**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedSeptember 30, 2002**

 

**Commission file number 0-23642**

 

**NORTHWEST AIRLINES CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  ý    No o

 

As of September 30, 2002, there were 85,783,403 sharesof 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 nine months ended  September 30, 2002 and 2001. |
|                                |   |   |
|                                |   | Condensed  Consolidated Balance Sheets - September 30, 2002 and December 31, 2001. |
|                                |   |   |
|                                |   | Condensed  Consolidated Statements of Cash Flows - nine months ended September 30, 2002  and 2001. |
|                                |   |   |
|                                |   | 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 6. | Exhibits  and Reports on Form 8-K |
|                                |   |   |
| SIGNATURE                           |
|                                |   |   |
| CERTIFICATIONS                      |
|                                |   |   |
| EXHIBIT INDEX                       |

 

2

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PART I. FINANCIAL INFORMATION

 

**Item 1.  Financial Statements**

 

*NorthwestAirlines Corporation*

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
|                                                         |   | **Three Months Ended  September 30** |   | **Nine Months Ended  September 30** |   |
|--------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
| ***(Unaudited, in millions except per share  amounts)***     |   | **2002**                             |   | **2001**                            |   | **2002** |   | **2001** |   |
| **Operating Revenues**                                       |   |                                 |   |                                |   |   |   |   |   |
| Passenger                                                    |   | $                                    | 2,227  |                                | $      | 2,243 |   | $ | 6,097 |   | $ | 6,782 |   |
| Cargo                                                        |   | 180                                  |   | 177                                 |   | 504 |   | 544 |   |
| Other                                                        |   | 157                                  |   | 174                                 |   | 549 |   | 594 |   |
| Total operating revenues                                     |   | 2,564                                |   | 2,594                               |   | 7,150 |   | 7,920 |   |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| **Operating Expenses**                                       |   |                                 |   |                                |   |   |   |   |   |
| Salaries, wages and benefits                                 |   | 977                                  |   | 1,024                               |   | 2,837 |   | 3,046 |   |
| Aircraft fuel and taxes                                      |   | 395                                  |   | 454                                 |   | 1,046 |   | 1,410 |   |
| Selling and marketing                                        |   | 211                                  |   | 260                                 |   | 629 |   | 825 |   |
| Aircraft maintenance materials and repairs                   |   | 139                                  |   | 156                                 |   | 435 |   | 536 |   |
| Depreciation and amortization                                |   | 133                                  |   | 172                                 |   | 399 |   | 430 |   |
| Other rentals and landing fees                               |   | 162                                  |   | 136                                 |   | 426 |   | 400 |   |
| Aircraft rentals                                             |   | 116                                  |   | 113                                 |   | 345 |   | 333 |   |
| Other                                                        |   | 423                                  |   | 434                                 |   | 1,267 |   | 1,367 |   |
| Total operating expenses                                     |   | 2,556                                |   | 2,749                               |   | 7,384 |   | 8,347 |   |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| **Operating Income (Loss)**                                  |   | 8                                    |   | (155                                | )      | (234 | ) | (427 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| **Other Income (Expense)**                                   |   |                                 |   |                                |   |   |   |   |   |
| Airline Stabilization Act funds                              |   | —                               |   | 249                                 |   | — |   | 249 |   |
| Interest expense, net                                        |   | (99                                  | )      | (89                                 | )      | (293 | ) | (246 | ) |
| Interest of mandatorily redeemable preferred security holder |   | (7                                   | )      | (6                                  | )      | (19 | ) | (19 | ) |
| Investment income                                            |   | 12                                   |   | 15                                  |   | 35 |   | 52 |   |
| Foreign currency gain (loss)                                 |   | 1                                    |   | (6                                  | )      | (10 | ) | (6 | ) |
| Other                                                        |   | 12                                   |   | 17                                  |   | 46 |   | 57 |   |
| Total other income (expense)                                 |   | (81                                  | )      | 180                                 |   | (241 | ) | 87 |   |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| **Income (Loss) Before Income Taxes**                        |   | (73                                  | )      | 25                                  |   | (475 | ) | (340 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| Income tax expense (benefit)                                 |   | (27                                  | )      | 6                                   |   | (165 | ) | (133 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| **Net Income (Loss)**                                        |   | $                                    | (46    | )                                   | $      | 19 |   | $ | (310 | ) | $ | (207 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| Earnings (loss) per common share:                            |   |                                 |   |                                |   |   |   |   |   |
| *Basic*                                                      |   | $                                    | (.55   | )                                   | $      | .22 |   | $ | (3.63 | ) | $ | (2.47 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| *Diluted*                                                    |   | $                                    | (.55   | )                                   | $      | .20 |   | $ | (3.63 | ) | $ | (2.47 | ) |
|                                                         |   |                                 |   |                                |   |   |   |   |   |
| Average shares used in computation:                          |   |                                 |   |                                |   |   |   |   |   |
| *Basic*                                                      |   | 86                                   |   | 85                                  |   | 86 |   | 84 |   |
| *Diluted*                                                    |   | 86                                   |   | 92                                  |   | 86 |   | 84 |   |

 

*See accompanying notes.*

 

3

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*NorthwestAirlines Corporation*

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ***(Unaudited in million)***                                                                                        |   | **September 30  2002** |   | **December 31  2001** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                                                                                |   |                   |   |                  |   |
| **Assets**                                                                                                          |   |                   |   |                  |   |
|                                                                                                                |   |                   |   |                  |   |
| **Current  Assets**                                                                                                 |   |                   |   |                  |   |
| Cash and cash  equivalents                                                                                          |   | $                      | 2,426  |                  | $      | 2,512 |   |
| Restricted  short-term investments                                                                                  |   | 116                    |   | 100                   |   |
| Accounts  receivable, net                                                                                           |   | 470                    |   | 512                   |   |
| Flight equipment  spare parts, net                                                                                  |   | 259                    |   | 273                   |   |
| Prepaid expenses  and other                                                                                         |   | 426                    |   | 393                   |   |
| Total current  assets                                                                                               |   | 3,697                  |   | 3,790                 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Property  and Equipment, net**                                                                                    |   |                   |   |                  |   |
| Flight  equipment, net                                                                                              |   | 5,806                  |   | 5,034                 |   |
| Other property  and equipment, net                                                                                  |   | 1,050                  |   | 1,032                 |   |
| Total property  and equipment, net                                                                                  |   | 6,856                  |   | 6,066                 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Flight  Equipment Under Capital Leases, net**                                                                     |   | 451                    |   | 543                   |   |
|                                                                                                                |   |                   |   |                  |   |
| **Other  Assets**                                                                                                   |   |                   |   |                  |   |
| Intangible  pension asset                                                                                           |   | 943                    |   | 943                   |   |
| International  routes, net                                                                                          |   | 634                    |   | 634                   |   |
| Investments in  affiliated companies                                                                                |   | 250                    |   | 213                   |   |
| Other                                                                                                               |   | 762                    |   | 766                   |   |
| Total other  assets                                                                                                 |   | 2,589                  |   | 2,556                 |   |
| **Total  Assets**                                                                                                   |   | $                      | 13,593 |                  | $      | 12,955 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                            |   |                   |   |                  |   |
|                                                                                                                |   |                   |   |                  |   |
| **Current  Liabilities**                                                                                            |   |                   |   |                  |   |
| Air traffic  liability                                                                                              |   | $                      | 1,387  |                  | $      | 1,275 |   |
| Accounts payable  and other liabilities                                                                             |   | 2,467                  |   | 2,455                 |   |
| Current  maturities of long-term debt and capital lease obligations                                                 |   | 369                    |   | 416                   |   |
| Total current  liabilities                                                                                          |   | 4,223                  |   | 4,146                 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Long-Term  Debt**                                                                                                 |   | 5,901                  |   | 4,828                 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Long-Term  Obligations Under Capital Leases**                                                                     |   | 407                    |   | 393                   |   |
|                                                                                                                |   |                   |   |                  |   |
| **Deferred  Credits and Other Liabilities**                                                                         |   |                   |   |                  |   |
| Pension and  postretirement benefits                                                                                |   | 1,635                  |   | 1,749                 |   |
| Deferred income  taxes                                                                                              |   | 852                    |   | 1,005                 |   |
| Other                                                                                                               |   | 558                    |   | 546                   |   |
| Total deferred  credits and other liabilities                                                                       |   | 3,045                  |   | 3,300                 |   |
|                                                                                                                |   |                   |   |                  |   |
| **Mandatorily  Redeemable Preferred Security of Subsidiary Which Holds Solely Non-Recourse  Obligation of Company** |   | 529                    |   | 492                   |   |
|                                                                                                                |   |                   |   |                  |   |
| **Redeemable  Preferred Stock**                                                                                     |   | 226                    |   | 227                   |   |
|                                                                                                                |   |                   |   |                  |   |
| **Common  Stockholders’ Equity (Deficit)**                                                                     |   |                   |   |                  |   |
| Common stock                                                                                                        |   | 1                      |   | 1                     |   |
| Additional  paid-in capital                                                                                         |   | 1,455                  |   | 1,451                 |   |
| Accumulated  deficit                                                                                                |   | (829                   | )      | (518                  | )      |
| Accumulated  other comprehensive income (loss)                                                                      |   | (310                   | )      | (305                  | )      |
| Treasury stock                                                                                                      |   | (1,055                 | )      | (1,060                | )      |
| Total common  stockholders’ equity (deficit)                                                                   |   | (738                   | )      | (431                  | )      |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**                                                      |   | $                      | 13,593 |                  | $      | 12,955 |   |

