**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

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

**OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe quarterly period ended June 30, 2005**

 

**CommissionFile Number: 0-23642**

 

**NORTHWEST AIRLINES CORPORATION**

**(Exact name of registrant asspecified in its charter)**

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

 

**(612) 726-2111**

**(Registrant’s telephone number,including area code)**

 

**Indicate by check mark whether the registrant (1) hasfiled 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) hasbeen subject to such filing requirements for the past 90 days. Yes **ý     No o

 

**Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).            Yes   **ý     Noo

 

**As of June 30, 2005, there were 87,332,040shares of the registrant’s Common Stock outstanding.**

 

 

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*NorthwestAirlines Corporation*

 
| PART I. FINANCIAL INFORMATION |                                                                                                                                                                                      |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                                                                                      |   |
| Item 1.                            |                                                                                                                                                                                      | Financial Statements. |   |
|                               |                                                                                                                                                                                      |   |
|                               | Condensed Consolidated  Statements of Operations – Three months and six months ended June 30,  2005 and 2004                                                                    |   |
|                               |                                                                                                                                                                                      |   |
|                               | Condensed Consolidated  Balance Sheets - June 30, 2005 and December 31, 2004                                                                                                    |   |
|                               |                                                                                                                                                                                      |   |
|                               | Condensed Consolidated  Statements of Cash Flows - Six months ended June 30, 2005 and 2004                                                                                           |   |
|                               |                                                                                                                                                                                      |   |
|                               | 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 4.                            |                                                                                                                                                                                      | Submission of Matters to a  Vote of Security Holders. |   |
| Item  6.                           |                                                                                                                                                                                      | Exhibits. |   |
|                               |                                                                                                                                                                                      |   |
| SIGNATURE                          |                                                                                                                                                                                      |   |
|                               |                                                                                                                                                                                      |   |
| EXHIBIT INDEX                      |                                                                                                                                                                                      |

 

2

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PART I.  FINANCIAL INFORMATION

 

**Item1.  Financial Statements.**

 

*Northwest Airlines Corporation*

 

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

 
| ** **                                                                                     | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ***(Unaudited, in millions except per share amounts)***                                        | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating  Revenues**                                                                        |       |                                 |       |                               |       |   |   |   |   |
| Passenger                                                                                      |       | $                                    | 2,347      |                               | $          | 2,180 |   | $ | 4,382 |   | $ | 4,143 |   |
| Regional carrier  revenues                                                                     |       | 344                                  |       | 274                                |       | 620 |   | 491 |   |
| Cargo                                                                                          |       | 239                                  |       | 193                                |       | 445 |   | 376 |   |
| Other                                                                                          |       | 265                                  |       | 224                                |       | 546 |   | 464 |   |
| Total operating  revenues                                                                      |       | 3,195                                |       | 2,871                              |       | 5,993 |   | 5,474 |   |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Operating  Expenses**                                                                        |       |                                 |       |                               |       |   |   |   |   |
| Salaries, wages  and benefits                                                                  |       | 969                                  |       | 964                                |       | 1,933 |   | 1,901 |   |
| Aircraft fuel  and taxes                                                                       |       | 790                                  |       | 499                                |       | 1,420 |   | 949 |   |
| Selling and  marketing                                                                         |       | 223                                  |       | 204                                |       | 428 |   | 379 |   |
| Other rentals  and landing fees                                                                |       | 168                                  |       | 149                                |       | 324 |   | 295 |   |
| Aircraft  maintenance materials and repairs                                                    |       | 157                                  |       | 109                                |       | 301 |   | 220 |   |
| Depreciation and  amortization                                                                 |       | 142                                  |       | 237                                |       | 280 |   | 378 |   |
| Aircraft rentals                                                                               |       | 135                                  |       | 115                                |       | 239 |   | 229 |   |
| Regional carrier  expenses                                                                     |       | 392                                  |       | 288                                |       | 748 |   | 544 |   |
| Other                                                                                          |       | 409                                  |       | 358                                |       | 811 |   | 739 |   |
| Total operating  expenses                                                                      |       | 3,385                                |       | 2,923                              |       | 6,484 |   | 5,634 |   |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Operating  Income (Loss)**                                                                   |       | (190                                 | )          | (52                                | )          | (491 | ) | (160 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Other  Income (Expense)**                                                                    |       |                                 |       |                               |       |   |   |   |   |
| Interest  expense, net                                                                         |       | (159                                 | )          | (125                               | )          | (310 | ) | (257 | ) |
| Investment  income                                                                             |       | 22                                   |       | 13                                 |       | 38 |   | 26 |   |
| Other, net                                                                                     |       | 101                                  |       | (11                                | )          | 82 |   | (7 | ) |
| Total other  income (expense)                                                                  |       | (36                                  | )          | (123                               | )          | (190 | ) | (238 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Income  (Loss) Before Income Taxes and Cumulative Effect of Accounting Change**              |       | (226                                 | )          | (175                               | )          | (681 | ) | (398 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Income tax  expense (benefit)                                                                  |       | —                               |       | —                             |       | 5 |   | — |   |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Income  (Loss) Before Cumulative Effect of Accounting Change**                               |       | (226                                 | )          | (175                               | )          | (686 | ) | (398 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Cumulative  effect of accounting change                                                        |       | —                               |       | —                             |       | (69 | ) | — |   |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Net  Income (Loss)**                                                                         |       | (226                                 | )          | (175                               | )          | (755 | ) | (398 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Preferred stock  requirements                                                                  |       | (8                                   | )          | (7                                 | )          | (16 | ) | (14 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| **Net  Income (Loss) Applicable to Common Stockholders**                                       |       | $                                    | (234       | )                                  | $          | (182 | ) | $ | (771 | ) | $ | (412 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Earnings (loss)  per common share:                                                             |       |                                 |       |                               |       |   |   |   |   |
| *Basic  and Diluted*                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Income (loss) applicable  to common stockholders before cumulative effect of accounting change |       | $                                    | (2.69      | )                                  | $          | (2.11 | ) | $ | (8.08 | ) | $ | (4.77 | ) |
| Cumulative  effect of accounting change                                                        |       | —                               |       | —                             |       | (0.80 | ) | — |   |
| Net income  (loss) applicable to common stockholders                                           |       | $                                    | (2.69      | )                                  | $          | (2.11 | ) | $ | (8.88 | ) | $ | (4.77 | ) |
|                                                                                           |       |                                 |       |                               |       |   |   |   |   |
| Average shares  used in computation:                                                           |       |                                 |       |                               |       |   |   |   |   |
| *Basic  and Diluted*                                                                           |       | 87                                   |       | 86                                 |       | 87 |   | 86 |   |

 

*See accompanying notes.*

 

3

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*Northwest Airlines Corporation*

 

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
| ***(Unaudited, in millions)***                                      | ** ** | **June 30  2005** | ** ** | **December 31  2004** | ** ** |
|---------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
|                                                                |       |                   |       |                       |       |
| **Assets**                                                          |       |                   |       |                       |       |
|                                                                |       |                   |       |                       |       |
| **Current  Assets**                                                 |       |                   |       |                       |       |
| Cash and cash  equivalents                                          |       | $                      | 585        |                       | $          | 707 |   |
| Unrestricted  short-term investments                                |       | 1,559                  |       | 1,752                      |       |
| Restricted cash,  cash equivalents and short-term investments       |       | 496                    |       | 156                        |       |
| Accounts  receivable, net                                           |       | 630                    |       | 460                        |       |
| Flight equipment  spare parts, net                                  |       | 129                    |       | 125                        |       |
| Prepaid expenses  and other                                         |       | 467                    |       | 378                        |       |
| Total current  assets                                               |       | 3,866                  |       | 3,578                      |       |
|                                                                |       |                   |       |                       |       |
| **Property  and Equipment**                                         |       |                   |       |                       |       |
| Flight  equipment, net                                              |       | 7,509                  |       | 7,355                      |       |
| Other property  and equipment, net                                  |       | 760                    |       | 769                        |       |
| Total property  and equipment                                       |       | 8,269                  |       | 8,124                      |       |
|                                                                |       |                   |       |                       |       |
| **Flight  Equipment Under Capital Leases, net**                     |       | 141                    |       | 146                        |       |
|                                                                |       |                   |       |                       |       |
| **Other  Assets**                                                   |       |                   |       |                       |       |
| Intangible  pension asset                                           |       | 671                    |       | 671                        |       |
| International  routes                                               |       | 634                    |       | 634                        |       |
| Investments in  affiliated companies                                |       | 60                     |       | 55                         |       |
| Other                                                               |       | 711                    |       | 834                        |       |
| Total other  assets                                                 |       | 2,076                  |       | 2,194                      |       |
| **Total  Assets**                                                   |       | $                      | 14,352     |                       | $          | 14,042 |   |
|                                                                |       |                   |       |                       |       |
| **Liabilities  and Stockholders’ Equity (Deficit)**            |       |                   |       |                       |       |
|                                                                |       |                   |       |                       |       |
| **Current  Liabilities**                                            |       |                   |       |                       |       |
| Air traffic  liability                                              |       | $                      | 1,977      |                       | $          | 1,422 |   |
| Accounts payable  and other liabilities                             |       | 2,469                  |       | 2,326                      |       |
| Current  maturities of long-term debt and capital lease obligations |       | 812                    |       | 749                        |       |
| Total current  liabilities                                          |       | 5,258                  |       | 4,497                      |       |
|                                                                |       |                   |       |                       |       |
| **Long-Term  Debt**                                                 |       | 7,806                  |       | 7,715                      |       |
|                                                                |       |                   |       |                       |       |
| **Long-Term  Obligations Under Capital Leases**                     |       | 331                    |       | 308                        |       |
|                                                                |       |                   |       |                       |       |
| **Deferred  Credits and Other Liabilities**                         |       |                   |       |                       |       |
| Long-term  pension and postretirement health care benefits          |       | 3,656                  |       | 3,593                      |       |
| Other                                                               |       | 864                    |       | 753                        |       |
| Total deferred  credits and other liabilities                       |       | 4,520                  |       | 4,346                      |       |
|                                                                |       |                   |       |                       |       |
| **Preferred  Redeemable Stock**                                     |       | 277                    |       | 263                        |       |
|                                                                |       |                   |       |                       |       |
| **Common  Stockholders’ Equity (Deficit)**                     |       |                   |       |                       |       |
| Common stock                                                        |       | 1                      |       | 1                          |       |
| Additional  paid-in capital                                         |       | 1,478                  |       | 1,471                      |       |
| Accumulated  deficit                                                |       | (2,772                 | )          | (1,999                     | )          |
| Accumulated  other comprehensive income (loss)                      |       | (1,542                 | )          | (1,547                     | )          |
| Treasury stock                                                      |       | (1,005                 | )          | (1,013                     | )          |
| Total common  stockholders’ equity (deficit)                   |       | (3,840                 | )          | (3,087                     | )          |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**      |       | $                      | 14,352     |                       | $          | 14,042 |   |

 

*See accompanying notes.*

 

4

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*Northwest Airlines Corporation*

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 
| ** **                                                                                         | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ***(Unaudited, in millions)***                                                                     | ** ** | **2005**                           | ** ** | **2004** | ** ** |
|                                                                                               |       |                               |       |   |   |
| **Cash  Flows from Operating Activities**                                                          |       |                               |       |   |   |
| Net income  (loss)                                                                                 |       | $                                  | (755       | ) | $ | (398 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities:         |       |                               |       |   |   |
| Cumulative  effect of accounting change                                                            |       | 69                                 |       | — |   |
| Depreciation and  amortization                                                                     |       | 280                                |       | 378 |   |
| Pension and  other postretirement benefit contributions less than expense                          |       | 22                                 |       | 140 |   |
| Changes in  certain assets and liabilities                                                         |       | 455                                |       | 284 |   |
| Other, net                                                                                         |       | (52                                | )          | 21 |   |
| Net cash  provided by (used in) operating activities                                               |       | 19                                 |       | 425 |   |
|                                                                                               |       |                               |       |   |   |
| **Cash  Flows from Investing Activities**                                                          |       |                               |       |   |   |
| Capital  expenditures                                                                              |       | (260                               | )          | (192 | ) |
| Purchase of  short-term investments                                                                |       | (192                               | )          | (193 | ) |
| Proceeds from  sales of short-term investments                                                     |       | 401                                |       | 46 |   |
| Decrease (increase)  in restricted cash, cash equivalents and short-term investments               |       | (340                               | )          | (2 | ) |
| Proceeds from  sale of Pinnacle note receivable                                                    |       | 102                                |       | — |   |
| Proceeds from  sale of Prudential Financial Inc. demutualization shares                            |       | 102                                |       | — |   |
| Other, net                                                                                         |       | 6                                  |       | 15 |   |
| Net cash  provided by (used in) investing activities                                               |       | (181                               | )          | (326 | ) |
|                                                                                               |       |                               |       |   |   |
| **Cash  Flows from Financing Activities**                                                          |       |                               |       |   |   |
| Proceeds from  long-term debt                                                                      |       | 443                                |       | 388 |   |
| Payments of  long-term debt and capital lease obligations                                          |       | (383                               | )          | (534 | ) |
| Other, net                                                                                         |       | (20                                | )          | (7 | ) |
| Net cash  provided by (used in) financing activities                                               |       | 40                                 |       | (153 | ) |
|                                                                                               |       |                               |       |   |   |
| **Increase  (Decrease) in Cash and Cash Equivalents**                                              |       | (122                               | )          | (54 | ) |
|                                                                                               |       |                               |       |   |   |
| Cash and cash  equivalents at beginning of period                                                  |       | 707                                |       | 1,146 |   |
| Cash and cash  equivalents at end of period                                                        |       | $                                  | 585        |   | $ | 1,092 |   |
|                                                                                               |       |                               |       |   |   |
| Cash and cash  equivalents and unrestricted short-term investments at end of period                |       | $                                  | 2,144      |   | $ | 2,857 |   |
|                                                                                               |       |                               |       |   |   |
| Supplemental  Cash Flow Information:                                                               |       |                               |       |   |   |
| Interest paid                                                                                      |       | $                                  | 293        |   | $ | 238 |   |
|                                                                                               |       |                               |       |   |   |
| Investing and  Financing Activities Not Affecting Cash:                                            |       |                               |       |   |   |
| Manufacturer financing  of aircraft, aircraft predelivery deposits and other non-cash transactions |       | $                                  | 204        |   | $ | 208 |   |

 

*Seeaccompanying notes.*

 

5

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*NorthwestAirlines Corporation*

 

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

**Note 1 – Basis of Presentation**

 

The condensedconsolidated financial statements of Northwest Airlines Corporation (“NWA Corp.”),a holding company whose principal indirect operating subsidiary is NorthwestAirlines, Inc. (“Northwest”), include the accounts of NWA Corp. and allconsolidated 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 withU.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed oromitted as permitted by such rules and regulations. These financialstatements and related notes should be read in conjunction with the financialstatements and notes included in the Company’s audited consolidated financialstatements, which are provided in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004. The Company’s accounting and reporting policies are summarized in “Note1 – Summary of Significant Accounting Policies” in the Annual Report on Form 10-Kfor 2004.

