*Northwest Airlines Corporation*

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
|                                                        |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                        |   | **June 30**             |   | **June 30**           |   |
| ***(Unaudited, in millions except per  share amounts)***    |   | **2003**                |   | **2002**              |   | **2003** |   | **2002** |   |
| **Operating  Revenues**                                     |   |                    |   |                  |   |   |   |   |   |
| Passenger                                                   |   | $                       | 1,906  |                  | $      | 2,052 |   | $ | 3,754 |   | $ | 3,870 |   |
| Cargo                                                       |   | 181                     |   | 176                   |   | 348 |   | 324 |   |
| Other                                                       |   | 210                     |   | 178                   |   | 445 |   | 392 |   |
| Total operating revenues                                    |   | 2,297                   |   | 2,406                 |   | 4,547 |   | 4,586 |   |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| **Operating  Expenses**                                     |   |                    |   |                  |   |   |   |   |   |
| Salaries, wages and benefits                                |   | 944                     |   | 936                   |   | 1,989 |   | 1,860 |   |
| Aircraft fuel and taxes                                     |   | 375                     |   | 360                   |   | 786 |   | 651 |   |
| Selling and marketing                                       |   | 170                     |   | 200                   |   | 346 |   | 418 |   |
| Depreciation and amortization                               |   | 162                     |   | 131                   |   | 304 |   | 266 |   |
| Other rentals and landing fees                              |   | 138                     |   | 141                   |   | 281 |   | 264 |   |
| Aircraft rentals                                            |   | 120                     |   | 116                   |   | 238 |   | 229 |   |
| Aircraft maintenance materials and repairs                  |   | 95                      |   | 151                   |   | 228 |   | 296 |   |
| Other                                                       |   | 366                     |   | 417                   |   | 774 |   | 844 |   |
| Total operating expenses                                    |   | 2,370                   |   | 2,452                 |   | 4,946 |   | 4,828 |   |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| **Operating  Loss**                                         |   | (73                     | )      | (46                   | )      | (399 | ) | (242 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| **Other  Income (Expense)**                                 |   |                    |   |                  |   |   |   |   |   |
| U. S. Government Appropriations                             |   | 209                     |   | —                |   | 209 |   | — |   |
| Interest expense, net                                       |   | (113                    | )      | (100                  | )      | (224 | ) | (194 | ) |
| Interest of mandatorily redeemable preferredsecurity holder |   | (6                      | )      | (7                    | )      | (12 | ) | (12 | ) |
| Investment income                                           |   | 11                      |   | 12                    |   | 20 |   | 23 |   |
| Foreign currency loss                                       |   | (2                      | )      | (11                   | )      | (3 | ) | (11 | ) |
| Other                                                       |   | 201                     |   | 11                    |   | 210 |   | 34 |   |
| Total other income (expense)                                |   | 300                     |   | (95                   | )      | 200 |   | (160 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| **Income  (Loss) Before Income Taxes**                      |   | 227                     |   | (141                  | )      | (199 | ) | (402 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| Income tax benefit                                          |   | —                  |   | (48                   | )      | (30 | ) | (138 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| **Net  Income (Loss)**                                      |   | $                       | 227    |                  | $      | (93 | ) | $ | (169 | ) | $ | (264 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| Earnings (Loss) per common share:                           |   |                    |   |                  |   |   |   |   |   |
| *Basic*                                                     |   | $                       | 2.64   |                  | $      | (1.08 | ) | $ | (1.97 | ) | $ | (3.09 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| *Diluted*                                                   |   | $                       | 2.45   |                  | $      | (1.08 | ) | $ | (1.97 | ) | $ | (3.09 | ) |
|                                                        |   |                    |   |                  |   |   |   |   |   |
| Average shares used in computation:                         |   |                    |   |                  |   |   |   |   |   |
| *Basic*                                                     |   | 86                      |   | 86                    |   | 86 |   | 86 |   |
| *Diluted*                                                   |   | 93                      |   | 86                    |   | 86 |   | 86 |   |
|                                                             |        |                         |        |                       |        |  |  |  |  |  |  |  |  |  |  |

 

*Seeaccompanying notes.*

 

3

----

 

*Northwest Airlines Corporation*

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                      |   | **June 30** |   | **December  31** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|------------------|--------|
| ***(Unaudited, in millions)***                                                                                            |   | **2003**    |   | **2002**         |   |
|                                                                                                                      |   |        |   |             |   |
| **Assets**                                                                                                                |   |        |   |             |   |
|                                                                                                                      |   |        |   |             |   |
| **Current  Assets**                                                                                                       |   |        |   |             |   |
| Cash and cash equivalents                                                                                                 |   | $           | 2,814  |             | $      | 2,097 |   |
| Restricted short-term investments                                                                                         |   | 125         |   | 100              |   |
| Accounts receivable, net                                                                                                  |   | 412         |   | 663              |   |
| Flight equipment spare parts, net                                                                                         |   | 202         |   | 230              |   |
| Prepaid expenses and other                                                                                                |   | 384         |   | 420              |   |
| Total current assets                                                                                                      |   | 3,937       |   | 3,510            |   |
|                                                                                                                      |   |        |   |             |   |
| **Property  and Equipment, net**                                                                                          |   |        |   |             |   |
| Flight equipment, net                                                                                                     |   | 6,108       |   | 5,985            |   |
| Other property and equipment, net                                                                                         |   | 1,018       |   | 1,046            |   |
| Total property and equipment, net                                                                                         |   | 7,126       |   | 7,031            |   |
|                                                                                                                      |   |        |   |             |   |
| **Flight  Equipment Under Capital Leases, net**                                                                           |   | 240         |   | 289              |   |
|                                                                                                                      |   |        |   |             |   |
| **Other Assets**                                                                                                          |   |        |   |             |   |
| Intangible pension asset                                                                                                  |   | 818         |   | 857              |   |
| International routes, net                                                                                                 |   | 634         |   | 634              |   |
| Investments in affiliated companies                                                                                       |   | 117         |   | 255              |   |
| Other                                                                                                                     |   | 877         |   | 713              |   |
| Total other assets                                                                                                        |   | 2,446       |   | 2,459            |   |
| **Total  Assets**                                                                                                         |   | $           | 13,749 |             | $      | 13,289 |   |
|                                                                                                                      |   |        |   |             |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                                  |   |        |   |             |   |
|                                                                                                                      |   |        |   |             |   |
| **Current  Liabilities**                                                                                                  |   |        |   |             |   |
| Air traffic liability                                                                                                     |   | $           | 1,440  |             | $      | 1,216 |   |
| Accounts payable and other liabilities                                                                                    |   | 2,445       |   | 2,710            |   |
| Current maturities of long-term debt and capital lease obligations                                                        |   | 719         |   | 346              |   |
| Total current liabilities                                                                                                 |   | 4,604       |   | 4,272            |   |
|                                                                                                                      |   |        |   |             |   |
| **Long-Term  Debt**                                                                                                       |   | 6,220       |   | 6,250            |   |
|                                                                                                                      |   |        |   |             |   |
| **Long-Term  Obligations Under Capital Leases**                                                                           |   | 391         |   | 386              |   |
|                                                                                                                      |   |        |   |             |   |
| **Deferred  Credits and Other Liabilities**                                                                               |   |        |   |             |   |
| Pension and postretirement benefits                                                                                       |   | 3,529       |   | 3,050            |   |
| Deferred income taxes                                                                                                     |   | 110         |   | 135              |   |
| Other                                                                                                                     |   | 705         |   | 679              |   |
| Total deferred credits and other liabilities                                                                              |   | 4,344       |   | 3,864            |   |
|                                                                                                                      |   |        |   |             |   |
| **Mandatorily  Redeemable Preferred Security of Subsidiary********Which Holds Solely Non-Recourse Obligation of Company** |   | 537         |   | 553              |   |
|                                                                                                                      |   |        |   |             |   |
| **Redeemable  Preferred Stock**                                                                                           |   | 226         |   | 226              |   |
|                                                                                                                      |   |        |   |             |   |
| **Common  Stockholders’ Equity (Deficit)**                                                                           |   |        |   |             |   |
| Common stock                                                                                                              |   | 1           |   | 1                |   |
| Additional paid-in capital                                                                                                |   | 1,454       |   | 1,455            |   |
| Accumulated deficit                                                                                                       |   | (1,485      | )      | (1,316           | )      |
| Accumulated other comprehensive income (loss)                                                                             |   | (1,489      | )      | (1,347           | )      |
| Treasury stock                                                                                                            |   | (1,054      | )      | (1,055           | )      |
| Total common stockholders’ equity (deficit)                                                                          |   | (2,573      | )      | (2,262           | )      |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**                                                            |   | $           | 13,749 |             | $      | 13,289 |   |

 

*Seeaccompanying notes.*

 

4

----

 

*Northwest Airlines Corporation*

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
|                                                                                     |   | **Six Months  Ended** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                     |   | **June 30**           |   |
| ***(Unaudited, in  millions)***                                                          |   | **2003**              |   | **2002** |   |
|                                                                                     |   |                  |   |   |   |
| **Cash  Flows from Operating Activities**                                                |   |                  |   |   |   |
| Net loss                                                                                 |   | $                     | (169   | ) | $ | (264 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in)operating activities: |   |                  |   |   |   |
| Gain on sale of investment in WORLDSPAN L.P.                                             |   | (199                  | )      | — |   |
| Depreciation and amortization                                                            |   | 304                   |   | 266 |   |
| Income tax benefit                                                                       |   | (30                   | )      | (138 | ) |
| Net receipts of income taxes                                                             |   | 216                   |   | 124 |   |
| Pension and other postretirement benefit contributions less than  expense                |   | 279                   |   | 108 |   |
| Changes in certain assets and liabilities                                                |   | 107                   |   | (14 | ) |
| Other, net                                                                               |   | 11                    |   | 28 |   |
| Net cash provided by operating activities                                                |   | 519                   |   | 110 |   |
|                                                                                     |   |                  |   |   |   |
| **Cash  Flows from Investing Activities**                                                |   |                  |   |   |   |
| Capital expenditures                                                                     |   | (386                  | )      | (776 | ) |
| Net increase (decrease) in restricted short-term investments                             |   | (16                   | )      | 33 |   |
| Proceeds from sale of investment in WORLDSPAN L.P.                                       |   | 278                   |   | — |   |
| Other, net                                                                               |   | 23                    |   | (23 | ) |
| Net cash used in investing activities                                                    |   | (101                  | )      | (766 | ) |
|                                                                                     |   |                  |   |   |   |
| **Cash  Flows from Financing Activities**                                                |   |                  |   |   |   |
| Proceeds from long-term debt                                                             |   | 499                   |   | 867 |   |
| Payments of long-term debt and capital lease obligations                                 |   | (152                  | )      | (122 | ) |
| Other, net                                                                               |   | (48                   | )      | 118 |   |
| Net cash provided by financing activities                                                |   | 299                   |   | 863 |   |
|                                                                                     |   |                  |   |   |   |
| **Increase  in Cash and Cash Equivalents**                                               |   | 717                   |   | 207 |   |
|                                                                                     |   |                  |   |   |   |
| Cash and cash equivalents at beginning of period                                         |   | 2,097                 |   | 2,512 |   |
| Cash and cash equivalents at end of period                                               |   | $                     | 2,814  |   | $ | 2,719 |   |
|                                                                                     |   |                  |   |   |   |
| Supplemental Cash Flow Information:                                                      |   |                  |   |   |   |
| Interest paid                                                                            |   | $                     | 125    |   | $ | 171 |   |
|                                                                                     |   |                  |   |   |   |
| Investing and Financing Activities Not Affecting Cash:                                   |   |                  |   |   |   |
| Manufacturer financing of aircraft and aircraft predelivery deposits                     |   | $                     | 97     |   | $ | (4 | ) |

 

*Seeaccompanying notes.*

 

5

----

 

*Northwest Airlines Corporation*

 

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

**Note 1 —Basis of Presentation**

 

                                                The condensedconsolidated financial statements of Northwest Airlines Corporation (“NWACorp.”), a holding company whose principal indirect operating subsidiary isNorthwest Airlines, Inc. (“Northwest”), include the accounts of NWA Corp. andall consolidated subsidiaries (collectively, the “Company”).  The condensed consolidated financial statementsincluded herein have been prepared pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”). The information and footnote disclosures normally included in annualfinancial statements prepared in accordance with Generally Accepted AccountingPrinciples (“GAAP”) have been condensed or omitted as permitted by such rulesand regulations.  These financialstatements and related notes should be read in conjunction with the financialstatements and notes thereto included in the Company’s audited consolidatedfinancial statements which are provided in the Company’s Annual Report on Form10-K for the year ended December 31, 2002. The Company’s accounting and reporting policies are summarized in Note 1of the Notes to Consolidated Financial Statements in the Annual Report on Form10-K for 2002.