 

*See accompanying notes.*

 

4

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*NorthwestAirlines Corporation*

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
|                                                                |   | **Nine  Months Ended  September 30** |       |
|---------------------------------------------------------------------|--------|--------------------------------------|------------|
| ***(Unaudited, in millions)***                                      |   | **2002**                             |       | **2001** |   |
|                                                                |   |                                 |       |   |   |
| **Net  Cash (Used in) Provided by Operating Activities**            |   | $                                    | (39        | ) | $ | 657 |   |
|                                                                |   |                                 |       |   |   |
| **Cash  Flows From Investing Activities**                           |   |                                 | ** ** |   | ** ** |
| Capital  expenditures                                               |   | (1,185                               | )          | (1,014 | ) |
| Net (increase)  decrease in short-term investments                  |   | 23                                   |       | (56 | ) |
| Proceeds from  sale of investment in Continental Airlines, Inc.     |   | —                               |       | 582 |   |
| Other, net                                                          |   | (22                                  | )          | 9 |   |
| Net cash used in  investing activities                              |   | (1,184                               | )          | (479 | ) |
|                                                                |   |                                 |       |   |   |
| **Cash  Flows From Financing Activities**                           |   |                                 | ** ** |   | ** ** |
| Proceeds from  issuance of short-term borrowings and long-term debt |   | 1,289                                |       | 3,160 |   |
| Proceeds from  sale and leaseback transactions                      |   | 136                                  |       | 84 |   |
| Payments of  long-term debt and capital lease obligations           |   | (245                                 | )          | (159 | ) |
| Payment of  short-term borrowings                                   |   | (1                                   | )          | (1,107 | ) |
| Other, net                                                          |   | (42                                  | )          | (35 | ) |
| Net cash  provided by financing activities                          |   | 1,137                                |       | 1,943 |   |
|                                                                |   |                                 |       |   |   |
|                                                                |   |                                 | ** ** |   | ** ** |
| **Increase  (Decrease) in Cash and Cash Equivalents**               |   | (86                                  | )          | 2,121 |   |
| Cash and cash  equivalents at beginning of period                   |   | 2,512                                |       | 693 |   |
| Cash and cash  equivalents at end of period                         |   | $                                    | 2,426      |   | $ | 2,814 |   |
|                                                                |   |                                 |       |   |   |
| Available to be  borrowed under credit facilities                   |   | $                                    | 1          |   | $ | 2 |   |
|                                                                |   |                                 |       |   |   |
| Supplemental  Cash Flow Information:                                |   |                                 |       |   |   |
| Interest paid                                                       |   | $                                    | 273        |   | $ | 197 |   |
| Income taxes  (refunded) paid                                       |   | (123                                 | )          | 30 |   |
|                                                                |   |                                 |       |   |   |
| Investing and  Financing Activities Not Affecting Cash:             |   |                                 |       |   |   |
| Manufacturer  financing of aircraft predelivery deposits            |   | $                                    | (14        | ) | $ | (15 | ) |

 

*See accompanying notes.*

 

5

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*Northwest Airlines Corporation*

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                           Thecondensed consolidated financial statements of Northwest Airlines Corporation(“NWA Corp.”), a holding company whose principal indirect operating subsidiaryis Northwest Airlines, Inc. (“Northwest”), include the accounts of NWA Corp.and all consolidated subsidiaries (collectively, the “Company”).  The condensed consolidated financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  The information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been condensed or omitted aspermitted by such rules and regulations. These financial statements and related notes should be read inconjunction with the financial statements and notes thereto included in theCompany’s audited consolidated financial statements for the year ended December31, 2001 contained in the Company’s Annual Report on Form 10-K for 2001.  The Company’s accounting and reportingpolicies are summarized in Note 1 of the Notes to Consolidated FinancialStatements in the Annual Report.

 

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

 

In the opinion ofmanagement, the interim financial statements reflect adjustments, consisting ofnormal recurring accruals, which are necessary to present fairly the Company’sfinancial position, results of operations and cash flows for the periodsindicated.

 

2.                           Theincome tax expense (benefit) is based on estimated annual effective tax rates,which differ from the federal statutory rate of 35% primarily due to stateincome taxes and nondeductible expenses.

 

On March 9, 2002,Congress passed, and the President signed into law, the Job Creation and WorkerAssistance Act of 2002 (“the Act”) which provides, in part, an extension of theperiod for the carryback of net operating losses (“NOLs”) arising in 2001 and2002 from two years to five years.  TheAct also allows the full amount of alternative minimum tax NOLs arising in, orcarried forward to, 2001 and 2002 to be used to reduce the taxpayer’s alternativeminimum taxable income.  These changeswill allow the Company to claim a federal income tax refund of approximately$217 million related to the carryback of its 2002 NOL.

 

The extended NOLcarryback period will result in the displacement of $13 million of foreign taxcredits taken in prior years.  Some ofthese credits are now expected to expire before being utilized by the Company.

 

3.                           Asof September 30, 2002, maturities of long-term debt through December 31, 2006are as follows (in millions):

 

| 2002 |   | $     | 53     |   |
|------|--------|-------|--------|--------|
| 2003 |   | 250   |   |
| 2004 |   | 587   |   |
| 2005 |   | 1,401 |   |
| 2006 |   | 531   |   |

 

The amount due in2005 includes $962 million of principal outstanding on the Company’s creditfacilities.

 

As of September30, 2002, the Company’s secured credit facilities consisted of a $725 millionrevolving credit facility, ($12 million of which has been utilized to establishletters of credit) available until October 2005, and a $250 million 364-dayrevolving credit facility which was renewed in October 2002 and is renewableannually at the option of the lenders; however, to the extent any portion ofthe $250 million facility is not renewed for an additional 364-day period, theCompany may borrow up to the entire non-renewed portion of the facility andsuch borrowings would then mature in October 2005.  This credit agreement is secured by the Company’s Pacific routesystem and certain aircraft.  On June28, 2002, Standard & Poor’s downgraded the rating on the Company’s securedcredit facilities to BB- from BB.  Withthe change in credit rating, borrowings under these secured credit facilitiesincreased 0.5% and currently bear

 

6

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interest at avariable rate equal to the three-month London Interbank Offered Rate (“LIBOR”)plus 2.5% (4.3% at September 30, 2002).

 

4.                           TheCompany is managed as one cohesive business unit, from which revenues arederived primarily from the commercial transportation of passengers andcargo.  Operating revenues from flightsegments serving foreign destinations are classified into the Pacific orAtlantic regions, as appropriate.  Thefollowing table shows the operating revenues for each region (in millions):

 

|                        |   | **Three  months ended  September 30** |   | **Nine  months ended  September 30** |   |
|-----------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                        |   | **2002**                              |   | **2001**                             |   | **2002** |   | **2001** |   |
| Domestic                    |   | $                                     | 1,641  |                                 | $      | 1,677 |   | $ | 4,836 |   | $ | 5,332 |   |
| Pacific,  principally Japan |   | 595                                   |   | 629                                  |   | 1,513 |   | 1,745 |   |
| Atlantic                    |   | 328                                   |   | 288                                  |   | 801 |   | 843 |   |
| Total operating  revenues   |   | $                                     | 2,564  |                                 | $      | 2,594 |   | $ | 7,150 |   | $ | 7,920 |   |

 

5.                           Northwestoperated a fleet of 435 aircraft at September 30, 2002, consisting of 367narrow-body and 68 wide-body aircraft. The composition of the fleet accommodates both the Company’s domestichub-and-spoke system and its international routes.  As of September 30, 2002, the Company operated the followingaircraft:

