**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

** **

**FORM 10-Q**

** **

 

| **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-----------------------------------------------------------------------------------------------|
|                                                                                          |
|                                                                                          |
| **For the quarterly period  ended September 30, 2003**                                        |
|                                                                                          |
|                                                                                          |
| **Commission file number  0-23642**                                                           |

 

 

**NORTHWESTAIRLINES CORPORATION**

(Exact name of registrant as specified in itscharter)

 

 

| **Delaware**                                                                                                          |   | **41-1905580**                            |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|
| **(State or other jurisdiction of  incorporation or organization)**                                                   |   | **(I.R.S. Employer Identification  No.)** |
|                                                                                                                  |   |                                      |
|                                                                                                                  |   |                                      |
| **2700 Lone Oak Parkway, Eagan, Minnesota**                                                                           |   | **55121**                                 |
| **(Address of  principal executive offices)**                                                                         |   | **(Zip Code)**                            |
|                                                                                                                  |   |                                      |
|                                                                                                                  |   |                                      |
| **Registrant’s  telephone number, including area  code       **(612) 726-2111 |

 

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes  ý     No o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Exchange Rule Act 12b-2 of the ExchangeAct).     Yes  ý     Noo

 

 

As of September 30, 2003, there were85,850,293 shares of the registrant’s Common Stock outstanding.

 

 

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*Northwest Airlines Corporation*

 

 
| PART I.  FINANCIAL INFORMATION |
|-------------------------------------|
|                                |
| Item 1.                             |   | Financial Statements |
|                                |   |   |
|                                |   | Condensed  Consolidated Statements of Operations - Three months and nine months ended  September 30, 2003 and 2002. |
|                                |   |   |
|                                |   | Condensed Consolidated Balance Sheets -  September 30, 2003 and December 31, 2002. |
|                                |   |   |
|                                |   | Condensed Consolidated Statements of Cash  Flows - Nine months ended September 30, 2003 and 2002. |
|                                |   |   |
|                                |   | Notes to Condensed Consolidated Financial  Statements |
|                                |   |   |
|                                |   | The  Computations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to  Fixed Charges and Preferred Stock Requirements are attached hereto and filed  as Exhibits 12.1 and 12.2. |
|                                |   |   |
| Item 2.                             |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |
|                                |   |   |
| Item  3.                            |   | Quantitative  and Qualitative Disclosures About Market Risk |
|                                |   |   |
| Item 4.                             |   | Controls and Procedures |
|                                |   |   |
| PART II.  OTHER INFORMATION    |
|                                |   |   |
| Item 1.                             |   | Legal Proceedings |
| Item 3.                             |   | Default Upon Senior Securities |
| Item 5.                             |   | Other Information |
| Item 6.                             |   | Exhibits and Reports on Form 8-K |
|                                |   |   |
| SIGNATURE                           |
|                                |
| EXHIBIT  INDEX                      |

 

2

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* *

* *

PART I.  FINANCIAL INFORMATION

 

**Item1.  Financial Statements**

 

*Northwest Airlines Corporation*

 

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

 
|                                                     |   | **Three  Months Ended  September 30** |   | **Nine  Months Ended  September 30** |   |
|----------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| **(Unaudited, in millions except per share amounts)**    |   | **2003**                              |   | **2002**                             |   | **2003** |   | **2002** |   |
| **Operating Revenues**                                   |   |                                  |   |                                 |   |   |   |   |   |
| Passenger                                                |   | $                                     | 2,202  |                                 | $      | 2,227 |   | $ | 5,956 |   | $ | 6,097 |   |
| Cargo                                                    |   | 196                                   |   | 180                                  |   | 544 |   | 504 |   |
| Other                                                    |   | 158                                   |   | 157                                  |   | 603 |   | 549 |   |
| Total operating revenues                                 |   | 2,556                                 |   | 2,564                                |   | 7,103 |   | 7,150 |   |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Operating Expenses**                                   |   |                                  |   |                                 |   |   |   |   |   |
| Salaries, wages and benefits                             |   | 955                                   |   | 977                                  |   | 2,944 |   | 2,837 |   |
| Aircraft fuel and taxes                                  |   | 386                                   |   | 395                                  |   | 1,172 |   | 1,046 |   |
| Selling and marketing                                    |   | 187                                   |   | 211                                  |   | 533 |   | 629 |   |
| Depreciation and amortization                            |   | 144                                   |   | 133                                  |   | 448 |   | 399 |   |
| Other rentals and landing fees                           |   | 141                                   |   | 162                                  |   | 422 |   | 426 |   |
| Aircraft rentals                                         |   | 117                                   |   | 116                                  |   | 355 |   | 345 |   |
| Aircraft maintenance materials and repairs               |   | 114                                   |   | 139                                  |   | 342 |   | 435 |   |
| Other                                                    |   | 366                                   |   | 423                                  |   | 1,140 |   | 1,267 |   |
| Total operating expenses                                 |   | 2,410                                 |   | 2,556                                |   | 7,356 |   | 7,384 |   |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Operating Income (Loss)**                              |   | 146                                   |   | 8                                    |   | (253 | ) | (234 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Other Income (Expense)**                               |   |                                  |   |                                 |   |   |   |   |   |
| U. S. Government appropriations                          |   | —                                |   | —                               |   | 209 |   | — |   |
| Interest expense, net                                    |   | (117                                  | )      | (99                                  | )      | (341 | ) | (293 | ) |
| Interest on mandatorily redeemable  securities           |   | (7                                    | )      | (7                                   | )      | (19 | ) | (19 | ) |
| Investment income                                        |   | 9                                     |   | 12                                   |   | 29 |   | 35 |   |
| Foreign currency gain (loss)                             |   | 7                                     |   | 1                                    |   | 4 |   | (10 | ) |
| Other                                                    |   | 9                                     |   | 12                                   |   | 219 |   | 46 |   |
| Total other income (expense)                             |   | (99                                   | )      | (81                                  | )      | 101 |   | (241 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Income (Loss) Before Income  Taxes**                   |   | 47                                    |   | (73                                  | )      | (152 | ) | (475 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Income tax benefit                                       |   | —                                |   | (27                                  | )      | (30 | ) | (165 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Net Income (Loss)**                                    |   | 47                                    |   | (46                                  | )      | (122 | ) | (310 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Preferred stock requirements                             |   | (5                                    | )      | —                               |   | (5 | ) | — |   |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| **Net Income (Loss) Applicable to  Common Shareholders** |   | $                                     | 42     |                                 | $      | (46 | ) | $ | (127 | ) | $ | (310 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Earnings (Loss) per common share:                        |   |                                  |   |                                 |   |   |   |   |   |
| *Basic and Diluted*                                      |   | $                                     | 0.49   |                                 | $      | (0.55 | ) | $ | (1.48 | ) | $ | (3.63 | ) |
|                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Average shares used in computation:                      |   |                                  |   |                                 |   |   |   |   |   |
| *Basic*                                                  |   | 86                                    |   | 86                                   |   | 86 |   | 86 |   |
| *Diluted*                                                |   | 87                                    |   | 86                                   |   | 86 |   | 86 |   |

 

*Seeaccompanying notes.*

 

3

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* *

*Northwest Airlines Corporation*

 

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
| **(Unaudited, in millions)**                                        |   | **September  30  2003** |   | **December  31  2002** |   |
|---------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **Assets**                                                          |   |                    |   |                   |   |
|                                                                |   |                    |   |                   |   |
| **Current Assets**                                                  |   |                    |   |                   |   |
| Cash and cash equivalents                                           |   | $                       | 2,212  |                   | $      | 2,097 |   |
| Short-term investments                                              |   | 739                     |   | 100                    |   |
| Accounts receivable, net                                            |   | 552                     |   | 663                    |   |
| Flight equipment spare parts, net                                   |   | 191                     |   | 230                    |   |
| Prepaid expenses and other                                          |   | 399                     |   | 420                    |   |
| Total current assets                                                |   | 4,093                   |   | 3,510                  |   |
|                                                                |   |                    |   |                   |   |
| **Property and Equipment, net**                                     |   |                    |   |                   |   |
| Flight equipment, net                                               |   | 6,526                   |   | 5,985                  |   |
| Other property and equipment, net                                   |   | 1,036                   |   | 1,046                  |   |
| Total property and equipment, net                                   |   | 7,562                   |   | 7,031                  |   |
|                                                                |   |                    |   |                   |   |
| **Flight Equipment Under Capital  Leases, net**                     |   | 238                     |   | 289                    |   |
|                                                                |   |                    |   |                   |   |
| **Other Assets**                                                    |   |                    |   |                   |   |
| Intangible pension asset                                            |   | 818                     |   | 857                    |   |
| International routes, net                                           |   | 634                     |   | 634                    |   |
| Investments in affiliated companies                                 |   | 106                     |   | 255                    |   |
| Other                                                               |   | 893                     |   | 713                    |   |
| Total other assets                                                  |   | 2,451                   |   | 2,459                  |   |
| **Total Assets**                                                    |   | $                       | 14,344 |                   | $      | 13,289 |   |
|                                                                |   |                    |   |                   |   |
| **Liabilities and Stockholders’  Equity (Deficit)**            |   |                    |   |                   |   |
|                                                                |   |                    |   |                   |   |
| **Current Liabilities**                                             |   |                    |   |                   |   |
| Air traffic liability                                               |   | $                       | 1,373  |                   | $      | 1,216 |   |
| Accounts payable and other liabilities                              |   | 2,109                   |   | 2,710                  |   |
| Current maturities of long-term debt and  capital lease obligations |   | 735                     |   | 346                    |   |
| Total current liabilities                                           |   | 4,217                   |   | 4,272                  |   |
|                                                                |   |                    |   |                   |   |
| **Long-Term Debt**                                                  |   | 6,751                   |   | 6,250                  |   |
|                                                                |   |                    |   |                   |   |
| **Long-Term Obligations Under  Capital Leases**                     |   | 362                     |   | 386                    |   |
|                                                                |   |                    |   |                   |   |
| **Deferred Credits and Other  Liabilities**                         |   |                    |   |                   |   |
| Pension and postretirement benefits                                 |   | 3,952                   |   | 3,050                  |   |
| Deferred income taxes                                               |   | 95                      |   | 135                    |   |
| Mandatorily redeemable securities                                   |   | 587                     |   | 553                    |   |
| Other                                                               |   | 711                     |   | 679                    |   |
| Total deferred credits and other  liabilities                       |   | 5,345                   |   | 4,417                  |   |
|                                                                |   |                    |   |                   |   |
| **Redeemable Preferred Stock**                                      |   | 230                     |   | 226                    |   |
|                                                                |   |                    |   |                   |   |
| **Common Stockholders’ Equity  (Deficit)**                     |   |                    |   |                   |   |
| Common stock                                                        |   | 1                       |   | 1                      |   |
| Additional paid-in capital                                          |   | 1,454                   |   | 1,455                  |   |
| Accumulated deficit                                                 |   | (1,443                  | )      | (1,316                 | )      |
| Accumulated other comprehensive loss                                |   | (1,519                  | )      | (1,347                 | )      |
| Treasury stock                                                      |   | (1,054                  | )      | (1,055                 | )      |
| Total common stockholders’ deficit                             |   | (2,561                  | )      | (2,262                 | )      |
| **Total Liabilities and  Stockholders’ Equity (Deficit)**      |   | $                       | 14,344 |                   | $      | 13,289 |   |

 

*Seeaccompanying notes.*

 

4

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*Northwest Airlines Corporation*

 

