**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d)**

**OF THE SECURITIESEXCHANGE ACT OF 1934**

** **

**Forthe quarterly period ended March 31, 2008**

** **

**Commission File Number: 0-23642**

** **

**NORTHWESTAIRLINES CORPORATION**

**(Exactname 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)**                            |

** **

**(612) 726-2111**

**(Registrant’stelephone number, including area code)**

** **

**Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes **x     No o

** **

**Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definitionsof “large accelerated filer,”  “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.**

** **
| **Large accelerated filer**x | **Accelerated  filer**o | **Non-accelerated  filer**o  (Do  not check if a smaller  reporting company) | **Smaller reporting company**o |
|------------------------------|-------------------------|------------------------------------------------------------------------------|--------------------------------|

** **

**Indicate by a check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes **o   Nox

** **

**Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court. Yes **x   No o

 

**As of April 11, 2008,there were 243,903,924 shares of the registrant’s Common Stock outstanding.**

 

 

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**NORTHWESTAIRLINES CORPORATION**

 
| PART I. FINANCIAL INFORMATION |                                                                                                      | **Page No.** |
|------------------------------------|-----------------------------------------------------------------------------------------------------------|-------------------|
|                               |                                                                                                      |              |
| Item  1.                           | Financial Statements.                                                                                     |              |
|                               |                                                                                                      |              |
|                               | Condensed Consolidated  Statements of Operations                                                          | 3                 |
|                               |                                                                                                      |              |
|                               | Condensed Consolidated  Balance Sheets                                                                    | 4                 |
|                               |                                                                                                      |              |
|                               | Condensed Consolidated  Statements of Cash Flows                                                          | 5                 |
|                               |                                                                                                      |              |
|                               | Notes to  Condensed Consolidated Financial Statements                                                     | 6                 |
|                               |                                                                                                      |              |
|                               | The  Computation of Ratio of Earnings to Fixed Charges is attached hereto and  filed as Exhibit 12.1 |              |
|                               |                                                                                                      |              |
| Item 2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations.              | 19                |
|                               |                                                                                                      |              |
| Item 3.                            | Quantitative  and Qualitative Disclosures About Market Risk.                                              | 31                |
|                               |                                                                                                      |              |
| Item 4.                            | Controls and  Procedures.                                                                                 | 31                |
|                               |                                                                                                      |              |
| PART II. OTHER  INFORMATION   |                                                                                                      |
|                               |                                                                                                      |              |
| Item 1.                            | Legal Proceedings.                                                                                        | 31                |
|                               |                                                                                                      |              |
| Item 1A.                           | Risk Factors.                                                                                             | 31                |
|                               |                                                                                                      |              |
| Item  6.                           | Exhibits.                                                                                                 | 32                |
|                               |                                                                                                      |              |
| SIGNATURE                          | 34                                                                                                        |
|                               |                                                                                                      |              |
| EXHIBIT INDEX                      | 34                                                                                                        |
|                                    |                                                                                                           |                   |  |

 

2

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PART I. FINANCIAL INFORMATION

 

**Item 1. Financial Statements.**

 

**NORTHWESTAIRLINES CORPORATION**

* *

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
| ** **                                                                        | ** ** | **Successor**         | ** ** | **Predecessor**       | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                        | ** ** | **Three Months** | ** ** | **Three Months** | ** ** |
| ** **                                                                        | ** ** | **Ended**             | ** ** | **Ended**             | ** ** |
| ** **                                                                        | ** ** | **March 31,**    | ** ** | **March 31,**    | ** ** |
| *(Unaudited, in millions except per share amounts)* | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| **Operating  Revenues**                                                           |       |                  |       |                  |       |
| Passenger                                                                         | ** ** | **$**                 | **2,239**  | ** **            | $          | 2,202 |   |
| Regional carrier  revenues                                                        | ** ** | **410**               | ** ** | 292                   |       |
| Cargo                                                                             | ** ** | **198**               | ** ** | 189                   |       |
| Other                                                                             | ** ** | **280**               | ** ** | 190                   |       |
| Total operating  revenues                                                         | ** ** | **3,127**             | ** ** | 2,873                 |       |
|                                                                              |       |                  | ** ** |                  |       |
| **Operating  Expenses**                                                           |       |                  | ** ** |                  |       |
| Aircraft fuel  and taxes                                                          | ** ** | **1,114**             | ** ** | 704                   |       |
| Salaries, wages  and benefits                                                     | ** ** | **670**               | ** ** | 615                   |       |
| Aircraft  maintenance materials and repairs                                       | ** ** | **221**               | ** ** | 184                   |       |
| Selling and  marketing                                                            | ** ** | **193**               | ** ** | 191                   |       |
| Depreciation and  amortization                                                    | ** ** | **148**               | ** ** | 121                   |       |
| Other rentals  and landing fees                                                   | ** ** | **138**               | ** ** | 141                   |       |
| Aircraft rentals                                                                  | ** ** | **93**                | ** ** | 96                    |       |
| Regional carrier  expenses                                                        | ** ** | **205**               | ** ** | 211                   |       |
| Goodwill  impairment                                                              | ** ** | **3,917**             | ** ** | —                |       |
| Other                                                                             | ** ** | **481**               | ** ** | 409                   |       |
| Total operating  expenses                                                         | ** ** | **7,180**             | ** ** | 2,672                 |       |
|                                                                              |       |                  | ** ** |                  |       |
| **Operating  Income (Loss)**                                                      | ** ** | **(4,053**            | **)**      | 201                   |       |
|                                                                              |       |                  | ** ** |                  |       |
| **Other  Income (Expense)**                                                       |       |                  | ** ** |                  |       |
| Interest  expense, net                                                            | ** ** | **(114**              | **)**      | (132                  | )          |
| Investment  income                                                                | ** ** | **37**                | ** ** | 31                    |       |
| Reorganization  items, net                                                        | ** ** | **—**            | ** ** | (393                  | )          |
| Other, net                                                                        | ** ** | **(9**                | **)**      | —                |       |
| Total other  income (expense)                                                     | ** ** | **(86**               | **)**      | (494                  | )          |
|                                                                              |       |                  | ** ** |                  |       |
| **Income  (Loss) Before Income Taxes**                                            | ** ** | **(4,139**            | **)**      | (293                  | )          |
| Income tax  expense (benefit)                                                     | ** ** | **—**            | ** ** | (1                    | )          |
|                                                                              |       |                  | ** ** |                  |       |
| **Net  Income (Loss)**                                                            | ** ** | **$**                 | **(4,139** | **)**                 | $          | (292 | ) |
|                                                                              |       |                  | ** ** |                  |       |
| Earnings (loss)  per common share:                                                |       |                  | ** ** |                  |       |
| *Basic  and Diluted*                                                              | ** ** | **$**                 | **(15.78** | **)**                 | $          | (3.34 | ) |
|                                                                              |       |                  | ** ** |                  |       |
| Average shares  used in computation:                                              |       |                  | ** ** |                  |       |
| *Basic  and Diluted*                                                              | ** ** | **262**               | ** ** | 87                    |       |

 

*Seeaccompanying notes.*

 

3

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**NORTHWEST AIRLINES CORPORATION**

* *

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                                                               | ** ** | **Successor**      | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                                                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| *(Unaudited, in millions except share data)*                                                                                                    | ** ** | **2008**           | ** ** | **2007** | ** ** |
| **Assets**                                                                                                                                                               |       |               |       |   |   |
|                                                                                                                                                                     |       |               |       |   |   |
| **Current  Assets**                                                                                                                                                      |       |               |       |   |   |
| Cash and cash  equivalents                                                                                                                                               | ** ** | **$**              | **3,187**  | ** ** | $ | 2,939 |   |
| Unrestricted  short-term investments                                                                                                                                     | ** ** | **40**             | ** ** | 95 |   |
| Restricted cash,  cash equivalents and short-term investments                                                                                                            | ** ** | **484**            | ** ** | 725 |   |
| Accounts  receivable, less allowance (2008–$4, 2007–$4)                                                                                                        | ** ** | **750**            | ** ** | 776 |   |
| Flight equipment  spare parts, less allowance (2008–$16, 2007–$10)                                                                                             | ** ** | **133**            | ** ** | 135 |   |
| Maintenance and  operating supplies                                                                                                                                      | ** ** | **168**            | ** ** | 180 |   |
| Prepaid expenses  and other                                                                                                                                              | ** ** | **196**            | ** ** | 187 |   |
| Total current  assets                                                                                                                                                    | ** ** | **4,958**          | ** ** | 5,037 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Property  and Equipment**                                                                                                                                              |       |               | ** ** |   |   |
| Flight  equipment, net                                                                                                                                                   | ** ** | **7,745**          | ** ** | 7,520 |   |
| Other property  and equipment, net                                                                                                                                       | ** ** | **583**            | ** ** | 558 |   |
| Total property  and equipment                                                                                                                                            | ** ** | **8,328**          | ** ** | 8,078 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Flight  Equipment Under Capital Leases, net**                                                                                                                          | ** ** | **8**              | ** ** | 8 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Other  Assets**                                                                                                                                                        |       |               | ** ** |   |   |
| Goodwill                                                                                                                                                                 | ** ** | **2,199**          | ** ** | 6,035 |   |
| International  routes, less accumulated amortization (2008–$3; 2007–$2)                                                                                        | ** ** | **2,975**          | ** ** | 2,976 |   |
| Other  intangibles, less accumulated amortization (2008–$77; 2007–$54)                                                                                         | ** ** | **2,113**          | ** ** | 2,136 |   |
| Investments in  affiliated companies                                                                                                                                     | ** ** | **217**            | ** ** | 24 |   |
| Other, less  accumulated depreciation and amortization (2008–$14; 2007–$8)                                                                                     | ** ** | **234**            | ** ** | 223 |   |
| Total other  assets                                                                                                                                                      | ** ** | **7,738**          | ** ** | 11,394 |   |
| **Total  Assets**                                                                                                                                                        | ** ** | **$**              | **21,032** | ** ** | $ | 24,517 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                           |       |               | ** ** |   |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Current  Liabilities**                                                                                                                                                 |       |               | ** ** |   |   |
| Air traffic  liability/deferred frequent flier liability                                                                                                                 | ** ** | **$**              | **2,266**  | ** ** | $ | 2,004 |   |
| Accounts payable  and other liabilities                                                                                                                                  | ** ** | **1,748**          | ** ** | 1,651 |   |
| Current  maturities of long-term debt                                                                                                                                    | ** ** | **623**            | ** ** | 446 |   |
| Current  obligations under capital leases                                                                                                                                | ** ** | **8**              | ** ** | 3 |   |
| Total current  liabilities                                                                                                                                               | ** ** | **4,645**          | ** ** | 4,104 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Long-Term  Debt**                                                                                                                                                      | ** ** | **6,500**          | ** ** | 6,515 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Long-Term  Obligations Under Capital Leases**                                                                                                                          | ** ** | **117**            | ** ** | 124 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Deferred  Credits and Other Liabilities**                                                                                                                              |       |               | ** ** |   |   |
| Long-term  pension and postretirement health care benefits                                                                                                               | ** ** | **3,646**          | ** ** | 3,638 |   |
| Deferred  frequent flier liability                                                                                                                                       | ** ** | **1,540**          | ** ** | 1,490 |   |
| Deferred income  taxes                                                                                                                                                   | ** ** | **1,131**          | ** ** | 1,131 |   |
| Other                                                                                                                                                                    | ** ** | **167**            | ** ** | 138 |   |
| Total deferred  credits and other liabilities                                                                                                                            | ** ** | **6,484**          | ** ** | 6,397 |   |
|                                                                                                                                                                     |       |               | ** ** |   |   |
| **Common  Stockholders’ Equity**                                                                                                                                    |       |               | ** ** |   |   |
| Common stock, $.01  par value; shares authorized–400,000,000; shares issued–242,716,163 and  233,187,998 at March 31, 2008 and December 31, 2007, respectively | ** ** | **2**              | ** ** | 2 |   |
| Additional  paid-in capital                                                                                                                                              | ** ** | **7,267**          | ** ** | 7,235 |   |
| Retained  earnings (accumulated deficit)                                                                                                                                 | ** ** | **(3,797**         | **)**      | 342 |   |
| Accumulated  other comprehensive income (loss)                                                                                                                           | ** ** | **(186**           | **)**      | (202 | ) |
| Treasury stock–2,931  and 1,684 at March 31, 2008 and December 31, 2007, respectively                                                                     | ** ** | **—**         | ** ** | — |   |
| Total common  stockholders’ equity                                                                                                                                  | ** ** | **3,286**          | ** ** | 7,377 |   |
| **Total  Liabilities and Stockholders’ Equity**                                                                                                                     | ** ** | **$**              | **21,032** | ** ** | $ | 24,517 |   |

 

*Seeaccompanying notes.*

 

4

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**NORTHWEST AIRLINESCORPORATION**

* *

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
| ** **                                                                                 | ** ** | **Successor**         | ** ** | **Predecessor**       | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **Three Months** | ** ** | **Three Months** | ** ** |
| ** **                                                                                 | ** ** | **Ended**             | ** ** | **Ended**             | ** ** |
| ** **                                                                                 | ** ** | **March 31,**    | ** ** | **March 31,**    | ** ** |
| *(Unaudited, in millions)*                                                       | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| **Cash  Flows from Operating Activities**                                                  |       |                  |       |                  |       |
| Net income  (loss)                                                                         | ** ** | **$**                 | **(4,139** | **)**                 | $          | (292 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                  | ** ** |                  |       |
| Depreciation and  amortization                                                             | ** ** | **148**               | ** ** | 121                   |       |
| Pension and  other postretirement benefit contributions less than (greater than) expense   | ** ** | **(1**                | **)**      | (10                   | )          |
| Stock-based  compensation                                                                  | ** ** | **32**                | ** ** | —                |       |
| Reorganization  items, net                                                                 | ** ** | **—**            | ** ** | 393                   |       |
| Goodwill  impairment                                                                       | ** ** | **3,917**             | ** ** | —                |       |
| Increase  (decrease) in cash flows from operating assets and liabilities:                  |       |                  | ** ** |                  |       |
| Changes in  certain assets and liabilities                                                 | ** ** | **70**                | ** ** | (74                   | )          |
| Air traffic  liability/deferred frequent flyer liability                                   | ** ** | **313**               | ** ** | 308                   |       |
| Long-term vendor  deposits/holdbacks                                                       | ** ** | **—**            | ** ** | 176                   |       |
| Post-emergence  reorganization payments                                                    | ** ** | **(3**                | **)**      | —                |       |
| Other, net                                                                                 | ** ** | **25**                | ** ** | 12                    |       |
| Net cash  provided by (used in) operating activities                                       | ** ** | **362**               | ** ** | 634                   |       |
|                                                                                       |       |                  | ** ** |                  |       |
| **Cash  Flows from Reorganization Activities**                                             |       |                  | ** ** |                  |       |
| Net cash  provided by reorganization activities                                            | ** ** | **—**            | ** ** | 33                    |       |
|                                                                                       |       |                  | ** ** |                  |       |
| **Cash  Flows from Investing Activities**                                                  |       |                  | ** ** |                  |       |
| Capital  expenditures                                                                      | ** ** | **(366**              | **)**      | (72                   | )          |
| Purchase of  short-term investments                                                        | ** ** | **—**            | ** ** | (31                   | )          |
| Proceeds from  sales of short-term investments                                             | ** ** | **55**                | ** ** | 10                    |       |
| Decrease  (increase) in restricted cash, cash equivalents and short-term investments       | ** ** | **240**               | ** ** | (89                   | )          |
| Proceeds from  sale of investment in affiliate                                             | ** ** | **20**                | ** ** | —                |       |
| Investments in  affiliated companies                                                       | ** ** | **(213**              | **)**      | —                |       |
| Other, net                                                                                 | ** ** | **1**                 | ** ** | 1                     |       |
| Net cash  provided by (used in) investing activities                                       | ** ** | **(263**              | **)**      | (181                  | )          |
|                                                                                       |       |                  | ** ** |                  |       |
| **Cash  Flows from Financing Activities**                                                  |       |                  | ** ** |                  |       |
| Proceeds from  long-term debt                                                              | ** ** | **246**               | ** ** | —                |       |
| Payments of  long-term debt and capital lease obligations                                  | ** ** | **(96**               | **)**      | (147                  | )          |
| Other, net                                                                                 | ** ** | **(1**                | **)**      | —                |       |
| Net cash  provided by (used in) financing activities                                       | ** ** | **149**               | ** ** | (147                  | )          |
|                                                                                       |       |                  | ** ** |                  |       |
| **Increase  (Decrease) in Cash and Cash Equivalents**                                      | ** ** | **248**               | ** ** | 339                   |       |
|                                                                                       |       |                  | ** ** |                  |       |
| Cash and cash  equivalents at beginning of period                                          | ** ** | **2,939**             | ** ** | 1,461                 |       |
| Cash and cash  equivalents at end of period                                                | ** ** | **$**                 | **3,187**  | ** **            | $          | 1,800 |   |
|                                                                                       |       |                  | ** ** |                  |       |
| Available to be  borrowed under credit facilities                                          | ** ** | **$**                 | **117**    | ** **            | $          | — |   |
|                                                                                       |       |                  | ** ** |                  |       |
| Cash and cash  equivalents and unrestricted short-term investments at end of period        | ** ** | **$**                 | **3,227**  | ** **            | $          | 2,426 |   |
|                                                                                       |       |                  | ** ** |                  |       |
| Supplemental  Cash Flow Information:                                                       |       |                  | ** ** |                  |       |
| Interest paid                                                                              | ** ** | **$**                 | **114**    | ** **            | $          | 110 |   |
|                                                                                       |       |                  | ** ** |                  |       |
| Investing and  Financing Activities Not Affecting Cash:                                    |       |                  | ** ** |                  |       |
| Manufacturer  financing of aircraft and other non-cash transactions                        | ** ** | **$**                 | **—** | ** **            | $          | 167 |   |

 

*Seeaccompanying notes.*

 

5

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**NORTHWESTAIRLINES CORPORATION**

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

**Note 1 – Basis of Presentation**

 

The condensedconsolidated financial statements of Northwest Airlines Corporation (“NWA Corp.”),the direct parent corporation of Northwest Airlines, Inc. (“Northwest”),include the accounts of NWA Corp. and all consolidated subsidiaries(collectively, the “Company”).  Unlessotherwise indicated, the terms “we,” “us,” and “our” refer to NWA Corp. and allconsolidated subsidiaries.  The condensedconsolidated financial statements included herein have been prepared pursuantto the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information and footnote disclosuresnormally included in annual financial statements prepared in accordance withU.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed oromitted as permitted by such rules and regulations. These financialstatements and related notes should be read in conjunction with the financialstatements and notes included in the Company’s audited consolidated financialstatements, which are provided in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007, as amended by the Form 10-K/Afiling dated April 29, 2008 (collectively, the “2007 Form 10-K”).