 

| **Aircraft  Type**     |   | **Seating  Capacity** |       | **Owned** |       | **Capital  Lease** |       | **Operating  Lease** |       | **Total** |       | **Aircraft  on Firm  Order (1)** |          |
|------------------------|--------|-----------------------|------------|-----------|------------|--------------------|------------|----------------------|------------|-----------|------------|----------------------------------|---------------|
|                   |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| **Passenger Aircraft** |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| Airbus:                |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| A319                   |   | 124                   |       | 38        |       | —             |       | 12                   |       | 50        | ** ** | **28**                           |          |
| A320                   |   | 148                   |       | 41        |       | 4                  |       | 31                   |       | 76        | ** ** | **8**                            |          |
| A330                   |   | 303                   |       | —    |       | —             |       | —               |       | —    | ** ** | **24**                           | ** (2)** |
|                   |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| Boeing:                |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| 727                    |   | 149                   |       | 9         |       | —             |       | 4                    |       | 13        | ** ** | **—**                       |          |
| 757-200                |   | 180-184               |       | 23        |       | 14                 |       | 19                   |       | 56        | ** ** | **—**                       |          |
| 757-300                |   | 224                   |       | 3         |       | —             |       | —               |       | 3         | ** ** | **13**                           |          |
| 747                    |   | 349-420               |       | 15        |       | 2                  |       | 17                   |       | 34        | ** ** | **—**                       |          |
|                   |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| McDonnell Douglas:     |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| DC9                    |   | 78-125                |       | 156       |       | —             |       | 13                   |       | 169       | ** ** | **—**                       |          |
| DC10                   |   | 273-290               |       | 13        |       | —             |       | 9                    |       | 22        | ** ** | **—**                       |          |
|                   |   |                  |       | 298       |       | 20                 |       | 105                  |       | 423       | ** ** | **73**                           |          |
| **Freighter Aircraft** |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                             |          |
| Boeing 747F            |   |                  |       | 5         |       | —             |       | 7                    |       | 12        | ** ** | **—**                       |          |
| **Total**              |   |                  |       | **303**   | ** ** | **20**             | ** ** | **112**              | ** ** | **435**   | ** ** | **73**                           |          |

 

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(1)               The Company has theright to defer the scheduled delivery of certain aircraft listed above.

(2)               The Company has theright to cancel eight of the Airbus A330 aircraft orders.

 

7

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As of September 30, 2002,the following aircraft were operated by Northwest Airlink carriers:

 

| **Aircraft  Type**     |   | **Seating  Capacity** |       | **Owned** |       | **Capital  Lease** |       | **Operating  Lease** |       | **Total** |       | **Aircraft  on Firm  Order** |          |
|------------------------|--------|-----------------------|------------|-----------|------------|--------------------|------------|----------------------|------------|-----------|------------|------------------------------|---------------|
|                   |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                         |          |
| **Regional  Aircraft** |   |                  | ** ** |      | ** ** |               | ** ** |                 | ** ** |      | ** ** |                         |          |
| AVRO RJ85              |   | 69                    |       | 11        |       | —             |       | 25                   |       | 36        |       | —                       |          |
| CRJ-200/440            |   | 44-50                 |       | —    |       | —             |       | 43                   |       | 43        |       | 86                           | ** (1)** |
| SAAB 340               |   | 30-34                 |       | —    |       | —             |       | 89                   |       | 89        |       | —                       |          |
| **Total**              |   |                  |       | **11**    | ** ** | **—**         | ** ** | **157**              | ** ** | **169**   | ** ** | **86**                       |          |

 

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| (1) |   | These aircraft will be leased or subleased to and  operated by Northwest Airlink carriers, and the Company has the option to  finance these aircraft through long-term operating leases from the  manufacturer.  The Company has the  right to defer the scheduled delivery of certain of these aircraft. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Committed expendituresfor the aircraft on firm order listed above, including CRJ aircraft, andrelated equipment, including estimated amounts for contractual priceescalations and predelivery deposits, will be approximately $635 million forthe remainder of 2002, $1.83 billion in 2003, $1.67 billion in 2004, $1.43billion in 2005, $209 million in 2006 and $33 million in 2007.  Consistent with prior practice, the Companyintends to finance its aircraft deliveries through a combination of internallygenerated funds, debt and leveraged lease financing.  Financing commitments available for use by the Company are inplace for all of the aircraft on firm order.

 

The Company is in theprocess of replacing its DC10-40 aircraft with Boeing 757-200/300 aircraftpurchased or on order.  The Company alsoplans to replace existing Boeing 727 aircraft in service with Airbus A319/A320aircraft purchased or on order, with all Boeing 727 aircraft to be removed fromregularly scheduled service by the end of January 2003.  As of September 30, 2002, 13 Boeing 727aircraft and one DC10-40 aircraft remained in service.  The Company continues to evaluate long-livedassets for potential impairment in compliance with Statement of FinancialAccounting Standards (“SFAS”) No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets,*and has previously made the necessary changes tothe lives and asset values of the DC10-40 and Boeing 727 aircraft to beretired.

 

8

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6.                           Thefollowing table sets forth the computation of basic and diluted earnings percommon share:

 
|                                                                                                  |   | **Three  months ended  September 30** |   | **Nine  months ended  September 30** |   |
|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                  |   | **2002**                              |   | **2001**                             |   | **2002** |   | **2001** |   |
| Numerator:                                                                                            |   |                                  |   |                                 |   |   |   |   |   |
| Net income  (loss) (in millions)                                                                      |   | $                                     | (46    | )                                    | $      | 19 |   | $ | (310 | ) | $ | (207 | ) |
|                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |
| Denominator:                                                                                          |   |                                  |   |                                 |   |   |   |   |   |
| Weighted-average  shares outstanding for basic earnings per share                                     |   | 85,713,993                            |   | 84,503,281                           |   | 85,613,322 |   | 84,112,042 |   |
|                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |
| Effect of  dilutive securities:                                                                       |   |                                  |   |                                 |   |   |   |   |   |
| Series C  Preferred Stock                                                                             |   | —                                |   | 6,644,434                            |   | — |   | — |   |
| Shares held in  non-qualified rabbi trusts                                                            |   | —                                |   | 769,178                              |   | — |   | — |   |
| Employee stock  options and unvested restricted shares                                                |   | —                                |   | 265,726                              |   | — |   | — |   |
| Adjusted  weighted-average shares outstanding and assumed conversions for diluted  earnings per share |   | 85,713,993                            |   | 92,182,619                           |   | 85,613,322 |   | 84,112,042 |   |
|                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |
| Shares related  to dilutive securities excluded because inclusion would be anti-dilutive              |   | 6,658,388                             |   | —                               |   | 7,058,507 |   | 8,081,052 |   |
|                                                                                                       |        |                                       |        |                                      |        |  |  |  |  |  |  |  |  |

 

7.                           Comprehensiveloss was $29 million and $30 million for the three months ended September 30,2002 and 2001, respectively, and $315 million and $264 million for the ninemonths ended September 30, 2002 and 2001, respectively.  Comprehensive income (loss) consists of netincome (loss) plus other comprehensive income (loss).

 

8.                           DuringJune 2002, a Receivables Purchase Agreement (the “Agreement”) was executed byNorthwest, NWA Funding II, LLC (“NWA Funding”), a wholly-owned,non-consolidated subsidiary of the Company, and a third party purchaser (the“Purchaser”).  The agreement is aone-year, $100 million revolving receivables purchase facility, renewableannually for five years at the option of the Purchaser, that allows Northwestto sell additional receivables to NWA Funding and NWA Funding to sell variableundivided interests in these receivables to the Purchaser.  NWA Funding pays a yield to the Purchaserequal to the rate on A1/F1 commercial paper plus a program fee.

 

In the second quarter of2002, NWA Funding sold an initial undivided interest in such receivables to thePurchaser for $65 million, subject to specified collateral requirements.  The amount of loss recognized related toreceivables securitized was not material. In the third quarter of 2002, NWA Funding sold an additional $7 millionof its undivided interest in the receivables, bringing the total amount to $72million at September 30, 2002.  NWAFunding maintains a variable undivided interest in these receivables and issubject to losses on its share of the receivables and, accordingly, maintains anallowance for doubtful accounts.

 

The Agreement providesfor early termination upon the occurrence of certain events including, amongothers, a strike event causing a significant schedule reduction for sevenconsecutive days, falling below a minimum liquidity requirement of $1.10billion as of the last day of any fiscal quarter, or the Company not meetingminimum credit ratings (defined as any two of the following three eventsoccurring: (i) S&P’s “Long Term Local Issuer Credit” rating below a Bcredit rating, (ii) Moody’s “Senior Implied” rating below a B2 credit rating,or (iii) Fitch’s “Senior Unsecured Debt” rating below a B credit rating).

 

9

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9.                           Asof  September 30, 2002, the Company hada $51 million receivable from the U.S. Government related to a grant under theAir Transportation Safety and System Stabilization Act (“Airline StabilizationAct”).  The Company has filed its finalapplication and is in discussions with representatives of the Department ofTransportation (“DOT”).

 

10.                     InJune 2001, the Financial Accounting Standards Board issued SFAS No. 142, *Goodwill and Other Intangible Assets*.  SFAS 142 requires that companies testgoodwill and indefinite lived intangible assets for impairment on an annualbasis rather than amortize such assets. The Company adopted SFAS 142 on January 1, 2002, and as a result nolonger amortizes its indefinite lived intangible assets and goodwill.  During the first quarter of 2002, theCompany performed the required transitional impairment tests of goodwill andindefinite lived intangible assets and found the fair value to be in excess ofthe carrying value of these assets.