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

 
|                                                                                       |   | **Nine  Months Ended  September 30** |   |
|--------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
| **(Unaudited, in millions)**                                                               |   | **2003**                             |   | **2002** |   |
| **Cash Flows from Operating  Activities**                                                  |   |                                 |   |   |   |
| Net loss                                                                                   |   | $                                    | (122   | ) | $ | (310 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                                 |   |   |   |
| Gain on sale of investment in WORLDSPAN  L.P.                                              |   | (199                                 | )      | — |   |
| Depreciation and amortization                                                              |   | 448                                  |   | 399 |   |
| Income tax benefit                                                                         |   | (30                                  | )      | (165 | ) |
| Net receipts of income taxes                                                               |   | 215                                  |   | 123 |   |
| Pension and other postretirement benefit  contributions less than expense                  |   | 331                                  |   | 103 |   |
| Changes in certain assets and liabilities                                                  |   | 29                                   |   | (230 | ) |
| Other, net                                                                                 |   | 3                                    |   | 41 |   |
| Net cash provided (used) by operating  activities                                          |   | 675                                  |   | (39 | ) |
|                                                                                       |   |                                 |   |   |   |
| **Cash Flows from Investment  Activities**                                                 |   |                                 |   |   |   |
| Capital expenditures                                                                       |   | (831                                 | )      | (1,185 | ) |
| Net (increase) decrease in short-term  investments                                         |   | (618                                 | )      | 23 |   |
| Proceeds from sale of investment in  WORLDSPAN L.P.                                        |   | 278                                  |   | — |   |
| Other, net                                                                                 |   | 36                                   |   | (22 | ) |
| Net cash used in investing activities                                                      |   | (1,135                               | )      | (1,184 | ) |
|                                                                                       |   |                                 |   |   |   |
| **Cash Flows from Financing  Activities**                                                  |   |                                 |   |   |   |
| Proceeds from long-term debt                                                               |   | 885                                  |   | 1,289 |   |
| Proceeds from sale and leaseback  transactions                                             |   | —                               |   | 136 |   |
| Payments of long-term debt and capital  lease obligations                                  |   | (246                                 | )      | (245 | ) |
| Payments of short-term borrowings                                                          |   | (12                                  | )      | (1 | ) |
| Other, net                                                                                 |   | (52                                  | )      | (42 | ) |
| Net cash provided by financing activities                                                  |   | 575                                  |   | 1,137 |   |
|                                                                                       |   |                                 |   |   |   |
| **Increase (Decrease) in Cash and  Cash Equivalents**                                      |   | 115                                  |   | (86 | ) |
|                                                                                       |   |                                 |   |   |   |
| Cash and cash equivalents at beginning of  period                                          |   | 2,097                                |   | 2,512 |   |
| Cash and cash equivalents at end of period                                                 |   | $                                    | 2,212  |   | $ | 2,426 |   |
|                                                                                       |   |                                 |   |   |   |
| Cash and cash equivalents and unrestricted  short-term investments at end of period        |   | $                                    | 2,804  |   | $ | 2,426 |   |
|                                                                                       |   |                                 |   |   |   |
| Supplemental Cash Flow Information:                                                        |   |                                 |   |   |   |
| Interest paid                                                                              |   | $                                    | 90     |   | $ | 273 |   |
|                                                                                       |   |                                 |   |   |   |
| Investing and Financing Activities Not  Affecting Cash:                                    |   |                                 |   |   |   |
| Manufacturer financing of aircraft and  aircraft predelivery deposits                      |   | $                                    | 230    |   | $ | (14 | ) |

 

*Seeaccompanying notes.*

 

5

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*Northwest Airlines Corporation*

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

## **Note 1 – Basis of Presentation**

 

The condensedconsolidated financial statements of Northwest Airlines Corporation (“NWACorp.”), a holding company whose principal indirect operating subsidiary isNorthwest Airlines, Inc. (“Northwest”), include the accounts of NWA Corp. andall consolidated subsidiaries (collectively, the “Company”).  The condensed consolidated financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  The information and footnote disclosuresnormally included in annual financial statements prepared in accordance withGenerally Accepted Accounting Principles (“GAAP”) have been condensed oromitted as permitted by such rules and regulations.  These financial statements and related notes should be read inconjunction with the financial statements and notes thereto included in theCompany’s audited consolidated financial statements which are provided in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2002.  The Company’s accounting and reportingpolicies are summarized in Note 1 of the Notes to Consolidated FinancialStatements in the Annual Report on Form 10-K for 2002.

 

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

 

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

 

**Note 2 –Recent Accounting Pronouncements**

 

In January2003, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 46 (“FIN 46”), “Consolidation of Variable InterestEntities”.  FIN 46 requires companies todetermine whether a financing or other arrangement constitutes a “variableinterest entity”.  If a companyconcludes that such an arrangement is a variable interest entity, the companymust then evaluate whether it is the primary beneficiary.  The primary beneficiary of a variableinterest entity is required to consolidate the entity for financial statementpurposes.   Variable interest entitiesare those a) having insufficient equity investment at risk to finance theiractivities without additional subordinated support or b) lacking essentialcharacteristics of a controlling financial interest including, among others,the obligation to absorb expected losses, or the right to receive expectedresidual returns, of the entity.  Theprimary beneficiary is the enterprise that is obligated to absorb the expectedlosses or has a right to receive the expected residual returns.  FIN 46 was effective immediately forvariable interest entities created, or in which the Company obtains aninterest, after January 31, 2003.  Forall variable interest entities created on or before January 31, 2003, the FASBrecently delayed the effective date of the provisions until the quarter endingDecember 31, 2003, but encourages early adoption.  The Company has adopted the provisions of FIN 46 as of July 1,2003 for certain variable interests based on the current guidance provided bythe FASB.

 

The Companyformerly consolidated a financing entity (as described in Note 5 of the Notesto Consolidated Financial Statements in the Company’s Annual Report on Form10-K for 2002) that issued a preferred security previously classified on theCompany’s consolidated financial statements as Mandatorily Redeemable PreferredSecurity of Subsidiary Which Holds Solely Non-Recourse Obligation of Company(“MRPS”).  This subsidiary is a variableinterest entity under the provisions of FIN 46, but the Company is not theprimary beneficiary.  Accordingly, as ofJuly 1, 2003, the Company no longer consolidates the subsidiary but an amountequal to the MRPS ($587 million and $553 million as of September 30, 2003 andDecember 31, 2002, respectively), representing the Company’s non-recourseobligation to the subsidiary, is recorded as Mandatorily redeemable securitiesin the liability section of the Company’s consolidated balance sheets.

 

TheCompany has examined its other financing structures potentially impacted by theprovisions of FIN 46 and has concluded that no additional arrangements of amaterial nature require consolidation. In its report on Form 10-Q for the quarter ended June 30, 2003, theCompany described its preliminary conclusions regarding four aircraft leasesthat have

 

6

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historically been accounted for as operatingleases for book purposes but as a loan for tax purposes.  Based on an examination of the provisions ofFIN 46 at that time, the Company reported that it would begin accounting forthese leases as capital leases for book purposes and record a cumulative effectcharge associated with this change in the quarter ending September 30, 2003.  Subsequent interpretive guidance by the FASBhas resulted in a determination by the Company that the lessor is not avariable interest entity under the provisions of FIN 46.  Therefore, the Company will not consolidatethese aircraft leases and will continue to account for them as operatingleases.

 

**Note 3 –Segment Information**

 

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

 
|               |   | **Three months ended  September 30** |      | **Nine months ended  September 30** |       |
|--------------------|--------|--------------------------------------|-----------|-------------------------------------|------------|
|               |   | **2003**                             |      | **2002**                            |       | **2003** |   | **2002** |   |
| Domestic           |   | **$**                                | **1,694** |                                | $          | 1,641 | ** ** | **$** | **4,856** |   | $ | 4,836 |   |
| Pacific            |   | **553**                              |      | 595                                 | ** ** | **1,418** |   | 1,513 |   |
| Atlantic           |   | **309**                              |      | 328                                 | ** ** | **829** |   | 801 |   |
| Operating revenues |   | **$**                                | **2,556** |                                | $          | 2,564 | ** ** | **$** | **7,103** |   | $ | 7,150 |   |

 

## **Note 4 – Earnings (Loss) Per Share Data**

 

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

 
|                                                                                                 |   | **Three  months ended  September 30** |   | **Nine  months ended  September 30** |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                 |   | **2003**                              |   | **2002**                             |   | **2003** |   | **2002** |   |
| Numerator:                                                                                           |   |                                  |   |                                 |   |   |   |   |   |
| Net income (loss) (in millions)                                                                      |   | $                                     | 47     |                                 | $      | (46 | ) | $ | (122 | ) | $ | (310 | ) |
| Preferred stock requirements (in millions)                                                           |   | (5                                    | )      | —                               |   | (5 | ) | — |   |
| Net income (loss) applicable to common  shareholders (in millions)                                   |   | $                                     | 42     |                                 | $      | (46 | ) | $ | (127 | ) | $ | (310 | ) |
|                                                                                                 |   |                                  |   |                                 |   |   |   |   |   |
| Denominator:                                                                                         |   |                                  |   |                                 |   |   |   |   |   |
| Weighted-average shares outstanding for  basic earnings per share                                    |   | 85,842,569                            |   | 85,713,993                           |   | 85,834,496 |   | 85,613,322 |   |
|                                                                                                 |   |                                  |   |                                 |   |   |   |   |   |
| Effect of dilutive securities:                                                                       |   |                                  |   |                                 |   |   |   |   |   |
| Shares held in non-qualified rabbi trusts                                                            |   | 2,772                                 |   | —                               |   | — |   | — |   |
| Employee stock options and unvested  restricted shares                                               |   | 694,063                               |   | —                               |   | — |   | — |   |
| Adjusted weighted-average shares  outstanding and assumed conversions for diluted earnings per share |   | 86,539,404                            |   | 85,713,993                           |   | 85,834,496 |   | 85,613,322 |   |
|                                                                                                 |   |                                  |   |                                 |   |   |   |   |   |
| Earnings per common share:                                                                           |   |                                  |   |                                 |   |   |   |   |   |
| Net income (loss) before preferred stock  requirements                                               |   | 0.54                                  |   | (0.55                                | )      | (1.43 | ) | (3.63 | ) |
| Preferred stock requirements                                                                         |   | (0.05                                 | )      | —                               |   | (0.05 | ) | — |   |
| Net income (loss) applicable to common  shareholders                                                 |   | 0.49                                  |   | (0.55                                | )      | (1.48 | ) | (3.63 | ) |

 

7

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For the threemonths ended September 30, 2003, 6,542,960 common shares issuable uponconversion of Series C Preferred Stock were excluded from the effect ofdilutive securities as a result of the Company’s decision to repurchase theSeries C Preferred Stock with cash rather than issuing additional commonstock.  See Note 10 to these CondensedConsolidated Financial Statements for additional discussion of the Company’sSeries C Preferred Stock.

 

For the ninemonths ended September 30, 2003 and the three and nine months ended September30, 2002, 344,769, 6,658,388 and 7,058,507 incremental shares related todilutive securities, respectively, were not included in the diluted earningsper share calculation because the Company reported a net loss for theseperiods.   Incremental shares related todilutive securities have an anti-dilutive impact on earnings per share when anet loss is reported and therefore are not included in the calculation.

 

The dilutivesecurities described above do not include employee stock options of 1,574,850and 11,456,189 as of September 30, 2003 and 2002, respectively, because theexercise prices of these options are greater than the average market price ofthe common stock for the respective periods.