 

The Company maintains aWeb site at *http://www.nwa.com*.  Information contained on the Company’swebsite is not incorporated into this Quarterly Report on Form 10-Q.  Annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,all amendments to those reports and other information about the Company areavailable free of charge through this Web site at *http://ir.nwa.com* as soon as reasonably practicable afterthose reports are electronically filed with or furnished to the SEC.

 

In the opinion ofmanagement, the interim financial statements reflect adjustments, consisting ofnormal recurring accruals, unless otherwise noted, which are necessary topresent fairly the Company’s financial position, results of operations and cashflows for the periods indicated.

 

The Company’s results ofoperations for interim periods are not necessarily indicative of the resultsfor an entire year due to seasonal factors as well as competitive and generaleconomic conditions.  The Company’ssecond and third quarter operating results have historically been morefavorable due to increased leisure travel on domestic and international routesduring the spring and summer months.

 

*Increasein Restricted Cash. *TheCompany, in the ordinary course of business, collects funds from passengers andwithholdings from employees that are required to be paid to various taxingauthorities, in addition to certain taxes that are self assessed.  These include U.S. transportation taxes,passenger facility charges, fuel taxes and the employee portion of payrolltaxes, among others.  The Companyestablished an irrevocable trust in 2002 and began making regular deposits tothe trust at that time, from which payments are issued to the taxingauthorities.  The increase in theirrevocable trust balance from $5 million as of December 31, 2004 to $341million as of June 30, 2005, represents the Company’s decision in thefirst quarter of 2005 to increase its trust funding.  The balances are included in restricted cash,cash equivalents and short-term investments on the Consolidated Balance Sheets.

 

*CompanyUpdate.*  Northwest andother large network airlines continue to face significant financialchallenges.  Industry trends thatproduced record losses over the past four years persist, with the growth of lowcost carriers and expanded product distribution through the internet resultingin a revenue environment that is increasingly price sensitive.  During the first quarter of 2005, Delta,another large network airline, adopted a simplified fare pricing strategy.  This broad fare restructuring exacerbated thealready difficult airline financial environment by placing additional downwardrevenue pressures on Northwest.  Meanwhile,unit operating costs have been pushed higher by fuel prices at unprecedentedlevels, with airlines having limited ability to pass along these costs topassengers through increased fares. These challenges have left Northwest and the other major legacy airlineswith no choice but to significantly reduce all of their costs, including theirlabor costs, by bringing wage rates and work rules in line with the newrevenue environment.  United and USAirways obtained new labor contracts through Chapter 11 bankruptcy protection,while also eliminating their defined benefit pension plans.  American and Delta each realized labor costreductions in the face of imminent bankruptcy filings, and both haveacknowledged publicly that further savings must be achieved.  Continental, which for many years has beenable to maintain labor costs below its major competitors, primarily due to ithaving previously filed for Chapter 11 on two occasions, was also forced toseek 

 

6

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additional reductions from its workers, most of whom ratified newagreements since the beginning of 2005 that incorporate additional costsavings.

 

Northwest has beensuccessful in lowering many non-labor expenses, executing a series ofaggressive cost reduction efforts beginning in early 2001.  In addition, the Company achieved an importantfirst step in restructuring its labor contracts in October 2004 when itreached a two year bridge agreement with its pilots to reduce wage and benefitcosts.  Under the agreement, which waseffective December 1, 2004, the pilots agreed to $250 million in annualwage and benefit changes and salaried and management employees took $35 millionin annual salary and benefit reductions. Nonetheless, Northwest’s labor costs remain the highest in the industry,which impedes its ability to compete effectively and reduces the likelihoodthat the Company will return to profitability in the foreseeable future.  As a result of these many challenges, for thequarter ended June 30, 2005, the Company reported a net loss applicable tocommon stockholders of $234 million and an operating loss of $190 million,which compares with a net loss applicable to common stockholders of $182million and an operating loss of $52 million for the quarter ended June 30,2004. Net loss per common share was $2.69 in the second quarter of 2005compared with net loss per common share of $2.11 in the second quarter of2004.  These results bring the Company’snet loss to common stockholders for the first half of 2005 to over $700million, or approximately $4 million per day.

 

The Company hassignificant current obligations due in 2005 and long-term obligations duethereafter, including debt and capital lease maturities, operating leasepayments, purchase obligations and required pension funding.  However, meeting these obligations is increasinglydifficult, as the Company’s overall financial condition and results ofoperations continue to deteriorate and are unlikely to improve in view ofprevailing market forces.  These marketforces include, in particular:

 

•                  *Significant increases in the costof aircraft fuel.*  Aircraft fuel represents the Company’s secondlargest expense item behind employee salaries and benefits.  The Company’s average price of fuel duringthe most recent quarter rose 52% versus the June 2004 quarter.  Should prices remain at current levels forthe remainder of the year, the Company’s fuel costs for 2005 will approximate$3 billion, or 23% of operating expenses.

 

•                  *Further limitations on access tothe capital markets*.  Despite the financial losses incurred overthe past several years, Northwest has been successful in maintaining adequateliquidity through opportunistic financings and the sale of non-strategicassets.  At December 31, 2004 and June 30,2005, the Company had cash, cash equivalents and unrestricted short term investmentstotaling $2.46 billion and $2.14 billion, respectively.  Maintaining such liquidity has come atsignificant costs, however, with the Company’s annual interest expense nowexceeding $600 million and the availability of unencumbered assets to secureadditional financing virtually exhausted. The Company’s undrawn lines ofcredit are minimal.  Each of the majorcredit rating agencies recently downgraded the Company’s debt, with FitchRatings senior unsecured debt rating presently CCC+, Standard & Poor’scorporate rating CCC+ and unsecured debt rating CCC-, and Moody’s corporatefamily rating Caa1 and unsecured debt rating Caa3.  The lowering of the Company’s creditratings could make it more difficult to renew outstanding letters of creditthat back certain obligations and further limit access to new financings.

 

Losses of the magnitudeNorthwest continues to experience are unsustainable.  Therefore, the Company is aggressively pursuingthe following actions:

 

1)  *Labor Cost Savings withoutOperational Disruptions.*  TheCompany must rapidly obtain at least $1.1 billion in annual salary and benefitreductions through wage, work rule and benefit changes, an amount thatcould rise depending on the price of fuel and other factors.  Furthermore, in the course of negotiationswith its unions to obtain the necessary cost savings, the Company cannot affordlabor disruptions that would negatively impact operations.  The greatest near term risk of such disruptionsis associated with the ongoing negotiations with AMFA.  On July 20, 2005, due to a lack ofmeaningful progress toward a new collective bargaining agreement between theCompany and AMFA, the National Mediation Board declared an impasse and releasedthe Company and AMFA from mediation after the Company declined an offer ofbinding arbitration.  Releasing theparties from mediation triggered a 30 day “cooling off” period, after whicheither can resort to self help.  Self helpremedies include, but are not limited to, a strike by AMFA and the impositionof a contract by the Company.  Bothparties will continue labor negotiations with an objective of reaching a newagreement prior to August 20, 2005. However, the AMFA membership has voted to authorize its union leadershipto declare a strike if, following the end of the cooling off period, it deemssuch action necessary.

 

7

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The Company cannotpredict the outcome of negotiations at this time and has prepared a detailedcontingency plan to maintain its flight schedule and operationalreliability in the event of a strike by AMFA or in the event the Companychooses to impose its contract proposal. This includes training of management personnel who are licensedmechanics, arrangements with qualified third party vendors with the capabilityto perform the required maintenance work, and recruitment of additionallicensed mechanics.  While the Companybelieves these preparations will allow it to continue operating a full schedule inthe event of a strike, there can be no assurances that this will be thecase.  Any labor action that results in asignificant operational disruption, even for a short period of time, could havea severe detrimental impact on the Company’s financial condition and results ofoperations.

 

2) *PensionFunding Legislation.*  Togetherwith a freeze of its defined benefit pension plans, it is critical for theCompany to obtain legislative reform of existing pension funding requirementsthat would provide sufficient time to make up the current funding shortfall inthose plans, which approximates $3.8 billion. Absent such relief, the Company’s pension funding requirements incalendar 2006 and 2007 are expected to approximate $800 million and $1.7billion, respectively.

 

3) *RenewedAccess to the Capital Markets*.  Maintainingadequate liquidity to fund current operations and meet longer term obligationsdepends on the Company’s ability to obtain financing in the capital markets,which are not currently accessible. Adequate labor cost savings, without thecostly operational disruption an adverse labor action could create, as well aslegislative reform of pension funding requirements are both necessary for theCompany to regain such critical borrowing capacity.

 

The Company cannotpredict the outcome of the matters described above.  If the Company is unsuccessful in achievingthe necessary labor cost savings, suffers significant operational disruptionsas a result of a strike or other workforce actions, does not secure a freeze ofthe defined benefit plans for the contract workforce, fails to obtainlegislative relief of its pension funding obligations in the near future, or isunable to access the capital markets to meet current and future obligations,the Company would be forced to consider commencement of proceedings underChapter 11 of the U.S. Bankruptcy Code.  

 

*Change in Accounting Principle.*Netloss applicable to common stockholders for the three and six months endedJune 2005 was greater by approximately $9 million and $88 million,respectively, and basic and diluted loss per share were each greater by $0.11and $1.01, respectively, than initially reported in the Company's earningspress release and Form 8-K, both dated July 26, 2005.  These adjustments were the result of a changein accounting principle related to how the Company accounts for certain pensionadministration expenses.  “Refer to Note 2— Change in Accounting for Certain Pension Plan Administrative Expenses” foradditional discussion related to this change in accounting principle.

 

**Note 2 – Change in Accounting for Certain PensionPlan Administrative Expenses**

 

During the secondquarter of 2005, the Company changed its method of recognizing certain pensionplan administrative expenses associated with the Company’s defined benefitpension plans and now includes them as a service cost component of net periodicpension cost.  These expenses includetrustee fees, other administrative expenses and insurance premiums paid to thePension Benefit Guaranty Corporation (“PBGC”), all of which previously werereflected as a reduction in the market value of plan assets and thereforeamortized with other asset gains and losses. The Company believes this change is preferable because it moreappropriately ascribes the expenses to the period in which they are incurred.

 

The cumulativeeffect of applying this change to net periodic pension expense in prior yearsis $69.1 million, which has been retroactively recorded as of January 1,2005, and is included in the Company’s Condensed Consolidated Statements ofOperations for the six months ended June 30, 2005.  The effect of the change on the three monthsended June 30, 2005 is an increase to net loss of $9.4 million ($0.11 percommon share); the effect of the change for the six months ended June 30,2005 is to increase the loss before cumulative effect of the accounting changeby $18.8 million ($0.22 per common share) and net loss by $87.9 million ($1.01per common share); the effect of the change for the three months ended March 31,2005 is to increase the loss before cumulative effect of a change in accountingprinciple by $9.4 million ($0.11 per common share) to a loss of $467.5 million($5.39 per common share) and net loss by $78.5 million ($0.90 per common share)to a loss of $536.6 million ($6.19 per common share).  None of these amounts include the effect ofincome tax benefits as the Company’s current net tax position requires it toestablish a valuation allowance in respect of all net deferred tax assetsgenerated.

 

The followingtable illustrates pro forma amounts, assuming the new accounting method isapplied retroactively (in millions, except per share amounts):

 
| ** **                                           | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                           | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                 |       |                                 |       |                               |       |   |   |   |   |
| Net income  (loss) applicable to common stockholders | ** ** | **$**                                | **(234**   | **)**                              | $          | (191 | ) | **$** | **(702** | **)** | $ | (430 | ) |
|                                                 |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| Earnings (loss)  per common share:                   |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| *Basic  and Diluted*                                 | ** ** | **$**                                | **(2.69**  | **)**                              | $          | (2.22 | ) | **$** | **(8.08** | **)** | $ | (4.99 | ) |

 

8

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## **Note3 – Recent Accounting Pronouncements**

 

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 123 (Revised 2004), *Share-Based Payment* (“SFAS No. 123R”).  In addition to requiring supplementaldisclosures, SFAS No. 123R eliminates the option to apply the intrinsicvalue measurement provisions of Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB No. 25”) to stock compensation awards issued to employees.  Furthermore, the Company is required torecognize compensation cost for the portion of outstanding awards previouslyaccounted for under the provisions of APB No. 25 for which the requisiteservice had not been rendered as of the adoption date for this Statement.  The Statement also requires companies toestimate forfeitures of stock compensation awards as of the grant date of theaward.  Because the Company voluntarilyadopted the fair value method prescribed by SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFASNo. 123”), effective January 1, 2003, the unvested awards stillaccounted for under the provisions of APB No. 25, and therefore subject tothe provisions of SFAS No. 123R, are minimal.  Additionally, the overall impact ofestimating the remaining forfeitures for awards outstanding as of the adoptiondate is insignificant.  Therefore, theimpact of adopting SFAS No. 123R will be immaterial.  SFAS No. 123R is effective for thefiscal quarter beginning January 1, 2006, though early adoption ispermitted.