 

The following tablepresents net income (loss) and earnings (loss) per share for comparable periodsin 2001 adjusted for amortization of goodwill and indefinite lived intangibleassets, which are not tax effected since these expenses were not deductible fortax purposes (in millions except per share amounts):

 

|                                             |   | **Three  months ended  September 30, 2001** |   | **Nine  months ended  September 30, 2001** |   |
|--------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
| **Net income (loss):**                           |   |                                        |   |                                       |   |
| Reported net  income (loss)                      |   | $                                           | 19     |                                       | $      | (207 | ) |
| Add back:  Goodwill amortization (1)        |   | —                                      |   | 1                                          |   |
| Add back:  International route amortization |   | 6                                           |   | 18                                         |   |
| Adjusted net  income (loss)                      |   | $                                           | 25     |                                       | $      | (188 | ) |
|                                             |   |                                        |   |                                       |   |
| **Basic earnings (loss) per common  share:**     |   |                                        |   |                                       |   |
| Reported  earnings (loss) per common share       |   | $                                           | .22    |                                       | $      | (2.47 | ) |
| Add back:  Goodwill amortization (1)        |   | —                                      |   | .01                                        |   |
| Add back:  International route amortization |   | .07                                         |   | .21                                        |   |
| Adjusted  earnings (loss) per common share       |   | $                                           | .29    |                                       | $      | (2.25 | ) |
|                                             |   |                                        |   |                                       |   |
| **Diluted earnings per common share:  (2)**      |   |                                        |   |                                       |   |
| Reported net  income                             |   | $                                           | .20    |                                       |   |   |
| Add back:  Goodwill amortization (1)        |   | —                                      |   |                                       |   |
| Add back:  International route amortization |   | .06                                         |   |                                       |   |
| Adjusted net  income                             |   | $                                           | .26    |                                       |   |   |

 

----

(1)               Goodwillamortization was $182,391 and $547,174 for the three and nine months endedSeptember 30, 2001.

(2)               For the nine monthsended September 30, 2001, no incremental shares related to dilutive securitieswere used to calculate diluted earnings per share because of the anti-dilutive impactcaused by inclusion of these securities.

 

 

10

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11.                     Thefollowing tables present condensed consolidating financial information for: (i)Northwest, (ii) on a combined basis, NWA Corp. and all other subsidiaries ofNWA Corp., and (iii) NWA Corp. on a consolidated basis.  The principal consolidating adjustmententries eliminate investments in subsidiaries and inter–company balancesand transactions.

 

*CondensedConsolidating Statements of Operations for the three months ended September 30,2002 (in millions):*

 
|                               |   | **Northwest** |   | **Other  Subsidiaries** |   | **Consolidating  Adjustments** |   | **NWA Corp.  Consolidated** |   |
|------------------------------------|--------|---------------|--------|-------------------------|--------|--------------------------------|--------|-----------------------------|--------|
| Operating  revenues                |   | $             | 2,463  |                    | $      | 147                            |   | $                           | (46    | ) | $ | 2,564 |   |
| Operating  expenses                |   | 2,461         |   | 137                     |   | (42                            | )      | 2,556                       |   |
| Operating income  (loss)           |   | 2             |   | 10                      |   | (4                             | )      | 8                           |   |
| Other income  (expense)            |   | (95           | )      | (129                    | )      | 143                            |   | (81                         | )      |
| Income (loss)  before income taxes |   | (93           | )      | (119                    | )      | 139                            |   | (73                         | )      |
| Income tax  expense (benefit)      |   | (32           | )      | 5                       |   | —                         |   | (27                         | )      |
| Net income  (loss)                 |   | $             | (61    | )                       | $      | (124                           | )      | $                           | 139    |   | $ | (46 | ) |

 

*Condensed Consolidating Statements of Operations for thenine months ended September 30, 2002 (in millions):*

 
|                               |   | **Northwest** |   | **Other  Subsidiaries** |   | **Consolidating  Adjustments** |   | **NWA Corp.  Consolidated** |   |
|------------------------------------|--------|---------------|--------|-------------------------|--------|--------------------------------|--------|-----------------------------|--------|
| Operating  revenues                |   | $             | 6,767  |                    | $      | 542                            |   | $                           | (159   | ) | $ | 7,150 |   |
| Operating  expenses                |   | 7,023         |   | 510                     |   | (149                           | )      | 7,384                       |   |
| Operating income  (loss)           |   | (256          | )      | 32                      |   | (10                            | )      | (234                        | )      |
| Other income  (expense)            |   | (284          | )      | (885                    | )      | 928                            |   | (241                        | )      |
| Income (loss)  before income taxes |   | (540          | )      | (853                    | )      | 918                            |   | (475                        | )      |
| Income tax  expense (benefit)      |   | (194          | )      | 29                      |   | —                         |   | (165                        | )      |
| Net income  (loss)                 |   | $             | (346   | )                       | $      | (882                           | )      | $                           | 918    |   | $ | (310 | ) |

 

*CondensedConsolidating Statements of Cash Flows for the nine months ended September 30,2002 (in millions):*

 
|                                              |   | **Northwest** |   | **Other  Subsidiaries** |   | **Consolidating  Adjustments** |   | **NWA Corp.  Consolidated** |   |
|---------------------------------------------------|--------|---------------|--------|-------------------------|--------|--------------------------------|--------|-----------------------------|--------|
| Net cash flows  from operating activities         |   | $             | (198   | )                       | $      | 159                            |   | $                           | — |   | $ | (39 | ) |
| Net cash flows  from investing activities         |   | (1,196        | )      | 20                      |   | (8                             | )      | (1,184                      | )      |
| Net cash flows  from financing activities         |   | 1,285         |   | (156                    | )      | 8                              |   | 1,137                       |   |
| Increase in cash  and cash equivalents            |   | (109          | )      | 23                      |   | —                         |   | (86                         | )      |
| Cash and cash  equivalents at beginning of period |   | 2,471         |   | 41                      |   | —                         |   | 2,512                       |   |
| Cash and cash  equivalents at end of period       |   | $             | 2,362  |                    | $      | 64                             |   | $                           | — |   | $ | 2,426 |   |

 

11

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*CondensedConsolidating Balance Sheets as of September 30, 2002 (in millions):*

* *
|                                                                |   | **Northwest** |   | **Other  Subsidiaries** |   | **Consolidating  Adjustments** |   | **NWA Corp.  Consolidated** |   |
|---------------------------------------------------------------------|--------|---------------|--------|-------------------------|--------|--------------------------------|--------|-----------------------------|--------|
| **Assets**                                                          |   |          |   |                    |   |                           |   |                        |   |
| **Current  Assets**                                                 |   |          |   |                    |   |                           |   |                        |   |
| Cash, cash  equivalents and restricted short-term investments       |   | $             | 2,462  |                    | $      | 80                             |   | $                           | — |   | $ | 2,542 |   |
| Accounts  receivable, net                                           |   | 457           |   | 13                      |   | —                         |   | 470                         |   |
| Other current  assets                                               |   | 538           |   | 170                     |   | (23                            | )      | 685                         |   |
| Total current  assets                                               |   | 3,457         |   | 263                     |   | (23                            | )      | 3,697                       |   |
|                                                                |   |          |   |                    |   |                           |   |                        |   |
| **Property  and Equipment, net**                                    |   | 6,536         |   | 320                     |   | —                         |   | 6,856                       |   |
| **Flight  Equipment Under Capital Leases, net**                     |   | 451           |   | —                  |   | —                         |   | 451                         |   |
| **Other  Assets**                                                   |   | 2,415         |   | 1,157                   |   | (983                           | )      | 2,589                       |   |
| **Total  Assets**                                                   |   | $             | 12,859 |                    | $      | 1,740                          |   | $                           | (1,006 | ) | $ | 13,593 |   |
|                                                                |   |          |   |                    |   |                           |   |                        |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**            |   |          |   |                    |   |                           |   |                        |   |
| **Current  Liabilities**                                            |   |          |   |                    |   |                           |   |                        |   |
| Air traffic  liability                                              |   | $             | 1,344  |                    | $      | 52                             |   | $                           | (9     | ) | $ | 1,387 |   |
| Accounts payable  and other liabilities                             |   | 2,419         |   | 62                      |   | (14                            | )      | 2,467                       |   |
| Current  maturities of long-term debt and capital lease obligations |   | 341           |   | 28                      |   | —                         |   | 369                         |   |
| Total current  liabilities                                          |   | 4,104         |   | 142                     |   | (23                            | )      | 4,223                       |   |
|                                                                |   |          |   |                    |   |                           |   |                        |   |
| **Long-Term  Debt and Capital Lease Obligations**                   |   | 6,073         |   | 235                     |   | —                         |   | 6,308                       |   |
| **Pension  and Postretirement Benefits**                            |   | 1,635         |   | —                  |   | —                         |   | 1,635                       |   |
| **Deferred  Income Taxes**                                          |   | —        |   | 852                     |   | —                         |   | 852                         |   |
| **Other  Liabilities**                                              |   | 586           |   | 7                       |   | (35                            | )      | 558                         |   |
|                                                                |   |          |   |                    |   |                           |   |                        |   |
| **Mandatorily  Redeemable Preferred Security**                      |   | 529           |   | —                  |   | —                         |   | 529                         |   |
| **Preferred  Redeemable Stock**                                     |   | —        |   | 226                     |   | —                         |   | 226                         |   |
|                                                                |   |          |   |                    |   |                           |   |                        |   |
| **Common  Stockholders’ Equity (Deficit)**                     |   | (68           | )      | 278                     |   | (948                           | )      | (738                        | )      |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**      |   | $             | 12,859 |                    | $      | 1,740                          |   | $                           | (1,006 | ) | $ | 13,593 |   |