## ** **

## **Note 5 – Comprehensive Income (Loss)**

 

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

 
|                                                             |   | **Three months ended  September 30** |   | **Nine months ended  September 30** |   |
|------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                             |   | **2003**                             |   | **2002**                            |   | **2003** |   | **2002** |   |
| Net income (loss)                                                |   | $                                    | 47     |                                | $      | (46 | ) | $ | (122 | ) | $ | (310 | ) |
| Minimum pension liability adjustments                            |   | —                               |   | —                              |   | (156 | ) | — |   |
| Change in unrealized gain/loss on  available-for-sale securities |   | 1                                    |   | —                              |   | 1 |   | — |   |
| Change in deferred gain/loss from hedging  activities            |   | (26                                  | )      | 16                                  |   | (13 | ) | (1 | ) |
| Foreign currency translation adjustments                         |   | (5                                   | )      | 1                                   |   | (4 | ) | (4 | ) |
| Comprehensive income (loss)                                      |   | $                                    | 17     |                                | $      | (29 | ) | $ | (294 | ) | $ | (315 | ) |

 

**Note 6 – Stock-based Compensation**

 

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

 

8

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

 
|                                                                                                                                            |   | **Three  months ended  September 30** |   | **Nine  months ended  September 30** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| **(In millions except per share amounts)**                                                                                                      |   | **2003**                              |   | **2002**                             |   | **2003** |   | **2002** |   |
| Net income (loss) applicable to common  shareholders, as reported                                                                               |   | $                                     | 42     |                                 | $      | (46 | ) | $ | (127 | ) | $ | (310 | ) |
|                                                                                                                                            |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Add:   Stock-based employee compensation expense included in reported net  income (loss), net of tax effect (1)                            |   | 5                                     |   | —                               |   | 12 |   | 1 |   |
| Deduct:   Total stock-based employee compensation expense determined under a  fair value based method for all awards, net of tax (1)  |   | (5                                    | )      | (3                                   | )      | (13 | ) | (9 | ) |
| Pro forma net income (loss) applicable to  common shareholders                                                                                  |   | $                                     | 42     |                                 | $      | (49 | ) | $ | (128 | ) | $ | (318 | ) |
|                                                                                                                                            |   |                                  |   |                                 |   |   |   |   |   |
| Earnings (loss) per share:                                                                                                                      |   |                                  |   |                                 |   |   |   |   |   |
| Basic and Diluted - as reported                                                                                                                 |   | $                                     | 0.49   |                                 | $      | (0.55 | ) | $ | (1.48 | ) | $ | (3.63 | ) |
| Basic and Diluted - pro forma                                                                                                                   |   | $                                     | 0.49   |                                 | $      | (0.57 | ) | $ | (1.49 | ) | $ | (3.70 | ) |

 

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(1)      As described below in Note 7, the Company isnot presently recording additional tax benefits or provisions due to its netdeferred tax asset position and recent history of losses; therefore, theCompany did not include any tax effect related to the 2003 amounts shown.

 

On June 27,2003, the Company offered to all participants holding stock options or stockappreciation rights (“SARs”) related to NWA Corp. common stock granted pursuantto the 1998 Pilots Stock Option Plan the opportunity to exchange all of theiroutstanding stock options and SARs for a designated number of replacementoptions to purchase shares of NWA Corp. common stock and replacement SARs.  Eligible participants were able to exchangetheir existing stock options and SARs at a ratio of two shares subject to anold award for one share subject to a newly issued award of the same type(although certain outstanding SARs were eligible to be exchanged only for newlyissued options).  The offer terminatedon July 30, 2003.  Holders exchanged1,849,794 shares subject to existing options and SARs for 926,101 shares subjectto newly issued options and SARs.  Thenew awards vest in 25% installments over a four year period. The exercise priceof the new awards is $9.185 per share, the average of the high and low saleprices of NWA Corp. common stock as reported on the NASDAQ National MarketSystem on July 31, 2003.  Compensationexpense related to these new options will be amortized over a four-year vestingperiod using the fair value method of recording stock-based compensation and isanticipated to be approximately $1 million annually for awards issued underthis program.

 

**Note 7 –Income Taxes**

 

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

 

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**Note8 – Long-term Debt**

 

At September30, 2003 maturities of long-term debt excluding capital lease obligationsthrough December 31, 2007 are as follows (in millions):

 

| 2003 |   | $     | 89     |   |
|------|--------|-------|--------|--------|
| 2004 |   | 669   |   |
| 2005 |   | 1,482 |   |
| 2006 |   | 693   |   |
| 2007 |   | 720   |   |

 

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

 

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

 

On May 20,2003, NWA Corp. completed an offering of $150 million of unsecured convertiblesenior notes due 2023 to qualified institutional buyers pursuant to Rule 144Aand to non-U.S. persons pursuant to Regulation S, under the Securities Act of1933.  The notes bear interest at6.625%, which is payable in cash semi-annually through May 15, 2010.  Thereafter, the principal amount of thenotes will accrete semi-annually at a rate of 6.625% per year to maturity.  Each note was issued at a price of $1,000and is convertible into NWA Corp. common stock at a conversion rate of 61.8047shares per $1,000 original principal amount of notes (equal to an initialconversion price of approximately $16.18 per share), subject to adjustment incertain circumstances.  The notes areguaranteed by Northwest.  In August2003, a Registration Statement on Form S-3 related to the convertible senior notesoffered on May 20, 2003, was declared effective by the Securities and ExchangeCommission under the Securities Act of 1933.

 

Holders of thenotes may convert their notes only if: (i) NWA Corp.’s common stock trades above a specified price thresholdfor a specified period; (ii) the trading price for the notes falls belowcertain thresholds; (iii) the notes have been called for redemption; or (iv)specific corporate transactions occur. Under all situations, NWA Corp. may elect to satisfy a call forconversion with cash or common stock. NWA Corp. may redeem all or some of the notes for cash at any time on orafter May 15, 2010, at a redemption price equal to the accreted principalamount plus accrued and unpaid interest, if any, to the redemption date.  Holders may require NWA Corp. to repurchasethe notes on May 15, 2010, 2013 and 2018 at a repurchase price equal to theaccreted principal amount plus accrued and unpaid interest, if any, on therepurchase date.  NWA Corp. may elect topay the repurchase price in cash or in shares of common stock, or a combinationof both, subject to certain conditions. Should holders elect to require NWA Corp. to redeem the notes on any ofthe repurchase dates, it is the Company’s present intention to satisfy therequirement in cash.  NWA Corp. plans touse the net proceeds from the offering for working capital and generalcorporate purposes.

 

10

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**Note 9 – Fleet Information andCommitments**

 

The followingtable presents the number of aircraft in service and on firm order as ofSeptember 30, 2003:

 
| **Aircraft Type**                     |   | **Seating  Capacity** |       | **Owned** |       | **Capital  Lease** |       | **Operating  Lease** |   | **Temporarily  Not in  Service** |       | **Total  Aircraft  in Service** |       | **Aircraft  on Firm  Order** |       |
|---------------------------------------|--------|-----------------------|------------|-----------|------------|--------------------|------------|----------------------|--------|----------------------------------|------------|---------------------------------|------------|------------------------------|------------|
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Passenger Aircraft**                |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| Airbus:                               |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| A319                                  |   | 124                   |       | 53        |       | —             |       | 12                   |   | —                           |       | 65                              |       | 12                           |       |
| A320                                  |   | 144-148               |       | 41        |       | 4                  |       | 31                   |   | (4                               | )          | 72                              |       | 8                            |       |
| A330-200                              |   | 243                   |       | —    |       | —             |       | —               |   | —                           |       | —                          |       | 10                           |       |
| A330-300                              |   | 298                   |       | 4         |       | —             |       | —               |   | (1                               | )**(1)**   | 3                               |       | 10                           |       |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| Boeing:                               |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| 757-200                               |   | 180-184               |       | 23        |       | 14                 |       | 19                   |   | (4                               | )          | 52                              |       | —                       |       |
| 757-300                               |   | 224                   |       | 15        |       | —             |       | —               |   | —                           |       | 15                              |       | 1                            |       |
| 747-200                               |   | 353-446               |       | 13        |       | —             |       | 5                    |   | (5                               | )          | 13                              |       | —                       |       |
| 747-400                               |   | 403                   |       | 4         |       | —             |       | 12                   |   | —                           |       | 16                              |       | —                       |       |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| McDonnell Douglas:                    |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| DC9                                   |   | 78-125                |       | 154       |       | —             |       | 13                   |   | (10                              | )          | 157                             |       | —                       |       |
| DC10-30                               |   | 269-273               |       | 14        |       | —             |       | 8                    |   | —                           |       | 22                              |       | —                       |       |
|                                  |   |                  |       | 321       |       | 18                 |       | 100                  |   | (24                              | )          | 415                             | ** ** | 41                           |       |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Freighter Aircraft**                |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| Boeing 747-200F                       |   |                  |       | 5         |       | —             |       | 7                    |   | —                           |       | 12                              |       | —                       |       |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Total Northwest Operated Aircraft** |   |                  | ** ** | **326**   | ** ** | **18**             | ** ** | **107**              |   | **(24**                          | **)**      | **427**                         | ** ** | **41**                       | ** ** |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Regional Aircraft**                 |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| AVRO RJ85                             |   | 69                    |       | 11        |       | —             |       | 25                   |   | —                           |       | 36                              |       | —                       |       |
| CRJ-200/440                           |   | 50/44                 |       | —    |       | —             |       | 70                   |   | —                           |       | 70                              |       | 59                           |       |
| SAAB 340                              |   | 30-34                 |       | —    |       | —             |       | 49                   |   | —                           |       | 49                              |       | —                       |       |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Total Airlink Operated Aircraft**   |   |                  | ** ** | **11**    | ** ** | **—**         | ** ** | **144**              |   | **—**                       | ** ** | **155**                         | ** ** | **59**                       | ** ** |
|                                  |   |                  |       |      |       |               |       |                 |   |                             |       |                            |       |                         |       |
| **Total Aircraft**                    |   |                  | ** ** | **337**   | ** ** | **18**             | ** ** | **251**              |   | **(24**                          | **)**      | **582**                         | ** ** | **100**                      | ** ** |

 

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(1)          OneAirbus 330-300 aircraft was purchased in September 2003 but was not yet inservice as of September 30, 2003.

 

Committedexpenditures for the 100 aircraft and related equipment on firm order,including estimated amounts for contractual price escalations and predeliverydeposits, will be approximately $413 million for the remainder of 2003, $1.18billion in 2004, $1.24 billion in 2005, $583 million in 2006 and $205 millionin 2007.  Consistent with priorpractice, the Company intends to finance its aircraft deliveries through acombination of internally generated funds, debt and long-term leasefinancing.  Financing commitmentsavailable for use by the Company are in place for the 41 Northwest operatedaircraft on order.  These financingsrange from 80% - 100% of each aircraft’s purchase price.  The Company has the option to finance the 59CRJ-200/440 aircraft on order through long-term operating lease commitmentsfrom the manufacturer.  These aircraftwill, in turn, be leased or subleased to and operated by Pinnacle Airlines,Inc.  In the event a manufacturer doesnot provide financing for these aircraft, the Company has certain remedies,including the right not to take delivery of the aircraft.