 

**Note 4 – GeographicRegions**

 

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

 
| ** **                  | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|-----------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                  | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| Domestic                    | ** ** | **$**                                | **2,160**  |                               | $          | 1,993 | ** ** | **$** | **4,091** |   | $ | 3,789 |   |
| Pacific,  principally Japan | ** ** | **679**                              |       | 574                                | ** ** | **1,271** |   | 1,127 |   |
| Atlantic                    | ** ** | **356**                              |       | 304                                | ** ** | **631** |   | 558 |   |
| Total operating  revenues   | ** ** | **$**                                | **3,195**  |                               | $          | 2,871 | ** ** | **$** | **5,993** |   | $ | 5,474 |   |

 

## **Note5 – Earnings (Loss) Per Share Data**

 

The following table setsforth the computation of basic and diluted earnings (loss) per common share (inmillions, except per share data):

 
| ** **                                                                            | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Numerator:**                                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income (loss)  before cumulative effect of accounting change                          | ** ** | **$**                                | **(226**   | **)**                              | $          | (175 | ) | **$** | **(686** | **)** | $ | (398 | ) |
| Cumulative  effect of accounting change                                               | ** ** | **—**                           | ** ** | —                             |       | **(69** | **)** | — |   |
| Preferred stock  requirements                                                         | ** ** | **(8**                               | **)**      | (7                                 | )          | **(16** | **)** | (14 | ) |
| Net income  (loss) applicable to common stockholders                                  | ** ** | **$**                                | **(234**   | **)**                              | $          | (182 | ) | **$** | **(771** | **)** | $ | (412 | ) |
|                                                                                  |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| **Denominator:**                                                                      |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| Weighted-average  shares outstanding  for basic and diluted earnings (loss) per share | ** ** | **86,889,597**                       | ** ** | 86,342,487                         |       | **86,810,022** | ** ** | 86,228,407 |   |
|                                                                                  |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| Earnings (loss)  per common share:                                                    |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| Income (loss)  before cumulative effect of accounting change                          | ** ** | **$**                                | **(2.60**  | **)**                              | $          | (2.03 | ) | **$** | **(7.90** | **)** | $ | (4.61 | ) |
| Cumulative  effect of accounting change                                               | ** ** | **—**                           | ** ** | —                             |       | **(0.80** | **)** | — |   |
| Preferred stock  requirements                                                         | ** ** | **(0.09**                            | **)**      | (0.08                              | )          | **(0.18** | **)** | (0.16 | ) |
| Net income  (loss) applicable to common stockholders                                  | ** ** | **$**                                | **(2.69**  | **)**                              | $          | (2.11 | ) | **$** | **(8.88** | **)** | $ | (4.77 | ) |

 

9

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Incremental sharesrelated to contingently convertible debt and the dilutive portion of employeestock options and unvested restricted shares under the treasury method were notincluded in the diluted earnings per share calculation because the Companyreported a net loss for these periods. These incremental shares included 19,557,057 and 19,488,053 shares forthe three and six months ended June 30, 2005, respectively, and 19,610,248and 19,791,540 shares for the three and six months ended June 30, 2004,respectively.  Incremental shares relatedto dilutive securities have an anti-dilutive impact on earnings per share whena net loss is reported and therefore are not included in the calculation.

 

Because of the statedintent of the parties to settle the Series C Preferred Stock with cashrather than by the Company issuing additional common stock, 6,417,876 and6,489,875 shares of Series C Preferred Stock equivalents were excludedfrom the effect of dilutive securities for the three and six months ended June 30,2005 and 2004, respectively.

 

The Company had totalemployee stock options and restricted shares outstanding of 9,786,668 and 6,741,795as of June 30, 2005 and 2004, respectively.

 

**Note 6 –Comprehensive Income (Loss)**

 

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

 
| ** **                                                       | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income  (loss)                                               | ** ** | **$**                                | **(226**   | **)**                              | $          | (175 | ) | **$** | **(755** | **)** | $ | (398 | ) |
| Change in  unrealized gain/loss on available-for-sale securities | ** ** | **—**                           | ** ** | (8                                 | )          | **(3** | **)** | (7 | ) |
| Change in  deferred gain/loss from hedging activities            | ** ** | **10**                               | ** ** | 10                                 |       | **13** | ** ** | (3 | ) |
| Foreign currency  translation adjustments                        | ** ** | **(2**                               | **)**      | (3                                 | )          | **(5** | **)** | (1 | ) |
| Comprehensive  income (loss)                                     | ** ** | **$**                                | **(218**   | **)**                              | $          | (176 | ) | **$** | **(750** | **)** | $ | (409 | ) |

 

**Note 7 –Income Taxes**

 

Under theprovisions of SFAS No. 109, *Accountingfor Income Taxes* (“SFAS No. 109”), the realization of thefuture tax benefits of a deferred tax asset is dependent on future taxableincome against which such tax benefits can be applied.  All available evidence must be considered inthe determination of whether sufficient future taxable income will exist.  Such evidence includes, but is not limitedto, the company’s financial performance, the market environment in which thecompany operates, the utilization of past tax credits, and the length ofrelevant carryback and carryforward periods. Sufficient negative evidence, such as cumulative net losses during athree-year period that includes the current year and the prior two years, mayrequire that a valuation allowance be established with respect to existing andfuture deferred tax assets.  As a result,the Company was required to provide a valuation allowance on deferred tax assetsrecorded for losses beginning in the first quarter 2003.  The Company’s second quarter 2005 net losstherefore was not reduced by any tax benefit. It is more likely than not that future deferred tax assets will requirea valuation allowance to fully reserve against the uncertainty that thoseassets would be realized.

 

**Note8 – Long-term Debt**

 

Maturities oflong-term debt, excluding capital lease obligations, through December 31,2009 are as follows (in millions):

 

| 2005 |   | $     | 307    |   |
|------|--------|-------|--------|--------|
| 2006 |   | 916   | (1)    |
| 2007 |   | 1,421 | (1)    |
| 2008 |   | 779   | (1)    |
| 2009 |   | 1,095 |   |

 

10

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(1)                    Includes $79million, $567 million and $81 million of aircraft related loan obligationsmaturing in 2006, 2007 and 2008, respectively, which may be extended for anadditional nine years from their maturity dates at the Company’s election.

 

The above amountsdo not reflect $554 million of Class D Equipment Notes issued in connectionwith several Enhanced Equipment Trust Certificates (“EETC”) transactions.  The notes represent intra-companyobligations, as the Company retains the related Class D Pass-ThroughCertificates issued in connection with each EETC.  Therefore, the associated assets andliabilities have been netted for purposes of financial statement presentation.

 

Holders of $225million convertible unsecured notes due after 2009 may require NWA Corp. torepurchase such notes in 2008 (and holders of all $375 million convertibleunsecured notes outstanding also have other dates after 2009, but prior tomaturity, on which NWA Corp. can be required to repurchase such notes).

 

On November 23,2004, the Company completed the restructuring of its $975 million revolvingbank credit facility, which was scheduled to mature in October 2005, byentering into an Amended and Restated Credit and Guarantee Agreement with aconsortium of lenders that amended and restructured the revolving creditfacility into a term loan.  The term loanhas an initial principal amount of $975 million and is comprised of twotranches bearing different interest rates and with different principalamortization periods.  The first tranche,in the principal amount of $575 million, bears interest at LIBOR plus 5.25% andis payable 25% at the end of the first year, 12.5% at the end of each of thesecond and third years and 50% at the end of the fifth year.  The second tranche, in the principal amountof $400 million, bears interest at LIBOR plus 6.75% and is payable 1% at theend of each of the first five years and 95% at the end of the sixth year, on November 23,2010.

 

On April 15, 2005,the Company refinanced the $148 million principal repayment due in November 2005under the $975 million term loan facility. The new $148 million tranche bears interest at LIBOR plus 6.25% and isdue 1% annually for four years beginning November 2006, with the balancedue in November 2010.  On April 13,2005, the Company also obtained an amendment that waived the fixed chargescoverage covenant associated with the term loan facility through March 31,2006 and changed the next covenant measurement date from the quarter ending June 30,2005 to the quarter ending June 30, 2006. The lenders provided this amendment principally in consideration of thesharp rise in fuel prices since the beginning of the year, which made it unlikelythat the Company would remain in compliance absent the waiver.

 

The term loan is securedby substantially the same collateral the Company pledged to secure the originalrevolving bank credit facility, which includes the Company’s Pacific route systemand certain aircraft.  The Agreementcontains a covenant requiring the Company to maintain unrestricted cash, cashequivalents and short term investments in an amount not less than $900 millionat any time.  In addition, the Agreementcontains a covenant that requires the Company to maintain specified ratios ofearnings to fixed charges as follows:

 

| **Number of  Months Covered** | ** ** | **Period ending**                                            | ** ** | **Required  Coverage Ratio** | ** ** |
|-------------------------------|------------|--------------------------------------------------------------|------------|------------------------------|------------|
| -                             |       | June 30, 2005 through March 31, 2006               |       | Waived (1)                   |       |
| Three                         |       | June 30, 2006                                           |       | 1.00 to 1.0                  |       |
| Six                           |       | September 30, 2006                                      |       | 1.05 to 1.0                  |       |
| Nine                          |       | December 31, 2006                                       |       | 1.15 to 1.0                  |       |
| Twelve                        |       | March 31, 2007                                          |       | 1.30 to 1.0                  |       |
| Twelve                        |       | June 30, 2007                                           |       | 1.45 to 1.0                  |       |
| Rolling twelve                |       | September 30,  2007 and each  quarter ending thereafter |       | 1.50 to 1.0                  |       |

 

----

(1)               On April 13,2005, the Company obtained an amendment that waived the fixed charges coveragecovenant associated with the term loan facility for the periods ending June 30,2005 through March 31, 2006.

 

11

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For purposes ofcalculating this ratio, earnings are defined as operating income adjusted toexclude the effects of depreciation, amortization and aircraft rents and toinclude the effects of interest income and governmental reimbursements forlosses resulting from developments affecting the aviation industry.  Earnings also exclude non-recurring non-cashcharges (subject to the inclusion of any related cash payments then orthereafter made) and are determined without giving effect to any accelerationof rental expense.  Fixed charges aredefined as interest expense and aircraft rents (without giving effect to anyacceleration of rental expense). Although the covenant does not become effective again until the quarterending June 30, 2006, compliance will depend on many factors, some ofwhich are beyond the Company’s control, including the overall industry revenueenvironment and the level of fuel costs.  Thus, there can be no assurance that theCompany will be able to satisfy these requirements through the expiration ofthe facility.

 

On April 1, 2005,the Company completed an 8.5 billion yen (approximately $78 million) financingwith Shinsei Bank, Limited, maturing on June 20, 2006 (“Shinsei”loan).  The loan proceeds were reduced byfees and expenses, pre-paid interest and a liquidity reserve.  This financing bears interest at the rate of2.878% per annum with interest payable on March 20, 2006 and atmaturity.  The financing is secured bycertain of the Company’s properties in Tokyo. On April 20, 2005, the Company completed a 2.5 billion yen(approximately $23 million) financing with Airline Funding, LLC (“AirlineFunding” loan), which will remain outstanding concurrently with the Shinseiloan until maturity on June 20, 2006. The Airline Funding loan financing is secured by a second lien onproperties in Tokyo, with the first lien being held by Shinsei Bank, Limited.

 

In July 2005, Northwest executeda definitive term sheet that would amend and restate its Credit Card ProcessingAgreement.  Under terms of the newagreement, it would be extended until December 31, 2008.  The new terms also include a provision thatwill allow a certain level of funds to be withheld from receipts by theprocessing bank, which would secure all obligations under the agreement as wellas those of the Co-Branded Credit Card Agreement and letter of credit facilityreferred to below.  Such amounts withheldwould be released in part or in whole upon the Company’s meeting certainrequirements.

 

The term sheet alsoprovides for an amended Co-Branded Credit Card Agreement, which would also beextended until December 31, 2008. New terms include an option for prepayment of miles and fees toNorthwest from the credit card issuer under the Worldperks program, subject tothe Company meeting certain requirements.

 

In addition, the termsheet includes an extension of Northwest’s $98 million standby letter of creditfacility through April 30, 2006, which allows for letters of credit to beoutstanding through April 30, 2007.

 

Absent the amendmentsdescribed above, the Credit Card Processing Agreement is scheduled to expire inApril, 2006, and the Co-Branded Credit Card Agreement is scheduled to expire inApril, 2008.  The letter of creditfacility expired on April 30, 2005. The new terms provided for in each of the agreements are subject toexecution of final documents, which is expected to occur during the thirdquarter.

 

During the secondquarter of 2005, Northwest entered into three separate secured loan agreements,which required the use of substantially all of the Company’s remainingavailable collateral.  These include:

 

•                  A$140 million Accounts Receivable Loan commitment secured by credit card,passenger and cargo receivables.  Theinitial loan represents a revolving credit facility, the outstanding balance ofwhich will change depending upon the level of accounts receivable balance.  The initial draw was $127 million.  The loan has a three month term and iscurrently being restructured into a permanent three-year facility.  Monthly interest payments are at LIBOR plus3.0%.

 

•                  A$50 million Stock Loan secured by Northwest equity investments in its regionalcarriers.  The three-year loan has asingle bullet payment at maturity (assuming no required redemptions prior tomaturity due to drops in stock collateral value) and monthly interest paymentsat LIBOR plus 5.25%.

 

•                  A$50 million Equipment Loan secured by various aircraft, spare engines andengine spare parts.  The loan fullyamortizes over a five-year term on a mortgage style basis and has quarterlyinterest payments at LIBOR plus 5.25%.