 

12

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

For the quarter ended September 30, 2002, the Companyreported a net loss of $46 million and operating income of $8 million.  The net loss per common share was $0.55compared with diluted earnings per common share of $0.20 for the third quarterof 2001. In the third quarter of 2001 the Company recorded net non-recurringpre-tax charges of $61 million related to the events of September 11,2001.  These charges were comprised offleet impairments for non-operating aircraft of $35 million and employeeseverance costs of $26 million.  TheCompany also recorded other income of $249 million related to financialassistance from the U.S. Government under the Airline Stabilization Act.  The quarter ended September 30, 2001 wasadversely affected by the September 11, 2001 terrorist attacks and thesignificant decline in passenger traffic that followed.  These events must be considered when makingyear-over-year comparisons to measure the underlying operating and financialperformance of the Company. 

 

Northwest, together with therest of the airline industry, continues to be impacted by the September 11,2001 terrorist attacks. The Company continues to experience substantiallyreduced passenger revenue due to lower traffic and yields.  Whiletraffic has increased somewhat since the events of  September 11, 2001, the level of business travel remainsdepressed, resulting in weak passenger revenue yields. Other factorscontributing to the Company’s lower passenger revenues include industrycapacity that exceeds the reduced level of demand (which has resulted in heavyfare discounting), U.S. Government imposed passenger security fees and the realand perceived impact on travel time and convenience related to heightenedairport security measures.

 

Substantially all of the Company’s results ofoperations are attributable to Northwest. The Company’s results of operations also include other subsidiaries, ofwhich MLT Inc. (“MLT”) and Pinnacle Airlines, Inc. ("PinnacleAirlines"), formerly Express Airlines I, Inc., are the mostsignificant.  The following discussionpertains primarily to Northwest and, where indicated, MLT and PinnacleAirlines.  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.

 

13

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

 
|                                                       |   | **Three  months ended  September 30** |   | **%  Chg.** |   | **Nine  months ended  September 30** |   | **%  Chg.** |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|-------------|--------|--------------------------------------|--------|-------------|--------|
|                                                       |   | **2002**                              |   | **2001**    |   |                                 |   | **2002**    |   | **2001** |   |   |   |
| Scheduled service:                                         |   |                                  |   |        |   |                                 |   |        |   |   |   |   |   |
| Available seat  miles (ASM) (millions)                     |   | 25,055                                |   | 26,018      |   | (3.7                                 | )      | 70,354      |   | 77,238 |   | (8.9 | ) |
| Revenue  passenger miles (millions)                        |   | 19,752                                |   | 19,731      |   | 0.1                                  |   | 54,870      |   | 58,444 |   | (6.1 | ) |
| Passenger load  factor (percent)                           |   | 78.8                                  |   | 75.8        |   | 3.0                                  | pts.   | 78.0        |   | 75.7 |   | 2.3 | pts |
| Revenue passengers  (thousands)                            |   | 14,365                                |   | 14,296      |   | 0.5                                  |   | 39,891      |   | 42,708 |   | (6.6 | ) |
| Yield per  revenue passenger mile (cents)                  |   | 10.93                                 |   | 11.09       |   | (1.4                                 | )      | 10.75       |   | 11.36 |   | (5.4 | ) |
| Passenger  revenue per scheduled ASM (cents)               |   | 8.61                                  |   | 8.41        |   | 2.4                                  |   | 8.39        |   | 8.60 |   | (2.4 | ) |
|                                                       |   |                                  |   |        |   |                                 |   |        |   |   |   |   |   |
| Operating  revenue per total ASM (cents) (2)               |   | 9.40                                  |   | 9.18        |   | 2.4                                  |   | 9.17        |   | 9.39 |   | (2.3 | ) |
| Operating  expense per total ASM (cents) (2)               |   | 9.24                                  |   | 9.45        |   | (2.2                                 | )      | 9.40        |   | 9.65 |   | (2.6 | ) |
| Operating  expense per total ASM, fuel neutral (cents) (2) |   | 9.38                                  |   | 9.45        |   | (0.7                                 | )      | 9.70        |   | 9.65 |   | 0.5 |   |
|                                                       |   |                                  |   |        |   |                                 |   |        |   |   |   |   |   |
| Cargo ton miles  (millions)                                |   | 555                                   |   | 534         |   | 3.9                                  |   | 1,606       |   | 1,642 |   | (2.2 | ) |
| Cargo revenue  per ton mile (cents)                        |   | 32.43                                 |   | 33.11       |   | (2.1                                 | )      | 31.39       |   | 33.10 |   | (5.2 | ) |
|                                                       |   |                                  |   |        |   |                                 |   |        |   |   |   |   |   |
| Fuel gallons  consumed (millions)                          |   | 508                                   |   | 539         |   | (5.8                                 | )      | 1,432       |   | 1,596 |   | (10.3 | ) |
| Average fuel  cost per gallon, excluding fuel tax (cents)  |   | 71.35                                 |   | 78.85       |   | (9.5                                 | )      | 66.59       |   | 82.62 |   | (19.4 | ) |
|                                                       |   |                                  |   |        |   |                                 |   |        |   |   |   |   |   |
| Number of  operating aircraft at end of period             |   |                                  |   |        |   |                                 |   | 435         |   | 427 |   | 1.9 |   |
| Full-time equivalent  employees at end of period           |   |                                  |   |        |   |                                 |   | 45,466      |   | 48,166 |   | (5.6 | ) |

 

----

(1)          All statistics excludePinnacle Airlines, a wholly-owned Northwest Airlink regional carrier, which isconsistent with how the Company reports statistics to the DOT and is comparableto statistics reported by other major network airlines.

(2)          Excludes the estimatedrevenues and expenses associated with the operation of Northwest’s fleet ofBoeing 747 freighter aircraft, MLT (a subsidiary of Northwest) and gain/loss ondisposal of assets.  The nine monthsended September 30, 2001 also excludes the provision for AMFA retroactive payand benefits.

 

**Results of Operations—Three monthsended September 30, 2002 and 2001**

 

*OperatingRevenues*.  Operatingrevenues decreased 1.2% ($30 million).  Systempassenger revenues decreased 1.4% ($31 million), excluding PinnacleAirlines.  The decrease in systempassenger revenues was primarily attributable to a 3.7% decrease in scheduledservice ASMs, which was partially offset by a 2.4% increase in passengerrevenues per ASM (“RASM”).  Systempassenger load factor increased 3.0 points to 78.8% for the three months endedSeptember 30, 2002.  Pinnacle Airlinespassenger revenues, net of intercompany eliminations, increased 28.0% ($15million) to $69 million due to increased capacity from 18 Bombardier CRJaircraft added since September 30, 2001 and higher rates under a new airlineservices agreement with Northwest that became effective March 1, 2002.

 

14

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The following analysis by region is based oninformation reported to the DOT and excludes Pinnacle Airlines:

** **
|                                |   | **System** |       | **Domestic** |       | **Pacific** |       | **Atlantic** |       |
|-------------------------------------|--------|------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **2002**                            |   |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |   | $          | 2,158      |         | $          | 1,389       |       | $            | 476        |   | $ | 293 |   |
|                                |   |       |       |         |       |        |       |         |       |
| **Increase  (Decrease) from 2001:** |   |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |   | (31        | )          | (18          | )          | (38         | )          | 25           |       |
| Percent                             |   | (1.4       | )%         | (1.3         | )%         | (7.4        | )%         | 9.3          | %          |
|                                |   |       |       |         |       |        |       |         |       |
| Scheduled  service ASMs (capacity)  |   | (3.7       | )%         | (2.3         | )%         | (7.5        | )%         | (2.4         | )%         |
| Passenger load  factor              |   | 3.0        |  pts. | 2.4          |  pts. | 4.2         |  pts. | 4.0          |  pts. |
| Yield                               |   | (1.4       | )%         | (2.1         | )%         | (4.7        | )%         | 6.5          | %          |
| Passenger RASM                      |   | 2.4        | %          | 1.2          | %          | 0.1         | %          | 12.0         | %          |
|                                     |        |            |            |              |            |             |            |              |            |  |  |  |  |

 

Domestic passenger revenues decreased primarily due tolower capacity and yields, partially offset by a higher passenger loadfactor.  Northwest continued toexperience a weakened yield environment resulting from the decline in businesstravelers and industry fare discounting.