 

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**Note 10 – Series CPreferred Stock**

 

The Companyissued Series C Preferred Stock in 1993 to trusts for the benefit of its employeesin connection with labor cost restructuring agreements between the Company andits major unions.  The terms of theSeries C Preferred Stock give the holders a “put right” to require the Companyto repurchase such shares for an amount (approximately $226 million as ofAugust 1, 2003) equal to the actual wage savings achieved under the 1993 laboragreements.  Consummation of therepurchase is subject to, among other things, compliance with corporate lawrequirements applicable to the Company, including the requirement that anystock repurchase be out of a corporation’s “surplus”.  The Company announced on August 1, 2003 that it could not legallyrepurchase the outstanding Series C Preferred Stock at this time because theBoard of Directors was unable to determine that the Company had adequatesurplus to repurchase the outstanding Series C Preferred Stock.  As a result, quarterly dividends beganaccruing August 1, 2003, at 12% per annum. The IBT and IAM have commenced separate lawsuits challenging the Company’sdecision not to repurchase the Series C Preferred Stock.  See “Part II. Item 1.  Legal Proceedings” for additionalinformation regarding these lawsuits. Additional information with respect to the Company’s Series C PreferredStock is contained in Note 6 of the Notes to Consolidated Financial Statementsin the Company’s Annual Report on Form 10-K for 2002.

 

**Note 11 –Pinnacle Stock Contribution to Company’s Pension Plans**

 

In November 2002, the Company submitted an application to theDepartment of Labor to permit it to contribute common stock of PinnacleAirlines Corp. to its pension plans in lieu of making certain requiredcontributions in cash.  On January 15,2003, the Department of Labor (“DOL”) issued a proposed prohibited transactionexemption that would allow the Company to contribute common stock of PinnacleAirlines Corp. to satisfy a portion of the contribution requirements toNorthwest’s pension plans in 2003 and 2004.  In August 2003, theDOL finalized the exemption with an effective date retroactive to January 15,2003.   The terms of the exemptionprovide that the pension plans have the right at any time to sell the sharesback to the Company for cash at the greater of their value at the time of contributionor the prevailing market value.

 

On January 15,2003, the Company contributed approximately 1.9 million shares, orapproximately 12.9%, of Pinnacle Airlines Corp. common stock to State StreetBank, the trustee for the Master Trust that holds the assets of all of theNorthwest pension plans, to satisfy approximately $44 million of its $223million scheduled funding requirement for the 2002 plan year.  OnSeptember 11, 2003, the Company contributed approximately 4.4 millionshares, or 29.1%, of Pinnacle Airlines Corp. common stock to State Street Bankto satisfy an additional $119 million of the scheduled funding requirement forthe 2002 plan year due in 2003.  Also onthat date, in accordance with an agreement reached with the Airline PilotsAssociation, the Company made a voluntary contribution of $190 million to thepilots’ pension plan, consisting of approximately 7.0 million shares, or 46.6%,of Pinnacle Airlines Corp. common stock. This voluntary contribution eliminates further ERISA required contributionsto the pilots’ plan until the second half of 2005.

 

As a result ofthe plans’ option to sell the shares back to the Company, the $353 milliontotal contribution of Pinnacle Airlines Corp. common stock was not recognizedon the Company’s financial statements, which continue to fully consolidatePinnacle Airlines Corp. and do not reflect a reduction in the pension liabilityfor accounting purposes.

 

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**Note12 – Security Cost Reimbursements from the U.S. Government**

 

On April 16, 2003, the President signed into lawthe Emergency Wartime Supplemental Appropriations Act (“Wartime Act”) which includes, among other items, a $2.30billion cash reimbursement to U.S. airlines for security fees previouslyremitted to the Transportation Security Administration (“TSA”) by U.S. airlinesand $100 million for reimbursement of the costs of aircraft cockpit doorreinforcement since the 2001 terrorist attacks.  The Company received $209 million for reimbursement of securityfees in May 2003, which was recorded as other income, and $11 million fordirect costs of cockpit door reinforcement, which was recorded as a reductionto the previously capitalized property account.  Retention of these funds requires compliance with requirements inthe Wartime Act, including certain limitations on executive compensation.

 

**Note13 – Sale of Interest in WORLDSPAN L.P.**

 

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

 

**Note 14 – Subsequent Events**

 

*Sale ofHotwire. *On November 5, 2003, the Company sold its 6.7%interest in Hotwire.com (“Hotwire”) to InterActive Corp. and received cashproceeds of $40 million.  Hotwireoperates an online opaque travel site and was founded by Texas Pacific Groupand six airlines, including the Company.

 

*Convertible Senior Notes. *OnNovember 4, 2003, NWA Corp. completed an offering of $225 million originalprincipal amount of convertible senior notes due 2023, to qualifiedinstitutional buyers pursuant to Rule 144A and to non-U.S. persons pursuant toRegulation S, under the Securities Act of 1933.  The notes bear interest at 7.625%, which is payable in cash semi-annuallythrough November 15, 2008.  Thereafter,the principal amount of the notes will accrete semi-annually at a rate of7.625% per year to maturity.  Each notewas issued at a price of $1,000 and is convertible into NWA Corp. common stockat a conversion rate of 43.6681 shares per $1,000 original principal amount ofnotes (equal to an initial conversion price of approximately $22.90 per share),subject to adjustment in certain circumstances.  The notes are guaranteed by Northwest.

 

Holders of thenotes may convert their notes only if: (i) NWA Corp.’s common stock trades above a specified price thresholdfor a specified period; (ii) the trading price for the notes falls belowcertain thresholds; (iii) the notes have been called for redemption; or (iv)specific corporate transactions occur. Under all situations, NWA Corp. may elect to satisfy a call forconversion with cash or common stock. NWA Corp. may redeem all or some of the notes for cash at any time on orafter November 15, 2008, at a redemption price equal to the accreted principalamount plus accrued and unpaid interest, if any, to the redemption date.  Holders may require NWA Corp. to repurchasethe notes on November 15, 2008, 2013 and 2018 at a repurchase price equal tothe accreted principal amount plus accrued and unpaid interest, if any, on therepurchase date.  NWA Corp. may elect topay the repurchase price in cash or in shares of common stock, or a combinationof both, subject to certain conditions. As a result of these conversion features, NWA Corp. entered into a callspread option transaction that was designed to limit exposure to potentialdilution from conversion of the notes in the event that the market price pershare of NWA Corp.’s common stock at the time of exercise is greater than thelower strike price of $22.90.  This callspread option will be treated as an equity transaction under the EmergingIssues Task Force (“EITF”) Issue No. 00-19, *Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled in, a Company’s OwnStock.*  NWA Corp. plans touse the net proceeds from the offering for working capital and generalcorporate purposes.

 

13

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*Debt ExchangeOffer.*On October30, 2003, the Company commenced an exchange offer for $150 millionoutstanding principal amount of its 8.375% Notes due 2004, $200 millionoutstanding principal amount of its 8.52% Notes due 2004, $200 millionprincipal amount of its 7.625% Notes due 2005 and $300 million outstandingprincipal amount of its 8.875% Notes due 2006 (collectively, the “OldNotes”).  The Company is offeringholders of the Old Notes the opportunity to exchange them as follows:(1) for each $1,000 principal amount of the 8.375% Notes due 2004, $1,200principal amount of new 10.5% class D pass through certificates, plus a cashpayment for accrued and unpaid interest up to, but excluding, the exchangedate, (2) for each $1,000 principal amount of the 8.52% Notes due 2004,$1,200 principal amount of new 10.5% class D certificates, plus a cash paymentfor accrued and unpaid interest up to, but excluding, the exchange date, (3)for each $1,000 principal amount of the 7.625% Notes due 2005, $1,150 principalamount of new 10.5% class D certificates, plus a cash payment for accrued andunpaid interest up to, but excluding, the exchange date, and (4) for each$1,000 principal amount of 8.875% Notes due 2006, $1,000 principal amount ofnew 10.5% class D certificates, plus a cash payment for accrued and unpaidinterest up to, but excluding, the exchange date.  The new 10.5% class D pass through certificates represent afractional undivided interest in the assets of a pass through trust.  The trust’s assets consist of interests in$551.8 million principal amount of equipment notes secured or to be secured byaircraft financed or to be financed under five series of Northwest pass throughcertificates previously issued.  Theexchange offer and withdrawal rights will expire at midnight, Eastern StandardTime, on Tuesday, December 2, 2003, unless earlier terminated or extended bythe Company.

 

The exchange offer is subject to customary conditions, including thereceipt of valid and unwithdrawn tenders of Old Notes that would result inissuance of at least $5 million in aggregate principal amount of the newclass D pass through certificates. The exchange offer will be accounted for asa loss on extinguishment of debt under generally accepted accounting principlesbecause the cash flows of the new debt instrument are greater than 110 percentof the original instruments’ remaining cash flows.  The loss to be recognized in the Consolidated Statement ofOperations will be based on final participation in the exchange offer.

 

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**Item 2****.  Management**’**s Discussion and Analysis of Financial Conditionand Results of Operations**

 

Several largeU.S. network airlines were modestly profitable during the quarter endedSeptember 30, 2003, as peak summer demand, generally stronger economicconditions, cost reductions and reduced capacity produced a moderately improvedoperating environment.  However, theindustry continues to be impacted by factors that emerged in the early part of2003, such as the military actions in Iraq and Severe Acute RespiratorySyndrome (SARS).  In addition, overallbusiness conditions, particularly for the major network carriers, remainsignificantly weakened by longer-term structural changes that have reducedrevenues to levels well below historical norms.  These structural changes include continued expansion of low costcarriers, which now carry more than one-fourth of total U.S. passenger trafficand affect pricing in the majority of domestic markets.  Distribution of pricing information andwidespread availability of discount fares through the internet have alsoreduced average yields, and some passengers remain reluctant to fly due to theinconveniences of security procedures at airports, fear of additional terroristactivities, or the increased tax burden placed on travelers.  These and other factors contributing to thefinancial and operational challenges the Company faces are described in moredetail in the “Northwest and Airline Industry Current Status” section ofManagement’s Discussion and Analysis of Financial Condition and Results ofOperations in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.

 

For thequarter ended September 30, 2003, the Company reported net income of $47million, net income applicable to common shareholders of $42 million andoperating income of $146 million. Diluted earnings per common share were $0.49 in the third quarter of2003 compared to a net loss per common share of $0.55 in the third quarter of2002.