 

Northwest’soperations account for approximately 99% of the Company’s consolidatedoperating revenues and expenses. Northwest is a major air carrier engaged principally in the commercialtransportation of passengers and cargo, directly serving as many as 243 citiesin 22 countries in North America, Asia and Europe.  Northwest’s global airline network includesdomestic hubs at Detroit, Minneapolis/St. Paul and Memphis, an extensivePacific route system with a hub in Tokyo, a transatlantic joint venture withKLM Royal Dutch Airlines (“KLM”), which operates through a hub in Amsterdam, adomestic and international alliance with Continental Airlines, Inc. (“Continental”)and Delta Air Lines, Inc. (“Delta”), membership in SkyTeam, a globalairline alliance with KLM, Continental, Delta, Air France, Aeroflot, Alitalia,Aeromexico, China Southern, CSA Czech Airlines and Korean Air, exclusivemarketing agreements with three domestic regional carriers, Pinnacle Airlines, Inc.(“Pinnacle”), Mesaba Aviation, Inc. (“Mesaba”), a wholly-owned subsidiary,and Compass Airlines, Inc. (“Compass”), a wholly-owned subsidiary, whichcurrently operate as Northwest Airlink carriers and a cargo business thatincludes a dedicated fleet of freighter aircraft that operate through hubs inAnchorage and Tokyo.

 

As a result of theapplication of fresh-start reporting in accordance with American Institute ofCertified Public Accountants’ Statement of Position 90-7, *Financial Reporting by Entities in Reorganization underthe Bankruptcy Code* (“SOP 90-7”) upon the Company’s emergence frombankruptcy on May 31, 2007, the financial statements prior to June 1,2007 are not comparable with the financial statements for periods on or after June 1,2007. References to “Successor Company” refer to the Company on or after June 1,2007, after giving effect to the application of fresh-start reporting.References to “Predecessor Company” refer to the Company prior to June 1,2007.  See “Note 3 – Fresh-StartReporting” for further details.

 

The Company maintains aWeb site at *http://www.nwa.com*.  Information contained on the Company’s Website is not incorporated into this quarterly report on Form 10-Q.  Annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, all amendments tothose reports and other information about the Company are available free ofcharge through this Web site at *http://ir.nwa.com*as soon as reasonably practicable after those reports are electronically filedwith or furnished to the SEC.

 

Inthe opinion of management, the interim financial statements reflectadjustments, consisting of normal recurring accruals, unless otherwise noted,which are necessary to present fairly the Company’s financial position, resultsof operations and cash flows for the periods indicated.

 

The Company’s resultsof operations for interim periods are not necessarily indicative of the resultsfor an entire year due to seasonal factors as well as competitive and generaleconomic conditions.  The Company’s secondand third quarter operating results have historically been more favorable dueto increased leisure travel on domestic and international routes during thespring and summer months.

 

*Merger Announcement.*  On April 14,2008, the Company and Delta entered into an Agreement and Plan of Merger (the “MergerAgreement”) that provides, among other things, for the Company to be mergedwith a wholly-owned subsidiary of Delta (the “Merger”).

 

6

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Consummation of the Merger is subject tocustomary closing conditions, including shareholder approval by holders ofcommon stock of NWA Corp. and Delta and receiving certain domestic and foreignregulatory and antitrust approvals (including from the Federal Aviation Administrationand the United States Department of Transportation, under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended, and pursuant to CouncilRegulation (EEC) 139/2004 of the European Commission).  The Merger Agreement contains certain terminationrights for both NWA Corp. and Delta.  TheMerger Agreement further provides that, upon termination of the MergerAgreement under specified circumstances, the Company may be required to pay toDelta, or Delta may be required to pay to the Company, a termination fee of$165 million.

 

Underthe terms of the Merger Agreement, each outstanding share of the Company’scommon stock will be converted into the right to receive 1.25 shares of Deltacommon stock.  Stock options and otherequity awards granted under the Company’s 2007 Management Equity Plan willconvert into stock options and equity awards with respect to Delta commonstock, after giving effect to the exchange ratio.

 

Certaincontracts, employee benefit arrangements and debt instruments of the Companycontain change in control provisions that may be triggered by the Merger,resulting in changes to the terms or settlement amounts of the contracts,arrangements or instruments.

 

Wecurrently expect the Merger to close by the end of 2008.  However, factors outside of our control couldrequire us to complete the Merger at a later time or not to complete it at all.

 

*StockholderRights Plan.*  Pursuant to the Stockholder Rights Plan (the “RightsPlan”), each share of common stock has attached to it a right and, until therights expire or are redeemed, each new share of common stock issued by NWACorp., will include one right.  Onceexercisable, each right entitles the holder (other than the acquiring person orgroup) to purchase one one-hundredth of a share of Series A JuniorParticipating Preferred Stock at an exercise price of $120, subject toadjustment.  The rights becomeexercisable upon the occurrence of certain events, including the acquisition byany air carrier with passenger revenues in excess of approximately $1 billionper year (as such amount may be increased based on increases in the ConsumerPrice Index from 2000) (a “Major Carrier”), a holding company of a MajorCarrier or any of their respective affiliates acquires beneficial ownership of20% or more of NWA Corp.’s outstanding common stock or commences a tender orexchange offer that would result in such person or group acquiring beneficialownership of 20% or more of NWA Corp.’s outstanding common stock.  The rights expire on May 31, 2017, andmay be redeemed by NWA Corp. at a price of $.01 per right prior to the timethey become exercisable.

 

On April 14, 2008, priorto the execution of the Merger Agreement, the Company amended the Rights Planto provide, among other things, that neither the approval, execution, delivery,announcement or performance of the Merger Agreement or the consummation of theMerger or any other transactions contemplated thereby will cause a triggeringevent under which the rights would become exercisable.  The amendment also provides that the RightsPlan and the rights established thereby will terminate in all respectsimmediately prior to the Merger becoming effective.

 

*Restrictionson the Transfer of Common Stock.* To reduce the risk of alimitation under Section 382 of the Internal Revenue Code on the Company’sability to use its net operating loss carryforwards (“NOLs”), the Amended andRestated Certificate of Incorporation restricts certain transfers of commonstock for two years after the Company’s emergence from bankruptcy.  Such restrictions can be extended thereafterfor three consecutive one year periods (to June 2012) upon, each time, theaffirmative vote of the Company’s stockholders. During the two year period, these restrictions generally provide thatany attempted transfer of common stock prior to the expiration of the term ofthe transfer restrictions will be prohibited and void if such transfer wouldcause the transferee’s ownership interest in the Company to increase to 4.95%or above, including an increase in a transferee’s ownership interest from 4.95%or above to a greater ownership interest, unless approved by the Board ofDirectors on the basis that the transfer does not increase the risk of anownership change.  In the event thatthese restrictions are extended beyond the two year period, the Board ofDirectors will approve proposed transfers that, taking into account all priortransfers, do not result in an aggregate owner shift under Section 382 ofmore than 30%.  If the aggregate ownershift as of any date after the two year period exceeds 30%, the Board ofDirectors has the discretion to approve any subsequent transfers subject to thestandards applicable during the two year period until the earlier of the dateon which the aggregate owner shift no longer exceeds 30%, or the restriction isno longer in effect.

 

**Note 2 – Voluntary Reorganization Under Chapter 11**

 

*Background and General Bankruptcy Matters.* The following discussion provides general background informationregarding the Company’s Chapter 11 cases, and is not intended to be anexhaustive summary.  Detailed informationpertaining to the bankruptcy filings may be obtained at *http://www.nwa-restructuring.com*.

 

7

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OnSeptember 14, 2005 (the “Petition Date”), NWA Corp. and 12 of its directand indirect subsidiaries (collectively, the “Debtors”) filed voluntarypetitions for relief under Chapter 11 of the United States Bankruptcy Code withthe United States Bankruptcy Court for the Southern District of New York (the “BankruptcyCourt”).  Subsequently, on September 30,2005, NWA Aircraft Finance, Inc., an indirect subsidiary of NWA Corp.,also filed a voluntary petition for relief under Chapter 11.  On May 18, 2007, the Bankruptcy Courtentered an order approving and confirming the Debtors’ First Amended Joint andConsolidated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (asconfirmed, the “Plan” or “Plan of Reorganization”).  The Plan became effective and the Debtorsemerged from bankruptcy protection on May 31, 2007 (the “Effective Date”).  On the Effective Date, the Companyimplemented fresh-start reporting in accordance with SOP 90-7.

 

The Plan generally provided for the fullpayment or reinstatement of allowed administrative claims, priority claims, andsecured claims, and the distribution of new common stock of the SuccessorCompany to the Debtors’ creditors, employees and others in satisfaction ofallowed unsecured claims.  The Plancontemplates the issuance of approximately 277 million shares of new commonstock by the Successor Company out of the 400 million shares of new commonstock authorized under its amended and restated certificate of incorporation.

 

The new common stock islisted on the New York Stock Exchange (the “NYSE”) and began trading under thesymbol “NWA” on May 31, 2007. Pursuant to the Plan of Reorganization, stockholders of NWA Corp. priorto the Effective Date received no distributions and their stock was cancelled.

 

In connection with theconsummation of the Plan of Reorganization, on the Effective Date, the Company’sexisting $1.225 billion Senior Corporate Credit Facility (“Bank Credit Facility”)was converted into exit financing in accordance with its terms.  See “Note 10 – Long-Term Debt” for additionalinformation.

 

*ClaimsResolution Process*.  Pursuant to terms of the Plan ofReorganization, approximately 234.4 million shares of the Successor Company’scommon stock will be issued to holders of allowed general unsecured andguaranty claims of the Debtors.  Once aclaim is allowed consistent with the claims resolution process, the claimant isentitled to a distribution of new common stock.  Approximately 216.1million shares of new common stock have been issued and distributed through April 2008,in respect of valid unsecured and guaranty claims.  In total, there are approximately 18.3million remaining shares of new common stock held in reserve under the terms ofthe Plan of Reorganization.  The MergerAgreement contemplates that following the Merger the right to receive sharesheld in the reserves will become the right to receive shares of Delta commonstock adjusted for the exchange ratio.

 

TheCompany estimates that the probable range of unsecured claims to be allowedwill be between $8.0 and $8.4 billion. Differences between claim amounts filed and the Company’s estimates arebeing investigated and will be resolved in connection with the claimsresolution process. However, there will be no further financial impact to theCompany associated with the settlement of such unsecured claims, as the holdersof all allowed unsecured claims against the Predecessor Company will receiveunder the Plan of Reorganization only their pro rata share of the distributionof the newly issued Common Stock of the Successor Company.  Secured claims were deemed unimpaired underthe Plan of Reorganization and were satisfied upon either reinstatement of theobligations in the Successor Company, surrendering the collateral to thesecured party, or by making full payment in cash.

 

**Note 3 – Fresh-Start Reporting**

 

Upon emergence from its Chapter 11 proceedings on May 31, 2007, theCompany adopted fresh-start reporting in accordance with SOP 90-7.  The Company’s emergence from Chapter 11resulted in a new reporting entity with no retained earnings or accumulateddeficit.  Accordingly, the Company’sconsolidated financial statements for periods prior to June 1, 2007 arenot comparable to consolidated financial statements presented on or after June 1,2007.

 

Fresh-start reporting reflects the value of the Company as determined inthe confirmed Plan of Reorganization. Under fresh-start reporting, the Company’sasset values are remeasured and allocated in conformity with Statement ofFinancial Accounting Standards (“SFAS”) No. 141, *Business Combinations* (“SFAS No. 141”).The excess of reorganization value over the fair value of tangible andidentifiable intangible assets was recorded as goodwill in the accompanyingCondensed Consolidated Balance Sheets. In addition, fresh-start reporting also requiredthat all liabilities, other than deferred taxes and pension and otherpostretirement benefit obligations, be stated at fair value or at the presentvalues of the amounts to be paid using appropriate market interest rates.Deferred taxes were determined in conformity with SFAS No. 109, *Accounting for Income Taxes* (“SFAS No. 109”).  As part of the provisions of SOP 90-7, on June 1,2007 we were required to adopt all accounting guidance that was going to beeffective within the subsequent twelve-month period.  See “Note 5 – Fair Value Measurements” foradditional information.

 

Estimates of fair value represented the Company’s best estimates basedon its valuation models which incorporated industry data and trends andrelevant market rates and transactions.

 

8

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Tofacilitate the calculation of the enterprise value of the Successor Company,Northwest’s financial advisors assisted management in the preparation of avaluation analysis for the Successor Company’s common stock to be distributedas of the Effective Date to the unsecured creditors.  The enterprise valuation included (i) a40% weighting towards a comparable company analysis based on financial ratiosand multiples of comparable companies, which were then applied to the financialprojections developed by the Company to arrive at an enterprise value; and (ii) a60% weighting towards a discounted cash flow analysis which measures theprojected multi-year, un-levered free cash flows of the Company to arrive at anenterprise value.

 

        The estimated enterprise value andcorresponding equity value in fresh-start reporting were highly dependent uponachieving the future financial results set forth in the five-year financialprojections included in the Company’s Plan of Reorganization, as well as therealization of certain other assumptions. The equity value of the Company in fresh-start reporting was calculatedto be a range of approximately $6.45 billion to $7.55 billion.  Based on claims trading prior to the Company’sEffective Date and the trading value of the Company’s common stock postemergence, the equity value of the Company was estimated to be $6.45 billionfor purposes of preparing the Company’s financial statements.  The estimates and assumptions made in thisvaluation were inherently subject to significant uncertainties and theresolution of contingencies beyond the reasonable control of the Company.  See “Note 4 – Goodwill and Intangibles” for adescription of the $3.9 billion goodwill impairment charge recorded in thefirst quarter of 2008.

 

**Note 4 – Goodwill and Intangibles**

 

  Goodwillrepresents the excess of the reorganization value of the Successor Company overthe fair value of tangible assets and identifiable intangible assets resultingfrom the application of SOP 90-7. Northwest’s goodwill mainly consists of three components:

 

·                  A valuation allowance recorded against our netdeferred tax assets, as required by SFAS No. 109; this valuation allowancewill be reversed against goodwill when the Company reports income in futureperiods.

·                  Revenue-generating intangibles that do not meetthe contractual or separable criteria of SFAS No. 141, including ourflight network and international routes to open skies countries.