 

12

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**Note 9 –Fleet Information and Commitments**

 

As shown in thefollowing table, Northwest operated a fleet of 433 aircraft at June 30,2005, consisting of 364 narrow-body and 69 wide-body aircraft.  Northwest’s purchase commitments for aircraftas of June 30, 2005 are also provided.

 
| **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                   |       | 62         |       | —             |       | 12                   |       | —                           |       | 74                              |       | 7                            |       |
| A320                                   |       | 148                   |       | 43         |       | 4                  |       | 31                   |       | —                           |       | 78                              |       | 2                            |       |
| A330-200                               |       | 243                   |       | 7          |       | —             |       | —               |       | —                           |       | 7                               |       | 5                            |       |
| A330-300                               |       | 298                   |       | 10         |       | —             |       | —               |       | —                           |       | 10                              |       | 10                           |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| Boeing:                                |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| 787-800                                |       | 221                   |       | —     |       | —             |       | —               |       | —                           |       | —                          |       | 18                           |       |
| 757-200                                |       | 180-184               |       | 32         |       | 5                  |       | 19                   |       | (5                               | )          | 51                              |       | —                       |       |
| 757-300                                |       | 224                   |       | 16         |       | —             |       | —               |       | —                           |       | 16                              |       | —                       |       |
| 747-200                                |       | 353-430               |       | 3          |       | —             |       | 2                    |       | —                           |       | 5                               |       | —                       |       |
| 747-400                                |       | 403                   |       | 4          |       | —             |       | 12                   |       | —                           |       | 16                              |       | —                       |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| DC9                                    |       | 78-125                |       | 141        |       | —             |       | 4                    |       | —                           |       | 145                             |       | —                       |       |
| DC10                                   |       | 273                   |       | 13         |       | —             |       | 7                    |       | (1                               | )          | 19                              |       | —                       |       |
|                                   |       |                  |       | 331        |       | 9                  |       | 87                   |       | (6                               | )          | 421                             |       | 42                           |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| **Freighter  Aircraft**                |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| Boeing 747-200F                        |       |                  |       | 9          |       | —             |       | 5                    |       | (2                               | )          | 12                              |       | —                       |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| **Total  Northwest Operated Aircraft** | ** ** | ** **            | ** ** | **340**    | ** ** | **9**              | ** ** | **92**               | ** ** | **(8**                           | **)**      | **433**                         | ** ** | **42**                       | ** ** |
| ** **                             | ** ** | ** **            | ** ** | ** ** | ** ** | ** **         | ** ** | ** **           | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** **                   | ** ** |
| **Regional  Aircraft**                 |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| BAE AVRO RJ85                          |       | 69                    |       | 10         |       | —             |       | 25                   |       | —                           |       | 35                              |       | —                       |       |
| Bombardier CRJ-200/440                 |       | 44-50                 |       | —     |       | —             |       | 137                  |       | (2                               | )          | 135                             |       | 17                           |       |
| SAAB 340                               |       | 30-34                 |       | —     |       | —             |       | 49                   |       | —                           |       | 49                              |       | —                       |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| **Total  Airlink Operated Aircraft**   | ** ** | ** **            | ** ** | **10**     | ** ** | **—**         | ** ** | **211**              | ** ** | **(2**                           | **)**      | **219**                         | ** ** | **17**                       |       |
|                                   |       |                  |       |       |       |               |       |                 |       |                             |       |                            |       |                         |       |
| **Total  Aircraft**                    | ** ** | ** **            | ** ** | **350**    | ** ** | **9**              | ** ** | **303**              | ** ** | **(10**                          | **)**      | **652**                         | ** ** | **59**                       |       |

 

On April 22, 2005,the Company announced that it had ordered 15 additional CRJ-200 aircraft,with deliveries scheduled to commence in the third quarter of 2005.  The Company intends to finance these aircraftthrough long-term operating leases with the manufacturer.  The Company has signed a non-binding letterof intent for these aircraft to be leased or subleased to and operated byMesaba Aviation, Inc. (“Mesaba”), a subsidiary company of MAIR Holdings, Inc.(“MAIR”) and a Northwest Airlink carrier. Under the terms of this letter of intent, Mesaba would also be givenexclusive rights to operate another 20 CRJs should the Company elect toexercise additional options from the manufacturer.  The Company’s existing Avro RJ85 and Saabservice agreements with Mesaba will be replaced with a new 10 year airlineservices agreement, subject to final approval by the parties, MAIR’s board ofdirectors and any applicable regulatory approvals.  Upon execution of a definitive airlineservices agreement, MAIR will amend the currently outstanding warrants to theCompany, resulting in warrants covering an aggregate of 4,112,500 shares ofMAIR’s common stock at an exercise price of $8.74.

 

On May 5,2005, the Company entered into an agreement with Boeing to purchase 18 Boeing787 aircraft beginning in August 2008. The agreement also granted the Company options and purchase rights foran additional 50 aircraft.  Boeing andthe engine manufacturer agreed to provide backstop financing for the 18 firmand six option aircraft with an 18-year term, mortgage

 

13

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style amortization, quarterly interest payments andwith Northwest having the option to choose between a fixed or floating interestrate.

 

Committedexpenditures for the 59 aircraft and related equipment on firm order, includingestimated amounts for contractual price escalations and predelivery deposits,will be approximately $409 million for the remainder of 2005, $708 million in2006, $858 million in 2007, $907 million in 2008 and $674 million in 2009.  Consistent with prior practice, the Companyintends to finance its aircraft deliveries through a combination of internallygenerated funds, debt and long-term lease financing.  Financing commitments available for use bythe Company are in place for all of the aircraft on firm order and range from80% - 100% of each aircraft’s purchase price. The Company has the option and intends to finance the CRJ-200/440aircraft through long-term operating lease commitments from the manufacturer,and if the manufacturer does not provide the financing, the Company is notobligated to take delivery of the aircraft. These aircraft will, in turn, be leased or subleased to and operated bya Northwest Airlink carrier.

 

The Company tookdelivery of 26 aircraft during the six months ended June 30, 2005: four A319aircraft, two A330 aircraft and 20 Bombardier CRJ aircraft.  The Company entered into operating leaseswith respect to the 20 Bombardier CRJ aircraft and then subleased all of theaircraft to Pinnacle Airlines pursuant to the Company’s airline servicesagreement with Pinnacle Airlines.  Inconnection with the acquisition of all 26 aircraft, the Company entered intolong-term debt arrangements and operating leases under which the aggregateamount of debt incurred totaled $285 million and the minimum lease payments atthe point of inception equaled $445 million.

 

**Note 10 – Aircraft Impairments**

 

In the second quarter of2005, the Company recorded $48 million for the impairment and other chargesrelated to nine owned and two leased aircraft of various types that it does notintend to return to service.  Of the $48million recorded, approximately $40 million related to aircraft rent expenseand other charges on the two leased aircraft and $8 million was attributable toaircraft impairments on the nine owned aircraft.  In the second quarter of 2004, the Companyrecorded impairment charges totaling $104 million associated with aircraft andrelated inventory.  The Company recentlyannounced plans to reduce capacity in the second half of the year.  As the Company continues to review itsaircraft fleet plan in conjunction with its overall route structure andcapacity needs through the remainder of 2005, there may be the need foradditional aircraft write-downs.

 

14

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**Note 11 – Pension and OtherPostretirement Benefits**

 

The Company hasseveral noncontributory pension plans covering substantially all of itsemployees.  The benefits for these plansare based primarily on years of service and, in some cases, employeecompensation.

 

The components ofnet periodic cost of defined benefit plans included the following (inmillions):

 

| ** **                                      | ** ** | **Three months ended June 30** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                      | ** ** | **Pension Benefits**                | ** ** | **Other Benefits** | ** ** |
| ** **                                      | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                                    | ** ** | **$**                               | **73**     | ** ** | $ | 59 |   | **$** | **8** | ** ** | $ | 8 |   |
| Interest cost                                   | ** ** | **137**                             | ** ** | 130 |   | **14** | ** ** | 12 |   |
| Expected return  on plan assets                 | ** ** | **(128**                            | **)**      | (127 | ) | **—** | ** ** | — |   |
| Amortization of  prior service cost             | ** ** | **19**                              | ** ** | 19 |   | **(2** | **)** | (2 | ) |
| Recognized net  actuarial loss and other events | ** ** | **41**                              |       | 25 | ** ** | **8** | ** ** | 7 |   |
| Net periodic  benefit cost                      | ** ** | **$**                               | **142**    |   | $ | 106 | ** ** | **$** | **28** |   | $ | 25 |   |

 

| ** **                                      | ** ** | **Six months ended June 30** | ** ** |
|-------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                      | ** ** | **Pension Benefits**              | ** ** | **Other Benefits** | ** ** |
| ** **                                      | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                                    | ** ** | **$**                             | **146**    | ** ** | $ | 121 |   | **$** | **17** | ** ** | $ | 15 |   |
| Interest cost                                   | ** ** | **275**                           | ** ** | 264 |   | **28** | ** ** | 26 |   |
| Expected return  on plan assets                 | ** ** | **(255**                          | **)**      | (250 | ) | **—** | ** ** | — |   |
| Amortization of  prior service cost             | ** ** | **37**                            | ** ** | 38 |   | **(5** | **)** | (4 | ) |
| Recognized net  actuarial loss and other events | ** ** | **76**                            | ** ** | 45 | ** ** | **15** | ** ** | 12 |   |
| Net periodic  benefit cost                      | ** ** | **$**                             | **279**    |   | $ | 218 | ** ** | **$** | **55** |   | $ | 49 |   |

 

During the second quarterof 2005, the Company changed its method of recognizing certain pension planadministrative expenses associated with the Company’s defined benefit pensionplans and now includes them as a service cost component of net periodic pensioncost.  These expenses include trusteefees, other administrative expenses and insurance premiums paid to the PensionBenefit Guaranty Corporation (“PBGC”), all of which previously were reflectedas a reduction in the market value of plan assets and therefore amortized withother asset gains and losses.  TheCompany believes this change is preferable because it more appropriatelyascribes the expenses to the period in which they are incurred.  The cumulative effect of applying this changeto net periodic pension expense in prior years is $69.1 million, which has beenretroactively recorded as of January 1, 2005, and is included in theCompany’s Condensed Consolidated Statements of Operations for the six monthsended June 30, 2005.  The impact ofthis change on the three and six months ended June 30, 2005 was anincrease in net periodic benefit cost of $9.4 million and $18.8 million,respectively.

 

On April 10, 2004,the President signed into law the Pension Funding Equity Act (the “Pension Act”),which temporarily reduces the Company’s required pension contributions throughtwo mechanisms: (1) certain companies were permitted to elect partialrelief from the deficit reduction contribution requirements that otherwisewould have applied in 2004 and 2005, an election the Company made; and (2) theapplicable discount rate used to determine funding was increased to reflectyields on indices of high quality corporate bonds instead of 30-year U.S.Treasury rates.

 

Including the effect ofthe Pension Act, the Company’s 2005 calendar year cash contributions toqualified pension plans is expected to approximate $420 million.  On January 14, 2005, the Companycontributed $84 million to these plans. On both April 15 and June 30, 2005, the Company contributed$92 million to these plans, with the balance due during the remainder of2005.  Absent further legislative relief,authorization by the IRS to reschedule future contributions, contractualrelief under the Company’s collective bargaining agreements, substantialchanges in interest rates, or asset returns significantly above the 9.5% annualrate currently assumed, the Company expects calendar year 2006 and 2007 cashcontributions to approximate $800 million and $1.7 billion, respectively.

 

On July 26, 2005,the U.S. Senate Finance Committee reported out of committee a comprehensivepension reform bill that included a provision that would afford airlines a 14-yearperiod to amortize unfunded amounts in frozen defined benefit pension plans.

 

15

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Based on the Company’s preliminary understanding of the bill’scontents, we believe it provides a potential solution that would significantlyreduce Northwest’s estimated 2006 and 2007 pension funding requirements, ifenacted.

 

**Note 12 – Subsequent Events**

 

On April 12, 2005,the Company applied to the Internal Revenue Service (IRS) for authorization tofreeze the Northwest Airlines Pension Plan for Salaried Employees, a definedbenefit plan that covers approximately 3,600 active management and other salariedpersonnel.  Under a plan freeze, noadditional service is credited but benefits previously earned areunaffected.  The IRS approved theapplication on July 8, 2005 and the Company will freeze the plan effectiveAugust 31, 2005.  At that time, theCompany will replace the existing defined benefit plan with a 401(k) typedefined contribution plan for management and salaried workers.

 

In connection with theplan freeze, the Company expects to record a one time non-cash curtailmentcharge in the third quarter approximating $30 million.  Should the Company successfully negotiate tofreeze its other defined benefit plans with the unionized workforce, additionalnon-cash curtailment charges of approximately $400 million would need to berecorded.

 

16

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**Item 2.       Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

Northwest and other largenetwork airlines continue to face significant financial challenges.  Industry trends that produced record lossesover the past four years persist, with the growth of low cost carriers andexpanded product distribution through the internet resulting in a revenueenvironment that is increasingly price sensitive.  During the first quarter of 2005, Delta,another large network airline, adopted a simplified fare pricing strategy.  This broad fare restructuring exacerbated thealready difficult airline financial environment by placing additional downwardrevenue pressures on Northwest. Meanwhile, unit operating costs have been pushed higher by fuel pricesat unprecedented levels, with airlines having limited ability to pass alongthese costs to passengers through increased fares.  These challenges have left Northwest and theother major legacy airlines with no choice but to significantly reduce all of theircosts, including their labor costs, by bringing wage rates and work rules inline with the new revenue environment. United and US Airways obtained new labor contracts through Chapter 11bankruptcy protection, while also eliminating their defined benefit pensionplans.  American and Delta each realizedlabor cost reductions in the face of imminent bankruptcy filings, and both haveacknowledged publicly that further savings must be achieved.  Continental, which for many years has beenable to maintain labor costs below its major competitors, primarily due to ithaving previously filed for Chapter 11 on two occasions, was also forced toseek additional reductions from its workers, most of whom ratified newagreements since the beginning of 2005 that incorporate additional costsavings.

 

Northwest has beensuccessful in lowering many non-labor expenses, executing a series ofaggressive cost reduction efforts beginning in early 2001.  In addition, the Company achieved animportant first step in restructuring its labor contracts in October 2004when it reached a two year bridge agreement with its pilots to reduce wage andbenefit costs.  Under the agreement,which was effective December 1, 2004, the pilots agreed to $250 million inannual wage and benefit changes and salaried and management employees took $35million in annual salary and benefit reductions.  Nonetheless, Northwest’s labor costs remainthe highest in the industry, which impedes its ability to compete effectivelyand reduces the likelihood that the Company will return to profitability in theforeseeable future.  As a result of thesemany challenges, for the quarter ended June 30, 2005, the Company reporteda net loss applicable to common stockholders of $234 million and an operatingloss of $190 million, which compares with a net loss applicable to commonstockholders of $182 million and an operating loss of $52 million for thequarter ended June 30, 2004. Net loss per common share was $2.69 in thesecond quarter of 2005 compared with net loss per common share of $2.11 in thesecond quarter of 2004.  These resultsbring the Company’s net loss to common stockholders for the first half of 2005to over $700 million, or approximately $4 million per day.

 

The Company hassignificant current obligations due in 2005 and long-term obligations duethereafter, including debt and capital lease maturities, operating leasepayments, purchase obligations and required pension funding.  However, meeting these obligations isincreasingly difficult, as the Company’s overall financial condition andresults of operations continue to deteriorate and are unlikely to improve inview of prevailing market forces.  Thesemarket forces include, in particular:

 

•                  *Significant increases in thecost of aircraft fuel.*  Aircraft fuel represents the Company’s secondlargest expense item behind employee salaries and benefits.  The Company’s average price of fuel duringthe most recent quarter rose 52% versus the June 2004 quarter.  Should prices remain at current levels forthe remainder of the year, the Company’s fuel costs for 2005 will approximate$3 billion, or 23% of operating expenses.

 

•                  *Further limitations on access tothe capital markets*.  Despite the financial losses incurred overthe past several years, Northwest has been successful in maintaining adequateliquidity through opportunistic financings and the sale of non-strategicassets.  At December 31, 2004 and June 30,2005, the Company had cash, cash equivalents and unrestricted short terminvestments totaling $2.46 billion and $2.14 billion, respectively.  Maintaining such liquidity has come atsignificant costs, however, with the Company’s annual interest expense nowexceeding $600 million and the availability of unencumbered assets to secureadditional financing virtually exhausted. The Company’s undrawn lines of credit are minimal.  Each of the major credit rating agenciesrecently downgraded the Company’s debt, with Fitch Ratings senior unsecureddebt rating presently CCC+, Standard & Poor’s corporate rating CCC+and unsecured debt rating CCC-, and Moody’s corporate family rating Caa1 andunsecured debt rating Caa3.  Thelowering of the Company’s credit ratings could make it more difficult to renewoutstanding letters of credit that back certain obligations and further limitaccess to new financings.