 

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

 

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

 
|                                                                                                      |   | **Three  months ended  September 30** |           |     |           | **Nine  months ended  September 30** |     |     |           |
|-----------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------------|----------|----------------|--------------------------------------|----------|----------|----------------|
|                                                                                                      |   | **2003**                              |           | **2002** | ** **     | **%Chg.**                            |     | **2003** | ** **     | **2002** | ** ** | **%****Chg.** | ** ** |
| Scheduled service:                                                                                        |   |                                  |           |     |           |                                 |     |     |           |   |   |   |   |
| Available seat miles (ASM) (millions)                                                                     |   | **23,287**                            |           | 25,055   |           | (7.1                                 | )        | 67,210   |           | 70,354 |   | (4.5 | ) |
| Revenue passenger miles (RPM) (millions)                                                                  |   | **18,947**                            |           | 19,752   |           | (4.1                                 | )        | 51,865   |           | 54,870 |   | (5.5 | ) |
| Passenger load factor                                                                                     |   | **81.4**                              | %              | 78.8     | %              | 2.6                                  | pts.     | 77.2     | %              | 78.0 | % | (0.8 | ) pts. |
| Revenue passengers (millions)                                                                             |   | **14.0**                              |           | 14.4     |           | (2.7                                 | )        | 39.0     |           | 39.9 |   | (2.1 | ) |
| Passenger revenue per RPM (yield)                                                                         |   | **11.14**                             | *¢*       | 10.93    | *¢*       | 1.9                                  | * * | 11.00    | *¢*       | 10.75 | *¢* | 2.3 | * * |
| Passenger revenue per scheduled ASM (RASM)                                                                |   | **9.07**                              | *¢*       | 8.61     | *¢*       | 5.3                                  | * * | 8.49     | *¢*       | 8.39 | *¢* | 1.2 | * * |
|                                                                                                      |   |                                  |           |     |           |                                 |     |     |           |   |   |   |   |
| Total operating ASM (millions)                                                                            |   | **23,315**                            |           | 25,082   |           | (7.0                                 | )        | 67,733   |           | 70,480 |   | (3.9 | ) |
| Operating expense per total operating ASM (2)                                                             |   | **9.34**                              | *¢*       | 9.24     | *¢*  | 1.1                                  | * * | 9.78     | *¢*       | 9.40 | *¢*  | 4.0 |   |
| Operating expense per total operating ASM, excluding severance,  curtailment and aircraft impairments (3) |   | **9.34**                              | *¢ * | 9.24     | *¢*  | 1.1                                  | * * | 9.63     | *¢*  | 9.40 | *¢* | 2.4 |   |
|                                                                                                      |   |                                  |           |     |           |                                 |     |     |           |   |   |   |   |
| Cargo ton miles (millions)                                                                                |   | **577**                               |           | 555      |           | 4.0                                  |     | 1,596    |           | 1,606 |   | (0.6 | ) |
| Cargo revenue per ton mile                                                                                |   | **34.04**                             | *¢ * | 32.43    | *¢*  | 5.0                                  |     | 34.07    | *¢ * | 31.39 | *¢* | 8.5 |   |
|                                                                                                      |   |                                  |           |     |           |                                 |     |     |           |   |   |   |   |
| Fuel gallons consumed (millions)                                                                          |   | **463**                               |           | 508      |           | (8.9                                 | )        | 1,331    |           | 1,432 |   | (7.1 | ) |
| Average fuel cost per gallon, excluding taxes                                                             |   | **75.60**                             | *¢ * | 71.35    | *¢*  | 6.0                                  | * * | 80.17    | *¢*  | 66.59 | *¢* | 20.4 | * * |
|                                                                                                      |   |                                  |           |     |           |                                 |     |     |           |   |   |   |   |
| Number of operating aircraft at end of period                                                             |   |                                  |           |     |           |                                 |     | 427      |           | 435 |   | (1.8 | ) |
| Full-time equivalent employees at end of period                                                           |   |                                  |           |     |           |                                 |     | 38,722   |           | 45,466 |   | (14.8 | ) |

 

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

(2)          Excludes the expensesassociated with the operation of Northwest’s fleet of Boeing 747 freighteraircraft, MLT Inc., Pinnacle Airlines, the NBA transportation program andgain/loss on disposal of assets. These expenses do not generate Northwest ASMsand therefore are excluded from the calculation.

(3)          Management believes thatoperating expenses per total ASM, excluding severance, curtailment expenses andaircraft impairments, is more reflective of the Company’s ongoingoperations.  Reconciliation of totaloperating expenses to passenger service operating expenses used to calculateoperating expense per total operating ASM is provided below:

 
|                                                  |   | **Three  months ended  September 30** |       | **Nine  months ended  September 30** |       |
|-------------------------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
| **(In millions)**                                     |   | **2003**                              | ** ** | **2002**                             | ** ** | **2003** | ** ** | **2002** | ** ** |
| Operating expenses per GAAP                           |   | $                                     | 2,410      |                                 | $          | 2,556 |   | $ | 7,356 |   | $ | 7,384 |   |
| Freighter operations                                  |   | (118                                  | )          | (131                                 | )          | (355 | ) | (355 | ) |
| MLT Inc. - net of intercompany eliminations           |   | (39                                   | )          | (42                                  | )          | (158 | ) | (212 | ) |
| Pinnacle Airlines - net of intercompany  eliminations |   | (75                                   | )          | (60                                  | )          | (208 | ) | (170 | ) |
| (Gain)/loss on assets, NBA transportation  and other  |   | (1                                    | )          | (6                                   | )          | (14 | ) | (21 | ) |
| Passenger service operating expenses                  |   | 2,177                                 |       | 2,317                                |       | 6,621 |   | 6,626 |   |
| Aircraft impairments                                  |   | —                                |       | —                               |       | (21 | ) | — |   |
| Curtailment expenses                                  |   | —                                |       | —                               |       | (58 | ) | — |   |
| Severance expenses                                    |   | —                                |       | —                               |       | (20 | ) | — |   |
|                                                  |   | $                                     | 2,177      |                                 | $          | 2,317 |   | $ | 6,522 |   | $ | 6,626 |   |

 

16

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# **Results of Operations—Threemonths ended September 30, 2003 and 2002**

 

*Operating Revenues*.  Operating revenues decreased 0.3% ($8 million).  System passenger revenues decreased 2.2%($47 million), excluding Pinnacle Airlines. Pinnacle Airlines passenger revenues, net of intercompany eliminations,increased 31.3% ($22 million) to $91 million due to the increased capacity of27 additional Bombardier CRJ aircraft that entered service since September 30,2002.

 

Thefollowing analysis by region is based on information reported to the DOT andexcludes Pinnacle Airlines:

 
|                               |   | **System** |       | **Domestic** |       | **Pacific** |       | **Atlantic** |       |
|------------------------------------|--------|------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **2003**                           |   |       |       |         |       |        |       |         |       |
| Passenger revenues (in millions)   |   | $          | 2,111      |         | $          | 1,408       |       | $            | 422        |   | $ | 281 |   |
|                               |   |       |       |         |       |        |       |         |       |
| **Increase (Decrease) from 2002:** |   |       |       |         |       |        |       |         |       |
| Passenger revenues (in millions)   |   | $          | (47        | )            | $          | 20          |       | $            | (55        | ) | $ | (12 | ) |
| Percent                            |   | (2.2       | )%         | 1.4          | %          | (11.3       | )%         | (4.3         | )%         |
|                               |   |       |       |         |       |        |       |         |       |
| Scheduled service ASMs (capacity)  |   | (7.1       | )%         | (5.9         | )%         | (6.5        | )%         | (12.5        | )%         |
| Scheduled service RPMs (traffic)   |   | (4.1       | )%         | (2.4         | )%         | (4.3        | )%         | (9.5         | )%         |
| Passenger load factor              |   | 2.6        | pts.  | 2.8          | pts.  | 2.0         |  pts. | 2.9          | pts.  |
| Yield                              |   | 1.9        | %          | 3.8          | %          | (7.3        | )%         | 5.8          | %          |
| Passenger RASM                     |   | 5.3        | %          | 7.7          | %          | (5.1        | )%         | 9.3          | %          |

 

As indicatedin the above table:

 

•                  Domesticpassenger revenues increased slightly due to improved yields partially offsetby lower traffic.

•                  Pacificpassenger revenues decreased substantially due to lower traffic and a declinein yields.

•                  Atlanticpassenger revenues were lower due to significantly reduced traffic, which waspartially offset by higher yields.

 

Cargorevenues increased 8.9% ($16 million) to $196 million due largely to improvedyield per ton mile and volume increases. Other revenues increased 0.6% ($1 million) as a result of increasedrevenue from MLT Inc. and higher reservation cancellation fees, partiallyoffset by lower ground support revenues and other non-transportation servicefees.

 

*Operating Expenses*.  Operating expenses decreased 5.7% ($146 million) for the threemonths ended September 30, 2003.  Thefollowing table presents operating expenses for the three months ended September30, 2003 and describes significant variances from the three months endedSeptember 30, 2002:

 
|                                       |   |                    |       | **Increase**              |       |                |       |     |       |
|--------------------------------------------|--------|-------------------------|------------|---------------------------|------------|---------------------|------------|----------|------------|
| **(in millions)**                          |   | **Three  Months Ended** | ** ** | **(Decrease)  from 2002** | ** ** | **Percent  Change** | ** ** | **Note** | ** ** |
| **2003**                                   |   | **2002**                |
| **Operating Expenses**                     |   |                    |       |                      |       |                |       |     |       |   |   |
| Salaries, wages and benefits               |   | $                       | 955        |                      | $          | 977                 |       | $        | (22        | ) | (2.3 | )% | A |   |
| Aircraft fuel and taxes                    |   | 386                     |       | 395                       |       | (9                  | )          | (2.3     | )          | B |   |
| Selling and marketing                      |   | 187                     |       | 211                       |       | (24                 | )          | (11.4    | )          | C |   |
| Depreciation and amortization              |   | 144                     |       | 133                       |       | 11                  |       | 8.3      |       | D |   |
| Other rentals and landing fees             |   | 141                     |       | 162                       |       | (21                 | )          | (13.0    | )          | E |   |
| Aircraft rentals                           |   | 117                     |       | 116                       |       | 1                   |       | 0.9      |       | F |   |
| Aircraft maintenance materials and repairs |   | 114                     |       | 139                       |       | (25                 | )          | (18.0    | )          | G |   |
| Other                                      |   | 366                     |       | 423                       |       | (57                 | )          | (13.5    | )          | H |   |
| **Total operating expenses**               |   | $                       | 2,410      |                      | $          | 2,556               |       | $        | (146       | ) | (5.7 | )% |   |   |

 

17

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A.           Salaries,wages and benefits were lower due to savings from a 14.6% decrease in averagefull-time equivalent employees, partially offset by higher pension expenses,contractually required payments to IAM & TCU employees and an increase inaverage pay rates.

B.             Aircraftfuel and taxes were lower due to an 8.9% decrease in fuel gallons consumed,resulting from the use of more fuel-efficient aircraft and 7.0% lower totalcapacity.  These reductions werepartially offset by a 6.0% increase in the average fuel cost per gallon to75.60 cents, net of hedging transactions. Fuel hedge transactions reduced fuel costs by $30 million for the threemonths ended September 30, 2003, compared to an $18 million reduction for thethree months ended September 30, 2002.

C.             Sellingand marketing (consisting of commissions, credit card fees, computerreservation system fees, advertising and promotion expenses) decreased $24million due primarily to lower passenger volumes and lower advertisingexpenses.

D.            Depreciationexpense increased primarily due to the acquisition of new aircraft and groundequipment.

E.              Otherrentals and landing fees decreased primarily due to reduced operations.

F.              Aircraftrentals remained relatively constant, as an increase in the number of leasedaircraft offset lower variable interest rates on existing leases.

G.             Aircraftmaintenance materials and repairs decreased primarily due to lower materialusage from reduced maintenance volume, which resulted from lower fleetutilization.  Should utilizationincrease in the future or temporarily grounded aircraft return to service,maintenance costs would rise from current levels.

H.            Otherexpenses (which include MLT Inc. operating expenses, outside services,insurance, passenger food, personnel expenses, communication expenses andsupplies) decreased principally due to lower Northwest passenger volumes andlower MLT Inc. operating expenses.

 

*Other Income and Expense.*  Non-operating income (expense) decreased $18million, primarily due to higher interest expense related to increased debtlevels.

 

**Results of Operations—Nine months endedSeptember 30, 2003 and 2002**

 

*Operating Revenues.*  Operating revenues decreased 0.7% ($47 million).  System passenger revenues decreased 3.3%($192 million), excluding Pinnacle Airlines. Pinnacle Airlines passenger revenues, net of intercompany eliminations,increased 26.1% ($52 million) to $249 million due to the increased capacity of27 additional Bombardier CRJ aircraft that entered service since September 30,2002, and higher rates under a new airline services agreement with Northwestthat was effective March 1, 2002.