·                  The value inherent in future customerrelationships due to Northwest’s ability to attract new customers.

 

Identifiableintangible assets consist primarily of international route authorities, tradenames, the WorldPerks customer database, airport slots/airport operatingrights, certain partner contracts and other items. International routeauthorities, certain airport slots/airport operating rights and trade names areindefinite-lived and, as such, are not amortized.  The Company’s definite-lived intangibleassets are amortized on a straight-line basis over the estimated lives of therelated assets, which span periods of four to 30 years.

 

The following table presents information about our intangible assets,including goodwill, at March 31, 2008 and December 31, 2007:

 
| ** **                                                       | ** ** | ** **          | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                       | ** ** | ** **          | ** ** | **Successor** | ** ** |
| ** **                                                       | ** ** | ** **          | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
| *(In thousands)*                                            | ** ** | **Asset Life** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| SkyTeam alliance & other  code share partners | ** ** | 30                  | ** ** | **$** | **461,900** | ** ** | **$** | **(12,831** | **)** | $ | 461,900 | ** ** | $ | (8,981 | ) |
| England airport  operating rights                                |       | 5                   | ** ** | **16,000** | ** ** | **(2,667** | **)** | 16,000 |   | (1,867 | ) |
| NWA customer  relationships                                      |       | 9                   | ** ** | **530,000** | ** ** | **(49,074** | **)** | 530,000 |   | (34,352 | ) |
| WorldPerks  affinity card contract                               |       | 15                  | ** ** | **195,700** | ** ** | **(10,873** | **)** | 195,700 |   | (7,611 | ) |
| WorldPerks  marketing partner relationships                      |       | 22                  |       | **43,000** |   | **(1,629** | **)** | 43,000 |   | (1,140 | ) |
| Visa contract                                                    |       | 4                   | ** ** | **11,900** | ** ** | **(2,479** | **)** | 11,900 |   | (1,736 | ) |
| Gates                                                            | ** ** |                | ** ** | **—** | ** ** | **—** | ** ** | — |   | — |   |
|                                                             |       |                |       |   |   |   | ** ** |   |   |   |   |
| Pacific routes  and Narita slots/airport operating rights        |       | Indefinite          |       | **2,961,700** |   | **—** | ** ** | 2,961,700 |   | — |   |
| NWA trade name  and other                                        |       | Indefinite          | ** ** | **663,625** | ** ** | **—** | ** ** | 663,625 |   | — |   |
| Slots/airport  operating rights                                  |       | Indefinite          | ** ** | **283,300** | ** ** | **—** | ** ** | 283,300 |   | — |   |
| Goodwill                                                         |       | Indefinite          | ** ** | **2,199,228** | ** ** | **—** | ** ** | 6,034,609 |   | — |   |
|                                                             |       |                |       |   |   |   | ** ** |   |   |   |   |
| ** **                                                       | ** ** | ** **          |       | **$** | **7,366,353** |   | **$** | **(79,553** | **)** | $ | 11,201,734 |   | $ | (55,687 | ) |

 

9

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Total amortization expense recognized was approximately $23.9 million and$0.4 million for the three month periods ended March 31, 2008 and March 31,2007, respectively.  We expect to recordamortization expense of $95.5 million per year from 2008 through 2010, $93.7million in 2011 and $90.6 million in 2012.

 

The Company tests the carrying amount ofgoodwill and other indefinite-lived intangible assets annually as of October 1or whenever events or circumstances indicate that impairment may haveoccurred.  Impairment testing isperformed in accordance with SFAS No. 142, *Goodwill and Other Intangible Assets* (“SFAS No. 142”).  The Company is annually required to completeStep 1 (determining and comparing the fair value of the Company’s reportingunit to its carrying value) of the impairment test.  Step 2 is required to be completed if Step 1indicates that the carrying value of the reporting unit exceeds the fair valueand involves the calculation of the implied fair value of goodwill.

 

The Company determined that the announcedMerger with Delta was a triggering event under SFAS No. 142, requiring theCompany to further evaluate the carrying value of its goodwill.  As a result of this evaluation, the Companyrecorded an impairment charge to reduce the book value of Northwest’s equity toits implied fair value as of the Merger announcement date.  Based on the 5-day average closing price ofDelta’s common stock around the Merger announcement date, the right to receive1.25 shares of Delta stock for each share of the Company’s common stock, andthe projected number of the Company’s common shares to be converted into Deltacommon stock on the transaction close date, the implied fair value of theCompany’s equity on the announcement date was $3.3 billion.  This implied fair value calculation resultedin the Company recording a goodwill impairment charge of $3.9 billion as of March 31,2008 because we believe the conditions that caused our implied fair value todecline existed as of March 31.

 

Due to the limited time available between theMerger announcement date and the Company’s Form 10-Q filing date, therewas insufficient time to complete Step 2 of the goodwill impairment test andcalculate the implied fair value of goodwill as described in SFAS No. 142.  Once Step 2 of the goodwill impairment testis completed during the second quarter, the amount of impairment recorded couldincrease or decrease.

 

Inaccordance with SOP 90-7, a reduction in the valuation allowance associatedwith the realization of pre-emergence deferred tax assets in future periodswill sequentially reduce the value of recorded goodwill followed by otherindefinite-lived assets until the net carrying cost of these assets iszero.  Adjustments to goodwill during thequarter ended March 31, 2008 are shown in the table below:

 
| *(In thousands)*                       | ** ** | ** **     | ** **    |
|---------------------------------------------|------------|----------------|---------------|
| Balance as of  December 31, 2007       | ** ** | **$**          | **6,034,609** | ** ** |
| Impairment  charge                          | ** ** | **(3,917,414** | **)**         |
| Adjustments  related to deferred tax assets | ** ** | **74,013**     | ** **    |
| Other                                       | ** ** | **8,020**      | ** **    |
| Balance as of  March 31, 2008          | ** ** | **$**          | **2,199,228** | ** ** |

 

**Note 5 – Fair Value Measurements**

 

The Company adopted SFAS No. 157, *FairValue Measurements*(“SFAS No. 157”), on the Effective Date inaccordance with SOP 90-7. SFAS No. 157 defines fair value,establishes a consistent framework for measuring fair value and expandsdisclosure requirements about fair value measurements. SFAS No. 157requires, among other things, the Company’s valuation techniques used tomeasure fair value to maximize the use of observable inputs and minimize theuse of unobservable inputs.  This standard was applied prospectively tothe valuation of assets and liabilities on and after the Effective Date.

 

Thereare three general valuation techniques that may be used to measure fair value,as described below:

 

(A)  Market approach – Uses prices and otherrelevant information generated by market transactions involving identical orcomparable assets or liabilities;

(B)   Cost approach – Based on the amount thatcurrently would be required to replace the service capacity of an asset (replacementcost); and

(C)   Income approach – Uses valuation techniques toconvert future amounts to a single present amount based on current marketexpectations about the future amounts (includes present value techniques,option-pricing models, and excess earnings method).  Net present value is an income approach wherea stream of expected cash flows is discounted at an appropriate market interestrate.  Excess earnings method is avariation of the income approach where the value of a specific asset is isolatedfrom its contributory assets.

 

10

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*Measured on a Recurring Basis.*   Forassets and liabilities measured at fair value on a recurring basis during theperiod, SFAS No. 157 requires quantitative disclosures about the fairvalue measurements separately for each major category.  There were no changes in the valuationtechniques used to measure the fair values of assets measured on a recurringbasis during the period.  Assets andliabilities itemized below were measured at fair value on a recurring basisduring the period using the market and income approaches:

 
| ** **                                                     | ** ** | **Successor Assets** | ** ** |
|----------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                     | ** ** | ** **                | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** **                | ** ** | **in Active** | ** ** | **Significant** | ** ** | ** ** | ** ** | **in Active** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** **                | ** ** | **Markets for** | ** ** | **Other** | ** ** | ** ** | ** ** | **Markets for** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **As of**            | ** ** | **Identical** | ** ** | **Observable** | ** ** | **As of** | ** ** | **Identical** | ** ** | **Observable** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **March 31,**        | ** ** | **Assets** | ** ** | **Inputs** | ** ** | **December 31,** | ** ** | **Assets** | ** ** | **Inputs** | ** ** | **Valuation** | ** ** |
| *(In millions)*                                                | ** ** | **2008**                  | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **2007** | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **Technique** | ** ** |
| Cash and cash equivalents                                      | ** ** | **$**                     | **3,187**  | ** ** | **$** | **3,187** | ** ** | **$** | **—** |   | $ | 2,939 |   | $ | 2,939 |   | $ | — |   | (A) |   |
| Unrestricted  short-term investments                           | ** ** | **40**                    | ** ** | **—** | ** ** | **40** |   | 95 |   | 95 |   | — |   | (A),(C) |   |
| Restricted cash,  cash equivalents, and short-term investments | ** ** | **484**                   | ** ** | **479** | ** ** | **5** |   | 725 |   | 725 |   | — |   | (A),(C) |   |
| Derivatives                                                    | ** ** | **41**                    | ** ** | **—** | ** ** | **41** |   | 60 |   | — |   | 60 |   | (A),(C) |   |
| Total                                                          | ** ** | **$**                     | **3,752**  | ** ** | **$** | **3,666** | ** ** | **$** | **86** |   | $ | 3,819 |   | $ | 3,759 |   | $ | 60 |   |   |   |

 
| ** **      | ** ** | **Successor Liabilities** | ** ** |
|-----------------|------------|--------------------------------|------------|
| ** **      | ** ** | ** **                     | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **      | ** ** | ** **                     | ** ** | **in Active** | ** ** | **Significant** | ** ** | ** ** | ** ** | **in Active** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **      | ** ** | ** **                     | ** ** | **Markets for** | ** ** | **Other** | ** ** | ** ** | ** ** | **Markets for** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **      | ** ** | **As of**                 | ** ** | **Identical** | ** ** | **Observable** | ** ** | **As of** | ** ** | **Identical** | ** ** | **Observable** | ** ** | ** ** | ** ** |
| ** **      | ** ** | **March 31,**             | ** ** | **Liabilities** | ** ** | **Inputs** | ** ** | **December 31,** | ** ** | **Liabilities** | ** ** | **Inputs** | ** ** | **Valuation** | ** ** |
| *(In millions)* | ** ** | **2008**                       | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **2007** | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **Technique** | ** ** |
| Derivatives     | ** ** | **$**                          | **66**     | ** ** | **$** | **—** | ** ** | **$** | **66** |   | $ | 3 |   | $ | — |   | $ | 3 |   | (A),(C) |   |
| Total           | ** ** | **$**                          | **66**     | ** ** | **$** | **—** | ** ** | **$** | **66** |   | $ | 3 |   | $ | — |   | $ | 3 |   |   |   |

 

*Measured ona Non-Recurring Basis. *For assets and liabilities measured on anon-recurring basis during the period, SFAS No. 157 requires quantitativedisclosures about the fair value measurements separately for each majorcategory. The Company impaired certain aircraft, engines and inventory duringthe first quarter of 2008 related to the planned early retirement of certainBoeing 747F and DC9-30 aircraft, as described further in “Note 12 – AircraftImpairments.” The losses related to these impairments were recorded indepreciation and amortization on the Condensed Consolidated Statement ofOperations based on the fair value of the impaired assets.

 

The Company also recorded agoodwill impairment charge in other operating expense to reduce the book valueof Northwest’s equity to its implied fair value as of the Merger announcementdate.  The goodwill measurement is anestimate and will be adjusted based on the completion of Step 2 of the goodwillimpairment test during the second quarter, as described more fully in “Note 4 –Goodwill and Intangibles.”  The assetsitemized below were measured at fair value on a non-recurring basis during theperiod using a market approach:

 
| ** **                    | ** ** | **Successor Assets** | ** ** |
|-------------------------------|------------|---------------------------|------------|
| ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** | **in Active** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** | **Markets for** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** | **Identical** | ** ** | **Observable** | ** ** | **Total** | ** ** |
| ** **                    | ** ** | **Month of**         | ** ** | **Fair Value** | ** ** | **Assets** | ** ** | **Inputs** | ** ** | **Gains** | ** ** |
| *(In millions)*          | ** ** | **Measurement**           | ** ** | **Measurement** | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Losses)** | ** ** |
| Flight equipment  spare parts |       | March 2008           |       | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **(2** | **)** |
| Flight  equipment, net        |       | March 2008           |       | **4** | ** ** | **—** | ** ** | **4** | ** ** | **(15** | **)** |
| Goodwill                      |       | March 2008           |       | **2,199** | ** ** | **—** | ** ** | **2,199** | ** ** | **(3,917** | **)** |
|                          |       |                      |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **(3,934** | **)** |
|                               |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

11

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**Note 6 – Geographic Regions**

 

        TheCompany is managed as one cohesive business unit, of which revenues are derivedprimarily from the commercial transportation of passengers and cargo.  Operating revenues from flight segmentsserving a foreign destination are classified into the Pacific or Atlanticregions, as appropriate.  The followingtable shows the operating revenues for each region:

 
| ** **                  | ** ** | **Successor**                                    | ** ** | **Predecessor**                                  | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                  | ** ** | **Three Months  Ended March 31,** | ** ** | **Three Months  Ended March 31,** | ** ** |
| *(In millions)*             | ** ** | **2008**                                         | ** ** | **2007**                                         | ** ** |
| Domestic                    | ** ** | **$**                                            | **2,089**  |                                             | $          | 1,942 |   |
| Pacific,  principally Japan | ** ** | **668**                                          |       | 638                                              |       |
| Atlantic                    | ** ** | **370**                                          |       | 293                                              |       |
| Total operating  revenues   | ** ** | **$**                                            | **3,127**  |                                             | $          | 2,873 |   |

 

        TheCompany’s tangible assets consist primarily of flight equipment, which areutilized across geographic markets and therefore have not been allocated.

 

**Note7 – Reorganization Related Items**

 

In accordance with SOP 90-7, the condensedconsolidated financial statements for the Predecessor period distinguishtransactions and events that are directly associated with the reorganizationfrom the ongoing operations of the Company. In connection with our bankruptcy proceedings, the Company recorded thefollowing largely non-cash reorganization income/(expense) items:

 
| ** **                                | ** ** | **Predecessor**       | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **Three Months** | ** ** |
| ** **                                | ** ** | **Ended**             | ** ** |
| ** **                                | ** ** | **March 31,**    | ** ** |
| *(In millions)*                      | ** ** | **2007**              | ** ** |
| Regional carrier  claims                  |       | $                     | (362       | ) |
| Employee-related  charges                 |       | (4                    | )          |
| Abandonment of  aircraft and buildings    |       | (48                   | )          |
| Restructured  aircraft lease/debt charges |       | (2                    | )          |
| Professional  fees                        |       | (17                   | )          |
| Other                                     |       | 40                    |       |
| Reorganization  items, net                |       | $                     | (393       | ) |

 

        Reorganization items recorded during thethree months ended March 31, 2007 largely consisted of charges associatedwith the Company’s implementation of an amended Airline Services Agreement withPinnacle Airlines, Inc., charges associated with the Company’s StockPurchase and Reorganization Agreement with Mesaba Aviation, Inc.,abandonment of aircraft and buildings, and professional fees.

 

**Note 8 – Income Taxes**

 

TheCompany accounts for income taxes in accordance with SFAS No. 109, which requires that deferred tax assets and liabilities are recognizedusing enacted tax rates, for the tax effect of temporary differences betweenthe financial reporting and tax bases of recorded assets and liabilities.  SFAS No. 109 also requires that deferredtax assets be reduced by a valuation allowance if it is more likely than notthat some or all of the deferred tax assets will not be realized.  Based on the consideration of all availableevidence, the Company has provided a valuation allowance on deferred tax assetsrecorded beginning in the first quarter 2003. The Company continues to maintain a full valuation allowance against itsdeferred tax assets due to the uncertainty regarding the ultimate realizationof those assets.

 

Anownership change under Internal Revenue Code Section 382 occurred inconnection with the Company’s bankruptcy Plan of Reorganization.  However, the Company does not believe thatsuch change has any material impact on the Company’s ability to use its NOLcarryforwards and other tax attributes.

 

The Company did not record atax benefit related to our reported first quarter 2008 net loss; to record atax benefit, the Company would be required to have a high degree of confidencethat it would record a full year profit.

 

12

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**Note 9 – Earnings (Loss) Per Share Data**

 

*Successor EPS*.   Inaccordance with SFAS No. 128, *Earningsper Share* (“SFAS No. 128”), basic and diluted earnings pershare were computed by dividing the net loss by the weighted-average number ofshares of common stock outstanding for the three months ended March 31,2008.  SFAS No. 128 requires thatthe entire 234 million shares to be issued to holders of unsecured and guarantyclaims pursuant to the Plan of Reorganization be considered outstanding forpurposes of calculating earnings per share as these shares will ultimately beissued to unsecured creditors once the allocation of disputed unsecured claimsis completed.