 

17

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Losses of the magnitudeNorthwest continues to experience are unsustainable.  Therefore, the Company is aggressively pursuingthe following actions:

 

1) *Labor CostSavings without Operational Disruptions.*  The Company must rapidly obtain at least $1.1billion in annual salary and benefit reductions through wage, work rule andbenefit changes, an amount that could rise depending on the price of fuel andother factors.  Furthermore, in thecourse of negotiations with its unions to obtain the necessary cost savings,the Company cannot afford labor disruptions that would negatively impactoperations.  The greatest near term riskof such disruptions is associated with the ongoing negotiations with AMFA.  On July 20, 2005, due to a lack ofmeaningful progress toward a new collective bargaining agreement between theCompany and AMFA, the National Mediation Board declared an impasse and releasedthe Company and AMFA from mediation after the Company declined an offer ofbinding arbitration.  Releasing theparties from mediation triggered a 30 day “cooling off” period, after whicheither can resort to self help.  Selfhelp remedies include, but are not limited to, a strike by AMFA and theimposition of a contract by the Company. Both parties will continue labor negotiations with an objective ofreaching a new agreement prior to August 20, 2005.  However, the AMFA membership has voted to authorizeits union leadership to declare a strike if, following the end of the coolingoff period, it deems such action necessary.

 

The Company cannotpredict the outcome of negotiations at this time and has prepared a detailedcontingency plan to maintain its flight schedule and operationalreliability in the event of a strike by AMFA or in the event the Companychooses to impose its contract proposal. This includes training of management personnel who are licensedmechanics, arrangements with qualified third party vendors with the capabilityto perform the required maintenance work, and recruitment of additionallicensed mechanics.  While the Companybelieves these preparations will allow it to continue operating a full schedule inthe event of a strike, there can be no assurances that this will be thecase.  Any labor action that results in asignificant operational disruption, even for a short period of time, could havea severe detrimental impact on the Company’s financial condition and results ofoperations.

 

2) *PensionFunding Legislation.*  Togetherwith a freeze of its defined benefit pension plans, it is critical for theCompany to obtain legislative reform of existing pension funding requirementsthat would provide sufficient time to make up the current funding shortfall inthose plans, which approximates $3.8 billion. Absent such relief, the Company’s pension funding requirements incalendar 2006 and 2007 are expected to approximate $800 million and $1.7billion, respectively.

 

3) *RenewedAccess to the Capital Markets*.  Maintainingadequate liquidity to fund current operations and meet longer term obligationsdepends on the Company’s ability to obtain financing in the capital markets,which are not currently accessible. Adequate labor cost savings, without thecostly operational disruption an adverse labor action could create, as well aslegislative reform of pension funding requirements are both necessary for theCompany to regain such critical borrowing capacity.

 

The Company cannotpredict the outcome of the matters described above.  If the Company is unsuccessful in achievingthe necessary labor cost savings, suffers significant operational disruptionsas a result of a strike or other workforce actions, does not secure a freeze ofthe defined benefit plans for the contract workforce, fails to obtainlegislative relief of its pension funding obligations in the near future, or isunable to access the capital markets to meet current and future obligations,the Company would be forced to consider commencement of proceedings underChapter 11 of the U.S. Bankruptcy Code.  

 

18

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**Operating Statistics—Three and sixmonths ended June 30, 2005 and 2004**

 

Information with respect to the Company’s operatingstatistics follows (1):

 
| ** **                                                      | ** ** | **Three months ended  June 30** | ** ** | ** ** | ** ** | **Six months ended  June 30** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|------------------------------------|------------|------------|------------|
| ** **                                                      | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Chg.**                         | ** ** | **2005**   | ** ** | **2004** | ** ** | **% Chg.** | ** ** |
| Scheduled  service:                                             |       |                                 |       |       |       |                               |       |       |       |   |   |   |   |
| Available seat  miles (ASM) (millions)                          | ** ** | **23,772**                           |       | 22,764     |       | 4.4                                | ** ** | **46,537** |       | 44,595 |   | 4.4 |   |
| Revenue passenger  miles (RPM) (millions)                       | ** ** | **20,020**                           |       | 18,775     |       | 6.6                                | ** ** | **38,187** |       | 35,480 |   | 7.6 |   |
| Passenger load  factor                                          | ** ** | **84.2**                             | *%*        | 82.5       | *%*        | 1.7                                | pts.       | **82.1**   | *%*        | 79.6 | *%* | 2.5 | pts. |
| Revenue  passengers (millions)                                  | ** ** | **15.1**                             |       | 14.3       |       | 6.0                                | ** ** | **28.6**   |       | 26.8 |   | 6.9 |   |
| Passenger  revenue per RPM (yield)                              | ** ** | **11.73**                            | *¢*   | 11.61      | *¢*   | 1.0                                | ** ** | **11.48**  | *¢*   | 11.68 | *¢* | (1.7 | ) |
| Passenger  revenue per ASM (RASM)                               | ** ** | **9.88**                             | *¢*   | 9.58       | *¢*   | 3.1                                | ** ** | **9.42**   | *¢*   | 9.29 | *¢* | 1.4 |   |
| Total operating  ASM (millions)                                 | ** ** | **23,805**                           |       | 22,791     |       | 4.4                                | ** ** | **46,630** |       | 44,685 |   | 4.4 |   |
| Passenger  service operating expense per total ASM (2) (3) | ** ** | **11.46**                            | *¢*   | 10.61      | *¢*   | 8.0                                | ** ** | **11.24**  | *¢*   | 10.43 | *¢* | 7.8 | * * |
| Aircraft and  aircraft related write-downs per total ASM        | ** ** | **0.20**                             | *¢*   | 0.45       | *¢*   | (55.6                              | )          | **0.10**   | *¢*   | 0.23 | *¢* | (56.5 | )* * |
| Mainline fuel  expense per total ASM                            | ** ** | **2.90**                             | *¢*   | 1.93       | *¢*   | 50.3                               | ** ** | **2.69**   | *¢*   | 1.89 | *¢* | 42.3 | * * |
| Cargo ton miles  (millions)                                     | ** ** | **616**                              |       | 577        |       | 6.8                                | ** ** | **1,158**  |       | 1,117 |   | 3.7 |   |
| Cargo revenue  per ton mile                                     | ** ** | **38.65**                            | *¢*   | 33.46      | *¢*   | 15.5                               | ** ** | **38.39**  | *¢*   | 33.62 | *¢* | 14.2 | * * |
| Fuel gallons  consumed (millions)                               | ** ** | **455**                              |       | 441        |       | 3.2                                | ** ** | **887**    |       | 863 |   | 2.8 |   |
| Average fuel  cost per gallon, excluding taxes                  | ** ** | **164.23**                           | *¢*   | 107.93     | *¢*   | 52.2                               | ** ** | **151.41** | *¢*   | 104.13 | *¢* | 45.4 | * * |
| Number of  operating aircraft at end of period                  | ** ** | ** **                           |       |       |       |                               |       | **433**    |       | 436 |   | (0.7 | ) |
| Full-time  equivalent employees at end of period                | ** ** | ** **                           |       |       |       |                               |       | **38,348** |       | 39,154 |   | (2.1 | ) |

 

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(1)          All statistics excludeNorthwest Airlink regional carriers, which is consistent with how the Companyreports statistics to the Department of Transportation (“DOT”) and iscomparable to statistics reported by other major network airlines.

(2)          This financial measureexcludes non-passenger service expenses. The Company believes that providing financial measures directly relatedto passenger service operations allows investors to evaluate and compare theCompany’s core operating results to those of the industry.

(3)          Passenger serviceoperating expense excludes the following items unrelated to passenger serviceoperations (in millions):

 
| ** **                                   | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                   | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                         |       |                                 |       |                               |       |   |   |   |   |
| Freighter  operations                        | ** ** | $                                    | **200**    |                               | $          | 152 | ** ** | $ | **355** |   | $ | 291 |   |
| MLT Inc. - net  of intercompany eliminations | ** ** | **51**                               |       | 49                                 | ** ** | **115** |   | 109 |   |
| Regional  carriers                           | ** ** | **392**                              |       | 288                                | ** ** | **748** |   | 544 |   |
| Other                                        | ** ** | **13**                               |       | 15                                 | ** ** | **25** |   | 29 |   |
|                                              |            |                                      |            |                                    |            |  |  |  |  |  |  |  |  |

 

**Results of Operations—Three monthsended June 30, 2005 and 2004**

 

*OperatingRevenues*.  Operatingrevenues increased 11.3% ($324 million), the result of higher system passenger,regional carrier, cargo and other revenues.

 

19

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System passenger revenuesincreased 7.7% ($167 million).  Thefollowing analysis by region is based on information reported to the Departmentof Transportation and excludes regional carriers:

 
| ** **                          | ** ** | **System** | ** ** | **Domestic** | ** ** | **Pacific** | ** ** | **Atlantic** | ** ** |
|-------------------------------------|------------|------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **2005**                            | ** ** | ** ** | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Passenger  revenues (in millions)   |       | $          | 2,347      |         | $          | 1,539       |       | $            | 496        |   | $ | 312 |   |
|                                |       |       |       |         |       |        |       |         |       |
| **Increase  (Decrease) from 2004:** |       |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |       | $          | 167        |         | $          | 54          |       | $            | 67         |   | $ | 46 |   |
| Percent                             |       | 7.7        | %          | 3.6          | %          | 15.6        | %          | 17.3         | %          |
|                                |       |       |       |         |       |        |       |         |       |
| Scheduled  service ASMs (capacity)  |       | 4.4        | %          | 2.7          | %          | 5.6         | %          | 10.2         | %          |
| Scheduled  service RPMs (traffic)   |       | 6.6        | %          | 5.4          | %          | 5.5         | %          | 13.4         | %          |
| Passenger load  factor              |       | 1.7        | pts.       | 2.1          | pts.       | —      | pts.       | 2.6          | pts.       |
| Yield                               |       | 1.0        | %          | (1.6         | )%         | 9.5         | %          | 3.5          | %          |
| Passenger RASM                      |       | 3.1        | %          | 0.9          | %          | 9.4         | %          | 6.5          | %          |

 

As indicated in the abovetable:

•                  Domesticpassenger revenues increased somewhat, primarily due to higher traffic, offsetin part by lower yield.  Capacity was up slightly.

•                  Pacificpassenger revenues showed a large increase due to an improvement in yields and highertraffic.  Capacity was up modestly.

•                  Atlanticpassenger revenues increased substantially due to a sharp rise in traffic onsignificantly more capacity.  Yields alsoimproved somewhat.

 

Regional carrier revenuesincreased 25.5% ($70 million) to $344 million, due primarily to the increasedcapacity from 34 additional Bombardier CRJ aircraft that have entered servicesince June 30, 2004.

 

Cargo revenues increased 23.8%($46 million) to $239 million largely due to 15.5% higher yields.  Other revenue increased 18.3% ($41 million)as a result of increased rental revenue, higher ticket change fees and othernon-transportation service fees.

 

*OperatingExpenses*.  Operatingexpenses increased 15.8% ($462 million). The following table and notes present operating expenses for the threemonths ended June 30, 2005 and 2004 and describe significantyear-over-year variances:

 
| ** **                                  | ** ** | **Three months ended  June 30** | ** ** | **Increase  (Decrease)** | ** ** | **Percent**   | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|---------------|------------|------------|------------|
| **(in millions)**                           | ** ** | **2005**                             | ** ** | **2004**                 | ** ** | **from 2004** | ** ** | **Change** | ** ** | **Note** | ** ** |
| **Operating  Expenses**                     |       |                                 |       |                     |       |          |       |       |       |   |   |
| Salaries, wages  and benefits               | ** ** | **$**                                | **969**    | ** **               | $          | 964           |       | $          | 5          |   | 0.5 | % | A |   |
| Aircraft fuel  and taxes                    | ** ** | **790**                              |       | 499                      |       | 291           |       | 58.3       |       | B |   |
| Selling and marketing                       | ** ** | **223**                              |       | 204                      |       | 19            |       | 9.3        |       | C |   |
| Other rentals  and landing fees             | ** ** | **168**                              |       | 149                      |       | 19            |       | 12.8       |       | D |   |
| Aircraft  maintenance materials and repairs | ** ** | **157**                              |       | 109                      |       | 48            |       | 44.0       |       | E |   |
| Depreciation and  amortization              | ** ** | **142**                              |       | 237                      |       | (95           | )          | (40.1      | )          | F |   |
| Aircraft rentals                            | ** ** | **135**                              |       | 115                      |       | 20            |       | 17.4       |       | G |   |
| Regional carrier  expenses                  | ** ** | **392**                              |       | 288                      |       | 104           |       | 36.1       |       | H |   |
| Other                                       | ** ** | **409**                              |       | 358                      |       | 51            |       | 14.2       |       | I |   |
| **Total  operating expenses**               | ** ** | **$**                                | **3,385**  | ** **               | $          | 2,923         |       | $          | 462        |   | 15.8 | % |   |   |

 

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A.           Salaries, wages andbenefits remained relatively constant due to higher pension expense, annualwage rate increases and increased capacity, offset by pilot and managementreductions that became effective as of December 1, 2004.

B.             Aircraft fuel andtaxes were higher due to a 52.2% increase in the average fuel cost per gallonto $1.64 (net of hedging transactions) and 3.2% more****gallonsconsumed.

 

20

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C.             Selling and marketingincreases were partially volume related, due to a 7.7% increase in passengerrevenue and a 25.5% increase in regional carrier revenues.

D.            Other rentals andlanding fees increased due to higher rates across the system.

E.              Aircraft maintenancematerials and repairs increased by $48 million, due primarily to timing ofairframe and engine maintenance work.

F.              Depreciation expensedecreased primarily due to $104 million of aircraft and aircraft relatedimpairments recorded in the second quarter of 2004.

G.             Aircraft rentalexpense increased primarily due to a $32 million charge for accelerated rentsin connection with permanently grounded aircraft recorded in the second quarterof 2005, partially offset by the accelerated rents recorded in 2004 foraircraft subsequently purchased off lease.

H.            The $104 millionincrease was primarily driven by increased regional carrier capacity and higherregional carrier fuel costs.