 

                                                The Companymaintains a Web site at http://www.nwa.com.  Annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, all amendments to those reports, and otherinformation about the Company are available free of charge through this Website at http://ir.nwa.com as soon as reasonably practicable after thosereports are electronically filed with or furnished to the SEC.

 

                                                In the opinionof management, the interim financial statements reflect adjustments, consistingof normal recurring accruals, which are necessary to present fairly theCompany’s financial position, results of operations and cash flows for theperiods indicated.

 

**Note 2 — Recent Accounting Pronouncements**

 

                                                In January2003, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 46 (“FIN 46”), *“Consolidation of Variable Interest Entities”*.  FIN 46 defines “variable interests” ascontractual, ownership, or other pecuniary interests in an entity that changewith changes in the entity’s net asset value. FIN 46 specifies that a “variable interest entity” exists when either ofthe following conditions is present:

 

a)                                      The totalequity investment at risk is not greater than the expected losses (as definedby FIN 46) of the entity; or

 

b)                                     As a group, theholders of the equity investment at risk lack any one of three characteristicsof a controlling financial interest: 1) The direct or indirect ability to makedecisions about an entity’s activities through voting rights or similar rights;2) The obligation to absorb the expected losses (as defined by FIN 46) of theentity if they occur; or 3) The right to receive the expected residual returns(as defined by FIN 46) of the entity if they occur.

 

                                                When either ofthe above conditions exists, an enterprise having variable interest(s) thatwill absorb a majority of the entity’s expected losses if they occur, receive amajority of the entity’s expected returns if they occur, or both, is requiredto consolidate the financial statements of the variable interest entity.  FIN 46 was effective immediately forvariable interest entities created, or in which the Company obtains aninterest, after January 31, 2003.  Forall variable interest entities created on or before January 31, 2003, theprovisions are effective for the quarter beginning July 1, 2003.

 

                                                The Company hasidentified several financing arrangements created before January 1, 2003 thatmay constitute variable interest entities under the provisions of FIN 46 and isevaluating whether it would be deemed the primary beneficiary and, therefore,required to consolidate the financial statements of the associatedentities.  While the Company has yet tomake a final determination, it has reached the preliminary conclusionssummarized below:

 

1.                                       The Company hasfour aircraft leases that it previously accounted for as operating leases forbook purposes but as a loan for tax purposes. Under the terms of this arrangement, the Company guarantees the residualvalue of the aircraft and would therefore absorb the expected losses.  Thus, the Company is deemed to be theprimary beneficiary by the provisions of FIN 46.  Accordingly, beginning July 1, 2003, these leases are beingaccounted for as capital leases for book purposes.  This accounting change will  result in a $20 million charge recorded as acumulative effect of a change in accounting principle in the statement ofoperations.  In addition, the ongoingimpact of recording interest and depreciation expense under the newlycapitalized leases will exceed previous levels of rent expense by approximately$11 million annually.

 

6

----

 

2.                                       The Companycurrently consolidates a financing entity (as described in Note 5 of the Notesto Consolidated Financial Statements in the Company’s Annual Report on Form10-K for 2002) that has issued a preferred security classified on the Company’sconsolidated financial statements as Mandatorily Redeemable Preferred Securityof Subsidiary Which Holds Solely Non-Recourse Obligation of Company(“MRPS”).  This entity lacks asubstantive equity investment, as defined under the provisions of FIN 46, andis therefore a variable interest entity of which the Company has determinedthat it is not the primary beneficiary. Accordingly, the Company will no longer consolidate the subsidiary, butan amount equal to the MRPS ($537 million as of June 30, 2003), representingthe Company’s non-recourse obligation to the financing entity, will be recordedas a liability on the Company’s consolidated balance sheets.

 

3.                                       The Companyguarantees a number of special facility revenue bonds issued by certainmunicipalities for the purpose of constructing or improving airport facilitiesthat are leased by the Company.  FIN 46provides scope exceptions that may apply to these financings and the Company ispresently evaluating whether they will preclude consolidation of sucharrangements.

 

4.                                       The Company isthe operator/lessee of numerous aircraft under operating leases in which thelessors are trusts that have issued equipment trust certificates to variousinvestors.  Based on the Company’spreliminary assessment, these are not believed to constitute variable interestentities requiring consolidation.

 

                                                The Company iscontinuing to evaluate these arrangements to reach final determinations withrespect to the application of FIN 46 during the quarter ending September 30,2003.  The Company has not identifiedother arrangements it has concluded are both likely to require consolidationunder FIN 46 and that will have a material impact on its financial statements.

 

                                                In May 2003,the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS150”), *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.*  SFAS 150 establishesstandards for how a company classifies and measures certain financialinstruments and specifies that some financing arrangements with characteristicsof both liabilities and equity must be classified as liabilities.  Among the requirements of SFAS 150 is thatall “Mandatorily Redeemable” securities be classified as liabilities.  This would, in the absence of applying FIN46, result in the Company reclassifying the MRPS described above to a liability.  Given the effects of FIN 46, however, theequivalent result will already apply. The Company adopted SFAS 150 on July 1, 2003 and anticipates that thisstandard will have no other material impact on the Company’s financialstatements.

 

**Note 3 — Segment Information**

 

                                                The Company ismanaged as one cohesive business unit, from which revenues are derivedprimarily from the commercial transportation of passengers and cargo.  Operating revenues from flight segmentsserving foreign destinations are classified into the Pacific or Atlanticregions, as appropriate.  The followingtable shows the operating revenues for each region (in millions):

 

|               |   | **Three  months ended** |      | **Six months  ended** |   |
|--------------------|--------|-------------------------|-----------|-----------------------|--------|
|               |   | **June 30**             |      | **June 30**           |   |
|               |   | **2003**                |      | **2002**              |   | **2003** |   | **2002** |   |
| Domestic           |   | **$**                   | **1,605** |                  | $      | 1,640 |   | **$** | **3,161** |   | $ | 3,195 |   |
| Pacific            |   | **391**                 |      | 483                   |   | **865** |   | 918 |   |
| Atlantic           |   | **301**                 |      | 283                   |   | **521** |   | 473 |   |
| Operating revenues |   | **$**                   | **2,297** |                  | $      | 2,406 |   | **$** | **4,547** |   | $ | 4,586 |   |

 

7

----

 

**Note 4 —Loss Per Share Data**

 

                                                The followingtable sets forth the computation of basic and diluted earnings per commonshare:

 
|                                                                                                 |   | **Three  months ended** |   | **Six months  ended** |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                                                                 |   | **June 30**             |   | **June 30**           |   |
|                                                                                                 |   | **2003**                |   | **2002**              |   | **2003** |   | **2002** |   |
| Numerator:                                                                                           |   |                    |   |                  |   |   |   |   |   |
| Net income (loss) (in millions)                                                                      |   | $                       | 227    |                  | $      | (93 | ) | $ | (169 | ) | $ | (264 | ) |
|                                                                                                 |   |                    |   |                  |   |   |   |   |   |
| Denominator:                                                                                         |   |                    |   |                  |   |   |   |   |   |
| Weighted-average shares outstanding for basic earnings per share                                     |   | 85,834,989              |   | 85,642,195            |   | 85,830,393 |   | 85,562,150 |   |
|                                                                                                 |   |                    |   |                  |   |   |   |   |   |
| Effect of dilutive securities:                                                                       |   |                    |   |                  |   |   |   |   |   |
| Series C Preferred Stock                                                                             |   | 6,555,778               |   | —                |   | — |   | — |   |
| Shares held in non-qualified rabbi trusts                                                            |   | 3,902                   |   | —                |   | — |   | — |   |
| Employee stock options and unvested restricted shares                                                |   | 285,759                 |   | —                |   | — |   | — |   |
|                                                                                                 |   |                    |   |                  |   |   |   |   |   |
| Adjusted weighted-average shares outstanding and assumed conversions  for diluted earnings per share |   | 92,680,428              |   | 85,642,195            |   | 85,830,393 |   | 85,562,150 |   |
|                                                                                                 |   |                    |   |                  |   |   |   |   |   |
| Shares related to dilutive securities excluded because inclusion  would be anti-dilutive             |   | —                  |   | 7,205,992             |   | 6,724,723 |   | 7,216,636 |   |
|                                                                                                      |        |                         |        |                       |        |  |  |  |  |  |  |  |  |

 

                                                For the sixmonths ended June 30, 2003 and the three and six months ended June 30, 2002, noincremental shares related to dilutive securities were added to theweighted-average shares outstanding for basic earnings per share because of theanti-dilutive impact caused by inclusion of these securities.

 

**Note 5 —Comprehensive Income (Loss)**

 

                                                Comprehensiveincome (loss) consisted of the following (in millions):

 

|                                         |   | **Three  months ended** |   | **Six months  ended** |   |
|----------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                         |   | **June 30**             |   | **June 30**           |   |
|                                         |   | **2003**                |   | **2002**              |   | **2003** |   | **2002** |   |
| Net income (loss)                            |   | $                       | 227    |                  | $      | (93 | ) | $ | (169 | ) | $ | (264 | ) |
| Minimum pension liability adjustments        |   | —                  |   | —                |   | (156 | ) | — |   |
| Deferred gain (loss) from hedging activities |   | (9                      | )      | (15                   | )      | 13 |   | (16 | ) |
| Foreign currency translation adjustments     |   | 2                       |   | (6                    | )      | 1 |   | (6 | ) |
| Comprehensive income (loss)                  |   | $                       | 220    |                  | $      | (114 | ) | $ | (311 | ) | $ | (286 | ) |

 

**Note 6 — Stock-based Compensation**

 

                                                EffectiveJanuary 1, 2003, the Company adopted the fair value method of recordingstock-based employee compensation provided for by SFAS No. 123, *Accountingfor Stock-Based Compensation*, and is accounting for this change inaccounting principal using the “prospective method” as described by SFAS No.148, *Accountingfor Stock-Based Compensation — Transition and Disclosure, an amendment of FASBStatement No. 123*.  Allemployee stock option grants made on or after January 1, 2003 will be pricedbased on the fair value on the date the stock-based compensation is granted,which will be amortized as compensation expense over the vesting period.

 

8

----

 

                                                On June 27,2003, the Company offered to all participants holding stock options or stockappreciation rights (“SARs”) related to NWA Corp. common stock granted pursuantto the 1998 Pilots Stock Option Plan the opportunity to exchange all of theiroutstanding stock options and SARs for a designated number of replacementoptions to purchase shares of NWA Corp. common stock and replacement SARs.  Eligible participants were able to exchangetheir existing stock options and SARs at a ratio of two shares subject to anold award for one share subject to a newly issued award of the same type(although certain outstanding SARs were exchanged only for newly issuedoptions).  The offer terminated on July30, 2003.  Holders exchanged 1,849,794shares subject to existing options and SARs for 926,101 shares subject to newlyissued options and SARs.  The new awardsvest in 25% installments over a four year period. The exercise price of the newawards is the average of the high and low sales prices of NWA Corp. commonstock as reported on the NASDAQ National Market System on July 31, 2003, or$9.185 per share.  Compensation expenserelated to these new options will be amortized over a four-year vesting periodusing the fair value method of recording stock-based compensation, and isanticipated to be approximately $1 million annually for stock options issuedunder this program.

 

                                                The followingtable illustrates the effect on net income (loss) and earnings (loss) per shareif the fair value based method had been applied to all outstanding optionawards rather than only those granted since January 1, 2003.  Awards under the Company’s plans vest overperiods ranging from three to five years.