 

AtMarch 31, 2008, approximately 16 million in restricted stock units andstock options to purchase shares of the Successor Company’s common stock wereoutstanding but excluded from the computation of diluted earnings per sharebecause the effect of including the shares would have been anti-dilutive.

 

*Predecessor EPS.*  Predecessorbasic and diluted earnings per share were computed based on the Predecessor’sfinal weighted-average shares outstanding.

 

For the three months ended March 31, 2007, approximately 19 million incremental shares related to dilutivesecurities were not included in the diluted earnings per share calculationbecause the Company reported a net loss for this period.

 

Additionally,approximately 6 million shares of Series C Preferred Stock were excludedfrom the effect of dilutive securities for the three months ended March 31,2007 because the Company reported a net loss for this period.

 

At March 31, 2007, employee stock optionsto purchase approximately 7 million shares were outstanding but not included indiluted securities because the Company reported a net loss for the three monthsended March 31, 2007.

 

13

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**Note 10** -**Long-Term Debt**

 

As of March 31, 2008, maturities of long-term debt, excludingcapital lease obligations, through December 31, 2012 were as follows (inmillions):

 
| remainder of | 2008 |   | $   | 355    |   |
|--------------|------|--------|-----|--------|--------|
|         | 2009 |   | 598 |   |
|         | 2010 |   | 445 |   |
|         | 2011 |   | 620 |   |
|         | 2012 |   | 452 |   |

 

On August 21, 2006, the Predecessor Company entered into a $1.225billion Senior Corporate Credit Facility (“Bank Credit Facility”), formerlycalled the DIP/Exit Facility, consisting of a $1.05 billion term loan facilityand a $175 million revolving credit facility which has been fully drawn sincethe inception of the Bank Credit Facility. The final maturity date of the Bank Credit Facility is August 21,2013.  Principal on the term loan portionof the Bank Credit Facility will be repaid at 1.0% per year with the balance(94%) due at maturity.  The first suchprincipal repayment was made on August 21, 2007.  Loans drawn under the $175 million revolvingcredit facility may be borrowed and repaid at the Company’s discretion.  Up to $75 million of the revolving creditfacility may be utilized by the Company as a letter of credit facility.  As amended in March 2007, both loanfacilities under the Bank Credit Facility bear interest at LIBOR plus2.00%.  Letter of credit fees will becharged at the same credit spread as on the borrowings plus 12.5 basis points.  To the extent that the revolving creditfacility is not utilized, the Company is required to pay an undrawn commitmentfee of 50 basis points per annum.  TheBank Credit Facility received a credit rating of BB from Standard &Poor’s Rating Services (“S&P”) and a Ba3 from Moody’s Investors Service, Inc.(“Moody’s”) and is secured by a first lien on the Company’s Pacific Routeauthorities.  The March 2007amendment also allowed the Company to grant pari-passu liens in the PacificRoute authorities to secure up to $150 million of exposure arising from hedgingtrades entered into with Bank Credit Facility lenders.  The interest rate as of March 31, 2008was 4.87% on both the term loan facility and the revolving credit facility.

 

The Bank Credit Facilityrequires ongoing compliance with financial covenants requiring the Company tomaintain unrestricted cash of at least $750 million, a collateral coverageratio of at least 1.50 to 1.0 and a minimum ratio of EBITDAR to consolidatedfixed charges (“Fixed Charge Coverage Ratio”). Under a recent amendment to the Bank Credit Facility completed in April 2008,compliance by the Company with the Fixed Charge Coverage Ratio has been waivedfrom April 1, 2008 through March 31, 2009 and thereafter isdetermined as set forth below:

 
| **Number of**      | ** ** | ** **                                                  | ** ** | **Required**       |
|--------------------|------------|-------------------------------------------------------------|------------|--------------------|
| **Months Covered** | ** ** | **Period Ending**                                           | ** ** | **Coverage Ratio** |
| Three              |       | June 30, 2009                                          |       | 1.00  to 1.0       |
| Six                |       | September 30, 2009                                     |       | 1.10  to 1.0       |
| Nine               |       | December 31, 2009                                      |       | 1.20  to 1.0       |
| Twelve             |       | March 31, 2010                                         |       | 1.30  to 1.0       |
| Twelve             |       | June 30, 2010                                          |       | 1.40  to 1.0       |
| Twelve             |       | September 30, 2010 and  each quarter ending thereafter |       | 1.50  to 1.0       |

 

For purposes of calculatingthis ratio, EBITDAR is defined as operating income, adjusted to exclude theeffects of depreciation, amortization, aircraft rents and costs (including upto $150 million of cash costs) payable in connection with a merger oracquisition to include the effects of interest income and governmentalreimbursements for losses resulting from developments affecting the aviationindustry.  Earnings also excludenon-recurring non-cash charges (subject to the inclusion of any cash paymentsthen or thereafter made with respect thereto) and are determined without givingeffect to any acceleration of rental expense. Fixed charges are defined as interest expense (excluding fees andexpenses in connection with the recent amendment) and aircraft rent expense(net of certain aircraft sub-lease rental income and without giving effect toany acceleration of rental expense).

 

Although the Company was incompliance with all required financial covenants as of March 31, 2008, continuedcompliance depends on many factors, some of which are beyond the Company’scontrol, including the overall industry revenue environment and the level offuel costs.

 

14

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**Note 11 –Fleet Information and Commitments**

 

As shown in the following table, Northwest operateda mainline fleet of 348 aircraft at March 31, 2008, consisting of 288narrow-body and 60 wide-body aircraft. Northwest’s purchase commitments for aircraft as of March 31, 2008are also provided.

 
| ** **                            | ** ** | ** **   | ** ** | **In Service** | ** ** | **Aircraft** | ** ** |
|---------------------------------------|------------|--------------|------------|---------------------|------------|--------------|------------|
| ** **                            | ** ** | **Seating**  | ** ** | ** **          | ** ** | **Capital**  | ** ** | **Operating** | ** ** | ** ** | ** ** | **on Firm** | ** ** |
| **Aircraft Type**                | ** ** | **Capacity** | ** ** | **Owned**           | ** ** | **Lease**    | ** ** | **Lease** | ** ** | **Total** | ** ** | **Order** | ** ** |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| **Passenger  Aircraft**               |       |         |       |                |       |         |       |   |   |   |   |   |   |
| Airbus:                               |       |         |       |                |       |         |       |   |   |   |   |   |   |
| A319                                  |       | 124          |       | 55                  |       | —       |       | 2 |   | 57 |   | 5 |   |
| A320                                  |       | 148          |       | 45                  |       | —       |       | 28 |   | 73 |   | 2 |   |
| A330-200                              |       | 243          |       | 11                  |       | —       |       | — |   | 11 |   | — |   |
| A330-300                              |       | 298          |       | 21                  |       | —       |       | — |   | 21 |   | — |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| Boeing:                               |       |         |       |                |       |         |       |   |   |   |   |   |   |
| 787-8                                 |       | TBD          |       | —              |       | —       |       | — |   | — |   | 18 |   |
| 757-200                               |       | 160-184      |       | 38                  |       | 1            |       | 16 |   | 55 |   | — |   |
| 757-300                               |       | 224          |       | 16                  |       | —       |       | — |   | 16 |   | — |   |
| 747-400                               |       | 403          |       | 4                   |       | —       |       | 12 |   | 16 |   | — |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| McDonnell  Douglas:                   |       |         |       |                |       |         |       |   |   |   |   |   |   |
| DC9                                   |       | 100-125      |       | 87                  |       | —       |       | — |   | 87 |   | — |   |
|                                  |       |         |       | 277                 |       | 1            |       | 58 |   | 336 |   | 25 |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| **Freighter  Aircraft**               |       |         |       |                |       |         |       |   |   |   |   |   |   |
| Boeing 747F                           |       |         |       | 9                   |       | —       |       | 3 |   | 12 |   | — |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| **Total  Mainline Operated Aircraft** | ** ** | ** **   | ** ** | **286**             | ** ** | **1**        | ** ** | **61** | ** ** | **348** | ** ** | **25** | ** ** |
| ** **                            | ** ** | ** **   | ** ** | ** **          | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Regional  Aircraft**                |       |         |       |                |       |         |       |   |   |   |   |   |   |
| CRJ200                                |       | 50           |       | —              |       | —       |       | 141 |   | 141 |   | — |   |
| Saab 340                              |       | 33           |       | —              |       | —       |       | 49 |   | 49 |   | — |   |
| CRJ900                                |       | 76           |       | 19                  |       | —       |       | — |   | 19 |   | 17 |   |
| Embraer 175                           |       | 76           |       | 16                  |       | —       |       | — |   | 16 |   | 19 |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| **Total  Airlink Operated Aircraft**  | ** ** | ** **   | ** ** | **35**              | ** ** | **—**   | ** ** | **190** | ** ** | **225** |   | **36** |   |
|                                  |       |         |       |                |       |         |       |   |   |   |   |   |   |
| **Total  Aircraft**                   | ** ** | ** **   | ** ** | **321**             | ** ** | **1**        | ** ** | **251** | ** ** | **573** |   | **61** |   |

 

TheCompany took delivery of sixCRJ900 and eight Embraer 175aircraft during the three months ended March 31, 2008.  One Embraer 175 had not been placed inservice before March 31, 2008 and therefore is not included in the tableabove.  In connection with theacquisition of these 14 aircraft,the Company entered into long-term debt arrangements.  Under such arrangements, the aggregate amountof debt incurred totaled $246million.

 

**Note 12 – Aircraft Impairments**

 

InMarch 2008, as part of a revised fleet plan, the Company determined thatit will remove three Boeing 747F aircraft and two DC9-30 aircraft fromscheduled service during the remainder of 2008 and the first quarter of2009.  As a result, the Company recorded,as additional depreciation expense, impairment charges of $17.2 millionassociated with these aircraft and related inventory during the first quarterof 2008.  In conjunctionwith further announced capacity reductions during the remainder of 2008,the Company may be required to record additional impairment charges as thespecific aircraft to be retired are identified.

 

In the first quarter of 2007, the Company recorded$13.3 million related to the impairment of three owned aircraft which werepermanently removed from service.  Thesecharges reflect the Company’s decision to park three DC9-30 aircraftpermanently, consistent with the Company’s ongoing review of its aircraft fleetplan in conjunction with its overall route structure and capacityrequirements.  The first quarter 2007 impairmentcharges were recorded as reorganization expenses.

 

15

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**Note 13 – Comprehensive Income (Loss)**

 

Comprehensive income (loss) consisted of thefollowing:

 
| ** **                                                          | ** ** | **Successor**         | ** ** | **Predecessor**       | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **Three Months** | ** ** | **Three Months** | ** ** |
| ** **                                                          | ** ** | **Ended**             | ** ** | **Ended**             | ** ** |
| ** **                                                          | ** ** | **March 31,**    | ** ** | **March 31,**    | ** ** |
| *(In millions)*                                                | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| Net income  (loss)                                                  | ** ** | **$**                 | **(4,139** | **)**                 | $          | (292 | ) |
| Pension, other  postretirement, and long-term disabilities benefits | ** ** | **70**                | ** ** | —                |       |
| Reclassification  of gain (loss) from hedging activities            | ** ** | **(54**               | **)**      | —                |       |
| Change in  unrealized gain (loss) on available-for-sale securities  | ** ** | **—**            | ** ** | 1                     |       |
| Comprehensive income  (loss)                                        | ** ** | **$**                 | **(4,123** | **)**                 | $          | (291 | ) |

 

**Note 14 – Pension and Other Postretirement Health CareBenefits**

 

TheCompany has several defined benefit pension plans and defined contribution 401(k)-type plans covering substantially allof its employees.  Northwest froze futurebenefit accruals for its defined benefit Pension Plans for Salaried Employees,Pilot Employees, and Contract Employees effective August 31, 2005, January 31,2006, and September 30, 2006, respectively.  Replacement coverage was provided for theseemployees through 401(k)-type defined contribution plans including the PilotMoney Purchase Plan or, in the case of IAM represented employees, the IAMNational Multi-Employer Plan.

 

Northwestalso sponsors various contributory and noncontributory medical, dental and lifeinsurance benefit plans covering certain eligible retirees and theirdependents.  The expected future cost ofproviding such postretirement benefits is accrued over the service lives ofactive employees.  Retired employees arenot offered Company-paid medical and dental benefits after age 64, with theexception of certain employees who retired prior to 1987 and receive lifetimeCompany-paid medical and dental benefits. Prior to age 65, the retiree share of the cost of medical and dentalcoverage is based on a combination of years of service and age atretirement.  Medical and dental benefitplans are unfunded and costs are paid as incurred.  The pilot group is provided Company-paiddecreasing life insurance coverage.

 

The Pension Protection Act of 2006 (“2006 Pension Act”) was signed intolaw on August 17, 2006.  The 2006Pension Act allows commercial airlines to elect special funding rules fordefined benefit plans that are frozen. The unfunded liability for a frozen defined benefit plan may beamortized over a fixed 17-year period. The unfunded liability is defined as theactuarial liability calculated using an 8.85% interest rate minus the fairmarket value of plan assets.  Northwestelected the special funding rules for frozen defined benefit plans underthe 2006 Pension Act effective October 1, 2006.  As a result of this election (1) thefunding waivers that Northwest received for the 2003 plan year contributionswere deemed satisfied under the 2006 Pension Act, and (2) the fundingstandard account for each Plan had no deficiency as of September 30,2006.  New contributions that came dueunder the 2006 Pension Act funding rules were paid while Northwest was inbankruptcy and must continue to be paid going forward.  If the new contributions are not paid, thefuture funding deficiency that would develop will be based on the regularfunding rules rather than the special funding rules.

 

Congress enacted, and the president signed into law on December 13,2007, a change in the retirement age for pilots from age 60 to 65.  Due to this legislative change, the Companyhas updated its retirement assumptions for pilots and assumes that certainpilots will continue to work past age 60. This change had an immaterial impacton Northwest’s overall pension benefit and other postretirement obligations.

 

16

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***Components of net periodic benefit cost of definedbenefit plans and defined contribution plan costs:***

*** ***
| ** **                                      | ** ** | **Pension Benefits**     | ** ** | **Other Benefits**       | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Successor**                 | ** ** | **Predecessor**               | ** ** | **Successor** | ** ** | **Predecessor** | ** ** |
| ** **                                      | ** ** | **Three Months**         | ** ** | **Three Months**         | ** ** | **Three Months** | ** ** | **Three Months** | ** ** |
| ** **                                      | ** ** | **Ended March 31,** | ** ** | **Ended March 31,** | ** ** | **Ended March 31,** | ** ** | **Ended March 31,** | ** ** |
| *(In millions)*                            | ** ** | **2008**                      | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| Defined benefit  plan costs                     | ** ** | ** **                    | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                    | ** ** | **$**                         | **6**      |                          | $          | 11 | ** ** | **$** | **6** |   | $ | 6 |   |
| Interest cost                                   | ** ** | **141**                       |       | 135                           | ** ** | **12** |   | 13 |   |
| Expected return  on plan assets                 | ** ** | **(140**                      | **)**      | (124                          | **)**      | **—** |   | — |   |
| Amortization of  prior service cost             | ** ** | **—**                    |       | —                        | ** ** | **—** |   | (9 | ) |
| Recognized net  actuarial loss and other events | ** ** | **—**                    |       | 11                            | ** ** | **—** |   | 10 |   |
| Net periodic  benefit cost                      | ** ** | **7**                         |       | 33                            | ** ** | **18** |   | 20 |   |
| ** **                                      | ** ** | ** **                    | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Defined  contribution plan costs                | ** ** | **28**                        |       | 16                            | ** ** | **—** |   | — |   |
| ** **                                      | ** ** | ** **                    | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total benefit  cost                             | ** ** | **$**                         | **35**     |                          | $          | 49 | ** ** | **$** | **18** |   | $ | 20 |   |

 

**Note 15 – Stock-Based Compensation**

 

Priorto the Effective Date, the Company maintained stock incentive plans forofficers and key employees of the Company (the “Prior Management Plans”) and astock option plan for pilot employees (the “Pilot Plan”).  On the Effective Date, outstanding awardsunder the Prior Management Plans and Pilot Plan were cancelled in accordancewith the terms of the Plan.  On theEffective Date, the Management Equity Plan (“the 2007 Plan”) of the SuccessorCompany provided for in the Plan of Reorganization became effective.  The 2007 Plan is a stock-based incentivecompensation plan, under which the Compensation Committee of the Board ofDirectors has the authority to grant equity-based awards including stockoptions, stock appreciation rights, restricted stock, restricted stock units,and/or other stock-based awards, including performance-based awards.  Each of these awards may be granted alone, inconjunction with, or in tandem with other awards under the 2007 Plan.  Awards may be to any employee of the Companyor its subsidiaries.  The number ofparticipants participating in the 2007 Plan will vary from year to year.  At its inception, the 2007 Plan provided that21.3 million shares of common stock of the Successor Company were available forissuance under the plan.  As of March 31,2008, approximately 6.0 million shares remained available for new awards to begranted under the 2007 Plan.