I.                 Other expenses(which include MLT operating expenses, outside services, insurance, passengerfood, personnel expenses, communication expenses and supplies) increased $51million, which was principally volume related.

 

*OtherIncome and Expense.* Non-operating expense decreased 70.7% ($87 million) due to a $102million gain from the sale of Prudential shares, partially offset by higherinterest expense related to increased debt levels and rising interest rates onvariable rate debt.

 

**Results of Operations—Six monthsended June 30, 2005 and 2004**

 

*OperatingRevenues*.  Operatingrevenues increased 9.5% ($519 million), the result of higher system passenger,regional carrier, cargo and other revenues.

 

System passenger revenuesincreased 5.8% ($239 million).  Thefollowing analysis by region is based on information reported to the Departmentof Transportation and excludes regional carriers:

 
| ** **                          | ** ** | **System** | ** ** | **Domestic** | ** ** | **Pacific** | ** ** | **Atlantic** | ** ** |
|-------------------------------------|------------|------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **2005**                            |       |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |       | $          | 4,382      |         | $          | 2,896       |       | $            | 951        |   | $ | 535 |   |
|                                |       |       |       |         |       |        |       |         |       |
| **Increase  (Decrease) from 2004:** |       |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |       | $          | 239        |         | $          | 35          |       | $            | 129        |   | $ | 75 |   |
| Percent                             |       | 5.8        | %          | 1.2          | %          | 15.7        | %          | 16.3         | %          |
|                                |       |       |       |         |       |        |       |         |       |
| Scheduled  service ASMs (capacity)  |       | 4.4        | %          | 1.5          | %          | 7.9         | %          | 11.6         | %          |
| Scheduled  service RPMs (traffic)   |       | 7.6        | %          | 6.3          | %          | 6.9         | %          | 14.8         | %          |
| Passenger load  factor              |       | 2.5        | pts.       | 3.5          | pts.       | (0.9        | )pts.      | 2.4          | pts.       |
| Yield                               |       | (1.7       | )%         | (4.8         | )%         | 8.2         | %          | 1.4          | %          |
| Passenger RASM                      |       | 1.4        | %          | (0.2         | ) %        | 7.2         | %          | 4.3          | %          |

 

As indicated in the abovetable:

•                  Domesticpassenger revenues increased slightly, primarily due to significantly highertraffic offset by lower yields.

•                  Pacificpassenger revenues showed a strong increase due to significantly improvedyields and traffic on higher capacity.

•                  Atlanticpassenger revenues increased substantially due to a sharp rise in traffic onsignificantly more capacity.

 

Regional carrier revenuesincreased 26.3% ($129 million) to $620 million, due primarily to the increasedcapacity from 34 additional Bombardier CRJ aircraft that have entered servicesince June 30, 2004.

 

Cargo revenues increased18.4% ($69 million) to $445 million due largely to 14.2% higher yields.  Other revenue increased 17.7% ($82 million)as a result of increased rental revenue, higher ticket change fees and othernon-transportation service fees.

 

21

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*OperatingExpenses*.  Operatingexpenses increased 15.1% ($850 million). The following table and notes present operating expenses for the sixmonths ended June 30, 2005 and 2004 and describe significantyear-over-year variances:

 
| ** **                                  | ** ** | **Six months ended  June 30** | ** ** | **Increase  (Decrease)** | ** ** | **Percent**   | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|--------------------------|------------|---------------|------------|------------|------------|
| **(in millions)**                           | ** ** | **2005**                           | ** ** | **2004**                 | ** ** | **from 2004** | ** ** | **Change** | ** ** | **Note** | ** ** |
| **Operating  Expenses**                     |       |                               |       |                     |       |          |       |       |       |   |   |
| Salaries, wages  and benefits               | ** ** | **$**                              | **1,933**  | ** **               | $          | 1,901         |       | $          | 32         |   | 1.7 | % | A |   |
| Aircraft fuel  and taxes                    | ** ** | **1,420**                          |       | 949                      |       | 471           |       | 49.6       |       | B |   |
| Selling and  marketing                      | ** ** | **428**                            |       | 379                      |       | 49            |       | 12.9       |       | C |   |
| Other rentals  and landing fees             | ** ** | **324**                            |       | 295                      |       | 29            |       | 9.8        |       | D |   |
| Aircraft  maintenance materials and repairs | ** ** | **301**                            |       | 220                      |       | 81            |       | 36.8       |       | E |   |
| Depreciation and  amortization              | ** ** | **280**                            |       | 378                      |       | (98           | )          | (25.9      | )          | F |   |
| Aircraft rentals                            | ** ** | **239**                            |       | 229                      |       | 10            |       | 4.4        |       | G |   |
| Regional carrier  expenses                  | ** ** | **748**                            |       | 544                      |       | 204           |       | 37.5       |       | H |   |
| Other                                       | ** ** | **811**                            |       | 739                      |       | 72            |       | 9.7        |       | I |   |
| **Total operating  expenses**               | ** ** | **$**                              | **6,484**  | ** **               | $          | 5,634         |       | $          | 850        |   | 15.1 | % |   |   |

 

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A.           Salaries, wages andbenefits increased slightly due to higher pension expense, annual wage rateincreases and increased capacity, offset by pilot and management reductionsthat became effective as of December 1, 2004.

B.             Aircraft fuel andtaxes were higher due to a 45.4% increase in the average fuel cost per gallonto $1.51 (net of hedging transactions) and 2.8% more****gallonsconsumed.  Fuel hedge transactionsreduced fuel costs by $22 million in the first half of 2005 compared with a $4million reduction in the first half of 2004.

C.             Selling and marketingincreases were partially volume related, due to a 5.8% increase in passengerrevenue and a 26.3% increase in regional carrier revenues.

D.            Other rentals andlanding fees increased due to higher rates across the system.

E.              Aircraft maintenancematerials and repairs increased by $81 million, due primarily to timing ofairframe and engine maintenance work.

F.              Depreciation expensedecreased primarily due to $104 million of aircraft and aircraft relatedimpairments recorded in the second quarter of 2004.

G.             Aircraft rentalexpense increased primarily due to a $32 million charge from accelerated rentsin connection with permanently grounded aircraft recorded in the second quarterof 2005, partially offset by the accelerated rents recorded in 2004 foraircraft subsequently purchased off lease.

H.            The $204 millionincrease was primarily driven by increased regional carrier capacity and higherregional carrier fuel costs.

I.                 Other expenses(which include MLT operating expenses, outside services, insurance, passengerfood, personnel expenses, communication expenses and supplies) increased $72million, which was principally volume related.

 

*OtherIncome and Expense.* Non-operating expense decreased 20.2% ($48 million) primarily due to a$102 million gain from the sale of Prudential shares, partially offset byhigher interest expense related to increased debt levels, rising interest rateson variable rate debt and an $18 million loss recognized on the sale of thePinnacle Airlines note to Pinnacle Airlines Corp.

 

**Liquidity and Capital Resources**

 

As of June 30, 2005,the Company had cash, cash equivalents and short-term investments of $2.64billion.  This amount includes $496million of restricted cash, cash equivalents and short-term investments,resulting in liquidity of $2.14 billion.

 

*CashFlows.* Liquidity decreased by $315 million during the sixmonths ended June 30, 2005, largely due to net losses, capital expenditures,debt payments and funding of the Company’s irrevocable tax trust.

 

*OperatingActivities.*  Net cashprovided by operating activities for the six months ended June 30, 2005,was $19 million, a $406 million decrease from the $425 million of cash providedby operating activities for the six months ended June 30, 2004.  This decrease was largely driven by a highernet loss in 2005.

 

22

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*InvestingActivities.*  Investingactivities for the six months ended June 30, 2005, consisted primarily ofthe sale of short-term investments, aircraft capital expenditures and otherrelated costs.  Other related costsinclude engine purchases, costs to commission aircraft before entering revenueservice, deposits on ordered aircraft, facility improvements and groundequipment purchases.  Investingactivities for the first half of 2005 also included $336 million of additionalfunding to the Company’s irrevocable tax trust, which increased the Company’srestricted cash, cash equivalents and short-term investment balance.  See “Item 1. Financial Statements, Note 1 -Basis of Presentation” for additional information regarding the Company’sirrevocable tax trust.  Additionally,investing activities during the first half of 2005 included proceeds of $102million from the sale of the Company’s note receivable from Pinnacle Airlinesand $102 million in proceeds from the sale of the Prudential Financial Inc.common stock received in conjunction with Prudential’s demutualization.  Investing activities for the six months endedJune 30, 2004, other than aircraft and related purchases and short-terminvestments, included facility and aircraft modification programs.

 

*FinancingActivities. *Financingactivities in the six months ended June 30, 2005, included financing oneAirbus A330 aircraft with long-term debt, debt proceeds of $227 million fromthree secured financing agreements, debt proceeds of $101 million from thefinancing of the Company’s properties in Tokyo, repayment of $188 millionunsecured notes due in March 2005, plus payment of other debt and capitallease obligations.  Financing activitiesin the six months ended June 30, 2004, included financing one Airbus A330-300aircraft with long-term debt, the issuance of $300 million unsecured notes duein 2009, repayment of $138 million of 8.375% unsecured notes due in March 2004,repayment of $195 million 8.52% unsecured notes due in April 2004, pluspayment of other debt and capital lease obligations.

 

In addition to theone Airbus A330 aircraft financed with debt proceeds discussed above, theCompany also took delivery of four Airbus A319, one Airbus A330 and 20Bombardier CRJ aircraft during the six months ended June 30, 2005.  The four Airbus A319 and one Airbus A330aircraft were acquired largely through non-cash transactions with themanufacturer, which are reflected as long-term debt on the Company’sConsolidated Balance Sheets but are not classified as cash flowactivities.  The Bombardier CRJ aircraftwere acquired with long-term operating leases and subleased to PinnacleAirlines pursuant to the Company’s airline services agreement with PinnacleAirlines.  In connection with theacquisition of all 26 aircraft, the Company entered into long-term debtarrangements and operating leases under which the aggregate amount of debtincurred totaled $285 million and the minimum lease payments at the point ofinception equaled $445 million.

 

Investingactivities affecting cash flows and non-cash transactions and leasingactivities related to the initial acquisition of aircraft consisted of thefollowing for the six months ended June 30:

 

| ** **            | ** ** | **Investing Activities  Affecting Cash  Flows** | ** ** | **Non-cash  Transactions and  Leasing Activities** | ** ** |
|-----------------------|------------|-------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **            | ** ** | **2005**                                        | ** ** | **2004**                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                  |       |                                            |       |                                               |       |   |   |   |   |
| Airbus A319           | ** ** | **—**                                      |       | —                                             | ** ** | **4** |   | — |   |
| Airbus A330-300       | ** ** | **1**                                           |       | 1                                                  | ** ** | **1** |   | 2 |   |
| Bombardier CRJ -  440 | ** ** | **—**                                      |       | —                                             | ** ** | **10** |   | 17 |   |
| Bombardier CRJ -  200 | ** ** | **—**                                      |       | —                                             | ** ** | **10** |   | 8 |   |
| ** **            |       | **1**                                           |       | 1                                                  | ** ** | **25** |   | 27 |   |

 

23

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*Debt.*Maturities of long-term debt, excluding capital lease obligations, through December 31,2009 are as follows (in millions):

 

| 2005 |   | $     | 307    |   |
|------|--------|-------|--------|--------|
| 2006 |   | 916   | (1)    |
| 2007 |   | 1,421 | (1)    |
| 2008 |   | 779   | (1)    |
| 2009 |   | 1,095 |   |

 

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(1)                            Includes$79 million, $567 million and $81 million of aircraft related loan obligationsmaturing in 2006, 2007 and 2008, respectively, which may be extended for anadditional nine years from their maturity dates at the Company’s election.

 

The above amountsdo not reflect $554 million of Class D Equipment Notes issued in connectionwith several Enhanced Equipment Trust Certificates (“EETC”) transactions.  The notes represent intra-companyobligations, as the Company retains the related Class D Pass-ThroughCertificates issued in connection with each EETC.  Therefore, the associated assets andliabilities have been netted for purposes of financial statement presentation.

 

Holders of $225million convertible unsecured notes due after 2009 may require NWA Corp. torepurchase such notes in 2008 (and holders of all $375 million convertibleunsecured notes outstanding also have other dates after 2009, but prior tomaturity, on which NWA Corp. can be required to repurchase such notes).

 

On November 23,2004, the Company completed the restructuring of its $975 million revolvingbank credit facility, which was scheduled to mature in October 2005, byentering into an Amended and Restated Credit and Guarantee Agreement with aconsortium of lenders that amended and restructured the revolving creditfacility into a term loan.  The term loanhas an initial principal amount of $975 million and is comprised of twotranches bearing different interest rates and with different principalamortization periods.  The first tranche,in the principal amount of $575 million, bears interest at LIBOR plus 5.25% andis payable 25% at the end of the first year, 12.5% at the end of each of thesecond and third years and 50% at the end of the fifth year.  The second tranche, in the principal amountof $400 million, bears interest at LIBOR plus 6.75% and is payable 1% at theend of each of the first five years and 95% at the end of the sixth year, on November 23,2010.

 

On April 15, 2005,the Company refinanced the $148 million principal repayment due in November 2005under the $975 million term loan facility. The new $148 million tranche bears interest at LIBOR plus 6.25% and isdue 1% annually for four years beginning November 2006, with the balancedue in November 2010.  On April 13,2005, the Company also obtained an amendment that waived the fixed chargescoverage covenant associated with the term loan facility through March 31,2006 and changed the next covenant measurement date from the quarter ending June 30,2005 to the quarter ending June 30, 2006. The lenders provided this amendment principally in consideration of thesharp rise in fuel prices since the beginning of the year, which made itunlikely that the Company would remain in compliance absent the waiver.

 

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The term loan is securedby substantially the same collateral the Company pledged to secure the originalrevolving bank credit facility, which includes the Company’s Pacific routesystem and certain aircraft.  TheAgreement contains a covenant requiring the Company to maintain unrestrictedcash, cash equivalents and short term investments in an amount not less than$900 million at any time.  In addition,the Agreement contains a covenant that requires the Company to maintainspecified ratios of earnings to fixed charges as follows:

 

| **Number of  Months Covered** | ** ** | **Period ending**                                           | ** ** | **Required  Coverage Ratio** | ** ** |
|-------------------------------|------------|-------------------------------------------------------------|------------|------------------------------|------------|
| -                             |       | June 30, 2005 through March 31, 2006              |       | Waived                       | (1)        |
| Three                         |       | June 30, 2006                                          |       | 1.00 to 1.0                  |       |
| Six                           |       | September 30, 2006                                     |       | 1.05 to 1.0                  |       |
| Nine                          |       | December 31, 2006                                      |       | 1.15 to 1.0                  |       |
| Twelve                        |       | March 31, 2007                                         |       | 1.30 to 1.0                  |       |
| Twelve                        |       | June 30, 2007                                          |       | 1.45 to 1.0                  |       |
| Rolling twelve                |       | September 30,  2007 and each quarter ending thereafter |       | 1.50 to 1.0                  |       |

 

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(1)     On April 13, 2005, theCompany obtained an amendment that waived the fixed charges coverage covenantassociated with the term loan facility for the periods ending June 30,2005 through March 31, 2006.