 

Thefollowing analysis by region is based on information reported to the DOT andexcludes Pinnacle Airlines:

 
|                               |   | **System** |   | **Domestic** |   | **Pacific** |   | **Atlantic** |   |
|------------------------------------|--------|------------|--------|--------------|--------|-------------|--------|--------------|--------|
| **2003**                           |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)   |   | $          | 5,707  |         | $      | 3,993       |   | $            | 1,054  |   | $ | 660 |   |
|                               |   |       |   |         |   |        |   |         |   |
| **Increase (Decrease) from 2002:** |   |       |   |         |   |        |   |         |   |
| Passenger revenues (in millions)   |   | $          | (192   | )            | $      | (9          | )      | $            | (130   | ) | $ | (53 | ) |
| Percent                            |   | (3.3       | )%     | (0.2         | )%     | (11.0       | )%     | (7.4         | )%     |
|                               |   |       |   |         |   |        |   |         |   |
| Scheduled service ASMs (capacity)  |   | (4.5       | )%     | (3.2         | )%     | (2.8        | )%     | (12.9        | )%     |
| Scheduled service RPMs (traffic)   |   | (5.5       | )%     | (2.1         | )%     | (8.1        | )%     | (13.1        | )%     |
| Passenger load factor              |   | (0.8       | ) pts. | 0.7          | pts.   | (4.7        | ) pts. | (0.2         | ) pts. |
| Yield                              |   | 2.3        | %      | 2.0          | %      | (3.1        | )%     | 6.5          | %      |
| Passenger RASM                     |   | 1.2        | %      | 3.1          | %      | (8.5        | )%     | 6.3          | %      |

 

As indicatedin the above table:

•                  Domesticpassenger revenues were virtually unchanged, as reduced traffic was partiallyoffset by slightly higher yields.

•                  Pacificpassenger revenues decreased significantly due to a combination of lowertraffic and declining yields, both primarily the result of SARS.

•                  Atlanticpassenger revenues were significantly lower due to a steep reduction intraffic, largely a result of the Iraq War, which was partially offset by higheryields.

 

18

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Cargorevenues increased 7.9% ($40 million) to $544 million due to improved yield perton mile.  Other revenues increased 9.8%($54 million) as a result of flying for the U.S. military under the CivilReserve Air Fleet program, other transportation service fees and supportservices, partially offset by a decrease in ground support revenues and othernon-transportation service fees.

* *

*Operating Expenses*.  Operating expenses decreased 0.4% ($28 million).  The following table presents operatingexpenses for the nine months ended September 30, 2003 and describes significantvariances from the nine months ended September 30, 2002:

 
|                                       |   |                   |       | **Increase**                |       |                  |       |     |       |
|--------------------------------------------|--------|------------------------|------------|-----------------------------|------------|-----------------------|------------|----------|------------|
| **(in millions)**                          |   | **Nine Months  Ended** | ** ** | **(Decrease)****from 2002** | ** ** | **Percent****Change** | ** ** | **Note** | ** ** |
| **2003**                                   |   | **2002**               |
| **Operating Expenses**                     |   |                   |       |                        |       |                  |       |     |       |   |   |
| Salaries, wages and benefits               |   | $                      | 2,944      |                        | $          | 2,837                 |       | $        | 107        |   | 3.8 | % | A |   |
| Aircraft fuel and taxes                    |   | 1,172                  |       | 1,046                       |       | 126                   |       | 12.0     |       | B |   |
| Selling and marketing                      |   | 533                    |       | 629                         |       | (96                   | )          | (15.3    | )          | C |   |
| Depreciation and amortization              |   | 448                    |       | 399                         |       | 49                    |       | 12.3     |       | D |   |
| Other rentals and landing fees             |   | 422                    |       | 426                         |       | (4                    | )          | (0.9     | )          | E |   |
| Aircraft rentals                           |   | 355                    |       | 345                         |       | 10                    |       | 2.9      |       | F |   |
| Aircraft maintenance materials and repairs |   | 342                    |       | 435                         |       | (93                   | )          | (21.4    | )          | G |   |
| Other                                      |   | 1,140                  |       | 1,267                       |       | (127                  | )          | (10.0    | )          | H |   |
| **Total operating expenses**               |   | $                      | 7,356      |                        | $          | 7,384                 |       | $        | (28        | ) | (0.4 | )% |   |   |

 

A.           Salaries,wages and benefits increased due to higher pension expenses, annual pay rateincreases, $20 million of severance expenses, contractually required paymentsto IAM & TCU employees and a $58 million pension curtailment charge,partially offset by savings from an 10.4% decrease in average full-timeequivalent employees.

B.             Aircraftfuel and taxes were higher due to a 20.4% increase in the average fuel cost pergallon to 80.17 cents, net of hedging transactions, partially offset by 7.1%fewer****fuelgallons consumed from the use of more fuel efficient aircraft and 3.9% lowertotal capacity.  Fuel hedge transactionsreduced fuel costs by $82 million for the nine months ended September 30, 2003,compared to a $42 million reduction for the nine months ended September 30,2002.

C.             Sellingand marketing (consisting of commissions, credit card fees, computerreservation system fees, advertising and promotion expenses) decreased $96million due primarily to the elimination of North American base commissions,which began to take effect near the end of the second quarter of 2002, lowerpassenger volumes and lower advertising expenses.

D.            Depreciationexpense increased primarily due to aircraft write-downs of $21 million, mostlyrelated to Boeing 727-200 aircraft, accelerated retirement of certain otheraircraft and the acquisition of new aircraft and ground equipment.

E.              Otherrentals and landing fees remained relatively unchanged.  Higher rates across the system were almostentirely offset by lower volume.

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

G.             Aircraftmaintenance materials and repairs decreased by $93 million, primarily due tolower material usage from reduced maintenance volume, which resulted from lowerfleet utilization and nine fewer aircraft in service as of September 30, 2003.  Should utilization increase in the future ortemporarily grounded aircraft return to service, maintenance costs would risefrom current levels.

H.            Otherexpenses (which include MLT Inc. operating expenses, outside services,insurance, passenger food, personnel expenses, communication expenses andsupplies) decreased principally due to lower Northwest passenger volumes andlower MLT Inc. operating expenses.

 

*Other Income and Expense.*  Non-operating income (expense) increased$342 million to $101 million, primarily due to $209 million received under theWartime Act as reimbursement for security fees previously paid to the TSA and a$199 million gain from the sale of the Company’s investment in WORLDSPAN L.P.,partially offset by higher interest expense related to increased debt levels.

 

19

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**Liquidity and CapitalResources**

 

Asof September 30, 2003, the Company had cash, cash equivalents and short-terminvestments of $2.95 billion.  Thisamount includes $147 million of restricted short-term investments, resulting intotal liquidity of $2.80 billion.

 

*Cash flows*. Liquidity increased by $707 million during the nine months endedSeptember 30, 2003, due primarily to the $209 million security feereimbursements received from the U.S. Government under the Wartime Act, a $215million net tax refund, cash proceeds of $278 million from the sale ofWORLDSPAN L.P and the issuance of $150 million of senior convertible notes,partially offset by capital expenditures, net of financings, and otherinvesting and financing activities.

 

Netcash provided by operating activities for the nine months ended September 30,2003 was $675 million, a $714 million increase from the $39 million of cashused by operating activities for the nine months ended September 30, 2002.  This increase was due primarily to $209million of Wartime Act funds received in May 2003, net income tax receipts $92million higher in 2003 than 2002, $58 million received for settlement of contractsthat had been in place to hedge third and fourth quarter 2003 fuel usage, andthe payment in January 2002 of $216 million of aviation taxes originally duebetween September 11, 2001 and January 15, 2002.

 

Investingactivities consisted primarily of the receipt of $278 million from the sale ofthe Company’s interest in WORLDSPAN L.P., an increase in short-term investmentsof $641 million, capital expenditures on aircraft, facility improvements andground equipment purchases.  Included inthese capital expenditures is the acquisition of the following aircraft for thenine months ended September 30:

 
|           |   | **2003**   |   | **2002** |   |
|----------------|--------|------------|--------|----------|--------|
| Airbus A319    |   | **9**      |   | 17       |   |
| Airbus A320    |   | **—** |   | 2        |   |
| Airbus A330    |   | **3**      |   | —   |   |
| Boeing 747-400 |   | **—** |   | 2        |   |
| Boeing 757-200 |   | **—** |   | 3        |   |
| Boeing 757-300 |   | **5**      |   | 3        |   |
|           |   | **17**     |   | 27       |   |

 

Financingactivities in the nine months ended September 30, 2003 consisted primarily offinancing eight Airbus A319, two Airbus A330 and three Boeing 757-300 aircraftwith escrowed funds from a pass-through certificates offering, two Boeing757-300 and one Airbus A330 aircraft with long-term debt, the issuance of $150million of 6.625% senior convertible notes due in 2023, and payments of debtand capital lease obligations. Financing activities in the nine months ended September 30, 2002 consistedprimarily of the issuance of $300 million of 9.875% unsecured notes due 2007,the financing of: (i) 16 Airbus A319, one Boeing 747-400, two Airbus A320 andtwo Boeing 757-300 aircraft with escrowed funds from pass-through certificatesofferings issued in 2001, (ii) three Boeing 757-200, one Boeing 757-300 and oneAirbus A319 aircraft with long-term bank debt, (iii) the sale and leaseback ofone Boeing 747-400 aircraft, (iv) refinancing of one Boeing 747-400 aircraftpurchased off lease, and the payment of debt and capital lease obligations.

 

Inaddition to the purchase of the aircraft discussed above, the Company tookdelivery of one Airbus A330, three Boeing 757-300 and 19 Bombardier CRJaircraft during the nine months ended September 30, 2003.  The Airbus A330 and three Boeing 757-300aircraft were acquired through a non-cash transaction with themanufacturer.  The Bombardier CRJaircraft were financed with long-term operating leases and subleased toPinnacle Airlines.

 

20

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*Debt.*  At September 30, 2003 maturities oflong-term debt excluding capital lease obligations throughDecember 31, 2007 are as follows (in millions):

 

| 2003 |   | $     | 89     |   |
|------|--------|-------|--------|--------|
| 2004 |   | 669   |   |
| 2005 |   | 1,482 |   |
| 2006 |   | 693   |   |
| 2007 |   | 720   |   |

 

The amount due in 2005includes $962 million of principal outstanding on the Company’s creditfacilities.

 

*Debt Exchange Offer.*On October 30, 2003, the Company commenced an exchange offer for$150 million outstanding principal amount of its 8.375% Notes due 2004,$200 million outstanding principal amount of its 8.52% Notes due 2004, $200million principal amount of its 7.625% Notes due 2005 and $300 millionoutstanding principal amount of its 8.875% Notes due 2006 (collectively, the“Old Notes”).  The Company is offeringholders of the Old Notes the opportunity to exchange them as follows:(1) for each $1,000 principal amount of the 8.375% Notes due 2004, $1,200principal amount of new 10.5% class D pass through certificates, plus a cashpayment for accrued and unpaid interest up to, but excluding, the exchangedate, (2) for each $1,000 principal amount of the 8.52% Notes due 2004,$1,200 principal amount of new 10.5% class D certificates, plus a cash paymentfor accrued and unpaid interest up to, but excluding, the exchange date, (3)for each $1,000 principal amount of the 7.625% Notes due 2005, $1,150 principalamount of new 10.5% class D certificates, plus a cash payment for accrued andunpaid interest up to, but excluding, the exchange date, and (4) for each$1,000 principal amount of 8.875% Notes due 2006, $1,000 principal amount ofnew 10.5% class D certificates, plus a cash payment for accrued and unpaidinterest up to, but excluding, the exchange date.  The new 10.5% class D pass through certificates represent a fractionalundivided interest in the assets of a pass through trust.  The trust’s assets consist of interests in$551.8 million principal amount of equipment notes secured or to be secured byaircraft financed or to be financed under five series of Northwest pass throughcertificates previously issued.  Theexchange offer and withdrawal rights will expire at midnight, Eastern StandardTime, on Tuesday, December 2, 2003, unless earlier terminated or extended bythe Company.