 

The total stock-based non-cash compensationexpense related to stock-based plans and liability awards for the three monthsended March 31, 2008 was $31.9 million and $0.5 million,respectively.  There was no correspondingtax benefit in 2008 related to the stock-based compensation, as the Companyrecords a full valuation allowance against its deferred tax assets due to theuncertainty regarding the ultimate realization of those assets.   See “Note 8 – Income Taxes” for additionalinformation.

 

**Note 16 – Subsequent Events**

 

*Merger Announcement.*  On April 14,2008, the Company and Delta entered into the Merger Agreement that provides,among other things, for the Company to be merged with a wholly-owned subsidiaryof Delta (the “Merger”).

 

Consummation of the Merger is subject tocustomary closing conditions, including shareholder approval by holders ofcommon stock of NWA Corp. and Delta and receiving certain domestic and foreignregulatory and antitrust approvals (including from the Federal AviationAdministration and the United States Department of Transportation, under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and pursuantto Council Regulation (EEC) 139/2004 of the European Commission).  The Merger Agreement contains certaintermination rights for both NWA Corp. and Delta.  The Merger Agreement further provides that,upon termination of the Merger Agreement under specified circumstances, theCompany may be required to pay to Delta, or Delta may be required to pay to theCompany, a termination fee of $165 million.

 

Underthe terms of the Merger Agreement, each outstanding share of the Company’s commonstock will be converted into the right to receive 1.25 shares of Delta commonstock.  Stock options and other equityawards granted under the Company’s 2007 Management Equity Plan will convertinto stock options and equity awards with respect to Delta common stock, aftergiving effect to the exchange ratio.

 

17

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Certaincontracts, employee benefit arrangements and debt instruments of the Companycontain change in control provisions that may be triggered by the Merger,resulting in changes to the terms or settlement amounts of the contracts,arrangements or instruments.

 

Wecurrently expect the Merger to close by the end of 2008.  However, factors outside of our control couldrequire us to complete the Merger at a later time or not to complete it at all.

 

18

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** ****Item 2.   Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

**Overview**

 

On September 14, 2005 (the “Petition Date”),NWA Corp. and 12 of its direct and indirect subsidiaries (collectively, the “Debtors”)filed voluntary petitions for relief under Chapter 11 of the United StatesBankruptcy Code with the United States Bankruptcy Court for the SouthernDistrict of New York (the “Bankruptcy Court”). Subsequently, on September 30, 2005, NWA Aircraft Finance, Inc.,an indirect subsidiary of NWA Corp., also filed a voluntary petition for reliefunder Chapter 11.  On May 18, 2007,the Bankruptcy Court entered an order approving and confirming the Debtors’First Amended Joint and Consolidated Plan of Reorganization Under Chapter 11 ofthe Bankruptcy Code (as confirmed, the “Plan” or “Plan of Reorganization”).  The Plan became effective and the Debtorsemerged from bankruptcy protection on May 31, 2007 (the “Effective Date”).

 

On the Effective Date, the Company implementedfresh-start reporting in accordance with SOP 90-7.  Thus the consolidated financial statementsprior to June 1, 2007 reflect results based upon the historical cost basisof the Company while the post-emergence consolidated financial statementsreflect the new basis of accounting incorporating the fair value adjustmentsmade in recording the effects of fresh-start reporting.  Therefore, the post-emergence periods are notcomparable to the pre-emergence periods. However, for discussions on the results of operations, the Companybelieves that comparisons of financial results between the post-emergence andpre-emergence periods provide management and investors with a betterperspective of the Company’s core business and on-going operational financialperformance and trends.

 

*Merger Announcement.*  On April 14, 2008, the Company and DeltaAir Lines, Inc. (“Delta”) entered into an Agreement and Plan of Merger(the “Merger Agreement”) that provides, among other things, for the Company tobe merged with a wholly-owned subsidiary of Delta (the “Merger”).

 

Consummation of the Merger is subject tocustomary closing conditions, including shareholder approval by holders ofcommon stock of NWA Corp. and Delta and receiving certain domestic and foreignregulatory and antitrust approvals (including from the Federal AviationAdministration and the United States Department of Transportation, under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and pursuantto Council Regulation (EEC) 139/2004 of the European Commission).  The Merger Agreement contains certaintermination rights for both NWA Corp. and Delta.  The Merger Agreement further provides that,upon termination of the Merger Agreement under specified circumstances, theCompany may be required to pay to Delta, or Delta may be required to pay to theCompany, a termination fee of $165 million.

 

Underthe terms of the Merger Agreement, each outstanding share of the Company’scommon stock will be converted into the right to receive 1.25 shares of Deltacommon stock.  Stock options and otherequity awards granted under the Company’s 2007 Management Equity Plan willconvert into stock options and equity awards with respect to Delta commonstock, after giving effect to the exchange ratio.

 

Certaincontracts, employee benefit arrangements and debt instruments of the Companycontain change in control provisions that may be triggered by the Merger,resulting in changes to the terms or settlement amounts of the contracts,arrangements or instruments.

 

Wecurrently expect the Merger to close by the end of 2008.  However, factors outside of our control couldrequire us to complete the Merger at a later time or not to complete it at all.

 

**FirstQuarter 2008 Results**

 

For the quarter ended March 31, 2008, theCompany recorded a net loss of $4.1 billion. This compares to a first quarter 2007 net loss of $292 million.  Excluding aircraft and inventory impairmentcharges of $17.2 million and goodwill impairment charges of $3.9 billion,respectively, the Company reported a net loss of $205 million during the firstquarter of 2008.  Excludingreorganization expense items of $393 million, the Company reported a 2007 firstquarter net profit of $101 million.

 

Operating revenues in the first quarter increased8.8 percent versus the first quarter of 2007 to $3.1 billion.  System consolidated passenger revenueincreased 6.2 percent primarily due to a 4.1 percent improvement in unitrevenue.  Excluding the impact offresh-start accounting, system consolidated passenger revenue increased 7.1 percentprimarily due to a 5.0 percent improvement in unit revenue.

 

19

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Operating expenses in the first quarter increased$4.5 billion versus the first quarter of 2007.** **Aircraftfuel and taxes increased 58.2 percent compared with the first quarter of 2007,primarily due to an increase in price. During the first quarter, mainline fuel averaged $2.77 per gallon,excluding taxes and mark-to-market losses related to future period fuelderivative contracts, a 49.7 percent increase over the prior year.  Additionally, the Company recorded, asadditional depreciation expense, impairment charges of $17.2 million associatedwith three Boeing 747F aircraft and two DC9-30 aircraft and relatedinventory.  The Company also recorded anon-cash goodwill impairment charge of $3.9 billion to reduce the book value ofNorthwest’s equity to its implied fair value as of the Merger announcementdate.

 

AtMarch 31, 2008, the Companyhad cash and cash equivalents of $3.2 billion, unrestricted short-terminvestments of $40 million, and borrowing capacity under an undrawn creditfacility of $117 million, providing total available liquidity of $3.3 billion.  Thisamount excludes $484 million of restricted short-term investments (which mayinclude amounts held as cash).

 
| **REPORTED  NET INCOME (LOSS) EXCLUDING IMPAIRMENT CHARGES AND REORGANIZATION EXPENSE  ITEMS** |
|------------------------------------------------------------------------------------------------|

 
| ** **                                                                       | ** ** | **Successor**                                    |       | **Predecessor**                                  | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Three Months  Ended March 31,** |       | **Three Months  Ended March 31,** | ** ** |
| *(In millions)*                                                             | ** ** | **2008**                                         |       | **2007**                                         | ** ** |
| Net income  (loss) (as reported)                                                 | ** ** | **$**                                            | **(4,139** | **)**                                            | $          | (292 | ) |
| Excluding:                                                                       |       |                                             | ** ** |                                             |       |
| Reorganization  items, net                                                       | ** ** | **—**                                       | ** ** | 393                                              |       |
| Goodwill  impairment                                                             | ** ** | **3,917**                                        | ** ** | —                                           |       |
| Aircraft-related  impairments                                                    | ** ** | **17**                                           | ** ** | —                                           |       |
| Net income  (loss) excluding impairment charges and reorganization expense items |       | **$**                                            | **(205**   | **)**                                            | $          | 101 |   |

 

20

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**OperatingStatistics – Three months ended March 31, 2008 and 2007**

 

Information with respect to the Company’s operating statistics follows:

 
| **PASSENGER  AND REGIONAL CARRIER REVENUES AND STATISTICAL RESULTS** |
|----------------------------------------------------------------------|

 
| ** **                                               | ** ** | **Three Months Ended** | ** **     | ** **  | ** ** |
|----------------------------------------------------------|------------|----------------------------------|----------------|-------------|------------|
| ** **                                               | ** ** | **March 31**                | ** **     | **Percent** | ** ** |
| ** **                                               | ** ** | **2008**                         | ** **     | **2007**    | ** ** | **Change** | ** ** |
| **Scheduled  service - Consolidated: (1)**               |       |                             |           |        |       |   |   |
| Available seat  miles (ASM) (millions)                   | ** ** | **23,359**                       |           | 22,893      |       | 2.0 |   |
| Revenue  passenger miles (RPM) (millions)                | ** ** | **19,214**                       |           | 18,618      |       | 3.2 |   |
| Passenger load  factor                                   | ** ** | **82.3**                         | %              | 81.3        | %          | 1.0 |   |
| Revenue  passengers (millions)                           | ** ** | **15.9**                         |           | 15.6        |       | 1.9 |   |
| Passenger  revenue per RPM (yield)                       | ** ** | **13.78**                        | *¢ * | 13.39       | *¢*   | 2.9 | * * |
| Passenger  revenue per ASM (RASM)                        | ** ** | **11.34**                        | *¢ * | 10.89       | *¢*   | 4.1 | * * |
|                                                     |       |                             |           |        |       |   |   |
| **Fuel  gallons consumed - Consolidated** (millions) (1) | ** ** | **420**                          |           | 419         |       | 0.2 |   |
|                                                     |       |                             |           |        |       |   |   |
| **Scheduled  service - Mainline: (2)**                   |       |                             |           |        |       |   |   |
| Available seat  miles (ASM) (millions)                   | ** ** | **21,144**                       |           | 21,252      |       | (0.5 | ) |
| Revenue  passenger miles (RPM) (millions)                | ** ** | **17,621**                       |           | 17,492      |       | 0.7 |   |
| Passenger load  factor                                   | ** ** | **83.3**                         | %              | 82.3        | %          | 1.0 |   |
| Revenue  passengers (millions)                           | ** ** | **12.3**                         |           | 12.9        |       | (4.7 | ) |
| Passenger  revenue per RPM (yield)                       | ** ** | **12.71**                        | *¢*       | 12.59       | *¢*   | 1.0 | * * |
| Passenger  revenue per ASM (RASM)                        | ** ** | **10.59**                        | *¢*       | 10.36       | *¢*   | 2.2 | * * |
|                                                     |       |                             |           |        |       |   |   |
| **Fuel  gallons consumed - Mainline** (millions) (2)     | ** ** | **367**                          |           | 378         |       | (2.9 | ) |

 

----

(1)          Consolidated statistics include Northwest Airlink regional carriers.

 

(2)          Mainlinestatistics exclude Northwest Airlink regional carriers, which is consistentwith how the Company reports statistics to the Department of Transportation (“DOT”).

 

21

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| **MAINLINE  OPERATING STATISTICAL RESULTS (1)** |
|-------------------------------------------------|

 
| ** **                                                                                                                                        | ** ** | **Three Months Ended** | ** **     | ** **  | ** **     |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|----------------|-------------|----------------|
| ** **                                                                                                                                        | ** ** | **March 31**                | ** **     | **Percent** | ** **     |
| ** **                                                                                                                                        | ** ** | **2008**                         | ** **     | **2007**    | ** **     | **Change** | ** ** |
| Total operating  ASM (millions)                                                                                                                   | ** ** | **21,269**                       |           | 21,268      |           | — |   |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Passenger  service operating expense per total ASM (2) (3)                                                                                   | ** ** | **12.24**                        | *¢*       | 10.32       | *¢*       | 18.6 | * * |
| Mainline fuel  expense per total ASM                                                                                                              | ** ** | **4.54**                         | *¢*       | 2.95        | *¢*       | 53.9 | * * |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Mark-to-market  gains (losses) per total ASM related to fuel derivative contracts that settle  in future periods                                  |       | **(0.04**                        | **)***¢*  | 0.13        | *¢*       | n/m | * * |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Mainline fuel  expense per total ASM, excluding mark-to-market gains (losses) related to  fuel derivative contracts that settle in future periods |       | **4.50**                         | *¢ * | 3.08        | *¢*  | 46.1 |   |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Cargo ton miles  (millions)                                                                                                                       | ** ** | **458**                          |           | 457         |           | 0.2 |   |
| Cargo revenue  per ton mile                                                                                                                       | ** ** | **43.10**                        | *¢ * | 41.40       | *¢*  | 4.1 | * * |
| Fuel gallons  consumed (millions)                                                                                                                 | ** ** | **367**                          |           | 378         |           | (2.9 | ) |
| Average fuel  cost per gallon, excluding taxes                                                                                                    | ** ** | **279.74**                       | *¢ * | 177.13      | *¢*  | 57.9 | * * |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Mark-to-market  gains (losses) per fuel gallons consumed related to fuel derivative contracts  that settle in future periods                      |       | **(3.20**                        | **)***¢*  | 7.57        | *¢*  | n/m |   |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Average fuel  cost per gallon, excluding fuel taxes and mark-to-market gains related to  fuel derivative contracts that settle in future periods  |       | **276.54**                       | *¢ * | 184.70      | *¢*  | 49.7 |   |
|                                                                                                                                              |       |                             |           |        |           |   |   |
| Number of  operating aircraft at end of period                                                                                                    | ** ** | **348**                          |           | 375         |           | (7.2 | ) |
| Full-time  equivalent employees at end of period                                                                                                  | ** ** | **30,053**                       |           | 30,008      |           | 0.1 |   |

 

----

(1)          Mainline statistics exclude Northwest Airlink regional carriers, which isconsistent with how the Company reports statistics to the DOT.

 

(2)          This financial measure excludes non-passenger service expenses.  The Company believes that providing financialmeasures directly related to passenger service operations allows investors toevaluate and compare the Company’s core operating results to those of theindustry.

 

(3)          Passenger service operating expense excludes the following itemsunrelated to passenger service operations, net of eliminations whereapplicable:

 

| ** **                 | ** ** | **Three Months Ended** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **March 31**                | ** ** |
| *(In millions)*       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Goodwill  impairment       | ** ** | **$**                            | **3,917**  |   | $ | — |   |
| Regional carrier  expenses | ** ** | **413**                          |       | 274 |   |
| Freighter  operations      | ** ** | **182**                          |       | 134 |   |
| MLT Inc.                   | ** ** | **44**                           |       | 55 |   |
| Other                      | ** ** | **19**                           |       | 16 |   |
|                            |            |                                  |            |  |  |  |  |

 

22

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**Results of Operations – Three monthsended March 31, 2008 and 2007**

 

*Operating**Revenues*.  Operating revenues increased8.8% ($254 million), the result of increased regional carrier revenues, systempassenger revenue, charter revenue, and other revenue.