 

For purposes ofcalculating this ratio, earnings are defined as operating income adjusted toexclude the effects of depreciation, amortization and aircraft rents and toinclude the effects of interest income and governmental reimbursements forlosses resulting from developments affecting the aviation industry.  Earnings also exclude non-recurring non-cashcharges (subject to the inclusion of any related cash payments then orthereafter made) and are determined without giving effect to any accelerationof rental expense.  Fixed charges aredefined as interest expense and aircraft rents (without giving effect to anyacceleration of rental expense). Although the covenant does not become effective again until the quarterending June 30, 2006, compliance will depend on many factors, some ofwhich are beyond the Company’s control, including the overall industry revenueenvironment and the level of fuel costs.  Thus, there can be no assurancethat the Company will be able to satisfy these requirements through theexpiration of the facility.

 

On April 1, 2005,the Company completed an 8.5 billion yen (approximately $78 million) financingwith Shinsei Bank, Limited, maturing on June 20, 2006 (“Shinsei” loan).  The loan proceeds were reduced by fees andexpenses, pre-paid interest and a liquidity reserve.  This financing bears interest at the rate of2.878% per annum with interest payable on March 20, 2006 and atmaturity.  The financing is secured bycertain of the Company’s properties in Tokyo. On April 20, 2005, the Company completed a 2.5 billion yen(approximately $23 million) financing with Airline Funding, LLC (“AirlineFunding” loan), which will remain outstanding concurrently with the Shinseiloan until maturity on June 20, 2006. The Airline Funding loan financing is secured by a second lien onproperties in Tokyo with the first lien being held by Shinsei Bank, Limited.

 

In July 2005, Northwest executeda definitive term sheet that would amend and restate its Credit Card ProcessingAgreement.  Under terms of the newagreement, it would be extended until December 31, 2008.  The new terms also include a provision thatwill allow a certain level of funds to be withheld from receipts by theprocessing bank, which would secure all obligations under the agreement as wellas those of the Co-Branded Credit Card Agreement and letter of credit facilityreferred to below.  Such amounts withheldwould be released in part or in whole upon the Company’s meeting certainrequirements.

 

The term sheet alsoprovides for an amended Co-Branded Credit Card Agreement, which would also beextended until December 31, 2008. New terms include an option for prepayment of miles and fees toNorthwest from the credit card issuer under the Worldperks program, subject tothe Company meeting certain requirements.

 

In addition, the termsheet includes an extension of Northwest’s $98 million standby letter of creditfacility through April 30, 2006, which allows for letters of credit to be outstandingthrough April 30, 2007.

 

25

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Absent the amendmentsdescribed above, the Credit Card Processing Agreement is scheduled to expire inApril, 2006, and the Co-Branded Credit Card Agreement is scheduled to expire inApril, 2008.  The letter of creditfacility expired on April 30, 2005. The new terms provided for in each of the agreements are subject toexecution of final documents, which is expected to occur during the thirdquarter.

 

During the secondquarter of 2005, Northwest entered into three separate secured loan agreements,which required the use of substantially all of the Company’s remainingavailable collateral.  These include:

 

•                  A$140 million Accounts Receivable Loan commitment secured by credit card,passenger and cargo receivables.  Theinitial loan represents a revolving credit facility, the outstanding balance ofwhich will change depending upon the level of accounts receivable balance.  The initial draw was $127 million.  The loan has a three month term and iscurrently being restructured into a permanent three-year facility.  Monthly interest payments are at LIBOR plus3.0%.

 

•                  A$50 million Stock Loan secured by Northwest equity investments in its regionalcarriers.  The three-year loan has asingle bullet payment at maturity (assuming no required redemptions prior tomaturity due to drops in stock collateral value) and monthly interest paymentsat LIBOR plus 5.25%.

 

•                  A$50 million Equipment Loan secured by various aircraft, spare engines andengine spare parts.  The loan fullyamortizes over a five-year term on a mortgage style basis and has quarterlyinterest payments at LIBOR plus 5.25%.

 

*AircraftCommitments.*  Committedexpenditures for the 59 aircraft and related equipment on firm order, includingestimated amounts for contractual price escalations and predelivery deposits,will be approximately $409 million for the remainder of 2005, $708 million in2006, $858 million in 2007, $907 million in 2008 and $674 million in 2009.  Consistent with prior practice, the Companyintends to finance its aircraft deliveries through a combination of internallygenerated funds, debt and long-term lease financing.  Financing commitments available for use bythe Company are in place for all of the aircraft on firm order and range from80% - 100% of each aircraft’s purchase price. The Company has the option and intends to finance the CRJ-200/440aircraft through long-term operating lease commitments from the manufacturer,and if the manufacturer does not provide the financing, the Company is notobligated to take delivery of the aircraft. These aircraft will, in turn, be leased or subleased to and operated bya Northwest Airlink carrier.

 

On May 5,2005 the Company entered into an agreement with Boeing to purchase 18 Boeing787 aircraft beginning in August 2008. The agreement also granted the Company options and purchase rights foran additional 50 aircraft.  Boeing andthe engine manufacturer agreed to provide backstop financing for the 18 firmand six option aircraft with an 18-year term, mortgage styleamortization, quarterly interest payments and with Northwest having the optionto choose between a fixed or floating interest rate.

 

*PensionFunding Obligations.*  The Company has several noncontributorypension plans covering substantially all of its employees.  As of December 31, 2004, the Company’splans were significantly underfunded as measured under the provisions of SFAS No. 87,*Employers’ Accounting for Pensions*(“SFASNo. 87”).  Projected benefitobligations under the plans totaled $9.25 billion, approximately $3.82 billionin excess of the fair value of plan assets. Unless future asset returns exceedplan assumptions, the Company will have to satisfy the underfunded amounts ofthe plans through cash contributions over time. The timing and amount of funding requirements also depend upon a numberof other factors, including interest rates, potential changes in pensionlegislation, the Company’s decision to make voluntary prepayments, applicationsfor and receipt of waivers to reschedule contributions, and changes topension plan benefits.

 

On April 10, 2004,the President signed into law the Pension Act, which temporarily reduces theCompany’s required pension contributions through two mechanisms: (1) certaincompanies were permitted to elect partial relief from the deficit reductioncontribution requirements that otherwise would have applied in 2004 and 2005,an election the Company made; and (2) the applicable discount rate used todetermine funding was increased to reflect yields on indices of high qualitycorporate bonds instead of 30-year U.S. Treasury rates.

 

Including the effect ofthe Pension Act, the Company’s 2005 calendar year cash contributions toqualified pension plans is expected to approximate $420 million.  On January 14, 2005, the Companycontributed $84 million to these plans. On both April 15 and June 30, 2005, the Company contributed$92 million to these plans, with the balance due during the remainder of 2005. Absent

 

26

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further legislative relief, authorization by the IRS to reschedule futurecontributions, contractual relief under the Company’s collective bargainingagreements, substantial changes in interest rates, or asset returnssignificantly above the 9.5% annual rate currently assumed, the Company expectscalendar year 2006 and 2007 cash contributions to approximate $800 million and$1.7 billion, respectively.

 

On July 26, 2005,the U.S. Senate Finance Committee reported out of committee a comprehensivepension reform bill that included a provision that would afford airlines a 14-yearperiod to amortize unfunded amounts in frozen defined benefit pensionplans.  Based on the Company’spreliminary understanding of the bill’s contents, we believe it provides apotential solution that would significantly reduce Northwest’s estimated 2006and 2007 pension funding requirements, if enacted.

 

*CreditRating Agency Actions. *OnJune 1, 2005, Fitch Ratings downgraded Northwest’s senior unsecured debtrating from B to CCC+, representing a two notch drop in the rating, andmaintained a “negative” outlook on the Company. On June 14, Standard & Poor’s (S&P) downgraded theCompany’s corporate credit rating two notches from B to CCC+.  All credit ratings that are linked to thecorporate credit rating were lowered, including the senior unsecured ratingfrom CCC+ to CCC- and the bank term loan rating from B+ to B-.  S&P’s outlook on the Company is “developing”.  On June 21, Moody’s investor servicesdowngraded the Company’s corporate family rating from B2 to Caa1.  All ratings that are linked to the corporatefamily rating were lowered, including the senior unsecured rating from Caa1 toCaa3 and the bank term loan rating from B3 to B1.  The ratings outlook by Moody’s remains “negative”.

 

The lowering of theCompany’s credit ratings could limit access to new financings, includinginstruments used in the Company’s fuel hedging program, make it more difficultto renew outstanding letters of credit that back certain obligations, or raisethe costs of completing these transactions.

 

**Other Information**

 

*LaborAgreements.* Approximately 89% of the Company’s employees are members of collectivebargaining agreements.  The Company hasbeen in discussions with its labor groups over the past year, seeking to obtaincompetitive wage scales, work rules and benefit plans.  In the fourth quarter of 2004, the Companyreached an agreement with its pilots, represented by the Northwest unit ofALPA.  The bridge agreement includeslabor cost savings from the Company’s pilots and salaried workers, with pilotscontributing $250 million in annual wage and benefit changes and salaried andmanagement employees taking $35 million in annual salary and benefitreductions.  The labor cost reductionsbecame effective December 1, 2004. Northwest currently is in contract discussions with representatives ofthe other labor groups, which include the IAM, the Transport Workers ofAmerica, AMFA, PFAA, the Northwest Airlines Meteorology Association and theAircraft Technical Support Association. The collective bargaining agreements with AMFA, IAM and PFAA arecurrently amendable.

 

Under the Railway LaborAct (“RLA”), an amendable labor contract continues in effect while the partiesnegotiate a new contract.  In addition todirect contract negotiations, the RLA also provides for mediation, potentialarbitration of unresolved issues and a 30-day “cooling off” period afterwhich either party can resort to self-help. The self-help remedies include, butare not limited to, a strike by the members of the labor union and theimposition of proposed contract amendments and, in the event of a strike, thehiring of replacement workers by the Company. Northwest remains in federal mediation with the IAM and PFAA, but hasbeen released from mediation with AMFA.

 

On July 20, 2005,due to a lack of meaningful progress toward a new collective bargainingagreement between the Company and AMFA, the National Mediation Board declaredan impasse and released the Company and AMFA from mediation after the Company declinedan offer of binding arbitration. Releasing the parties from mediation triggered a 30 day “cooling off”period, after which either can resort to the self help remedies describedabove.  Both parties will continue labornegotiations with an objective of reaching a new agreement prior to August 20,2005.  However, the AMFA membership hasvoted to authorize its union leadership to declare a strike if, following theend of the cooling off period, it deems such action necessary.

 

The Company cannotpredict the outcome of negotiations at this time and has prepared a detailedcontingency plan to maintain its flight schedule and operationalreliability in the event of a strike by AMFA or in the event the Companychooses to impose its contract proposal. This includes training of management personnel who are licensedmechanics, recruitment of potential replacement workers and arrangements withqualified third party vendors with the capability to perform the requiredmaintenance work.  While the Companybelieves these preparations will allow it to continue operating a full schedule inthe event of a strike, there can be no assurances that this will be thecase.  Any labor action that results in asignificant operational disruption, even for a short period of 

 

27

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time, could have a severe detrimental impact on the Company’s financialcondition and results of operations. Given the other financial challenges the Company currently faces, astrike that results in significant operational disruption would substantiallyincrease the risk that the Company would need to initiate Chapter 11 bankruptcyproceedings.

 

*Changein Accounting for Certain Pension Plan Administrative Expenses*.  During the second quarter of 2005, theCompany changed its method of recognizing certain pension plan administrativeexpenses associated with the Company’s defined benefit pension plans and nowincludes them as a service cost component of net periodic pension cost.  These expenses include trustee fees, otheradministrative expenses and insurance premiums paid to the Pension BenefitGuaranty Corporation (“PBGC”), all of which previously were reflected as areduction in the market value of plan assets and therefore amortized with otherasset gains and losses.  The Companybelieves this change is preferable because it more appropriately ascribes theexpenses to the period in which they are incurred.

 

The cumulativeeffect of applying this change to net periodic pension expense in prior yearsis $69.1 million, which has been retroactively recorded as of January 1, 2005,and is included in the Company’s Condensed Consolidated Statements ofOperations for the six months ended June 30, 2005.  The effect of the change on the three monthsended June 30, 2005 is an increase to net loss of $9.4 million ($0.11 percommon share); the effect of the change for the six months ended June 30,2005 is to increase the loss before cumulative effect of the accounting changeby $18.8 million ($0.22 per common share) and net loss by $87.9 million ($1.01per common share); the effect of the change for the three months ended March 31,2005 is to increase the loss before cumulative effect of a change in accountingprinciple by $9.4 million ($0.11 per common share) to a loss of $467.5 million($5.39 per common share) and net loss by $78.5 million ($0.90 per common share)to a loss of $536.6 million ($6.19 per common share).  None of these amounts include the effect ofincome tax benefits as the Company’s current net tax position requires it toestablish a valuation allowance in respect of all net deferred tax assetsgenerated.

 

The followingtable illustrates pro forma amounts, assuming the new accounting method isapplied retroactively (in millions, except per share amounts):

 
| ** **                                           | ** ** | **Three months ended  June 30** | ** ** | **Six months ended  June 30** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                           | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                 |       |                                 |       |                               |       |   |   |   |   |
| Net income  (loss) applicable to common stockholders | ** ** | **$**                                | **(234**   | **)**                              | $          | (191 | ) | **$** | **(702** | **)** | $ | (430 | ) |
|                                                 |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| Earnings (loss)  per common share:                   |       |                                 | ** ** |                               |       |   | ** ** |   |   |
| *Basic  and Diluted*                                 | ** ** | **$**                                | **(2.69**  | **)**                              | $          | (2.22 | ) | **$** | **(8.08** | **)** | $ | (4.99 | ) |

 

*ExpandedServices Between the U.S. and China.*  On June 18, 2004, theUnited States and the People’s Republic of China agreed to a series of amendmentsto the 1980 U.S. – China Air Transport Agreement.  The amendments provide for a significantexpansion of air services between the two countries.  On September 3, 2004, the DOT awardedNorthwest six additional U.S. – China all-cargo frequencies, three of whichbecame available to Northwest on November 1, 2004, and three that becameavailable on March 25, 2005.  TheCompany is using these frequencies to expand its cargo service to Shanghai, viaits cargo hubs in Anchorage and Tokyo. Additionally, on February 22, 2005, the DOT awarded Northwest threeadditional U.S. – China all-cargo frequencies that will become available on March 25,2006.