 

The exchange offer is subject to customaryconditions, including the receipt of valid and unwithdrawn tenders of Old Notesthat would result in issuance of at least $5 million in aggregateprincipal amount of the new class D pass through certificates.The exchange offer will be accounted for as a loss on extinguishment of debtunder generally accepted accounting principles because the cash flows of thenew debt instrument are greater than 110 percent of the original instruments’remaining cash flows.  The loss to berecognized in the Consolidated Statement of Operations will be based on finalparticipation in the exchange offer.

 

*Convertible Senior Notes.*  On November 4, 2003, NWA Corp. completed anoffering of $225 million original principal amount of convertible senior notesdue 2023, to qualified institutional buyers pursuant to Rule 144A and tonon-U.S. persons pursuant to Regulation S, under the Securities Act of1933.  The notes bear interest at7.625%, which is payable in cash semi-annually through November 15, 2008.  Thereafter, the principal amount of thenotes will accrete semi-annually at a rate of 7.625% per year to maturity.  Each note was issued at a price of $1,000and is convertible into NWA Corp. common stock at a conversion rate of 43.6681shares per $1,000 original principal amount of notes (equal to an initial conversionprice of approximately $22.90 per share), subject to adjustment in certaincircumstances.  The notes are guaranteedby Northwest.

 

Holdersof the notes may convert their notes only if: (i) NWA Corp.’s common stock trades above a specified price thresholdfor a specified period; (ii) the trading price for the notes falls belowcertain thresholds; (iii) the notes have been called for redemption; or (iv)specific corporate transactions occur. Under all situations, NWA Corp. may elect to satisfy a call forconversion with cash or common stock. NWA Corp. may redeem all or some of the notes for cash at any time on orafter November 15, 2008, at a redemption price equal to the accreted principalamount plus accrued and unpaid interest, if any, to the redemption date.  Holders may require NWA Corp. to repurchasethe notes on November 15, 2008, 2013 and 2018 at a repurchase price equal tothe accreted principal amount plus accrued and unpaid interest, if any, on therepurchase date.  NWA Corp. may elect topay the repurchase price in cash or in shares of common stock, or a combinationof both, subject to certain conditions. As a result of these conversion features, NWA Corp. entered into a callspread option transaction that was designed to limit exposure to potentialdilution from conversion of the notes in the event that the market price pershare of NWA Corp.’s common stock at the time of exercise is greater than thelower

 

21

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strike price of $22.90.  This call spread option will be treated asan equity transaction under the Emerging Issues Task Force (“EITF”) IssueNo.  00-19, *Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company’s Own Stock.*  NWA Corp. plans to use the net proceeds fromthe offering for working capital and general corporate purposes.

 

OnMay 20, 2003, NWA Corp. completed an offering of $150 million of unsecuredconvertible senior notes due 2023 to qualified institutional buyers pursuant toRule 144A and to non-U.S. persons pursuant to Regulation S, under theSecurities Act of 1933.  The notes bearinterest at 6.625%, which is payable in cash semi-annually through May 15,2010.  Thereafter, the principal amountof the notes will accrete semi-annually at a rate of 6.625% per year tomaturity.  Each note was issued at aprice of $1,000 and is convertible into NWA Corp. common stock at a conversionrate of 61.8047 shares per $1,000 original principal amount of notes (equal toan initial conversion price of approximately $16.18 per share), subject toadjustment in certain circumstances. The notes are guaranteed by Northwest. In August 2003, a Registration Statement on Form S-3 related to theconvertible senior notes offered on May 20, 2003 was declared effective by theSecurities and Exchange Commission under the Securities Act of 1933.

 

Holders of the notes mayconvert their notes only if:  (i) NWACorp.’s common stock trades above a specified price threshold for a specifiedperiod; (ii) the trading price for the notes falls below certain thresholds;(iii) the notes have been called for redemption; or (iv) specific corporatetransactions occur.  Under allsituations, NWA Corp. may elect to satisfy a call for conversion with cash orcommon stock.  NWA Corp. may redeem allor some of the notes for cash at any time on or after May 15, 2010, at aredemption price equal to the accreted principal amount plus accrued and unpaidinterest, if any, to the redemption date. Holders may require NWA Corp. to repurchase the notes on May 15, 2010,2013 and 2018 at a price equal to the accreted principal amount plus accruedand unpaid interest, if any, on the repurchase date.  NWA Corp. may elect to pay the repurchase price in cash or inshares of common stock, or a combination of both, subject to certainconditions.  Should holders elect torequire NWA Corp. to redeem the notes on any of the repurchase dates, it is theCompany’s present intention to satisfy the requirement in cash.  NWA Corp. plans to use the net proceeds fromthe offering for working capital and general corporate purposes.

 

*Aircraft Commitments*.  Committed expenditures for the 100 aircraftand related equipment on firm order, including estimated amounts forcontractual price escalations and predelivery deposits, will be approximately$413 million for the remainder of 2003, $1.18 billion in 2004, $1.24 billion in2005, $583 million in 2006 and $205 million in 2007.  Consistent with prior practice, the Company intends to financeits aircraft deliveries through a combination of internally generated funds,debt and long-term lease financing. Financing commitments available for use by the Company are in place forthe 41 Northwest operated aircraft on order. These financings range from 80% - 100% of each aircraft’s purchaseprice.  As of September 30, 2003, thesefinancings included $186 million of unused pass-through certificates proceedsthat were held in escrow and are not assets or direct obligations of, orguaranteed by, the Company and therefore are not included in the condensedconsolidated balance sheets.  The unusedpass-through certificates proceeds are available to finance a portion of theaircraft scheduled for delivery in 2003. The Company has the option to finance the 59 CRJ-200/440 aircraft onorder through long-term operating lease commitments from the manufacturer, andthese aircraft will, in turn, be leased or subleased to and operated byPinnacle Airlines, Inc.  In the event amanufacturer does not provide financing for these aircraft, the Company hascertain remedies, including the right not to take delivery of the aircraft.

 

*Pension Funding Obligations*.  In November 2002, the Company submitted an application to the Department of Labor to permitit to contribute common stock of Pinnacle Airlines Corp. to the pension plansin lieu of making certain required contributions in cash.  On January 15, 2003, the Department of Labor(“DOL”) issued a proposed prohibited transaction exemption that would allow theCompany to contribute common stock of Pinnacle Airlines Corp. to satisfy aportion of the contribution requirements to Northwest’s pension plans in 2003 and 2004. In August 2003, the Department of Labor finalized the proposedprohibited transaction exemption, with an effective date retroactive to January15, 2003.   The exemption provides thatthe pension plans have the right at any time to sell the shares back to theCompany for cash at the greater of their value at the time of contribution orthe prevailing market value.

 

On January 15, 2003, the Companycontributed approximately 1.9 million shares, or 12.9%, of PinnacleAirlines Corp. common stock to State Street Bank, the trustee for the MasterTrust that holds the assets of all of the Northwest Plans, to satisfyapproximately $44 million of its $223 million scheduled funding requirement forthe 2002 plan year.  On September11, 2003, the Company contributed approximately 4.4 million shares, or29.1%, of Pinnacle Airlines Corp. common stock to State Street Bank to satisfyan additional $119 million of the scheduled funding requirement for

 

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the 2002 plan year due in 2003 andcontributed $60 million in cash to satisfy the remaining 2002 plan yearscheduled funding requirements.  Also onthat date, in accordance with an agreement reached with the Airline PilotsAssociation, the Company made a voluntary contribution of $190 million to thepilots’ pension plan, consisting of approximately 7.0 million shares, or 46.6%,of Pinnacle Airlines Corp. common stock. This voluntary contribution eliminates further ERISA requiredcontributions to the pilots’ plan until the second half of 2005.

 

As a result of the plans’option to sell the shares back to the Company, the $353 million totalcontribution of Pinnacle Airlines Corp. common stock was not recognized on theCompany’s financial statements, which continue to fully consolidate PinnacleAirlines Corp. and do not reflect a reduction in the pension liability foraccounting purposes.

 

In2003, including amounts associated with a curtailment charge recorded in theMarch quarter, the Company expects expenses in its qualified pension plans toapproximate $450 million.  Absent asignificant change in the level of interest rates or the market value of planassets between now and year-end, the Company anticipates 2004 expenses forthese plans will not differ materially from that amount.

 

The Company’s fundingobligations under the Pension Plans are governed by the Employee RetirementIncome Security Act of 1974 (“ERISA”). The Company’s pension contributions in2004 are dependent upon several factors, including the possibility of Congressenacting additional pension legislation. Depending on these factors, the Company expects required contributionsto its qualified pension plans in 2004 to be between $100 million and $400million, assuming continuation of legislative interest rate relief the planshave received in recent periods.

 

**Other Information**

 

*Labor Agreements.*Approximately 89% of theCompany’s employees are members of collective bargaining units.  The Company has commenced Railway Labor Act(“RLA”) negotiations with the IAM and ALPA and is in discussions with the restof its labor unions in an effort to align wages, benefits and work rules withthe industry’s new revenue environment and to remain competitive with otherairlines achieving permanent cost reductions through bankruptcy proceedings orthe threat of bankruptcy proceedings. On July 23, 2003, the Company and ALPA commenced negotiations on a newcontract.  The Company and the IAM haveentered into mediation under the supervision of the National Mediation Board asthe parties seek agreement on a new contract.

 

*Facilities Consolidation. *OnSeptember 25, 2003, the Company announced that it would close its Detroit areareservations center and city ticket offices located in Livonia, Michigan.  Call center activity performed at theDetroit facility will be transferred to the Company’s facilities in Baltimore,Chisholm, Minneapolis, Seattle and Tampa. The 570 contract employees at the Detroit reservations center will beeligible to transfer to one of the carrier’s other operating reservationscenters.  The Detroit reservation centerand city ticket office are scheduled to close in early December.  As a result of these actions, approximately11 management positions will be eliminated.

 

*Alliances.* In August 2002, the Company announced that it had signed a cooperativemarketing agreement with Continental Airlines, Inc. (“Continental”) and DeltaAir Lines, Inc. (“Delta”).  Themarketing agreement is designed to connect the three carriers’ domestic andinternational networks and provide for code sharing and reciprocity of frequentflyer and airport club programs. Northwest, Continental and Delta received approval of the agreement inJanuary 2003 from the U.S. Department of Justice and, on March 31, 2003, theDOT also gave its final approval.  Thethree airlines began implementing the agreement by offering reciprocal accessto each airline’s airport lounges and began offering codeshare service in June2003.  In July 2003, frequent flyermembers of the three airlines were able to book and redeem miles foritineraries that include the combination of any Northwest, Continental, and Deltaoperated flights by using just one award, which includes travel to 374destinations worldwide.