 

|                                                                                                                                      |   | **Three  months ended** |   | **Six months  ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                                                                                                      |   | **June 30**             |   | **June 30**           |   |
| ***(In millions except per share amounts)***                                                                                              |   | **2003**                |   | **2002**              |   | **2003** |   | **2002** |   |
| Net income (loss), as reported                                                                                                            |   | $                       | 227    |                  | $      | (93 | ) | $ | (169 | ) | $ | (264 | ) |
| Add:  Stock-based employee  compensation expense included in reported net loss, net of tax effect (1)                                |   | 5                       |   | —                |   | 8 |   | 2 |   |
| Deduct:  Total stock-based  employee compensation expense determined under a fair value based method for  all awards, net of tax (1) |   | (5                      | )      | (3                    | )      | (8 | ) | (7 | ) |
| Pro forma net income (loss)                                                                                                               |   | $                       | 227    |                  | $      | (96 | ) | $ | (169 | ) | $ | (269 | ) |
|                                                                                                                                      |   |                    |   |                  |   |   |   |   |   |
| Earnings (loss) per share:                                                                                                                |   |                    |   |                  |   |   |   |   |   |
| Basic — as reported                                                                                                                  |   | $                       | 2.64   |                  | $      | (1.08 | ) | $ | (1.97 | ) | $ | (3.09 | ) |
| Basic — pro forma                                                                                                                    |   | $                       | 2.64   |                  | $      | (1.12 | ) | $ | (1.97 | ) | $ | (3.14 | ) |
|                                                                                                                                      |   |                    |   |                  |   |   |   |   |   |
| Diluted — as reported                                                                                                                |   | $                       | 2.45   |                  | $      | (1.08 | ) | $ | (1.97 | ) | $ | (3.09 | ) |
| Diluted — pro forma                                                                                                                  |   | $                       | 2.45   |                  | $      | (1.12 | ) | $ | (1.97 | ) | $ | (3.14 | ) |

----

(1)                                  As describedbelow in Note 7, the Company is not recording additional tax benefits orprovisions due to its net deferred tax asset position and recent history oflosses; therefore, the Company did not include any tax effect related to the2003 amounts shown.

 

**Note 7 — Income Taxes**

 

                                                Under theprovisions of SFAS No. 109, *Accounting for Income Taxes*, therealization of the future tax benefits of a net deferred tax asset is dependenton future taxable income against which such tax benefits can be applied.  SFAS No. 109 requires that all availableevidence be considered in the determination of whether sufficient futuretaxable income will exist.  Suchevidence includes, but is not limited to, a company’s financial performance forthe current and prior two years, the market environment in which a companyoperates, the utilization of past tax credits, and the length of relevantcarryback and carryforward periods.  Asa result of the Company’s cumulative losses over the past two fiscal years andthe full utilization of its loss carryback potential, future pre-tax losses arenot expected to be reduced by the recognition of associated tax benefits untila net deferred tax liability is generated or the Company achieves substantialprofitability.  Although the Companyrecorded net income for the quarter ended June 30, 2003, it maintains a netdeferred tax asset position that is fully reserved due to the uncertainty ofgenerating sufficient future taxable income.

 

9

----

 

**Note 8 —Long-term Debt**

 

                                                At June 30, 2003maturities of long-term debt excluding capital lease obligations throughDecember 31, 2007 are as follows (in millions):

 

| 2003 |   | $     | 157    |   |
|------|--------|-------|--------|--------|
| 2004 |   | 641   |   |
| 2005 |   | 1,446 |   |
| 2006 |   | 582   |   |
| 2007 |   | 690   |   |

 

                                                The amount duein 2005 includes $962 million of principal outstanding under the Company’scredit facilities.

 

                                                On May 20,2003, NWA Corp. completed an offering of $150 million of unsecured convertiblesenior notes due 2023 to qualified institutional buyers pursuant to Rule 144Aand to non-U.S. persons pursuant to Regulation S, under the Securities Act of1933.  The notes bear interest at6.625%, which is payable in cash semi-annually through May 15, 2010.  Thereafter, the principal amount of thenotes will accrete semi-annually at a rate of 6.625% per year to maturity.  Each note was issued at a price of $1,000and is convertible into NWA Corp. common stock at a conversion rate of 61.8047shares per $1,000 original principal amount of notes (equal to an initialconversion price of approximately $16.18 per share), subject to adjustment incertain circumstances.  The notes areguaranteed by Northwest.

 

                                                Holders of thenotes may convert their notes only if: (i) the price of NWA Corp.’s common stock trades above a specifiedthreshold for a specified period; (ii) the trading price for the notes fallsbelow certain thresholds; (iii) the notes have been called for redemption; or(iv) specific corporate transactions occur. Under all situations, NWA Corp. may elect to satisfy a call forconversion with cash or common stock.  NWACorp. may redeem all or some of the notes for cash at any time on or after May15, 2010, at a redemption price equal to the accreted principal amount plusaccrued and unpaid interest, if any, to the redemption date.  Holders may require NWA Corp. to repurchasethe notes on May 15, 2010, 2013 and 2018 at a repurchase price equal to theaccreted principal amount plus accrued and unpaid interest, if any, on therepurchase date.  NWA Corp. may elect topay the repurchase price in cash or in shares of common stock, or a combinationof both, subject to certain conditions. NWA Corp. plans to use the net proceeds from the offering for workingcapital and general corporate purposes.

 

                                                In June 2003,the Company completed a structured financing transaction in which two ownedadministration buildings in Eagan, Minnesota were transferred from NWA Inc. andNorthwest to NWA Real Estate Holding Company LLC (“NWA Real EstateHolding”).  These buildings were thenused by NWA Real Estate Holding as security for three mortgage loans in theaggregate amount of $36 million made by AERO 1 HQ Finance Trust (“HQ FinanceTrust”).  Each of the three mortgageloans corresponds to a separate class of Lease Revenue CommercialMortgage-Backed Pass-Through Certificates (the “Certificates”) issued by HQFinance Trust.  The financing has ablended rate of 5.34%, with a term of seven years and no principalamortization.  NWA Real Estate Holdingis a fully consolidated subsidiary of the Company and all of the debt relatedto the mortgages of the two buildings is reflected in the Company’sconsolidated balance sheet as of June 30, 2003.

 

                                                Due to thenegative impact on the financial performance of the Company from the Iraq Warand Severe Acute Respiratory Syndrome (“SARS”), the Company and its lendersamended the Company’s revolving credit agreement in May 2003 to defer theCompany’s required compliance with the fixed charge coverage ratio under theagreement from June 30, 2003 to June 30, 2004.

 

                                                On March 28,2003, Standard & Poor’s downgraded the rating on the Company’s corporatecredit facilities from BB- to B+ and lowered Northwest’s senior unsecured debtrating from B to B-.  On April 10, 2003,Moody’s Investors Service downgraded the rating on the Company’s creditfacilities from Ba3 to B1.  As a resultof these credit rating downgrades and the measurement of certain collateraltests required under the Company’s credit facilities, the interest rate onborrowings under the credit facilities increased 0.75% in April 2003.  The credit facilities currently bearinterest at a variable rate equal to the three month London Interbank OfferedRate (“LIBOR”) plus 3.25% (4.36% as of July 31, 2003).

 

10

----

 

**Note 9 — Fleet Information and Commitments**

 

                                                The followingtable presents the number of aircraft in service and on firm order as of June30, 2003:

 
| **Aircraft  Type**                     |   | **Seating  Capacity** |   | **Owned** |       | **Capital  Lease** |       | **Operating  Lease** |       | **Temporarily  Removed from Service** |       | **Total  Aircraft in Service** |       | **Aircraft  on Firm Order** |   |
|----------------------------------------|--------|-----------------------|--------|-----------|------------|--------------------|------------|----------------------|------------|---------------------------------------|------------|--------------------------------|------------|-----------------------------|--------|
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Passenger  Aircraft**                |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| Airbus:                                |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| A319                                   |   | 124                   |   | 51        |       | —             |       | 12                   |       | —                                |       | 63                             |       | 14                          |   |
| A320                                   |   | 144-148               |   | 41        |       | 4                  |       | 31                   |       | (3                                    | )          | 73                             |       | 8                           |   |
| A330-200                               |   | 243                   |   | —    |       | —             |       | —               |       | —                                |       | —                         |       | 10                          |   |
| A330-300                               |   | 298                   |   | —    |       | —             |       | —               |       | —                                |       | —                         |       | 14                          |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| Boeing:                                |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| 757-200                                |   | 180-184               |   | 23        |       | 14                 |       | 19                   |       | (4                                    | )          | 52                             |       | —                      |   |
| 757-300                                |   | 224                   |   | 10        |       | —             |       | —               |       | —                                |       | 10                             | (1)        | 4                           |   |
| 747-200                                |   | 353-446               |   | 13        |       | —             |       | 5                    |       | (1                                    | )          | 17                             |       | —                      |   |
| 747-400                                |   | 403                   |   | 4         |       | —             |       | 12                   |       | —                                |       | 16                             |       | —                      |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| McDonnell Douglas:                     |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| DC9                                    |   | 78-125                |   | 154       |       | —             |       | 13                   |       | (6                                    | )          | 161                            |       | —                      |   |
| DC10-30                                |   | 269-273               |   | 14        |       | —             |       | 8                    |       | —                                |       | 22                             |       | —                      |   |
|                                   |   |                  |   | 310       |       | 18                 |       | 100                  |       | (14                                   | )          | 414                            |       | 50                          |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Freighter  Aircraft**                |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| Boeing 747-200F                        |   |                  |   | 5         |       | —             |       | 7                    |       | —                                |       | 12                             |       | —                      |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Total  Northwest Operated Aircraft** |   |                  |   | **315**   | ** ** | **18**             | ** ** | **107**              | ** ** | **(14**                               | **)**      | **426**                        | ** ** | **50**                      |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Regional  Aircraft**                 |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| AVRO RJ85                              |   | 69                    |   | 11        |       | —             |       | 25                   |       | —                                |       | 36                             |       | —                      |   |
| CRJ-200/440                            |   | 50/44                 |   | —    |       | —             |       | 64                   |       | —                                |       | 64                             | (1)        | 64                          |   |
| SAAB 340                               |   | 30-34                 |   | —    |       | —             |       | 49                   |       | —                                |       | 49                             |       | —                      |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Total  Airlink Operated Aircraft**   |   |                  |   | **11**    | ** ** | **—**         | ** ** | **138**              | ** ** | **—**                            | ** ** | **149**                        | ** ** | **64**                      |   |
|                                   |   |                  |   |      |       |               |       |                 |       |                                  |       |                           |       |                        |   |
| **Total  Aircraft**                    |   |                  |   | **326**   | ** ** | **18**             | ** ** | **245**              | ** ** | **(14**                               | **)**      | **575**                        | ** ** | **114**                     |   |

----

(1)                                  Two Boeing 757-300aircraft and one CRJ-440 aircraft were purchased in June 2003 but were not yetin service as of June 30, 2003, and are therefore excluded from this table.

 

                                                Committedexpenditures for the 114 aircraft and related equipment on firm order,including estimated amounts for contractual price escalations and predeliverydeposits, will be approximately $1.10 billion for the remainder of 2003, $1.19billion in 2004, $1.18 billion in 2005, $582 million in 2006 and $226 millionin 2007.  Consistent with prior practice,the Company intends to finance its aircraft deliveries through a combination ofinternally generated funds, debt and long-term lease financing.  Financing commitments available for use bythe Company are in place for the 50 Northwest operated aircraft on order.  These financings range from 80% - 100% ofeach aircraft’s purchase price.  TheCompany has the option to finance the 64 CRJ-200/440 aircraft on order throughlong-term operating lease commitments from the manufacturer.  These aircraft will, in turn, be leased orsubleased to and operated by regional carriers.  In the event a manufacturer does not provide financing for theseaircraft, the Company has certain remedies such as not taking delivery of theaircraft.