 

Pacific passenger revenues decreased primarily due tolower capacity and yields, partially offset by higher load factors.  The average yen per U.S. dollar exchangerates for the three months ended September 30, 2002 and 2001 were 119 and 121,respectively, a 1.4% strengthening in the buying power of the yen from theprior year.

 

Atlantic passenger revenues increased primarily due tohigher yields and passenger load factor. Capacity continues to be lower due to the weakened U.S. andinternational economies.

 

Cargo revenues increased 1.7% ($3 million) to $180million primarily due to a 3.9% increase in cargo ton miles flown, partiallyoffset by lower mail volume resulting from U.S. Government restrictions ontransportation of packages larger than 16 ounces on passenger aircraft.  Other revenues decreased 9.8% ($17 million)due primarily to reduced charter revenues, ticket and handling fees and MLT,partially offset by increased revenue from KLM joint venture settlements.

 

*OperatingExpenses*.  Operatingexpenses decreased 7.0% ($193 million). Operating capacity was reduced 3.8% to 25.08 billion total service ASMsdue to the continued lower demand environment. Operating expense per total ASM decreased 2.2%.

 

Salaries, wages and benefits decreased 4.6% ($47million) due to an 9.1% decrease in average full-time equivalent employees andseverance costs recorded in the third quarter of 2001 partially offset byannual wage rate increases and higher pension expenses resulting from a loweractuarial discount rate.  Aircraft fueland taxes decreased 13.0% ($59 million) due to a 9.5% decrease in average fuelcost per gallon, including an $18 million gain from hedging transactions, and5.8% fewer gallons consumed as a result of fewer ASMs and the use of more fuelefficient aircraft.  Selling andmarketing (consisting of commissions, credit card fees, computer reservationsystem fees, advertising and promotion expenses) decreased 18.8% ($49 million)primarily driven by elimination of North America base commissions and lowerrevenues system wide.  Aircraftmaintenance materials and repairs decreased 10.9% ($17 million) as a result ofa lower repair volume in 2002 due to retirements and removal from service ofolder aircraft.  Depreciation andamortization decreased 22.7% ($39 million) due to a third quarter 2001 chargeof $35 million related to reductions in the estimated market value ofnon-operating aircraft and elimination of international route amortization,partially offset by additional owned aircraft. Other rentals and landing fees increased 19.1% ($26 million) dueprimarily to reduced industry capacity and increased costs at the Company’s hubairports.  Other expenses declined 2.5%($11 million) largely due to decreased personnel expenses, a reduced level ofpassenger food service, and MLT, partially offset by higher insurance costs.

 

15

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*OtherIncome and Expense. *Othernon-operating income decreased by $261 million, primarily due to $249 millionrecognized in the third quarter of 2001 under the Airline Stabilization Act,higher interest expense related to increased debt levels, and lower interestincome as a result of lower interest rates.

 

**Results of Operations—Nine monthsended September 30, 2002 and 2001**

 

*OperatingRevenues.* Operatingrevenues decreased 9.7% ($770 million). System passenger revenues decreased 11.1% ($739 million), excludingPinnacle Airlines.  The decrease insystem passenger revenues was primarily attributable to an 8.9% decrease inscheduled service ASMs and a 2.4% decrease in RASM.  System passenger load factor increased 2.3 points to 78.0% forthe nine months ended September 30, 2002. Pinnacle Airlines passenger revenues, net of intercompany eliminations,increased 37.8% ($54 million) to $198 million due to increased capacity from 18Bombardier CRJ aircraft added since September 30, 2001, and higher rates undera new airline services agreement with Northwest that became effective March 1,2002.

 

The following analysis by region is based oninformation reported to the DOT and excludes Pinnacle Airlines:

** **
|                                |   | **System** |       | **Domestic** |       | **Pacific** |       | **Atlantic** |       |
|-------------------------------------|--------|------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **2002**                            |   |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |   | $          | 5,899      |         | $          | 4,002       |       | $            | 1,184      |   | $ | 713 |   |
|                                |   |       |       |         |       |        |       |         |       |
| **Increase  (Decrease) from 2001:** |   |       |       |         |       |        |       |         |       |
| Passenger  revenues (in millions)   |   | (739       | )          | (497         | )          | (208        | )          | (34          | )          |
| Percent                             |   | (11.1      | )%         | (11.1        | )%         | (14.9       | )%         | (4.5         | )%         |
|                                |   |       |       |         |       |        |       |         |       |
| Scheduled  service ASMs (capacity)  |   | (8.9       | )%         | (7.4         | )%         | (12.3       | )%         | (8.9         | )%         |
| Passenger load  factor              |   | 2.3        |  pts. | 1.9          |  pts. | 2.9         |  pts. | 3.7          |  pts. |
| Yield                               |   | (5.4       | )%         | (6.5         | )%         | (6.3        | )%         | 0.1          | %          |
| Passenger RASM                      |   | (2.4       | )%         | (3.9         | )%         | (3.0        | )%         | 4.6          | %          |
|                                     |        |            |            |              |            |             |            |              |            |  |  |  |  |

 

Domestic passenger revenues decreased primarily due tolower capacity and yields, partially offset by a higher passenger loadfactor.  Northwest continued toexperience the effects of the September 11, 2001 terrorist attacks,particularly in the first quarter of 2002. A weak U.S. economy and increased travel times due to heightened airportsecurity measures have caused a continuing decline in corporate business andleisure travel, which has adversely impacted yields throughout the year.

 

Pacific passenger revenues decreased primarily due tolower capacity and yields, partially offset by a higher passenger loadfactor.  Capacity was reduced as aresult of the September 11, 2001 terrorist attacks and yields were lower due tothe weakness in the Asian economy and the weak yen.  The average yen per U.S. dollar exchange rates for the ninemonths ended September 30, 2002 and 2001 were 127 and 121, respectively, a 5.2%weakening in the buying power of the yen from the prior year.

 

Atlantic passenger revenues decreased primarily due tolower capacity, partially offset by a 3.7 point higher passenger loadfactor.  Capacity was reduced as aresult of the September 11, 2001 terrorist attacks and weakened U.S. andinternational economies.

 

Cargo revenues decreased 7.4% ($40 million) to $504million due to a 5.2% decrease in cargo revenue per ton mile and 2.2% fewercargo ton miles, resulting from reduced U.S. demand for Asian goods, theweakened yen exchange rate and lower mail volume due to U.S. Governmentrestrictions on transportation of packages larger than 16 ounces.  Other revenues decreased 7.6% ($45 million)due primarily to reduced revenues from MLT, KLM joint venture settlements,ticketing and handling fees and support services, partially offset by anincrease in frequent flyer program partnership revenue.

 

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*OperatingExpenses*.  Operatingexpenses decreased 11.5% ($963 million). Operating capacity was reduced 8.9% to 70.48 billion total service ASMsdue primarily to the September 11, 2001 terrorist attacks and the weakenedeconomy.  Operating expense per totalASM decreased 2.6%, excluding the $94 million provision for AMFAretroactivepay and benefits in 2001.

 

Salaries, wages and benefits decreased 6.9% ($209million) due to a decrease in average full-time equivalent employees of 13.0%and a 2001 provision for retroactive wages and benefits related to the AMFAcollective bargaining agreement.  Thisdecline was partially offset by higher wages and higher pension expensesresulting from the new AMFA contract and a lower actuarial discount rate.  Aircraft fuel and taxes decreased 25.8%($364 million) due to a 19.4% decrease in the average fuel cost per gallon,including a $42 million gain from hedging transactions, and 10.3% fewer gallonsconsumed as a result of a lower level of operations and use of more fuelefficient aircraft.  Selling andmarketing (consisting of commissions, credit card fees, computer reservationsystem fees, advertising and promotion expenses) decreased 23.8% ($196 million)due to the elimination of North America base commissions in the second quarter2002 and lower revenues system wide. Aircraft maintenance materials and repairs decreased 18.8% ($101million) as a result of a lower repair volume in 2002 due to retirements andremoval from service of older aircraft, as well as higher third-party engineand airframe repairs in 2001. Depreciation and amortization decreased 7.2% ($31 million) due to athird quarter 2001 charge of $35 million related to reductions in the estimatedmarket value of non-operating aircraft and elimination of international routeamortization, partially offset by additional owned aircraft.  Other rentals and landing fees increased6.5% ($26 million) primarily due to reduced industry capacity and increasedcosts at the Company's hub airports. Other expenses declined 7.3% ($100 million) largely due to decreasedpersonnel expenses and a reduced level of passenger food service, supplies andclaims, partially offset by higher insurance costs.

 

*OtherIncome and Expense.*  Othernon-operating income decreased by $328 primarily due to $249 million recognizedin the third quarter of 2001 under the Airline Stabilization Act, higherinterest expense related to increased debt levels, and lower interest income asa result of lower interest rates.  A $27million gain from the sale of the Company’s remaining shares of Continentalrecorded in 2001 was partially offset by higher earnings from affiliates and again from a litigation settlement in 2002. 

 

**Liquidity and Capital Resources**

 

At September 30, 2002, the Company had cash, cashequivalents and restricted short-term investments of $2.54 billion.  This amount includes $116 million ofrestricted short-term investments, resulting in total liquidity of $2.43billion.