 

InSeptember 2003, KLM announced that it would enter into an agreement with AirFrance to form a strategic business partnership, which would create Europe’slargest airline group and unite the two carriers under the same corporateholding company.  The KLM-Air Francealliance is not expected to affect the KLM-Northwest transatlantic jointventure.  It is anticipated that KLMwill join the *SkyTeam* global alliance (of which Air France and Delta arethe founding members) in the spring of 2004. Northwest expects to join the *SkyTeam* alliance also in 2004.

 

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InOctober 2003, Northwest agreed, at Mesaba’s request, to extend the terminationnotice period on the Avro RJ-85 aircraft leasing contract from October 28, 2003to December 15, 2003.  The contractallocates 36 Avro RJ-85 jets to Mesaba, which are used on regional routes outof Northwest’s Minneapolis/St. Paul, Detroit and Memphis hubs.   If Northwest provides notice of earlytermination, the regional jet services agreement would end as of April 25,2004.

 

*Aircraft Fuel*.  The Company’s earnings are affected by changes in the price ofaircraft fuel.  In order to provide ameasure of control over price, the Company periodically hedges a portion of theprice risk of fuel costs, primarily utilizing futures contracts traded onregulated exchanges, swap agreements and options.  During the quarter ended March 31, 2003, the Company settled allof its fuel hedge contracts associated with third and fourth quarter 2003 fuelconsumption, thereby locking in gains of approximately $58 million.  The Company realized approximately $30million of these gains in the third quarter ended September 30, 2003, and willrecognize the approximately $28 million remaining gains in the fourth quarterended December 31, 2003.  The amount ofgain to be realized in the fourth quarter is recorded in other comprehensiveincome as of September 30, 2003.

 

*Foreign Currency.*  The Company is exposed to the effect of foreign currency exchangerate fluctuations on the U.S. dollar value of foreign currency-denominatedoperating revenues and expenses, with the largest exposure coming from theJapanese yen. Forward contracts, collar options or put options are utilized tohedge a portion of anticipated yen-denominated sales.  Hedging gains or losses are recorded in accumulated othercomprehensive income (loss) until the associated transportation is provided, atwhich time they are recognized as an increase or decrease in revenue.  The Company hedged $115 million of itsyen-denominated sales in the three months ended September 30, 2003, resultingin an effective rate of 114 yen per U.S. dollar, the prevailing averagecontract rate for the period.  This comparesto an effective rate of 114 for the quarter ended September 30, 2002, whichincluded the impact of yen hedges in place at that time.  At September 30, 2003, the Company hashedged approximately 37% of its anticipated yen-denominated sales at an averagerate of 113 yen per U.S. dollar for the remainder of 2003.  As of October 2003, the Company has hedgedapproximately 41% of its anticipated yen-denominated sales for the third andfourth quarter of 2004 at an average rate of 114 yen per U.S. dollar.  The Company has recorded $5 million ofunrealized losses in accumulated other comprehensive income (loss) associatedwith these hedges.

 

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

 

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

 

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Inlight of these risks and uncertainties, as well as other risks anduncertainties detailed from time to time in the Company’s Securities andExchange Commission filings, the Company can offer no assurances that theresults and events contemplated by the forward-looking statements will in factbe realized.  The Company undertakes noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.  These statements deal with the Company’sexpectations about the future and are subject to a number of factors that couldcause actual results to differ materially from the Company’s expectations.  All subsequent written or oralforward-looking statements attributable to the Company or persons acting on theCompany’s behalf are expressly qualified by the factors described above.

 

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**Item3.  Quantitativeand Qualitative Disclosures About Market Risk**

 

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

 

## **Item 4.    Controls andProcedures**

 

Anevaluation was performed under the supervision and with the participation ofthe Company’s management, including the Chief Executive Officer and ExecutiveVice President and Chief Financial Officer, of the effectiveness of the designand operation of the Company’s disclosure controls and procedures as ofSeptember 30, 2003.  Based on thatevaluation, the Company’s management, including the Chief Executive Officer andExecutive Vice President and Chief Financial Officer, concluded that theCompany’s disclosure controls and procedures were effective in ensuring thatmaterial information relating to the Company with respect to the period coveredby this report was made known to them. There have been no significant changes in the Company’s internalcontrols or in other factors that could significantly affect internal controlssubsequent to September 30, 2003.

 

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PART II.  OTHER INFORMATION

 

# **Item 1.    LegalProceedings**

 

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

 

*Series C Preferred Stock Litigation.*  In June 2003, the IBT and certain relatedparties commenced litigation against Northwest Airlines Corporation in New Yorkstate court, *International Brotherhood of Teamsters, Local 2000 et al. v. NorthwestAirlines Corporation* (New York Sup. Ct., Case No. 601742/03).  In August 2003, the IAM and a related partyalso commenced litigation against Northwest Airlines Corporation in New Yorkstate court, *International Association of Machinists and Aerospace Workers et al v.Northwest Airlines Corporation* (New York Sup. Ct., Case No.602476/03).  Both lawsuits challenge theCompany’s decision not to repurchase the Series C Preferred Stock and seek tocompel the Company to repurchase the Series C Preferred Stock that had been putto the Company.  The Company announcedon August 1, 2003, that the Board of Directors had determined that the Companycould not legally repurchase the outstanding Series C Preferred Stock at this timebecause the Board was unable to determine that the Company has adequate surplusto repurchase the outstanding Series C Preferred Stock.  The Company believes that the lawsuits arewithout merit.  A court decision thatadequate statutory surplus is available for a stock repurchase at this timecould result in the Company having to repurchase without deferral theoutstanding Series C Preferred Stock (approximately $226 million).

 

Inaddition, in the ordinary course of its business, the Company is party tovarious other legal actions which the Company believes are incidental to theoperation of its business.  The Companybelieves that the outcome of the proceedings to which it is currently a partywill not have a material adverse effect on the Company’s consolidated financialstatements taken as a whole.

 

## **Item 3.  Default Upon Senior Securities**

 

(b)         Intwo separate complaints filed in state court in New York, the plaintiffs, theIAM and the IBT, have alleged that the Company is in default with respect toits obligation to repurchase the Series C Preferred Stock.  The Company denies the allegations.  For additional information regarding theselawsuits, see “Part II. Item 1. Legal Proceedings.”  Additional information with respect to the Company’s Series CPreferred Stock is contained in “Part II. Item 5. Other Information” and Note 6of the Notes to the Consolidated Financial Statements in the Company’s AnnualReport on Form 10-K for 2002.

 

**Item 5. Other Information**

 

TheCompany issued Series C Preferred Stock in 1993 to trusts for the benefit of itsemployees in connection with labor cost restructuring agreements between theCompany and its major unions.  The termsof the Series C Preferred Stock give the holders a “put right” to require theCompany to repurchase such shares for an amount (approximately $226 million asof August 1, 2003) equal to the actual wage savings achieved under the 1993labor agreements.  Consummation of therepurchase is subject to, among other things, compliance with corporate law requirementsapplicable to the Company, including the requirement that any stock repurchasebe out of a corporation’s “surplus”. The Company announced on August 1, 2003 that it could not legallyrepurchase the outstanding Series C Preferred Stock at this time because theBoard of Directors was unable to determine that the Company had adequatesurplus to repurchase the outstanding Series C Preferred Stock.  As a result, quarterly dividends beganaccruing August 1, 2003, at 12% per annum. The IBT and IAM have commenced separate lawsuits challenging theCompany’s decision not to repurchase the Series C Preferred Stock.  See “Part II. Item 1.  Legal Proceedings” for additionalinformation regarding these lawsuits. Additional information with respect to the Company’s Series C PreferredStock is contained in Note 6 of the Notes to Consolidated Financial Statementsin the Company’s Annual Report on Form 10-K for 2002.

 

OnNovember 4, 2003, NWA Corp. completed an offering of $225 million of 7.625%convertible senior notes due 2023.  Foradditional information with respect to this offering, see Note 14 of the Notesto the Condensed Consolidated Financial Statements in Part I of this Form10-Q.  In connection with the offering,NWA Corp. entered into a call spread option transaction with Citibank, N.A.that was designed to limit exposure to potential dilution from conversion ofthe notes in the event that the market price per share of NWA Corp.’s commonstock at the time of exercise is greater than

 

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the lower strike price of $22.90.  Because the notional number of shares withrespect to the upper strike price, $29.3355, is 120% of the number of sharesunderlying the notes, and the notional number of shares with respect to thelower strike price is equal to the number of shares underlying the notes, theextent to which the call spread option transaction limits exposure to potentialdilution from conversion of the notes diminishes to the extent the price of NWACorp.’s common stock rises above the upper strike price.  A copy of the Preliminary Confirmation andMaster Agreement between Citibank, N.A. and NWA Corp. is attached to this Form10-Q as Exhibit 10.1.

 

**Item 6. Exhibits and Reports on Form 8-K**

 
| (a)    |   | Exhibits:                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10.1                                                                                                                                                                                                                                                                                                                                                |   | Preliminary  Confirmation and Master Agreement between Citibank, N.A. and NWA Corp. dated  October 29, 2003 and January 15, 1997, respectively. |
|   |   | 12.1                                                                                                                                                                                                                                                                                                                                                |   | Computation  of Ratio of Earnings to Fixed Charges.                                                                                             |
|   |   | 12.2                                                                                                                                                                                                                                                                                                                                                |   | Computation  of Ratio of Earnings to Fixed Charges and Preferred Stock Requirements.                                                            |
|   |   | 31.1                                                                                                                                                                                                                                                                                                                                                |   | Rule  13a-14(a)/15d-14(a) Certifications                                                                                                        |
|   |   | 31.2                                                                                                                                                                                                                                                                                                                                                |   | Rule  13a-14(a)/15d-14(a) Certifications                                                                                                        |
|   |   | 32.1                                                                                                                                                                                                                                                                                                                                                |   | Section 1350  Certifications                                                                                                                    |
|   |   | 32.2                                                                                                                                                                                                                                                                                                                                                |   | Section 1350  Certifications                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                            |
| (b)    |   | Reports on  form 8-K:                                                                                                                                                                                                                                                                                                                               |
|   |   | On August 1, 2003, the Company filed a Form 8-K containing a press  release issued August 1, 2003.  This  press release announced that the Board of Directors had determined that at  this time the Company could not legally redeem the 4.8 million shares of its  Series C Preferred Stock still outstanding.                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
|   |   | On July 18, 2003, the Company filed a Form 8-K containing a press  release issued July 17, 2003, and forward looking guidance.  This press release contained the Company’s  second quarter 2003 earnings release and the forward looking guidance which  was provided in the Company’s second quarter 2003 earnings conference call. |

 

#### SIGNATURE

 

Pursuantto the requirements 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 14th day of November 2003.

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

 

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EXHIBIT INDEX

 
| **Exhibit No.** |   | **Description**                                                                                                                                 |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |   | Preliminary  Confirmation and Master Agreement between Citibank, N.A. and NWA Corp. dated  October 29, 2003 and January 15, 1997, respectively. |
| 12.1            |   | Computation  of Ratio of Earnings to Fixed Charges.                                                                                             |
| 12.2            |   | Computation  of Ratio of Earnings to Fixed Charges and Preferred Stock Requirements.                                                            |
| 31.1            |   | Rule  13a-14(a)/15d-14(a) Certifications                                                                                                        |
| 31.2            |   | Rule  13a-14(a)/15d-14(a) Certifications                                                                                                        |
| 32.1            |   | Section 1350  Certifications                                                                                                                    |
| 32.2            |   | Section 1350  Certifications                                                                                                                    |

 

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