 

*ForeignCurrency.*  The Companyis exposed to the effect of foreign currency exchange rate fluctuations on theU.S. dollar value of foreign currency-denominated operating revenues andexpenses.  The Company’s largest exposurecomes from the Japanese yen.  From timeto time, the Company uses financial instruments to hedge its exposure to theJapanese yen.  Hedging gains or lossesare recorded in accumulated other comprehensive income (loss) until theassociated transportation is provided, at which time they are recognized as anincrease or decrease in revenue.  TheCompany did not hedge any of its second quarter 2005 or 2004 yen-denominatedsales.  The average yen rate for thequarters ended June 30, 2005 and 2004 was 107 and 109, respectively.  At June 30, 2005, the Company has hedgedapproximately 38.0% and 9.9% of its remaining 2005 and 2006 anticipatedyen-denominated sales at an average rate of 105 and 101 yen per U.S. dollar,respectively, and has recorded $9.6 million of unrealized gain in accumulatedother comprehensive income associated with those hedges.

 

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*AircraftFuel.*  The Company’searnings are affected by changes in the price and availability of aircraftfuel.  On an annual basis, the Company’smainline and regional carrier fuel consumption approximates 2.1 billiongallons, producing a $21 million variance for each one-cent change in the costper gallon of fuel.  From time to time,the Company manages the price risk of fuel costs by utilizing futures contractstraded on regulated futures exchanges, swap agreements and options.  As of June 30, 2005, there were nooutstanding fuel hedges or unrealized gains (losses) in accumulated othercomprehensive income (loss).  In July 2004,the Company had hedged the price of approximately 25% of its projected fuelrequirements for the second half of 2004 through collars established at a crudeoil price of $34 to $41 per barrel. Comparatively, the average crude oil price for the first half of 2005was $52.50 per barrel.

 

*WarRisk Insurance*.  As aresult of the Air Transportation Safety and System Stabilization Act (“AirlineStabilization Act”), the U.S. Homeland Security Act and the U.S. EmergencyWartime Supplemental Appropriations Act, the U.S. federal government assumesmost war risk coverage.  However,following multiple extensions, this coverage is scheduled to expire on August 31,2005.  While the government may againextend the period that it provides war risk coverage, there is no assurancethat this will occur, or if it does, how long the extension will last or atwhat cost the coverage will be provided. Refer to “Item 1. Business - Risk Factors Related to Northwest and theAirline Industry” in the Company’s Annual Report on Form 10-K for2004 for additional discussion regarding war risk coverage and insurance costs.

 

*Aircraft. *The Company is implementinga plan to reduce its active DC9 aircraft fleet by 30 aircraft in 2005.  In the second quarter of 2005, the Companydetermined that it does not intend to return to service three of the 30 DC9passenger aircraft, as well as five additional DC9 aircraft and three other aircraftthat had been temporarily removed from operations.  The overall DC9 reduction will result in theclosing of four heavy maintenance check lines at Minneapolis/St. Paul and thereduction of an estimated 800 Minneapolis/St. Paul-based technical positionsduring the closure.  Facility-relatedcharges associated with this hangar closure are expected to be immaterial.  The Company recently announced plans toreduce capacity in the second half of the year. As the Company continues to review its aircraft fleet plan inconjunction with its overall route structure and capacity needs through theremainder of 2005, there may be the need for additional aircraft write-downs.

 

*PrudentialShares*.  During thequarter ended June 30, 2005, the Company sold approximately 1.55 millionshares of Prudential Financial Inc. common stock, which were distributed inconnection with Prudential’s demutualization, and subsequently awarded to theCompany as a result of an arbitration ruling. Northwest liquidated its entire holdings in these shares, which producedcash proceeds approximating $102 million. The proceeds from the sale were recorded as a non-operating gain in theCompany’s financial results for the period ended June 30, 2005.

 

*EmployeeStock Plan*.  On August4, 2005, State Street Bank and Trust Company, which is the trustee for theCompany common stock that was given to salaried employees in the Employee StockPlan during the wage savings period from 1993 – 1996, advised the Company thatit had decided as trustee to sell all remaining shares of Company common stockfor which it is trustee under that plan.

 

*Forward-LookingStatements.*  Certain ofthe statements made throughout Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and elsewhere in this quarterlyreport are forward-looking and are based upon information available to theCompany on the date hereof.  The Company,through its management, may also from 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.

 

The Company believes thatthe material risks and uncertainties that could affect the outlook of anairline operating in the global economy include, among others, the future levelof air travel demand, the Company’s future passenger traffic and yields, theairline pricing environment, increased costs for security, the cost andavailability of aviation insurance coverage and war risk coverage, the general economiccondition of the United States 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 SARSor other influenza or contagious illnesses, labor negotiations both at othercarriers and the Company, low cost carrier expansion, capacity decisions ofother carriers, actions of the U.S. and foreign governments, foreign currencyexchange rate fluctuation, inflation and other factors discussed herein.  Additional information with respect to thesefactors and these and other events that could cause differences betweenforward-looking statements and future actual results is contained in “Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” above, and “Item 1. Business - Risk Factors Related to Northwestand the Airline Industry” and “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2004.

 

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Developments in any ofthese areas, as well as other risks and uncertainties detailed from time totime in the Company’s Securities and Exchange Commission filings, could causethe Company’s results to differ from results that have been or may be projectedby or on behalf of the Company.  TheCompany undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.  These statementsdeal with the Company’s expectations about the future and are subject to anumber of factors that could cause actual results to differ materially from theCompany’s expectations.  All subsequentwritten or oral forward-looking statements attributable to the Company, orpersons acting on behalf of the Company, are expressly qualified in theirentirety by the factors described above.

 

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

 

Information required bythis item is provided under the captions “Foreign Currency” and “Aircraft Fuel”within “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in this Quarterly Report on Form 10-Q.  Also see “Item 7a. Quantitative andQualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-Kfor 2004.

 

**Item 4.       Controls and Procedures.**

 

**Evaluationof Disclosure Controls and Procedures –** As of June 30,2005, management performed an evaluation under the supervision and with theparticipation of the Company’s President and Chief Executive Officer andExecutive Vice President and Chief Financial Officer of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedurescovered in this Quarterly Report on Form 10-Q.  Based on that evaluation, the Company’sPresident and Chief Executive Officer and Executive Vice President and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective in alerting them in a timely manner to materialinformation required to be disclosed in the Company’s periodic reports filedwith the SEC as of the end of such period.

 

**Changesin Internal Control –** There was no change in the Company’sinternal control over financial reporting that occurred during the Company’sfiscal second quarter ended June 30, 2005 that has materially affected, oris reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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PART II. OTHER INFORMATION

 

**Item 1.       LegalProceedings.**

 

Reference is made to “Item3. Legal Proceedings” in the Company’s Annual Report on Form 10-Kfor 2004.

 

*Series CPreferred Stock Litigation.* In June 2003, the IBT and certain related parties commencedlitigation against Northwest Airlines Corporation in New York state court, *International Brotherhood of Teamsters, Local 2000 etal. v. Northwest Airlines Corporation* (New York Sup. Ct., Case No. 601742/03).  In August 2003, the IAM and a relatedparty also commenced litigation against Northwest Airlines Corporation in NewYork state court, *International Associationof Machinists and Aerospace Workers et al. v. Northwest Airlines Corporation*(New York Sup. Ct., Case No. 602476/03). Both lawsuits challenge the Company’s decision not to purchase its Series CPreferred Stock and seek to compel the Company to repurchase the Series CPreferred Stock that had been put to the Company.  The Company announced on August 1, 2003,that the Board of Directors had determined that the Company could not legallyrepurchase the outstanding Series C Preferred Stock at that time becausethe Board was unable to determine that the Company had adequate surplus torepurchase the outstanding Series C Preferred Stock.  Before discovery was complete, plaintiffsfiled motions for summary judgment.  On March 24,2005, the judge ruled that the Company had breached the arrangements related tothe Series C Preferred Stock, and indicated that a trial on damages wouldbe necessary.  If the plaintiffs were toobtain a money judgment against the Company in the amount currently owing inrespect of the Series C Preferred Stock, which approximates $277 million,and enforcement of that judgment is not stayed by a court while the Companyappeals, the Company would be required to post a bond to stay enforcement inorder to pursue an appeal.  Should acourt require the Company to post a bond in the amount of damages the plaintiffsare seeking, it would represent a significant reduction in available liquidityand therefore place additional financial hardship on the Company.  The case has been tentatively set for trialin the early part of September.  TheCompany has filed motions with the trial court seeking reconsideration of thesummary judgment decision and seeking a stay of further proceedings; if thesemotions are not successful, the Company intends to file motions with theAppellate Division seeking an interlocutory appeal and a stay.  The motions state that requiring the Companyto post a bond in the amount the plaintiffs seek would significantly increasethe risk that the Company would be forced to seek protection under Chapter 11.  The Company believes that these motionsshould be successful, but there can be no assurance that this will be the case.

 

In addition, in theordinary course of its business, the Company is party to various other legalactions which the Company believes are incidental to the operation of its business.  The Company believes that the outcome of theproceedings to which it is currently a party will not have a material adverseeffect on the Company’s consolidated financial statements taken as a whole.

 

# **Item4.       Submission of Matters to a Voteof Security Holders.**

 

The Company held itsAnnual Meeting of Stockholders on June 30, 2005.  The stockholders of the Company voted on fouritems at the Annual Meeting.

 

The eleven Common Stockdirectors listed below were elected to one-year terms expiring in 2006:

 
| **Nominee**           | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-----------------------|------------|---------------|------------|--------------------|------------|
| Roy J. Bostock        |       | 72,344,881    |       | 1,857,740          |       |
| John M. Engler        |       | 72,328,958    |       | 1,873,663          |       |
| Robert L.  Friedman   |       | 72,312,298    |       | 1,890,323          |       |
| Doris K. Goodwin      |       | 72,316,646    |       | 1,885,975          |       |
| Dennis F.  Hightower  |       | 67,345,592    |       | 6,856,631          |       |
| Jeffrey G. Katz       |       | 72,345,592    |       | 1,857,029          |       |
| Frederic V.  Malek    |       | 65,763,408    |       | 8,493,213          |       |
| V.A. Ravindran        |       | 66,674,859    |       | 7,527,762          |       |
| Douglas M.  Steenland |       | 72,151,591    |       | 2,051,030          |       |
| Leo M. van Wijk       |       | 54,644,063    |       | 19,558,558         |       |
| Gary L. Wilson        |       | 71,648,831    |       | 2,553,790          |       |

 

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The slate of three Series Cdirectors comprised of Ray W. Benning, Jr., George J. Kourpias and MichaelG. Ristow was elected to one-year terms expiring in 2006 by the following vote:

 

6,345,696 votes in favor

2,292 votes against

1,670 abstentions

 

The appointment of Ernst &Young LLP as the Company’s independent auditor for 2005 was approved by thefollowing vote:

 

84,001,363 votes in favor

460,754 votes against

353,915 abstentions

 

The proposal to approvean amendment and restatement of the Northwest Airlines Corporation 1999 StockIncentive Plan was defeated by the following vote:

 

23,486,400 votes in favor

34,023,249 votes against

479,292 abstentions

 
| **Item 6.** | ** ** | **Exhibits**                                                                                                                                                                                                                                             |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                     |
| (a)         |       | Exhibits:                                                                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                     |
| 10.1        |       | Purchase Agreement  No. 2924 dated May 5, 2005 between The Boeing Company and Northwest  Airlines, Inc.** **(NWA Corp.  has filed a request with the Commission for confidential treatment as to  certain portions of this document) |
| 10.2        |       | Second Amended and  Restated Credit and Guarantee Agreement dated as of April 15, 2005 among  Northwest Airlines Corporation, Northwest Airlines Holdings Corporation, NWA  Inc., Northwest Airlines, Inc. and various lenders and agents                |
| *10.3       |       | Management Compensation  Agreement dated as of May 2, 2005 between Northwest Airlines, Inc.  and Neal S. Cohen                                                                                                                                 |
| 12.1        |       | Computation of Ratio of  Earnings to Fixed Charges                                                                                                                                                                                                       |
| 12.2        |       | Computation of Ratio of  Earnings to Fixed Charges and Preferred Stock Requirements                                                                                                                                                                      |
| 18.1        |       | Preferability Letter on  Accounting Change from Ernst & Young LLP                                                                                                                                                                               |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer                                                                                                                                                                             |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer                                                                                                                                                                             |
| 32.1        |       | Section 1350  Certification of Chief Executive Officer                                                                                                                                                                                              |
| 32.2        |       | Section 1350  Certification of Chief Financial Officer                                                                                                                                                                                              |
|             |            |                                                                                                                                                                                                                                                          |  |  |

 

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*  Compensatory plans in which the directors andexecutive officers of Northwest participate.

 

#### SIGNATURE

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized this 9th day of August 2005.

 
|   |   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                 |       |            | Purchase Agreement  No. 2924 dated May 5, 2005 between The Boeing Company and Northwest  Airlines, Inc.** **(NWA Corp.  has filed a request with the Commission for confidential treatment as to  certain portions of this document) |
| 10.2                 |       |            | Second Amended and  Restated Credit and Guarantee Agreement dated as of April 15, 2005 among  Northwest Airlines Corporation, Northwest Airlines Holdings Corporation, NWA  Inc., Northwest Airlines, Inc. and various lenders and agents |
| *10.3                |       |            | Management Compensation  Agreement dated as of May 2, 2005 between Northwest Airlines, Inc.  and Neal S. Cohen |
| 12.1                 |       |            | Computation of Ratio of  Earnings to Fixed Charges |
| 12.2                 |       |            | Computation of Ratio of  Earnings to Fixed Charges and Preferred Stock Requirements |
| 18.1                 |       |            | Preferability Letter on  Accounting Change from Ernst & Young LLP |
| 31.1                 |       |            | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer |
| 31.2                 |       |            | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer |
| 32.1                 |       |            | Section 1350  Certification of Chief Executive Officer |
| 32.2                 |       |            | Section 1350  Certification of Chief Financial Officer |

 

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*  Compensatory plans in which the directors andexecutive officers of Northwest participate.

 

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