 

Net cash used in operating activities for the ninemonths ended September 30, 2002 was $39 million, a $696 million decrease fromthe $657 million cash provided by operating activities for the nine monthsended September 30, 2001.  This declineis due primarily to Airline Stabilization Act funds received in the thirdquarter 2001 and changes in working capital, the latter largely representingremittance of transportation taxes in January that had been delayed from thefourth quarter, 2001.

 

Investing activities in the nine months endedSeptember 30, 2002 consisted primarily of the purchase of 17 Airbus A319aircraft, two Boeing 747-400 aircraft, three Boeing 757-200 aircraft, threeBoeing 757-300 aircraft and two Airbus A320 aircraft, costs to commissionaircraft before entering revenue service, aircraft modifications and aircraftdeposits.  Investing activities in thenine months ended September 30, 2001 consisted primarily of the January sale of6.7 million shares of Continental Class A Common Stock held by the Company for $450million and the subsequent sale of the remaining shares of Continental Class BCommon Stock held by the Company for $132 million, partially offset by thepurchase of 13 Airbus A319 aircraft, four Boeing 757-200 aircraft, one AirbusA320 aircraft, costs to commission aircraft before entering revenue service,aircraft modifications and aircraft deposits.  

 

Financing activities in the nine months endedSeptember 30, 2002 consisted primarily of the issuance of $300 million of9.875% unsecured notes due 2007, the financing of: (i) 16 Airbus A319 aircraft,one Boeing 747-400 aircraft,  two AirbusA320 aircraft and two Boeing 757-300 aircraft with escrowed funds frompass-through certificate offerings issued in 2001, (ii) three Boeing 757-200aircraft, one Boeing 757-300 aircraft and one Airbus A319 aircraft withlong-term bank debt, (iii) the sale and leaseback of one Boeing 747-400, (iv)refinancing of one Boeing 747-400 aircraft purchased off lease, and the paymentof debt and capital lease obligations. Financing activities in the nine months ended September 30, 2001consisted primarily of the Company’s draw in March, and subsequent repayment inMay, of $1.10 billion under its credit facilities, the draw on September 11,2001 of $1.12 billion under its credit facilities, the issuance

 

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of $300 million of 8.875% unsecured notes due 2006, the financing of:(i) 13 Airbus A319 aircraft, seven of which were financed with funds frompass-through certificate offerings and six with long-term bank debt; (ii) fourBoeing 757-200 aircraft with long-term bank debt; (iii) one Airbus A320aircraft with long-term bank debt; and (iv) the payment of debt and capitallease obligations.

 

In addition to the purchased aircraft discussed above,the Company took delivery of 13 Bombardier CRJ aircraft during the nine monthsended September 30, 2002.  Theseaircraft were financed with long-term operating leases and subsequentlysubleased to Pinnacle Airlines.

 

In August 2002, the Company completed an offering of$749 million of pass-through trust certificates to finance or refinance theacquisition of 11 new Airbus A319 aircraft, six new Boeing 757-300 aircraft andthree new Airbus A330 aircraft scheduled to be delivered between October 2002and December 2003.  The cash proceedsfrom the issuance of certificates are invested and held in escrow with adepositary bank and enable the Company to finance the acquisition of theseaircraft through secured debt financing or leveraged leases.  If leveraged leases are obtained for certainof these aircraft, under which the aircraft may be sold and leased back toNorthwest, the debt underlying pass-through certificates will not be directobligations of the Company or Northwest.

 

At September 30, 2002, $845 million of unusedpass-through trust certificate proceeds were held in escrow to finance aportion of the aircraft scheduled for delivery in the remainder of 2002 and2003, and were not included in the Company’s debt or cash balances.

 

The current aircraft delivery schedule provides forthe acquisition of 73 aircraft over the next five years.  See Note 5 to the Condensed ConsolidatedFinancial Statements for additional discussion of aircraft capital commitments.

 

At September 30, 2002, the Company’s Standard &Poor’s corporate credit rating and its senior unsecured credit rating was BB-and B, respectively; its Moody’s Investor Services senior implied rating andsenior unsecured rating was B1 and B2, respectively; and its Fitch Ratingssenior unsecured credit rating was B+.

 

The lowering of the Company’s credit ratings couldmake it more difficult to issue debt, to renew outstanding letters of creditwhich back certain obligations and to obtain certain financial instruments usedin its fuel hedging program, as well as potentially increase the cost of thesetransactions.  For information regardingthe lowering of the Company’s credit rating on its secured credit facilities onJune 28, 2002, see Note 3 of the “Notes to Condensed Consolidated Financial Statements”in this Quarterly Report on Form 10-Q. For information regarding the Receivables Purchase Agreement and creditrating requirements of this agreement, see Note 8 of the “Notes to CondensedConsolidated Financial Statements” in this Quarterly Report on Form 10-Q.

 

In the second quarter of 2002, the Company completed along-term airport bond financing of $8.5 million related to airportimprovements at the McGhee-Tyson Airport in Alcoa, Tennessee.  This financing is for a period of 30 yearsat a fixed rate of 8.0% and will be recorded as other property and equipmentand long-term obligations under capital leases when the funds are drawn forconstruction purposes.

 

**CriticalAccounting Policies**

 

Critical accounting policies are defined as those thatare reflective of significant judgments and uncertainties and potentiallyresult in materially different results under different assumptions andconditions.  The Company’s accountingand reporting policies are summarized in Note 1 of the Notes to ConsolidatedFinancial Statements in the Annual Report on Form 10-K for 2001.  The following discussion represents onlysignificant updates to the Company’s Critical Accounting Policies as describedin Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations” within the Annual Report on Form 10-K for 2001.

 

*PensionLiability and Expense*. * *TheCompany expects to record a non-cash charge as of December 31, 2002, relatingto the defined benefit pension plans (“Pension Plans”) that the Companysponsors for eligible employees.  TheCompany estimates that, depending on plan asset returns and discount rates atyear-end, its non-cash charge to equity could be in excess of $700 million.  This charge to stockholders’ equity, whichthe Company will record in accordance with SFAS No. 87, *Employers’ Accounting for Pensions,*will not affect the Company’s current earnings or financial covenants in any ofits credit agreements.  The Company alsoanticipates that its 2003 pension expense will be approximately $100 millionhigher than the estimated 2002 expense of $280 million.

 

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The Company’s funding obligations under the PensionPlans are governed by the Employee Retirement Income Security Act of 1974(“ERISA”).  Pension Plan fundingrequirements are dependent upon various factors such as interest rate levels,asset returns, regulatory requirements for funding purposes, and changes topension plan benefits.  Depending onthese factors, the Company’s 2003 pension contributions associated with the2003 plan year could total in excess of $400 million.  The Company also has $223 million of mandatory contributionsrelated to the 2002 plan year remaining to be paid.  On November 5, 2002, the Company submitted an application to theInternal Revenue Service for authorization to reschedule 2003 plan yearcontributions required under the Pension Plans for contract and salariedemployees.  The Company has alsosubmitted an application to the Department of Labor to permit the Company tocontribute common stock of Pinnacle Airlines, Inc. to the Pension Plans.

 

**Other Information**

 

*LaborAgreements. *Approximately91% of the Company’s employees are members of collective bargaining units.  At September 30, 2002, all of the Company’s union workers were undercontract.

 

*AircraftFuel*.  The Company’searnings are affected by changes in the price and availability of aircraftfuel.  In order to provide a measure ofcontrol over price and supply, the Company trades and ships fuel and maintainsfuel storage facilities to support its flight operations.  The Company also manages a portion of theprice risk of fuel costs primarily utilizing futures contracts traded onregulated exchanges and fuel swap agreements. As of  September 30, 2002, theCompany has recorded $22 million of unrealized gains (net of $7 million ofhedging ineffectiveness recorded in fuel expense for the nine months endedSeptember 30, 2002) in accumulated other comprehensive income (loss) as aresult of fuel hedge contracts.  Suchgains, if realized, will be recorded as a reduction to fuel expense when therelated fuel inventory is utilized.  Asof  September 30, 2002, the Company hashedged the price of approximately 49% of its remaining 2002 fuel requirements.

 

*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 largestexposure comes from the Japanese yen. The Company’s average yen per U.S. dollar exchange rate, including hedgeactivity for the three months ended September 30, 2002 and 2001, was 114 and100, respectively.  From time to time,the Company uses financial instruments to hedge its exposure to the Japaneseyen.  As of  September 30, 2002, the Company has recorded $11 million ofunrealized gains in accumulated other comprehensive income (loss) associatedwith forward contracts purchased to hedge a portion of its 2002 yen-denominatedsales.  Hedging gains or losses arerecorded in revenue when transportation is provided.  During the three months ended September 30, 2002, the Companyrealized pre-tax gains of $7 million associated with forward contracts purchasedto hedge its yen-denominated sales.  AtSeptember 30, 2002, the Company has hedged approximately 63% of its anticipatedyen-denominated sales at an average rate of 113 yen per U.S. dollar for theremainder of 2002.  At September 30,2002, the Company has hedged approximately 40% of its anticipatedyen-denominated sales for the third and fourth quarters of 2003 at an averagerate of 114 yen per U.S. dollar.