 

*System Passenger Revenues.*  In the following analysis by region, mainlinestatistics exclude Northwest Airlink regional carriers, which is consistentwith how the Company reports statistics to the DOT.  On the Effective Date, in conjunction withimplementing fresh-start reporting, the Company changed its policies pertainingto the accounting for frequent flyer obligations.  Frequent flyer obligations are now recognizedon a deferred revenue method versus an incremental cost method.  The impact of the changes to accounting forfrequent flyer obligations on the Successor Company was a reduction of $26.0million in mainline passenger revenue and an increase of $3.8 million inregional carrier revenue for the three months ended March 31, 2008.  The following analysis by region outlines theCompany’s performance as reported and excluding fresh-start related changes:

** **
| ** **                                  | ** ** | **Mainline** | ** ** | **Total**   | ** ** | ** **   | ** ** |
|---------------------------------------------|------------|--------------|------------|-------------|------------|--------------|------------|
| ** **                                  | ** ** | **Domestic** | ** ** | **Pacific** | ** ** | **Atlantic** | ** ** | **Mainline** | ** ** | **Consolidated** | ** ** |
| **As reported:**                       |       |         |       |        |       |         |       |   |   |   |   |
| **2008**                                    |       |         |       |        |       |         |       |   |   |   |   |
| Passenger  revenues (in millions)           |       | $            | 1,392      |        | $          | 539          |       | $ | 308 |   | $ | 2,239 |   | $ | 2,649 |   |
|                                        |       |         |       |        |       |         |       |   |   |   |   |
| **Increase  (Decrease) from 2007:**         |       |         |       |        |       |         |       |   |   |   |   |
| Passenger  revenues (in millions)           |       | $            | (23        | )           | $          | 24           |       | $ | 36 |   | $ | 37 |   | $ | 155 |   |
| Percent                                     |       | (1.6         | )%         | 4.7         | %          | 13.2         | %          | 1.7 | % | 6.2 | % |
|                                        |       |         |       |        |       |         |       |   |   |   |   |
| Scheduled  service ASMs (capacity)          |       | (3.6         | )%         | (2.4        | )%         | 16.4         | %          | (0.5 | )% | 2.0 | % |
| Scheduled  service RPMs (traffic)           |       | (0.6         | )%         | (1.7        | )%         | 11.3         | %          | 0.7 | % | 3.2 | % |
| Passenger load  factor                      |       | 2.5          | pts.       | 0.7         | pts.       | (3.6         | )pts.      | 1.0 | pts. | 1.0 | pts. |
| Yield                                       |       | (1.1         | )%         | 6.6         | %          | 1.7          | %          | 0.9 | % | 2.9 | % |
| Passenger RASM                              |       | 2.0          | %          | 7.5         | %          | (2.8         | )%         | 2.2 | % | 4.1 | % |
|                                        |       |         |       |        |       |         |       |   |   |   |   |
| **Excluding  fresh-start related changes:** |       |         |       |        |       |         |       |   |   |   |   |
| **2008**                                    |       |         |       |        |       |         |       |   |   |   |   |
| Passenger  revenues (in millions)           |       | $            | 1,396      |        | $          | 557          |       | $ | 312 |   | $ | 2,265 |   | $ | 2,671 |   |
|                                        |       |         |       |        |       |         |       |   |   |   |   |
| **Increase  (Decrease) from 2007:**         |       |         |       |        |       |         |       |   |   |   |   |
| Passenger  revenues (in millions)           |       | $            | (19        | )           | $          | 42           |       | $ | 40 |   | $ | 63 |   | $ | 177 |   |
| Percent                                     |       | (1.3         | )%         | 8.2         | %          | 14.7         | %          | 2.9 | % | 7.1 | % |
|                                        |       |         |       |        |       |         |       |   |   |   |   |
| Yield                                       |       | (0.8         | )%         | 10.1        | %          | 3.1          | %          | 2.1 | % | 3.8 | % |
| Passenger RASM                              |       | 2.3          | %          | 11.0        | %          | (1.5         | )%         | 3.4 | % | 5.0 | % |

 

*Regional Carrier Revenues*.  Regional carrier revenuesincreased 40.4 percent ($118 million) to $410 million primarily due to a 34.9percent increase in available seat miles, resulting in a 4.1 percentimprovement in unit revenue.

 

*Cargo Revenues*.  Cargo revenues increased 4.8percent ($9 million) to $198 million due primarily to a 4.1 percent improvementin yield.

 

*Other Revenues. *Otherrevenues increased 47.4 percent ($90 million) due to increased charter andpartner revenues, and the portion of payments received from non-airlinemarketing partners for frequent flyer miles that is now recorded in OtherRevenues.   

 

23

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*Operating Expenses*.  Operating expenses increased$4.5 billion for the three months ended March 31, 2008 as compared to thethree months ended March 31, 2007. As a result of the adoption of fresh-start reporting, the Company’sfinancial statements on or after June 1, 2007 are not comparable with itspre-emergence financial statements because they are, in effect, those of a newentity.  The effects of fresh-startreporting and the impact of exit-related stock compensation expense on theCompany’s Condensed Consolidated Statements of Operations are itemized incolumn (1).  During the first quarter of2008, the Company recorded impairment charges associated with aircraft andgoodwill, the impacts are itemized in column (2). On April 24, 2007,Mesaba Aviation, Inc. was acquired by the Company and became awholly-owned consolidated subsidiary, the impact of which is itemized in column(3).  Excluding the items describedabove, the comparable year-over-year operating performance variances areitemized in column (4).  The followingtable and notes present operating expenses for the three months ended March 31,2008 and 2007 and describe significant year-over-year variances:

 
| ** **                      | ** ** | **Successor**      | ** ** | **Predecessor**    | ** ** | **Increase (Decrease) Due To:** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **     | ** ** |
|---------------------------------|------------|--------------------|------------|--------------------|------------|------------------------------------------------|------------|----------------|------------|-----------------|------------|----------------|------------|
| ** **                      | ** ** | **Three**          | ** ** | **Three**          | ** ** | **(1)**                                        | ** ** | **(2)**        | ** ** | **(3)**         | ** ** | **(4)**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Months**         | ** ** | **Months**         | ** ** | **Fresh-Start/**                               | ** ** | ** **     | ** ** | ** **      | ** ** | ** **     | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Ended**          | ** ** | **Ended**          | ** ** | **Exit-Related**                               | ** ** | ** **     | ** ** | **Mesaba**      | ** ** | ** **     | ** ** | ** ** | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **March 31,** | ** ** | **March 31,** | ** ** | **Stock Comp**                            | ** ** | **Impairment** | ** ** | **Net of** | ** ** | ** **     | ** ** | ** ** | ** ** | **(Decrease)** | ** ** | **Percent** | ** ** |
| *(In millions)*            | ** ** | **2008**           | ** ** | **2007**           | ** ** | **Expense**                                    | ** ** | **Charges**    | ** ** | **Elimination** | ** ** | **Operations** | ** ** | **Note** | ** ** | **from 2007** | ** ** | **Change** | ** ** |
| **Operating  Expenses**         |       |               |       |               |       |                                           |       |           |       |            |       |           |       |   |   |   |   |   |   |
| Aircraft fuel and  taxes        | ** ** | **$**              | **1,114**  |               | $          | 704                                            |       | $              | —     |            | $          | —         |       | $ | 1 |   | $ | 409 |   | A |   | $ | 410 |   | 58.2 | % |
| Salaries, wages  and benefits   | ** ** | **670**            |       | 615                |       | 8                                              |       | —         |       | 35              |       | 12             |       | B |   | 55 |   | 8.9 |   |
| Aircraft  maintenance           |       |               |       |               |       |                                           |       |           |       |            |       | —         |       |   |   |   |   |   |   |
| materials and  repairs          | ** ** | **221**            |       | 184                |       | —                                         |       | —         |       | 10              |       | 27             |       | C |   | 37 |   | 20.1 |   |
| Selling and  marketing          | ** ** | **193**            |       | 191                |       | —                                         |       | —         |       | —          |       | 2              |       | D |   | 2 |   | 1.0 |   |
| Depreciation and  amortization  | ** ** | **148**            |       | 121                |       | (2                                             | )          | 17             |       | 2               |       | 10             |       | D |   | 27 |   | 22.3 |   |
| Other rentals and  landing fees | ** ** | **138**            |       | 141                |       | —                                         |       | —         |       | 5               |       | (8             | )          | D |   | (3 | ) | (2.1 | ) |
| Aircraft rentals                | ** ** | **93**             |       | 96                 |       | —                                         |       | —         |       | —          |       | (3             | )          | D |   | (3 | ) | (3.1 | ) |
| Regional carrier  expenses      | ** ** | **205**            |       | 211                |       | —                                         |       | —         |       | (54             | )          | 48             |       | E |   | (6 | ) | (2.8 | ) |
| Goodwill  impairment            | ** ** | **3,917**          |       | —             |       | —                                         |       | 3,917          |       | —          |       | —         |       | F |   | 3,917 |   | n/m |   |
| Other                           | ** ** | **481**            |       | 409                |       | —                                         |       | —         |       | 11              |       | 61             |       | G |   | 72 |   | 17.6 |   |
| **Total  operating expenses**   | ** ** | **$**              | **7,180**  |               | $          | 2,672                                          |       | $              | 6          |            | $          | 3,934          |       | $ | 10 |   | $ | 558 |   |   |   | $ | 4,508 |   | 168.7 | % |
|                            |       |               |       |               |       |                                           |       |           |       |            |       |           |       |   |   |   |   |   |   |

----

A.           Aircraft fuel and taxes increased due to a 49.7 percent increase in theaverage mainline fuel cost per gallon, excluding fuel taxes and mark-to-marketadjustments related to fuel derivative contracts that will settle in futureperiods.  During the first quarter of2008, we recognized $5.3 million of net fuel derivative gains as reductions infuel expense, including $12.3 million of unrealized losses related to fuelderivative contracts that will settle during the remainder of 2008.

B.             Salaries, wages and benefits were relatively flat year-over-year afterthe effects of fresh-start reporting, exit-related stock compensation expenseand the consolidation of Mesaba.

C.             Aircraft maintenance materials and repairs increased largely due toincreased engine repairs.

D.            Selling and marketing expense, depreciation and amortization, otherrentals and landing fees and aircraft rentals were relatively flatyear-over-year.  See “Item 1.Financial Statements, Note 12 –Aircraft Impairments” for information pertaining to aircraft-relatedimpairments recorded during the first quarter.

E.              Regional carrier expenses increased primarily due to higher fuel costs.

F.              During the first quarter of 2008, the Company recorded a non-cashgoodwill impairment charge to reduce the book value of Northwest’s equity toits implied fair value as of the Merger announcement date.  See “Note 4 - Goodwill and Intangibles” foradditional information.

G.             Other expenses (which include MLT operating expenses, outside services,insurance, passenger food, personnel expenses, communication expenses andsupplies) were higher versus prior year largely due to an increase in outsideservices with the shift to third party vendors versus internally staffedstation operations.  Increased personnelexpenses and supplies also contributed to the variance.

 

*Other Income and Expense.*  Non-operating expense decreased 82.6% ($408 million)year-over-year primarily due to the Company’s emergence from bankruptcy thuseliminating reorganization expenses.  See“Item 1. Financial Statements, Note 7 – Reorganization Related Items” foradditional information related to reorganization items.

 

*Tax Expense (Benefit).*  Given recent loss experience, the Companyprovides a valuation allowance against tax benefits, principally for netoperating losses in excess of its deferred tax liability.  It is more likely than not that futuredeferred tax assets will require a valuation allowance to be recorded to fullyreserve against the uncertainty that those assets would be realized.  See “Item 1. Financial Statements, Note 8 –Income Taxes” for additional discussion of the Company’s tax accounts.

 

24

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**Liquidity and Capital Resources**

 

AtMarch 31, 2008, the Company had cash and cash equivalents of $3.2 billion,unrestricted short-term investments of $40 million, and borrowing capacityunder an undrawn credit facility of $117 million, providing total availableliquidity of $3.3 billion.  This amount excludes $484 million ofrestricted short-term investments (which may include amounts held as cash).

 

*Cash Flows.* Liquidity increased by $209million during the three months ended March 31, 2008, primarily due to netcash provided by operating activities.

 

*Operating Activities.*  Net cash provided by operatingactivities for the three months ended March 31, 2008 was $362 million,which compares with $634 million of cash provided by operating activities forthe three months ended March 31, 2007. The decrease in year-over-year net cash provided by operations wasprimarily due to reduced net income in 2008 and the 2007 increase in operatingcash flows due to the release of bankruptcy-related vendor holdbacks.

 

*Investing Activities.*  Investing activities during thethree months ended March 31, 2008 included the contribution of $213million for a minority ownership interest in Midwest Air Partners, LLC which inturn purchased Midwest Air Group, Inc. during the quarter and the purchaseof six CRJ900 and eight Embraer 175 aircraft and other related costs. Otherrelated costs included engine purchases, costs to commission aircraft beforeentering revenue service, deposits on ordered aircraft, facility improvementsand ground equipment purchases. Additionally, during the three months ended March 31, 2008, theCompany had decreases in restricted cash, cash equivalents and short-terminvestments, proceeds from the sales of short-term investments and sold its Class APreferred share to Pinnacle for a purchase price of $20 million.  Investing activities for the three monthsended March 31, 2007 included increases in the Company’s restricted cash,cash equivalents and short-term investments balances due to additional fundingof the Company’s irrevocable tax trust, and proceeds from the InternationalAssociation of Machinists and Aerospace Workers (“IAM”) claim sale which weredistributed to employees in April of 2007 as well as the purchase of twoA330-300 and other related costs.

 

*Financing Activities. *Financingactivities during the three months ended March 31, 2008 consistedprimarily of the financing of six CRJ900 and eight Embraer 175 aircraft withlong-term debt and scheduled debt payments. Financing activities in the three months ended March 31,2007 consisted primarily of scheduled debt payments.

 

The Company alsofinanced the delivery of two Airbus A330-300 aircraft during the three monthsended March 31, 2007 through non-cash transactions with the manufacturer,which are reflected as long-term debt on the Company’s Condensed ConsolidatedBalance Sheets, but are not classified as a cash flow activity.  In connection with the acquisition of theseaircraft, the Company entered into long-term debt arrangements.  Under these arrangements, the aggregateamount of debt incurred totaled approximately $167 million.

 

Investing activities affecting cash flows andnon-cash financing transactions related to the initial acquisition of aircraftconsisted of the following for the three months ended March 31, 2008 and2007:

 

| ** **           | ** ** | **Investing Activities  Affecting Cash  Flows** | ** ** | **Non-cash Financing  Transactions** | ** ** |
|----------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **           | ** ** | **2008**                                                  | ** ** | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
|                 |       |                                                      |       |                                      |       |   |   |   |   |
| **Airbus  A330-300** | ** ** | **—**                                                |       | —                                    | ** ** | **—** |   | 2 |   |
| **CRJ900**           | ** ** | **6**                                                     |       | —                                    | ** ** | **—** |   | — |   |
| **Embraer  175**     | ** ** | **8**                                                     |       | —                                    | ** ** | **—** |   | — |   |
| ** **           |       | **14**                                                    |       | —                                    | ** ** | **—** |   | 2 |   |

 

25

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*Debt*.  Maturities of long-term debt, excludingcapital lease obligations, through December 31, 2012, are as follows (inmillions):

 

| remainder of   2008 |   | $   | 355    |   |
|-------------------------------|--------|-----|--------|--------|
| 2009                          |   | 598 |   |
| 2010                          |   | 445 |   |
| 2011                          |   | 620 |   |
| 2012                          |   | 452 |   |

 

On August 21, 2006, the Predecessor Company entered into a $1.225billion Senior Corporate Credit Facility (“Bank Credit Facility”), formerlycalled the DIP/Exit Facility, consisting of a $1.05 billion term loan facilityand a $175 million revolving credit facility which has been fully drawn sincethe inception of the Bank Credit Facility. The final maturity date of the Bank Credit Facility is August 21,2013.  Principal on the term loan portionof the Bank Credit Facility will be repaid at 1.0% per year with the balance(94%) due at maturity.  The first suchprincipal repayment was made on August 21, 2007.  Loans drawn under the $175 million revolvingcredit facility may be borrowed and repaid at the Company’s discretion.  Up to $75 million of the revolving creditfacility may be utilized by the Company as a letter of credit facility.  As amended in March 2007, both loanfacilities under the Bank Credit Facility bear interest at LIBOR plus 2.00%.  Letter of credit fees will be charged at thesame credit spread as on the borrowings plus 12.5 basis points.  To the extent that the revolving creditfacility is not utilized, the Company is required to pay an undrawn commitmentfee of 50 basis points per annum.  TheBank Credit Facility received a credit rating of BB from Standard &Poor’s Rating Services (“S&P”) and a Ba3 from Moody’s Investors Service, Inc.(“Moody’s”) and is secured by a first lien on the Company’s Pacific Routeauthorities.  The March 2007amendment also allowed the Company to grant pari-passu liens in the PacificRoute authorities to secure up to $150 million of exposure arising from hedgingtrades entered into with Bank Credit Facility lenders.  The interest rate as of March 31, 2008was 4.87% on both the term loan facility and the revolving credit facility.