 

11

----

 

**Note 10 —Series C Preferred Stock**

 

                                                The Companyissued Series C Preferred Stock in 1993 to trusts for the benefit of itsemployees in connection with labor cost restructuring agreements between theCompany and its major unions.  The termsof the Series C Preferred Stock give the holders a “put right” to require theCompany to repurchase such shares for an amount (approximately $226 million atthe August 1, 2003 put date) equal to the actual wage savings achieved underthe 1993 labor agreements.  Consummationof the repurchase is subject to, among other things, compliance with corporatelaw requirements applicable to the Company, including the requirement that anystock repurchase be out of a corporation’s “surplus”.  The Company announced on August 1, 2003, that the Board ofDirectors had determined that the Company could not legally repurchase theoutstanding Series C Preferred Stock at this time becuase the Board ofDirectors was unable to determine that the Company had adequate surplus torepurchase the outstanding Series C Preferred Stock.  As a result, quarterly dividends will accrue beginning August 1,2003, at 12% per annum and each of the International Association of Machinistsand Aerospace Workers (“IAM”), Air Line Pilots Association, International(“ALPA”) and International Brotherhood of Teamsters, Chauffeurs, Warehousemenand Helpers of America (“IBT”) will have the right to designate an additionalindividual to serve on the Company’s Board of Directors.  The IBT and IAM have commenced separatelawsuits challenging the Company’s decision not to repurchase the Series CPreferred Stock.  See “Part II. Item1.  Legal Proceedings” for additionalinformation regarding these lawsuits. Additional information with respect to the Company’s Series C PreferredStock is contained in Note 6 of the Notes to Consolidated Financial Statementsin the Company’s Annual Report on Form 10-K for 2002.

 

**Note 11 — Pinnacle Stock Contribution to Company’s PensionPlan**

 

                                                The Company submitted an application to the Department of Labor to permitthe Company to contribute common stock of Pinnacle Airlines Corp. to thepension plans in lieu of making certain required contributions in cash.  In January 2003, the Department of Labor(“DOL”) issued a proposed prohibited transaction exemption that would allow theCompany to contribute common stock of Pinnacle Airlines Corp. to satisfy aportion of the contribution requirements to Northwest’s pension plans in 2003and 2004.  The proposed exemptioncontemplates that the pension plans will have the right at any time to sell theshares back to the Company for cash at the greater of their value at the timeof contribution or the prevailing market value.  On January 15, 2003, the Company contributed 1.9 million shares,or 12.9%, of the Pinnacle Airlines Corp. common stock to the pension plans tosatisfy approximately $44 million of its $223 million scheduled fundingrequirement for the 2002 plan year. However, as a result of the plans’ optionto sell the shares back to the Company, the contribution of the $44 million wasnot recognized on the Company’s financial statements, which continue to fullyconsolidate Pinnacle Airlines Corp. and do not reflect a reduction in thepension liability for accounting purposes. The Company intends to contribute additional common stock of PinnacleAirlines Corp. to satisfy a portion of future pension contributions, includingthe remainder of the 2002 plan year requirements.  The Department of Labor held a hearing on May 5, 2003 relating tothe proposed prohibited transaction exemption and the Company is presentlyawaiting a final decision.

 

**Note 12 — Sale of Interest in WORLDSPAN L.P.**

 

                                                On June 30,2003, the Company completed the sale of its 33.7% partnership interest inWORLDSPAN L.P., a global Computer Reservations System, to Travel TransactionProcessing Corporation, an entity formed by Citigroup Venture Capital EquityPartners L.P. and Teachers’ Merchant Bank. The Company received cash proceeds of $278 million at the time of sale,plus $125 million of credits for future services from WORLDSPAN L.P. to beapplied over the next nine years.  As aresult of this transaction, the Company recorded a gain of $199 million inother income.  The Company willrecognize the service credits as a reduction to the cost of purchased servicesexpense in the periods the credits are utilized.

 

12

----

 

**Note 13 - Security Cost Reimbursements from the U.S.Government**

 

**                                               **On April 16, 2003 the President signed into law the Emergency WartimeSupplemental Appropriations Act (“Wartime Act”) which includes, among otheritems, a $2.30 billion cash reimbursement to U.S. airlines for security feespreviously remitted to the Transportation Security Administration (“TSA”) byU.S. airlines and $100 million for reimbursement of the costs of aircraftcockpit door reinforcement since the 2001 terrorist attacks.  The Company received $209 million forreimbursement of security fees in May 2003, which was recorded as otherincome.  The Company will also receivesome portion of the $13 million for direct costs of cockpit door reinforcementnot previously reimbursed on a date yet to be specified by the TSA, which willbe recorded as a reduction to the previously capitalized property account.  Retention of these funds requires compliancewith requirements in the Wartime Act, including certain limitations onexecutive compensation.

 

13

----

 

**Item 2.****          ****Management**’**s Discussion and Analysis of Financial Condition andResults of Operations**

 

                                                Global events that developed in the first quarter of 2003 continued toimpact the U.S. airline industry during the three months ended June 30,2003.  Military actions in Iraqtaken by the United States and its allies that began in late March and concernsabout Severe Acute Respiratory Syndrome (“SARS”), particularly in the Pacificregion, combined to cause a significant decline in passenger traffic andbookings compared to the three month period ending June 30, 2002.  These events further exacerbated theindustry’s business environment that was already the worst in its history.

 

                                                Since early 2001, the industry has suffered a significant decline inrevenues versus what would have been expected based on historical growthtrends. This shortfall has been caused by the rapid growth of low costairlines, increased distribution through the Internet, higher taxes levied onpassengers, fear of future terrorist activities, inconveniences introduced bynew airport security initiatives, and the downturn in both the economy andbusiness profitability.  See “Northwestand Airline Industry Current Status” section of Management’s Discussion andAnalysis of Financial Condition and Results of Operations in the Company’sDecember 31, 2002 Annual Report on Form 10-K for a detailed discussion of thefactors contributing to the revenue shortfall and the financial and operationalchallenges the Company faces.

 

                                                In response to the drop in demand due to the military actions in Iraq, onMarch 21, 2003 the Company announced plans to reduce its systemwide capacity by12% versus its previous plans and indefinitely ground certain aircraft.  The Company also announced that, as a resultof the war-related capacity reductions, it was forced to decrease overallstaffing levels by 4,900 employees across all employee workgroups.  Besides these actions, public concerns overthe transmission of SARS prompted a further reduction in flying on certainPacific routes, which resulted in approximately $100 million reduction inPacific revenue during the quarter and is expected to continue impactingpassenger revenue throughout the year. Despite these and other substantial measures taken by the Company overthe past two years, continued soft demand due to hostilities in the MiddleEast, SARS or other factors could lead to further reductions in service,additional job eliminations, or potential asset impairments.

 

                                                For the quarterended June 30, 2003, the Company reported net income of $227 million and anoperating loss of $73 million.  Dilutedearnings per common share were $2.45 in the second quarter of 2003 compared toa net loss per common share of $1.08 in the second quarter of 2002.  As described below, the net income reportedfor the most recent quarter was largely the result of two significantnon-operating items rather than an improvement in the overall financialperformance of the Company.

 

                                                In response to the military actions taken in Iraq, the President of theUnited States signed into law the Emergency Wartime Supplemental AppropriationsAct (“Wartime Act”) on April 16, 2003. The Wartime Act included, among other items, a $2.30 billion cashreimbursement to U.S. airlines of security fees previously remitted by U.S. airlinesto the Transportation Security Administration (“TSA”) since February 2002, and$100 million for reimbursement of the costs of aircraft cockpit doorreinforcement since the 2001 terrorist attacks. Under the Wartime Act,Northwest received $205 million and its consolidated affiliates received $4million for reimbursement of security fees in May 2003, which was recorded asother income.  Northwest will alsoreceive some portion of the $13 million for direct costs of cockpit doorreinforcements not previously reimbursed on a date yet to be specified by theTSA, which will be recorded as a reduction to the previously capitalizedproperty account.  Retention of thesefunds requires compliance with requirements in the Wartime Act, includingcertain limitations on executive compensation.

 

                                                On June 30,2003, the Company completed the sale of its 33.7% partnership interest inWORLDSPAN L.P., a global computer reservations system, to Travel TransactionProcessing Corporation, an entity formed by Citigroup Venture Capital EquityPartners L.P. and Teachers’ Merchant Bank. The Company received cash proceeds of $278 million at the time of sale,plus $125 million of additional credits for future services from WORLDSPAN L.P.to be applied over the next nine years. As a result of this transaction, the Company recorded a gain of $199million in other income.  The Companywill recognize the service credits as a reduction to the cost of purchasedservices expense in the periods the credits are utilized.

 

                                                The Company also recorded aircraft related write-downs of $21 million indepreciation expense during the three months ended June 30, 2003, primarily forBoeing 727-200 aircraft used in certain charter operations.

 

14

----

 

                                                Substantiallyall of the Company’s results of operations are attributable to its principalindirect operating subsidiary, Northwest, and the following discussion pertainsprimarily to Northwest.  The Company’sresults of operations include other subsidiaries and, where indicated, thediscussion also relates to the two most significant of these, MLT Inc. andPinnacle Airlines, Inc. (“Pinnacle Airlines”). The Company’s results of operations for interim periods are notnecessarily indicative of the results for an entire year due to seasonalfactors as well as competitive and general economic conditions.  The Company’s second and third quarteroperating results have historically been more favorable due to increasedleisure travel on domestic and international routes during the spring andsummer months.

 

                                                Informationwith respect to the Company’s operating statistics follows (1):

 
|                                                                                                           |   | **Three  months ended** |       |     |   | **Six months  ended** |   |     |     |
|----------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|----------|--------|-----------------------|--------|----------|----------|
|                                                                                                           |   | **June 30**             |       |     |   | **June 30**           |   |     |     |
|                                                                                                           |   | **2003**                |       | **2002** |   | **% Chg.**            |   | **2003** |     | **2002** |   | **% Chg.** |   |
| Scheduled service:                                                                                             |   |                    |       |     |   |                  |   |     |     |   |   |   |   |
| Available seat miles (ASM) (millions)                                                                          |   | **21,397**              | ** ** | 23,537   |   | (9.1                  | )      | 43,922   |     | 45,299 |   | (3.0 | ) |
| Revenue passenger miles (RPM) (millions)                                                                       |   | **16,356**              | ** ** | 18,581   |   | (12.0                 | )      | 32,918   |     | 35,118 |   | (6.3 | ) |
| Passenger load factor                                                                                          |   | **76.4**                | **%**      | 78.9     | %      | (2.5                  | )pts.  | 74.9     | %        | 77.5 | % | (2.6 | ) |
| Revenue passengers (millions)                                                                                  |   | **12.8**                | ** ** | 13.6     |   | (5.9                  | )      | 25.1     |     | 25.5 |   | (1.6 | ) |
| Passenger revenue per RPM (yield)                                                                              |   | **11.15**               | **¢** | 10.69    | ¢ | 4.3                   |   | 10.92    | *¢* | 10.65 | *¢* | 2.5 |   |
| Passenger revenue per scheduled ASM (RASM)                                                                     |   | **8.52**                | **¢** | 8.44     | ¢ | 0.9                   |   | 8.19     |     | 8.26 | *¢* | (0.8 | ) |
|                                                                                                           |   |                    |       |     |   |                  |   |     |     |   |   |   |   |
| Total operating ASM (millions)                                                                                 |   | **21,680**              |       | 23,580   |   | (8.1                  | )      | 44,418   |     | 45,398 |   | (2.2 | ) |
| Operating expense per total operating ASM (2)                                                             |   | **9.84**                | **¢** | 9.34     | ¢ | 5.4                   |   | 10.01    | ¢   | 9.49 | ¢ | 5.5 |   |
| Operating expense per total operating ASM, excluding severance,  curtailment and aircraft impairments (2) |   | **9.75**                | **¢** | 9.34     | ¢ | 4.4                   |   | 9.78     | ¢   | 9.49 | ¢ | 3.1 |   |
|                                                                                                           |   |                    |       |     |   |                  |   |     |     |   |   |   |   |
| Cargo ton miles (millions)                                                                                     |   | **536**                 |       | 572      |   | (6.3                  | )      | 1,019    |     | 1,052 |   | (3.1 | ) |
| Cargo revenue per ton mile                                                                                     |   | **33.76**               | **¢** | 30.79    | ¢ | 9.6                   |   | 34.09    | ¢   | 30.84 | ¢ | 10.5 |   |
|                                                                                                           |   |                    |       |     |   |                  |   |     |     |   |   |   |   |
| Fuel gallons consumed (millions)                                                                               |   | **426**                 |       | 479      |   | (11.1                 | )      | 868      |     | 924 |   | (6.1 | ) |
| Average fuel cost per gallon, excluding taxes                                                                  |   | **80.29**               | **¢** | 68.83    | ¢ | 16.6                  |   | 82.61    | ¢   | 63.98 | ¢ | 29.1 |   |
|                                                                                                           |   |                    |       |     |   |                  |   |     |     |   |   |   |   |
| Number of operating aircraft at end of period                                                                  |   |                    |       |     |   |                  |   | 426      |     | 438 |   | (2.7 | ) |
| Full-time equivalent employees at end of period                                                                |   |                    |       |     |   |                  |   | 39,442   |     | 46,260 |   | (14.7 | ) |

----

(1)                                  All statisticsexclude Pinnacle Airlines, a majority-owned Northwest Airlink regional carrier,which is consistent with how the Company reports statistics to the DOT and iscomparable to statistics reported by other major network airlines.