 

*WarRisk Insurance Coverage*. As a result of the September 11, 2001 terrorist attacks, aviationinsurers have significantly reduced the maximum amount of insurance coverageavailable to commercial air carriers for liability to persons other thanemployees or passengers for claims resulting from acts of terrorism, war orsimilar events (war-risk coverage).  Atthe same time, they significantly increased the premiums for such coverage aswell as for aviation insurance in general. Pursuant to authority granted in the Airline Stabilization Act, the U.S.Government has provided the Company and other U.S. airlines with excesswar-risk coverage until December 15, 2002. While the U.S. Government has, in the past, extended the deadline forwhen it will stop providing excess war risk coverage, the Company cannot assurethat any extension will occur, or if it does, how long the extension willlast.  It is expected that, should theU.S. Government stop providing excess war risk coverage to the airlineindustry, the premiums charged by aviation insurers for this coverage would besubstantially higher than the premiums currently charged by the U.S. Government.  Significant increases in insurance premiumscould negatively impact the financial condition and results of operations ofthe Company.

 

*NewAccounting Standards*. In June 2002, the Financial Accounting Standards Board issued FinancialAccounting Standard (“SFAS”) No. 146, *Accounting for Costs Associated with Disposal or ExitActivities*.  SFAS No. 146requires that a liability for a cost associated with exit or disposal activitybe recognized when the liability is incurred, rather than when an entity commitsto an exit plan.  The Company will adoptSFAS No. 146 on January 1, 2003.  Thisnew

 

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statement will change the timing of liability and expense recognitionrelated to exit or disposal activities, but not the ultimate amount of suchexpenses.

 

*Alliances.*  In August 2002, the Company announced thatit had signed a cooperative marketing agreement with Continental Airlines andDelta Air Lines designed to connect the three carriers’ domestic and internationalnetworks that provides for code sharing, frequent flyer program reciprocity anda reciprocal airport lounge program. The proposed agreement is now being reviewed by the DOT as well as theNorthwest and Delta pilot unions.  TheCompany expects final approvals in the near future.

 

*FacilitiesConsolidation*.  OnOctober 15, 2002, the Company announced that it will close its Atlanta aircraftmaintenance facility and its reservations center in Long Beach,California.  Maintenance activitycurrently performed at the Atlanta facility will be transferred to theCompany’s facilities in Minneapolis and Duluth over the next three months. Mostof the 1,450 employees at the Atlanta maintenance facility will be eligible fortransfer to other Northwest facilities. The Long Beach reservations center will close in December of thisyear.  The approximately 250 Long Beachreservationists also will be eligible to transfer to the airline’s six otherreservations facilities, which will handle calls previously routed to LongBeach.  In addition, Northwest willclose three city ticket offices.  As theresult of these actions, approximately 100 management positions will beeliminated in Atlanta and Long Beach.

 

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

 

It is not reasonably possible to itemize all of themany factors and specific events that could affect the outlook of an airlineoperating in the global economy.  Suchrisks and uncertainties include, among others, the future level of air traveldemand, the Company’s future load factors and yields, the airline pricingenvironment, increased costs for security, the cost and availability ofaviation insurance coverage and war risk coverage, the general economiccondition of the U. S. and other regions of the world, the price andavailability of jet fuel, the possibility of war with Iraq, the possibility ofadditional terrorist attacks or the fear of such attacks, labor negotiationsboth at other carriers and the Company, low-fare carrier expansion, capacitydecisions of other carriers, actions of the U.S. and foreign governments,foreign currency exchange rate fluctuation, inflation and other factorsdiscussed herein. Additional information with respect to these factors andthese and other events that could cause differences between forward-lookingstatements and future actual results is contained in Item 1. “Risk FactorsRelated to Northwest and NWA Corp.” and “Risk Factors Related to the AirlineIndustry” in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2001.

 

Developments in any of these areas, as well as otherrisks and uncertainties detailed from time to time in the Company’s Securitiesand Exchange Commission filings, could cause the Company’s results to differfrom results that have been or may be projected by or on behalf of the Company.  The Company cautions that the foregoing listof important factors is not inclusive. The Company 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.

 

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

 

Information required by this item is provided underthe captions “Aircraft Fuel” and “Foreign Currency” within “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inthis Quarterly Report on Form 10-Q. Also see Item 7a. “Quantitative and Qualitative Disclosures About MarketRisk” within the Company’s Annual Report on Form 10-K for 2001.

 

**Item 4.  Controls and Procedures**

 

As of November 4, 2002, an evaluation was performedunder the supervision and with the participation of the Company’s management,including the Chief Executive Officer and Executive Vice President and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures.  Based on that evaluation, the Company’s management, including theChief Executive Officer and Executive Vice President and Chief FinancialOfficer, concluded that the Company’s disclosure controls and procedures wereeffective in ensuring that material information relating to the Company withrespect to the period covered by this report was made known to them.  There have been no significant changes inthe Company’s internal controls or in other factors that could significantlyaffect internal controls subsequent to November 4, 2002.

 

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PART II.  OTHER INFORMATION

 

**Item1.   Legal Proceedings**

 

Reference is made to “Item 3. Legal Proceedings” inthe Company’s Annual Report on Form 10-K for 2001.

 

*Hallv. United Air Lines, et al.* On May 14th, 2002, theU.S. District Court granted Plaintiffs’ uncontested motion to amend thecomplaint to include allegations involving commission actions in August 2001and March, 2002.  On September 17, 2002,the Court granted Plaintiffs’ class certification motion.  The class is defined as all travel agents inthe U.S., Puerto Rico, and the U.S. Virgin Islands who issued tickets,miscellaneous change orders or prepaid ticket advices for travel on any of thedefendant airlines between October 1, 1997 and the present.

 

In addition, in the ordinary course of its business,the Company is party to various other legal actions which the Company believesare incidental to the operation of its business.  The Company believes that the outcome of the proceedings to whichit is currently a party will not have a material adverse effect on theCompany’s consolidated financial statements taken as a whole.

 

 

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

 
|   | (a)    | Exhibits:                     |
|--------|--------|-------------------------------|
|   |   | 10.1                          | Third Amendment dated as of September 9, 2002  to Credit and Guarantee Agreement among Northwest Airlines Corporation,  Northwest Airlines Holdings Corporation, NWA Inc., Northwest Airlines, Inc.  and various lending institutions named therein dated as of October 24,  2000. |
|   |   | 10.2                          | Corrected Schedule I and Schedule II to Aircraft  Mortgage and Security Agreement included in Exhibit 10.13 to NWA Corp.'s  Annual Report on Form 10-K for the year ended December 31, 2001  (filed in substitution). |
|   |   | 12.1                          | Computation of Ratio of Earnings to Fixed Charges. |
|   |   | 12.2                          | Computation of Ratio of Earnings to Fixed Charges  and Preferred Stock Requirements. |
|   |   | 99.1                          | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   | 99.2                          | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |                          |   |
|   | (b)    | Reports on Form 8-K:          |
|   |   | Form 8-K dated August 5, 2002 |
|   |   | Form 8-K dated August 9, 2002 |

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized this 6thday of November 2002.

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

 

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CERTIFICATIONS

 

I, Richard H. Anderson, certify that:

 

1. I have reviewed this quarterly report on Form 10-Qof Northwest Airlines Corporation;

 

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: November 6, 2002     |   |
|----------------------------|--------|
|                       |   |
| /s/ Richard H. Anderson    |   |
|  Richard H.  Anderson |   |
| Chief Executive Officer    |   |

 

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I, Bernard L. Han, certify that:

 

1. I have reviewed this quarterly report on Form 10-Qof Northwest Airlines Corporation;

 

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: November 6, 2002  |   |
|-------------------------|--------|
|                    |   |
| /s/ Bernard L. Han      |   |
|                    |   |
| Bernard L. Han          |   |
| Chief Financial Officer |   |

 

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EXHIBIT INDEX

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                                                              |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |   | Third Amendment dated as of September 9, 2002  to Credit and Guarantee Agreement among Northwest Airlines Corporation,  Northwest Airlines Holdings Corporation, NWA Inc., Northwest Airlines, Inc.  and various lending institutions named therein dated as of October 24,  2000. |
| 10.2             |   | Corrected Schedule I and Schedule II to Aircraft  Mortgage and Security Agreement included in Exhibit 10.13 to NWA Corp.'s  Annual Report on Form 10-K for the year ended December 31, 2001  (filed in substitution).                                                         |
| 12.1             |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                           |
| 12.2             |   | Computation of Ratio of Earnings to Fixed Charges  and Preferred Stock Requirements.                                                                                                                                                                                                         |
| 99.1             |   | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                      |
| 99.2             |   | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                      |

 

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