 

The Bank Credit Facilityrequires ongoing compliance with financial covenants requiring the Company tomaintain unrestricted cash of at least $750 million, a collateral coverageratio of at least 1.50 to 1.0 and a minimum ratio of EBITDAR to consolidatedfixed charges (“Fixed Charge Coverage Ratio”). Under a recent amendment to the Bank Credit Facility completed in April 2008,compliance by the Company with the Fixed Charge Coverage Ratio has been waivedfrom April 1, 2008 through March 31, 2009 and thereafter isdetermined as set forth below:

 
| **Number of**      | ** ** | ** **                                                  | ** ** | **Required**            | ** ** |
|-------------------------|------------|-------------------------------------------------------------|------------|-------------------------|------------|
| **Months Covered** | ** ** | **Period Ending**                                      | ** ** | **Coverage Ratio** | ** ** |
| Three                   |       | June 30, 2009.                                         |       | 1.00 to 1.0             |       |
| Six                     |       | September 30, 2009                                     |       | 1.10 to 1.0             |       |
| Nine                    |       | December 31, 2009                                      |       | 1.20 to 1.0             |       |
| Twelve                  |       | March 31, 2010                                         |       | 1.30 to 1.0             |       |
| Twelve                  |       | June 30, 2010                                          |       | 1.40 to 1.0             |       |
| Twelve                  |       | September 30, 2010 and each quarter ending  thereafter |       | 1.50 to 1.0             |       |

 

For purposes of calculatingthis ratio, EBITDAR is defined as operating income, adjusted to exclude theeffects of depreciation, amortization, aircraft rents and costs (including upto $150 million of cash costs) payable in connection with a merger oracquisition to include the effects of interest income and governmentalreimbursements for losses resulting from developments affecting the aviationindustry.  Earnings also excludenon-recurring non-cash charges (subject to the inclusion of any cash paymentsthen or thereafter made with respect thereto) and are determined without givingeffect to any acceleration of rental expense. Fixed charges are defined as interest expense (excluding fees andexpenses in connection with the recent amendment) and aircraft rent expense(net of certain aircraft sub-lease rental income and without giving effect toany acceleration of rental expense).

 

Althoughthe Company was in compliance with all required financial covenants as of March 31,2008, continued compliance depends on many factors, some of which are beyondthe Company’s control, including the overall industry revenue environment andthe level of fuel costs.

 

26

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* *

*Aircraft Commitments.* Committed expenditures for aircraft and relatedequipment, including estimated amounts for contractual price escalations andpredelivery deposits, will be approximately (in millions):

 
| remainder of   2008 |   | $   | 869    |   |
|-------------------------------|--------|-----|--------|--------|
| 2009                          |   | 374 |   |
| 2010                          |   | 854 |   |
| 2011                          |   | 282 |   |
| 2012                          |   | 632 |   |

 

*Pension Funding Obligations.*****The Company has several defined benefit pension plans and defined contribution 401(k)-type planscovering substantially all of its employees. Northwest froze future benefitaccruals for its defined benefit Pension Plans for Salaried Employees, PilotEmployees, and Contract Employees effective August 31, 2005, January 31,2006, and September 30, 2006, respectively. Replacement pension coverageis provided for these employees through 401(k)-type defined contribution plansincluding the Pilot Money Purchase Plan or, in the case of IAM representedemployees, the IAM National Multi-Employer Plan.

 

The Pension Protection Act of 2006 (“2006 Pension Act”)was signed into law on August 17, 2006. The 2006 Pension Act allowscommercial airlines to elect special funding rules for defined benefitplans that are frozen. The unfunded liability for a frozen defined benefit planmay be amortized over a fixed 17-year period. The unfunded liability is definedas the actuarial liability calculated using an 8.85% interest rate minus thefair market value of plan assets. Northwest elected the special funding rules forfrozen defined benefit plans under the 2006 Pension Act effective October 1,2006. As a result of this election (1) the funding waivers that Northwestreceived for the 2003 plan year contributions were deemed satisfied under the2006 Pension Act, and (2) the funding****standardaccount for each Plan had no deficiency as of September 30, 2006. Newcontributions that came due under the 2006 Pension Act funding rules werepaid while Northwest was in bankruptcy and must continue to be paid goingforward. If the new contributions are not paid, the future funding deficiencythat would develop will be based on the regular funding rules rather thanthe special funding rules.

 

It is Northwest’s policy to fund annually at leastthe minimum contribution as required by the Employee Retirement Income SecurityAct of 1974, as amended (“ERISA”).

 

**Critical Accounting Estimates**

 

*Goodwill Impairment.*The Company tests the carrying amount ofgoodwill and other indefinite-lived intangible assets annually as of October 1or whenever events or circumstances indicate that impairment may have occurred.Impairment testing is performed in accordance with SFAS No. 142, *Goodwill and Other Intangible Assets* (“SFASNo. 142”). The Company is annually required to complete Step 1(determining and comparing the fair value of the Company’s reporting unit toits carrying value) of the impairment test. Step 2 is required to be completedif Step 1 indicates that the carrying value of the reporting unit exceeds thefair value and involves the calculation of the implied fair value of goodwill. Step2 of the goodwill impairment test involves measuring the Company’s other assetsand liabilities at fair value to calculate an implied fair value of goodwilland measure the amount of impairment, if any.

 

In completing our first quarter evaluation, we considered the impact ofcurrent high fuel prices, Northwest’s recent stock price, other industry trendsand the equity value of Northwest implied by the recent Merger announcement andhave determined that impairment to goodwill is required. To make thisdetermination, the Company compared the carrying value of its equity to itsfair value. For purposes of this evaluation, fair value has been determinedbased on the implied market value of Northwest’s equity in the announcedtransaction. As a result of this evaluation, the Company recorded a non-cashgoodwill impairment charge of $3.9 billion, or $14.94 per basic and dilutedshare for the quarter ended, our best estimate of impairment as of the filingdate.

 

Due to the limited time available between theannouncement date and the Company’s Form 10-Q filing date, there wasinsufficient time to complete Step 2 of the goodwill impairment test andcalculate the implied fair value of goodwill as described in SFAS No. 142. Once Step 2 of the goodwill impairmenttest is completed during the second quarter, the amount of impairment recordedcould increase or decrease.  See “Item 1.Financial Statements, Note 4 – Goodwill and Intangibles” for additionalinformation regarding the goodwill impairment.

 

The estimates and assumptions made in this valuationare inherently subject to significant uncertainties and the resolution ofcontingencies beyond the reasonable control of the Company. Accordingly, therecan be no assurance that the estimates, assumptions, and amounts reflected inthe valuations will be realized, and actual results could vary materially.  Moreover,the market value of the Company’s common stock may differ materially from theequity valuation.

 

27

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**Other Information**

 

*Foreign Currency.*The Company is exposed to theeffect of foreign currency exchange rate fluctuations on the U.S. dollar valueof foreign currency-denominated operating revenues and expenses. The Company’slargest exposure comes from the Japanese yen. From time to time, the Companyuses financial instruments to hedge its exposure to the Japanese yen. Hedginggains or losses are recorded in accumulated other comprehensive income (loss)until the associated transportation is provided, at which time they arerecognized as an increase or decrease in revenue. The Company hedged 8.6billion yen of its yen-denominated sales during the three months ended March 31,2008, resulting in an effective rate of 108.0 yen per U.S. dollar on exercisedoptions, the prevailing average contract rate for the period. The Company didnot hedge any of its yen-denominated sales during the three months ended March 31,2007. The average market yen rate for the quarters ended March 31, 2008and 2007 was 107.8 and 119.2, respectively.

 

On occasion, the Company uses forward contracts, collarsor put options to hedge a portion of its anticipated yen-denominated sales. Thechanges in market value of such instruments have historically been highlyeffective at offsetting exchange rate fluctuations in yen-denominated sales. Asof March 31, 2008, the Company had hedged approximately 47.6% of itsanticipated yen-denominated sales for the remainder of 2008 and 21.3% of itsanticipated 2009 yen-denominated sales. The 2008 Japanese yen hedges consist offorward contracts which hedge approximately 37.9% of remaining yen-denominatedsales at an average rate of 109.3 yen per U.S. dollar and collar options whichhedge approximately 9.7% of remaining yen-denominated sales with a rate rangebetween 102.4 and 116.4 yen per U.S. dollar. The 2009 Japanese yen hedgesconsist of forward contracts which hedge approximately 15.0% of its 2009anticipated yen-denominated sales at an average rate of 98.6 yen per U.S.dollar and collar options which hedge approximately 6.3% of remainingyen-denominated sales with a rate range between 99.5 and 103.5 yen per U.S.dollar. As of March 31, 2008, a $49.7 million unrealized loss wasoutstanding in accumulated other comprehensive income associated with theJapanese yen hedge contracts. The Company did not hedge any of its yen-denominatedsales during the three months ended March 31, 2007 and as of March 31,2007 had no hedges in place for its remaining 2007 yen-denominated sales.

 

As of March 31, 2008, the Company had alsohedged approximately 66.2% of its remaining 2008 anticipated Canadian dollardenominated sales with forward contracts at an average rate of 1.0009 Canadiandollars per U.S. dollar. An $8.2 million unrealized gain was outstanding inaccumulated other comprehensive income associated with the Canadian dollar hedgecontracts, as of March 31, 2008. The Company did not hedge any of itsCanadian dollar denominated sales during the three months ended March 31,2007 and as of March 31, 2007 had no hedges in place for its remaining2007 Canadian dollar denominated sales. The average Canadian dollar to U.S.dollar exchange rate for the quarters ended March 31, 2008 and 2007 was1.00 and 1.17, respectively.

 

Counterparties to these financial instruments exposethe Company to credit loss in the event of nonperformance, but the Company doesnot expect any of the counterparties to fail to meet their obligations. Theamount of such credit exposure is generally the unrealized gains, if any, insuch contracts. To manage credit risks, the Company selects counterpartiesbased on credit ratings, limits exposure to any single counterparty andmonitors the market position with each counterparty. It is the Company’spractice to participate in foreign currency hedging transactions with a maximumspan of 24 months.

 

*Aircraft Fuel.*The Company isexposed to the effect of changes in the price and availability of aircraft fuel.In order to provide a measure of control over price and supply, the Companytrades and ships fuel and maintains fuel storage facilities to support itsflight operations. To further manage the price risk of fuel costs, the Companyprimarily utilizes futures contracts traded on regulated futures exchanges,swap agreements and options.

 

As of March 31, 2008, the Company hadeconomically hedged the price of approximately 30% of its projected fuelrequirements for the remainder of 2008, through a combination ofcrude oil collars and three-way collars. All of the Company’s existing fuelderivative contracts expire on or before December 31, 2008. The collars,which hedge the price of approximately 22% of the Company’s expected fuelrequirements for the remainder of 2008, provide upside protection beginning, onaverage, with a crude oil equivalent price of $103.05 per barrel, and paymentobligations beginning, on average, with a crude oil equivalent price of $87.02per barrel.  The three-way collars, which hedge the price of approximately8% of the Company’s expected fuel requirements for the remainder of 2008,provide upside protection beginning, on average, with a crude oil equivalentprice of $104.92 per barrel and capped, on average, at $118.92 per barrel, andpayment obligations beginning, on average, with a crude oil equivalent price of$94.19 per barrel.

 

28

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The Company currently has no fuel derivativecontracts outstanding that are designated for special hedge accountingtreatment, and therefore had no related unrealized gains (losses) inaccumulated other comprehensive income (loss) as of March 31, 2008. TheCompany records any changes in the contracts’ values as mark-to-marketadjustments through the Consolidated Statement of Operations on a monthly basis.During the three months ended March 31, 2008, the Company recognized $5.3million of net fuel derivative gains as reductions in fuel expense, including$12.3 million of unrealized losses related to fuel derivative contracts thatwill settle during the remainder of 2008. Effective June 2007, the Companybegan allocating mark-to-market adjustments to regional carrier expense forfuel consumed by our non-consolidated Airlink partners. For the three monthsended March 31, 2008, the Company recognized $0.5 million of fuelderivative net gains as reductions in regional carrier expense, including $1.1million of unrealized losses related to fuel derivative contracts that willsettle during the remainder of 2008.

 

As of March 31, 2007, the Company had hedged theprice of approximately 39% of its projected fuel requirements for the remainderof 2007 through a combination of collar options and fixed price swap agreements.The collar options, which hedged the price of approximately 29% of the Company’sprojected fuel requirements for the remainder of 2007, consisted of crude oilput options with a price range of $53 to $56.70 per barrel, and related calloptions at a price of $72 per barrel. The fixed price crude oil swapagreements, which hedged the price of approximately 10% of the Company’sprojected fuel requirements for the remainder of 2007, included agreements witha price range of $62 to $64.98 per barrel. Net gains of $22.6 million wererecorded as reductions in fuel expense during the three months ended March 31,2007.

 

*Interest********Rates.*The Company’s earnings arealso affected by changes in interest rates due to the impact those changes haveon its interest expense from floating rate debt instruments. During June 2006,the Company entered into individual interest rate cap hedges related to threefloating rate debt instruments, with a total cumulative notional amount of $429million. Additionally, during February 2008, the Company entered intoindividual interest rate swap hedges related to two floating rate debtinstruments, with a total cumulative notional amount of $928 million. Theobjective of the interest rate cap and swap hedges is to protect theanticipated payments of interest (cash flows) on the designated debtinstruments from adverse market interest rate changes. The maturity date ofeach of the interest rate cap and swap hedges corresponds exactly with thematurity dates of the designated debt instruments. As of March 31,2008, the Company has recorded $16.8 million of unrealized losses inaccumulated other comprehensive income (loss) associated with these hedges.

 

*War Risk Insurance*. Following September 11,2001, aviation insurers significantly increased airline insurance premiums andreduced the maximum amount of coverage available to airlines for certain typesof claims. In addition, our insurance costs increased significantly followingthe 2005 Hurricane Katrina and Hurricane Rita events. Our total aviation andother insurance expenses were $7.1 million higher for the three months ended March 31,2008 than the three months ended March 31, 2000. The FAA is currentlyproviding aviation war risk insurance as required by the Homeland Security Actof 2002 as amended by the Consolidated Appropriations Act of 2005 andsubsequently by the Continuing Appropriations Resolution 2007. However,following multiple extensions, this coverage is scheduled to expire on August 31,2008. While the government may again extend the period that it provides excesswar risk coverage, there is no assurance that this will occur, or if it does,how long the extension will last, what will be included in the coverage, or atwhat cost the coverage will be provided. Should the U.S. government stopproviding war risk insurance in its current form to the U.S. airline industry,it is expected that the premiums charged by commercial aviation insurers forthis coverage, if available at all, would be substantially higher than thepremiums currently charged by the government, the maximum amount of coverageavailable would be reduced, and the type of coverage could be more restrictive.Commercial aviation insurers could further increase insurance premiums andreduce or cancel coverage, in the event of a new terrorist attack or otherevents adversely affecting the airline industry. Significant increases ininsurance premiums could negatively impact our financial condition and resultsof operations. If we are unable to obtain adequate war risk insurance, ourbusiness could be materially and adversely affected.

 

If we were to be involved in an accident, we could beexposed to significant tort liability. Although we carry insurance to coverdamages arising from such accidents, resulting tort liability could be higherthan our policy limits which could negatively impact our financial condition.

 

*Open Skies Air Services Agreement.*In April 2007,the U.S. and the European Union (“E.U.”) approved an “open skies” air servicesagreement that provides airlines from the U.S. and E.U. Member States openaccess to each others’ markets, with freedom of pricing and unlimited rights tofly beyond the U.S. and beyond each E.U. Member State.  Under the openskies agreement, which went into effect on March 30, 2008, everyU.S. and E.U. airline is authorized to operate between airports in the U.S. andLondon’s Heathrow, Gatwick and other airports.  As a result of theopen skies agreement, the Company announced an expansion of its transatlanticroute network with three new daily nonstop flights to London Heathrow fromDetroit, Minneapolis/St. Paul and Seattle. Service from Minneapolis/St. Paulbegan on March 29, 2008 with an arrival at London Heathrow on March 30,2008. Nonstop service from Detroit and Seattle is scheduled to begin on May 1,2008 and June 1, 2008, respectively.

 

29

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*Tentative Approval of Six-WayAntitrust Immunity.*On June 28, 2007, Northwest and KLM, togetherwith Air France, Delta, Alitalia, and CSA Czech Airlines filed a jointapplication for antitrust immunity with the DOT. The DOT tentatively approved the application on April 9, 2008. Finalapproval is expected to follow after the DOT reviews the final round ofcomments to its “show cause” order, and would enable the carriers to expandtheir transatlantic networks by coordinating schedules and services with asingle, customer-focused objective.