(2)                                  Excludes theexpenses associated with the operation of Northwest’s fleet of Boeing 747freighter aircraft, MLT Inc., Pinnacle Airlines, the NBA transportation programand gain/loss on disposal of assets. These expenses do not generate NorthwestASMs and therefore are excluded from the calculation.  Management believes that operating expenses per total ASM,excluding severance, curtailment expenses and aircraft impairments, is morereflective of the Company’s ongoing operations.  Reconciliation of total operating expenses to passenger serviceoperating expenses used to calculate operating expense per total operating ASMis provided below:

 

15

----

 
|                                                      |   | **Three  months ended** |   | **Six months  ended** |   |
|-----------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                      |   | **June 30**             |   | **June 30**           |   |
| ***(In millions)***                                       |   | **2003**                |   | **2002**              |   | **2003** |   | **2002** |   |
| Operating expenses per  GAAP                              |   | $                       | 2,370  |                  | $      | 2,452 |   | $ | 4,946 |   | $ | 4,828 |   |
| Freighter operations                                      |   | (117                    | )      | (120                  | )      | (237 | ) | (224 | ) |
| MLT Inc. — net of intercompany eliminations          |   | (47                     | )      | (73                   | )      | (119 | ) | (170 | ) |
| Pinnacle Airlines — net of intercompany eliminations |   | (69                     | )      | (53                   | )      | (133 | ) | (110 | ) |
| (Gain)/loss on assets and NBA transportation              |   | (3                      | )      | (3                    | )      | (12 | ) | (15 | ) |
| Passenger service  operating expenses                     |   | 2,134                   |   | 2,203                 |   | 4,445 |   | 4,309 |   |
| Aircraft impairments                                      |   | (21                     | )      | —                |   | (21 | ) | — |   |
| Curtailment expenses                                      |   | —                  |   | —                |   | (58 | ) | — |   |
| Severance expenses                                        |   | —                  |   | —                |   | (20 | ) | — |   |
|                                                      |   | $                       | 2,113  |                  | $      | 2,203 |   | $ | 4,346 |   | $ | 4,309 |   |

 

**Results ofOperations—Three months ended June 30, 2003 and 2002**

 

*                                               **Operating Revenues*.  Operating revenues decreased 4.5% ($109million).  System passenger revenuesdecreased 8.2% ($163 million), excluding Pinnacle Airlines.  Pinnacle Airlines passenger revenues, net ofintercompany eliminations, increased 24.8% ($16 million) to $82 million due toincreased capacity from 28 additional Bombardier CRJ aircraft that enteredservice since June 30, 2002.

 

                                                The followinganalysis by region is based on information reported to the DOT and excludesPinnacle Airlines:

** **
|                                |   | **System** |   | **Domestic** |   | **Pacific** |   | **Atlantic** |   |
|-------------------------------------|--------|------------|--------|--------------|--------|-------------|--------|--------------|--------|
| **2003**                            |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)    |   | $          | 1,824  |         | $      | 1,332       |   | $            | 271    |   | $ | 221 |   |
|                                |   |       |   |         |   |        |   |         |   |
| **Increase  (Decrease) from 2002:** |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)    |   | $          | (163   | )            | $      | (29         | )      | $            | (98    | ) | $ | (36 | ) |
| Percent                             |   | (8.2       | )%     | (2.1         | )%     | (26.5       | )%     | (14.1        | )%     |
|                                |   |       |   |         |   |        |   |         |   |
| Scheduled service ASMs (capacity)   |   | (9.1       | )%     | (4.2         | )%     | (13.1       | )%     | (21.3        | )%     |
| Scheduled service RPMs (traffic)    |   | (12.0      | )%     | (4.5         | )%     | (23.9       | )%     | (18.7        | )%     |
| Passenger load factor               |   | (2.5       | )pts.  | (0.2         | )pts.  | (10.2       | )pts.  | 2.9          | pts.   |
| Yield                               |   | 4.3        | %      | 2.5          | %      | (3.4        | )%     | 5.7          | %      |
| Passenger RASM                      |   | 0.9        | %      | 2.2          | %      | (15.3       | )%     | 9.2          | %      |

 

As indicated in the above table:

•                                            Domesticpassenger revenues were lower due to reduced traffic, which was partiallyoffset by higher yields.

•                                            Pacificpassenger revenues decreased due to significantly lower traffic and a declinein yields, primarily as a result of SARS.

•                                            Atlanticpassenger revenues were lower due to reduced traffic, primarily as a result ofthe Iraq War, which was partially offset by higher yields.

 

                                                Cargo revenuesincreased 2.8% ($5 million) to $181 million due largely to a 9.6% increase incargo revenue yield per ton mile.  Otherrevenues increased 18.0% ($32 million) as a result of flying for the U.S.military under the Civil Reserve Air Fleet Program and other transportation servicefees and support services, partially offset by a decrease in revenues from MLTInc.

 

16

----

 

*                                               **Operating Expenses*.  Operating expenses decreased 3.3% ($82million).  The following table presentsoperating expenses for the three months ended June 30, 2003 and describessignificant variances from the three months ended June 30, 2002:

 
|                                        |   |                   |   |           |   | **Increase**  |   |       |   |     |   |
|---------------------------------------------|--------|------------------------|--------|----------------|--------|---------------|--------|------------|--------|----------|--------|
|                                        |   | **Three Months Ended** |   | **(Decrease)** |   | **Percent**   |   |       |   |
| ***(in millions)***                         |   | **2003**               |   | **2002**       |   | **from 2002** |   | **Change** |   | **Note** |   |
| **Operating  Expenses**                     |   |                   |   |           |   |          |   |       |   |     |   |
| Salaries, wages and  benefits               |   | $                      | 944    |           | $      | 936           |   | $          | 8      |     | 0.9    | % | A |   |
| Aircraft fuel and taxes                     |   | 375                    |   | 360            |   | 15            |   | 4.2        |   | B        |   |
| Selling and marketing                       |   | 170                    |   | 200            |   | (30           | )      | (15.0      | )      | C        |   |
| Depreciation and  amortization              |   | 162                    |   | 131            |   | 31            |   | 23.7       |   | D        |   |
| Other rentals and landing  fees             |   | 138                    |   | 141            |   | (3            | )      | (2.1       | )      | E        |   |
| Aircraft rentals                            |   | 120                    |   | 116            |   | 4             |   | 3.4        |   | F        |   |
| Aircraft maintenance  materials and repairs |   | 95                     |   | 151            |   | (56           | )      | (37.1      | )      | G        |   |
| Other                                       |   | 366                    |   | 417            |   | (51           | )      | (12.2      | )      | H        |   |
| **Total operating expenses**                |   | $                      | 2,370  |           | $      | 2,452         |   | $          | (82    | )        | (3.3   | )% |   |   |

 

A.                                   Salaries, wagesand benefits increased due to higher pension expenses and annual rateincreases, partially offset by savings from a 12.6% decrease in averagefull-time equivalent employees.

B.                                     Aircraft fueland taxes were higher due to a 16.6% increase in the average fuel cost pergallon to 80 cents, net of hedging transactions, partially offset by 11.1%fewer****fuelgallons consumed from the use of more fuel efficient aircraft and 8.1% lowertotal capacity.  Fuel hedge transactionsreduced fuel costs by $3 million in the second quarter of 2003 compared to an$8 million reduction in the second quarter of 2002.

C.                                     Selling andmarketing (consisting of commissions, credit card fees, computer reservationsystem fees, advertising and promotion expenses) decreased $30 million dueprimarily to the elimination of North American base commissions which began totake effect near the end of the second quarter of 2002, lower passenger volumesand lower advertising expenses.

D.                                    Depreciationexpense increased primarily due to aircraft write-downs of $21 million, mostlyinvolving Boeing 727-200 aircraft, plus accelerated retirement of certain otheraircraft.

E.                                      Other rentals and landingfees decreased primarily due to reduced operations.

F.                                      Aircraftrentals increased due to additional leased aircraft, partially offset by lowervariable interest rates on existing leases.

G.                                     Aircraftmaintenance materials and repairs decreased by $56 million primarily due tolower material usage from reduced maintenance volume, which resulted from lowerfleet utilization.  Should utilizationincrease in the future, including the possibility that temporarily groundedaircraft could return to service, maintenance costs would rise from currentlevels.

H.                                    Other expenses(which include MLT Inc. operating expenses, outside services, insurance,passenger food, personnel expenses, communication expenses and supplies)decreased principally due to lower Northwest passenger volumes and lower MLTInc. operating expenses.

 

*                                               **Other Income and Expense.*  Non-operating income (expense)increased $395 million, primarily due to $209 million received under theWartime Act as reimbursement for security fees previously paid to the TSA and a$199 million gain from the sale of the Company’s investment in WORLDSPAN L.P.,partially offset by higher interest expense related to increased debt levels.

 

**Results of Operations—Six months ended June 30, 2003 and 2002**

 

                                                *Operating Revenues.*  Operating revenues decreased 0.9% ($39million).  System passenger revenuesdecreased 3.9% ($146 million), excluding Pinnacle Airlines.  Pinnacle Airlines passenger revenues, net ofintercompany eliminations, increased 23.3% ($30 million) to $158 million due toincreased capacity from 28 additional Bombardier CRJ aircraft that enteredservice since June 30, 2002, and higher rates under a new airline servicesagreement with Northwest that was effective March 1, 2002.

 

17

----

 

                                                The followinganalysis by region is based on information reported to the DOT and excludesPinnacle Airlines:

** **
|                                |   | **System** |   | **Domestic** |   | **Pacific** |   | **Atlantic** |   |
|-------------------------------------|--------|------------|--------|--------------|--------|-------------|--------|--------------|--------|
| **2003**                            |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)    |   | $          | 3,595  |         | $      | 2,583       |   | $            | 632    |   | $ | 380 |   |
|                                |   |       |   |         |   |        |   |         |   |
| **Increase  (Decrease) from 2002:** |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)    |   | $          | (146   | )            | $      | (29         | )      | $            | (77    | ) | $ | (40 | ) |
| Percent                             |   | (3.9       | )%     | (1.1         | )%     | (10.8       | )%     | (9.6         | )%     |
|                                |   |       |   |         |   |        |   |         |   |
| Scheduled service ASMs (capacity)   |   | (3.0       | )%     | (1.7         | )%     | (0.6        | )%     | (13.1        | )%     |
| Scheduled service RPMs (traffic)    |   | (6.3       | )%     | (2.0         | )%     | (10.3       | )%     | (15.3        | )%     |
| Passenger load factor               |   | (2.6       | )pts.  | (0.2         | )pts.  | (8.2        | )pts.  | (2.1         | )pts.  |
| Yield                               |   | 2.5        | %      | 0.9          | %      | (0.7        | )%     | 6.7          | %      |
| Passenger RASM                      |   | (0.8       | )%     | 0.6          | %      | (10.2       | )%     | 4.1          | %      |

 

As indicated in the above table:

•                                          Domesticpassenger revenues were lower due to reduced traffic, which was partiallyoffset by slightly higher yields.

•                                          Pacificpassenger revenues decreased due to lower traffic, primarily as a result ofSARS.

•                                          Atlanticpassenger revenues were lower due to reduced traffic, largely a result of theIraq War, which was partially offset by higher yields.

 

                                                Cargo revenuesincreased 7.4% ($24 million) to $348 million due to a 10.5% increase in cargorevenue yield per ton mile.  Otherrevenues increased 13.5% ($53 million) as a result of flying for the U.S.military under the Civil Reserve Air Fleet Program, other transportationservice fees and support services, partially offset by a decrease in revenuesfrom MLT Inc.

 

*                                               **Operating Expenses*.  Operating expenses increased 2.4% ($118million).  The following table presentsoperating expenses for the six months ended June 30, 2003 and describessignificant variances from the six months ended June 30, 2002:

 
|                                        |   |                  |   |           |   | **Increase**  |   |       |   |     |   |
|---------------------------------------------|--------|-----------------------|--------|----------------|--------|---------------|--------|------------|--------|----------|--------|
|                                        |   | **Six Months  Ended** |   | **(Decrease)** |   | **Percent**   |   |       |   |
| ***(in millions)***                         |   | **2003**              |   | **2002**       |   | **from 2002** |   | **Change** |   | **Note** |   |
| **Operating  Expenses**                     |   |                  |   |           |   |          |   |       |   |     |   |
| Salaries, wages and  benefits               |   | $                     | 1,989  |           | $      | 1,860         |   | $          | 129    |     | 6.9    | % | A |   |
| Aircraft fuel and taxes                     |   | 786                   |   | 651            |   | 135           |   | 20.7       |   | B        |   |
| Selling and marketing                       |   | 346                   |   | 418            |   | (72           | )      | (17.2      | )      | C        |   |
| Depreciation and  amortization              |   | 304                   |   | 266            |   | 38            |   | 14.3       |   | D        |   |
| Other rentals and landing  fees             |   | 281                   |   | 264            |   | 17            |   | 6.4        |   | E        |   |
| Aircraft rentals                            |   | 238                   |   | 229            |   | 9             |   | 3.9        |   | F        |   |
| Aircraft maintenance  materials and repairs |   | 228                   |   | 296            |   | (68           | )      | (23.0      | )      | G        |   |
| Other                                       |   | 774                   |   | 844            |   | (70           | )      | (8.3       | )      | H        |   |
| **Total operating expenses**                |   | $                     | 4,946  |           | $      | 4,828         |   | $          | 118    |     | 2.4    | % |   |   |

 

A.                                   Salaries, wagesand benefits increased due to higher pension expenses, annual rate increases,$20 million of severance expenses, and a $58 million pension curtailmentcharge, partially offset by savings from an 8.3% decrease in average full-timeequivalent employees.

B.                                     Aircraft fueland taxes were higher due to a 29.1% increase in the average fuel cost pergallon to 83 cents, net of hedging transactions, partially offset by 6.1% fewer****fuelgallons consumed from the use of more fuel efficient aircraft and 2.2% lowertotal capacity.  Fuel hedge transactionsreduced fuel costs by $52 million in the first half of 2003 compared to a $23million reduction in the first half of 2002.

 

18

----

 

C.                                     Selling andmarketing (consisting of commissions, credit card fees, computer reservationsystem fees, advertising and promotion expenses) decreased $72 million dueprimarily to the elimination of North American base commissions which began totake effect near the end of the second quarter of 2002, lower passenger volumesand lower advertising expenses.

D.                                    Depreciationexpense increased primarily due to aircraft write-downs of $21 million, mostlyrelated to Boeing 727-200 aircraft, plus accelerated retirement of certainother aircraft.

E.                                      Other rentalsand landing fees increased primarily due to higher rates across the system, duein large part to unfunded security mandates imposed on airports by the TSA.

F.                                      Aircraftrentals increased due to additional leased aircraft, partially offset by lowervariable interest rates on existing leases.

G.                                     Aircraftmaintenance materials and repairs decreased by $68 million primarily due tolower material usage from reduced maintenance volume, which resulted from lowerfleet utilization.  Should utilizationincrease in the future, including the possibility that temporarily groundedaircraft could return to service, maintenance costs would rise from currentlevels.

H.                                    Other expenses(which include MLT Inc. operating expenses, outside services, insurance, passengerfood, personnel expenses, communication expenses and supplies) decreasedprincipally due to lower Northwest passenger volumes and lower MLT Inc.operating expenses.

 

*                                               **Other Income and Expense.*  Non-operating income (expense)increased $360 million primarily due to $209 million received under the WartimeAct as reimbursement for security fees previously paid to the TSA and a $199million gain from the sale of the Company’s investment in WORLDSPAN L.P.,partially offset by higher interest expense related to increased debt levels.

 

**Liquidityand Capital Resources**

 

                                                As of June 30,2003, the Company had cash, cash equivalents and restricted short-terminvestments of $2.94 billion.  Thisamount includes $125 million of restricted short-term investments, resulting intotal liquidity of $2.81 billion.

 

*                                               **Cash flows*.  Liquidity increased by $717 million duringthe six months ended June 30, 2003, due primarily to the $209 million securityfee reimbursements received under the Wartime Act, a $217 million tax refund,cash proceeds of $278 million from the sale of WORLDSPAN L.P. and the issuanceof $150 million of senior convertible notes.

 

                                                Net cashprovided by operating activities for the six months ended June 30, 2003 was$519 million, a $409 million increase from the $110 million of cash provided byoperating activities for the six months ended June 30, 2002.  This increase was due primarily to $209million of Wartime Act funds received in May 2003, net income tax receipts $92million higher in 2003 than 2002, $58 million received for settlement ofcontracts that had been in place to hedge third and fourth quarter 2003 fuelusage and the payment in January 2002 of $216 million of aviation taxesoriginally due between September 11, 2001 and January 15, 2002.  These favorable variances were partiallyoffset by a larger operating loss in 2003.

 

                                                Investingactivities consisted primarily of the receipt of $278 million from the sale ofWORLDSPAN L.P., and capital expenditures on aircraft, facility improvements andground equipment purchases.  Included inthese capital expenditures is the acquisition of the following aircraft for thesix months ended June 30:

 

|           |   | **2003**   |   | **2002** |   |
|----------------|--------|------------|--------|----------|--------|
| Airbus A319    |   | **7**      |   | 11       |   |
| Airbus A320    |   | **—** |   | 1        |   |
| Boeing 747-400 |   | **—** |   | 2        |   |
| Boeing 757-200 |   | **—** |   | 2        |   |
| Boeing 757-300 |   | **3**      |   | —   |   |
|           |   | **10**     |   | 16       |   |

 

                                                Financingactivities in the six months ended June 30, 2003 consisted primarily offinancing six Airbus A319 aircraft and two Boeing 757-300 aircraft withescrowed funds from a pass-through certificates offering, one Boeing 757-300aircraft with long-term debt, the issuance of $150 million of 6.625% seniorconvertible notes due 2023 and payments of debt and capital leaseobligations.  Financing activities inthe six months ended June 30, 2002 consisted primarily of the issuance of $300million of 9.875% unsecured notes due 2007, the financing of 11 Airbus A319aircraft, one Boeing 747-400 aircraft and one Airbus A320 aircraft withescrowed funds from pass-through certificates offerings issued in 2001,financing of two Boeing 757-200 aircraft with long-term bank debt, the sale andleaseback of one Boeing 747-400, and the payment of debt and capital leaseobligations.

 

19

----

 

                                                In addition tothe purchase of the aircraft discussed above, the Company took delivery of twoBoeing 757-300 aircraft and 14 Bombardier CRJ aircraft during the six monthsended June 30, 2003.  The Boeing 757-300aircraft were acquired through non-cash transactions with the manufacturer andthe Bombardier CRJ aircraft were financed with long-term operating leases andsubleased to Pinnacle Airlines.

 

*                                               **Debt.*  At June 30, 2003 maturities of long-termdebt excluding capital lease obligations through December 31, 2007 are asfollows (in millions):

 

| 2003 |   | $     | 157 |
|------|--------|-------|-----|
| 2004 |   | 641   |
| 2005 |   | 1,446 |
| 2006 |   | 582   |
| 2007 |   | 690   |

 

                                                The amount duein 2005 includes $962 million of principal outstanding on the Company’s creditfacilities.  See Note 8 to the CondensedConsolidated Financial Statements for additional discussion of the bank creditfacilities.

 

                                                Due to thenegative impact on the financial performance of the Company from the Iraq Warand SARS, the Company and its lenders amended the Company’s revolving creditagreement in May 2003 to defer the Company’s required compliance with the fixedcharge coverage ratio under the agreement from June 30, 2003 to June 30, 2004.

 

*                                               **Convertible Debt Issuance.*  In May 2003, NWA Corp. completed an offeringof $150 million of unsecured convertible senior notes due 2023 to qualifiedinstitutional buyers pursuant to Rule 144A and to non-U.S. persons pursuant toRegulation S, under the Securities Act of 1933.  The notes bear interest at 6.625%, which is payable in cashsemi-annually through May 15, 2010. Thereafter, the principal amount of the notes will accrete semi-annuallyat a rate of 6.625% per year to maturity. Each note was issued at a price of $1,000 and is convertible into NWACorp. common stock at a conversion rate of 61.8047 shares per $1,000 originalprincipal amount of notes (equal to an initial conversion price ofapproximately $16.18 per share), subject to adjustment in certaincircumstances.  The notes are guaranteedby Northwest.

 

                                                Holders of thenotes may convert their notes only if: (i) the price of NWA Corp.’s common stock trades above a specifiedthreshold for a specified period; (ii) the trading price for the notes fallsbelow certain thresholds; (iii) the notes have been called for redemption; or(iv) specific corporate transactions occur. Under all situations, NWA Corp. mayelect to satisfy a call for conversion with cash or common stock.  NWA Corp. may redeem all or some of thenotes for cash at any time on or after May 15, 2010, at a redemption priceequal to the accreted principal amount plus accrued and unpaid interest, ifany, to the redemption date.  Holdersmay require NWA Corp. to repurchase the notes on May 15, 2010, 2013 and 2018 ata repurchase price equal to the accreted principal amount plus accrued andunpaid interest, if any, on the repurchase date.  NWA Corp. may elect to pay the repurchase price in cash or inshares of common stock, or a combination of both, subject to certainconditions.  NWA Corp. plans to use thenet proceeds from the offering for working capital and general corporatepurposes.

 

*                                               **Real Estate Financing.*  In June 2003, the Company completed astructured financing transaction in which two owned administration buildings inEagan, Minnesota were transferred from NWA Inc. and Northwest to NWA RealEstate Holding Company LLC (“NWA Real Estate Holding”).  These buildings were then used by NWA RealEstate Holding as security for three mortgage loans in the aggregate amount of$36 million made by AERO 1 HQ Finance Trust (“HQ Finance Trust”).  Each of the three mortgage loans correspondsto a separate class of Lease Revenue Commercial Mortgage-Backed Pass-ThroughCertificates (the “Certificates”) issued by HQ Finance Trust.  The financing has a blended rate of 5.34%,with a term of seven years and no principal amortization.  NWA Real Estate Holding is a fully consolidatedsubsidiary of the Company and the debt related to the mortgages of the twobuildings is reflected in the Company’s consolidated balance sheet as of June30, 2003.

 

20

----

 

*                                               **Aircraft Commitments*.  Committed expenditures for the 114 aircraftand related equipment on firm order, including estimated amounts forcontractual price escalations and predelivery deposits, will be approximately$1.10 billion for the remainder of 2003, $1.19 billion in 2004, $1.18 billionin 2005, $582 million in 2006 and $226 million in 2007.  Consistent with prior practice, the Companyintends to finance its aircraft deliveries through a combination of internallygenerated funds, debt and long-term lease financing.  Financing commitments available for use by the Company are inplace for the 50 Northwest operated aircraft on order.  These financings range from 80% - 100% ofeach aircraft’s purchase price.  As ofJune 30, 2003, this included $424 million of unused pass-through certificatesproceeds that were held in escrow and are not assets or direct obligations of,or guaranteed by, the Company and therefore are not included in the condensedconsolidated balance sheets.  The unusedpass-through certificates proceeds are available to finance a portion of theaircraft scheduled for delivery in 2003. The Company has the option to finance the 64 CRJ-200/440 aircraft onorder through long-term operating lease commitments from the manufacturer, andthese aircraft will, in turn, be leased or subleased to and operated by theregional carriers.  In the event amanufacturer does not provide financing for these aircraft, the Company hascertain remedies such as not taking delivery of the aircraft.