 

*Forward-Looking Statements.*Certain of thestatements made throughout Management’s Discussion and Analysis of FinancialCondition and Results of Operations and elsewhere in this quarterly report arenot purely historical facts, including statements regarding our beliefs,expectations, intentions or strategies for the future, may be “forward-lookingstatements” under the Private Securities Litigation Reform Act of 1995. Allforward-looking statements involve a number of risks and uncertainties thatcould cause actual results to differ materially from the plans, intentions andexpectations reflected in or suggested by the forward-looking statements. Suchrisks and uncertainties include, among others, the ability of the company tooperate pursuant to the terms of its financing facilities (particularly therelated financial covenants), the ability of the company to attract, motivateand/or retain key executives and associates, the future level of air traveldemand, the company’s future passenger traffic and yields, the airline industrypricing 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, the possibility of additionalterrorist attacks or the fear of such attacks, concerns about Severe AcuteRespiratory Syndrome (SARS) and other influenza or contagious illnesses, laborstrikes, work disruptions, labor negotiations both at other carriers and thecompany, difficulties in integrating the operations of the company and Deltafollowing the Merger, low cost carrier expansion, capacity decisions of othercarriers, actions of the U.S. and foreign governments (including conditionsimposed by U.S. or foreign governments to obtain regulatory approval for theMerger), foreign currency exchange rate fluctuations and inflation. Otherfactors include the possibility that the Merger may not close, including due tothe failure to receive required stockholder or regulatory approvals, or thefailure of other closing conditions. Northwest cautions that the foregoing listof factors is not exclusive. Additional information with respect to the factorsand events that could cause differences between forward-looking statements andfuture actual results is contained in the company’s Securities and ExchangeCommission filings, including the company’s Annual Report on Form 10-K forthe year ended December 31, 2007 and subsequent quarterly reports on Form 10-Qand current reports on Form 8-K. We undertake no obligation to update anyforward-looking statements to reflect events or circumstances that may ariseafter the date of this release.

 

Developments in any of these areas, as well as otherrisks and uncertainties detailed from time to time in the Company’s Securitiesand Exchange Commission filings, could cause the Company’s results to differfrom results that have been or may be projected by or on behalf of the Company.The Company undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. These statements deal with the Company’s expectationsabout the future and are subject to a number of factors that could cause actualresults to differ materially from the Company’s expectations. All subsequentwritten or oral forward-looking statements attributable to the Company, orpersons acting on behalf of the Company, are expressly qualified in theirentirety by the factors described above.

 

30

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**Item 3.****               ****Quantitativeand Qualitative Disclosures About Market Risk.**

 

Information required bythis item is provided under the captions “Foreign Currency” and “Aircraft Fuel”within “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in this Quarterly Report on Form 10-Q. Also see “Item 7a.Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2007Form 10-K.

 

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

 

**Evaluation of Disclosure Controlsand Procedures –** As of March 31, 2008,management performed an evaluation under the supervision and with theparticipation of the Company’s President and Chief Executive Officer andExecutive Vice President and Chief Financial Officer of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedurescovered in this Quarterly Report on Form 10-Q. Based on that evaluation,the Company’s President and Chief Executive Officer and Executive VicePresident and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures are effective in alerting them in a timely manner tomaterial information required to be disclosed in the Company’s periodic reportsfiled with the SEC as of the end of such period.

 

**Changes in Internal Control –** There was no change in the Company’s internal control over financialreporting that occurred during the Company’s fiscal first quarter ended March 31,2008 that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

PART II. OTHERINFORMATION

 

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

 

Reference is made to “Item3. Legal Proceedings” in the Company’s 2007 Form 10-K.

 

**Item 1A.****      ****RiskFactors.**

 

See Part I, Item 1A., “Risk Factors,” of the2007 Form 10-K for a detailed discussion of the risk factors affecting theCompany. The information below provides updates to the previously disclosedrisk factors and should be read in conjunction with the risk factors andinformation disclosed in the Company’s 2007 Form 10-K.

 

**Risks Relating to the Pending Mergerwith Delta Air Lines**

 

***Uncertainty about the merger and diversion of management could harm usor the combined company, whether or not the merger is completed.***

 

In response to theannouncement of the merger, current and prospective employees could experienceuncertainty about their future with us or the combined company. Theseuncertainties may impair our ability to retain, recruit or motivate keypersonnel. Completion of the merger will also require a significant amount oftime and attention from our management. The diversion of management attentionaway from ongoing operations could adversely affect our business relationships.If the merger is not completed by the end of 2008 as currently anticipated,the adverse effects of these uncertainties and the diversion of managementcould be exacerbated by the delay.

 

***Failure to complete the merger for regulatory or other reasons couldadversely affect our stock price and our future business and financial results.***

 

Completion of the merger isconditioned upon, among other things, the receipt of certain regulatory andantitrust approvals, including under the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended, approval of our and Delta Air Lines’ stockholders.There is no assurance that we will receive the necessary approvals or satisfythe other conditions necessary for completion of the merger. Failure tocomplete the pending merger would prevent us from realizing the anticipatedbenefits of the merger. We will also incur transaction costs, whether or notthe merger is completed. In addition, the current market price of our commonstock may reflect a market assumption that the merger will occur, and a failureto complete the merger could result in a negative perception by the market ofus generally and a resulting decline in the market price of our common stock.

 

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***The anticipated benefits of the merger may not be realized fully or atall or may take longer to realize than expected.***

 

The merger involves theintegration of two companies that have previously operated independently. Priorto announcement, we did not conduct any integration planning for the twocompanies. The two companies will devote significant management attention andresources to integrating the two companies. Delays in this process couldadversely affect the combined company’s business, financial results, financialcondition and stock price. Even if we are able to integrate our business operationssuccessfully, there can be no assurance that this integration will result inthe realization of the full benefits of synergies, cost savings, innovation andoperational efficiencies that we currently expect from this integration or thatthese benefits will be achieved within the anticipated time frame.

 

Additionally, as a conditionto their approval of the merger, regulatory agencies may impose requirements,limitations or costs or require divestitures or place restrictions on theconduct of the combined company’s business. If we agree to these requirements,limitations, costs, divestitures or restrictions, our ability to realize theanticipated benefits of the merger may be impaired.

 

# ***Any “ownership change” could limit our ability toutilize our net operating loss carryforwards.***

# ** **

Under the Internal Revenue Code of 1986, as amended(the “Internal Revenue Code”), a corporation is generally allowed a deductionin any taxable year for net operating losses carried over from prior years. Asof December 31, 2007, the Company had approximately $3.6 billion offederal and state net operating loss (“NOL”) carryforwards. A corporation’s useof its NOL carryforwards is generally limited under Section 382 of theInternal Revenue Code if a corporation undergoes an “ownership change.”  However, when an “ownership change” occurspursuant to the implementation of a plan of reorganization under the BankruptcyCode (as was the case on the Effective Date of the Company’s Plan), special rules ineither Section 382(l)(5) or Section 382(l)(6) of theInternal Revenue Code apply instead of the general Section 382 limitationrules. In general terms, Sections 382(l)(5) or (l)(6) allow for amore favorable utilization of a company’s NOL carryforwards than wouldotherwise have been available following an “ownership change” not in connectionwith a plan of reorganization.

 

Completion of the merger may result in a secondownership change under Section 382. Pursuant to the Merger Agreement, theCompany will elect out of Section 382(l)(5). In that case, Section 382(l)(6) willbe applicable to the ownership change that occurred pursuant to the Plan ofReorganization. Nonetheless, a second ownership change could further limit theCompany’s ability to utilize its NOL carryforwards for taxable years includingor following the subsequent “ownership change.”

 
| **Item 6.**                 | **Exhibits.** |
|-----------------------------|---------------|
|                        |          |   |
| (a)     | Exhibits:     |   |
|                        |          |   |
|                        | 2.1           | Agreement and Plan of Merger, dated as of April 14, 2008, by and  among Delta Air Lines, Inc., Nautilus Merger Corporation and Northwest  Airlines Corporation (filed as Exhibit 2.1 to NWA Corp.’s Current Report  on Form 8-K filed on April 18, 2008 and incorporated herein by  reference). |
|                        |          |   |
|                        | *10.1         | Third Amendment of Northwest Airlines Excess Pension Plan for Salaried  Employees (2001 Restatement). |
|                        |          |   |
|                        | *10.2         | Amendment No. 1 to the Northwest Airlines Corporation Key  Employee Annual Cash Incentive Program. |
|                        |          |   |
|                        | *10.3         | Amendment No. 1 to the Northwest Airlines, Inc. 2003 Long  Term Cash Incentive Plan. |
|                        |          |   |
|                        | *10.4         | Amendment No. 1 to Form of Award Agreement for the Northwest  Airlines, Inc. 2003 Long Term Cash Incentive Plan. |
|                        |          |   |
|                        | *10.5         | Amendment No. 2 to the Northwest Airlines Corporation 2007 Stock  Incentive Plan. |
|                        |          |   |
|                        | *10.6         | Amendment No. 1 to Form of Award Agreement for Non-Qualified  Stock Options Granted to Directors under the Northwest Airlines Corporation  2007 Stock Incentive Plan. |

 

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|   | *10.7  | Amendment No. 1 to Form of Award Agreement for Non-Qualified  Stock Options Granted to Employees under the Northwest Airlines Corporation  2007 Stock Incentive Plan.               |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                          |
|   | *10.8  | Amendment No. 1 to Form of Award Agreement for Restricted  Stock Units Granted to Directors under the Northwest Airlines Corporation  2007 Stock Incentive Plan.                    |
|   |   |                                                                                                                                                                                          |
|   | *10.9  | Amendment No. 1 to Form of Award Agreement for Restricted  Stock Units (Settled in Stock) Granted to Employees under the Northwest  Airlines Corporation 2007 Stock Incentive Plan. |
|   |   |                                                                                                                                                                                          |
|   | *10.10 | Amendment No. 1 to Form of Award Agreement for Restricted  Stock Units (Settled in Cash) Granted to Employees under the Northwest  Airlines Corporation 2007 Stock Incentive Plan.  |
|   |   |                                                                                                                                                                                          |
|   | *10.11 | Amendment No. 1 to Form of Award Agreement for Stock  Appreciation Rights Granted to Employees under the Northwest Airlines  Corporation 2007 Stock Incentive Plan.                 |
|   |   |                                                                                                                                                                                          |
|   | *10.12 | Northwest Airlines, Inc. 2008 Retention Plan.                                                                                                                                            |
|   |   |                                                                                                                                                                                          |
|   | *10.13 | Retention Agreement and Amendment to Management Compensation Agreement  dated as of April 14, 2008 between Northwest Airlines, Inc. and  Douglas M. Steenland.                      |
|   |   |                                                                                                                                                                                          |
|   | *10.14 | Form of Amendment to Management Compensation Agreements between  Northwest Airlines, Inc. and Named Executive Officers.                                                             |
|   |   |                                                                                                                                                                                          |
|   | *10.15 | Amended and Restated Management Compensation Agreement dated as of  April 14, 2008 between Northwest Airlines, Inc. and Neal S. Cohen.                                              |
|   |   |                                                                                                                                                                                          |
|   | *10.16 | Management Compensation Agreement dated as of April 14, 2008  between Northwest Airlines, Inc. and David M. Davis.                                                                  |
|   |   |                                                                                                                                                                                          |
|   | *10.17 | Management Compensation Agreement dated as of April 14, 2008  between Northwest Airlines, Inc. and Andrew C. Roberts.                                                               |
|   |   |                                                                                                                                                                                          |
|   | 12.1   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                            |
|   |   |                                                                                                                                                                                          |
|   | 31.1   | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive  Officer.                                                                                                                 |
|   |   |                                                                                                                                                                                          |
|   | 31.2   | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial  Officer.                                                                                                                 |
|   |   |                                                                                                                                                                                          |
|   | 32.1   | Section 1350 Certification of Chief Executive Officer.                                                                                                                                   |
|   |   |                                                                                                                                                                                          |
|   | 32.2   | Section 1350 Certification of Chief Financial Officer.                                                                                                                                   |

 

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*Compensatoryplans in which directors and executive officers of NWA Corp. and Northwestparticipate.

 

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SIGNATURE

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized this 30th day of April 2008.

 
|   | NORTHWEST AIRLINES CORPORATION |
|--------|--------------------------------|
|   |                           |
|   | By                             | /s/ Anna M. Schaefer |
|   |                           | Anna M. Schaefer |
|   |                           | *Vice President – Finance and Chief Accounting  Officer  (principal accounting officer)* |

 

 

EXHIBIT INDEX

 

| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                               |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| 2.1                  |       | Agreement and Plan of Merger, dated as of April 14, 2008, by and  among Delta Air Lines, Inc., Nautilus Merger Corporation and Northwest  Airlines Corporation (filed as Exhibit 2.1 to NWA Corp.’s Current Report  on Form 8-K filed on April 18, 2008 and incorporated herein by  reference). |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.1                |       | Third Amendment of Northwest Airlines Excess Pension Plan for Salaried  Employees (2001 Restatement).                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.2                |       | Amendment No. 1 to the Northwest Airlines Corporation Key Employee  Annual Cash Incentive Program.                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.3                |       | Amendment No. 1 to the Northwest Airlines, Inc. 2003 Long Term  Cash Incentive Plan.                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.4                |       | Amendment No. 1 to Form of Award Agreement for the Northwest  Airlines, Inc. 2003 Long Term Cash Incentive Plan.                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.5                |       | Amendment No. 2 to the Northwest Airlines Corporation 2007 Stock  Incentive Plan.                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.6                |       | Amendment No. 1 to Form of Award Agreement for Non-Qualified  Stock Options Granted to Directors under the Northwest Airlines Corporation  2007 Stock Incentive Plan.                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.7                |       | Amendment No. 1 to Form of Award Agreement for Non-Qualified  Stock Options Granted to Employees under the Northwest Airlines Corporation  2007 Stock Incentive Plan.                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.8                |       | Amendment No. 1 to Form of Award Agreement for Restricted Stock  Units Granted to Directors under the Northwest Airlines Corporation 2007  Stock Incentive Plan.                                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                          |
| *10.9                |       | Amendment No. 1 to Form of Award Agreement for Restricted Stock  Units (Settled in Stock) Granted to Employees under the Northwest Airlines  Corporation 2007 Stock Incentive Plan.                                                                                                                                 |

 

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| *10.10 |   | Amendment No. 1 to Form of Award Agreement for Restricted Stock  Units (Settled in Cash) Granted to Employees under the Northwest Airlines  Corporation 2007 Stock Incentive Plan. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                         |
| *10.11 |   | Amendment No. 1 to Form of Award Agreement for Stock  Appreciation Rights Granted to Employees under the Northwest Airlines  Corporation 2007 Stock Incentive Plan.                |
|   |   |                                                                                                                                                                                         |
| *10.12 |   | Northwest Airlines, Inc. 2008 Retention Plan.                                                                                                                                           |
|   |   |                                                                                                                                                                                         |
| *10.13 |   | Retention Agreement and Amendment to Management Compensation Agreement  dated as of April 14, 2008 between Northwest Airlines, Inc. and  Douglas M. Steenland.                     |
|   |   |                                                                                                                                                                                         |
| *10.14 |   | Form of Amendment to Management Compensation Agreements between  Northwest Airlines, Inc. and Named Executive Officers.                                                            |
|   |   |                                                                                                                                                                                         |
| *10.15 |   | Amended and Restated Management Compensation Agreement dated as of  April 14, 2008 between Northwest Airlines, Inc. and Neal S. Cohen.                                             |
|   |   |                                                                                                                                                                                         |
| *10.16 |   | Management Compensation Agreement dated as of April 14, 2008 between  Northwest Airlines, Inc. and David M. Davis.                                                                 |
|   |   |                                                                                                                                                                                         |
| *10.17 |   | Management Compensation Agreement dated as of April 14, 2008 between  Northwest Airlines, Inc. and Andrew C. Roberts.                                                              |
|   |   |                                                                                                                                                                                         |
| 12.1   |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                           |
|   |   |                                                                                                                                                                                         |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive  Officer.                                                                                                                |
|   |   |                                                                                                                                                                                         |
| 31.2   |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial  Officer.                                                                                                                |
|   |   |                                                                                                                                                                                         |
| 32.1   |   | Section 1350 Certification of Chief Executive Officer.                                                                                                                                  |
|   |   |                                                                                                                                                                                         |
| 32.2   |   | Section 1350 Certification of Chief Financial Officer.                                                                                                                                  |

 

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*Compensatoryplans in which directors and executive officers of NWA Corp. and Northwestparticipate.

 

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