 

*                                               **Receivables Purchase Agreement.* In June 2002, a Receivables PurchaseAgreement was executed by Northwest, NWA Funding II, LLC (“NWA Funding”), awholly-owned, non-consolidated subsidiary of the Company, and third partypurchasers (“Purchasers”).  Theagreement was a 364-day, $100 million maximum revolving receivables purchasefacility, renewable annually for five years at the option of the Purchasers,that allowed NWA Funding to sell variable undivided interests in accountsreceivable acquired from Northwest to the Purchasers.  NWA Funding paid a yield to the Purchasers equal to the rate onA1/F1 commercial paper plus a program fee.

 

                                                In June 2003,the Purchasers informed Northwest that they would not renew the ReceivablesPurchase Agreement for another 364-day term. The current 364-day term ended in June 2003 and was extended to July 28,2003, at which time the program was terminated.  The Purchasers then collected $65 million of payments onoutstanding receivables.  Due to seasonalfluctuations in accounts receivable sold under the agreement, the Companyestimates that termination of the program will reduce its cash balance atDecember 31, 2003 by approximately $50 million.

 

*                                               **Pension Funding Obligations*.  The Company has several noncontributorypension plans covering substantially all of its employees.  Funding obligations under these plans aregoverned by the Employee Retirement Income Security Act of 1974 (“ERISA”).  As of December 31, 2002, the Company’spension plans were underfunded by $3.95 billion as calculated in accordancewith SFAS No. 87, *Employers’ Accounting for Pensions*.  On a current liability basis utilized forcash contribution purposes, the plans were underfunded by approximately $3.1billion.  Absent asset returns exceedingplan assumptions, the Company will have to satisfy the underfunded amounts ofits plans through cash contributions over time.  The timing of funding requirements depends upon a number offactors, including interest rates, asset returns, potential changes in pensionlegislation, the Company’s decision to make voluntary prepayments, applicationsfor and receipt of waivers to reschedule contributions, and changes to pensionplan benefits.  Among other effects,these factors may result in contributions for a particular plan year being madeacross multiple calendar years.

 

                                                As of thebeginning of 2003, contributions to the Company’s pension plans for contractand salaried workers required under ERISA included $454 million for plan year2003, $264 million of which was due in calendar 2003.  In addition, $223 million related to plan year 2002 remained tobe contributed in 2003.  No ERISArequired contributions to the pilots’ plan were due in 2003.  The contribution requirements stated foreach of the plans were before the impact of initiatives taken by the Company toreschedule certain payments and substitute in-kind contributions of subsidiarycommon stock, both of which were intended to reduce the total cashcontributions required to the plans during calendar 2003 and 2004.

 

                                                On November 5,2002, the Company submitted an application to the Internal Revenue Service(“IRS”) for authorization to reschedule, over a five year period beginning inApril 2004, the $454 million in 2003 plan year contributions under the pensionplans for contract and salaried employees. On April 15, 2003, the IRS approved the application, subject to theCompany’s satisfaction of certain conditions imposed by the Pension BenefitGuaranty Corporation (“PBGC”).  TheCompany satisfied the conditions for waiving plan year 2003 contributions bygranting the plans a lien on certain assets of the Company (certain domesticslots, international routes, aircraft and engines).  As a result, the value of the Company’s remaining unencumberedassets is insignificant.

 

21

----

 

                                                The Companyalso submitted an application to the DOL to permit the Company to contributecommon stock of Pinnacle Airlines Corp. to the pension plans in lieu of makingcertain required contributions in cash. In January 2003, the DOL issued a proposed prohibited transactionexemption that would allow the Company to contribute common stock of PinnacleAirlines Corp. to satisfy a portion of the contribution requirements toNorthwest’s pension plans in 2003 and 2004. The proposed exemption contemplates that the pension plans will have theright at any time to sell the shares back to the Company for cash at thegreater of their value at the time of contribution or the prevailing marketvalue.  The Company then contributed 1.9million shares, or 12.9%, of the Pinnacle Airlines Corp. common stock to thepension plans to satisfy approximately $44 million of its $223 millionscheduled funding requirement for the 2002 plan year due in 2003.  However, as a result of the plans’ option tosell the shares back to the Company, the contribution of the $44 million wasnot recognized on the Company’s financial statements, which continue to fullyconsolidate Pinnacle Airlines and do not reflect a reduction in the pensionliability for accounting purposes. Subject to the DOL finalizing the exemption, the Company intends tocontribute additional common stock of Pinnacle Airlines Corp. to satisfy aportion of future pension contributions, which may include a voluntarycontribution to the pilots’ plan for plan year 2002; this voluntarycontribution would eliminate further ERISA required contributions to thepilots’ plan until the latter half of 2005. The Company and ALPA have reached a tentative agreement to utilize aportion of the Pinnacle Airlines Corp. common stock for that purpose.

 

                                                Under theprovisions of SFAS 87, the Company expects to record pension expense totaling$428 million during 2003 and anticipates that its 2004 expense will be at asimilar level.  Cash contributionsduring 2004 remain highly dependent on the factors described above.

 

                                                *Credit Ratings.   *On February 25,2003, Fitch Ratings downgraded Northwest’s senior unsecured debt rating from B+to B.  On March 28, 2003, Standard &Poor’s downgraded the Company’s corporate credit rating from BB- to B+ and loweredNorthwest’s senior unsecured debt rating from B to B-.  On April 10, 2003, Moody’s Investors Servicedowngraded the Company’s senior implied rating from B1 to B2 and loweredNorthwest’s senior unsecured rating from B2 to Caa1. As of June 30, 2003, theCompany’s credit facilities were rated B+ by Standard and Poor’s and B1 byMoody’s Investors Service.

 

                                                Any futurelowering of the Company’s credit ratings could make it more difficult to renewoutstanding letters of credit that back certain obligations or to maintainother existing financing, while also increasing the cost of sucharrangements.  In addition, reducedcredit ratings could potentially limit access to new financings, includinginstruments used in the Company’s fuel and currency hedging programs, or raisethe cost to complete these transactions. For information regarding the effect of lowering the Company’s creditratings on its secured credit facilities during the three months ended June 30,2003, see Note 8 of the “Notes to Condensed Consolidated Financial Statements”in this Quarterly Report on Form 10-Q.

 

**Other Information**

 

*                                               **LaborAgreements.   *Approximately 90% of theCompany’s employees are members of collective bargaining units.  The Company has commenced Railway Labor Act(“RLA”) negotiations with the IAM and ALPA and is in discussion with the restof its labor unions in an effort to align wages, benefits and work rules withthe industry’s new revenue environment and to remain competitive with otherairlines achieving permanent cost reductions through bankruptcy proceedings orthe threat of bankruptcy proceedings.

 

                                                In June 2003,the Company’s flight attendants authorized the Professional Flight AttendantsAssociation (“PFAA”) to be their collective-bargaining representative.  Results of the election have been certifiedby the National Mediation Board.  TheCompany’s collective bargaining agreement with the flight attendants nowrepresented by PFAA becomes amendable May 30, 2005.

 

                                                The Company’scollective bargaining agreements with the IAM, representing Agents, Clerks,Equipment Service Employees and Stock Clerks, became amendable on February 25,2003.  Pursuant to the RLA, theseagreements remain in effect while the Company and the IAM pursue agreements onnew contracts.  On August 25, 2003, bymutual agreement, the parties will jointly submit a request for mediation tothe National Mediation Board.  If theparties have not reached tentative agreements by October 25, 2003, IAMrepresented employees will receive a one time lump sum payment equal to 2% ofW-2 earnings over the prior 14 months, which would approximate $20 million.

 

22

----

 

                                                The Company’scollective bargaining agreement with the ALPA becomes amendable on September13, 2003 as a result of ALPA ratifying a one year extension of their currentcollective bargaining agreement on June 4, 2002.  The agreement includes a pay increase of 4.5 percent on September13, 2002 and a second pay increase of 5.5 percent on September 12, 2003.  On July 23, 2003, the Company and ALPAcommenced bargaining on a new contract.

 

*                                               **Alliances.*   InAugust 2002, the Company announced that it had signed a cooperative marketingagreement with Continental Airlines, Inc. (“Continental”) and Delta Air Lines,Inc. (“Delta”).  The marketing agreementis designed to connect the three carriers’ domestic and international networksand provide for code sharing and reciprocity of frequent flyer and airport clubprograms.  Northwest, Continental andDelta received approval on the agreement in January 2003 from the U.S.Department of Justice and, on March 31, 2003, the DOT also gave its finalapproval.  The three airlines beganimplementing the agreement by offering reciprocal access to each airline’sairport lounges and began offering codeshare service in June 2003.  In July 2003, frequent flyer members of thethree airlines were able to book and redeem miles for itineraries that includethe combination of any Northwest, Continental, and Delta operated flights byusing just one award, which includes travel to 374 destinations worldwide.

 

*                                               **Aircraft Fuel*.   TheCompany’s earnings are affected by changes in the price of aircraft fuel.  In order to provide a measure of controlover price, the Company periodically hedges a portion of the price risk of fuelcosts, primarily utilizing futures contracts traded on regulated exchanges,swap agreements and options.  As of June30, 2003, the Company had $34 million of unrealized gains (net of $5 million ofhedging ineffectiveness recorded in fuel expense for the six months ended June30, 2003) in accumulated other comprehensive income (loss) as a result of fuelhedge contracts.  Such gains, ifrealized, will be recorded in fuel expense when the related fuel inventory isutilized.  During the three months endedMarch 31, 2003, the Company settled all of its fuel hedge contracts associatedwith third and fourth quarter 2003 fuel deliveries, thereby locking ingains.  As a result, the Company’s cashbalance as of June 30, 2003 included approximately $58 million realized fromthese transactions.  Fuel expense in thesecond half of 2003 will reflect such gains as an offset to fuel price.  As of June 30, 2003, the Company had no openfuel hedge contracts for the remainder of 2003.

 

*                                               **Foreign Currency.*   TheCompany is exposed to the effect of foreign currency exchange rate fluctuationson the U.S. dollar value of foreign currency-denominated operating revenues andexpenses, with the largest exposure coming from the Japanese yen. Forwardcontracts, collar options or put options are utilized to hedge a portion ofanticipated yen-denominated sales. Hedging gains or losses are recorded in accumulated other comprehensiveincome (loss) until the associated transportation is provided, at which timethey are recognized as an increase or decrease in revenue.  The Company did not hedge any of itsyen-denominated sales in the three months ended June 30, 2003, resulting in aneffective rate of 119, the prevailing average market rate for the period.  This compares to an effective rate of 116for the quarter ended June 30, 2002, which included the impact of yen hedges inplace at that time.  At June 30, 2003,the Company has hedged approximately 48% of its anticipated yen-denominatedsales at an average rate of 114 yen per U.S. dollar for the remainder of 2003and has recorded $5 million of unrealized gains in accumulated othercomprehensive income associated with those hedges.  As of July 2003, the Company has hedged approximately 14% of itsanticipated yen-denominated sales for the third and fourth quarter of 2004 atan average rate of 117 yen per U.S. dollar.

 

*                                               **Forward-Looking Statements.*   Certainof the statements made throughout Management’s Discussion and Analysis ofFinancial Condition and Results of Operations are forward-looking and are basedupon information available to the Company on the date hereof.  The Company through its management may alsofrom time to time make oral forward-looking statements.  In connection with the “safe harbor”provisions of the Private Securities Litigation Reform Act of 1995, the Companyis hereby identifying important factors that could cause actual results todiffer materially from those contained in any forward-looking statement made byor on behalf of the Company.  Any suchstatement is qualified by reference to the following cautionary statements.

 

23

----

 

                                                The Companybelieves that the material risks and uncertainties that could affect theoutlook of an airline operating in the global economy include the future levelof air travel demand, the Company’s future load factors and yields, the airlinepricing environment, increased costs for security, the cost and availability ofaviation insurance coverage and war risk coverage, the general economiccondition of the U. S. and other regions of the world, the price andavailability of jet fuel, the war in Iraq and its aftermath, the possibility ofadditional terrorist attacks or the fear of such attacks, concerns about SevereAcute Respiratory Syndrome (SARS), labor negotiations both at other carriersand the Company, low fare carrier expansion, capacity decisions of othercarriers, actions of the U.S. and foreign governments, foreign currencyexchange rate fluctuation and inflation. Additional information with respect to these factors and these and otherevents that could cause differences between forward-looking statements andfuture actual results is contained in “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations” above, and “Item 1.Business — Risk Factors Related to Northwest and the Airline Industry” and“Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations” in the Company’s Annual Report on Form 10-K for the yearended December 31, 2002.

 

                                                In light ofthese risks and uncertainties, as well as other risks and uncertaintiesdetailed from time to time in the Company’s Securities and Exchange Commissionfilings, we cannot assure you that the results and events contemplated by theforward-looking statements will in fact be realized.  The Company undertakes no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise.  These statements dealwith the Company’s expectations about the future and are subject to a number offactors that could cause actual results to differ materially from the Company’sexpectations.  All subsequent written ororal forward-looking statements attributable to us or persons acting on ourbehalf are expressly qualified by the factors described above.

 

24

----

 

**Item 3.****          ****Quantitative and Qualitative Disclosures About Market Risk**

 

                                                Informationrequired by this item is provided under the captions “Foreign Currency” and“Aircraft Fuel” within “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in this Quarterly Report on Form10-Q.  Also see “Item 7a. Quantitativeand Qualitative Disclosures About Market Risk” in the Company’s Annual Reporton Form 10-K for 2002.

 

 

**Item 4.****          ****Controlsand Procedures**

 

                                                An evaluationwas performed under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer and Executive Vice Presidentand Chief Financial Officer, of the effectiveness of the design and operationof the Company’s disclosure controls and procedures as of June 30, 2003.  Based on that evaluation, the Company’smanagement, including the Chief Executive Officer and Executive Vice Presidentand Chief Financial Officer, concluded that the Company’s disclosure controlsand procedures were effective in ensuring that material information relating tothe Company with respect to the period covered by this report was made known tothem.  There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect internal controls subsequent to June 30, 2003.

 

25

----

 

PART II.  OTHER INFORMATION

 

**Item 1.****          ****LegalProceedings**

 

                                                Reference ismade to “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-Kfor 2002.

 

*                                               **Hallv. United Air Lines, et al*.   The *Hall* case is a class action on behalf of anation-wide class of travel agents alleging an unlawful agreement amongairlines to reduce commissions in violation of the Sherman Act.  The Court has rescheduled the trial datefrom September 2003 to February 2004.

 

*                                               **ForceMajeure Arbitrations*.   Each of Northwest’s collectivebargaining agreements with its unions contains “force majeure” provisions whichprovide that certain job protections, including layoff protections, arenullified in the event of a “force majeure.” A “force majeure” is generally defined as the occurrence of certainevents over which Northwest does not have control.  Northwest has invoked the “force majeure” provisions of itscollective bargaining agreements in laying off employees in response to threeevents:  the terrorist attacks ofSeptember 11, 2001, the outbreak of war in Iraq in March 2003 and the SARSepidemic in 2003.  Each of the IAM, IBT(which was recently decertified following a representation election in favor ofthe PFAA), ALPA and AMFA have filed one or more grievances over the invocationof the force majeure provisions on some or all of these occasions.  These disputes are subject to arbitrationand are in various stages of the grievance/arbitration process provided for inthe respective collective bargaining agreements.  An adverse decision in any of these grievances could result insubstantial damages against the Company. The Company is vigorously defending these grievances.  Although the ultimate outcome of thesematters cannot be predicted with certainty, management believes it properlyapplied the terms of the various collective bargaining agreements and that theresolution of these matters will not have a material adverse effect on theCompany’s consolidated financial statements taken as a whole.

 

*                                               **SeriesC Preferred Stock Litigation.*   In June2003, the IBT and certain related parties commenced litigation againstNorthwest Airlines Corporation in New York state court, *International Brotherhood of Teamsters, Local 2000 etal. v. Northwest Airlines Corporation* (New York Sup. Ct., Case No.601742/03).  In August 2003, the IAM anda related party also commenced litigation against Northwest AirlinesCorporation in New York state court, *InternationalAssociation of Machinists and Aerospace Workers et al v. Northwest AirlinesCorporation* (New York Sup. Ct., Case No. 602476/03).  Both lawsuits challenge the Company’sdecision not to repurchase the Series C Preferred Stock and seek to compel theCompany to repurchase the Series C Preferred Stock that had been put to theCompany.  The Company announced onAugust 1, 2003, that the Board of Directors had determined that the Companycould not legally repurchase the outstanding Series C Preferred Stock at thistime because the Board was unable to determine that the Company has adequatesurplus to repurchase the outstanding Series C Preferred Stock.  The Company believes that the lawsuits arewithout merit.  A court decision thatadequate statutory surplus is available for a stock repurchase at this timecould result in the Company having to repurchase without deferral theoutstanding Series C Preferred Stock (approximately $226 million).

 

                                                In addition, inthe ordinary course of its business, the Company is party to various otherlegal actions which the Company believes are incidental to the operation of itsbusiness.  The Company believes that theoutcome of the proceedings to which it is currently a party will not have amaterial adverse effect on the Company’s consolidated financial statementstaken as a whole.

 

**Item 2.****          ****Changes inSecurities and Use of Proceeds**

 

(c)                               On May 20,2003, NWA Corp. sold $150 million of unsecured convertible senior notes due2023 (“Notes”), to Citigroup Global Markets Inc. (the “initial purchaser”)pursuant to Rule 144A under the Securities Act of 1933 for $146 million incash.  In connection with the sale ofthe Notes, the Company paid fees of $4 million to the initial purchaser.  The notes bear interest at 6.625%, payablein cash semi-annually through May 15, 2010. Thereafter, the principal amount of the notes will accrete semi-annuallyat a rate of 6.625% per year to maturity. Each note was issued at a price of $1,000 and is convertible into NWACorp. common stock at a conversion rate of 61.8047 shares per $1,000 originalprincipal amount of notes (equal to an initial conversion price ofapproximately $16.18 per share), subject to adjustment in certaincircumstances.  The notes are guaranteedby Northwest.

 

26

----

 

                                                Holders of thenotes may convert their notes only if: (i) the price of NWA Corp.’s common stock trades above a specifiedthreshold for a specified period; (ii) the trading price for the notes fallsbelow certain thresholds; (iii) the notes have been called for redemption; or(iv) specific corporate transactions occur. Under all situations, NWA Corp. may elect to satisfy a call forconversion with cash or common stock. NWA Corp. may redeem all or some of thenotes for cash at any time on or after May 15, 2010, at a redemption priceequal to the accreted principal amount plus accrued and unpaid interest, ifany, to the redemption date.  Holdersmay require NWA Corp. to repurchase the notes on May 15 of 2010, 2013 and 2018at a repurchase price equal to the accreted principal amount plus accrued andunpaid interest, if any, on the repurchase date.  NWA Corp. may elect to pay the repurchase price in cash or inshares of common stock, or a combination of both, subject to certainconditions.  NWA Corp. plans to use thenet proceeds from the offering for working capital and general corporatepurposes.

 

**Item 4.****          ****Submissionof Matters to a Vote of Security Holders**

 

                                                The Companyheld its Annual Meeting of Stockholders on April 25, 2003.  The stockholders of the Company voted onthree items at the Annual Meeting.  Thefirst was a proposal to elect twelve Common Stock directors, each to serveuntil the next annual meeting of stockholders. Votes were cast by the holdersof the Common Stock as follows:

 

| **Nominee**          |   | **Votes For** |   | **Votes Withheld** |
|----------------------|--------|---------------|--------|--------------------|
| Richard H. Anderson  |   | 67,415,741    |   | 13,027,107         |
| Richard C. Blum      |   | 64,671,448    |   | 15,771,400         |
| Alfred A. Checchi    |   | 70,972,164    |   | 9,470,684          |
| John M. Engler       |   | 70,945,262    |   | 9,497,586          |
| Robert L. Friedman   |   | 70,957,603    |   | 9,485,245          |
| Doris K. Goodwin     |   | 70,926,086    |   | 9,516,762          |
| Dennis F. Hightower  |   | 70,946,008    |   | 9,496,840          |
| Frederic V. Malek    |   | 67,388,429    |   | 13,054,419         |
| V.A. Ravindran       |   | 70,950,632    |   | 9,492,216          |
| Douglas M. Steenland |   | 67,322,277    |   | 13,120,571         |
| Leo M. van Wijk      |   | 62,414,626    |   | 18,028,222         |
| Gary L. Wilson       |   | 70,989,884    |   | 9,452,964          |

 

                                                The second itemwas the election by the holders of the outstanding Series C Preferred Stock ofa slate of three Series C directors, Messrs. Benning, Kourpias and Ristow, eachto serve until the next annual meeting of stockholders.  The Series C directors were elected by thefollowing vote:

 
| 4,780,474 votes in favor |
|--------------------------|
| 270 votes against        |
| 38 abstentions           |

 

                                                The third itemwas a stockholder proposal requesting that the Board of Directors redeem theCompany’s poison pill unless the pill is voted on by the stockholders of theCompany. The stockholder proposal was not approved by the stockholders.  The vote with respect to the proposal was asfollows:

 
| 32,453,157 votes in favor |
|---------------------------|
| 40,078,487 votes against  |
| 188,598 abstentions       |

 

27

----

 

**Item 6.****          ****Exhibitsand Reports on Form 8-K**

 

(a)                                  Exhibits:

10.1                           FourthAmendment dated as of February 14, 2003, to Credit and Guarantee Agreementamong Northwest Airlines Corporation, Northwest Airlines Holdings Corporation,NWA Inc., Northwest Airlines, Inc. and various lending institutions namedtherein dated as of October 24, 2000.

10.2                           Fifth Amendmentdated as of May 1, 2003, to Credit and Guarantee Agreement among NorthwestAirlines Corporation, Northwest Airlines Holdings Corporation, NWA Inc.,Northwest Airlines, Inc. and various lending institutions named therein datedas of October 24, 2000.

12.1                           Computation ofRatio of Earnings to Fixed Charges.

12.2                           Computation ofRatio of Earnings to Fixed Charges and Preferred Stock Requirements.

31.1                           Rule13a-14(a)/15d-14(a) Certifications

31.2                           Rule13a-14(a)/15d-14(a) Certifications

32.1                           Section 1350Certifications

32.2                           Section 1350Certifications

 

(b)                                 Reports on form8-K:

On May 16, 2003, the Companyfiled a Form 8-K containing a press release issued May 15, 2003.  This press release announced the pricing of6.625% Convertible Senior Notes due 2023.

 

On May 15, 2003, the Companyfiled a Form 8-K containing a press release issued May 14, 2003.  This press release announced the Company’sintention to issue Convertible Senior Notes due 2023.

 

On April 21, 2003, theCompany filed a Form 8-K containing a press release issued April 16, 2003, andforward looking guidance.  This pressrelease contained the Company’s first quarter 2003 earnings release and theforward looking guidance contained that which was provided in the Company’sfirst quarter 2003 earnings conference call.

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized this 14th day of August 2003.

 

| NORTHWEST AIRLINES  CORPORATION |
|---------------------------------|
|                            |   |
| By                              | /s/ James G. Mathews |
|                            | James G. Mathews |
|                            | *Vice President — Finance and Chief Accounting Officer  (principal accounting officer)* |

 

28

----

 

EXHIBIT INDEX

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                                                      |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |   | Fourth Amendment dated as  of February 14, 2003, to Credit and Guarantee Agreement among Northwest  Airlines Corporation, Northwest Airlines Holdings Corporation, NWA Inc.,  Northwest Airlines, Inc. and various lending institutions named therein dated  as of October 24, 2000. |
| 10.2             |   | Fifth Amendment dated as  of May 1, 2003, to Credit and Guarantee Agreement among Northwest Airlines  Corporation, Northwest Airlines Holdings Corporation, NWA Inc., Northwest  Airlines, Inc. and various lending institutions named therein dated as of  October 24, 2000.        |
| 12.1             |   | Computation of Ratio of  Earnings to Fixed Charges.                                                                                                                                                                                                                                  |
| 12.2             |   | Computation of Ratio of  Earnings to Fixed Charges and Preferred Stock Requirements.                                                                                                                                                                                                 |
| 31.1             |   | Rule 13a-14(a)/15d-14(a)  Certifications                                                                                                                                                                                                                                             |
| 31.2             |   | Rule 13a-14(a)/15d-14(a)  Certifications                                                                                                                                                                                                                                             |
| 32.1             |   | Section 1350  Certifications                                                                                                                                                                                                                                                         |
| 32.2             |   | Section 1350  Certifications                                                                                                                                                                                                                                                         |

 

29

----